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FORM 10K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[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
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OR
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission file number 0-15963
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INVIVO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
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(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4900 HOPYARD RD. #210 PLEASANTON, CALIFORNIA 94588
- -------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 510-468-7600
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Securities registered pursuant to Section 12(b) of the Act:
NONE
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Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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]
Based on a closing sales price of September 15, 1997 the aggregate market value
of registrant's voting Common Stock held by non-affiliates of the registrant was
approximately $17,785,800
There were 3,255,668 shares of the registrant's Common Stock, $.0008 par value,
outstanding on September 15, 1997.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A not later that 120 days after the end of the fiscal year (June
30, 1997) are incorporated by reference in Part III.
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PART I
ITEM 1.BUSINESS
GENERAL
Invivo Corporation and subsidiaries (the "Company") are engaged in the design,
manufacture and marketing of sensor-based instruments for the medical devices,
safety and industrial process control markets.
Through its medical devices subsidiary Invivo Research, the Company offers a
line of patient safety monitors capable of continuous measurement of multiple
vital signs in the medical care environment. Invivo Research pioneered the
development of vital signs monitoring during magnetic resonance imaging, or MRI.
Opportunities exist in this market both for retrofitting MRI equipment not
presently equipped with monitoring devices and for supplementing the
capabilities of new systems being sold to health care providers. Invivo Research
continues to be the dominant provider of vital signs monitoring in the MRI
environment.
In July 1996 the Company's Invivo Research subsidiary introduced its new
"Millennia" portable multi-parameter vital signs monitor. The Company believes
this product positions it to expand from its current MRI monitoring market niche
into the much larger mainstream patient monitoring market.
Invivo Research markets its products primarily to end users through its own
direct sales force. With respect to its MRI monitoring equipment, the Company
has original equipment manufacturer ("OEM") or similar relationships with
General Electric, Siemens Medical Systems, Philips Medical Systems and Hitachi.
The Company's line of safety products includes monitors used to detect harmful
levels of toxic and other gasses in the workplace and other environments. These
monitors are offered through its Lumidor Safety Products subsidiary. The
Company's other safety products include a line of oxygen monitoring equipment,
pressure gauges and related devices and calibration equipment that sets and
verifies the accuracy of gas monitors.
The Company also manufactures and markets products for the industrial process
control business. Its products for this market consist of pressure sensors and
non-contact infrared temperature measuring devices.
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PRODUCTS
MEDICAL DEVICES
The Company's patient safety monitors are capable of continuous and simultaneous
measurement of multiple physiological vital signs, and are used in operating
rooms, emergency rooms, critical care units, post-anesthesia care units and
recovery rooms, intensive care units, radiology units, and labor and delivery
rooms. The Company's multi-parameter physiologic patient monitors provide
monitoring for invasive and non-invasive blood pressure, blood oxygen
saturation, temperature, heart rate, respiration, and electrocardiograph (ECG)
and are especially suited for most anesthesia applications and general purpose
monitoring settings in the hospital.
The Company has pioneered multi-parameter vital signs monitoring equipment for
patient safety during magnetic resonance imaging (MRI). MRI is a relatively
recent diagnostic tool that uses electromagnetic fields and radio frequency to
perform non-invasive imaging. Since direct viewing and access to the patient is
limited during MRI, accurate methods for patient monitoring are desirable to
ensure the safety of the patient. The Company's MRI monitoring system is
designed for true MRI compatibility. The proper operation of the monitoring
system in the MRI environment requires special design features that 1) prevent
degradation of the diagnostic MRI quality and 2) eliminate interference in the
monitor's signal and wave form capabilities by radio frequencies and magnetic
fields. The Company's MRI monitoring system provides continuous monitoring of
ECG, respiration, heart rate, blood oxygen saturation, non-invasive blood
pressure and end-tidal CO(2).
The Company's "Millennia" portable patient monitor is a compact and
comprehensive multi-parameter vital signs monitor which weighs under 15 pounds
and provides flexibility for both space and transport. The "Millennia" is
capable of displaying 6 waveforms and 23 associated numeric values on its active
matrix color display. Its standard features include battery operation, dual
channel recorder and a PCMCIA card for extended memory and programming
capabilities. The Company also offers the "Centurion" central station monitoring
system that allows communication from configured "Millennia" monitors to a
central display station. The system displays the monitoring of up to eight
patients simultaneously on a main monitoring screen that provides for rapid
interpretation of the vital signs information.
The Company's other monitors include a non-invasive blood pressure monitor
utilizing digital signal processing for fast and consistent measurements; an
inexpensive multi-parameter vital signs monitor designed specifically for the
low-end international market; a stand- alone pulse oximetry unit; and a dual
parameter unit that monitors blood pressure and oxygen saturation. The Company
also manufactures and markets a portable, hand held oxygen saturation monitor
which offers a low-cost, transportable monitoring unit for pulse oximetry.
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SAFETY
The Company's gas detection and monitoring instruments consist of single gas and
multi-gas monitors that are offered in both portable and stationary models. Gas
detection monitors are used for worker safety when toxic gasses or low levels of
oxygen are suspected. Portable units are carried or worn by the user and are
equipped with audible and visual alarms to warn that a potential danger exists.
Typical applications for these units are in industrial or other settings where
the user expects to move about, including underground spaces housing telephone
cables and waste water sewers, mines and large factories. Stationary gas area
monitors are used in smaller, confined spaces when chemicals or gasses are being
used or stored. Typical applications for these monitors are oil refineries,
chemical plants and semiconductor fabrication facilities. Invivo's gas detection
and monitoring instruments feature either digital or analog technology. Single
gas monitors are manufactured to measure any one of a variety of gasses such as
hydrogen sulfide, carbon monoxide, nitrous oxide, oxygen or butadiene. Multi-gas
monitors will simultaneously measure and monitor four different gasses, which
typically consist of oxygen, carbon monoxide, hydrogen sulfide and one toxic
gas.
The Company's "MicroMax", is a pocket-sized, microprocessor based, portable
multi-gas monitor. The Company believes the monitor competes favorably on size,
technical features and price.
The Company's gas calibrators are based upon teflon permeation tube technology
that allows them to produce samples of approximately 200 different types of
gasses at various flow rates. The primary application for such products is for
the calibration of air pollution monitoring systems, gas chromatographs and gas
detectors. The customer base for these instruments is made up of OEMs and end
users such as refineries, chemical plants, utilities and hospitals.
Invivo's oxygen monitoring products measure the oxygen levels in air cylinders
used by individuals in oxygen-deprived situations. These products consist of a
direct drive pressure gauge and hose assembly. The primary applications for this
equipment are in life support systems for fire fighters and hazardous material
clean-up workers. This equipment is also used in measuring oxygen levels in
scuba divers' tanks.
INDUSTRIAL PROCESS CONTROL
The Company's industrial sensor and instrumentation products consist of pressure
sensors and infrared non-contact temperature measuring devices.
The Company's pressure sensing devices are sold primarily to plastic extrusion
equipment manufacturers which utilize this equipment in their production
processes. Pressure sensors are also used by the food, beverage, synthetic fiber
and pharmaceutical industries to enable manufacturers in these industries to
measure the pressure of processing ingredients.
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The infrared non-contact temperature measuring products are used in a wide
variety of industrial process control applications. These applications include
the fabrication of semiconductors, the manufacturing of metals and glass, and
miscellaneous automotive, plant maintenance, construction, and food preparation
applications. In fiscal 1997, the Company introduced the "quickTemp", a
hand-held, pocket-sized infrared non-contact thermometer. The Company believes
the "quickTemp" competes favorably on size and price.
PRODUCT REVENUES
The percentage of the Company's revenues contributed by its medical device line
of products was 52%, 49% and 55%, respectively, for fiscal years 1995, 1996,
and 1997. The percentage of the Company's revenues contributed by its safety
line of products was 36%, 39% and 34%, respectively, for fiscal years 1995,
1996, and 1997.
MARKETS AND SALES
The Company's patient safety monitoring products are sold in the United States
through Invivo Research's direct sales force. Sales throughout the rest of the
world are handled through distributors, assisted by the Company's international
sales personnel. In fiscal 1997, Invivo Research hired a salesperson in Europe
and in the Far East to oversee the respective distribution networks in those
markets. In connection with the introduction of the "Millennia" vital signs
monitor, the Company significantly expanded the Invivo Research direct domestic
sales force.
The Company's patient safety monitoring products are sold primarily to hospitals
and to a lesser degree to clinical health care facilities and OEM customers.
The Company markets its gas detection, gas calibration and oxygen monitoring
products mostly through distributors and its own sales personnel. These products
are sold primarily to municipalities, utilities, telephone companies, oil
refineries, manufacturers and OEMs, as well as distributors.
The Company's industrial sensor and instrumentation products are sold primarily
through a network of independent sales representatives.
The Company provides service and repair to purchasers of its products under
warranty, and thereafter on a contract basis.
Foreign sales represented 15%, 20% and 22% of the Company's total sales in
fiscal 1995, 1996, and 1997. The Company is actively trying to expand its
international presence, especially in the patient safety monitoring business.
The Company's backlog of unfilled purchase orders for all its products was
approximately $3.5 million as of June 30, 1997, compared to approximately $3.3
million as of June 30, 1996 and approximately $4.0 million as of June 30, 1995.
The Company expects to ship in fiscal
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1998 all of the June 30, 1997 backlog. Because of customer changes in delivery
schedules and cancellation of orders, the Company's backlog as of any particular
date may not be representative of the Company's actual sales for any succeeding
fiscal period. Historically, order cancellations have not been significant. The
Company's businesses are not inherently seasonal, although for some of the
Company's businesses orders and shipments in the Company's first and second
quarters have been historically lower than in the third and fourth quarters.
MANUFACTURING AND ASSEMBLY
Virtually all of the Company's products are assembled by the Company at its
facilities in California and Florida from components and subassemblies
manufactured by others to Company specifications. The materials and supplies
used to produce the Company's products are generally obtained from a wide
variety of suppliers, and the Company has not experienced any significant
shortages. Although certain materials used in the manufacture of certain patient
safety monitoring and gas monitoring devices are readily available from only a
few suppliers, the Company does not anticipate any significant difficulties in
obtaining any of these materials in the foreseeable future. The Company does not
believe its business requires a disproportionate amount of working capital
relative to the amount of its sales as compared to other manufacturers of
comparable size.
COMPETITION
The medical device markets in which the Company competes include MRI and non-MRI
monitoring. The Company is aware of only one other current competitor in the
United States for its MRI monitors. The non-MRI patient safety monitoring market
in which the Company competes is highly competitive, including primarily
companies that are much larger than the Company with significantly greater
financial resources. The Company estimates there are approximately fifteen to
twenty competitors in the non-MRI vital signs monitoring market. The Company
believes its recently introduced "Millennia" monitor compares favorably with
those of the major competitors in terms of features and price.
In the Company's patient safety monitoring business, price has become an
especially important factor in hospital purchasing patterns as a result of cost
containment pressures on the health care industry. To the extent that healthcare
reform measures negatively affect the financial condition of hospitals and
thereby reduce their capital purchases, the Company expects price to continue to
play a large part as a basis of competition.
The markets for the Company's other products are, in general, characterized by a
limited number of competitors; however, these markets are highly competitive.
The Company estimates there are generally five to ten competitors in each of
these markets.
Although the Company believes that each of its products compares favorably with
those of its competitors on the basis of one or more competitive features, the
Company represents a relatively small factor in each market in which it
competes. Many of the Company's competitors
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are subsidiaries or divisions of major corporations that have substantially
greater financial resources and name recognition than does the Company. The
Company competes on the basis of product reliability, quality, technical
features, performance, responsiveness, service and price, with the relative
importance of each factor depending on the market for the particular product.
RESEARCH AND EXPERIMENTAL
During fiscal years 1995, 1996, and 1997 the Company's research and experimental
expenses were approximately $1.8 million, $2.1 million, and $2.4 million,
respectively. The increase in these expenses in fiscal 1996 and 1997 was due to
research and experimental expenditures on behalf of the patient safety
monitoring business.
The Company believes that its ability to compete effectively in the markets it
serves, as well as to grow, will depend in part upon its ability to develop new
products and improve existing ones.
PATENTS
Although a number of patents have been issued to the Company and its
subsidiaries, the Company believes its competitive position is more dependent on
the technical competence, creative skills and marketing ability of its personnel
than on its patents.
GOVERNMENTAL REGULATION
The patient safety monitoring devices manufactured and marketed by the Company
are subject to regulation by the United States Food and Drug Association ("FDA")
and, in some instances, corresponding state and foreign governmental agencies.
The Company's manufacturing facilities and the manufacture of its products are
subject to FDA regulations regarding registration of manufacturing facilities,
compliance with FDA Good Manufacturing Practices ("GMPs")and the reporting of
adverse events. The FDA's recently revised GMPs, titled "Quality System
Regulation", now require preproduction design controls and implementation of a
full quality assurance system along with standards for manufacturing processes
and facilities and record-keeping for device failure and complaint
investigations. The Company is subject to periodic on-site inspection for
compliance with such regulations. The FDA may also conduct investigations and
evaluations of the Company's products at its own initiative or in response to
customer complaints or reports of malfunctions. If the FDA believes that its
regulations have been violated, it has extensive enforcement authority including
the power to seize, embargo or restrain entry of products from the market and to
prohibit the operation of manufacturing facilities until the noted deficiencies
are corrected to their satisfaction. The Company believes it is in compliance
with applicable FDA regulations.
The Company's current products were cleared for marketing in the United States
through the FDA's Section 510(k) premarket notification process. The 510(k)
premarket notification process is available where the new product being
submitted to the FDA can be compared to a pre-existing commercially available
product that performs similar functions (a "substantially equivalent product").
If a product does
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not meet the eligibility requirements for the 510(k) process, then it must be
submitted, instead, under the more time consuming and costly premarket approval
procedure (PMA).
The Company seeks, where appropriate, to comply with the certification and
safety standards of various organizations such as Underwriters' Laboratories,
the Canadian Standards Association and the various safety and test regulations
of the European Community.
The manufacture and testing of its safety and medical device products requires
the Company to handle and store small quantities of a wide variety of chemicals,
some of which are highly toxic. Certain of these chemicals pose a serious threat
to workers and others who may come in contact with them if improperly used or
handled. Most municipalities, including those in which the Company is presently
located, now require that the proposed storage and use of dangerous chemicals
receive local approval. State air quality boards, or similar agencies, must also
approve the venting, and certain other aspects of handling, of these types of
chemicals. These municipal and state agencies may, as a condition to the
granting of approvals and permits, impose certain procedural limitations on the
Company's storage and handling of these chemicals and structural requirements on
the facilities where these chemicals are stored and used. They also impose
record keeping and reporting requirements on the users of these chemicals.
The Company believes that it presently is in compliance with all material
environmental regulations applicable to it. Compliance with these requirements
has not, to date, had a material effect on the Company's capital expenditures,
earnings or competitive position. Nonetheless, environmental regulation at the
local, state and national levels is still evolving, and the possibility exists
that more stringent limitations and requirements may become applicable to the
Company.
EMPLOYEES
As of June 30, 1997, the Company had 286 employees, all of whom were full-time.
The Company is not a party to any collective bargaining agreement and has not
experienced a strike or work stoppage. The Company considers its relations with
its employees to be good.
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ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth information with respect to the real property
owned or leased by the Company and its subsidiaries which the Company considers
material to its business.
<TABLE>
<CAPTION>
Ownership or
General Character Expiration
Location and Use of Property Date of Lease
- -------- ------------------- -------------
<S> <C> <C>
Fremont, California 18,000 square-foot building April, 2001
used as the Company's manufacturing
and distribution facility for its
gas calibration and process
control products
Orlando, Florida 42,000 square-foot building used Owned
as the manufacturing, distribution,
and administration facility for
the Company's patient safety
monitoring products
Cucamonga, California 24,000 square-foot building used December, 1998
as the manufacturing, distribution,
and administration facility for
the Company's oxygen monitoring
products
Miramar, Florida 9,000 square-foot building used June, 1999
as the manufacturing, distribution,
and administration facility for
the Company's gas detection and
monitoring products
</TABLE>
From time to time, the Company leases smaller facilities as its needs dictate.
The Company considers its facilities to be sufficient for its current
operations.
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ITEM 3. LEGAL PROCEEDINGS
In March of 1996, the Company's Invivo Research subsidiary was named as one of
two third-party defendants in a lawsuit by Southern Nevada Surgical Center and
Surgex in the District Court of Clark County in the State of Nevada. The
underlying action in this matter stems from an incident involving a surgical
patient at the Southern Nevada Surgical Center. The individual filed a lawsuit
against the Surgical Center and the physicians performing the surgery. The
Company is aware that a substantial settlement was made to the patient by the
defendants in that action. Southern Nevada Surgical Center and Surgex are now
attempting to obtain indemnity and contribution from the manufacturer of the
ventilating machine and Invivo Research, the manufacturer of the vital signs
monitor. Discovery in this matter has not yet been completed and no trial date
has been set. While the Company believes that the vital signs monitor operated
properly and was properly designed for the its intended function, the outcome of
this litigation cannot be predicted with certainty at this time.
In July of 1995, the Company's Sierra Precision subsidiary was added as one of
three defendants in a wrongful death lawsuit by the estate of an individual
originally commenced in 1994 in Hampden County Superior Court of Massachusetts.
The lawsuit arose from the death of the individual in a drowning accident while
scuba diving. The individual was allegedly equipped with, along with other
diving equipment, a submersible pressure gauge manufactured by Sierra Precision.
All three defendants have denied liability and have pleaded by way of
affirmative defense that the death was due to the diver's own negligence. The
parties are still engaged in discovery with a trial date expected for early
1998.
In addition to the legal proceedings above, the Company is subject to other
various legal proceedings that arise in the ordinary course of business. While
the outcome of all of these proceedings cannot be predicted with certainty, the
Company believes that none of such proceedings, individually or in the
aggregate, will have a material adverse effect on the Company's business or
financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1997.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below, together with brief
accounts of their business experience and certain other information.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
James B. Hawkins 41 President and
Chief Executive Officer
John F. Glenn 36 Vice President, Finance
Chief Financial Officer
F. Larry Young 38 Vice President, Operations
</TABLE>
James B. Hawkins has been President, Chief Executive Officer and a Director of
the Company since August 1985. He has served as Secretary of the Company since
July 1986.
John F. Glenn was appointed Vice President, Finance and Chief Financial Officer
of the Company in November 1990.
F. Larry Young has been Vice President, Operations of the Company since April
1990.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
(a) Market Information
The Company's Common Stock is traded on The Nasdaq Stock Market under the Nasdaq
symbol "SAFE". The following table sets forth, for the applicable quarters
indicated, the high and low closing sale prices in such market for a share of
Common Stock as reported by Nasdaq.
<TABLE>
<CAPTION>
Year Ended
June 30, 1997 June 30, 1996
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High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 11 9-1/4 17-1/4 11-1/2
Second Quarter 14-1/4 10 16-3/8 13-1/2
Third Quarter 15-3/8 12 15-1/2 12
Fourth Quarter 11-3/4 6-5/8 14 9-3/4
</TABLE>
(b) Holders
The number of holders of record of the Company's Common Stock at June 30, 1997
was 78. The approximate number of holders, including participants in security
position listings as of September, 1997, was 1,400.
(c) Dividends
The present policy of the Company is to retain earnings to provide funds for the
operation and expansion of its business. The Company has not paid cash dividends
on its Common Stock and does not anticipate that it will do so in the
foreseeable future. The Company is prohibited from paying dividends on its
Common Stock pursuant to its bank credit agreement.
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ITEM 6. SELECTED FINANCIAL DATA
The consolidated financial data in the following table is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements and Notes thereto and other financial and statistical information
included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(in thousands, except per share amount)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Sales $ 19,289 $27,801 $32,489 $31,391 $35,904
Net Income(loss)(1) (5,891) 2,881 3,348 2,472 316
Net Income(loss) per
common share (1.90) .86 .99 .72 .09
Weighted average common
shares and common share
equivalents outstanding 3,151 3,359 3,390 3,456 3,445
BALANCE SHEET DATA:
Working capital 4,018 5,477 6,428 7,490 7,424
Total assets 13,613 17,427 19,860 22,204 26,612
Long-term debt 1,907 3,367 926 730 1,584
Stockholders' equity 6,053 9,137 12,616 15,276 15,815
</TABLE>
(1) The results of fiscal 1993 include the write off of $7,385,800 in acquired
in-process research and development.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
NET SALES
The Company's net sales for fiscal 1997 increased 14.4% to $35,903,500 from
$31,390,900 in fiscal 1996. The sales increase in fiscal 1997 was primarily due
to sales of the "Millennia", the new portable multi-parameter vital signs
monitor introduced by the Company's patient safety monitoring business in the
first quarter of fiscal 1997. Sales growth at the Company's oxygen monitoring
and industrial process control businesses for fiscal 1997 offset a sales decline
at the Company's gas detection business.
GROSS PROFIT
The gross profit margin declined in fiscal 1997 to 48.1% from 49.6% in fiscal
1996. The decline was primarily due to the product mix of sales at the Company's
patient safety monitoring business as the "Millennia" monitor has lower gross
margins than the MRI vital signs monitor. The increased sales at the Company's
oxygen monitoring business also contributed to the margin decline as that
business has lower gross margins than the Company's other businesses.
OPERATING EXPENSES
Selling, general and administrative expenses in fiscal 1997 increased 46.3% or
$4,483,600 over fiscal 1996 levels. Selling, general and administrative expenses
were 39.5% of sales in fiscal 1997 compared with 30.9% for fiscal 1996. The
aggregate and percentage of sales increases in these expenditures were due the
Company's significantly increasing the direct sales force and adding sales and
marketing management and infrastructure at the patient safety monitoring
business in connection with the introduction of the "Millennia" monitor.
Research and experimental expenses remained stable at 6.8% of sales in fiscal
1997. The increase of $353,400 in aggregate research and experimental expenses
in fiscal 1997 was due to higher research and experimental expenditures on
behalf of the patient safety monitoring business as the Company continued to
enhance its "Millennia" monitor and develop next generation vital signs
monitoring products.
OTHER INCOME AND EXPENSE
Interest expense increased to $251,400 for fiscal 1997 compared with $175,200 in
fiscal 1996. The increase was the result of increased borrowings on the
Company's revolving bank line of credit along with the increased mortgage on the
Company's recently expanded patient safety monitoring facility.
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PROVISION FOR INCOME TAXES
The effective tax rate for fiscal 1997 remained stable at 34%.
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
The Company's net sales for fiscal 1996 decreased 3.4% to $31,390,900 from
$32,489,300 in fiscal 1995. The decrease was largely the result of a decline in
sales of the Company's MRI vital signs monitors at its patient safety monitoring
business. The Company believes that the decline was primarily attributable to
the restructuring of the sales management at its patient safety monitoring
business and the loss of certain sales personnel in connection with the
Company's decision to expand and upgrade that sales force. In addition, sales of
the older non-MRI vital signs monitors were adversely affected by the
introduction of the Company's "Millennia" multi-parameter vital signs monitor.
The new monitor received FDA approval in April, 1996 and was introduced in July,
1996. Continued strong sales growth for the Company's "Micromax" portable
multi-gas monitor at its gas detection business partially offset the sales
declines at the patient safety monitoring business and oxygen monitoring
business in fiscal 1996.
GROSS PROFIT
Gross profit margin decreased to 49.6% in fiscal 1996 from 51.2% in fiscal 1995.
This decrease was due principally to the lower sales volume in relation to the
fixed overhead component of manufacturing costs at the Company's patient safety
monitoring business coupled with the decline in sales of the Company's MRI vital
signs monitors which have higher gross margins than non-MRI vital signs
monitors.
OPERATING EXPENSES
Selling, general and administrative expenses for fiscal 1996 increased $189,600
or 2.0% over fiscal 1995 levels. The increase in these expenditures in fiscal
1996 was primarily attributable to increased selling and marketing expenses in
anticipation of the introduction of the "Millennia" vital signs monitor.
Selling, general and administrative expenses were 30.9% of sales in fiscal 1996
compared with 29.2% for fiscal 1995. The increase in these expenditures as a
percentage of sales for fiscal 1996 was principally the result of the spreading
of fixed selling, general and administrative expenses over the lower sales
volume at the patient safety monitoring business.
Research and experimental expenses for fiscal 1996 increased $254,200 or 13.8%
over fiscal 1995 expenditures. Research and experimental expenses were 6.7% of
sales for fiscal 1996 compared to 5.7% for fiscal 1995. The increase as a
percentage of sales as well as in aggregate research and experimental expenses
in fiscal 1996 was due to higher research and experimental expenditures on
behalf of the patient safety monitoring business in connection with the
development of the "Millennia" vital signs monitor.
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OTHER INCOME AND EXPENSE
Interest expense increased to $175,200 in fiscal 1996 from $114,800 in fiscal
1995 reflecting higher borrowings on the Company's revolving bank line of credit
in fiscal 1996.
PROVISION FOR INCOME TAXES
The effective tax rate for fiscal 1996 was 34.0% compared with 36.3% for fiscal
1995. This reduction in the effective tax rate was principally due to an
adjustment of prior year's taxes.
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during any of the last three fiscal years.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1997 decreased slightly to $7,474,100 compared with
$7,489,800 at June 30, 1996. Cash and cash equivalents at June 30, 1997 were
$171,100 compared with $436,200 at June 30, 1996. Net cash used in operating
activities was $585,200 for fiscal 1997 compared with net cash provided by
operating activities of $2,725,900 for fiscal 1996. The decrease in net income
and the increase in trade receivables and inventories more than offset an
increase in depreciation and amortization and operating liabilities. Capital
expenditures were $2,380,500 for fiscal 1997 compared to $769,300 in fiscal
1996. The increase was primarily due to the significant increase in sales and
demonstration equipment for the expanded direct sales force at the patient
safety monitoring business along with the expansion of the patient safety
monitoring facility in Orlando, Florida.
In fiscal 1993, the Company purchased 80% of the outstanding common stock of
Invivo Research, Inc. The agreement provided for a contingent payment resulting
in an initial payment of $1,000,000 made on July 15, 1994 and a final payment of
$2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered into an
agreement to acquire the remaining 20% of the Invivo Research, Inc. shares. The
contingent purchase price for such shares is to be paid in one or more
installments. One-fifth of the price "vests" on each of January 1, 1996, 1997
and 1998 and two-fifths vest on January 1, 1999. The former Invivo Research
shareholders can make one election each year beginning in 1996 to be paid any
vested payment. The amount of any payment is based on the after tax profits of
Invivo Research for the calendar year preceding the year that the payment is
made, regardless of when the payment vested, subject to a minimum share price if
certain milestones are achieved. The former Invivo Research shareholders must,
generally, elect to receive a payment in any calendar year by giving notice to
the Company by March of that year and the payment so elected is to be made on
June 1 of that year. The payments are to be made in cash, but if the
shareholders require that more than one-fifth of the payments be made in any
year, the Company can elect to make the excess amount of the payment in the form
of its shares. The Company was informed in March of 1996 that the former Invivo
Research shareholders would elect to be paid on their first installment. Based
on the 1995 calendar year results for Invivo Research, payment was made on
June 1,
16
<PAGE> 17
1996, for $987,900. The former Invivo Research shareholders did not elect to be
paid on their vested second installment in June of 1997.
Bank borrowings increased $2,545,000 in fiscal 1997 as result of the decline in
net income and the growth in trade receivables, inventories and capital
expenditures. The Company's revolving bank line of credit is collateralized by
the Company's accounts receivable, inventory, and equipment. In December 1996,
the Company renewed the bank line of credit to December 1, 1997. In June of 1997
the Company increased the amount available under the revolving line of credit to
$5,000,000. The Company was in breach of its credit agreement at June 30, 1997,
due to an operating loss for the quarter ended June 30, 1997. However, the
Company's bank waived its default rights with respect to the loss. At June 30,
1997, $3,395,000 was outstanding on the line of credit.
The Company believes that its cash flow from operations and amounts available
from the bank line of credit will be adequate to meet its anticipated cash needs
for working capital and capital expenditures throughout fiscal 1998.
The Company will continue to explore opportunities for the possible acquisitions
of technologies or businesses, which may require the Company to seek additional
financing.
OUTLOOK. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially. These forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In early fiscal 1997, the Company introduced its new "Millennia" portable
multi-parameter vital signs monitor and has substantially increased selling,
general and administrative expenses in connection with this product coming on
line. The Company believes this product positions it to expand from its MRI
monitoring market niche into the much larger mainstream patient monitoring
market. The Company expects this product to continue to have a substantial
impact on future revenue growth and that its future financial results will to a
large extent depend on the success of this product.
The success of the "Millennia" will be dependent on a variety of factors, some
of which may be beyond the control of the Company. Among the factors that could
cause actual results to differ from those anticipated by the Company are:
economic conditions affecting the healthcare industry and general economy and
competitive factors, such as competitor's new products and pricing pressures.
17
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Independent Auditors' Report 19
Consolidated Balance Sheets - June 30, 1997 20
and 1996
Consolidated Statements of Income for
the Years Ended June 30, 1997, 1996, and 1995 21
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1997, 1996, and 1995 22
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1997, 1996, and 1995 23
Notes to Consolidated Financial Statements 24-34
</TABLE>
18
<PAGE> 19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Invivo Corporation:
We have audited the accompanying consolidated balance sheets of Invivo
Corporation and subsidiaries as of June 30, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements 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, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Invivo Corporation
and subsidiaries as of June 30, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1997, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Oakland, California
July 30, 1997
19
<PAGE> 20
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 171,100 436,200
Trade receivables, less allowance for doubtful accounts
of $371,000 and $231,000 in 1997 and 1996,
respectively 7,898,800 6,415,500
Inventories 7,100,900 5,504,400
Deferred income taxes 802,300 587,000
Prepaid expenses and other current assets 516,200 584,500
----------- ----------
Total current assets 16,489,300 13,527,600
Property and equipment, net 4,460,100 2,762,900
Intangible assets 5,442,400 5,595,600
Other assets 219,700 317,500
----------- ----------
$26,611,500 22,203,600
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 2,871,000 1,636,300
Accrued expenses 2,153,200 1,901,300
Current portion of long-term debt and bank borrowings 3,487,900 2,022,400
Income taxes payable 481,200 384,900
Other 21,900 92,900
----------- ----------
Total current liabilities 9,015,200 6,037,800
Long-term debt, excluding current portion 1,584,400 729,500
Deferred income taxes 145,400 160,700
Other liabilities 52,000 --
----------- ----------
Total liabilities 10,797,000 6,928,000
----------- ----------
Stockholders' equity:
Common stock, $.0008 par value; 5,000,000 shares
authorized; 3,255,668 and 3,225,993 shares issued
and outstanding in 1997 and 1996, respectively 2,600 2,600
Additional paid-in capital 12,817,400 12,594,000
Retained earnings 2,994,500 2,679,000
----------- ----------
Total stockholders' equity 15,814,500 15,275,600
Commitments and contingencies -- --
----------- ----------
$26,611,500 22,203,600
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales $ 35,903,500 31,390,900 32,489,300
Cost of goods sold 18,618,900 15,810,900 15,843,200
------------ ----------- -----------
Gross profit 17,284,600 15,580,000 16,646,100
------------ ----------- -----------
Operating expenses:
Selling, general, and administrative 14,174,300 9,690,700 9,501,100
Research and experimental 2,448,800 2,095,400 1,841,200
------------ ----------- -----------
Total operating expenses 16,623,100 11,786,100 11,342,300
------------ ----------- -----------
Income from operations 661,500 3,793,900 5,303,800
Other income (expense):
Interest expense (251,400) (175,200) (114,800)
Other, net 67,900 126,700 64,300
------------ ----------- -----------
Income before income taxes 478,000 3,745,400 5,253,300
Income tax expense 162,500 1,273,400 1,905,000
------------ ----------- -----------
Net income $ 315,500 2,472,000 3,348,300
============ =========== ===========
Net income per common share $ .09 .72 .99
============ =========== ===========
Weighted average common shares and common
share equivalents outstanding 3,445,326 3,455,501 3,389,980
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
(Accumulated
Common stock Additional deficit) Total
---------------- paid-in retained stockholders'
Shares Amount capital earnings equity
------ ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balances as of June 30,
1994 3,180,093 $2,500 12,275,500 (3,141,300) 9,136,700
Proceeds from exercise
of options 19,950 100 78,600 -- 78,700
Tax benefit from exercise
of options -- -- 52,400 -- 52,400
Net income -- -- -- 3,348,300 3,348,300
--------- ------ ---------- ---------- ----------
Balances as of June 30,
1995 3,200,043 2,600 12,406,500 207,000 12,616,100
Proceeds from exercise
of options 25,950 -- 84,100 -- 84,100
Tax benefit from exercise
of options -- -- 103,400 -- 103,400
Net income -- -- -- 2,472,000 2,472,000
--------- ------ ---------- ---------- ----------
Balances as of June 30,
1996 3,225,993 2,600 12,594,000 2,679,000 15,275,600
Proceeds from exercise
of options 29,675 -- 161,000 -- 161,000
Tax benefit from exercise
of options -- -- 62,400 -- 62,400
Net income -- -- -- 315,500 315,500
--------- ------ ---------- ---------- ----------
Balances as of June 30,
1997 3,255,668 $2,600 12,817,400 2,994,500 15,814,500
========= ====== ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 315,500 2,472,000 3,348,300
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 745,900 601,400 509,800
Loss (gain) on sale of property and equipment 21,200 31,200 (38,800)
Deferred income taxes (230,600) (72,300) 106,000
Changes in operating assets and liabilities:
Trade receivables (1,483,300) (215,900) (1,490,800)
Inventories (1,596,500) (412,500) (530,400)
Prepaid expenses and other current assets 68,300 (128,000) 7,900
Accrued expenses 251,900 (65,900) 195,500
Accounts payable 1,234,700 292,800 256,900
Income taxes payable 158,700 220,500 (66,000)
Other current liabilities (71,000) 2,600 28,300
----------- ---------- ----------
Net cash (used in) provided by
operating activities (585,200) 2,725,900 2,326,700
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (2,380,500) (769,300) (764,300)
Proceeds from sale of property and equipment 69,400 17,000 63,900
Intangible assets -- (987,900) --
Other 149,800 (297,400) (25,000)
----------- ---------- ----------
Net cash used in investing activities (2,161,300) (2,037,600) (725,400)
----------- ---------- ----------
Cash flows from financing activities:
Issuances of common stock 161,000 84,100 78,700
Bank borrowings (repayments), net 2,545,000 1,800,000 (50,000)
Principal payments under acquisition notes
payable and long-term debt (224,600) (2,457,800) (1,524,100)
----------- ---------- ----------
Net cash provided by (used in)
financing activities 2,481,400 (573,700) (1,495,400)
----------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (265,100) 114,600 105,900
Cash and cash equivalents at beginning of year 436,200 321,600 215,700
----------- ---------- ----------
Cash and cash equivalents at end of year $ 171,100 436,200 321,600
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
INVIVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1997, 1996, and 1995
(1) BUSINESS AND ACCOUNTING POLICIES
THE COMPANY
Invivo Corporation and subsidiaries (the Company) are engaged in the
design, manufacture, and marketing of sensor-based instruments for health,
safety, and industrial process control applications.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation.
CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents are comprised primarily of U.S.
Treasury securities and money market funds.
INVENTORIES
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost net of accumulated depreciation
and amortization. Depreciation is calculated on the straight-line method
over the estimated useful lives of the related assets, generally three to
seven years. Leasehold improvements and assets under capital leases are
amortized on the straight-line method over the shorter of the lease term
or the estimated useful life of the related asset.
INCOME TAXES
The Company utilizes the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to 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 measurement of deferred tax assets is reduced, if necessary,
by a valuation allowance for any tax benefits that are not expected to be
realized.
24
<PAGE> 25
(1) BUSINESS AND ACCOUNTING POLICIES, CONTINUED
INTANGIBLE ASSETS
Intangible assets include patents and the cost in excess of amounts
otherwise assigned to net assets of businesses acquired (goodwill).
Patents are amortized on a straight-line basis over their approximate
useful lives, not to exceed 17 years. Goodwill is amortized on a
straight-line basis over 40 years. The Company assesses the recoverability
of goodwill by projecting results of operations over the remaining useful
lives of the businesses acquired. Accumulated amortization as of June 30,
1997 and 1996 was approximately $708,400 and $555,200, respectively.
Amortization expense was approximately $153,400, $136,100 and $132,800 for
1997, 1996, and 1995, respectively.
NET INCOME PER COMMON SHARE
Net income per common share is computed using the weighted average number
of shares outstanding including the dilutive effect, if any, of common
stock options outstanding.
REVENUE RECOGNITION
The Company recognizes revenue and all related costs upon shipment of
products to its customers.
USE OF 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
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles to be held and
used by an entity by reviewed for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. As
of June 30, 1997, the Company identified no long-lived assets or
identifiable intangibles which were impaired.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs related to the design, development and
testing of new monitors, applications and technologies are charged to
expense as incurred.
25
<PAGE> 26
(1) BUSINESS AND ACCOUNTING POLICIES, CONTINUED
ACCOUNTING FOR STOCK OPTIONS
Prior to July 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense would be recorded only if
the current market price of the underlying stock exceeded the exercise
price on the date of grant. On July 1, 1996, the Company adopted Statement
of Financial Accounting Standards No. 123 (SFAS No. 123), Accounting for
Stock-Based Compensation, which permits entities to recognize as expense
over the vesting period the fair value of all stock-based awards on the
date of grant. Alternatively, SFAS No. 123 also allows entities to
continue to apply the provisions of APB Opinion No. 25 and provide pro
forma net income and pro forma earnings per share disclosures for employee
stock option grants made in fiscal 1996 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No.
25 and provide the pro forma disclosure provisions required by SFAS No.
123.
TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF
LIABILITIES
The Company adopted the Financial Accounting Standards Board SFAS No. 125,
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. The adoption of this statement has not had
a significant impact on the Company's financial position, results of
operations, or liquidity.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The amounts recorded for financial instruments in the Company's
consolidated financial statements approximate fair value as defined in
Statement of Financial Accounting Standards No. 107.
RECENT ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. The statement
specifies the computation, presentation and disclosure requirements for
earnings per share and is effective for periods ending after December 15,
1997, and will be adopted by Invivo Corporation in the third quarter of
fiscal year 1998. Earnings per share as calculated under the provisions
of Statement of Financial Accounting Standards No. 128 for the three years
ended June 30, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Basic earnings per share $.10 $.77 $1.05
==== ==== =====
Diluted earnings per share $.09 $.72 $ .99
==== ==== =====
</TABLE>
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 129, Disclosure of Information about
Capital Structure. The statement is effective for periods ending after
December 15, 1997. This statement will have no impact on Invivo's
disclosures within the financial statements.
REPORTING COMPREHENSIVE INCOME
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and displaying comprehensive
income and its components. The statement is effective for fiscal years
beginning after December 15, 1997 and will be adopted by Invivo
Corporation in fiscal year 1999.
26
<PAGE> 27
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for the
way the public business enterprises are to report information about
operating segments in the annual financial statements and requires those
enterprises to report selected information about operating segments in
interim financial reports issued to shareholders. The statement is
effective for periods beginning after December 15, 1997, and will be
adopted by Invivo Corporation in fiscal year 1999.
(2) ACQUISITION OF INVIVO RESEARCH INC.
On December 31, 1992, the Company acquired 80% of the outstanding common
stock of Invivo Research Inc., a company which designs, manufactures, and
markets sensor-based patient safety devices.
In fiscal 1994, the Company entered into an agreement to acquire the
remaining 20% of the Invivo Research Inc. shares. The purchase price for
the remaining shares is to be paid to the seller over a five year period.
The value of each installment will be determined based upon a formula
involving after-tax profits, on a calendar year basis, and is subject to a
minimum share price if certain milestones are achieved. Each installment
is to be paid on June 1 following the previous calendar year end. At the
election of the seller, each installment may be postponed until the next
measurement date, but no later than December 31, 1998. On June 1, 1996,
one installment in the amount of $987,900 was paid to the seller. The
current years installment has been deferred until June 1, 1998 and will be
based upon calendar year 1997 results. The final two installments are due
June 1, 1999 based upon calendar year 1998 results.
(3) INVENTORIES
A summary of inventories as of June 30 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $3,804,500 3,563,500
Work in process 1,180,100 1,002,400
Finished goods 2,116,300 938,500
---------- ---------
7,100,900 5,504,400
</TABLE>
27
<PAGE> 28
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Land and building $2,324,800 1,290,100
Equipment 3,935,800 2,784,300
Furniture and fixtures 960,100 895,200
Vehicles 147,000 147,000
---------- ---------
7,367,700 5,116,600
Less accumulated depreciation and amortization 2,907,600 2,353,700
---------- ---------
$4,460,100 2,762,900
========== =========
</TABLE>
(5) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Term loan with principal payable in monthly installments
of approximately $27,100 and interest payable monthly at
prime plus 1/4%; principal and interest payments were
paid in full by December 31, 1996; secured by accounts
receivable and inventory and equipment $ -- 189,600
Term loan payable in monthly installments of approximately
$8,700, including interest at LIBOR plus 2.5%; secured
by land and building 1,677,300 762,300
Borrowings under the $5,000,000 revolving line of credit,
which expires and is payable on December 1, 1997;
collateralized by accounts receivable and inventory and
equipment; interest payable monthly at the prime rate 3,395,000 1,800,000
--------- ---------
5,072,300 2,751,900
Less current portion 3,487,900 2,022,400
---------- ---------
$1,584,400 729,500
========== =========
</TABLE>
28
<PAGE> 29
(5) DEBT AND BANK BORROWINGS, CONTINUED
The aggregate maturities of long-term debt and bank borrowings are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
--------------------
<S> <C>
1998 $3,487,900
1999 104,600
2000 104,600
2001 104,600
2002 104,600
Thereafter 1,166,000
----------
$5,072,300
==========
</TABLE>
In June 1997, the Company and its bank lender agreed to renew the
revolving line of credit to December 1, 1997 and increase the amount
available under the revolving line of credit from $4,000,000 to
$5,000,000. The revolving line of credit requires the Company to maintain
a minimum tangible net worth, a maximum ratio of total liabilities to
tangible net worth, a minimum working capital balance, quarterly
profitability, a minimum debt service ratio, and prohibits the Company
from paying dividends. As of June 30, 1997, $1,605,000 was available under
the revolving line of credit.
In July 1996, the Company refinanced the term loan due April 15, 1998. The
new payment terms extend through the year 2012.
(6) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Accrued compensation and benefits $1,245,400 1,123,700
Other 907,800 777,600
---------- ---------
$2,153,200 1,901,300
========== =========
</TABLE>
(7) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases. These leases require the Company to pay certain executory costs
such as taxes, insurance, and maintenance. Rent expense related to
operating leases was approximately $385,000, $416,900 and $465,600 for the
years ended June 30, 1997, 1996, and 1995, respectively.
29
<PAGE> 30
(7) LEASE COMMITMENTS, CONTINUED
A summary of future minimum lease payments required under noncancelable
operating leases with terms in excess of one year, as of June 30, 1997
follows:
<TABLE>
<CAPTION>
Fiscal
year ending
-----------
<S> <C>
1998 $ 422,000
1999 357,300
2000 239,800
2001 154,100
2002 3,500
----------
Future minimum lease payments $1,176,700
==========
</TABLE>
(8) INCOME TAXES
A summary of the components of income tax expense (benefit) follows:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
<S> <C> <C> <C>
1997:
Federal $ 206,000 (179,000) 27,000
State 187,100 (51,600) 135,500
----------- ---------- ---------
$ 393,100 (230,600) 162,500
=========== ========== =========
1996:
Federal 1,101,800 (56,400) 1,045,400
State 243,900 (15,900) 228,000
----------- ---------- ---------
$ 1,345,700 (72,300) 1,273,400
=========== ========== =========
1995:
Federal 1,529,000 62,000 1,591,000
State 270,000 44,000 314,000
----------- ---------- ---------
$ 1,799,000 106,000 1,905,000
=========== ========== =========
</TABLE>
Amounts are based upon estimates and assumptions as of the date of this
report and could vary significantly from amounts shown on the tax returns
as filed.
Deferred income taxes are attributable primarily to depreciation, accrued
expenses, and allowances.
30
<PAGE> 31
(8) INCOME TAXES, CONTINUED
The effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of June 30 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred tax assets:
Allowances and other accruals $ 800,600 587,000 519,500
Capital loss carryover 199,400 199,400 15,400
Accumulated depreciation 1,700 -- --
----------- -------- --------
Total deferred tax assets 1,001,700 786,400 534,900
Valuation allowance (199,400) (199,400) (15,400)
----------- -------- --------
Net deferred tax assets 802,300 587,000 519,500
----------- -------- --------
Deferred tax liabilities:
Federal depreciation in excess of books -- (11,000) (24,000)
Acquired intangibles from acquisitions (145,400) (149,700) (141,500)
----------- -------- --------
Total deferred tax liabilities (145,400) (160,700) (165,500)
----------- -------- --------
Net deferred tax asset $ 656,900 426,300 354,000
=========== ======== ========
</TABLE>
In fiscal 1996, the capital loss carryforward and related valuation
allowance was generated by the sale of a subsidiary. The capital loss
created for tax purposes was due to goodwill which was amortized for
financial statement purposes but not for tax purposes.
Amounts for the current year are based upon estimates and assumptions as
of the date of this report and could vary significantly from amounts shown
on the tax returns as filed. Accordingly, the variances from the amounts
previously reported for 1996 are primarily a result of adjustments to
conform to tax returns as filed.
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the
net deferred tax asset or that the amounts will be recovered from
previously paid taxes.
The following summarizes the differences between the income tax expense
and the amount computed by applying the 34% federal statutory corporate
rate to income before income taxes as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax at statutory rate $ 162,500 1,273,400 1,786,100
State income taxes, net of federal
income tax benefit, including
credits 103,000 150,500 207,200
Utilization of research,
experimental, and other credits (50,000) -- (51,300)
Benefit of foreign sales corporation (135,500) (111,500) (123,400)
Meals and entertainment 40,500
Goodwill 11,000
Other, net 31,000 (39,000) 86,400
----------- ---------- ----------
$ 162,500 1,273,400 1,905,000
=========== ========== ==========
</TABLE>
31
<PAGE> 32
(9) STOCK OPTION PLANS
The Company established the 1986 and 1994 Stock Option Plans ("the Plans")
to provide for the granting of stock options to employees (including
officers and directors) at prices not less than the fair market value of
the Company's common stock at the date of grant. Options vest ratably over
4 years and expire in 10 years. The Company has reserved 314,400 and
400,000 shares of its common stock for issuance under the 1986 and 1994
Plans, respectively. During 1997, the Company granted 197,000 shares of
common stock.
A summary of stock option activity for the years ended June 30, 1997 and
1996 follows:
<TABLE>
<CAPTION>
Weighted-
average
Weighted- Weighted- Options exercise price
average average exercisable by options
exercise grant date at exercisable at
Options price fair value year end year end
------- ----- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
June 30, 1995 383,100 $ 4.55
Granted 12,750 15.91 $8.59
Exercised (25,950) 3.24 =====
Canceled (5,500) 7.55
-------
June 30, 1996 364,400 5.00 234,675 $3.59
======= =====
Granted 197,000 11.47 $6.25
Exercised (29,675) 5.54 =====
Canceled (15,625) 8.74
-------
June 30, 1997 516,100 $ 7.36 267,638 $4.19
======= ======= =====
</TABLE>
The Company applies APB Opinion No. 25 in accounting for its plans.
Accordingly, no compensation cost has been recognized for the plans.
However, if the Company had determined compensation costs pursuant to SFAS
No. 123 for the plans, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below for the
years noted:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C>
Net income As reported $315,500 $2,472,000
======== ==========
Pro forma $ 70,800 $2,456,800
======== ==========
Net income per common share As reported $.09 $.72
==== ====
Pro forma $.02 $.71
==== ====
</TABLE>
Pro forma net income and net income per common share reflect only options
granted in 1997 and 1996. Therefore, the full impact of calculating
compensation cost for the Company's Plans under SFAS No. 123 is not
reflected in the option's vesting period and compensation costs for
options granted prior to July 1, 1995 are not considered.
32
<PAGE> 33
(9) STOCK OPTION PLANS, CONTINUED
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model in accordance with SFAS No. 123 with the
following assumptions for 1996 and 1997, respectively: risk free interest
rates of 5.96% and 6.39%, dividend yield of 0% for both years, average
expected lives of five years, and volatility of 55% for both years.
The following table summarizes information about the Company's stock
options outstanding at June 30, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- ------------------------
Weighted-
Number average Weighted- Number Weighted-
Range of outstanding remaining average exercisable average
exercise at June 30, contractual exercise at June 30, exercise
prices 1997 life price 1997 price
------ ---- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
$ 2.00 - 5.125 193,050 3.55 $ 2.80 193,050 $ 2.80
7.00 - 8.50 114,300 7.27 7.07 68,400 7.05
$10.00 - 16.13 208,750 9.27 11.74 6,188 16.01
------- -------
516,100 6.69 $ 7.36 267,638 $ 4.19
======= =======
</TABLE>
(10) SALARY DEFERRAL PLAN
The Company's executive officers, together with all other eligible
employees, may participate in the Company's 401(k) Salary Deferral Plan
(the Plan). Employees become eligible upon completion of one year of
service. Each eligible employee receives a retirement benefit based upon
accumulated contributions to the Plan by the employee and the Company plus
any earnings on such contributions. The Company contributes an amount
equal to 25% of the first 4% of compensation that the employee
contributes. The Plan currently provides that participants begin vesting
in the Company's contributions after three years of employment and are
fully vested after seven years. Company contributions to the Plan for the
year ended June 30, 1997, 1996, and 1995 were $56,700, $43,200 and
$48,100, respectively.
(11) LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
its business. While the results of such proceedings cannot be predicted
with certainty, management expects that the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
(12) MAJOR CUSTOMERS AND CREDIT RISK
In fiscal 1997, 1996, and 1995 no individual customer accounted for
greater than 10% of the Company's revenues or trade accounts receivable.
The Company has a customer base that is diverse geographically and by
industry. Customer credit evaluations are performed on an ongoing basis,
and collateral is generally not required for trade accounts receivable.
Management does not believe the Company has any significant concentration
of credit risk as of June 30, 1997. Exported sales to unaffiliated
foreign customers for the fiscal years 1997, 1996, and 1995 were
$8,004,600, $6,424,700 and $4,849,100, respectively. A majority of the
sales were in the Far East and Western European regions.
33
<PAGE> 34
(13) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Tax benefit associated with
exercise of stock options $ 62,400 103,400 52,400
Cash paid:
Income taxes 234,800 1,076,700 1,884,000
Interest 293,100 175,300 110,300
</TABLE>
34
<PAGE> 35
SELECTED QUARTERLY FINANCIAL DATA (NOT COVERED BY REPORT OF INDEPENDENT
ACCOUNTANTS):
<TABLE>
<CAPTION>
In millions, except per share amounts 1ST QTR 2ND QTR 3RD QTR 4TH QTR
------- ------- ------- -------
<S> <C> <C> <C> <C>
FISCAL YEAR 1997
Sales $7,892 $9,501 $10,003 $8,508
Gross Profit 3,962 4,512 4,988 3,822
Net Income (loss) 3 298 403 (389)
Net Income (loss) per common share 0.00 0.09 0.12 (0.11)
FISCAL YEAR 1996
Sales $7,842 $7,865 $7,905 $7,779
Gross Profit 3,950 4,078 4,028 3,524
Net Income 820 861 691 100
Net Income per common share 0.24 0.25 0.20 0.03
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in the accountants or disagreements with the Company's
accountants on accounting and financial disclosure matters in fiscal 1997
PART III
ITEMS 10 TO 13 INCLUSIVE.
These items have been omitted in accordance with instructions to Form 10-K
Annual Report. The Registrant will file with the Commission in October 1997,
pursuant to regulation 14A, a definitive proxy statement that will involve the
election of directors.
35
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
- -------
<S> <C>
3.01 Certificate of Incorporation
of the Registrant, as amended
3.02 By-Laws of the Registrant (1)
4.01 Form of Common Stock Certificate (1)
10.01 Sensor Control Corporation 1986 Incentive
Stock Option Plan and 1986 Non-statutory
Stock Option Plan As Amended (2)
10.02 Indemnity Agreement (1)
10.03 SafetyTek 1994 Stock Option Plan (3)
10.04 Stock purchase agreement dated as of November 8,
1989 by and between Data Design Laboratories
and Sensor Control Corporation. (4)
10.05 Stock purchase agreement dated January 14, 1991
between G.C. Industries Inc. and Sensor Control
Corporation (5)
10.06 Stock purchase agreement dated June 21, 1991 by
and between Electronic Safety Products Inc. and
Sensor Control Corporation (6)
10.07 Stock purchase agreement dated December 31, 1992
by and between Invivo Research Inc. and SafetyTek
Corporation (7)
10.08 Real Estate Unconditional Guaranty dated January 21, 1993 by and
between First Union National Bank of Florida and SafetyTek
Corporation (8)
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
Exhibit Page
- ------- ----
<S> <C>
10.09 First Amendment to Stock Purchase Agreement dated July 1, 1993
and related Stock Pledge Agreement dated July 1, 1993 by and
between Invivo Research Inc. and SafetyTek Corporation (9)
10.10 Lease between Lincoln-Whitehall Realty LLC and SafetyTek
Corporation for the 5696 Stewart Ave.
Fremont, CA facility (10)
10.11 Construction Loan Agreement between Invivo Research
and First Union Bank dated July 31, 1996 (11)
10.12 Credit Agreement between Wells Fargo and Invivo Corp.
dated December 1, 1996 (12)
10.13 First Amendment to Credit Agreement between Invivo Corp. 40-41
and Wells Fargo Bank dated June 16, 1997
11.01 Statement regarding computation of per 42
share earnings
21.01 Subsidiaries of Registrant 43
23.01 Consent of Independent Auditors 44
27.01 Financial Data Schedule 45
</TABLE>
FOOTNOTES DESCRIPTIONS:
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File (No. 0-15963)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995 (File No. 33-88798)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-1 filed on December 23, 1991 (File
No. 33-44623)
(5) Incorporated by reference to corresponding Exhibit included with
Registrant's Amended Registration Statement on Form S-1 filed on February 5,
1992 (File No. 33-44623)
(6) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992.(File No. 0-15963)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993.
37
<PAGE> 38
(File No. 0-15963)
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993. (File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993. (File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996. (File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 27, 1996. (File No. 0-15963)
(12) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 14, 1997. (File No. 0-15963)
(b) FINANCIAL STATEMENT SCHEDULES
Invivo Corporation and Subsidiaries
SCHEDULE II - Valuation and Qualifying Accounts
Years Ended June 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance
Beginning Costs and at End
of Year Expenses Deductions(1) of Year
---------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
Fiscal 1997 231,000 148,600 8,600 371,000
Fiscal 1996 236,900 93,100 99,000 231,000
Fiscal 1995 220,500 54,400 38,000 236,900
</TABLE>
(1) deductions as a result of write-offs
(c) REPORTS ON FORM 8-K
The Company was not required to file any reports on Form 8-K for the
quarter ended June 30, 1997
38
<PAGE> 39
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.
Invivo Corporation
/S/ JOHN F. GLENN
------------------------------------
John F. Glenn
Vice President-Finance\
Chief Financial Officer
September 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/S/ ERNEST C. GOGGIO Chairman of the Board September 26, 1997
- -------------------------
Ernest C. Goggio
/S/ JAMES B. HAWKINS President, Chief September 26, 1997
- ------------------------- Executive Officer, Director
James B. Hawkins (principal executive
officer)
/S/ JOHN F. GLENN Chief Financial Officer September 26, 1997
- ------------------------- (principal financial
John F. Glenn and accounting officer)
/S/ PAUL KUTLER Director September 26, 1997
- -------------------------
Paul Kutler, Ph.D.
/S/ GEORGE S. SARLO Director September 26, 1997
- -------------------------
George S. Sarlo
</TABLE>
39
<PAGE> 1
Exhibit 10.13
FIRST AMENDMENT TO CREDIT AGREEMENT
THE FIRST AMENDMENT TO CREDIT AGREEMENT (this Amendment") is entered
into as of June 16, 1997, by and between INVIVO CORPORATION, a Delaware
corporation ("Borrower"), and WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain Credit Agreement between time to time ("Credit
Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.a(a) is hereby amended by deleting "Four Million Dollars
($4,000,000.00)" as maximum principal amount available under the Line
of Credit, and by substituting for said amount "Five Million dollars
($5,000,000.00)" with such change to be effective upon the execution
and delivery to Bank of a promissory note substantially in the form
of Exhibit A attached here (which promissory note shall replace and
be deemed the Line of Credit Note defined in and made pursuant to the
Credit Agreement) and all other contracts, instruments and documents
required by Bank to evidence such change.
2. Section 1.6. is hereby deleted in its entirety, and the following
substituted therefor:
"SECTION 1.6. GUARANTIES. All indebtedness of Borrower to Bank
shall be guaranteed by G.C. Industries, Inc., Linear Laboratories Corporation,
Lumidor Safety Corporation, Sierra Precision and Invivo Research, Inc. in the
principal amount of Five Million Ten Thousand Dollars ($5,010,000.00) each, as
evidenced by and subject to the terms of guaranties in form and substance
satisfactory to Bank."
3. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver
or modification. All terms defined in the Credit Agreement shall have
the same meaning when used in this Amendment. This Amendment and the
Credit Agreement shall be read together, as one document.
4. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth
therein. Borrower further certifies that as of the
40
<PAGE> 2
date of this Amendment there exists no Event of Default as defined
in the Credit Agreement, nor any condition, act or event which with
the giving of notice or the passage of time or both would constitute
any such Event of Default.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
WELLS FARGO BANK,
INVIVO CORPORAITON NATIONAL ASSOCIATION
By: ___________________________ By: _____________________________
James B. Hawkins Rick Freeman
President Vice President
By: ___________________________
John F. Glenn
Vice President, Finance
41
<PAGE> 1
EXHIBIT 11.01
INVIVO CORPORATION
STATEMENT OF COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income $ 315,500 2,472,000 3,348,300
========== ========= =========
Computation of weighted
average common shares and
common share equivalents
outstanding:
Common shares issued 3,239,187 3,216,362 3,186,290
and outstanding
Common share equivalents 206,139 239,139 203,690
---------- --------- ---------
Weighted average common
shares and common share
equivalents outstanding 3,445,326 3,455,501 3,389,980
========== ========= =========
Net income per common share $.09 .72 .99
==== === ===
</TABLE>
42
<PAGE> 1
INVIVO CORPORATION
EXHIBIT 22.01
SUBSIDIARIES OF REGISTRANT
Linear Laboratories Corporation
Sierra Precision
G.C. Industries Inc.
Lumidor Safety Corporation
Invivo Research Inc.
43
<PAGE> 1
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Invivo Corporation:
The audits referred to in our report dated July 30, 1997, included the related
financial statement schedule as of June 30, 1997, and for each of the years in
the three-year period ended June 30, 1997, included in the annual report on Form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial statement
schedule when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to incorporation by reference in the registration statement (No.
33-88798) on Form S-8 of Invivo Corporation of our report dated July 30, 1997,
relating to the consolidated balance sheets of Invivo Corporation and
subsidiaries as of June 30, 1997, and 1996, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the years
in the three-year period ended June 30, 1997, which report appears in the June
30, 1997, annual report on Form 10-K of Invivo Corporation.
KPMG PEAT MARWICK LLP
Oakland, California
September 26, 1997
44
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 171
<SECURITIES> 0
<RECEIVABLES> 8,270
<ALLOWANCES> 371
<INVENTORY> 7,101
<CURRENT-ASSETS> 16,489
<PP&E> 7,368
<DEPRECIATION> 2,908
<TOTAL-ASSETS> 26,612
<CURRENT-LIABILITIES> 9,015
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 15,812
<TOTAL-LIABILITY-AND-EQUITY> 26,612
<SALES> 35,904
<TOTAL-REVENUES> 35,904
<CGS> 18,619
<TOTAL-COSTS> 18,619
<OTHER-EXPENSES> 16,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 251
<INCOME-PRETAX> 478
<INCOME-TAX> 163
<INCOME-CONTINUING> 316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
