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FORM 10K/A
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, 1998
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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
INVIVO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
- --------------------------------- -------------------
(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: 925-468-7600
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___
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, 1998 the aggregate market value
of registrant's voting Common Stock held by non-affiliates of the registrant was
approximately $42,911,111.
There were 3,269,418 shares of the registrant's Common Stock, $.01 par value,
outstanding on September 15, 1998.
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, 1998 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 leading provider of vital signs monitoring in the MRI
environment.
In fiscal 1997 the Company's Invivo Research subsidiary introduced its
"Millennia" portable multi-parameter vital signs monitor. The "Millennia" has
enabled the Company to expand from its 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 G.E.
Medical Systems, Siemens Medical Systems, Philips Medical Systems, Elscint Ltd.
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 calibration devices and 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 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 CO2. In
the fourth quarter of fiscal 1998, the Company introduced its next generation
MRI monitor. The "3150" MRI Monitoring System incorporates the Company's
"Millennia" monitor in an integrated, compact system for greater convenience and
ease of use. Through 2.4GHz spread spectrum telemetry, the "3150" MRI System
communicates with a "Millennia" remote display controller, allowing critical
data to be viewed by physicians and technologists in both the MRI magnet room
and control room.
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
offering 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 the user 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 where chemicals or gasses
are being used or stored. Typical applications for these monitors are oil
refineries, chemical plants and semiconductor fabrication facilities. The
Company'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 hand-sized, microprocessor based, portable
multi-gas monitor. Available in both diffusion and internal sampling pump
models, the "Micromax" simultaneously monitors one to four gasses. The internal
sampling pump model allows for pre-testing in confined spaces and provides near
instantaneous readings of gas concentrations. In fiscal 1998, the Company
introduced the "UniMax", a pocket-sized, microprocessor based, portable single
gas detector. The "UniMax" is available with up to nine interchangeable plug-in
sensors for various types of gasses and allows for audible, visual and vibrating
alarm combinations. The Company believes the "MicroMax" and the "UniMax" compete
favorably on size, technical features and price.
The Company's gas calibrators are based upon 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.
The Company'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.
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The Company's pressure sensing devices are sold primarily to plastic extrusion
equipment manufacturers utilizing 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.
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.
PRODUCT REVENUES
The percentage of the Company's revenues contributed by its medical device line
of products was 57%, 55% and 49%, respectively, for fiscal years 1998, 1997, and
1996. The percentage of the Company's revenues contributed by its safety line of
products was 31%, 34% and 39%, respectively, for fiscal years 1998, 1997, and
1996.
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 located in Europe and in the Far East. In connection with the
introduction of the "Millennia" vital signs monitor in fiscal 1997, 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.
With respect to its MRI monitoring equipment, the Company has OEM or similar
relationships with G.E. Medical Systems, Siemens Medical Systems, Philips
Medical Systems, Elscint Ltd. and Hitachi.
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 23%, 22% and 20% of the Company's total sales in
fiscal 1998, 1997, and 1996. The Company is actively trying to expand its
international presence, especially in the patient safety monitoring business.
However, the current economic uncertainty in many countries throughout the world
may have an adverse impact on the Company's sales levels in international
markets.
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The Company's backlog of unfilled purchase orders for all its products was
approximately $6.7 million as of June 30, 1998, compared to approximately $3.5
million as of June 30, 1997 and approximately $3.3 million as of June 30, 1996.
The Company expects to ship in fiscal 1999 all of the June 30, 1998 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 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 two current competitors 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 are subsidiaries or
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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 1998, 1997, and 1996 the Company's research and experimental
expenses were approximately $2.5 million, $2.4 million, and $2.1 million,
respectively. The majority of these expenditures are 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 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).
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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 applicable
material environmental regulations. 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, 1998 the Company had 285 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.
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
</TABLE>
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<TABLE>
<CAPTION>
Ownership or
General Character Expiration
Location and Use of Property Date of Lease
- -------- ------------------- -------------
<S> <C> <C>
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, 1999
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. This matter is scheduled to commence trial on October 12, 1998.
However, the trial judge assigned to this case has indicated that the trial will
likely be delayed until approximately February or March of 1999. 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. In April of 1998, the matter was resolved pursuant to a settlement
agreement with the release of all claims against the Company. The impact of the
settlement was not material to the Company.
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 1998.
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 42 President and
Chief Executive Officer
John F. Glenn 37 Vice President, Finance
Chief Financial Officer
F. Larry Young 39 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, 1998 June 30, 1997
------------- -------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter 7-1/2 6-3/4 11 9-1/4
Second Quarter 10-7/8 7 14-1/4 10
Third Quarter 10-3/4 8-7/16 15-3/8 12
Fourth Quarter 13-1/2 10-3/4 11-3/4 6-5/8
</TABLE>
(b) Holders
The number of holders of record of the Company's Common Stock at June 30, 1998
was 67. The approximate number of holders, including participants in security
position listings as of September, 1998, was 1,100.
(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,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share amount)
<S> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Sales $40,651 $35,904 $31,391 $32,489 $27,801
Net income 2,263 316 2,472 3,348 2,881
Basic net income
per common share .69 .10 .77 1.05 .91
Weighted average of
common shares
outstanding (basic) 3,265 3,239 3,216 3,186 3,163
Diluted net income
per common share .66 .09 .72 .99 .86
Weighted average of
common shares
outstanding (diluted) 3,426 3,445 3,456 3,390 3,359
BALANCE SHEET DATA:
Working capital 9,364 7,474 7,490 6,428 5,477
Total assets 30,195 26,612 22,204 19,860 17,427
Long-term debt 1,480 1,584 730 926 3,367
Stockholders' equity 18,168 15,815 15,276 12,616 9,137
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1998 COMPARED TO FISCAL 1997
NET SALES
The Company's net sales for fiscal 1998 increased 13.2% to $40,651,400 from
$35,903,500 in fiscal 1997. The sales increase in fiscal 1998 was primarily
attributable to the sales growth at the Company's patient safety monitoring
business as sales of the "Millennia" portable multi-parameter vital signs
monitor continued to increase from prior year levels. Sales were also positively
affected by increased sales at the Company's gas detection, oxygen monitoring
and industrial process control businesses.
GROSS PROFIT
The gross profit margin increased slightly in fiscal 1998 to 48.5% from 48.1% in
fiscal 1997. Continued improvement in the gross margin of the "Millennia"
monitor was primarily due to material cost reductions and manufacturing
efficiencies. In addition, higher gross margins at the Company's gas detection
and industrial process control businesses offset a decline in the gross margin
at the Company's oxygen monitoring business.
OPERATING EXPENSES
Selling, general and administrative expenses in fiscal 1998 decreased 5.3% or
$745,800 over fiscal 1997 levels. Selling, general and administrative expenses
were 33.0% of sales in fiscal 1998 compared with 39.5% for fiscal 1997. The
decrease in these expenditures in aggregate and as a percentage of sales was
primarily due to a reduction in selling, general and administrative expenses at
the Company's patient safety monitoring business as many of the expenses
associated with the significant expansion of the Company's direct sales force in
fiscal 1997 have decreased.
Research and experimental expenses remained nearly constant at $2,455,000 or
6.0% of sales in fiscal 1998 as compared to $2,448,800 or 6.8% of sales in
fiscal 1997. A substantial amount of the research and experimental expenses are
on behalf of the patient safety monitoring business as the Company continues its
efforts in enhancing its "Millennia" vital signs monitor and developing other
vital signs monitoring products.
OTHER INCOME AND EXPENSE
Interest expense increased to $387,300 for fiscal 1998 compared with $251,400 in
fiscal 1997. The increase in interest expense was the result of higher
outstanding balances on the Company's revolving bank line of credit along with
the increased mortgage on the Company's expanded patient safety monitoring
facility.
PROVISION FOR INCOME TAXES
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The effective tax rate for fiscal 1997 remained stable at 34%.
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.
PROVISION FOR INCOME TAXES
The effective tax rate for fiscal 1997 remained stable at 34%.
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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, 1998 increased to $9,363,700 compared with
$7,474,100 at June 30, 1997. Cash and cash equivalents at June 30, 1998 were
$554,100 compared with $171,100 at June 30, 1997. Net cash provided by operating
activities was $2,006,400 for fiscal 1998 compared with $585,200 used in
operations for fiscal 1997. This increase was primarily the result of the
increase in net income for fiscal 1998 as compared to fiscal 1997. Capital
expenditures were $646,800 for fiscal 1998 compared to $2,380,500 for fiscal
1997. The fiscal 1997 capital expenditure figure included approximately $900,000
of construction in progress for the expansion of the patient safety monitoring
facility completed in February 1997. The remaining difference in capital
spending is largely due to the reduced requirements for demonstration equipment
for the direct sales force at the Company's patient safety monitoring business
in fiscal 1998.
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 vested on January 1, 1996, 1997 and
1998 and two-fifths vest on January 1, 1999. The former Invivo Research
shareholders can make an 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, 1996, for $987,900. In March of 1998, the former Invivo Research shareholders
elected to be paid on the second vested installment which amounted to $465,342.
The former Invivo Research shareholders agreed to a payment of $116,335 in
March, 1998 with the remainder to be paid in nine equal monthly payments
beginning in April, 1998.
Bank borrowings decreased $645,000 in fiscal 1998. The Company's
revolving bank line of credit is collateralized by the Company's accounts
receivable, inventory, and equipment. The Company renewed the $5,000,000 line of
credit on December 1, 1997 to December 1, 1998. At June 30, 1998, $2,750,000 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 1999.
The Company will continue to explore opportunities
16
<PAGE> 17
for the possible acquisitions of technologies or businesses, which may require
the Company to seek additional financing.
RECENT ACCOUNTING PRONOUNCEMENTS
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. The Company believes that as the Company does
not currently have any of the reconciling components defined, SFAS No. 130 will
have no impact on its consolidated financial statements.
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 selected information about operating segment in
interim financial reports issued to stockholders. The statement is effective for
periods beginning after December 15, 1997, and will be adopted by Invivo
Corporation in its annual reporting for fiscal year 1999.
"EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT
BENEFITS". In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132. SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997 and requires restatement of disclosures for
earlier periods provided for comparative purposes, if available. Because the
Company does not have any of these type of plans, it believes that SFAS No. 132
will have no impact on the consolidated financial statements.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, accounting for derivative instruments and hedging
activities, which establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. The statement is effective for fiscal
quarters of fiscal years beginning after June 15, 1999. As the Company does not
currently have any derivative instruments for hedging activities engaged, the
Company believes that SFAS No. 133 will have no impact on its consolidated
financial statements.
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 fiscal 1997, the Company introduced its new "Millennia" portable
multi-parameter vital signs monitor and substantially increased selling, general
17
<PAGE> 18
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:
customer acceptance of new product; effectiveness of sales and marketing
efforts; customer buying patterns; changes in healthcare delivery and
reimbursement; availability of components; impact of the international economic
environment; execution of new product manufacturing ramp and competitive
factors, such as competitor's new products and pricing pressures. The statements
contained in this Outlook are based on current expectations. These statements
are forward looking, and actual results may differ materially.
YEAR 2000
Many existing computer systems and related software applications use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected so that they can process
data related to the year 2000. The Company relies on such computer systems and
applications in operating and monitoring all major aspects of its business. The
Company has evaluated the impact of the year 2000 issue on its business and the
related expenses incurred in attempting to remedy such impact. The Company has
contracted with outside information consulting companies to install both new
hardware and replace its current mission critical software systems with off the
shelf year 2000 compliant software. Management's current estimate is that the
costs associated with the year 2000 issue will total approximately $300,000 and
should not have a material adverse effect on the results of operations or
financial position of the Company in fiscal 1999. Management expects all
information system upgrades and conversions to be completed and fully
operational by early calendar 1999. The Company has not currently considered
any contingent plans in case the installations performed by the outside
information consulting companies are not satisfactory for the year 2000
compliance, as the Company believes that the installations will sufficiently
address the year 2000 issue. However, if the completed installations by early
calendar 1999 are not satisfactory for year 2000 compliance, the Company will
then formulate the necessary contingent plans. Nevertheless, the Company cannot
predict the effect of the year 2000 problems on its vendors, customers and other
entities with which the Company transacts business, or with whose products the
Company's products interact. The Company believes that the effect of the year
2000 on such entities will not materially adversely effect the Company's
operations.
18
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
Page
Number
--------
<S> <C>
Independent Auditors' Report 20
Consolidated Balance Sheets - June 30, 1998
and 1997 21
Consolidated Statements of Income for
the Years Ended June 30, 1998, 1997, and 1996 22
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1998, 1997, and 1996 23
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1998, 1997, and 1996 24
Notes to Consolidated Financial Statements 25-35
</TABLE>
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Invivo Corporation:
We have audited the accompanying consolidated balance sheets of Invivo
Corporation and subsidiaries (the Company) as of June 30, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
--------------------------------
KPMG Peat Marwick LLP
July 30, 1998
20
<PAGE> 21
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 554,100 171,100
Trade receivables, less allowance for doubtful accounts of
$288,300 and $371,000 in 1998 and 1997, respectively 10,277,000 7,898,800
Inventories 7,282,400 7,100,900
Deferred income taxes 1,138,000 802,300
Prepaid expenses and other current assets 451,400 516,200
----------- -----------
Total current assets 19,702,900 16,489,300
Property and equipment, net 4,441,100 4,460,100
Intangible assets 5,748,700 5,442,400
Other assets 302,600 219,700
=========== ===========
$30,195,300 26,611,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 3,139,100 2,871,000
Accrued expenses 2,679,700 2,153,200
Current portion of long-term debt and bank borrowings 3,087,200 3,487,900
Income taxes payable 1,433,200 481,200
Other -- 21,900
----------- -----------
Total current liabilities 10,339,200 9,015,200
Long-term debt, excluding current portion 1,479,800 1,584,400
Deferred income taxes 156,000 145,400
Other 52,000 52,000
----------- -----------
Total liabilities 12,027,000 10,797,000
----------- -----------
Stockholders' equity:
Common stock, $.01 par value; 5,000,000 shares authorized;
3,269,418 and 3,255,668 shares issued and outstanding in
1998 and 1997, respectively 32,694 32,557
Additional paid-in capital 12,878,606 12,787,443
Retained earnings 5,257,000 2,994,500
----------- -----------
Total stockholders' equity 18,168,300 15,814,500
Commitments and contingencies
----------- -----------
$30,195,300 26,611,500
=========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE> 22
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 40,651,400 35,903,500 31,390,900
Cost of goods sold 20,956,600 18,618,900 15,810,900
------------ ------------ ------------
Gross profit 19,694,800 17,284,600 15,580,000
------------ ------------ ------------
Operating expenses:
Selling, general, and administrative 13,428,500 14,174,300 9,690,700
Research and experimental 2,455,000 2,448,800 2,095,400
------------ ------------ ------------
Total operating expenses 15,883,500 16,623,100 11,786,100
------------ ------------ ------------
Income from operations 3,811,300 661,500 3,793,900
Other income (expense):
Interest expense (387,300) (251,400) (175,200)
Other, net 4,000 67,900 126,700
------------ ------------ ------------
Income before income taxes 3,428,000 478,000 3,745,400
Income tax expense 1,165,500 162,500 1,273,400
------------ ------------ ------------
Net income $ 2,262,500 315,500 2,472,000
============ ============ ============
Basic net income per common share $ .69 .10 .77
============ ============ ============
Weighted average of common shares outstanding
(basic) 3,264,966 3,239,187 3,216,362
============ ============ ============
Diluted net income per common share $ .66 .09 .72
============ ============ ============
Weighted average common shares and common share
equivalents outstanding (diluted)
3,426,718 3,445,326 3,455,501
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE> 23
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------------ PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balances as of June 30,
1995 3,200,043 $ 32,000 12,406,500 207,000 12,616,100
Exercise of stock options 25,950 260 83,840 -- 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 32,260 12,564,340 2,679,000 15,275,600
Exercise of stock options 29,675 297 160,703 -- 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 32,557 12,787,443 2,994,500 15,814,500
Exercise of stock options 13,750 137 76,863 -- 77,000
Tax benefit from exercise
of options -- -- 14,300 -- 14,300
Net income -- -- -- 2,262,500 2,262,500
---------- ---------- ---------- --------- ----------
Balances as of June 30,
1998 3,269,418 $ 32,694 12,878,606 5,257,000 18,168,300
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE> 24
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
-------------------- ------------------- -------------------
<S> <C> <C> <C>
Cash flows from operating activities: $
Net income 2,262,500 315,500 2,472,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 760,000 745,900 601,400
Loss on sale of property and equipment 64,800 21,200 31,200
Changes in operating assets and liabilities:
Trade receivables (2,378,200) (1,483,300) (215,900)
Inventories (181,500) (1,596,500) (412,500)
Deferred income taxes (310,700) (230,600) (72,300)
Prepaid expenses and other current assets
64,800 68,300 (128,000)
Accrued expenses 526,500 251,900 (65,900)
Accounts payable 268,100 1,234,700 292,800
Income taxes payable 952,000 158,700 220,500
Other current liabilities (21,900) (71,000) 2,600
----------- - ---------- -----------
Net cash provided by (used in) operating
activities 2,006,400 (585,200) 2,725,900
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (646,800) (2,380,500) (769,300)
Proceeds from sale of property and equipment -- 69,400 17,000
Intangible assets (232,600) -- (987,900)
Other assets (82,900) 149,800 (297,400)
----------- ----------- -----------
Net cash used in investing activities (962,300) (2,161,300) (2,037,600)
----------- ----------- -----------
Cash flows from financing activities:
Issuances of common stock 76,900 161,000 84,100
Bank borrowings (repayments), net (645,000) 2,545,000 1,800,000
Principal payments under long-term debt and other
liabilities (93,000) (224,600) (2,457,800)
----------- ----------- -----------
Net cash provided by (used in) financing
activities (661,100) 2,481,400 (573,700)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents
383,000 (265,100) 114,600
Cash and cash equivalents at beginning of year 171,100 436,200 321,600
----------- ----------- -----------
Cash and cash equivalents at end of year $ 554,100 171,100 436,200
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE> 25
INVIVO CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 1998, 1997, and 1996
(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. 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.
25
<PAGE> 26
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, 1998 and 1997 was approximately $867,500 and
$708,400, respectively. Amortization expense was approximately $159,100,
$153,400 and $136,100 for 1998, 1997, and 1996, respectively.
BASIC AND DILUTED NET INCOME PER COMMON SHARE
The Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) No. 128, Earnings Per Share, requires the
presentation of basic net income per share and diluted net income per
share. The Company adopted the provisions of SFAS No. 128 for the year
ended June 30, 1998 and prior periods have been restated to conform to
SFAS No. 128.
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
Long-lived assets and certain identifiable intangibles held and used by
the Company are reviewed for impairment whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. The
Company has identified no long-lived assets or identifiable intangibles
which are considered impaired.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments
including cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses approximate their fair values because of
their short maturities.
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.
26
<PAGE> 27
ACCOUNTING FOR STOCK OPTIONS
Prior to June 30, 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 on the
date of grant only if the current market price of the underlying stock
exceeded the exercise price. On June 30, 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 employees stock option grants made in 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 as required by
SFAS No. 123.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, is effective for years beginning after December 15, 1997.
The Company will adopt this standard for 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. Under this agreement,
the purchase price for the remaining shares is to be paid in five
installments. One installment in the amount of $987,000 was paid during
fiscal 1996. During fiscal 1998, the Company accrued for a second
installment in the amount of $465,000, of which $232,600 was paid as of
June 30,1998. The three remaining installments will become payable on
January 1, 1999 and will be based on calendar year 1998 results. The
value of each installment will be determined based upon a formula
involving after-tax profits, subject to a minimum share price if certain
milestones are achieved.
(3) INVENTORIES
A summary of inventories as of June 30 follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Raw materials $3,842,100 3,804,500
Work in process 2,126,000 1,180,100
Finished goods 1,314,300 2,116,300
---------- ---------
$7,282,400 7,100,900
========== ==========
</TABLE>
27
<PAGE> 28
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Land and building $ 2,329,500 2,324,800
Equipment 4,467,900 3,935,800
Furniture and fixtures 1,003,800 960,100
Vehicles 148,500 147,000
----------- -----------
7,949,700 7,367,700
Less accumulated depreciation and amortization (3,508,600) (2,907,600)
----------- -----------
$ 4,441,100 4,460,100
=========== ===========
</TABLE>
(5) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Installments payable on the purchase of the remaining
shares of Invivo Research (note 2). Amount is
payable in monthly installments of $38,778 through
December 31, 1998 $ 232,600 --
Term loan payable in monthly installments of
approximately $8,700, including interest at 8-1/2%;
secured by land and building 1,584,400 1,677,300
Borrowings under the $5,000,000 revolving loan,
which expires and is payable on December 1,
1998; collateralized by accounts receivable and
inventory and equipment; interest payable
monthly at LIBOR plus 2.0% 2,750,000 3,395,000
----------- -----------
4,567,000 5,072,300
Less current portion (3,087,200) (3,487,900)
----------- -----------
$ 1,479,800 1,584,400
=========== ===========
</TABLE>
28
<PAGE> 29
The aggregate maturities of long-term debt of June 30, 1998 are as
follows:
<TABLE>
<CAPTION>
Year ending June 30,
<S> <C>
1999 $3,087,200
2000 104,600
2001 104,600
2002 104,600
2003 104,600
Thereafter 1,061,400
==========
$4,567,000
==========
</TABLE>
In December 1997, the Company and its bank lender agreed to renew the
revolving $5,000,000 loan to December 1, 1998. The revolving loan
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, 1998,
$2,250,000 was available under the line of credit.
(6) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Accrued compensation and benefits $2,062,500 1,245,400
Other 617,200 907,800
---------- ---------
$2,679,700 2,153,200
========== ==========
</TABLE>
(7) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases. The facilities' leases require the Company to pay certain
executory costs such as taxes, insurance, and maintenance. Rent expense
related to operating leases was approximately $422,200, $385,000 and
$416,900 for the years ended June 30, 1998, 1997, and 1996, respectively.
A summary of future minimum lease payments required under noncancelable
operating leases with terms in excess of one year, net of sublease rental
income, as of June 30, 1998 follows:
<TABLE>
<CAPTION>
Fiscal year ending
<S> <C>
1999 $411,500
2000 250,500
2001 156,300
2002 5,100
2003 1,900
========
Future minimum lease payments $825,300
========
</TABLE>
29
<PAGE> 30
(8) INCOME TAXES
A summary of the components of income tax expense (benefit) follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ------- ---------
<S> <C> <C> <C>
1998:
Federal $ 1,252,500 (284,000) 968,500
State 237,000 (40,000) 197,000
----------- ------- ---------
$ 1,489,500 (324,000) 1,165,500
=========== ======= =========
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
=========== ======= =========
</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
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>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Deferred tax assets:
Reserves and other accruals $ 1,138,000 800,600 587,000
Capital loss carryover 199,400 199,400 1,500
Accumulated depreciation -- 1,700 --
--------------- --------------- ---------------
Gross deferred tax assets 1,337,400 1,001,700 588,500
Valuation allowance (199,400) (199,400) (1,500)
--------------- --------------- ---------------
Total deferred tax assets, less
valuation allowance 1,138,000 802,300 587,000
--------------- --------------- ---------------
Deferred tax liabilities:
Federal depreciation in excess of books (15,000) -- (11,000)
Acquired intangibles from acquisitions (141,000) (145,400) (149,700)
--------------- --------------- ---------------
Total deferred tax liabilities (156,000) (145,400) (160,700)
--------------- --------------- ---------------
Net deferred tax asset $ 982,000 656,900 426,300
=============== =============== ===============
</TABLE>
There was no net change in the valuation allowance for the year ended
June 30, 1998.
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.
31
<PAGE> 32
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal income tax at statutory rate $1,165,500 $ 162,500 $1,273,400
State income taxes 156,000 103,000 150,500
Utilization of research, experimental, and
other credits (57,000) (50,000) --
Benefit of foreign sales corporation (204,000) (135,500) (111,500)
Permanent differences 54,000 44,000 21,000
Other 51,000 38,500 (60,000)
========== ========== ==========
$1,165,500 162,500 1,273,400
========== ========== ==========
</TABLE>
(9) STOCK OPTION PLAN
The Company has established stock option 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 600,000 shares of its
common stock for issuance under the 1986 and 1994 Plans, respectively.
During 1998, the Company granted 123,500 shares of common stock.
Had the Company determined compensation costs related to its stock option
plans pursuant to SFAS No. 123, 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>
1998 1997 1996
---------- -------- ---------
<S> <C> <C> <C>
Net income As reported $2,262,500 315,500 2,472,000
Pro forma 2,151,899 161,227 2,456,800
Basic net income per share As reported .69 .10 .77
Pro forma .66 .02 .75
Diluted net income per share As reported .66 .09 .72
Pro forma .63 .02 .71
</TABLE>
Pro forma net income reflects only options granted in 1998, 1997 and
1996. Therefore, the full impact of calculating compensation cost for the
Company's Plan 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
A summary of stock option activity for the years ended June 30, 1998 and
1997 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, 1996 364,400 234,675 $ 3.59
Granted 197,000 11.47 5.39
Exercised (29,675) 5.54
Canceled (15,625) 8.74
-------
June 30, 1997 516,100 7.36 267,638 4.19
Granted 123,500 10.00 5.41
Exercised (13,750) 5.60
Canceled (9,875) 7.29
-------
June 30, 1998 615,975 7.77 328,401 5.51
=======
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT JUNE 30, CONTRACTUAL EXERCISE AT JUNE 30, EXERCISE
PRICES 1998 LIFE PRICE 1998 PRICE
------------ ----------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$2.00--5.13 188,050 2.54 $ 2.80 188,050 $ 2.80
7.00--8.75 128,175 6.86 7.35 82,225 4.53
10.00--16.13 299,750 8.74 11.07 58,126 12.15
------- ---- ----- ------- -----
615,975 6.46 7.77 328,401 4.89
======= =======
</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 vest 25% each
year over a four year period in the Company's contributions. Company
contributions to the Plan for the years ended June 30, 1998, 1997, and
1996 were $70,600, $56,700 and $43,200, respectively.
33
<PAGE> 34
(11) LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
its business. While the ultimate results of such proceedings cannot be
predicted with certainty, management expects that 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 1998, 1997, and 1996 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, 1998.
(13) INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in multiple industry segments and it markets its
products in the United States and in foreign countries through its sales
personnel and distributors. Export sales account for a significant
portion of the Company's net revenue and are summarized by geographic
area as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
North America $31,300 27,900 25,000
Export:
Europe 2,400 2,200 1,400
Pacific Rim 2,000 2,600 2,300
Other international 5,000 3,200 2,700
------ ------ ------
Total net revenue $40,700 35,900 31,400
====== ====== ======
</TABLE>
(14) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- ----------
<S> <C> <C> <C>
Tax benefit associated with exercise of
stock options $ 14,400 62,400 103,400
</TABLE>
34
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
Cash paid:
Income taxes 875,158 234,800 1,076,700
Interest 389,274 293,100 175,300
</TABLE>
35
<PAGE> 36
SELECTED QUARTERLY FINANCIAL DATA (NOT COVERED BY REPORT OF INDEPENDENT
ACCOUNTANTS):
<TABLE>
<CAPTION>
In millions, except per share amounts 1STQTR 2NDQTR 3RDQTR 4THQTR
---------------------------------------
<S> <C> <C> <C> <C>
FISCAL YEAR 1998
Sales $9,384 $9,724 $10,425 $11,119
Gross Profit 4,419 4,740 4,891 5,644
Net Income 460 543 575 685
Net Income per common share (basic) 0.14 0.17 0.18 0.21
Net Income per common share (diluted) 0.14 0.16 0.17 0.20
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)
</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 1998.
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 1998
pursuant to regulation 14A, a definitive proxy statement that will involve the
election of directors.
36
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBITS
<TABLE>
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>
37
<PAGE> 38
<TABLE>
<CAPTION>
(A) EXHIBIT
PAGE
----
<S> <C> <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.
and Wells Fargo Bank dated June 16, 1997 (13)
10.14 Second Amendment to Credit Agreement between Invivo Corp.
and Wells Fargo Bank dated November 19, 1997 (14)
10.15 Third Amendment to Credit Agreement between Invivo Corp.
and Wells Fargo Bank dated August 20, 1997 42-43
11.01 Statement regarding computation of per
share earnings 44
21.01 Subsidiaries of Registrant 45
23.01 Consent of Independent Auditors 46
27.01 Financial Data Schedule 47
</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 (File No. 0-15963)
(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)
38
<PAGE> 39
(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.
(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)
(13) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 29, 1997. (File No. 0-15963)
(14) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 13, 1998. (File No. 0-15963)
39
<PAGE> 40
(B) FINANCIAL STATEMENT SCHEDULES
Invivo Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Years ended June 30, 1998, 1997 and 1996
<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> <C>
Allowance for doubtful
accounts
Fiscal 1998 371,000 17,100 99,800 288,300
Fiscal 1997 231,000 148,600 8,600 371,000
Fiscal 1996 236,900 93,100 99,000 231,000
</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, 1998.
40
<PAGE> 41
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 25, 1998
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
- -----------------------
Ernest C. Goggio Chairman of the Board September 25, 1998
/s/ JAMES B. HAWKINS
- -----------------------
James B. Hawkins President, Chief September 25, 1998
Executive Officer, Director
(principal executive
officer)
/s/ JOHN F. GLENN
- -----------------------
John F. Glenn Chief Financial Officer September 25, 1998
(principal financial
and accounting officer)
/s/ LAUREEN DEBUONO
- -----------------------
Laureen DeBuono Director September 25, 1998
/s/ GEORGE S. SARLO
- -----------------------
George S. Sarlo Director September 25, 1998
</TABLE>
41
<PAGE> 1
Exhibit 10.15
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is entered
into as of August 20, 1998 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 Borrower and Bank dated
as of December 1, 1996, as amended from 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 5.2 is hereby deleted in its entirety, and the following
substituted therefore:
"SECTION 5.2 OTHER INDEBTEDNESS. Create, incur, assume or
permit to exist any indebtedness or liabilities resulting from borrowings, loans
or advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,
(b) any other liabilities of Borrower existing as of, and disclosed to Bank
prior to, the date thereof except debt from First Union Bank for the purpose of
financing the expansion of that certain manufacturing facility owned by Invivo
Research, Inc.(an Invivo Corporation Subsidiary) located in Orlando, Florida,
and (c) make any additional investment in fixed assets in any fiscal year in
excess of an aggregate of $325,000.00."
2. 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.
3. 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 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.
42
<PAGE> 2
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 CORPORATION NATIONAL ASSOCIATION
By: _____________________________ By:_______________________
James B. Hawkins Rick Freeman
President Vice President
By: _____________________________
John F. Glenn
Vice President, Finance
43
<PAGE> 1
EXHIBIT 11.01
INVIVO CORPORATION AND SUBSIDIARIES
STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
BASIC:
Weighted average common
shares outstanding 3,264,966 3,239,187 3,216,362
========= ========= =========
Net Income $ 2,262,500 315,500 2,472,000
========= ======= =========
Basic net income
per common share $ 0.69 0.10 0.77
==== ==== ====
DILUTED:
Weighted average common
shares outstanding
(basic) 3,264,966 3,239,187 3,216,362
Dilutive stock options 161,752 206,139 239,139
--------- --------- --------
Weighted average common
shares outstanding
(diluted) 3,426,718 3,445,326 3,455,501
========= ========= =========
Net Income $ 2,262,500 315,500 2,472,000
========= ======= =========
Diluted net income
per common share $ 0.66 0.09 0.72
==== ==== ====
</TABLE>
44
<PAGE> 1
INVIVO CORPORATION
EXHIBIT 21.01
SUBSIDIARIES OF REGISTRANT
Linear Laboratories Corporation
Sierra Precision
G.C. Industries Inc.
Lumidor Safety Corporation
Invivo Research Inc.
45
<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, 1998, included the related
financial statement schedule for each of the years in the three-year period
ended June 30, 1998, included in the annual report on Form 10-K/A. 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, 1998
relating to the consolidated balance sheets of Invivo Corporation and
subsidiaries as of June 30, 1998, and 1997, 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, 1998, and the related financial
statement schedule, which report appears in the June 30, 1998, annual report on
Form 10-K/A of Invivo Corporation.
KPMG LLP
Oakland, California
February 8, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 554
<SECURITIES> 0
<RECEIVABLES> 10,277
<ALLOWANCES> 288
<INVENTORY> 7,282
<CURRENT-ASSETS> 19,703
<PP&E> 7,950
<DEPRECIATION> 3,509
<TOTAL-ASSETS> 30,195
<CURRENT-LIABILITIES> 10,339
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 18,165
<TOTAL-LIABILITY-AND-EQUITY> 30,195
<SALES> 40,651
<TOTAL-REVENUES> 40,651
<CGS> 20,957
<TOTAL-COSTS> 20,957
<OTHER-EXPENSES> 15,884
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387
<INCOME-PRETAX> 3,428
<INCOME-TAX> 1,166
<INCOME-CONTINUING> 2,263
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,263
<EPS-PRIMARY> .69<F1>
<EPS-DILUTED> .66
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC.
</FN>
</TABLE>
