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FORM 10-K
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, 2000
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)
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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)
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Registrant's telephone number, including area code: 925-468-7600
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK
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 the closing sales price of $11.25 September 11, 2000, the aggregate
market value of registrant's voting Common Stock held by non-affiliates of the
registrant was approximately $49,365,000.
There were 4,387,999 shares of the registrant's Common Stock, $.01 par value,
outstanding on September 11, 2000.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A not later than 120 days after the end of the fiscal year June 30,
2000 are incorporated by reference in Part III.
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PART I
ITEM 1. BUSINESS
OVERVIEW
Invivo Corporation designs, manufactures and markets monitoring systems
that measure and display vital signs of patients in medical settings. The
Company's systems simultaneously monitor heart function, respiration, heart
rate, blood oxygen levels, invasive and non-invasive blood pressure and exhaled
carbon dioxide levels.
The Company developed the first multi-parameter vital sign patient
monitoring system for use during magnetic resonance imaging ("MRI"). Based on
the Company's reputation in the MRI patient monitoring field and its
technological expertise, it has made inroads into the general patient monitoring
market with its Millennia product introduced in early fiscal 1997.
The Company has established relationships with most of the world's
largest MRI equipment manufacturers. It presently maintains distribution
agreements or other OEM vendor relationships with Siemens A.G. Medical
Engineering Group ("Siemens Medical"), Philips Medical Systems ("Philips
Medical"), Hitachi Medical Corporation, and GE Medical Systems ("GE Medical").
GE Medical and Siemens Medical have approved the use of the Company's monitors
for incorporation into their MRI equipment. The Company continues to work with
MRI equipment manufacturers to develop additional customized features.
In addition to the patient monitoring business, the Company offers a
line of safety and industrial instrumentation products. The percentage of sales
contributed by the Company's patient monitoring line of products was 57%, 62%
and 62% for fiscal years 1998, 1999, and 2000, respectively.
Financial information regarding operating segments for the three years
ended June 30, 2000 is included in Note 14 "Segment Information," of the Notes
to the Consolidated Financial Statements.
INDUSTRY
PATIENT MONITORING
MRI
MRI is a non-invasive diagnostic tool that uses magnetic fields and
radio frequencies to produce images of internal organs and structures of the
body. As the technology has improved, MRI has become a widely accepted method of
performing diagnostic procedures. As a result, MRI scanners are used worldwide,
and are located principally in hospitals and stand-alone imaging centers. The
Company believes that roughly half of these MRI scanners are located in the
United States.
The Company believes the MRI marketplace will continue to grow as new
uses for MRI are developed. The Company believes that about 2,000 new MRI units
were sold worldwide in 1999.
While not every MRI use requires a patient monitor, as uses continue to
expand, the Company believes patient monitoring during the MRI procedure will
become increasingly important. MRI patient monitoring technology enables
physicians to track vital signs while the patient is undergoing an MRI
procedure. The MRI environment presents unique challenges for patient
monitoring. A monitor must not interfere with the MRI in a manner that degrades
the image. In addition, the monitor signal must be protected from the MRI's
magnetic field and radio frequencies in order to maintain the accurate
performance of the monitor. In light of these challenges, only three companies
are currently manufacturing MRI patient monitors. The Company believes it is the
market leader.
The Company expects that growth in the MRI monitoring market will come
from new MRI unit placements, outfitting existing MRI equipment not presently
equipped with monitoring devices, and replacing existing MRI patient monitors.
GENERAL PATIENT MONITORING
General patient monitoring products measure, display and document vital
signs information obtained from sensors attached to the patient. The principal
customers of patient monitoring products include hospitals and outpatient
surgery centers.
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The Company estimates the worldwide market for patient monitoring
products that measure multiple vital signs, including MRI and general patient
monitoring, was approximately $1.5 billion in 1999. This market consists of
three segments identified by their environments. The first segment is the
portable monitoring market that includes the emergency room, bedsides, and
neo-natal care units of hospitals. The second segment is the inpatient and
outpatient operating room market. The final segment includes intensive and
critical care units in hospitals.
The general patient monitoring market is mature and therefore highly
competitive. The Company believes the two greatest factors contributing to
product success are price and features.
SAFETY AND INDUSTRIAL INSTRUMENTATION
The Company's safety and industrial instrumentation product line
includes gas detection and monitoring devices that are offered in portable and
fixed settings. OSHA and other regulatory agencies require the use of such
devices in confined spaces where toxic gases or low levels of oxygen are
suspected. The Company's safety and industrial instrumentation products also
includes pressure and infrared sensor instrumentation that are frequently
utilized in industrial settings. The Company expects the safety and industrial
instrumentation segment to experience only modest growth in the foreseeable
future.
PRODUCTS
MRI PATIENT MONITORS
Through its patented technologies and proprietary shielding techniques,
the Company is able to monitor a patient's vital signs without disrupting the
MRI process.
OMNI-TRAK 3100. In the late 1980s, the Company pioneered the development
of vital signs monitoring during magnetic resonance imaging with the
introduction of the Omni-Trak 3100. The Omni-Trak 3100 provides continuous
monitoring of all key aspects of a patient's vitality, including
electrocardiograph, respiration, heart rate, blood oxygen levels, invasive and
non-invasive blood pressure and expired carbon dioxide levels.
OMNI-TRAK 3150. In April 1998, the Company introduced its
next-generation MRI monitor. The Omni-Trak 3150 incorporates all of the features
of the Omni-Trak 3100 plus it is compact, mobile and easy to use. Through
state-of-the-art radio transmission, the Omni-Trak 3150 communicates with our
Millennia remote display controller, allowing critical data to be viewed by
physicians and technicians in both the MRI room and the control room.
GENERAL PATIENT MONITORING
Based on its reputation in the MRI patient monitoring field and its
technological expertise, the Company has penetrated the general patient
monitoring market.
MILLENNIA. The Millennia portable patient monitor is a compact
multi-parameter vital signs monitor, which weighs under 15 pounds.
Ease-of-transport enables a hospital to maximize use of the monitors because
they can easily be moved with a patient or between locations. The Millennia also
features a large color display and user-friendly interface.
In January 1999, the Company introduced two new products in the
Millennia line that target substantial specialized markets for patient monitors.
The first of these is a module for anesthetic agent identification and analysis
that allows an anesthesiologist to confirm the type and amount of anesthetic gas
that is administered to a patient. The second incorporates the ability to
measure blood oxygen levels in non-tranquil patients (such as newborns) whose
frequent and unpredictable movements make the use of many traditional monitors
difficult. The Company is developing a product that will measure multiple
anesthetic agents simultaneously.
The Company also developed a modified version of the Millennia for
incorporation into GE Medical 's CT scanners for use in cardiology. This
represents the first use of the Company's patient monitors in radiology
applications outside the MRI environment.
CENTURION. The Company's Centurion central station monitoring system
networks Millennia patient monitors, allowing a single healthcare professional
to monitor up to eight patients simultaneously. The main monitoring screen
provides for rapid interpretation of vital signs information by a single health
care professional.
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With the recent FDA approval of its arrhythmia detection enhancement for
the Centurion, the Company is continuing to upgrade its total product offering.
OTHER. Other monitors include:
- a non-invasive blood pressure monitor that uses digital signal
processing for fast and consistent measurements
- an inexpensive multi-parameter vital signs monitor designed
specifically for the international market
- a stand-alone unit to measure blood oxygen levels
- a monitor for blood pressure and blood oxygen levels
- a portable, hand-held blood oxygen level monitor offering a
low-cost, transportable monitoring unit
SAFETY AND INDUSTRIAL INSTRUMENTATION
The Company offers single-gas and multi-gas detection and monitoring
instruments in both portable and fixed models. The user carries or wears
portable units that are equipped with audible and visual alarms to warn the user
that potential dangers exist. 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. Fixed gas area monitors are appropriate for confined spaces
where chemicals or gases are used or stored. Typical applications for these
monitors are oil refineries, chemical plants and semiconductor fabrication
facilities.
The Company's flagship safety product, the MicroMax, is a hand-sized,
microprocessor-based, portable, multi-gas detector. The MicroMax simultaneously
detects up to four gases. In fiscal 2000, the Company introduced the MicroMax
PRO, an enhanced version of the MicroMax with added features that include voice
messaging and data logging software. The Company also offers the UniMax, a
pocket-sized, microprocessor-based, portable, single-gas detector. UniMax is
available with up to nine interchangeable plug-in sensors for various types of
gases and allows for audible and visual alarm combinations.
The Company's oxygen monitoring products measure oxygen levels in air
cylinders used by individuals in oxygen-deprived situations. The primary use for
this equipment is for a self-contained breathing apparatus for fire fighters and
hazardous material clean-up workers.
The Company's industrial sensor and instrumentation products consist of
pressure sensors and infrared non-contact temperature measuring devices.
The infrared non-contact temperature measuring products are used in a
wide variety of industrial instrumentation situations. These include the
fabrication of semiconductors, the manufacturing of metals and glass, and
miscellaneous automotive, plant maintenance, construction and food preparation
applications. The Company's quickTemp is a hand-held, pocket-sized, infrared
non-contact thermometer.
The Company sells its pressure sensing devices primarily to plastic
extrusion equipment manufacturers who use these devices in their production
processes. Manufacturers in the food, beverage, synthetic fiber and
pharmaceutical industries use these devices to measure the pressure of
processing ingredients.
SALES AND MARKETING
Unlike many other medical device companies its size, the Company sells
its patient monitoring products in the United States through a direct sales
force. The domestic sales force includes 30 salespersons organized into five
regions in the United States. Distributors, assisted by our five international
sales personnel located in Europe and in the Far East, handle sales throughout
the rest of the world.
The Company sells its patient monitoring products primarily to hospitals
and, to a lesser degree, to stand-alone imaging centers, outpatient surgery
centers and OEM customers. The Company has OEM or worldwide distribution
agreements with Siemens A.G.
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Medical Engineering Group, Philips Medical Systems, Hitachi Medical Corporation
and GE Medical Systems for its MRI monitoring equipment. These relationships
facilitate the sale of monitors with the MRI equipment manufactured by these
companies.
The Company has also established relationships with leading group
purchasing organizations such as Premier Technology Management and AmeriNet,
Inc. and health care providers such as Kaiser Permanente and Columbia/HCA.
The Company markets its safety and industrial instrumentation products
mostly through distributors and its own sales personnel. The Company sells these
products primarily to municipalities, utilities, telephone companies, oil
refineries and OEMs.
Foreign sales represented 22%, 23% and 23% of the Company's total sales
in fiscal 2000, 1999 and 1998. The Company is actively trying to expand its
international presence, especially in the patient monitoring business.
The Company's backlog of unfilled purchase orders for all its products
was approximately $10.1 million as of June 30, 2000, compared to approximately
$7.3 million as of June 30, 1999 and approximately $6.7 million as of June 30,
1998. Within the next 12 months, the Company expects to ship all of its current
backlog. Because of customer changes in delivery schedules and the possible
cancellation of orders, 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 its businesses
orders and shipments in the first and second fiscal quarters have been
historically lower than the third and fourth quarters.
MANUFACTURING AND ASSEMBLY
Other companies manufacture components and subassemblies to the
Company's specifications. The Company then assembles its products at its
facilities in California and Florida. The patient monitoring and gas detection
manufacturing facilities are ISO 9001 certified. The Company generally obtains
from a wide variety of suppliers the materials and supplies that it uses to
produce its products. The Company has not experienced any significant shortages.
Although certain materials that the Company uses in the manufacture of certain
patient monitoring and gas detection devices are available from only a few
suppliers, the Company does not anticipate any significant difficulties in
obtaining any of these materials in the foreseeable future.
COMPETITION
The patient monitoring markets in which the Company competes include MRI
and general monitoring. The Company is aware of three current competitors in the
worldwide MRI monitoring market. The general patient monitoring market is highly
competitive and includes companies that are much larger than the Company with
significantly greater financial resources. The Company estimates there are
approximately 15 to 20 competitors in the general patient monitoring market.
In the patient monitoring business, price is an 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 be a very important
competitive factor. The Company also competes on the basis of product
reliability, quality, technical features, performance and service.
The markets for the Company's non-medical products are, in general,
characterized by a relatively 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. The Company competes on price,
product reliability, quality, technical features, performance and service in
these markets.
GOVERNMENTAL REGULATION
The patient monitoring devices the Company manufactures and markets are
subject to regulation by the FDA and, in some instances, corresponding state and
foreign governmental agencies.
The Company's existing medical devices 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 functions the FDA considers to be substantially
equivalent. If a product does not meet the eligibility requirements for the
510(k) process, then its application must be submitted, instead, under the more
time consuming and costly premarket approval procedure.
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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 and the reporting
of adverse events. The FDA's recently revised good manufacturing practices,
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 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 the Company's safety products and medical
devices requires it 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.
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
continues to evolve, and the possibility exists that more stringent limitations
and requirements may become applicable to the Company.
RESEARCH AND EXPERIMENTAL
During fiscal years 2000, 1999, and 1998 the Company's research and experimental
expenses were approximately $3.0 million, $3.0 million, and $2.5 million,
respectively. The majority of these expenditures relate to the patient safety
monitoring business.
EMPLOYEES
As of June 30, 2000 the Company had 344 employees. 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. PROPERTIES
The following table sets forth information with respect to the real
property owned or leased by the Company which it considers material to its
business.
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GENERAL CHARACTER OWNERSHIP OR DATE OF
LOCATION AND USE OF THE PROPERTY EXPIRATION OF LEASE
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Pleasanton, California 3,200 square-foot headquarters facility April 2001
Fremont, California 17,000 square-foot building used as the Company's March 2001
manufacturing and distribution facility for its gas
calibration and process control products
Orlando, Florida 42,000 square-foot building used as the Owned
manufacturing, distribution and administrative
facility for the Company's patient monitoring products
Cucamonga, California 24,000 square-foot building used as the Month to Month
manufacturing, distribution and administrative
facility for the Company's oxygen monitoring products
Miramar, Florida 14,000 square-foot building used as the May 2005
manufacturing, distribution and administrative
facility for the Company's gas detection and monitoring
products
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The Company is currently evaluating several alternatives regarding the
upcoming expirations of the leases at the Pleasanton and Fremont locations.
These alternatives include the possible relocation of the businesses. The
Company has negotiated a lease for a new facility in Cucamonga beginning in
January 2001. The Company does not believe that the cost of relocation will be
material. The Company also believes that the relocation will not interrupt its
business.
ITEM 3. LEGAL PROCEEDINGS
The Company's medical device subsidiary, Invivo Research, was one of two
third-party defendants named in a lawsuit in June of 1994 by Southern Nevada
Surgical Center and Surgex Southern Nevada, Inc. in Nevada State District Court.
The underlying action in this matter stemmed from an incident involving a
surgical patient undergoing a procedure at the Southern Nevada Surgical Center.
The patient suffered a serious permanent brain injury. A lawsuit was filed on
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. The defendants in that action made a substantial
settlement to the patient. Southern Nevada Surgical Center ("SNSC") and Surgex
were seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. SNSC and Surgex
alleged that both the anesthetic gas machine and the vital signs monitor were
defective. The Company believes that the vital signs monitor operated properly
and was properly designed for its intended function.
On August 18, 1999, the Nevada District Court granted the Company's
Motion to Dismiss for Failure to Prosecute. The Order granted dismissal of the
SNSC and Surgex contribution claims, without prejudice, based upon Nevada law
that provides that an action must be brought to trial within five years of the
date of the filing of the original action. The dismissal is being appealed.
In April of 1997, the plaintiff's insurer, CNA, filed an action with
identical causes in the same Nevada State Court. This second action was removed
by the Company to U.S. District Court. The action by CNA was dismissed by the
District Court on January 19, 2000. The dismissal is being appealed.
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Any judgment against the Company that exceeds the amount that its
insurer is required to pay could have a material adverse effect on its business
and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
Our executive officers and directors as of June 30, 2000, are listed
below, together with brief accounts of their business experience and certain
other information.
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NAME AGE POSITION
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James B. Hawkins........................................ 44 President, Chief Executive Officer, Secretary and Director
John F. Glenn........................................... 39 Vice President, Finance and Chief Financial Officer
F. Larry Young.......................................... 41 Vice President, Operations
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James B. Hawkins has been President, Chief Executive Officer and a
Director of Invivo and its predecessor since August 1985. He also has served as
Secretary of Invivo since July 1986. He earned his undergraduate degree in
Business Commerce from Santa Clara University and a MBA from San Francisco State
University.
John F. Glenn was appointed Vice President, Finance and Chief Financial
Officer of Invivo in November 1990. Mr. Glenn earned his undergraduate degree in
Business Administration from University of Nevada, Reno and his MBA from the
University of Santa Clara.
F. Larry Young has been Vice President, Operations of Invivo since April
1990 and the Chief Operating Officer of our Lumidor Safety Products subsidiary
since August 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
MARKET INFORMATION
The Company's common stock is traded on the Nasdaq National Market under
the symbol "SAFE." The following table describes, for the quarters indicated,
the high and low closing sale prices for a share of the Company's common stock
as reported on the Nasdaq National Market.
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HIGH LOW
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YEAR ENDED JUNE 30, 1999
First Quarter........................... 14.75 9.25
Second Quarter.......................... 16.44 12
Third Quarter........................... 18.50 13.50
Fourth Quarter.......................... 13.56 11.5
YEAR ENDED JUNE 30, 2000
First Quarter........................... 14 11.5
Second Quarter.......................... 13.25 10
Third Quarter........................... 13 10.56
Fourth Quarter.......................... 12.50 8
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As of June 30, 2000, the Company had 64 shareholders of record of our
common stock, although there are a larger number of beneficial holders.
DIVIDEND POLICY
The Company intends to retain all earnings, if any, to finance the
expansion of our business. The Company does not anticipate paying any cash
dividends on our common stock in the foreseeable future. If the Company were to
declare dividends in the future, such dividends would be paid at the discretion
of its board of directors after taking into account various factors, including,
among other things, the Company's financial condition, results of operations,
cash flows from operations, current and anticipated cash needs and expansion
plans, the income tax laws then in effect and the requirements of Delaware law.
In addition, the Company's credit facility prohibits the payment of dividends to
its stockholders without written consent from its lender.
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ITEM 6. SELECTED FINANCIAL DATA
The operations data set forth below with respect to the fiscal years
ended June 30, 2000, 1999 and 1998 and the balance sheet data at June 30, 2000
and 1999 are derived from, and are qualified by, reference to the Company's
audited financial statements included elsewhere herein and should be read in
conjunction with those financial statements and the notes thereto. The
operations data set forth below with respect to the fiscal years ended June 30,
1997 and 1996 and the balance sheet data at June 30, 1998, 1997 and 1996 are
derived from audited financial statements not included herein.
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
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FISCAL YEAR ENDED JUNE 30,
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2000 1999 1998 1997 1996
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CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Sales .................................. $ 52,750 $ 48,858 $ 40,651 35,904 $ 31,391
Gross profit ........................... 25,745 24,490 19,695 17,285 15,580
Operating expenses
Selling, general and administrative .. 16,583 15,623 13,429 14,174 9,691
Research and experimental ............ 3,028 3,007 2,455 2,449 2,095
Other income (expense) ................. 1,088 (153) (383) (184) (49)
Income tax expense ..................... 2,256 1,889 1,165 162 1,273
Net income ............................. $ 4,967 $ 3,818 $ 2,263 $ 316 $ 2,472
Basic net income per common share ...... $ 1.15 $ 1.07 $ .69 $ .10 $ .77
Weighted average common shares
outstanding (basic) .................. 4,329 3,552 3,265 3,239 3,216
Diluted net income per common share .... $ 1.10 $ 1.00 $ .66 $ .09 $ .72
Weighted average common shares
outstanding (diluted) ................ 4,497 3,831 3,427 3,445 3,456
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
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2000 1999 1998 1997 1996
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CONSOLIDATED BALANCE SHEET DATA:
Working capital .............. $26,730 $22,949 $ 9,364 $ 7,474 $ 7,940
Total assets ................. 49,476 44,641 30,195 26,612 22,204
Long-term debt ............... 1,393 1,375 1,480 1,584 730
Stockholders' equity ......... 40,325 35,167 18,168 15,815 15,276
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
YEAR ENDED JUNE 30, 2000 COMPARED TO YEAR ENDED JUNE 30, 1999
SALES Sales for fiscal 2000 were $52,749,900, an increase of 8.0% over
sales of $48,858,000 for fiscal 1999. This sales increase was primarily due to
sales growth at the Company's patient safety monitoring business along with
growth at the oxygen monitoring and gas detection businesses in the safety and
industrial instrumentation segment. These increases offset a decrease in sales
of the Company's non-contact infrared temperature products as these products
experienced strong competitive pricing pressures. The "Millennia" portable vital
signs monitor and MRI vital signs monitor were the primary contributors to the
sales increase at the patient safety monitoring business.
GROSS PROFIT The gross profit margin decreased in fiscal 2000 to 48.8%
from 50.1% in fiscal 1999. The decrease was attributable to several factors
which included heavy price discounting at the non-contact infrared industrial
business due to difficult market conditions; higher manufacturing costs at the
patient safety monitoring business which included the expansion of the service
organization; and lower margins in the OEM patient safety monitoring business
due to lower contracted prices on increased volume. The increase in sales at the
oxygen monitoring business also contributed to the gross margin decrease as that
business has inherently lower gross margins than the Company's other businesses.
OPERATING EXPENSES Selling, general and administrative expenses for
fiscal 2000 increased 6.1% or $960,000 compared to fiscal 1999. Selling, general
and administrative expenses were 31.4% of sales for fiscal 2000 compared with
32.0% for fiscal 1999. The increase in these expenditures in aggregate for
fiscal 2000 was primarily due to higher administrative expenses at the Company's
patient safety monitoring along with higher selling expenses on the higher sales
volume at the patient safety monitoring business.
Research and experimental expenses were 5.7% of sales for fiscal 2000
compared to 6.2% for fiscal 1999. The decrease was attributable to a decline in
the amount of research and experimental expenses on behalf of the patient safety
monitoring business as $271,400 of labor expenditures related to equipment for
the production of the Company's proprietary anesthetic agent module for the
"Millennia" was capitalized in the second and third quarters of fiscal 2000. The
Company does not foresee similar items to be capitalized in fiscal 2001.
OTHER INCOME AND EXPENSE Other income of $1,225,600 for fiscal 2000
included a $834,000 gain on the sale of short-term investments. Interest income
increased to $388,800 in fiscal 2000 as compared to $148,800 for fiscal 1999.
Interest expense decreased to $137,000 for fiscal 2000 compared with $255,500
for fiscal 1999. These changes were the result of the investment of, and the
payoff of the outstanding balances on the Company's revolving bank line of
credit and term loan with, the proceeds from the Company's secondary stock
offering in March 1999.
PROVISION FOR INCOME TAXES The effective tax rate for fiscal 2000
decreased to 31.2% as compared to 34% for fiscal 1999. The decrease was
primarily due to the adjustment of prior year's taxes. The effective rate also
differs from the statutory rate due principally to the benefit of a foreign
sales corporation and other credits.
YEAR ENDED JUNE 30, 1999 COMPARED TO YEAR ENDED JUNE 30, 1998
SALES. Sales for fiscal 1999 increased 20.2% to $48,858,000 compared
with $40,651,400 for fiscal 1998. The sales increase for fiscal 1999 was
primarily due to sales growth at the Company's patient monitoring business.
Continued strong demand for the Company's next-generation MRI vital signs
monitor, the Omni-Trak 3150, was largely responsible for the sales increase.
Increased sales of the Company's gas detection and oxygen monitoring product
lines also positively affected sales in fiscal 1999.
GROSS PROFIT. The gross profit margin increased in fiscal 1999 to 50.1%
from 48.4% for fiscal 1998. The increase was largely attributable to the sales
growth of our MRI vital signs monitoring products, which have higher gross
margins than the Millennia vital signs monitor and other monitoring products.
11
<PAGE> 12
OPERATING EXPENSES. Selling, general and administrative expenses for
fiscal 1999 increased 16.3% or $2,194,300 over fiscal 1998 levels. Selling,
general and administrative expenses were 32.0% of sales for fiscal 1999 compared
with 33.0% for fiscal 1998. The increase in these expenditures in aggregate was
largely due to higher sales commission expenses on the higher sales volume at
the patient monitoring business. Higher administrative expenses in support of
the incremental sales volume at the patient monitoring business also contributed
to the increase.
Research and experimental expenses were $3,007,300 or 6.2% of sales for
fiscal 1999 compared to $2,455,000 or 6.0% for fiscal 1998. A substantial amount
of the total research and experimental expenses in fiscal 1999 was on behalf of
the patient monitoring business as the Company continued to develop additional
features for its Millennia vital signs monitor for specialized market areas.
OTHER INCOME AND EXPENSE. Interest expense decreased to $255,500 for
fiscal 1999 compared with $387,300 for fiscal 1998. This decrease was the result
of the payoff of the outstanding balances on the Company's revolving bank line
of credit and term loan with the proceeds from its secondary stock offering in
March, 1999.
PROVISION FOR INCOME TAXES. The effective tax rate for the year ended
June 30, 1999 was 33.1% compared with 34.0% for fiscal 1998. The effective tax
rate differs from the statutory rate principally due to the benefit of a foreign
sales corporation and utilization of research, experimental and other credits.
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, 2000 increased to $26,729,600 from
$22,948,900 at June 30, 1999. Net cash provided by operating activities was
$1,712,600 for the year ended June 30, 2000 compared with $2,122,300 provided by
operating activities for the year ended June 30, 1999. This decrease was largely
the result of changes in operating assets and liabilities, particularly
inventories and trade receivables.
Capital expenditures were $2,101,300 for fiscal 2000 compared to
$1,120,200 for fiscal 1999. The increase was primarily the result of the
purchase of new manufacturing equipment for the Company's patient safety
monitoring business and oxygen monitoring business.
The Company believes that its cash resources and cash flow from
operations are adequate to meet its anticipated cash needs for working capital
and capital expenditures throughout fiscal 2001. As the Company did not foresee
any near term borrowing requirements coupled with the fees associated with
maintaining a bank line of credit, the Company elected to decrease its bank line
of credit from $7,500,000 to $1,000,000 in May of 2000. The line of credit
expires on December 1, 2000. The Company's revolving bank line of credit is
collateralized by the Company's accounts receivable, inventory, and equipment.
At June 30, 2000, $1,000,000 was available under the line of credit.
The Company will continue to explore opportunities for the possible
acquisitions of technologies or businesses, which may require the Company to
seek additional financing.
RECENT ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. In June
1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities (as amended by SFAS No. 137), 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 and fiscal years beginning after June
15, 2000. As the Company does not currently have any derivative instruments for
hedging activities the Company believes that SFAS No. 133 will have no impact on
its consolidated financial statements.
12
<PAGE> 13
SAB 101 In December 1999, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin NO. 101 (SAB 101), Revenue Recognition in
Financial Statements as amended by SAB 101A, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements
filed with the SEC. SAB 101 outlines the basic criteria that must be met to
recognize revenue and provides guidance for disclosures related to revenue
recognition policies. In June 2000, the SEC issued SAB 101B which deferred the
effective date of SAB 101 until the last quarter of fiscal years beginning after
December 15, 1999. The Company does not expect the adoption of SAB 101 to have a
material effect on its consolidated financial position or results of operations.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements
regarding the Company's plans, expectations, estimates and beliefs. Actual
results could differ materially from those discussed in, or implied by, these
forward-looking statements. Forward-looking statements are identified by words
such as "believe," "anticipate," "expect," "intend," "plan," "will," "may" and
other similar expressions. In addition, any statements that refer to
expectations, projections or other characterizations of future events or
circumstances are forward-looking statements. Forward-looking statements in this
document include, but are not necessarily limited to, those relating to:
- the Company's intention to further penetrate the broad patient
monitoring market
- the anticipated growth in medical applications of MRI equipment
- the Company's expectations for growth in MRI unit sales
- the Company's success in developing new or enhanced products to
take advantage of market opportunities or to respond to
competition
- the Company's ability to complete any future acquisitions of
products or businesses
- the Company's belief that patient monitors will become an
integral component of MRI equipment
The Company is not obligated to update or revise these forward-looking
statements to reflect new events or circumstances. Factors that could cause
actual results, events or circumstances to differ from forward-looking
statements made in this report include those set forth in the following "Risk
Factors" section.
RISK FACTORS
Risks Relating to the Company's Business:
THE COMPANY IS DEPENDENT ON A CONCENTRATED LINE OF PRODUCTS
The Company's future financial performance will be largely dependent on
its patient monitor product line, which includes a limited number of products.
The Company expects its recently introduced Omni-Trak 3150 MRI patient monitor
and its Millennia portable patient monitor to have a substantial impact on
revenue growth. In the MRI monitoring market, the success of its Omni-Trak 3150
is heavily dependent on the continued acceptance of MRI technology as a
diagnostic tool. In the general patient monitoring market, the Company's
Millennia monitor is heavily dependent on its ability to penetrate an already
competitive market.
In addition, the recent consolidation in the medical care provider
market has resulted in a number of very large purchasers of medical devices.
These large purchasers typically prefer to establish relationships with medical
device manufacturers that have broad and diverse product lines.
The failure of the Company's products to continue to gain market
acceptance or a continued consolidation of the medical care provider market
could have a material adverse effect on its business and results of operations.
13
<PAGE> 14
THE COMPANY FACES INCREASED LEVELS OF COMPETITION
The Company has encountered and will continue to encounter significant
competition in the sale of its products. The Company's general patient
monitoring competitors include a number of large multinational corporations.
Some of these competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company can. In the MRI patient monitoring market, the Company has enjoyed a
significant first-to-market advantage over its competitors. However, competitors
have introduced products designed to compete with its MRI vital signs monitoring
products. In addition, as the market for MRI vital signs monitoring products
expands it may attract competitors with greater resources.
Additionally, competition may increase if new companies enter the
Company's markets or if existing competitors expand their product lines or
intensify efforts within existing product lines. The introduction of competitive
products may result in a decrease in the Company's market share and in a
decrease in the prices at which the Company is able to sell its products. The
Company's market share could also be adversely affected by increasing
concentration in the medical care provider market. Any decrease in the Company's
market share or decrease in the prices at which the Company is able to sell its
products could have a material adverse effect on its business and results of
operations.
THE COMPANY'S FINANCIAL RESULTS MAY FLUCTUATE
The Company's financial results may fluctuate significantly from period
to period because of a variety of factors, many of which is beyond its control.
These factors include:
- increased competition
- changes in the Company's pricing policies and those of its
competitors
- changes in the Company's operating expenses or capital
expenditures
- timing and market acceptance of new and upgraded product
introductions by the Company and its competitors
- seasonal fluctuations in the demand for the Company's products
- introduction of alternative technologies by the Company and its
competitors
- effect of potential acquisitions
- other general economic factors
Fluctuations caused by these and other factors could have a material adverse
effect on the Company's business and results of operations.
THE COMPANY IS SUBJECT TO A SIGNIFICANT RISK OF NEW LAWS RELATED TO HEALTH CARE
Changes in the law or new interpretations of existing laws may have a
significant effect on the Company's costs of doing business and the amount of
reimbursement the Company receives from both government and third-party payors.
In addition, economic forces, regulatory influences and political initiatives
are subjecting the health care industry to fundamental changes. Health care
reform proposals have been formulated by the current administration and by
members of Congress. Federal, state and local government representatives are
likely to continue to review and assess alternative health care delivery systems
and payment methods. The Company expects ongoing public debate on these issues.
Any of these efforts or reforms could have a material adverse affect on the
Company's business and results of operations.
THE COMPANY'S BUSINESS IS SUBJECT TO TECHNOLOGICAL CHANGE AND INTRODUCTION OF
NEW PRODUCTS
14
<PAGE> 15
Technological change, evolving industry standards and new product
introductions and enhancements characterize the markets for the Company's
products. Many of the Company's products and products under development are
technologically innovative, and therefore require significant planning, design,
development and testing. These activities require the Company to make
significant capital commitments and investments. In addition, industry standards
may change on short notice and new products and technologies may render existing
products and technologies uncompetitive. Additionally, the products that the
Company is currently developing, and those that the Company develops in the
future, may not be technologically feasible or accepted by the marketplace or
they may not be completed in an acceptable time frame. Any increased capital
investments or loss in sales due to technological change could have a material
adverse effect on the Company's business and results of operations.
THE COMPANY CURRENTLY IS INVOLVED IN A LEGAL PROCEEDING
The Company's medical device subsidiary, Invivo Research, was one of two
third-party defendants named in a lawsuit in June of 1994 by Southern Nevada
Surgical Center and Surgex Southern Nevada, Inc. in Nevada State District Court.
The underlying action in this matter stemmed from an incident involving a
surgical patient undergoing a procedure at the Southern Nevada Surgical Center.
The patient suffered a serious permanent brain injury. A lawsuit was filed on
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. The defendants in that action made a substantial
settlement to the patient. Southern Nevada Surgical Center ("SNSC") and Surgex
were seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. SNSC and Surgex
alleged that both the anesthetic gas machine and the vital signs monitor were
defective. The Company believes that the vital signs monitor operated properly
and was properly designed for its intended function.
On August 18, 1999, the Nevada District Court granted the Company's
Motion to Dismiss for Failure to Prosecute. The Order granted dismissal of the
SNSC and Surgex contribution claims, without prejudice, based upon Nevada law
that provides that an action must be brought to trial within five years of the
date of the filing of the original action. The dismissal is being appealed.
In April of 1997, the plaintiff's insurer, CNA, filed an action with
identical causes in the same Nevada State Court. This second action was removed
by the Company to U.S. District Court. The action by CNA was dismissed by the
District Court on January 19, 2000. The dismissal is being appealed.
Any judgment against the Company that exceeds the amount that its
insurer is required to pay could have a material adverse effect on its business
and results of operations.
THE COMPANY FACES PRODUCT LIABILITY AND PRODUCT RECALL RISKS
With respect to all of its products, and particularly its medical
devices, the Company faces the risk of potentially large product liability
claims. The malfunction or misuse of its products could potentially result in
serious harm to a patient. In addition, the Company may be required to indemnify
its distributors and customers for similar claims made against them.
Claims could be made against the Company even if its products did not
contribute to the injury that was sustained. Frequently, the Company's products
are used with products developed by other manufacturers. Even if its products
are not the cause of the injury, the Company may not be able to prove that some
other product malfunction or human error caused a claimant's injury.
The Company has had product liability claims made against it in the past
and may have further claims made against it in the future. While the Company is
insured for certain product liability claims, not all claims will be covered and
the level of its insurance may not be sufficient to protect us from the full
amount of a successful claim. In addition, the Company may not be able to obtain
adequate amounts of insurance at an acceptable cost. Claims made against the
Company that are not insured, or that exceed the amount of the Company's
coverage, could have a material adverse effect on its business and results of
operations.
Similarly, the Company's products are subject to the potential of being
recalled by government agencies for actual or potential deficiencies or
problems. Any such recall would likely be expensive and would have a material
adverse effect on the Company's business and results of operations.
THE COMPANY FACES INCREASED RISKS OF INTERNATIONAL OPERATIONS
International sales have accounted for over 20% of the Company's sales
for each of the past three years and may increase over time. International sales
are subject to a number of risks, including the following:
15
<PAGE> 16
- fluctuations in exchange rates may affect the demand for
products and services the Company provides in foreign markets
- adverse changes in local economic conditions, such as those
recently occurring in Asian and South American countries, could
depress the demand for the Company's products
- agreements may be difficult to enforce and receivables difficult
to collect through a foreign country's legal system
- foreign customers may have longer payment cycles
- foreign countries may impose additional withholding taxes or
otherwise tax the Company's foreign income, impose tariffs, or
adopt other restrictions on foreign trade
- U.S. export licenses may be difficult to obtain
- the protection of intellectual property in foreign countries may
be more difficult to enforce
Any of these factors could have a material adverse impact on the
Company's business and results of operations.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of currency risk.
During the year ended June 30, 2000, 22% of the Company's total sales came from
non-United States domiciled customers. The Company requires payment in United
States (U.S.) currency. If these customers currency devalues against the U.S.
dollar, the customers could potentially encounter difficulty in making the U.S.
dollar denominated payments.
16
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Independent Auditors' Report .................................................................... 18
Consolidated Balance Sheets - June 30, 2000 and 1999 ............................................ 19
Consolidated Statements of Income for the Years Ended June 30, 2000, 1999, and 1998 ............. 20
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the Years
Ended June 30, 2000, 1999, and 1998 ........................................................... 21
Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, 1999, and 1998 ......... 22
Notes to Consolidated Financial Statements ...................................................... 23-33
</TABLE>
17
<PAGE> 18
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, 2000 and 1999, and the
related consolidated statements of income, stockholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended June 30, 2000. 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 auditing standards generally accepted in
the United States of America. 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, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States of America.
July 28, 2000
18
<PAGE> 19
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and 1999
<TABLE>
<CAPTION>
ASSETS 2000 1999
------------ ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 969,800 207,800
Short-term investments 6,817,600 8,219,100
Trade receivables, less allowance for doubtful accounts of
$533,900 as of June 30, 2000 and $280,600 as of June 30, 1999 14,656,600 12,173,800
Inventories 10,132,000 8,177,200
Deferred income taxes 1,343,000 1,289,000
Prepaid expenses and other current assets 407,200 577,800
Total current assets 34,326,200 30,644,700
------------ ----------
Property and equipment, net 6,139,600 5,026,200
Intangible assets 8,439,700 8,700,300
Other assets 570,500 269,800
$ 49,476,000 44,641,000
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,725,600 2,914,800
Accrued expenses 3,381,100 3,574,300
Current portion of long-term debt, capital lease,
and bank borrowings 142,700 140,200
Income taxes payable 1,347,200 1,066,500
Total current liabilities 7,596,600 7,695,800
Long-term debt and capital lease, excluding current portion 1,392,900 1,526,700
Deferred income taxes 118,000 200,000
Other 52,000 52,000
Total liabilities 9,159,500 9,474,500
------------ ----------
Stockholders' equity:
Common stock, $.01 par value; authorized shares totaling 20,000,000;
issued and outstanding shares totaling 4,362,999 as of
June 30, 2000 and 4,280,574 as of June 30, 1999 43,600 42,800
Additional paid-in capital 26,257,300 26,076,600
Retained earnings 14,041,800 9,074,900
Accumulated other comprehensive loss (26,200) (27,800)
Total stockholders' equity 40,316,500 35,166,500
------------ ----------
Commitments and contingencies
$ 49,476,000 44,641,000
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 52,749,900 48,858,000 40,651,400
Cost of goods sold 27,005,100 24,368,000 20,956,600
------------ ------------ ------------
Gross profit 25,744,800 24,490,000 19,694,800
------------ ------------ ------------
Operating expenses:
Selling, general, and administrative 16,582,800 15,622,800 13,428,500
Research and experimental 3,027,700 3,007,300 2,455,000
------------ ------------ ------------
Total operating expenses 19,610,500 18,630,100 15,883,500
------------ ------------ ------------
Income from operations 6,134,300 5,859,900 3,811,300
Other income (expense):
Interest expense (137,000) (255,500) (387,300)
Other, net 1,225,200 102,700 4,000
------------ ------------ ------------
Income before income taxes 7,222,500 5,707,100 3,428,000
Income tax expense 2,255,600 1,889,200 1,165,500
------------ ------------ ------------
Net income $ 4,966,900 3,817,900 2,262,500
============ ============ ============
Basic net income per common share $ 1.15 1.07 .69
============ ============ ============
Weighted-average common shares
outstanding (basic) 4,328,897 3,552,148 3,264,966
============ ============ ============
Diluted net income per common share $ 1.10 1.00 .66
============ ============ ============
Weighted-average common shares and
common share equivalents outstanding (diluted) 4,497,490 3,831,260 3,426,718
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
--------------------- PAID-IN RETAINED COMPREHENSIVE COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS INCOME
------ ------ ------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Balances as of June 30, 1997 3,255,668 $ 32,600 12,787,400 2,994,500 --
Exercise of stock options 13,750 100 76,900 -- --
Tax benefit from exercise of options -- -- 14,300 -- --
Net income -- -- -- 2,262,500 --
--------- ----------- ---------- ---------- ------- -----------
Balances as of June 30, 1998 3,269,418 32,700 12,878,600 5,257,000 -- --
Issuance of common stock:
Stock offering, net of offering
costs totaling $1,376,723 900,000 9,000 11,898,300 -- --
Acquisition of Invivo Research Inc. 82,256 800 1,047,000 -- --
Exercise of stock options 28,900 300 161,800 -- --
Tax benefit from exercise of options -- -- 90,900 -- --
Net income -- -- -- 3,817,900 -- 3,817,900
Unrealized loss on short-term
investments -- -- -- -- (27,800) (27,800)
--------- ----------- ---------- ---------- ------- -----------
Balances as of June 30, 1999 4,280,574 42,800 26,076,600 9,074,900 (27,800) $ 3,790,100
Exercise of stock options 82,425 800 178,900 -- --
Tax benefit from exercise of options -- -- 1,800 -- --
Net income -- -- -- 4,966,900 -- 4,966,900
Unrealized gain on short-term
investments -- -- -- -- 1,600 1,600
--------- ----------- ---------- ---------- ------- -----------
Balances as of June 30, 2000 4,362,999 $ 43,600 26,257,300 14,041,800 (26,200) $ 4,968,500
========= =========== ========== ========== ======= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
INVIVO CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended June 30, 2000, 1999 and 1998
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 4,966,900 3,817,900 2,262,500
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,248,500 888,800 760,000
Loss on sale of property and equipment -- 46,100 64,800
Deferred income taxes (135,900) (107,000) (325,100)
Tax benefit from exercise of stock options 1,800 90,900 14,400
Changes in operating assets and liabilities:
Trade receivables (2,482,800) (1,896,800) (2,378,200)
Inventories (1,954,800) (894,800) (181,500)
Prepaid expenses and other current assets 170,600 (126,400) 64,700
Accrued expenses (193,200) 894,600 526,500
Accounts payable (189,200) (224,300) 268,100
Income taxes payable 280,700 (366,700) 952,000
Other current liabilities -- -- (21,900)
----------- ----------- -----------
Net cash provided by operating activities 1,712,600 2,122,300 2,006,300
----------- ----------- -----------
Cash flows from investing activities:
Sale (purchase) of short-term investments 1,403,100 (8,246,900) --
Capital expenditures (2,101,300) (1,120,200) (646,800)
Proceeds from sale of property and equipment -- -- --
Intangible assets -- (2,096,300) (232,600)
Other assets (300,700) 32,800 (82,900)
----------- ----------- -----------
Net cash used in investing activities (998,900) (11,430,600) (962,300)
----------- ----------- -----------
Cash flows from financing activities:
Issuances of common stock, net of offering costs 179,600 12,070,200 77,000
Bank repayments, net -- (3,087,200) (645,000)
Principal payments under long-term debt and other liabilities (131,300) (21,000) (93,000)
----------- ----------- -----------
Net cash provided by (used in) financing activities 48,300 8,962,000 (661,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 762,000 (346,300) 383,000
Cash and cash equivalents at beginning of year 207,800 554,100 171,100
----------- ----------- -----------
Cash and cash equivalents at end of year $ 969,800 207,800 554,100
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE> 23
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) BUSINESS AND SEGMENT INFORMATION
Invivo Corporation and subsidiaries (the Company) are engaged in
two business segments: patient safety monitoring and safety and
industrial instrumentation. The patient safety monitoring
segment designs, manufactures, and markets monitoring systems
that measure and display vital signs of patients in medical
settings. The safety and industrial instrumentation segment
designs, manufactures, and markets sensor-based instruments for
safety and industrial process control applications.
(b) 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.
(c) CASH EQUIVALENTS
The Company considers all highly liquid investments with
original maturities of three months or less to be cash
equivalents.
(d) SHORT-TERM INVESTMENTS
The Company classifies all of its short-term investments as
available-for-sale securities. Such short-term investments
consist primarily of federal agency securities and money market
funds, with unrealized gains and losses on the securities
reflected as other comprehensive income in stockholders' equity.
Realized gains and losses on short-term investments are included
in earnings and are derived using the specific identification
method for determining the cost of securities. It is the
Company's intent to maintain a liquid portfolio to take
advantage of investment opportunities; therefore, all securities
are considered to be available-for-sale and are classified as
current assets.
The Company derives the fair value of its short-term investments
based on quoted market prices.
(e) INVENTORIES
Inventories are stated at the lower of cost or market on a
first-in, first-out basis.
(f) 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
assets as follows:
<TABLE>
<S> <C>
Buildings 30 years
Equipment 3 to 5 years
Furniture and fixtures 3 to 5 years
Leasehold improvements Shorter of life of lease or 5 years
Automotive 5 years
</TABLE>
(g) 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 which are not
expected to be realized.
23
<PAGE> 24
(h) 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, 2000 and 1999
was approximately $1,319,800 and $1,059,200, respectively.
Amortization expense was approximately $260,700, $191,700 and
$159,100 for 2000, 1999 and 1998, respectively.
(i) COMPREHENSIVE INCOME
The Company has items of comprehensive income for the years
ended June 30, 2000 and 1999. Net income as presented in the
consolidated statements of income equals comprehensive income
for the year ended June 30, 1998.
(j) REVENUE RECOGNITION
The Company recognizes revenue and all related costs upon
shipment of products to its customers. The Company does not as a
matter of contract or industry practice provide its customers
the right of return. However, under certain circumstances the
Company has allowed the return of product. Based on experience
and other information available to the Company, the Company
believes the amount of future returns can be reasonably
estimated. An allowance for sales returns is reflected as a
current liability with sales revenue in the income statement
reduced to reflect estimated sales returns.
(k) WARRANTIES
Product warranties providing for the repair or replacement of
defective products are included in the sale price of the
Company's products. The typical warranty period is one year.
Warranty obligations are accrued as a current liability for the
estimated amount of warranty expense expected in future
accounting periods based on experience and other information
available to the Company.
(l) 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.
(m) 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.
(n) 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.
(o) RESEARCH AND EXPERIMENTAL COSTS
Research and experimental costs related to the design,
development and testing of new monitors, applications and
technologies are charged to expense as incurred.
(p) ACCOUNTING FOR STOCK OPTIONS
24
<PAGE> 25
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 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 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.
(q) RECLASSIFICATIONS
Certain reclassifications have been made in the prior year's
financial statements to conform to classifications used in the
current year. These reclassifications had no effect on reported
earnings.
(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 that designs, manufactures, and
markets sensor-based patient safety devices.
In fiscal year 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 was to be paid in
five installments. One installment in the amount of $987,000 was paid
during fiscal year 1996. A second installment in the amount of $465,000
was paid during fiscal years 1997 and 1998. The three remaining
installments became payable on March 15, 1999. The value of each
installment was based on a formula involving calendar 1998 after-tax
profits. The total amount of the three remaining installments was
$3,143,300. On June 1, 1999, the Company paid the former shareholders
two of the installments in cash totaling $2,095,500. The remaining
installment was paid in the form of the Company's common stock totaling
82,256 shares.
(3) SHORT-TERM INVESTMENTS
Short-term investments consist of the following:
<TABLE>
<CAPTION>
UNREALIZED
HOLDING
COST (LOSSES) GAINS FAIR VALUE
----------- -------------- -----------
<S> <C> <C> <C>
As of June 30, 2000:
Federal agency securities $ 4,000,000 (26,200) 3,973,800
Money market funds 2,843,800 -- 2,843,800
----------- ----------- -----------
$ 6,843,800 (26,200) 6,817,600
=========== =========== ===========
As of June 30, 1999:
Federal agency securities $ 4,000,000 (27,800) 3,972,200
Money market funds 4,246,900 -- 4,246,900
----------- ----------- -----------
$ 8,246,900 (27,800) 8,219,100
=========== =========== ===========
</TABLE>
Maturities of short-term investments as of June 30, 2000 were as
follows:
<TABLE>
<CAPTION>
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Due within one year $5,843,800 5,834,470
Due after one year 1,000,000 983,130
---------- ----------
$6,843,800 6,817,600
========== ==========
</TABLE>
25
<PAGE> 26
(4) INVENTORIES
A summary of inventories as of June 30 follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Raw materials $ 5,051,700 4,486,900
Work in process 3,814,300 2,397,000
Finished goods 1,266,000 1,293,300
----------- -----------
$10,132,000 8,177,200
=========== ===========
</TABLE>
(5) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
Land and building $ 2,325,400 2,325,400
Equipment 7,706,400 5,695,600
Furniture and fixtures 1,027,600 944,200
Vehicles 130,400 130,400
Leased improvements 143,300 136,300
------------ ------------
11,333,100 9,231,900
Less accumulated depreciation and amortization (5,193,500) (4,205,700)
------------ ------------
$ 6,139,600 5,026,200
============ ============
</TABLE>
Included in property and equipment as of June 30, 2000 is $208,200 of
equipment under capital lease. Accumulated amortization related to this
equipment was $47,900 as of June 30, 2000.
(6) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Term loan payable in monthly installments of approximately $8,700,
including interest at LIBOR plus 2.5%; secured by land and
building $ 1,375,300 1,479,800
----------- -----------
1,375,300 1,479,800
Less current portion (104,400) (104,400)
----------- -----------
$ 1,270,900 1,375,400
=========== ===========
</TABLE>
26
<PAGE> 27
The aggregate maturities of long-term debt as of June 30, 2000 are as
follows:
<TABLE>
<S> <C>
Year ending June 30,
2001 $ 104,400
2002 104,400
2003 104,400
2004 104,400
2005 104,400
Thereafter 853,300
----------
$1,375,300
==========
</TABLE>
During fiscal year 2000, the Company renewed its bank line of credit
from December 1, 1999 to December 1, 2000. In addition, during the
fourth quarter of fiscal 2000, the Company decreased its bank line of
credit from $7,500,000 to $1,000,000. 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, and quarterly and annual profitability, and prohibits
the Company from paying dividends. As of June 30, 2000, $1,000,000 was
available under the line of credit.
(7) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Accrued compensation and benefits $1,981,800 2,039,500
Other 1,399,300 1,534,800
---------- ----------
$3,381,100 3,574,300
========== ==========
</TABLE>
(8) LEASE COMMITMENTS
The Company leases certain facilities and equipment under capital and
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 $566,200, $440,000
and $422,200 for the years ended June 30, 2000, 1999 and 1998,
respectively.
27
<PAGE> 28
A summary of future minimum lease payments required under noncancelable
leases with terms in excess of one year, net of sublease rental income,
as of June 30, 2000 follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
Fiscal year ending
2001 $ 49,800 348,800
2002 49,800 165,400
2003 49,800 151,000
2004 24,900 135,300
2005 -- 130,400
Thereafter -- 31,700
--------- ---------
174,300 $ 962,600
=========
Less amount representing interest (14,000)
Present value of future minimum lease payments 160,300
Less current portion (38,300)
---------
Capital lease obligations, excluding current portion $ 122,000
=========
</TABLE>
(9) INCOME TAXES
A summary of the components of income tax expense (benefit) for the
years ended June 30 is as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
2000:
Federal $ 2,109,900 (202,900) 1,907,000
State 281,600 67,000 348,600
----------- ----------- -----------
$ 2,391,500 (135,900) 2,255,600
=========== =========== ===========
1999:
Federal $ 1,718,200 (82,700) 1,635,500
State 278,000 (24,300) 253,700
----------- ----------- -----------
$ 1,996,200 (107,000) 1,889,200
=========== =========== ===========
1998:
Federal $ 1,253,600 (285,100) 968,500
State 237,000 (40,000) 197,000
----------- ----------- -----------
$ 1,490,600 (325,100) 1,165,500
=========== =========== ===========
</TABLE>
28
<PAGE> 29
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>
2000 1999
----------- -----------
<S> <C> <C>
Deferred tax assets:
Reserves and other accruals $ 1,343,000 1,289,000
Capital loss carryover 199,400 199,400
----------- -----------
Gross deferred tax assets 1,542,400 1,488,400
Valuation allowance (199,400) (199,400)
----------- -----------
Total deferred tax assets, less valuation allowance 1,343,000 1,289,000
----------- -----------
Deferred tax liabilities:
Tax depreciation in excess of book depreciation (58,000) (9,000)
State taxes (60,000) (43,500)
Acquired intangibles from acquisitions -- (147,500)
----------- -----------
Total deferred tax liabilities (118,000) (200,000)
----------- -----------
Net deferred tax asset $ 1,225,000 1,089,000
=========== ===========
</TABLE>
There was no net change in the valuation allowance for the year ended
June 30, 2000.
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>
2000 1999 1998
----------- --------- ---------
<S> <C> <C> <C>
Federal income tax at statutory rate $ 2,455,700 1,940,000 1,165,500
State income taxes 230,100 183,000 156,000
Utilization of research, experimental, and other
credits (103,200) (67,000) (57,000)
Benefit of foreign sales corporation (201,100) (257,000) (204,000)
Permanent differences 158,800 92,000 54,000
Other (51,100) (1,800) 51,000
Adjustment of prior year's taxes (233,600) -- --
----------- --------- ---------
$ 2,255,600 1,889,200 1,165,500
=========== =========== ===========
</TABLE>
(10) 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
four years and expire in ten years. The Company has reserved 314,400 and
800,000 shares of its common stock for issuance under the 1986 and 1994
plans, respectively. During 2000, the Company granted 186,850 shares of
common stock.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for the Plans under the fair-value method. The fair value of
options issued under the plans was determined at the date of grant using
a Black-Scholes option pricing model with the following assumptions: no
dividend yield; volatility factor of the expected market price of the
Company's stock of .71%; a forfeiture rate of .05%; a weighted-average
expected life of options of five years; and a risk-free interest rate of
6.2%, 5.0% and 5.8% for 2000, 1999 and 1998,
29
<PAGE> 30
respectively. For purposes of pro forma disclosures, the estimated fair
value of the options is amortized to expense over the options' vesting
period. The Company's pro forma net income and net income per common
share would approximate the following:
<TABLE>
<CAPTION>
2000 1999 1998
------------ --------- ---------
<S> <C> <C> <C> <C>
Net income As reported $ 4,966,900 3,817,900 2,262,500
Pro forma 4,140,257 3,147,118 1,892,084
Basic net income per share As reported 1.15 1.07 .69
Pro forma .96 0.89 .58
Diluted net income per share As reported 1.10 1.00 .66
Pro forma .92 0.82 .55
</TABLE>
Pro forma net income reflects only options granted in 1996, 1997, 1998,
1999 and 2000. 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.
A summary of stock option activity for the years ended June 30, 2000 and
1999 follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE PRICE BY
WEIGHTED-AVERAGE OPTIONS OPTIONS
WEIGHTED-AVERAGE GRANT DATE EXERCISABLE AT EXERCISABLE AT
OPTIONS EXERCISE PRICE FAIR VALUE YEAR END YEAR END
------- -------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
June 30, 1998 615,975 $ 7.77 328,401 $ 5.51
Granted 183,000 12.15 7.58
Exercised (28,900) 5.60
Canceled (6,250) 8.90
-----------
June 30, 1999 763,825 8.89 426,575 6.96
Granted
186,850 10.03 6.32
Exercised (82,425) 2.18
Canceled (19,575) 11.25
----------- -----------
June 30, 2000
848,675 6.94 466,575 8.83
===========
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED-
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AS OF JUNE 30, CONTRACTUAL EXERCISE AS OF JUNE 30, EXERCISE
PRICES 2000 LIFE PRICE 2000 PRICE
------------------- -------------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
$ 2.00 - 5.13 94,200 1.45 $ 3.41 94,200 $ 3.41
7.00 - 8.75 277,975 8.00 8.89 99,625 7.18
10.00 - 16.13 476,500 7.41 11.49 272,750 11.31
-------------------- -----------------
848,675 466,575
==================== =================
</TABLE>
30
<PAGE> 31
(11) 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 six months 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 35% of the first 4% of compensation which the employee
contributes. The Plan currently provides that participants vest 25% each
year over a four-year period. Company contributions to the Plan for the
years ended June 30, 2000, 1999 and 1998 were $104,100, $85,100 and
$70,600, respectively.
(12) 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.
(13) MAJOR CUSTOMERS AND CREDIT RISK
In fiscal 2000, 1999 and 1998, 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, 2000.
(14) SEGMENT INFORMATION
The Company has adopted the provisions of SFAS No. 131, Disclosure about
Segments of an Enterprise and Related Information. SFAS No. 131
establishes standards for the reporting by public business enterprises
of information about operating segments, products and services,
geographic areas, and major customers. The method for determining what
information to report is based on the way that management organizes the
operating segments within the Company for making operating decisions and
assessing financial performance.
The Company's chief operating decision-maker is considered to be the
chief executive officer (CEO). The CEO reviews financial information
presented on a consolidated basis accompanied by information by business
segment. The Company operates in two business segments: (i) patient
safety monitoring, which designs, manufactures, and markets monitoring
systems that measure and display vital signs of patients in medical
settings; and (ii) safety and industrial instrumentation, which is
engaged in the design, manufacture, and marketing of sensor-based
instruments for safety and industrial process control applications.
These segments are managed separately because of different customers and
products which require different business strategies. The Company
evaluates the operating performance of its segments based on net sales
and income from operations.
31
<PAGE> 32
Summarized financial information concerning the Company's business
segments is shown in the following table. The "Corporate" column
includes general and administrative and corporate-related expenses not
allocated to reportable segments (in thousands).
<TABLE>
<CAPTION>
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE(1) TOTAL
---------- --------------- ------------ -----
<S> <C> <C> <C> <C>
For the year ended June 30, 2000:
Net sales $32,966 19,784 -- 52,750
Income from operations 4,512 3,208 (1,586) 6,134
Depreciation and amortization 943 259 48 1,250
Total assets 29,135 10,803 9,538 49,476
</TABLE>
<TABLE>
<CAPTION>
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE(1) TOTAL
---------- --------------- ------------ -----
<S> <C> <C> <C> <C>
For the year ended June 30, 1999:
Net sales $30,173 18,685 -- 48,858
Income from operations 4,001 3,266 (1,407) 5,860
Depreciation and amortization 548 322 19 889
Total assets 24,836 9,282 10,523 44,641
</TABLE>
<TABLE>
<CAPTION>
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE(1) TOTAL
---------- --------------- ------------ -----
<S> <C> <C> <C> <C>
For the year ended June 30, 1998:
Net sales $23,200 17,451 -- 40,651
Income from operations 1,811 3,192 (1,192) 3,811
Depreciation and amortization 449 301 10 760
Total assets 19,993 8,304 1,898 30,195
</TABLE>
(1) Includes costs not identifiable to a particular segment, such as
general and administrative expenses.
The Company markets its products in the United States and in foreign
countries through its sales personnel and distributors. Export sales
account for a portion of the Company's net revenue and are approximately
summarized by geographic area as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------------------
2000 1999 1998
------- ------- -------
<S> <C> <C> <C>
United States $41,400 37,700 31,300
Export:
Europe 5,800 5,800 2,400
Pacific Rim 4,600 2,900 2,000
Other International 1,000 2,500 5,000
------- ------- -------
Total net sales $52,800 48,900 40,700
======= ======= =======
</TABLE>
32
<PAGE> 33
(15) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------------------------
2000 1999 1998
---------- --------- -------
<S> <C> <C> <C>
Equipment acquired under capital lease $ -- 208,200 --
Common stock issued in connection with the -- 1,047,800 --
acquisition of Invivo Research Inc.
Cash paid:
Income taxes 2,108,990 2,272,000 875,158
Interest 137,000 255,500 389,274
</TABLE>
33
<PAGE> 34
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 2000
Sales ............................... $12,864 13,028 13,232 13,626
Gross Profit ........................ 6,458 6,177 6,378 6,732
Net Income .......................... 1,158 1,211 1,163 1,435
Net Income per common share (basic) . 0.27 0.28 0.27 0.33
Net Income per common share (diluted) 0.26 0.27 0.26 0.32
FISCAL YEAR 1999
Sales ............................... $11,501 11,910 12,382 13,065
Gross Profit ........................ 5,765 5,981 6,212 6,533
Net Income .......................... 759 893 987 1,178
Net Income per common share (basic) . 0.23 0.27 0.29 0.28
Net Income per common share (diluted) 0.22 0.25 0.26 0.27
</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 2000.
PART III
ITEM 10.
The information required is incorporated by reference from the Company's
definitive proxy statement for the Company's 2000 Annual Meeting of
Stockholders.
ITEM 11.
The information required is incorporated by reference from the Company's
definitive proxy statement for the Company's 2000 Annual Meeting of
Stockholders.
ITEM 12.
The information required is incorporated by reference from the Company's
definitive proxy statement for the Company's 2000 Annual Meeting of
Stockholders.
ITEM 13.
The information required is incorporated by reference from the Company's
definitive proxy statement for the Company's 2000 Annual Meeting of
Stockholders.
34
<PAGE> 35
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.01 Restated Certificate of Incorporation of the Registrant(1)
3.02 Restated By-Laws of the Registrant(2)
4.01 Form of Common Stock Certificate(2)
10.01 Sensor Control Corporation 1986 Incentive Stock Option Plan and 1986
Non-statutory Stock Option Plan, as amended(3)
10.02 Indemnity Agreement(2)
10.03 SafetyTek 1994 Stock Option Plan(4)
10.04 Share purchase agreement dated as of January 5, 1990 by and between
Data-Design Laboratories and Sensor Control Corporation(5)
10.05 Stock purchase agreement dated January 14, 1991 between G.C. Industries
Inc. and Sensor Control Corporation(6)
10.06 Asset purchase agreement dated June 21, 1991 by and between Electronic
Safety Products Inc. and Sensor Control Corporation(7)
10.07 Stock purchase agreement dated December 31, 1992 by and between Invivo
Research Inc. and SafetyTek Corporation(8)
10.08 Real Estate Unconditional Guaranty dated January 21, 1993 by and between
First Union National Bank of Florida and SafetyTek Corporation(8)
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(10)
10.10 Lease between Lincoln-Whitehall Realty LLC and SafetyTek Corporation for
the 5696 Stewart Ave. Fremont, CA facility(11)
10.11 Construction Loan Agreement between Invivo Research and First Union Bank
dated July 31, 1996(12)
10.12 Credit Agreement between Wells Fargo Bank and Invivo Corp. dated
October 6, 1998(13)
10.13 First Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated November 1, 1998(13)
10.14 Stock Option Agreement with Walden Management Corporation Pension Fund
for the Benefit of George S. Sarlo(1)
10.15 Second Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated December 1, 1999 (14)
10.16 Third Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated May 15, 2000**
10.17 First Amendment to Lease between Miramar Flexspace Ltd. and Invivo
Corporation dated June 12, 2000**
10.18 Lease between Sierra Precision and Capellino/Galleano dated June 7,
2000**
</TABLE>
35
<PAGE> 36
<TABLE>
<S> <C>
10.19 First Amendment to Lease between Sierra Precision and Capellino/Galleano
dated July 12, 2000**
11.01 Statement regarding computation of per share earnings**
21.01 Subsidiaries of Registrant**
23.01 Consent of KPMG LLP**
27.01 Financial Data Schedule**
</TABLE>
------------
** Filed herewith
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-2 filed on March 9, 1999.
(File No. 333-72071)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File No. 0-15963)
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991. (File No. 0-15963)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995. (File No. 33-88798)
(5) 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)
(6) 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)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992. (File No. 0-15963)
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993. (File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993. (File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996. (File No. 0-15963)
(12) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 27, 1996. (File No. 0-15963)
(13) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 12, 1998. (File No. 0-15963)
(14) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 14, 2000. (File No. 0-15963)
36
<PAGE> 37
(B) FINANCIAL STATEMENT SCHEDULES
Invivo Corporation and Subsidiaries
Schedule II
Valuation and Qualifying Accounts
Years ended June 30, 2000, 1999 and 1998
<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 2000 ..... 280,600 502,400 249,100 533,900
Fiscal 1999 ..... 288,300 23,400 31,100 280,600
Fiscal 1998 ..... 371,000 17,100 99,800 288,300
Warranty Reserve
Fiscal 2000 ..... 318,200 330,800 242,800 406,200
Fiscal 1999 ..... 237,000 282,600 201,400 318,200
Fiscal 1998 ..... 239,100 228,600 230,700 237,000
</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, 2000.
37
<PAGE> 38
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, 2000
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 26, 2000
/s/ JAMES B. HAWKINS
---------------------------------
James B. Hawkins President, Chief September 26, 2000
Executive Officer, Director
(principal executive
officer)
/s/ JOHN F. GLENN
---------------------------------
John F. Glenn Chief Financial Officer September 26, 2000
(principal financial
and accounting officer)
/s/ LAUREEN DEBUONO
---------------------------------
Laureen DeBuono Director September 26, 2000
/s/ GEORGE S. SARLO
---------------------------------
George S. Sarlo Director September 26, 2000
/s/ ROGER SUSI
---------------------------------
Roger Susi Director September 26, 2000
</TABLE>
38
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF DOCUMENT
------ -----------------------
<S> <C>
3.01 Restated Certificate of Incorporation of the Registrant(1)
3.02 Restated By-Laws of the Registrant(2)
4.01 Form of Common Stock Certificate(2)
10.01 Sensor Control Corporation 1986 Incentive Stock Option Plan and 1986
Non-statutory Stock Option Plan, as amended(3)
10.02 Indemnity Agreement(2)
10.03 SafetyTek 1994 Stock Option Plan(4)
10.04 Share purchase agreement dated as of January 5, 1990 by and between
Data-Design Laboratories and Sensor Control Corporation(5)
10.05 Stock purchase agreement dated January 14, 1991 between G.C. Industries
Inc. and Sensor Control Corporation(6)
10.06 Asset purchase agreement dated June 21, 1991 by and between Electronic
Safety Products Inc. and Sensor Control Corporation(7)
10.07 Stock purchase agreement dated December 31, 1992 by and between Invivo
Research Inc. and SafetyTek Corporation(8)
10.08 Real Estate Unconditional Guaranty dated January 21, 1993 by and between
First Union National Bank of Florida and SafetyTek Corporation(8)
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(10)
10.10 Lease between Lincoln-Whitehall Realty LLC and SafetyTek Corporation for
the 5696 Stewart Ave. Fremont, CA facility(11)
10.11 Construction Loan Agreement between Invivo Research and First Union Bank
dated July 31, 1996(12)
10.12 Credit Agreement between Wells Fargo Bank and Invivo Corp. dated
October 6, 1998(13)
10.13 First Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated November 1, 1998(13)
10.14 Stock Option Agreement with Walden Management Corporation Pension Fund
for the Benefit of George S. Sarlo(1)
10.15 Second Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated December 1, 1999 (14)
10.16 Third Amendment to Credit Agreement between Invivo Corp. and Wells Fargo
Bank dated May 15, 2000**
10.17 First Amendment to Lease between Miramar Flexspace Ltd. and Invivo
Corporation dated June 12, 2000**
10.18 Lease between Sierra Precision and Capellino/Galleano dated June 7,
2000**
</TABLE>
<PAGE> 40
<TABLE>
<S> <C>
10.19 First Amendment to Lease between Sierra Precision and Capellino/Galleano
dated July 12, 2000**
11.01 Statement regarding computation of per share earnings**
21.01 Subsidiaries of Registrant**
23.01 Consent of KPMG LLP**
27.01 Financial Data Schedule**
</TABLE>
------------
** Filed herewith
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-2 filed on March 9, 1999.
(File No. 333-72071)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File No. 0-15963)
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991. (File No. 0-15963)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995. (File No. 33-88798)
(5) 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)
(6) 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)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992. (File No. 0-15963)
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993. (File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993. (File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996. (File No. 0-15963)
(12) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 27, 1996. (File No. 0-15963)
(13) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 12, 1998. (File No. 0-15963)
(14) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 14, 2000. (File No. 0-15963)
