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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MAY 31, 1996
Commission File No. 0-21816
MEDA, INC.
(Name of small business issuer in its charter)
DELAWARE 93-1116123
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
15845 SW 72ND AVENUE
PORTLAND, OREGON 97224
(Address of principal executive offices, including zip code)
(503) 639-1500
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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Indicate by check if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. Yes X No
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Revenues for the most recent fiscal year: $13,849,481
The aggregate market value of voting Common Stock held by non affiliates (based
on the closing sales price on the NASD Electronic Bulletin Board) on August 31,
1996 was approximately $255,000.
Indicate by check mark whether the issuer has filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes X No
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As of August 31, 1996 , there were 1,776,816 shares of Common Stock with $0.01
par value outstanding, and 211,551 Class B Common Shares with $0.01 par value
outstanding.
Documents incorporated by reference: N/A
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MEDA, INC.
FORM 10-KSB INDEX
PART I PAGE
Item 1. Description of Business 2
Item 2. Description of Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Item 7. Financial Statements and Supplementary Data 14 &
F1-F18
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 14
PART III
Item 9. Directors, Executive Officers, Promoters and Control Personnel;
Compliance with Section 16(a) of the Exchange Act 15
Item 10. Executive Compensation 16
Item 11. Security Ownership of Certain Beneficial Owners and Management 17
Item 12. Certain Relationships and Related Transactions 18
Item 13. Reports on Form 8-K 18
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MEDA, INC.
1996 FORM 10-KSB ANNUAL REPORT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Meda, Inc. (the Company) was formed on September 3, 1991 by Monogenesis
Corporation. It was inactive until it acquired all of the issued and
outstanding stock of Prepared Media Laboratory, Inc. (PML) on December 4, 1992
in return for shares of its stock. The Company currently does all of its
business through PML, and references herein to "PML" and "the Company" are used
interchangeably.
PML, which has been in business since 1969, researches, develops,
manufactures, tests and distributes a wide array of biological products which
are used to test for and diagnose various conditions and illnesses. Its
products include: prepared culture media; monophasic and biphasic blood culture
systems; enzyme-based rapid identification kits, disks and strips;
identification reagents in ampules and dropper bottles; environmental systems
for non-aerobic organisms; bacteriology and parasitology stains; inoculating
loops and transport swabs; parasitology transport and specimen processing kits;
and lyophilized organisms.
PML markets to both the clinical market (diagnosis of diseases in humans)
and the industrial market (environmental and sterility testing). Typical
customers for PML's clinical products are hospitals, clinics, and wholesalers
that market to hospitals and clinics. PML's industrial customers include
pharmaceutical companies, biotech research facilities, and food and water
testing labs.
PRODUCTS
PML's product line consists of diagnostic products and supporting
materials used by microbiologists. Its diagnostic products include, among other
items, prepared culture media in Petri dishes, tubes and bottles, for use in
culturing and differentiating organisms from specimens; various kits, disks and
strips, for rapid identification of organisms; microdilution ("MIC") panels, for
determining the minimum inhibitory concentration of antibiotics which may be
used against the cultured organisms; and various identification stains and
reagents. Supporting materials include inoculating loops, for inoculating the
specimen into culture media; transport media, for keeping specimens viable until
they are delivered to the laboratory; lyophilized control organisms, for quality
control and training; gas generating systems, which provide the proper gaseous
environment for culturing organisms; swabs, for collecting specimens; and
various fixatives and preservatives.
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The majority of PML's products have a defined shelf life ranging from as
little as a few weeks for media in Petri dishes, to six months or more for
products in test tubes or bottles. Most products require refrigeration to
prevent premature deterioration. Some products are stored and shipped frozen.
Most products can be shipped by common carrier overnight without special
protective packaging except when temperatures are unusually hot or cold. Some
products, such as general laboratory reagents, contain hazardous chemicals and
require special storage, packaging and shipping. See "Governmental Regulation."
MARKETING
PML markets its products primarily in the United States and Canada
through its internal sales organization and a network of distributors. PML's
customers include both clinical and industrial microbiology laboratories.
Hospital and private medical laboratories, plus some doctor's offices and
clinics make up most of the clinical market. The industrial market includes
food and drug packagers, food and water testing labs, and pharmaceutical and
biotechnology research firms. There is also a growing veterinary market
segment.
Based upon management's research and derived from sources which
management believes to be reliable, the clinical microbiology market exceeds $1
billion annually in the United States. The industrial market is estimated to be
in excess of $100 million and growing. The prepared culture media segment of
the clinical microbiology market is believed to be over $200 million. The
balance of this market consists of products such as viral identification kits,
mainly hepatitis and AIDS; bacteriology identification test kits; and automated
microbiology systems.
Although prepared culture media represents only a modest portion of the
total microbiology products market, these products are some of the most basic
and essential tools used by microbiologists. Despite technological advances,
conventional culture media is among the cheapest and most reliable methods for
identification of microorganisms. Product differentiation between various
suppliers of prepared culture media typically shows only minimal differences;
price and service are generally the key variables, and culture media tends to be
very price competitive. Despite this, PML maintains a strong presence in this
product line because of its overwhelming importance to microbiologists and the
proven value of PML's service philosophy in gaining and keeping customers.
PML's marketing strategy is to acquire and/or develop newer technology products
that can be sold in conjunction with conventional culture media, and on
marketing selected products at the national, regional and international level.
In addition, PML intends to increase its focus on the industrial
microbiology market, which is growing at a faster pace than the clinical market.
In fiscal 1996, the Company's sales in the industrial segment increased
substantially, and the Company is optimistic about further increases in 1997.
DISTRIBUTION OF PRODUCTS
To provide better customer service, PML has established a number of
distribution centers in or near the following metropolitan areas of the United
States and Canada: Portland, Oregon; Sacramento, California; Providence, Rhode
Island; Vancouver, British Columbia; and Mississauga, Ontario. Each
distribution center includes temperature-controlled storage areas and a full
inventory of routinely-ordered products. Each distribution center receives the
bulk of its inventory from the nearest PML production plant on a weekly basis,
with specialty (products other than routine prepared culture media commercially
available from most suppliers) and distributed products coming from the Tualatin
plant. PML typically ships a complete customer order within twenty-four to
forty-eight hours of receipt of the order. For larger customers, such as major
hospital laboratories, PML often delivers its products directly to the
customer's lab in its own delivery vehicles.
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Shipments to smaller or more remote customers are made by common carrier, e.g.
United Parcel Service or Federal Express.
Because of the increased availability and affordability of next-day air
express services, PML reevaluated its distribution center strategy in 1994, and
as a result, closed several smaller locations, consolidating those customers
into its remaining larger, regional locations. There are currently no plans for
additional distribution center closures.
MANUFACTURING
At present, the majority of PML's sales consist of products it
manufactures itself, primarily prepared culture media in Petri dishes, tubes and
bottles. The manufacturing process is essentially a mixing, filling and
packaging operation, not unlike food products. The culture medium itself is a
blend of powdered nutrients which typically include beef and soy byproducts;
agar, a seaweed derivative used as a gelling agent; and other nutritional or
diagnostic substances, such as animal blood. For Petri dishes, the powdered
nutrients are blended and rehydrated, the resulting liquid is sterilized in
pressure vessels, and aseptically dispensed into presterilized plastic Petri
dishes. As the medium cools it gels into a semi-solid state and is then
packaged for sale. Tubed and bottled media are prepared in a similar manner
except that these products are usually sterilized after they are dispensed.
With the exception of small batches, PML produces most of its products on
custom-designed semi-automated production equipment. For example, empty Petri
dishes are loaded into a filling machine where automated dispensing pumps fill a
measured amount of culture medium into each dish. The dish moves onto a
refrigerated cooling conveyer where gelling occurs, and at the end goes into a
stacker, after which it is packaged. The finished products are stored in a
quarantine area until quality control testing is complete and the batch is
approved for distribution.
PML maintains a quality control laboratory in each of its manufacturing
plants as part of its Total Quality Assurance program. The quality control lab
tests raw material samples prior to purchase, and tests representative samples
from each production batch for sterility, pH, color, and general appearance, as
well as the growth of the microorganisms the product is designed to culture.
In addition to culture media, PML produces a variety of ancillary
products such as stains, reagents, microdilution MIC panels, animal blood
products, and a variety of chemical solutions used by other production
departments. The manufacturing process for certain of PML's ancillary products
such as stains, reagents, and other chemical solutions generates a small amount
(50 to 100 gallons per year) of hazardous materials consisting primarily of
organic solvents and heavy metal salts. PML contracts with licensed hazardous
waste disposal companies for the disposal of these materials at a nominal cost.
See "Governmental Regulation."
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SUPPLIERS
Dehydrated culture media powders used in manufacturing prepared culture
media are available from several suppliers in the United States, as well as
other suppliers based in Europe. During fiscal 1995 the Company began blending
some of its own dehydrated culture media powders. The Company is proceeding
cautiously on this project, to insure consistency with its products, but is
gradually increasing the manufacture of its own blends. There are several
manufacturers of disposable plastic Petri dishes in the United States as well as
at least two companies in Canada. There are several manufacturers of glass test
tubes and bottles in the United States and Canada.
COMPETITION
The market for prepared culture media continues to change rapidly. There
is continued national attention on the cost of health care; many hospitals and
clinical laboratories, PML's primary customers, are focusing on cutting costs.
As a result, the prepared culture media market has become increasingly price
competitive. Most hospitals are now members of buying groups known as National
Purchasing Organizations (NPOs), which negotiate single supplier contracts for
their members. In the clinical products market, PML's principal competitor is
Becton Dickinson Microbiology Systems ("BDMS"), a subsidiary of Becton Dickinson
& Co. a large national company. BDMS, because of its size and national
presence, is the sole culture media supplier for most NPOs. Increasingly,
hospital administrators are pressuring their laboratories to purchase from the
buying group's contracted vendor. In addition to BDMS, there are generally
smaller local or regional competitors in most areas where PML markets. Key
competitive factors in the clinical microbiology market are price, quality,
service, and breadth of distribution. PML competes favorably in quality and
service; its ability to compete in the future will depend in part on its ability
to continue to lower its culture media and distribution costs. In addition, the
ability to add new products and expand its sales and distribution network will
impact the Company's ability to compete in the future. At least two of PML's
competitors have greater financial, technical and marketing resources than PML.
In the industrial market, the key competitive factors are: features,
quality, and service; price competition is not yet as prevalent as in the
clinical market. PML competes with two other suppliers in this market. PML
competes favorably in these areas, although some of its national competitors
have significantly greater financial, technical and marketing resources than
PML.
RESEARCH AND DEVELOPMENT
PML does little pure research and development ("R & D"). The principal
purposes of its current R & D activities are to improve its products (e.g.
testing additional ingredients or formulas, or enhancing certain performance
characteristics) or to evaluate products being considered for addition to PML's
product line. At this time PML does not staff an R & D department. R & D
functions are presently performed by quality control technicians and production
technicians.
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PATENTS AND LICENSES
PML owns several patents and trademarks for products in the early
marketing stage. In addition, it has a license agreement with Definitive
Diagnostics, Inc. to manufacture and market its PHASE2-Registered Trademark-
blood culture system. This license agreement began June 1, 1992 and runs for 6
years, with two 2-year extension periods. See Note 14 of Notes to Consolidated
Financial Statements.
EMPLOYEES
On May 31, 1996 the Company had approximately 163 full time employees,
compared with approximately 185 at May 31, 1995. This decrease was primarily
the result of operational improvements and a reduction in administrative
staffing. None of the Company's employees are covered by collective bargaining
agreements, and the Company considers its employee relations to be satisfactory.
GOVERNMENT REGULATION
As a manufacturer of medical devices, PML is subject to certain
regulations of the U.S. Food and Drug Administration (FDA) and Canada's Health
Protection Branch (HPB). These regulations require registration and inspection
of PML's products, facilities and manufacturing processes, primarily by the FDA.
PML's facilities, processes and products have received all required approvals,
and PML believes that it is in substantial compliance with all relevant FDA and
HPB requirements.
In addition, PML is subject to other federal, state and local regulatory
requirements relating to environmental, waste management, hazardous materials
shipping, health and safety matters. Some risk of costs and liabilities related
to these matters is inherent in PML's business, as with many similar businesses.
Management believes that the Company's business is operated in substantial
compliance with applicable regulations, the violation of which could have a
material adverse effect on the Company.
LIABILITY INSURANCE
The Company maintains product liability insurance in the amount of $2
million. Product liability insurance is limited in availability and restrictive
in cost. Based on the essentially confirmatory nature of the majority of PML's
diagnostic products, PML's management believes that the Company is not subject
to significant product liability risk with its present product line. To date,
PML has never had a products liability claim brought against it.
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ITEM 2. DESCRIPTION OF PROPERTIES
PML currently operates from eight locations, five of which are production
plants. All of its facilities are leased. The Company expects no difficulty in
extending any of its leases as they come due. The following chart summarizes
the significant facilities which the Company leases:
Approximate
Square
Location Purpose Footage Expires
-------- ------- ----------- -------
MANUFACTURING:
1. Tualatin, Oregon Manufacturing 21,000 Month-to-Month
2. Tualatin, Oregon Manufacturing 4,000 March 1998
3. Mississauga, Ontario Manufacturing 16,000 November 2000
4. Richmond, British Columbia Manufacturing 2,000 June 1998
5. Mississauga, Ontario Manufacturing 4,000 May 1997
ADMINISTRATION AND DISTRIBUTION:
1. Portland, Oregon Admin/Distrib. 26,000 August 1999
2. Sacramento, California Distribution 6,000 Month-to-Month
3. Providence, Rhode Island Distribution 12,000 April 1999
4. Richmond, British Columbia Distribution 3,100 June 1998
5. Mississauga, Ontario Distribution 3,000 November 2000
The manufacturing facilities each have extensive leasehold improvements
and production equipment. PML's main production plant in Tualatin supplies
conventional culture media to the western United States region, and
specialized/small batch products for all other locations. A second, small
production plant in Tualatin is set up to produce PML's PHASE2 -Registered
Trademark- blood culture system, which was introduced in May, 1993. The
Richmond, British Columbia plant produces high volume culture media for the
western Canada region and produces PML's line of parasitology products. The
Mississauga, Ontario plant produces mostly high volume culture media for the
eastern Canada and northeastern United States regions, plus much of PML's
industrial product line. The Company installed new automated production
equipment which increased the capacity of the plant. With the additional
capacity, one of the Company's focuses has been the growth of sales in the
northeastern United States to utilize some of this plant capacity. In January,
1994, the Company purchased certain assets from Adams Scientific, Inc. including
Adams' customer list. A large portion of the sales to this customer base are
located in the northeastern United States. This has enabled the Company to
increase the output of product from the Mississauga plant and utilize some of
the excess capacity. Each of the manufacturing plants has capacity to
accommodate future growth. The Company's administrative offices, Northwestern
distribution center, and dehydrated manufacturing function are located in
Portland, Oregon, approximately five miles from the Tualatin production plants.
ITEM 3. LEGAL PROCEEDINGS
The Company has filed one lawsuit related to amounts owing the Company.
In the event the Company is not successful in its action, the operating results
will not be affected. The Company from time to time is a party to incidental
suits or other legal actions. The Company is not aware of any material lawsuit
filed against it.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on March 14, 1996 and at that meeting
elected three members to the Board of Directors and ratified Deloitte & Touche
LLP as independent auditors. The directors elected and the votes cast for both
matters were as follows:
Votes For Votes Against Abstain
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Arthur R. (Ron) Torland 211,551 Class B 0 0
Craig S. Montgomery 211,551 Class B 0 0
Douglas C. Johnson 1,022,214 0 1,875
Ratification of auditors 1,235,515 125 0
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock commenced trading on NASD's Electronic
Bulletin Board system in January, 1993 under the symbol "MDAN." The following
table sets forth the high and low closing bid prices as reported by The National
Quotation Bureau.
For the Quarterly High Low
Period Ended Sales Price Sales Price
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May, 1996 $0.6875 $0.3750
February, 1996 $0.3750 $0.3125
November, 1995 $0.3750 $0.3750
August, 1995 $0.3125 $0.3125
May, 1995 $0.3750 $0.2500
February, 1995 $1.0000 $0.2500
The Company has not paid any cash dividends on the Common Stock in the
past and anticipates that, for the foreseeable future, it will retain any
earnings available for dividends for use in its business. Further, the
Company's loan agreement does not allow the Company to declare or pay dividends
without the written consent of the bank. The preferred shares have a provision
which calls for the accretion of dividends annually at a rate of prime plus
1.5%. In April, 1996 the Company offered all of its preferred shareholders the
option of converting all or a portion of their accreted dividends into common
stock. One preferred shareholder opted for the conversion of accreted dividends
totalling $37,346 which the Company subsequently converted into approximately
99,000 shares of common stock; the others declined. At May 31, 1996 accreted
dividends totaled $97,974. See Note 11 of Notes to Consolidated Financial
Statements. There were approximately 1,300 record holders of Common Stock as of
May 31, 1996.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
Management's Discussion and Analysis of Financial Condition and Results
of Operations contains certain forward looking statements that involve a number
of risks and uncertainties. For example, the Company has stated its belief
that sales of industrial products should increase in the coming year, and that
reductions in the the cost of goods sold should result from improved
procurement practices. Future demand for the Company's products, including its
industrial products, is inherently subject to supply and demand conditions, and
the decisions of other market participants over which the Company has no
control, and that are inherently hard to predict. Accordingly, there can be no
assurance that sales will increase generally or within any specified product
line, or that the Company's margins will stabilize or improve. In addition.
there are other factors that could cause actual results to differ materially,
including in particular competitive pressures and the other factors listed from
time to time in the Company's reports to the Securities and Exchange Commission,
including, but not limited to, this report on Form 10-KSB.
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RESULTS OF OPERATIONS
The Company made a strong financial turnaround in fiscal 1996, earning
$206,001 or $0.09 per share for the year, compared with a loss of $1,612,880 or
$1.00 per share the prior year. This improvement came despite a decline in net
sales for the year of nearly 9.5%.
The Company's performance was especially strong in the second half, as it
continued to benefit from its turnaround efforts, earning $276,877 (including a
$98,000 deferred tax adjustment) in that period, compared with a loss of
$600,306 in the same period a year ago.
The improvement in the Company's performance resulted from a number of
factors, which are addressed in more detail in the following section. In
general, as part of its turnaround program, the Company cut costs by improving
operations, particularly by improving customer service and product quality,
reducing waste, and reducing the workforce through operational improvements. In
addition, the Company initiated a procurement process, still underway, which has
resulted in significant savings in the costs of materials and services.
In addition to the impact of the turnaround program, the Company
benefited from an increase in the value of the Canadian dollar relative to the
U.S. dollar. Approximately 40% of the Company's sales are Canadian and
therefore affected by the level of the Canadian dollar. The average exchange
rate in 1996 increased to .735 compared to .725 in fiscal 1995 and .749 in
fiscal 1994. This translates into an increase in sales dollars of about
$55,000 in fiscal 1996 over 1995 due to the effect of the exchange rate.
The reduction in sales is due to continuing pricing pressure from
competition and from cost containment measures in the healthcare industry, such
as buying groups and reduced testing.
The following table presents the percentage relationship that certain
items in the Company's Consolidated Statement of Income bear to sales for the
period indicated.
PERCENT OF SALES
YEAR ENDED MAY 31,
------------------------
1994 1995 1996
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Net Sales 100.0% 100.0% 100.0%
Cost of Goods Sold 61.6 67.1 65.8
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Gross Profit 38.4 32.9 34.2
Selling, general and administrative expenses 36.6 42.1 31.5
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Operating Income (loss) 1.8 (9.2) 2.7
Other expense (0.9) (1.5) (1.9)
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Income (loss) before income taxes 0.9 (10.7) 0.8
Income tax benefit (expense) (0.5) 0.2 0.7
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Net income (loss) 0.4% (10.5)% 1.5%
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TURNAROUND. In January, 1995, the Company engaged the services of a
professional turnaround consultant. In the ensuing one and one-half years the
Company has put into place improved management and financial controls; reduced
the number of employees by over 20%; flattened the organizational chart by
eliminating a layer of management; reduced backorders, scrap and outdates
substantially; and replaced several
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members of upper management. On April 8, 1996, the Company hired Kenneth L.
Minton as President and CEO. The consultant's role has substantially diminished
since Mr. Minton has joined the Company, and is expected to conclude in the
first quarter of fiscal 1997.
YEAR ENDED MAY 31, 1996 COMPARED WITH YEAR ENDED MAY 31, 1995
Sales in fiscal 1996 totalled $13.85 million, a decrease of $1.45 million
or 9.5% year-over-year. This decrease was due almost entirely to loss of
business from hospital buying groups because of their increased use of national
purchasing organizations (NPOs). For many products, including microbiology
disposables, NPOs contract with a single large prime manufacturer or
distributor, and provide financial incentives for member hospitals to use the
prime manufacturer. Meda is effectively shut out of NPOs because only one
supplier, Becton Dickinson, is solicited. The Company has, however, made up for
much of these lost sales in the industrial microbiology market, and with
increased sales of specialty products not included in NPO contracts.
Gross profit improved to 34.2% of sales, up from 32.9% the prior year.
This improvement came despite a change in the Company's reporting system
beginning in the first quarter of fiscal 1996 which allocated a greater portion
of direct overhead expenses to cost of goods sold than had been allocated
previously. The new reporting system provides better information about
inventory movement and usage, and about the performance of each operating unit.
Management believes that, except as described below, there have been no changes
in its sales or operations that would otherwise materially affect gross profit.
In fiscal 1996, market and Company actions that affected gross profit (in all
cases positively) included the following: decreased sales of lower margin
commodity-type products and increased sales of higher margin specialty products;
improved operational efficiencies, resulting in reduced scrap and outdates;
reduced raw material costs; a modest price increase, put into effect in January,
1996; and an improved Canadian exchange rate.
Selling, general and administrative expenses were reduced substantially,
to 31.5% of sales, compared to 42.1% in 1995 which included a 0.5% restructuring
charge booked in fiscal 1995. The improvement was partially due to the
reporting system changes described in the preceding paragraph. In addition, the
Company moved aggressively to control its costs during fiscal 1996. Most
expense categories improved, both as a percentage of sales and in total dollars.
Freight expense improved dramatically due to renegotiation of existing
contracts, dropping nearly 50% in total dollars, and nearly 45% as a percentage
of sales. Rent expense decreased from 3.2% of sales to 2% as the Company
operated with fewer locations and subleased a portion of its administration
building. Telephone expense decreased from 2.1% to 1.9% of sales resulting from
negotiating lower rates from the telephone company, and bad debt expense
improved more than $156,000 or over 1% of sales due to aggressive collection
efforts and tighter control on setting credit limits for new customers.
YEAR ENDED MAY 31, 1995 COMPARED WITH YEAR ENDED MAY 31, 1994
Sales in fiscal 1995 totalled $15.3 million, an increase of $1.4 million
or 10.1% year-over-year. The increase in sales was in part due to a full year
of sales to customers acquired from Adams Scientific, Inc. in January 1994, and
in part due to increased market penetration in the industrial microbiology
market.
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Gross profit decreased sharply, to 32.9% of sales, compared to 38.4%
during the prior year. There were a number of causes:
- Competitive pricing pressure and the effects that hospital buying
groups have had on pricing continued to erode margins.
- While the Company lost some of its high volume business to
competitors, it had an increase in the number of low volume batches
produced. The Company believes that some of its product costs are
inaccurate, resulting in unprofitable pricing decisions.
- The value of the Canadian dollar continued to slide during fiscal
1995. In 1993 the average exchange rate was $0.804. It fell to an
average of $0.725 in fiscal 1995. Over 38% of the Company's sales
are in Canada and are affected by the exchange rate.
- The Company had an increase in scrap and outdates during the first
half of the year resulting from more low volume batches being
produced, disruption caused by the closure of several distribution
centers and consequent movement of that inventory, and problems with
inventory control and production scheduling as a result of
distribution center closures.
- Raw material costs increased during the year, and the Company was
unable to pass those increases along to its customers.
- Although sales of higher margin products increased during the year,
it was not enough to offset the negative factors listed above. The
Company continues to focus its sales efforts on less competitive,
higher margin products and markets.
Since January, 1995, when the turnaround specialist was engaged, the
Company has taken a number of steps to increase gross profit:
- It has aggressively tackled waste reduction. Scrap is now down to
record low levels and outdates are gradually declining as
improvements are made to inventory control and scheduling.
- The Company is reviewing and updating its product costs so that
pricing can be corrected as necessary.
- Revenues have been enhanced through new fees and charges.
- Labor costs are lower due to salary rollbacks and better utilization
of personnel.
Selling, general and administrative expenses increased from 36.6% of
sales in 1994 to 42.1% in 1995. Most expense categories were higher both in
actual dollars and as a percentage of sales. Personnel costs was the expense
category that increased the most, up 1.5% of sales or $289,000. The Company
added a number of employees in the first half of the year to handle the sales
growth resulting from the Adams Transaction. Personnel costs were reduced
sharply in the second half, however. Personnel costs also include a
financial settlement with the Company's former president. The Company has
not replaced either its president or its sales and marketing manager, but
expects to do so in fiscal 1996.
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Rent increased by 0.7% of sales or $143,000, largely due to the move of
the Company's Tualatin distribution center and its administrative offices to
larger quarters beginning in August, 1994. This move was necessary to
accommodate the increased volume of shipping resulting from the closure and
consolidation of distribution centers formerly located in Washington and
Louisiana. With recent staff reductions, the Company requires less
administrative space and is attempting to sublease a portion of its office
space. Leases on the closed locations were all ended or bought out by fiscal
year end, so rent expense should be less in the new year.
Professional services increased from 2.7% of sales to 3.4%, primarily due
to fees for the turnaround consultant. These fees are expected to continue
until the Company is deemed stable and a new president is hired during fiscal
1996.
The allowance for doubtful accounts receivable was increased by $115,000,
primarily in response to two troubled customers. The Company is still receiving
collections on these accounts but their long term viability is unknown at this
time.
No other expense category increased by more than 0.5% of sales for the
year. Most expenses decreased in the fourth quarter, and the Company
anticipates substantially reduced expenses in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations over the years principally
through funds generated from operations and bank and stockholder loans. At May
31, 1996 the Company had negative working capital of approximately $253,000
compared with negative working capital of $1.30 million at May 31, 1995. Much
of the improvement in the current year period was due to reclassification of
certain accounts payable to long term debt, as a result of vendor's acceptance
of the Company's Vendor Repayment Plan and the booking of a deferred tax asset.
The ratio of current assets to current liabilities was .93 at May 31, 1996
compared to .76 at May 31, 1995. Quick liquidity (current assets less
inventories to current liabilities) was .51 at May 31, 1996 and .45 at May 31,
1995.
The twelve-month average collection period for trade receivables was
fifty-four days at May 31, 1996 compared with fifty-nine days at May 31, 1995.
Net cash provided by operating activities was $830,819 in fiscal 1996
compared with $140,116 provided by operations in fiscal 1995. The bulk of cash
was provided by a reduction in accounts receivable and inventory. Net cash used
in investing activities was $24,376 in fiscal 1996, compared with $43,413 used
by the Company in investing activities in fiscal 1995. $52,747 was spent on the
purchase of plant, property and equipment during fiscal 1996, compared with
$88,948 in fiscal 1995. Financing activities used cash of $827,095, primarily
to pay down the bank line of credit and long term bank loans, compared with
$140,575 used during fiscal 1995.
The Company has negotiated with its bank a line of credit that has a
current maturity date of September 15, 1996. The line of credit is secured by
substantially all of the assets of the Company. The available amount under the
line of credit is based upon 80% of the eligible accounts receivable at the end
of the reporting period, not to exceed $1.6 million. The rate of interest
charged on the line is prime plus 2.00%. The repayment of the loan is primarily
out of the Company's receivable collections. The Company was advised in writing
on September 6, 1996 that the bank does intend to renew its line of credit for
six months through March 15, 1997 at prime plus 3%. Although the Company is
currently seeking alternative financing sources, there is no assurance that the
Company can obtain other financing or financing with terms acceptable to the
Company.
13
<PAGE>
On May 1, 1995, because the Company was in arrears with many vendors and
had insufficient cash available to bring vendor accounts current, the Company
sent a Vendor Repayment Plan to all suppliers who had unpaid invoices over 60
days. This letter asked vendors to accept one of three payment options, two of
which involved converting their accounts to a term note. Vendor response has
been excellent, with the vast majority of the vendors having accepted a payment
option acceptable to the Company. As of May 31, 1996, about 20 vendors, with
aggregate claims totalling about $100,000, had not yet agreed to a repayment
plan. The Company continues to communicate with these vendors in hopes of
convincing them to accept a term note. Repayment on the vendor notes began as
scheduled on May 1, 1996 and the Company anticipates making its future quarterly
payments on schedule.
The Company may require additional capital to finance current operations,
make enhancements to or expansions of its manufacturing capacity, in accordance
with its business strategy, or for additional working capital, for inventory and
accounts receivable. The Company may also seek additional funds through public
or private debt or through bank borrowings. No assurances can be given that
future financings will be available with terms acceptable to the Company.
Without such future financing, the Company's ability to finance its growth will
be severely limited.
The Company's total debt structure at May 31, 1996 was as follows:
Long-Term Current-Portion
--------- ---------------
Revolving credit at prime plus 2.00% due
September 15, 1996 $ 0 $ 1,106,761
8% Note, due May 2000 71,890 67,906
Note payable at prime plus 1.25%, due
January 1998 0 28,359
Note payable at 10% due January 1997 0 10,000
Note payable at prime plus 1% due December
1999 37,500 10,000
8% Note, due May 2000 77,375 21,943
Capital Lease obligations, due May 1995
through July 1999 86,755 37,226
6% Note, due May 2005 80,000 10,000
Trade A/P converted to notes payable
at 6%, due February 2001 588,444 46,127
----------- -----------
Total long debt $ 941,964 $ 1,338,322
Total Notes payable to related parties 0 280,770
----------- -----------
Total long and short term debt $ 941,964 $ 1,619,092
----------- -----------
----------- -----------
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included on pages F-1 to F-18 of
this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING DISCLOSURE
The Company dismissed its former accountant, Deloitte & Touche LLP, on
May 15, 1996. None of the former accountant's reports contain an adverse
opinion, but the May 31, 1995 report did raise a doubt about the Company's
ability to continue as a going concern. A decision to change accountants was
approved by the board of directors. There have been no disagreements with the
former accountant on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
Meda's new independent accountants, Price Waterhouse LLP, were engaged on May
21, 1996. Prior to this engagement, the only discussions the Company had with
Price Waterhouse LLP concerned fees, capabilities, the scope of the Company's
operations.
The letter of Deloitte & Touche LLP concerning their dismissal was filed as a
supplement to the Company's report on Form 8-K, which was filed with the
Securities and Exchange Commission on May 22, 1996.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONNEL;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
Term as
Name Position Director Expires
---- -------- ----------------
A. Ron Torland Chairman of the Board 1997
Kenneth L. Minton President and
Chief Executive Officer
James N. Weider Chief Financial Officer,
Vice President-Finance,
Secretary
Douglas C. Johnson Director 1997
Craig S. Montgomery Director 1997
A. Ron Torland, age 49, has been employed by the Company or its
predecessor since 1970. He became Chairman of the Board in 1988, was Chief
Executive Officer from 1988 to 1996, and was President from 1982 to 1988. He
has been Treasurer and a member of the Board of Directors since the Company was
incorporated in 1972. Mr. Torland holds a B.S. degree in business
administration and served in the U.S. Army from 1968 to 1970.
Kenneth L. Minton, age 46, was hired as the Company's President and
Chief Executive Officer in April, 1996. Prior to joining Meda, he was President
and Chief Operating Officer of Hind, Inc., a manufacturer and distributor of
high end sports apparel from 1993 to 1996, and Vice President of Microwave
Applications Group, an electronics manufacturer, from 1985 to 1993. Prior to
1985, Mr. Minton had extensive experience in operations, finance, sales and
marketing in several industries. Mr. Minton holds a B.S. degree in Business
Administration.
James N. Weider, age 53, has been employed by the Company since August,
1995 as its Vice-President - Finance and Secretary. He has both a B.S. in
business administration with a major in accounting, and an MBA from The Ohio
State University and has also passed the CPA exam. Prior to coming to the
Company, Mr. Weider was the Vice President - Finance at TNT Reddaway Truck Line
from 1989 to 1995 and spent six years with Tektronix and seventeen years with
International Harvester.
Douglas C. Johnson, age 40, has been a director of the Company since
March, 1996. He holds a B.A. degree in Music from Fort Wright College in
Spokane, Washington, and a Masters Degree from the University of Southern
California in Los Angeles. He has been a professional opera singer for 12 years
and returned to the U.S. two years ago after nine years in Europe.
15
<PAGE>
Craig S. Montgomery, Ph.D., 42, has been a director of the Company since
March, 1996. He is a licensed clinical psychologist. From 1983 to 1991, he was
Program Director of New Day Center, Portland, Oregon, a residential and
outpatient facility for chemical dependency treatment. From 1991 to 1993, he
was Clinical Supervisor of both the New Day Center and the Dual Diagnosis
program at Portland Adventist Hospital and Caremark Behavioral Health Services.
He is now in private practice. Dr. Montgomery holds a Masters Degree from
Pepperdine University and a Ph.D. from the California School of Professional
Psychology in San Diego, California.
No director holds a directorship in any other Company reporting under the
Securities and Exchange Act of 1934.
SIGNIFICANT EMPLOYEES
There are no significant employees other than those listed above.
FAMILY RELATIONSHIPS
Mr. Torland and Dr. Montgomery are stepbrothers. Mr. Johnson is Dr.
Montgomery's and Mr. Torland's brother-in-law.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth the compensation of all executive officers
of the Company for the fiscal year ending May 31, 1996 and 1995, who receive
total annual salary and bonuses during that period in excess of $100,000.
Name of Individual Annual Compensation
and Position Year Salary Bonus Other Compensation
------------ ---- ------ ----- ------------------
A. Ron Torland, CEO 1996 84,011 None None
1995 101,820 None 2,500
No officer, director or employee was beneficiary of any long-term
compensation or other compensation in excess of the dollar values reflected in
item 402(b)(2)(iii)(c). No director received any compensation for his or her
services as a director.
16
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the ownership
of issued and outstanding shares of the Company as of the date hereof by each
director, executive officer, and person known to the Company to be the
beneficial owner of more than 5% of any class of the Company's voting securities
as of August 31, 1996:
Amount and
Name and Address Nature of Percent
Title of of Beneficial Beneficial of
Class Owner Owner Class
- -------------------------------------------------------------------------------
Common Shares A. Ron Torland 110,381 6.2%
10595 SW Kiowa Street
Tualatin, OR 97062
Common Shares Arthur N. Torland 522,347 29.4%
8520 SW Avery Street
Tualatin, OR 97062
Common Shares Julian G. Torland 267,900 15.1%
11100 SW North Dakota Street
Tigard, OR 97223
Common Shares Douglas C. & Joanne E. Johnson 146,832 8.3%
8728 SW Pamlico Court
Tualatin, OR 97062
Class B A. Ron Torland 142,902 67.5%
Common Shares 10595 SW Kiowa Street
Tualatin, OR 97062
Class B Julian G. Torland 68,649 32.5%
Common Shares 11100 SW North Dakota Street
Tigard, OR 97223
Class A Convertible Arthur N. and Bessie M. Torland 2,750 55.6%
Preferred Shares 8520 SW Avery Street
Tualatin, OR 97062
Class A Convertible Julian G. Torland 700 14.1%
Preferred Shares 11100 SW North Dakota Street
Tigard, OR 97223
Class A Convertible Douglas C. & Joanne E. Johnson 1,500 30.3%
Preferred Shares 8728 SW Pamlico Court
Tualatin, OR 97062
17
<PAGE>
The directors and officers of the Company, as a group, own 304,456 common
shares, representing 17.1% of that class, and 142,902 shares of Class B common
shares, representing 67.5% of that class, and 1,500 shares of Class A
convertible preferred, representing 30.3% of that class.
There are no arrangements which may result in a change of control of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company leases equipment, laboratories and office facilities from
Arthur & Bessie Torland, Julian Torland, and Ron Torland, some of whom hold more
than 10% of certain classes of voting securities of the Company, under four
operating leases. Total rental expense incurred under these four operating
leases was approximately $90,000, $98,400, and $115,200 in fiscal 1996, 1995
and 1994, respectively. (See Note 14 on Notes to Consolidated Financial
Statements.)
The Company has a Technology License Agreement with Definitive
Diagnostics, Inc. ("DDI"). See Patents and Licenses. Under the agreement,
which extends for six years, the Company will manufacture and market products
developed by DDI and pay a royalty based upon the number of units sold. Total
royalties of $38,650 were incurred in fiscal 1996, $40,334 in fiscal 1995 and
$13,000 in fiscal 1994. DDI is owned by Messrs. Arthur and Ron Torland, both
shareholders owning more than 10% of a class of stock of the Company. Ron
Torland is also a director of the Company.
Joanne E. Johnson, wife of director Doug C. Johnson, has five year 6%
notes issued in fiscal 1996 with a balance of $89,345.
There are no other transactions, or series of similar transactions,
involving amounts in excess of $60,000.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit Description of Exhibit
- ------- ----------------------
3 Articles of Incorporation and Bylaws
4 Instruments defining the rights of holder (none)
9 Voting Trust Agreement (none)
10 Material contracts
a. Employment Agreement with Lester L. Leno
b. Consulting Agreement with Interim Management Co.
* c. Employment Agreement with Kenneth L. Minton
d. 1994 Stock Option Plan for Non-employee Directors.
e. 1994 stock Option Plan
18
<PAGE>
11 * Statement re: Computation of per share earnings
16 Letter on changes and certifying accountants
18 Letter on change in accounting principles
19 Previously unfiled documents (none)
21 Subsidiaries of Registrant
22 Published report regarding matters submitted to vote (none)
24 Power of Attorney (none)
28 Additional exhibits (none)
Each exhibit marked with a single asterisk is filed with this report on
form 10-KSB. Except as otherwise indicated, each exhibit not so marked is
incorporated by reference to the exhibit filed by the Company with its
previous filings to the SEC.
(b) REPORTS ON FORM 8-K.
A report on form 8-K was filed with the SEC on May 22, 1996. This report
related to a change in the Company's outside auditors.
19
<PAGE>
SIGNATURES
IN ACCORDANCE WITH SECTION 13 OR 15(D) OF THE EXCHANGE ACT, THE
REGISTRANT CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED IN THE CITY OF TIGARD, STATE OF OREGON, ON SEPTEMBER
13, 1996.
MEDA, INC.
By:/s/ Kenneth L. Minton
------------------------------------
Kenneth L. Minton, Chief Executive Officer
IN ACCORDANCE WITH THE EXCHANGE ACT, THIS REPORT HAS BEEN SIGNED BELOW BY
THE FOLLOWING PERSONS ON SEPTEMBER 13, 1996, ON BEHALF OF THE COMPANY AND IN THE
CAPACITIES INDICATED.
Signatures Title
- ---------- -----
/s/ Kenneth L. Minton President and Chief Executive Officer
- ------------------------------ (Principal Executive Officer)
Kenneth L. Minton
/s/ James N. Weider Vice President-Finance and Secretary, CFO
- ------------------------------ (Principal Financial and Accounting Officer)
James N. Weider
/s/ A. Ron Torland Chairman of the Board
- ------------------------------
A. Ron Torland
/s/ Doug C. Johnson Director
- ------------------------------
Doug C. Johnson
/s/ Craig S. Montgomery Director
- ------------------------------
Craig S. Montgomery
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Meda, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Meda, Inc.
and subsidiary at May 31, 1996, and the results of their operations and
their cash flows for the year in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management, our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above.
/s/Price Waterhouse LLP
- ------------------------------
PRICE WATERHOUSE LLP
Portland, Oregon
July 31, 1996
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Meda, Inc.
Tualatin, Oregon
We have audited the accompanying consolidated balance sheet of Meda, Inc. and
subsidiary as of May 31, 1995 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended May 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects the financial position of Meda, Inc. and subsidiary at May 31,
1995 and the results of their operations and their cash flows for each of the
two years in the period ended May 31, 1995, in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 of
notes to consolidated financial statements, the Company's 1995 net loss, working
capital, and stockholders' capital deficiency at May 31, 1995 raise substantial
doubt about its ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 2. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
As discussed in Note 13, the Company adopted Statement of Financial Accounting
Standards No. 109 effective June 1, 1993.
/s/Deloitte & Touche LLP
- ------------------------------
DELOITTE & TOUCHE LLP
Portland, Oregon
August 21, 1995
F-2
<PAGE>
MEDA, INC.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
May 31, May 31,
ASSETS 1996 1995
----------- -----------
Current Assets:
Cash $ 9,887 $ 30,539
Trade accounts receivable, less allowance
for doubtful accounts of $126,982 in 1996
and $181,323 in 1995 1,651,918 2,192,773
Inventories:
Raw Materials 552,540 535,351
Work in Process 265,305 273,201
Finished Goods 604,904 851,966
Deferred Tax Asset 98,000 -
Prepaid expenses 49,583 153,741
----------- -----------
Total Current Assets 3,232,137 4,037,571
Property, plant and equipment - net 1,358,854 1,615,314
Intangible assets - net 10,122 29,052
Other assets 66,623 81,194
----------- -----------
Total Assets $ 4,667,736 $ 5,763,131
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts payable $ 1,416,515 $ 2,543,041
Accrued salaries and wages 151,546 234,081
Accounts payable - related parties 6,440 44,450
Other accrued liabilities 291,742 273,704
Notes payable - 47,162
Notes payable - related parties 280,770 337,181
Bank line of credit 1,106,761 1,671,215
Current portion of borrowings 231,561 188,889
----------- -----------
Total Current Liabilities 3,485,335 5,339,723
----------- -----------
Borrowings, less current portion 941,964 499,598
----------- -----------
Stockholders' Equity (Deficit)
Preferred stock, $.01 par value;
authorized 25,000 shares, no shares
issued or outstanding - -
Class A convertible preferred stock,
stated and liquidation value $100
per share; authorized 7,500 shares,
issued and outstanding 4,950 shares,
including accreted dividends 592,974 580,820
Common stock, $.01 par value; authorized
2,000,000 shares, issued and outstanding
at May 31, 1996, 1,776,816 shares
and at May 31, 1995, 1,449,776 shares. 17,768 14,497
Class B common stock, $.01 par value;
authorized 250,000 shares, issued and
outstanding 211,551 shares. 2,116 2,116
Class D common stock, $.01 par value,
authorized 100 shares, no shares issued
or outstanding. - -
Additional Paid In Capital 144,701 -
Accumulated Deficit (517,122) (673,623)
----------- -----------
Total Stockholders' Equity (Deficit) 240,437 (76,190)
----------- -----------
Total Liabilities and Stockholders'
Equity (Deficit) $ 4,667,736 $ 5,763,131
----------- -----------
----------- -----------
See notes to consolidated financial statements
F-3
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED MAY 31
- -------------------------------------------------------------------------------
1996 1995 1994
------------- ------------- -------------
Net sales $ 13,849,481 $ 15,295,572 $ 13,887,475
Cost of goods sold 9,109,938 10,262,331 8,555,795
------------- ------------- -------------
Gross profit 4,739,543 5,033,241 5,331,680
Selling, general, and
administrative expenses 4,369,427 6,386,572 5,073,888
Restructuring charge - 71,069 -
------------- ------------- -------------
Operating income (loss) 370,116 (1,424,400) 257,792
Other (income) expense:
Interest expense 294,172 247,960 161,881
Other (33,795) (24,273) (33,998)
------------- ------------- -------------
Total other expense 260,377 223,687 127,883
------------- ------------- -------------
Income (Loss) before income taxes
and cumulative effect of
accounting change 109,739 (1,648,087) 129,909
Income tax benefit (expense) 96,262 35,207 (77,000)
------------- ------------- -------------
Income (Loss) before cumulative
effect of accounting change 206,001 (1,612,880) 52,909
Cumulative effect on prior years
of change in accounting for
income taxes - - (12,000)
------------- ------------- -------------
Net Income (Loss) $ 206,001 $ (1,612,880) $ 40,909
------------- ------------- -------------
------------- ------------- -------------
Net Income (Loss) per common share:
Income (loss) before cumulative
effect of accounting change $ 0.09 $ (1.00) $ 0.01
Cumulative effect on prior years
of change in accounting for
income taxes 0.00 0.00 (0.01)
------------- ------------- -------------
Net Income (Loss) per common share $ 0.09 $ (1.00) $ 0.00
------------- ------------- -------------
------------- ------------- -------------
See notes to consolidated financial statements
F-4
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
THREE YEARS ENDED MAY 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Retained
Class A Class B Additional Earnings
Convertible Common Common Paid-in (Accumulated
Preferred Shares Shares Shares Capital Deficit) Total
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 495,000 14,645 2,116 - 984,020 1,495,781
Preferred Stock dividends accreted 37,744 - - - (37,744) -
Net Income - - - - 40,909 40,909
--------------------------------------------------------------------------------------
Balance, May 31, 1994 532,744 14,645 2,116 - 987,185 1,536,690
--------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------
Balance, May 31, 1994 $ 532,744 $ 14,645 $ 2,116 $ - $ 987,185 $ 1,536,690
Common Stock returned and cancelled - (148) - - 148 -
Preferred Stock dividends accreted 48,076 - - - (48,076) -
Net Loss - - - - (1,612,880) (1,612,880)
--------------------------------------------------------------------------------------
Balance, May 31, 1995 $ 580,820 $ 14,497 $ 2,116 $ - $ (673,623) $ (76,190)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Balance, May 31, 1995 $ 580,820 $ 14,497 $ 2,116 $ - $ (673,623) $ (76,190)
Common Stock returned and cancelled - (27) - 27 - -
Preferred Stock dividends accreted 49,500 - - - (49,500) -
Stock issued to employees - 1,870 - 68,255 - 70,125
1995 401K match - 432 - 40,069 - 40,501
Conversion of accreted dividends
to Common Stock (37,346) 996 - 36,350 - -
Net income - - - - 206,001 206,001
--------------------------------------------------------------------------------------
Balance, May 31, 1996 $ 592,974 $ 17,768 $ 2,116 $ 144,701 $ (517,122) $ 240,437
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
MEDA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED MAY, 31
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1996 1995 1994
---------- -------------------------
Cash Flows from Operating Activities:
Net income (loss) $ 206,001 $ (1,612,880) $ 40,909
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Cumulative effect of change in
accounting principle - - 12,000
Depreciation and amortization 313,972 345,547 244,060
Gain on sale of equipment (14,206) (22,169) 1,910
Deferred income taxes (98,000) 17,822 56,852
Changes in:
Accounts receivable 540,855 492,985 (1,041,104)
Inventories 237,769 131,371 (527,153)
Income tax refund - (69,139) 55,422
Other assets 118,729 (9,401) 3,913
Accounts payable and accrued
liabilities (474,301) 865,980 957,051
---------- ------------ -----------
Total adjustments 624,818 1,752,996 (237,049)
---------- ------------ -----------
Net cash (used in) provided by
operating activities 830,819 140,116 (196,140)
Cash Flows from Investing Activities:
Proceeds from sale of assets 28,371 45,535 7,900
Purchase of property, plant
and equipment (52,747) (88,948) (512,782)
---------- ------------ -----------
Net cash used in investing activities (24,376) (43,413) (504,882)
Cash Flows from Financing Activities:
Proceeds from issuance of notes payable 333,610 251,968 368,205
Repayment of demand notes (972,959) (280,837) (359,316)
Repayment of long-term debt (187,746) (111,706) (316,439)
Proceeds from issuance of common stock - - 988,985
---------- ------------ -----------
Net cash provided by (used in)
financing activities (827,095) (140,575) 681,435
---------- ------------ -----------
Decrease in cash (20,652) (43,872) (19,587)
Cash at beginning of period 30,539 74,411 93,998
---------- ------------ -----------
Cash at end of period $ 9,887 $ 30,539 $ 74,411
---------- ------------ -----------
---------- ------------ -----------
Supplemental Disclosures:
Interest paid $ 271,929 $ 244,143 $ 121,491
Income tax paid 1,738 21,551 -
Non Cash Items:
Preferred stock dividends accreted 49,500 48,076 37,744
Capitalized lease transaction
related to the purchase of property,
plant and equipment. - 290,512 41,421
Accounts payable exchanged for
long-term debt and notes payable 644,106 - -
Accounts payable exchanged for capital
stock issued to employees 70,125 - -
Accounts payable exchanged for capital
stock issued to employee 401k plan 40,501 - -
Common shares reacquired 27 148 -
See notes to consolidated financial statements
F-6
<PAGE>
MEDA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED MAY 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
Meda, Inc. ("Meda" or the "Company") was incorporated in August 1991 and
owns 100% of the common and preferred stock of Prepared Media Laboratory,
Inc. ("PML"). Effective December 4, 1992, Meda acquired PML and issued PML
shareholders 1,164,526 Common Shares, 211,551 Class B Common Shares, and
4,950 Class A convertible preferred shares of Meda. This business
combination was accounted for as a reverse acquisition of Meda by PML
whereby PML is deemed to be the acquirer for accounting purposes.
As a result of the reverse acquisition, effective December 4, 1992, PML
stockholders' equity was adjusted to reflect the exchange of stock in Meda
described above.
The Company produces and sells culture media to customers in the culture
media testing industry, principally hospitals and health care related
laboratories.
2. CURRENT OPERATING ENVIRONMENT
As of May 31, 1995, the Company had an accumulated deficit of $76,190 and
had recorded a $1,612,880 net loss for the year ended May 31, 1995. In
addition, the Company's commercial bank restricted the Company from making
payments on debt owed to Company officers or shareholders and put other
restrictions into place on the Company's credit facility. These items
raised questions as to the Company's ability to continue as a going concern
as of May 31, 1995.
The Company has restructured its operations, resulting in a fiscal 1995
charge to earnings of $71,069. The focus of the restructuring was in the
following areas: consolidation of its distribution network by closing all
noncritical distribution centers; reducing the work force; improving the
efficiency of operations; and refocusing its marketing efforts onto higher
margin, less competitive products and markets. Management believes such
actions will allow the Company to continue as a going concern.
F-7
<PAGE>
3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Meda and its wholly-owned subsidiary,
PML. All significant intercompany transactions and balances have been
eliminated.
REVENUE RECOGNITION - Sales revenue net of allowances is recognized at the
time the Company's product is shipped to customers.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-
out method) or market.
PROPERTY PLANT AND EQUIPMENT - Property, plant, and equipment are stated at
cost. Depreciation of property, plant, and equipment is provided using
primarily the straight-line method over the estimated useful lives of the
assets of 2 to 12 years. Amortization of leasehold improvements is
provided using the straight-line method over the estimated useful lives of
the assets or the initial term of the lease, whichever is shorter.
INTANGIBLE ASSETS - Intangible assets include a covenant not to compete,
customer lists, and costs in excess of fair value of assets acquired. The
covenant not to compete is being amortized on the straight-line method over
five years, the term of the agreement. The customer lists are being
amortized on the straight-line method over their expected useful lives of
five and ten years. Cost in excess of fair value of the assets acquired is
being amortized on the straight-line method over five years. Accumulated
amortization at May 31, 1996 and 1995, was $235,993 and $217,063,
respectively.
LONG-LIVED ASSETS - In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The statement provides that impairments of long-lived assets
be measured and valued based on the estimated future cash flows. The
Company adopted the statement in 1996; however, the adoption did not have a
significant impact on the Company's financial position or results of
operations.
PROFIT SHARING PLAN - The Company has a profit sharing plan which qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan,
eligible U.S. employees may contribute up to 15% of their compensation with
the Company matching up to 3% of the employees' total compensation. The
Company also has a profit sharing plan which covers eligible Canadian
employees. The Company is required to fund out of profits a minimum
contribution of $100 (CDN) per participant. The Company incurred total
profit sharing recovery in fiscal 1996 of $(1,887) due to a partial
reversal of a prior year accrual, and profit sharing expenses of $47,576,
and $2,921 for fiscal 1995, and 1994, respectively. $40,580 of the 1995
expense was paid out to the 401k plan in fiscal 1996 as 43,201 shares of
common stock.
FOREIGN CURRENCY - The financial statements and transactions of the
Company's Canadian division are maintained in Canadian dollars and
remeasured into the Company's functional currency (U.S. dollars) in
accordance with Statement of Financial Accounting Standards ("SFAS") No.
52. Nonmonetary balance sheet items are remeasured at historical exchange
rates. Revenues and expenses are remeasured at the average exchange rate
for each fiscal year.
F-8
<PAGE>
NET INCOME (LOSS) PER COMMON SHARE - Net income (loss) per common share is
computed based upon the outstanding weighted average common and, to the
extent they are dilutive, common equivalent shares. The weighted average
common shares outstanding were 1,806,377, 1,668,173, and 1,676,077 for
fiscal 1996, 1995, and 1994, respectively. The following is a summary of
the computation of net income (loss) per share for three years ended
May 31, 1996.
YEARS ENDED MAY 31,
--------------------------------------
1996 1995 1994
Net income (loss) $ 206,001 $ (1,612,880) $ 40,909
Preferred stock dividends accreted (49,500) (48,076) (37,744)
---------- ------------ ----------
Net income (loss) on common stock $ 156,501 $ (1,660,956) $ 3,165
---------- ------------ ----------
---------- ------------ ----------
Average number of common shares
outstanding 1,806,377 1,668,173 1,676,077
---------- ------------ ----------
---------- ------------ ----------
Net loss per common share $ 0.09 $ (1.00) $ -
---------- ------------ ----------
---------- ------------ ----------
FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES - Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosure of the fair value of certain financial
assets and liabilities. The Company estimates the fair value of its
monetary assets and liabilities based upon the existing interest rates
related to such assets and liabilities compared to current market rates of
interest for monetary assets and liabilities of similar nature and degree
of risk. The Company estimates that the carrying value of all of its
monetary assets and liabilities approximates fair value as of May 31, 1996.
ACCOUNTING ESTIMATES - The preparation of the Company's financial
statements in conformity with generally accepted accounting principles
(GAAP) requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reported periods.
Actual results may differ from such estimates.
RECLASSIFICATIONS - Certain prior year amounts have been reclassified to
conform to the current year presentation. These reclassifications had no
effect on previously reported results of operations.
F-9
<PAGE>
4. INVENTORIES
Inventories consisted of the following:
MAY 31,
-------------------------
1996 1995
Raw materials $ 552,540 $ 535,351
Work-in-process 265,305 273,201
Finished goods 604,904 851,966
---------- ----------
Total inventories $1,422,749 $1,660,518
---------- ----------
---------- ----------
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
MAY 31,
-------------------------
1996 1995
Prepaid expenses and deposits $ 46,020 $ 61,504
Refundable income taxes - 69,139
Other receivables 3,563 23,098
---------- ----------
Total prepaid expenses
and other current assets $ 49,583 $ 153,741
---------- ----------
---------- ----------
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consisted of the following:
MAY 31,
-------------------------
1996 1995
Manufacturing equipment $ 2,360,256 $ 2,343,120
Office furniture and equipment 724,378 714,560
Service vehicles 58,448 60,184
Leasehold improvements 439,526 429,913
----------- -----------
Subtotal 3,582,608 3,547,777
Less accumulated depreciation
and amortization (2,223,754) (1,932,463)
----------- -----------
Property, plant, and
equipment - net $ 1,358,854 $ 1,615,314
----------- -----------
----------- -----------
F-10
<PAGE>
7. CREDITOR REPAYMENT PLAN
Due to financial difficulties in prior years, the Company sent a creditor
repayment plan to all of its unsecured creditors in which such creditors
were offered several options for repayment of balances outstanding as of
May 1, 1995. The plan called for creditors to accept 6% notes with
payments beginning in May 1996 through February 2001 as settlement of
outstanding balances and 60 day terms on future invoices. During the year
ended May 31, 1996, creditors with outstanding balances of $644,106
accepted 5 year term notes pursuant to this repayment plan. The first
quarterly payment with interest was made as scheduled in May 1996. See
additional disclosures in Note 10.
8. NOTES PAYABLE
Notes payable consisted of the following:
MAY 31,
-------------------------
1996 1995
Liability insurance contracts payable in
monthly installments of $6,007 for 1995,
including interest, 7.37% to 10.75%. $ - $ 39,363
Unsecured notes payable, payable upon
settlement of accounts receivable dispute. - 7,799
----------- --------
Total notes payable $ - $ 47,162
----------- --------
----------- --------
9. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties consisted of unsecured demand notes at
prime rate plus 1% (9.5% at May 31, 1996) totaling $280,770 and $337,181
at May 31, 1996 and 1995, respectively.
F-11
<PAGE>
10. BORROWINGS
Borrowings consisted of the following:
<TABLE>
<CAPTION>
MAY 31,
---------------------------
1996 1995
<S> <C> <C>
First Interstate Bank of Oregon, N.A.:
$1,600,000 revolving credit line due September 1996 at the
Bank's prime rate plus 2.00% (10.25% at May 31, 1996),
and collateralized by substantially all assets of the
Company. $ 1,106,761 $ 1,671,215
Note payable through March 1998 in monthly installments
of $7,191 including interest at 8%, collateralized by
trade accounts receivable, inventories, and equipment. 139,796 211,718
Note payable through January 1998 in monthly installments
of $2,447 plus interest at the Bank's prime rate plus
1.25% (9.50% at May 31, 1996), collateralized by trade
accounts receivable, inventories, and equipment 28,359 78,288
Various Vendors:
Unsecured notes payable with 6% interest
due in installments through February 2001. (See Note 7) 545,226 -
Joanne Johnson
Unsecured notes payable with 6% interest due February 2001
to a related party. (See Note 7) 89,345 -
Mary Brown:
Unsecured note due in installments of $2,425, including
interest at 8% through May 2000 related to repurchase 99,318 119,579
of common stock.
Les Leno:
Note payable through May 2005 in yearly principal
installments of $10,000, interest at 6% related to 90,000 100,000
termination settlement with former president.
Ronald Torland:
Unsecured demand note with interest at 10% due
January 1997 to a related party. 10,000 -
Ronald Torland:
Unsecured note payable with interest at prime plus 1%
due December 1999 to a related party. 47,500 -
----------- ------------
$ 2,156,305 $ 2,180,800
Less amounts due within one year 1,301,096 1,802,745
----------- ------------
$ 855,209 $ 378,055
Total long-term portion - capital lease (see Note 12) 86,755 121,543
----------- ------------
Total long-term obligations $ 941,964 $ 499,598
----------- ------------
----------- ------------
</TABLE>
Aggregate maturities of borrowings for the years ending subsequent to May
31, 1996 are as follows:
1997 $ 1,301,096
1998 200,348
1999 189,475
2000 249,395
2001 175,991
Thereafter 40,000
-----------
Total $ 2,156,305
-----------
-----------
F-12
<PAGE>
The various debt agreements with First Interstate Bank of Oregon, N.A.
contain covenants which require the Company, among other things, to meet
certain objectives with respect to debt service coverage. In addition, the
agreements place certain limitations on dividend payments, capital
expenditures, lease rental payments and other outside borrowings. The
Company is in compliance with all debt covenants.
11. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED SHARES - In fiscal 1993, the Board of Directors adopted a
resolution authorizing 7,500 Class A Convertible Preferred Shares under the
following terms and conditions:
- STATED VALUE - $100 per share.
- CONVERSION FEATURE - Convertible by the holder into the number of
Common Shares valued at $2.80 per share.
- DIVIDENDS - First Interstate Bank of Oregon, N.A. prime rate plus 1.5%
cumulative, annually, payable when and as declared by the Board of
Directors. Such dividends are accreted in periods when the
declaration is not made (see Note 3).
- REDEMPTION - Redeemed for cash, in whole or in part, at 100% of stated
value plus accrued and unpaid dividends to redemption date, on a date
determined by the Board of Directors.
LIQUIDATION PREFERENCE - Upon any liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary, holders of Class A
Convertible Preferred Shares shall have preference and priority over Common
Shares, Class B Common Shares, Class D Common Shares, and any other class
of stock ranking junior to the Class A Convertible Preferred Shares for
payment out of the assets of the Company or proceeds thereof available for
distribution to stockholders of $100 per share plus all accrued and unpaid
dividends. The holders of Class A Convertible Preferred Shares shall not
be entitled to any other payments.
Holders of issued and outstanding Common Shares have preference over Class
B Common Shares upon voluntary or involuntary liquidation of the Company
only to the extent that holders of Common Shares shall be paid par value of
such shares prior to any distributions being made to holders of Class B
Common Shares. Holders of Class B Common Shares will then receive par
value for each share held and a sum equal to the distribution to be made on
each Common Share.
PRE-EMPTIVE RIGHTS - Under the terms of the amended Certificate of
Incorporation of Meda, the holders of shares of any class of stock of Meda
are not entitled to cumulative voting nor preferential or pre-emptive right
to subscribe for, purchase, or receive any shares of any class of Meda
stock except that holders of Class B Common Shares shall have pre-emptive
rights with respect to the issuance of Class B Common Shares only. In
addition, Meda is not allowed to sell or offer to sell any Class B Common
Shares without prior approval of the holders of a majority of the issued
and outstanding Class B Common Shares. Each Class B Common Share may be
converted to one Common Share at the discretion of the Class B shareholder.
F-13
<PAGE>
STOCK OPTION PLANS - Effective September 6, 1994, the Board of Directors
adopted the "1994 Stock Option Plan" and the "1994 Stock Option Plan for
Nonemployee Directors" (collectively, the "Plans"). The Plans authorize
650,000 shares be available for grant to eligible individuals and entities
as defined by the Plans. The term of each incentive stock option shall be
established by the Plan administrator, or ten years, whichever is shorter.
During fiscal 1996 and 1995, the Company granted 260,000 and 113,000
options respectively, expiring ten years hence at option prices of $0.3125
to $1.50 per share. No stock options were granted in fiscal 1994. To date
none of the options granted have been exercised.
STOCK BONUS - Subsequent to May 31, 1995, the Board of Directors authorized
a one-time bonus to each employee of PML on the payroll at May 1, 1995 in
the form of 1,000 shares of Meda common shares. At May 31, 1995, the
Company accrued compensation expense of $70,125, the estimated fair value
of the common stock, for this one-time bonus. There were no stock bonuses
accrued in the fiscal year ended May 31, 1996, but the fiscal 1995 accrual
was issued in stock to employees.
12. COMMITMENTS AND CONTINGENCIES
The Company leases certain laboratories, facilities, and equipment under
noncancelable long-term lease arrangements which also require the Company
to pay executory costs such as property taxes, maintenance, and insurance.
The laboratories, facilities, and equipment leases are operating and
capital leases which expire in various years through 2000. Generally, such
operating leases include renewal options ranging from one to five years.
Rental expense for operating leases was $566,000, $489,000, and $346,000 in
fiscal 1996, 1995, and 1994, respectively. Certain of the operating leases
represent related party transactions. See Note 14.
Future minimum lease payments on such capital leases and noncancelable
operating leases as of May 31, 1996 are as follows:
YEARS ENDING CAPITAL OPERATING
MAY 31, LEASES LEASES
1997 $ 48,094 $ 470,289
1998 48,094 304,402
1999 39,164 137,213
2000 8,055 26,718
2001 - -
----------- ----------
Total 143,407 $ 938,622
----------
----------
Less amount representing
interest (19,426)
-----------
Present value of capital
lease obligations 123,981
Less current portion (37,226)
-----------
Long-term portion $ 86,755
-----------
-----------
F-14
<PAGE>
13. INCOME TAXES
The Company adopted SFAS No. 109, ACCOUNTING FOR INCOME TAXES, effective
June 1, 1993. The Company recognized the cumulative effect on prior years
of this change in accounting principle in the 1994 statement of operations.
Deferred income taxes are provided for the temporary differences between
the financial reporting basis and the tax basis of assets and liabilities.
Deferred tax assets result primarily from the recording of certain expenses
which currently are not deductible for tax purposes, tax credit
carryforwards, and Canadian net operating loss carryforwards. Deferred tax
liabilities result principally from the use, for tax purposes, of
accelerated depreciation.
A reconciliation between the statutory federal income tax (benefit) expense
and effective federal income tax (benefit) expense is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Federal statutory (benefit) expense at 34% $ 39,053 $ (560,350) $ 44,169
Tax effect of:
Change in valuation allowance (146,464) 435,500 -
Nondeductible reorganization costs - 6,516 -
Nondeductible foreign exchange loss - - 19,836
Nondeductible permanent differences 5,117 - -
Effect of graduated rates - 21,661 (5,308)
State income taxes and other, net 6,032 61,466 18,303
---------- ------------ ----------
Total $ (96,262) $ (35,207) $ 77,000
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
The components of the Company's income tax (benefit) expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Current $ 1,738 $ (17,385) $ 20,148
Deferred (98,000) (17,822) 56,852
---------- ------------ ----------
Total $ (96,262) $ (35,207) $ 77,000
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
The domestic and foreign components of income (loss)
before income taxes and cumulative effect of accounting change
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
-----------------------------------------
1996 1995 1994
<S> <C> <C> <C>
Domestic $ (46,264) $ (1,413,923) $ 258,709
Foreign 156,003 (234,164) (128,800)
---------- ------------ ----------
Income (loss) before income
taxes and cumulative effect
of accounting change $ 109,739 $ (1,648,087) $ 129,909
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
F-15
<PAGE>
At May 31, 1996 and 1995, the significant components of the Company's
deferred tax assets and liabilities are as follows:
1996 1995
Deferred tax assets:
Vacation accrual $ 50,016 $ 42,800
Allowance for doubtful accounts 49,040 67,100
Net operating loss carryforwards 487,070 465,600
Other 25,765 68,600
--------- ---------
Total deferred tax assets 611,891 644,100
--------- ---------
Valuation allowance (414,636) (561,100)
--------- ---------
Deferred tax liabilities:
Excess tax depreciation (99,255) (64,600)
Prepaid insurance - (18,400)
--------- ---------
Total deferred tax liabilities (99,255) (83,000)
--------- ---------
Net deferred tax asset $ 98,000 $ -
--------- ---------
--------- ---------
The valuation allowances are recorded to offset deferred tax assets which
can only be realized by earning taxable income in distant future years.
Management established the valuation allowances because it cannot be
determined if it is more likely than not that such income will be earned.
The Company files U.S. and Canadian tax returns on the results of its
operations conducted in each country. At May 31, 1996, the Company has
available approximately $1,260,000 of unused operating loss
carryforwards to offset domestic taxable income, which expire 2010
and 2011.
14. RELATED-PARTY TRANSACTIONS
In connection with the reverse acquisition, the Company recorded an expense
for fees of $35,000 for fiscal 1994 paid to a stockholder. No fees were
paid in fiscal 1996 or 1995.
The Company has entered into a Technology License Agreement with Definitive
Diagnostics, Inc. ("DDI"). Certain stockholders and officers of the
Company are also stockholders and officers of DDI. Under the terms of the
agreement, which began on June 1, 1992 and extends over six years, the
Company will manufacture and market the products developed by DDI and pay a
royalty of $.50 per unit for the first one million units sold and $.15 per
unit sold thereafter. Total royalties of $38,650, $40,334 and $13,000 were
incurred in fiscal 1996, 1995 and 1994, respectively.
F-16
<PAGE>
The Company leased laboratories, office facilities and equipment from
stockholders under four operating leases. The monthly obligations under
the leases were $5,500 per month, expiring June 1998; $5,000 per month on a
month-to-month basis, $1,000 per month expiring May 31, 2000 and $1,100 a
month on a month-to-month basis.
One of the leases the Company entered into was a five-year equipment lease
agreement ("Agreement") with DDI commencing June 1, 1992. Under the
Agreement, the Company is required to pay rent in the amount of $1,000 per
month for four months, $2,500 per month for the following eight months,
$4,000 per month for the following 12 months, and $5,500 per month for the
remaining 36 months. Upon termination of the Agreement, the Company may
renew the lease at $5,500 per month for 12 months or purchase the equipment
at its fair market value. DDI forgave rent for December 1994 through May
1995. In addition, DDI has agreed to reduce lease payments to $1,500 per
month for the period June 1995 through November 1995, after which the
original lease terms were reinstated. DDI is owned 51% by shareholder
A. Ron Torland and 45% by shareholder Arthur N. Torland.
The Company's leased Tualatin Manufacturing Plant is owned 50% by
shareholders Arthur N. Torland and Bessie M. Torland and 25% by shareholder
Julian G. Torland. The leased cold room at the Company's Tigard
Distribution Center is owned 50% by shareholder Arthur N. Torland and 50%
by shareholder Julian G. Torland. The Company also pays rent to
shareholders for a small facility adjacent to its Tualatin Manufacturing
Plant which is owned 50% by shareholder Arthur N. Torland and 50% by
shareholder Julian G. Torland. The Company subleases this property to
Clinical Microbiology Institute ("CMI"), an independent third party.
Total rental expense paid to stockholders for all lease was
approximately $90,000, $98,400, and $115,200 in fiscal 1996, 1995,
and 1994, respectively.
15. FOREIGN OPERATIONS
The following table indicates the relative amounts of net sales, operating
income (loss), and identifiable assets of the Company by geographic area
during fiscal years 1996, 1995, and 1994.
1996 1995 1994
Net sales:
United States $ 8,288,888 $ 9,437,640 $ 8,095,044
Canada 5,560,593 5,857,932 5,792,431
------------ ----------- ------------
Total net sales $ 13,849.481 $15,295,572 $ 13,887,475
------------ ----------- ------------
------------ ----------- ------------
Operating income (loss):
United States $ 106,542 $ (1,180,953) $ 385,927
Canada 263,574 (243,447) (128,135)
------------ ----------- ------------
Total operating
income (loss) $ 370,116 $ (1,424,400) $ 257,792
------------ ----------- ------------
------------ ----------- ------------
Identifiable assets:
United States $ 2,849,835 $ 3,621,360 $ 3,771,744
Canada 1,817,901 2,141,771 2,588,350
------------ ----------- ------------
Total identifiable
assets $ 4,667,736 $ 5,763,131 $ 6,360,094
------------ ----------- ------------
------------ ----------- ------------
F-17
<PAGE>
Net currency transactions (gains) losses from Canada were ($30,079),
$19,000, and $58,000 in 1996, 1995, and 1994, respectively.
Sales between geographic areas and export sales are not material.
The Company maintains separate accounts for both the United States and
Canada down to the Gross Profit level. However, some operating, selling,
general and administrative expenses are captured only on a Corporate level.
Therefore, the Company has had to make substantial use of estimates and
allocations in order to split its operating income on a geographic basis.
The numbers shown represent management's best efforts to allocate total
operating income.
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of operating results by quarter for the fiscal
years ended May 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $3,539,216 $ 3,533709 $3,335,007 $3,441,549 $13,849,481
Gross profit 1,047,607 1,199,472 1,288,611 1,203,853 4,739543
Net income (loss) (59,512) (11,364) 116,549 160,328 206,001
Net earnings (loss) per share (0.04) (0.01) 0.06 0.08 0.09
1995 1ST QTR 2ND QTR 3RD QTR 4TH QTR TOTAL
Net sales $3,803,484 $4,095,257 $3,597,325 $3,799,506 $15,295,572
Gross profit 1,386,717 1,165,383 1,147,382 1,333,759 5,033,241
Net income (loss) (203,465) (809,109)(1) (668,266)(2) 67,960 (1,612,880)
Net earnings (loss) per share (0.13) (0.49)(1) (0.41)(2) 0.03 (1.00)
</TABLE>
(1) Net loss for the quarter ended November 30, 1994 has been restated to
reflect an increase in the allowance for doubtful accounts and to
correct an overstatement in raw materials inventory. Additionally,
the quarter has been restated to correct a mathematical error. The
effect of the above was to increase net loss by $348,272 and increase
the loss per share by $.21.
(2) Net loss for the quarter ended February 28, 1995 has been restated to
reflect an increase in the allowance for doubtful accounts and to
correct an understatement in raw materials inventory. The effect of
these changes was to decrease the net loss by $3,759.
* * * * * *
F-18
<PAGE>
Exhibit 10(c)
EMPLOYMENT AGREEMENT
Between
KENNETH L. MINTON
and
PREPARED MEDIA LABORATORY, INC. and MEDA, INC.
The purpose of this Agreement is to confirm the terms of the employment
relationship between Prepared Media Laboratory, Inc. and MEDA, Inc. (hereinafter
referred to as "Employer" or PML), and Kenneth Minton (hereinafter referred to
as the "Employee").
1. TERM OF AGREEMENT. Employer and Employee agree that the Employee will
be employed by PML, beginning April 8, 1996, until May 31, 1999, unless
employment is sooner terminated as provided herein.
2. POSITION AND DUTIES.
2.1 Employer and Employee agree that Employee will be employed as the
President and CEO of PML and that in this capacity, Employee's responsibilities
will include, but are not limited to those described in Exhibit A, attached
hereto and incorporated herein by this reference. It is understood that from
time to time Employee may be assigned other duties in addition to those
described in Exhibit A. It is further agreed and understood that as the
President/CEO of Employer, the hours which Employee is required to work, will
vary considerably and will sometimes be more and sometimes less than forty (40)
hours per week. It is understood and agreed that Employee's pay will not be
affected by the number of hours worked in a given week; Employee is not eligible
for overtime compensation nor subject to deductions from compensation due to any
variance in the number of hours worked.
2.2 Notwithstanding the foregoing, Employee understands
and agrees that during the first six months of employment (April 8, 1996 -
October 8, 1996), Employee will have the following duties and expectations:
2.2.1 Employee will be expected to produce, at a minimum, the
following:
a) A weekly report no later than the end of the day each
Tuesday;
b) A financial statement no later than the 15th working
day following month end;
c) On or before April 12, 1996, a workplan for the coming
six weeks;
<PAGE>
d) On or before May 10, 1996, a temporary budget and
operating plan for the upcoming fiscal year;
e) On or before August 8, 1996, a final operating plan and
budget for the remainder of the current fiscal year
f) Information regarding sales, including but not limited
to the following by the 5th working day following each
month-end:
1. Sales reports for each sales representative (all
in US dollars) showing: sales from sales reports;
margins (both in % and in gross margin dollars);
compensation (base and commissions, separately
stated); expenses; net contribution in dollars;
monthly for each sales representative; year-to-
date for each sales representative;
g) Six-week cash plan provided with weekly report for each
week;
h) Other information as the Board and Renee Fellman may
require.
2.3 Employee understands and agrees that during the first four months
of Employee's employment, the Board has asked Renee Fellman to remain actively
involved with PML in order to direct and to evaluate the new CEO. During this
period, Ms. Fellman will abide by the same guidelines which apply to the Torland
family (SEE Exhibit B). Her invoices will be approved by Ron Torland, the
Chairman of the Board. Employee agrees to keep Ms. Fellman informed of all
significant actions taken.
2.4 Unless agreed otherwise, Ron Torland and Renee Fellman will meet
with the Employee weekly on Tuesdays at 3:00 p.m. in the conference room at PML.
2.5 Employee's obligation to devote his full-time, attention and
energy to the business of Employer shall not be construed as preventing Employee
from investing his assets so long as any such investment will not require any
services on the part of Employee in the operation of the affairs of the
company(ies) or business(es) in which such investment(s) is (are) made.
2.6 Employee shall have the authority to hire and fire other
employees of Employer under his supervision.
3. EMPLOYER'S COVENANTS.
3.1 Employer agrees to reimburse Employee for all reasonable business
expenses incurred by Employee while on Employer's business. Employee shall
maintain such records as will
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<PAGE>
be necessary to enable Employer to properly deduct such items as business
expenses when computing Employer's federal income tax.
3.2 Employer agrees to conduct performance reviews of Employee on a
periodic basis during Employee's first six months of employment and on an annual
basis thereafter.
4. COMPENSATION.
4.1 For all services rendered by Employee under this Agreement
(exclusive of stock options and bonus, if any), Employer shall pay Employee a
base salary of One Hundred Fifty Thousand Dollars ($150,000) per year. Employee
shall be paid this salary on PML's regular pay days, minus all lawful and agreed
upon payroll deductions.
4.2 Unpaid compensation shall be accrued by Employee without payment
of interest if not paid when due.
5. BONUSES.
5.1 GOAL. To maximize shareholder value. The Board of Directors of
PML proposes the following plan for the term of the contract with the
understanding that the bonus after that period will likely be based upon
Economic Value Added (EVA) according to a formula yet-to-be determined.
5.2 BASIS. Fifty percent of pre-tax profits above the base of
$360,000, with a maximum bonus of $100,000.
5.3 TERM. There will be no bonus paid for the fiscal year ending May
31, 1996. Any bonus for any other fiscal year in which Employee is employed
under the terms of this Agreement shall be calculated as set forth herein.
5.4 CALCULATION.
Pre-tax profits
- Less debt forgiveness, if any
- Less base ($360,000)
--------------------
= Profits to be used for base calculation
Example: $750,000 Pre-tax profits
(100,000) Debt forgiveness
(360,000) Base
= $290,000 Profits for base calculation
$145,000 50% of applicable profits
$100,000 BONUS PAID (BONUS IS BASED UPON 50% OF
PROFITS OVER $360,000 UP TO A MAXIMUM BONUS
OF $100,000)
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<PAGE>
5.5 EARNING AND PAYMENT OF BONUS. Two-thirds of the bonus for any
fiscal year (other than fiscal year 1996, which will have no bonus) will be
earned at the close of the fiscal year for which the pre-tax profits were at
least $360,000, as certified by the auditors. Said earned portion of the bonus
will be paid within ten days of the certification of the annual audit results
for the fiscal year for which the bonus is being calculated.
One-third of the bonus will be earned at the close of the fiscal
year immediately following the fiscal year for which the bonus is being
calculated, providing that the pre-tax profits are at least $360,000 for that
fiscal year. That earned portion of the bonus will be paid within ten days of
the certification of the annual audit results for the fiscal year for which the
bonus is being calculated.
5.6 FORFEITURE OF BONUS. No unearned bonus or portion of bonus will
be paid if any of the following circumstances exist:
5.6.1 Employee quits PML at any time other than at the
expiration of the contract.
5.6.2 Employee is fired for cause, as that term is defined in
paragraphs 10.1 and/or 10.2.
5.6.3 If PML's pre-tax profits are less than $360,000 in any
fiscal year, any bonus payment or portion of bonus payment unpaid from the prior
fiscal year will be deemed unearned and will not be paid.
5.7 PAYMENT OF BONUS IN EVENT OF TERMINATION WITHOUT CAUSE.
5.7.1 If Employee is terminated at the close of any fiscal
year without "cause" as that term is defined in Paragraph 10.2, and if the terms
and conditions of Paragraphs 5.2, 5.3, 5.4 and 5.5 are met, Employee will
receive payment of his bonus, if any, for his last fiscal year of employment
subject to and under the terms and conditions contained herein.
5.7.2 If Employee is terminated at any other time without
"cause" as that term is defined in Paragraph 10.2, and if the terms and
conditions of Paragraphs 5.2, 5.3, 5.4 and 5.5 are met, Employee will receive a
pro rata share of his bonus, if any, for whatever portion of the last fiscal
year of employment and subject to and under the terms and conditions contained
herein.
EXAMPLE. If Employee is terminated without cause on November 1,
1997, and if the pre-tax profits of the Employer were greater
than $360,000 in fiscal year ending May 31, 1998, then Employee
shall receive a bonus equal to 5/12ths of whatever bonus
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<PAGE>
he would have been entitled to had he worked the entire 1997-1998
fiscal year. Two-thirds of the pro rata bonus shall be paid ten
(10) days after the audit results are certified for fiscal year
ending May 31, 1998 (approximately August, 1998) and one-third
ten days after the audit results are certified for the following
fiscal year (approximately August, 1999), assuming the pre-tax
profits for the fiscal year ending May 31, 1999, are greater than
$360,000.
Payment of any bonus under Paragraph 5.7 will be subject to the
provisions of Paragraph 11.3.
5.7.3 Nothing in this paragraph shall be construed as giving Employee
any right or entitlement to any bonus should he be terminated in the first six
months of employment (April 8, 1996 - October 8, 1996). If employee is
terminated during the first six months of his employment, he will not receive
any bonus.
6. STOCK OPTIONS.
6.1 Employee will be eligible for a total of 100,000 shares over a
period of four years.
Shares Price Date Of vesting
------ ----- ---------------
20,000 Fair market value,
date of vesting Date employment begins
20,000 Same 5/31/97
20,000 Same 5/31/98
20,000 Same 5/31/99
20,000 Same 5/31/00
6.2 Except as to those options which have already vested, Employee's
rights to any stock option cease on the date of Employee's termination.
Employee must be employed on the date of vesting in order to receive his option.
6.3 In the event of a sale of a controlling interest in PML during
Employee's employment, all options vest immediately.
6.4 Employee agrees to be bound by the terms and conditions of the
MEDA, Inc. 1994 Stock Option Plan.
7. FRINGE BENEFITS.
7.1 FRINGE BENEFITS. Employer and Employee agree that during the
term of this Agreement, Employee shall be entitled to participate in all fringe
benefits as may be authorized and adopted from time to time by Employer and for
which Employee is eligible.
5
<PAGE>
7.2 MISCELLANEOUS EXPENSE. Employer shall pay for Employee's
membership dues in professional organizations and reimbursement for courses up
to a reasonable annual amount and as Employer's finances permit, provided that
the benefit to Employer of such organization or course can be demonstrated.
7.3 RELOCATION FROM CALIFORNIA TO PORTLAND.
7.2.1 Employee agrees to obtain bids from at least two moving
companies and to use the moving company providing the lowest bid. PML will pay
the moving company's expenses, and Employee agrees to act reasonably in moving
his possessions.
7.2.2 Employer will pay for a maximum of two round-trip
airline tickets for Employee's spouse to visit Portland for purposes of house
hunting.
7.2.3 Mileage and expenses incurred by Employee to drive to
Portland for purposes of moving will be reimbursed according to Employer's
existing expense reimbursement policies.
7.2.4 Employer will pay for Employee's temporary housing up
to a maximum of three months.
8. VACATION AND SICK LEAVE. Employee shall be entitled to three (3)
weeks paid vacation per year. Vacation is earned based on Employee's
anniversary date. Employee shall earn sick leave pursuant to the policies
generally available to PML's employees.
8.1 CARRYOVER UNUSED VACATION. Employee may accrue a maximum of 120
hours. No further vacation will accrue beyond 120 hours until Employee uses
some accrued vacation time.
8.2 SCHEDULING. Vacation shall be scheduled by Employer at a time
mutually convenient to both Employer and Employee.
8.3 ACCRUED AND UNUSED VACATION AT TERMINATION. In the event this
Agreement is terminated before its expiration date by either Employer or
Employee, Employee shall be paid for all previously accrued and unused vacation
time.
9. CONFIDENTIAL INFORMATION AND NON-SOLICITATION.
9.1 It is understood and agreed that as a result of Employee's
employment with PML, Employee will be acquiring and making use of confidential
information about Employer's business as well as financial information about
PML. Employee agrees that he will respect the confidences of Employer and will
not at any time during or after his employment with PML, directly or indirectly
divulge or disclose for any purpose whatsoever or use for his own benefit, any
confidential information that has been obtained by or disclosed to Employee as a
result of his employment with PML.
6
<PAGE>
9.2 Employee agrees that during his employment PML, and for a period
of two years after termination of his employment, he will not directly or
indirectly solicit for employment any employee of PML.
9.3 If Employee violates any of the provisions of these
subparagraphs, Employer shall be entitled to receive from Employee reimbursement
for any and all damages caused by such breach, as liquidated damages and not as
a penalty (both Employer and Employee realizing the difficulty in establishing
the amount of actual damages incurred by PML as the result of such a breach), an
amount equal to fifty percent (50%) of Employee's then current yearly base
salary if still employed by PML, or if no longer employed by Employer, the
amount of Employee's yearly base salary at the time of his termination. It is
understood and agreed that this remedy is in addition to, and not a limitation
on, any injunctive relief for other rights or remedies to which PML is or may be
entitled to under the law.
9.4 If any provisions of these subparagraphs are held to be invalid
or unenforceable, the remaining provisions shall, nevertheless, continue to be
valid and enforceable as though the invalid or unenforceable parts had not been
included.
10. TERMINATION. This Agreement shall be terminated upon the occurrence
of any one of the following events:
10.1 During the first six months of the contract term (April 8, 1996 -
October 8, 1996), either Employee or Employer may terminate this contract at
any time, with or without cause. For purposes of paragraph 10.1 only, "cause"
is defined as any reason not specifically prohibited by law.
10.2 After October 8, 1996, either Employee or Employer may terminate
this contract at any time with or without cause. For purposes of paragraph 10.2
only, "cause" is defined as any one or more of the following:
10.2.1 Dishonesty that materially impairs the interest of PML
10.2.2 Refusal to follow a lawful direction of the Board
10.2.3 Conviction of a crime that is classified as either a
misdemeanor or a felony
10.2.4 Personal or professional conduct which injures or tends
to injure the reputation of Employer or otherwise
adversely affects the interests of Employer
10.2.5 Failure to reach mutually agreed performance targets
7
<PAGE>
10.2.6 Deterioration of the financial condition of Employer
which makes it impossible to continue
10.2.7 Death of Employee
10.2.8 Disability of Employee for a cumulative period of more
than twelve weeks in any one-year period. "Disability"
means being unable to perform the essential functions
of the job with or without reasonable accommodation.
10.3 EFFECT OF TERMINATION. Upon termination of Employee's employment
with PML, Employer agrees to pay Employee all salary due and owing to Employee
as of the date of termination, less legal deductions or offsets Employee may owe
to Employer for such items as salary advances or loans. Employee agrees that
his signature on this Agreement constitutes his authorization for all such
deductions. Employee agrees to return to PML all of Employer's property of any
kind which may be in Employee's possession. In the event of termination of this
Agreement, the terms and provisions of this Agreement shall also terminate, with
the exception of the confidentiality provisions provided in the paragraphs
above.
11. SEVERANCE.
11.1 If termination occurs in the first six months of contract term
(April 8, 1996 - October 8, 1996), three months of salary plus $10,000 to
compensate for moving expenses, paid in one lump sum or over nine months, at the
discretion of Employer.
11.2 If termination by Employer occurs after October 8, 1996:
11.2.1 If termination is for "cause" (as defined in paragraph
10.2), no severance will be paid.
11.2.2 If termination is for reasons other than for "cause" (as
defined in Paragraph 10.2) or the expiration of the
contract, severance will equal all base salary payable under
the remaining term of the contract (through May 31, 1999),
and any bonus pursuant to Paragraph 5.7. The severance will
be paid on regularly scheduled pay dates or in one lump sum,
at Employer's option.
11.2.3 If Employee quits at any time before the contract
expires, he will receive no severance.
8
<PAGE>
11.3 Severance paid pursuant to paragraph 11 will be paid only in
exchange for a mutual release of all claims.
12. FAMILY POSITION. The terms and conditions of the document entitled
"Family Position," attached hereto as Exhibit B, is incorporated herein by this
reference.
13. CONSTRUCTION OF AGREEMENT.
13.1 ESSENTIAL TERMS AND MODIFICATION OF AGREEMENT. It is understood
and agreed that the terms and conditions described in this Agreement constitute
the essential terms and conditions of the employment arrangement between
Employer and Employee, all of which have been voluntarily agreed upon. Employer
and Employee agree that there are no other essential terms or conditions of the
employment relationship that are not described within this Agreement, and that
any change in the essential terms and conditions of this Agreement will be
written down in a supplemental agreement which shall be signed by both Employer
and Employee before it is effective.
13.2 SEVERABILITY. If any term, covenant, condition or provision of
this Agreement or the application thereof to any person or circumstance shall,
at any time, or to any extent, be determined invalid or unenforceable, the
remaining provisions hereof shall not be affected thereby and shall be deemed
valid and fully enforceable to the extent permitted by law.
13.3 NOTICES. Any notice hereunder shall be sufficient if in writing
and delivered to the party or sent by certified mail, return receipt requested
and addressed as follows:
a. If to Employer: Ron Torland
10595 SW Kiowa Street
Tualatin, OR 97062
b. If to Employee: Kenneth L. Minton
PML
15845 SW 72nd Avenue
Portland, OR 97224
Either party may change the address herein specified by giving to the other.
Notice shall be effective on the day of mailing.
13.4 GOVERNING LAW AND VENUE. This Agreement is made and shall be
construed and performed under the laws of the State of Oregon. In the event of
any dispute between Employer and Employee, venue shall be in Washington County,
Oregon.
9
<PAGE>
13.5 WAIVER OF AGREEMENT. The waiver by Employer of a breach of any
provision of this Agreement by Employee shall not operate or be construed as a
waiver by Employer of any subsequent breach by Employee.
13.6 CAPTIONS. The captions and headings of the paragraphs of this
Agreement are for convenience and reference only and are not to be used to
interpret or define the provisions hereof.
13.7 ASSIGNMENT AND SUCCESSORS. The rights and obligations of
Employer under this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of Employer. The rights and obligations of Employee
hereunder are nonassignable. Employer may assign its rights and obligations to
any entity in which Employer or a company affiliated to Employer, has a majority
ownership interest.
13.8 NOTICE OF INTENT NOT TO RENEW. Employee and Employer both agree
to provide the other with no less than 90 days prior written notice of their
intent not to renew the contract and/or to continue employment beyond the term
of the contract.
DATED this day of , 19 .
------ -------------- --
EMPLOYEE: EMPLOYER:
KENNETH L. MINTON PREPARED MEDIA LABORATORY, INC.
and MEDA, INC.
By
- ------------------------------ --------------------------
Its
--------------------
10
<PAGE>
MEDA, INC.
EXHIBIT 11
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended May 31,
-----------------------------------------
1996 1995 1994
----------- ---------------------------
<S> <C> <C> <C>
Net income (loss) $ 206,001 $(1,612,880) $ 40,909
Preferred stock dividends accreted (49,500) (48,076) (37,744)
----------- ------------ -----------
Net income (loss) after accretion of dividends $ 156,501 $(1,660,956) $ 3,165
----------- ------------ -----------
----------- ------------ -----------
Average number of common shares outstanding 1,594,826 1,456,622 1,464,526
Average number of Class B common stock outstanding 211,551 211,551 211,551
----------- ------------ -----------
Average number of total shares outstanding 1,806,377 1,668,173 1,676,077
----------- ------------ -----------
----------- ------------ -----------
Net income (loss) per common share $ 0.09 $ (1.00) $ 0.00
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAY-31-1996
<PERIOD-START> JUN-01-1995
<PERIOD-END> MAY-31-1996
<CASH> 9,887
<SECURITIES> 0
<RECEIVABLES> 1,778,900
<ALLOWANCES> 126,982
<INVENTORY> 1,422,749
<CURRENT-ASSETS> 3,232,137
<PP&E> 3,582,608
<DEPRECIATION> 2,223,755
<TOTAL-ASSETS> 4,667,736
<CURRENT-LIABILITIES> 3,485,335
<BONDS> 941,964
0
592,974
<COMMON> 19,884
<OTHER-SE> (372,421)
<TOTAL-LIABILITY-AND-EQUITY> 4,667,736
<SALES> 13,849,481
<TOTAL-REVENUES> 13,849,481
<CGS> 9,109,938
<TOTAL-COSTS> 9,109,938
<OTHER-EXPENSES> 4,423,768
<LOSS-PROVISION> (54,341)
<INTEREST-EXPENSE> 294,172
<INCOME-PRETAX> 109,739
<INCOME-TAX> (96,262)
<INCOME-CONTINUING> 206,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 206,001
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
