Back to GetFilings.com
1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended JUNE 30, 1996
OR
_________Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to ________
Commission file number 0-15963
INVIVO CORPORATION
(Exact name as specified in its charter)
DELAWARE 77-0115161
(State or other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4900 HOPYARD RD. #210 PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 510-468-7600
Securities registered pursuant to Section 12(b) of the Exchange Act:
NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of registrant's voting Common Stock held by
non-affiliates of the registrant was approximately $24,315,400 (computed on the
basis of the closing sale price of a share of Common Stock on September 18, 1996
as reported by the Nasdaq Stock Market).
There were 3,233,993 shares of the registrant's Common Stock, $.0008 par value,
outstanding on September 18, 1996.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive proxy statement to be filed pursuant to
Regulation 14A not later that 120 days after the end of the fiscal year (June
30, 1996) are incorporated by reference in Part III.
1
2
PART I
ITEM 1. BUSINESS
GENERAL
Invivo Corporation (formerly SafetyTek Corporation) and subsidiaries (the
"Company") are engaged in the design, manufacture and marketing of sensor-based
instruments for the medical devices, safety and industrial process control
markets.
Through its medical devices subsidiary Invivo Research, the Company offers a
line of patient safety monitors capable of continuous measurement of multiple
vital signs in the medical care environment. The Company believes that Invivo
Research has the only multi-parameter monitor line of products approved by the
United States Food and Drug Administration ("FDA") for use during magnetic
resonance imaging, or MRI. Opportunities exist in this market both for
retrofitting MRI equipment not presently equipped with monitoring devices and
for supplementing the capabilities of new systems being sold to health care
providers.
In April, 1996 the Company's Invivo Research subsidiary received FDA approval to
market its new "Millennia" portable multi-parameter vital signs monitor. The
Company believes this product positions it to expand from its current MRI
monitoring market niche into the much larger mainstream patient monitoring
market. Invivo Research also recently introduced a new non-invasive blood
pressure monitor utilizing digital signal proccessing for fast and consistent
measurements and an inexpensive multiparameter vital signs monitor designed
specifically for the low-end international market.
Invivo Research markets it products primarily to end users through its own
direct sales force. In addition, it has original equipment manufacturer ("OEM")
or similar relationships with General Electric, Siemens Medical Systems, Philips
Medical Systems and Hitachi.
The Company's line of safety products includes monitors used to detect harmful
levels of toxic and other gasses in the workplace and other environments. These
monitors are offered through its Lumidor Safety Products subsidiary. The
Company's other safety products include a line of oxygen monitoring equipment,
pressure gauges and related devices and calibration equipment that sets and
verifies the accuracy of gas monitors.
Prior to 1990, the Company's primary concentration was in the industrial process
control business. Its products for this market consist of pressure sensors and
non-contact infrared temperature measuring devices.
2
3
PRODUCTS
MEDICAL DEVICES
The Company's patient safety monitors are capable of continuous and simultaneous
measurement of multiple physiological vital signs, and are used in operating
rooms, emergency rooms, critical care units, post-anesthesia care units and
recovery rooms, intensive care units, radiology units, and labor and delivery
rooms. The Company's multi-parameter physiologic patient monitors provide
monitoring for invasive and non-invasive blood pressure, blood oxygen
saturation, temperature, heart rate, respiration, and electrocardiograph (ECG)
and are especially suited for most anesthesia applications and general purpose
monitoring settings in the hospital.
The Company has pioneered multi-parameter vital signs monitoring equipment for
patient safety during magnetic resonance imaging (MRI). MRI is a relatively
recent diagnostic tool that uses electromagnetic fields and radio frequency to
perform non-invasive imaging. Since direct viewing and access to the patient is
limited during MRI, accurate methods for patient monitoring are desirable to
ensure the safety of the patient. The Company's MRI monitoring system is
designed for true MRI compatibility. The proper operation of the monitoring
system in the MRI environment requires special design features that 1) prevent
degradation of the diagnostic MRI quality and 2) eliminate interference in the
monitor's signal and wave form capabilities by radio frequencies and magnetic
fields. The Company's MRI monitoring system provides continuous monitoring of
ECG, respiration, heart rate, blood oxygen saturation, non-invasive blood
pressure and end-tidal CO2.
The Company's "Millennia" portable patient monitor is a compact and
comprehensive multi-parameter vital signs monitor which weighs under 15 pounds
and provides flexibility for both space and transport. The "Millennia" is
capable of displaying 6 waveforms and 23 associated numeric values on its active
matrix color display. Its standard features include battery operation, dual
channel recorder and a PCMCIA card for extended memory and programming
capabilities. The Company also offers the "Centurion" central station monitoring
system that allows communication from configured "Millennia" monitors to a
central display station. The system displays the monitoring of up to eight
patients simultaneously on a main monitoring screen that provides for rapid
interpretation of the vital signs information.
The Company also recently introduced a new non-invasive blood pressure monitor
utilizing digital signal proccessing for fast and consistent measurements and an
inexpensive multi-parameter vital signs monitor designed specifically for the
low-end international market. The Company's other monitors include a stand alone
pulse oximetry unit as well as dual parameter unit that monitors blood pressure
and oxygen saturation. The Company also manufactures and markets a portable,
hand held oxygen saturation monitor which offers a low-cost, transportable
monitoring unit for pulse oximetry.
3
4
SAFETY
The Company's gas detection and monitoring instruments consist of single gas and
multi-gas monitors that are offered in both portable and stationary models. Gas
detection monitors are used for worker safety when toxic gasses or low levels of
oxygen are suspected. Portable units are carried or worn by the user and are
equipped with audible and visual alarms to warn that a potential danger exists.
Typical applications for these units are in industrial or other settings where
the user expects to move about, including underground spaces housing telephone
cables and waste water sewers, mines and large factories. Stationary gas area
monitors are used in smaller, confined spaces when chemicals or gasses are being
used or stored. Typical applications for these monitors are oil refineries,
chemical plants and semiconductor fabrication facilities. Invivo's gas detection
and monitoring instruments feature either digital or analog technology. Single
gas monitors are manufactured to measure any one of a variety of gasses such as
hydrogen sulfide, carbon monoxide, nitrous oxide, oxygen or butadiene. Multi-gas
monitors will simultaneously measure and monitor four different gasses, which
typically consist of oxygen, carbon monoxide, hydrogen sulfide and one toxic
gas.
The Company's "MicroMax", is a pocket-sized, microprocessor based, portable
multi-gas monitor. The Company believes the monitor competes favorably on size,
technical features and price.
The Company's gas calibrators are based upon teflon permeation tube technology
that allows them to produce samples of approximately 200 different types of
gasses at various flow rates. The primary application for such products is for
the calibration of air pollution monitoring systems, gas chromatographs and gas
detectors. The customer base for these instruments is made up of OEMs and end
users such as refineries, chemical plants, utilities and hospitals.
Invivo's oxygen monitoring products measure the oxygen levels in air cylinders
used by individuals in oxygen-deprived situations. These products consist of a
direct drive pressure gauge and hose assembly. The primary applications for this
equipment are in life support systems for fire fighters and hazardous material
clean-up workers. This equipment is also used in measuring oxygen levels in
scuba divers' tanks.
INDUSTRIAL PROCESS CONTROL
The Company's industrial sensor and instrumentation products consist of pressure
sensors and infrared non-contact temperature measuring devices.
The Company's pressure sensing devices are sold primarily to plastic extrusion
equipment manufacturers which utilize this equipment in their production
processes. Pressure sensors are also used by the food, beverage, synthetic fiber
and pharmaceutical industries to enable manufacturers in these industries to
measure the pressure of processing ingredients.
4
5
The infrared non-contact temperature measuring products are used in a wide
variety of industrial process control applications. These applications include
the fabrication of semiconductors, the manufacturing of metals and glass, and
miscellaneous curing processes.
PRODUCT REVENUES
The percentage of the Company's revenues contributed by its medical device line
of products was 50%, 52 % and 49%, respectively, for fiscal years 1994, 1995,
and 1996. The percentage of the Company's revenues contributed by its safety
line of products was 36%, 36% and 39%, respectively, for fiscal years 1994,
1995, and 1996.
MARKETS AND SALES
The Company's patient safety monitoring products are sold in the United States
through Invivo Research's direct sales force. Sales throughout the rest of the
world are handled through distributors, assisted by the Company's international
sales personnel. Invivo Research recently hired its first direct salesperson in
Europe to oversee its European distribution network. In connection with the
introduction of the new "Millennia" vital signs monitor, the Company has
expanded and plans to further expand Invivo Research's direct domestic sales
force.
The Company's patient safety monitoring products are sold primarily to hospitals
and to a lesser degree to clinical health care facilities and OEM customers.
The Company markets its gas detection, gas calibration and oxygen monitoring
products mostly through distributors and its own sales personnel. These products
are sold primarily to municipalities, utilities, telephone companies, oil
refineries, manufacturers and OEMs, as well as distributors. During the last two
fiscal years, the Company increased the number of distributors and selectively
replaced certain former distributors of its gas detection products.
The Company's industrial sensor and instrumentation products are sold primarily
through a network of independent sales representatives.
The Company provides service and repair to purchasers of its products under
warranty, and thereafter on a contract basis.
Foreign sales represented 15%, 15% and 20% of the Company's total sales in
fiscal 1994, 1995, and 1996. The Company is actively trying to expand its
international presence, especially in the patient safety monitoring business.
The Company's backlog of unfilled purchase orders for all its products was
approximately $3,290,246 as of June 30, 1996, compared to approximately
$4,005,000 as of June 30, 1995 and approximately $4,667,000 as of June 30, 1994.
The Company expects to ship in fiscal 1997 all of the June 30, 1996 backlog.
Because of customer changes in delivery schedules and cancellation of orders,
the Company's backlog
5
6
as of any particular date may not be representative of the Company's actual
sales for any succeeding fiscal period. Historically, order cancellations have
not been significant. The Company's businesses are not inherently seasonal,
although for some of the Company's businesses orders and shipments in the
Company's first and second quarters have been historically lower than in the
third and fourth quarters.
MANUFACTURING AND ASSEMBLY
Virtually all of the Company's products are assembled by the Company at its
facilities in California and Florida from components and subassemblies
manufactured by others to Company specifications. The materials and supplies
used to produce the Company's products are generally obtained from a wide
variety of suppliers, and the Company has not experienced any significant
shortages. Although certain materials used in the manufacture of certain patient
safety monitoring and gas monitoring devices are readily available from only a
few suppliers, the Company does not anticipate any significant difficulties in
obtaining any of these materials in the foreseeable future. The Company does not
believe its business requires a disproportionate amount of working capital
relative to the amount of its sales as compared to other manufacturers of
comparable size.
COMPETITION
The medical device lines in which the Company competes include MRI and non-MRI
products. The Company is unaware of other significant competitors in the United
States for its MRI monitors. It believes that the limited size of this market
and the expense and time required to secure FDA approval of, and to otherwise
bring to market, a competitive product are disincentives to potential
competition. Nonetheless, there can be no assurance that MRI manufacturers or
other medical device manufacturers will not seek to enter this market. The
non-MRI patient safety monitoring market in which the Company competes is highly
competitive, including primarily companies that are much larger than the Company
with significantly greater financial resources. The Company believes its
recently introduced "Millennia" monitor competes favorably with those of the
major competitors in terms of features and price.
The markets for the Company's other products are, in general, characterized by a
limited number of competitors; however, these markets are highly competitive.
Although the Company believes that each of its products compares favorably with
those of its competitors on the basis of one or more competitive features, the
Company represents a relatively small factor in each market in which it
competes. Many of the Company's competitors are subsidiaries or divisions of
major corporations that have substantially greater financial resources and name
recognition than does the Company. The Company competes on the basis of product
reliability, quality, technical features, performance, responsiveness, service
and price, with the relative importance of each factor depending on the market
for the particular product.
In the Company's patient safety monitoring business, price has become an
especially important factor in hospital purchasing patterns as a
6
7
result of cost containment pressures on the health care industry. To the extent
that healthcare reform measures negatively affect the financial condition of
hospitals and thereby reduce their capital purchases, the Company expects price
to continue to play a large part as a basis of competition. The Company
believes, however, that because its products are relatively low-cost capital
items, it is less subject to the effects of hospital budgetary constraints than
are suppliers of more costly capital equipment.
Although the Company has not had occasion to determine the aggregate number of
competitors in any given product line, it estimates there are generally five to
ten competitors in each product line.
RESEARCH AND EXPERIMENTAL
During fiscal years 1994, 1995, and 1996 the Company's research and experimental
expenses were approximately $1,548,800, $1,841,200, and $2,095,400,
respectively. The increase in these expenses in fiscal 1996 was principally due
to research and experimental expenditures on behalf of the patient safety
monitoring business.
The Company believes that its ability to compete effectively in the markets it
serves, as well as to grow, will depend in part upon its ability to develop new
products and improve existing ones.
PATENTS
Although a number of patents have been issued to the Company and its
subsidiaries, the Company believes its competitive position is more dependent on
the technical competence, creative skills and marketing ability of its personnel
than on its patents.
GOVERNMENTAL REGULATION
The patient safety monitoring devices manufactured and marketed by the Company
are subject to regulation by the United States Food and Drug Association ("FDA")
and, in some instances, corresponding state and foreign governmental agencies.
The Company's manufacturing facilities and the manufacture of its products are
subject to FDA regulations regarding registration of manufacturing facilities,
compliance with FDA "Good Manufacturing Practices" and the reporting of adverse
events. FDA regulations known as "Good Manufacturing Practices" provide
standards for medical device manufacturers with respect to manufacturing
processes, facilities and record-keeping. The Company is subject to periodic
on-site inspection for compliance with such regulations. The FDA may also
conduct investigations and evaluations of the Company's products at its own
initiative or in response to customer complaints or reports of malfunctions. If
the FDA believes that its regulations have been violated, it has extensive
enforcement authority including the power to seize, embargo or restrain entry of
products from the market and to prohibit the operation of manufacturing
facilities until the noted deficiencies are corrected to their satisfaction. The
Company believes it is in compliance with applicable FDA regulations.
7
8
The Company's current products were cleared for marketing in the United States
through the FDA's Section 510(k) premarket notification process. The 510(k)
premarket notification process is available where the new product being
submitted to the FDA can be compared to a pre-existing commercially available
product that performs similar functions (a "substantially equivalent product").
If a product does not meet the eligibility requirements for the 510(k) process,
then it must be submitted, instead, under the more time consuming and costly
premarket approval procedure (PMA).
The Company seeks, where appropriate, to comply with the certification and
safety standards of various organizations such as Underwriters' Laboratories,
the Canadian Standards Association and the various safety and test regulations
of the European Community.
The manufacture and testing of its safety and medical device products requires
the Company to handle and store small quantities of a wide variety of chemicals,
some of which are highly toxic. Certain of these chemicals pose a serious threat
to workers and others who may come in contact with them if improperly used or
handled. Most municipalities, including those in which the Company is presently
located, now require that the proposed storage and use of dangerous chemicals
receive local approval. State air quality boards, or similar agencies, must also
approve the venting, and certain other aspects of handling, of these types of
chemicals. These municipal and state agencies may, as a condition to the
granting of approvals and permits, impose certain procedural limitations on the
Company's storage and handling of these chemicals and structural requirements on
the facilities where these chemicals are stored and used. They also impose
record keeping and reporting requirements on the users of these chemicals.
The Company believes that it presently is in compliance with all material
environmental regulations applicable to it. Compliance with these requirements
has not, to date, had a material effect on the Company's capital expenditures,
earnings or competitive position. Nonetheless, environmental regulation at the
local, state and national levels is still evolving, and the possibility exists
that more stringent limitations and requirements may become applicable to the
Company.
EMPLOYEES
As of June 30, 1996, the Company had 258 employees, all of whom were full-time.
The Company is not a party to any collective bargaining agreement and has not
experienced a strike or work stoppage. The Company considers its relations with
its employees to be good.
8
9
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth information with respect to the real property
owned or leased by the Company and its subsidiaries which the Company considers
material to its business.
Ownership or
General Character Expiration
Location and Use of Property Date of Lease
Fremont, California 18,000 square-foot building April, 2001
used as the Company's manufacturing
and distribution facility for its
gas calibration and process
control products
Orlando, Florida 25,000 square-foot building used Owned
as the manufacturing, distribution,
and administration facility for
the Company's patient safety
monitoring products
Cucamonga, California 24,000 square-foot building used December, 1998
as the manufacturing, distribution,
and administration facility for
the Company's oxygen monitoring
products
Miramar, Florida 9,000 square-foot building used June, 1997
as the manufacturing, distribution,
and administration facility for
the Company's gas detection and
monitoring products
From time to time, the Company leases smaller facilities as its needs dictate.
The Company considers its facilities to be sufficient for its current operations
except for the patient safety monitoring business facility, which it is
currently expanding by approximately 18,000 square feet in fiscal 1997. This
additional space will be used primarily for administrative offices with some
manufacturing space also being added.
9
10
ITEM 3. LEGAL PROCEEDINGS
In March of 1996, the Company's Invivo Research subsidiary was named as one of
two third-party defendants in a lawsuit by Southern Nevada Surgical Center in
the District Court of Clark County in the State of Nevada. The underlying action
in this matter stems from an incident involving a surgical patient at the
Southern Nevada Surgical Center. The individual filed a lawsuit against the
Surgical Center and the physicians performing the surgery. The Company
understands that a substantial settlement was made to the patient by the
defendants in that action. Southern Nevada Surgical Center is now attempting to
obtain indemnity and contribution from the manufacturer of the ventilating
machine and Invivo Research, the manufacturer of the vital signs monitor.
Discovery in this matter has not yet been completed. It is anticipated a trial
date will be set for sometime in the spring of 1997. While the Company believes
that the vital signs monitor operated properly and was properly designed for the
its intended function, the outcome of this litigation cannot be predicted with
certainty at this time.
In July of 1995, the Company's Sierra Precision subsidiary was added as one of
three defendants in a wrongful death lawsuit by the estate of an individual
originally commenced in 1994 in Hampden County Superior Court of Massachusetts.
The lawsuit arose from the death of the individual in a drowning accident while
scuba diving. The individual was allegedly equipped with, along with other
diving equipment, a submersible pressure gauge manufactured by Sierra Precision.
All three defendants have denied liability and have pleaded by way of
affirmative defense that the death was due to the diver's own negligence.
The parties are still engaged in discovery which is not scheduled to be
completed until late 1996.
In addition to the legal proceedings above, the Company is subject to other
various legal proceedings that arise in the ordinary course of business. While
the outcome of all of these proceedings cannot be predicted with certainty, the
Company believes that none of such proceedings, individually or in the
aggregate, will have a material adverse effect on the Company's business or
financial condition.
10
11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the fourth quarter of fiscal 1996.
ITEM 4(A). EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below, together with brief
accounts of their business experience and certain other information.
Name Age Position
- --------------------------- --- --------
James B. Hawkins 40 President and
Chief Executive Officer
John F. Glenn 35 Vice President, Finance
Chief Financial Officer
F. Larry Young 37 Vice President, Operations
James B. Hawkins has been President, Chief Executive Officer and a Director of
the Company since August 1985. He has served as Secretary of the Company since
July 1986.
John F. Glenn was appointed Vice President, Finance and Chief Financial Officer
of the Company in November 1990.
F. Larry Young has been Vice President, Operations of the Company since April
1990.
11
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDERS' MATTERS
(a) Market Information
The Company's Common Stock is traded on The Nasdaq Stock Market under the Nasdaq
symbol "SAFE". The following table sets forth, for the applicable quarters
indicated, the high and low closing sale prices in such market for a share of
Common Stock as reported by Nasdaq.
Year Ended
June 30, 1996 June 30, 1995
------------- -------------
High Low High Low
---- --- ---- ---
First Quarter 17-1/4 11-1/2 11-3/4 7-1/2
Second Quarter 16-3/8 13-1/2 9-1/4 7
Third Quarter 15-1/2 12 11-3/4 8-5/8
Fourth Quarter 14 9-3/4 12-1/4 10-1/4
(b) Holders
The number of holders of record of the Company's Common Stock at June 30, 1995
was 79. The approximate number of holders, including participants in security
position listings as of September, 1996, was 1,300.
(c) Dividends
The present policy of the Company is to retain earnings to provide funds for the
operation and expansion of its business. The Company has not paid cash dividends
on its Common Stock and does not anticipate that it will do so in the
foreseeable future. The Company is prohibited from paying dividends on its
Common Stock pursuant to its bank credit agreement.
12
13
ITEM 6. SELECTED FINANCIAL DATA
The consolidated financial data in the following table is qualified in its
entirety by, and should be read in conjunction with, the Consolidated Financial
Statements and Notes thereto and other financial and statistical information
included elsewhere herein.
YEAR ENDED JUNE 30,
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands, except per share amount)
OPERATIONS DATA:
Sales $14,065 $ 19,289 $27,801 $32,489 $31,391
Net Income(loss) (1) 1,411 (5,891) 2,881 3,348 2,472
Net Income(loss) per
common share .54 (1.90) .86 .99 .72
Weighted average common
shares outstanding 2,633 3,151 3,359 3,390 3,456
BALANCE SHEET DATA:
Working capital 10,467 4,018 5,477 6,428 7,490
Total assets 15,052 13,613 17,427 19,860 22,204
Long-term debt 233 1,907 3,367 926 730
Stockholders' equity 12,295 6,053 9,137 12,616 15,276
(1) The results of fiscal 1993 include the write off of $7,385,800 in acquired
in-process research and development.
13
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
NET SALES
The Company's net sales for fiscal 1996 decreased 3.4% to $31,390,900 from
$32,489,300 in fiscal 1995. The decrease was largely the result of a decline in
sales of the Company's MRI vital signs monitors at its patient safety monitoring
business. The Company believes that the decline was primarily attributable to
the restructuring of the sales management at its patient safety monitoring
business and the loss of certain sales personnel in connection with the
Company's decision to expand and upgrade that sales force. In addition, sales of
the older non-MRI vital signs monitors were adversely affected by the recent
introduction of the Company's "Millennia" multi-parameter vital signs monitor.
The new monitor received FDA approval in April, 1996 and was introduced in July,
1996. Continued strong sales growth for the Company's "Micromax" portable
multi-gas monitor at its gas detection business partially offset the sales
declines at the patient safety monitoring business and oxygen monitoring
business in fiscal 1996.
GROSS PROFIT
Gross profit margin decreased to 49.6% in fiscal 1996 from 51.2% in fiscal 1995.
This decrease was due principally to the lower sales volume in relation to the
fixed overhead component of manufacturing costs at the Company's patient safety
monitoring business coupled with the decline in sales of the Company's MRI vital
signs monitors which have higher gross margins than non-MRI vital signs
monitors.
OPERATING EXPENSES
Selling, general and administrative expenses for fiscal 1996 increased $189,600
or 2.0% over fiscal 1995 levels. The increase in these expenditures in fiscal
1996 was primarily attributable to increased selling and marketing expenses in
anticipation of the introduction of the "Millennia" vital signs monitor.
Selling, general and administrative expenses were 30.9% of sales in fiscal 1996
compared with 29.2% for fiscal 1995. The increase in these expenditures as a
percentage of sales for fiscal 1996 was principally the result of the spreading
of fixed selling, general and administrative expenses over the lower sales
volume at the patient safety monitoring business. In connection with the
introduction of its "Millennia" vital signs monitor, the Company intends to
significantly increase selling, general and administrative expenses over the
next twelve months.
Research and experimental expenses for fiscal 1996 increased $254,200 or 13.8%
over fiscal 1995 expenditures. Research and experimental expenses were 6.7% of
sales for fiscal 1996 compared to 5.7% for fiscal 1995. The increase as a
percentage of sales as well as in aggregate research and experimental expenses
in fiscal 1996 was due to higher research and experimental expenditures on
behalf of the patient
14
15
safety monitoring business as the Company continues its efforts in developing
and enhancing its new "Millennia" vital signs monitor and other vital signs
monitoring products.
OTHER INCOME AND EXPENSE
Interest expense increased to $175,200 in fiscal 1996 from $114,800 in fiscal
1995 reflecting higher borrowings on the Company's revolving bank line of credit
in fiscal 1996.
PROVISION FOR INCOME TAXES
The effective tax rate for fiscal 1996 was 34.0% compared with 36.3% for fiscal
1995. This reduction in the effective tax rate was principally due to an
adjustment of prior year's taxes.
FISCAL 1995 COMPARED TO FISCAL 1994
NET SALES
The Company's net sales for fiscal 1995 increased 16.9% to $32,489,300 from
$27,801,100 in fiscal 1994. The increase in net sales principally resulted from
higher sales at the Company's patient safety monitoring business which continued
to benefit from increasing demand for its MRI patient monitoring system. Sales
at the Company's gas detection business also increased primarily due to the
continued sales growth of the recently introduced "MicroMax" gas monitor.
GROSS PROFIT
Gross profit margin increased slightly to 51.2% in fiscal 1995 from 50.8% in
fiscal 1994. This increase was primarily due to the higher gross margins at the
Company's patient safety monitoring business which more than offset higher
manufacturing costs at the Company's gas detection and oxygen monitoring
business.
OPERATING EXPENSES
Selling, general and administrative expenses for fiscal 1995 increased
$1,567,000 or 19.8% over fiscal 1994 expenditures. Selling, general and
administrative expenses were 29.2% of sales in fiscal 1995 compared with 28.5%
in fiscal 1994. The increase in these expenditures was largely due to costs
related to the expansion of the direct sales force at the Company's patient
safety monitoring business, increased sales commission expenses associated with
the higher sales volumes at the patient safety monitoring and gas detection
businesses and additional administrative expenses to support the sales growth at
the patient safety monitoring and gas detection businesses.
Research and experimental expenses remained stable at approximately 5.7% of
sales in fiscal 1995. The increase of $292,400 in aggregate research and
experimental expenses for fiscal 1995 was due to research and experimental
expenditures on behalf of the patient safety monitoring business as the Company
continued the development of its next generation multi-parameter vital signs
monitor and stand alone non-invasive blood pressure monitor.
15
16
OTHER INCOME AND EXPENSE
Interest expense decreased to $114,800 in fiscal 1995 from $141,400 in fiscal
1994 reflecting lower loan balances on the Company's revolving bank line of
credit and acquisition related term loan.
PROVISION FOR INCOME TAXES
The provision for income taxes increased to $1,905,000 in fiscal 1995 from
$1,674,400 in fiscal 1994. The effective tax rate for fiscal 1995 was 36.3% (as
compared to 36.8% in fiscal 1994) with the principal difference between the
effective tax rate and the federal statutory rate of 34% due to the effect of
state income taxes, the utilization of research and experimental credits and the
benefit of a foreign sales corporation.
INFLATION
The Company does not believe that inflation had a significant impact on its
results of operations during any of the last three fiscal years.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 will be effective for fiscal years beginning after
December 15, 1995, and will require that the Company either recognize in its
financial statements costs on a fair value basis related to its employee stock
based compensation plans, such as stock option and stock purchase plans, or make
pro forma disclosures of such costs in a note to the financial statements.
The Company expects to continue to use the intrinsic value-based method of
Accounting Principles Board Opinion No. 25, as allowed for all of its employee
stock-based compensation plans. Therefore, in fiscal 1997, the Company will make
the required pro forma disclosures in a note to its consolidated financial
statements. The adoption of SFAS No. 123 is not expected to have a material
effect on the Company's consolidated results of operations or financial
position.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at June 30, 1996 increased to $7,489,800 compared with
$6,427,500 at June 30, 1995. Cash and cash equivalents at March 31, 1996 were
$436,200 compared with $321,600 at June 30, 1995. Net cash provided by operating
activities was $2,725,900 for fiscal 1996 compared with $2,326,700 for fiscal
1995 as the decrease in net income was more than offset by an increase in
depreciation and amortization and positive changes in operating assets and
liabilities.
In fiscal 1993, the Company purchased 80% of the outstanding common stock of
Invivo Research, Inc. The agreement provided for a contingent payment resulting
in an initial payment of $1,000,000 made on July 15, 1994 and a final payment of
$2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered into an
agreement to acquire the
16
17
remaining 20% of the Invivo Research, Inc. shares. The contingent purchase price
for such shares is to be paid in one or more installments. One-fifth of the
price "vests" on each of January 1, 1996, 1997 and 1998 and two-fifths vest on
January 1, 1999. The former Invivo Research shareholders can make one election
each year beginning in 1996 to be paid any vested payment. The amount of any
payment is based on the after tax profits of Invivo Research for the calendar
year preceding the year that the payment is made, regardless of when the payment
vested, subject to a minimum share price if certain milestones are achieved. The
former Invivo Research shareholders must, generally, elect to receive a payment
in any calendar year by giving notice to the Company by March of that year and
the payment so elected is to be made on June 1 of that year. The payments are to
be made in cash, but if the shareholders require that more than one-fifth of the
payments be made in any year, the Company can elect to make the excess amount of
the payment in the form of its shares. The Company was informed in March of 1996
that the former Invivo Research shareholders would elect to be paid on their
first installment. Based on the 1995 calendar year results for Invivo Research,
payment was made on June 1, 1996, for $987,900.
Bank borrowings increased $1,800,000 in fiscal 1996 principally as a result of
contingent payments of $2,000,000 on July 15, 1995 and $987,900 on June 1, 1996
made in connection with the Invivo Research acquisition. The Company's revolving
bank line of credit and $189,600 acquisition related term loan are
collateralized by the Company's accounts receivable, inventory, and equipment.
In December 1995, the Company renewed the bank line of credit to December 1,
1996 and increased the amount available under the revolving line of credit from
$3,000,000 to $4,000,000. At June 30, 1996, $1,800,000 was outstanding on the
line of credit.
The Company believes that its cash flow from operations and amounts available
from the bank line of credit will be adequate to meet its anticipated cash needs
for working capital and capital expenditures throughout fiscal 1997. The Company
will continue to explore opportunities for the possible acquisitions of
technologies or businesses, which may require the Company to seek additional
financing.
OUTLOOK. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially. These forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In April, 1996 the Company's Invivo Research subsidiary received FDA approval to
market its new "Millennia" portable multi-parameter vital signs monitor. The
Company believes this product positions it to expand from its current MRI
monitoring market niche into the much larger mainstream patient monitoring
market. The Company expects this product to have a substantial impact on future
revenue growth and that its future financial results will to a large extent
depend on the success of this product. In connection with the introduction of
the new vital signs monitor, the Company intends to significantly expand its
direct domestic sales force and increase associated marketing expenses in the
next twelve months. Based on typical sales cycles in the patient monitoring
industry, the Company does not expect to
17
18
receive sizable orders for this product prior to the second quarter of fiscal
1997. Therefore, the Company's operating results for the first half of fiscal
1997 are expected to be below those of prior fiscal periods.
The success of this new product will be dependent on a variety of factors, some
of which may be beyond the control of the Company. Among the factors that could
cause actual results to differ from those anticipated by the Company are:
economic conditions affecting the healthcare industry and general economy;
successful integration of the planned expansion of the Company's direct sales
force; adoption of an appropriate marketing program for the new product;
competitive factors, such as competitor's new products and pricing pressures;
and manufacturing ramp and capacity.
18
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements:
Page
Number
------
Independent Auditors' Report 20
Consolidated Balance Sheets - June 30, 1996
and 1995 21
Consolidated Statements of Income for
the Years Ended June 30, 1996, 1995, and 1994 22
Consolidated Statements of Stockholders' Equity
for the Years Ended June 30, 1996, 1995,and 1994 23
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1996, 1995,and 1994 24
Notes to Consolidated Financial Statements 25-32
19
20
Independent Auditors' Report
The Board of Directors and Stockholders
Invivo Corporation:
We have audited the accompanying consolidated balance sheets of Invivo
Corporation (formerly SafetyTek Corporation) and subsidiaries as of June 30,
1996 and 1995, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
30, 1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Invivo Corporation
(formerly SafetyTek Corporation) and subsidiaries as of June 30, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended June 30, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Palo Alto, CA
July 30, 1996
20
21
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Balance Sheets
June 30, 1996 and 1995
Assets 1996 1995
Current assets:
Cash and cash equivalents $ 436,200 321,600
Trade receivables, less allowance for doubtful accounts of
$231,000 and $236,900 in 1996 and 1995, respectively 6,415,500 6,199,600
Inventories 5,504,400 5,082,400
Deferred income taxes 587,000 519,500
Prepaid expenses and other current assets 584,500 456,500
----------- ----------
Total current assets 13,527,600 12,579,600
Property and equipment, net 2,762,900 2,516,600
Intangible assets 5,595,600 4,743,800
Other assets 317,500 20,100
----------- ----------
$22,203,600 19,860,100
=========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,636,300 1,343,500
Accrued expenses 1,901,300 1,967,200
Current portion of long-term debt and bank borrowings 2,022,400 2,483,300
Income taxes payable 384,900 267,800
Other 92,900 90,300
----------- ----------
Total current liabilities 6,037,800 6,152,100
Long-term debt, excluding current portion 729,500 926,400
Deferred income taxes 160,700 165,500
----------- ----------
Total liabilities 6,928,000 7,244,000
Stockholders' equity:
Common stock, $.0008 par value; 5,000,000 shares
authorized; 3,225,993 and 3,200,043 shares issued
and outstanding in 1996 and 1995, respectively 2,600 2,600
Additional paid-in capital 12,594,000 12,406,500
Retained earnings 2,679,000 207,000
----------- ----------
Total stockholders' equity 15,275,600 12,616,100
Commitments and contingencies
$22,203,600 19,860,100
=========== ==========
See accompanying notes to consolidated financial statements.
21
22
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Income
Years ended June 30, 1996, 1995, and 1994
1996 1995 1994
---- ---- ----
Sales $ 31,390,900 32,489,300 27,801,100
Cost of goods sold 15,810,900 15,843,200 13,672,400
------------ ----------- -----------
Gross profit 15,580,000 16,646,100 14,128,700
------------ ----------- -----------
Operating expenses:
Selling, general, and administrative 9,690,700 9,501,100 7,934,100
Research and experimental 2,095,400 1,841,200 1,548,800
------------ ----------- -----------
Total operating expenses 11,786,100 11,342,300 9,482,900
------------ ----------- -----------
Income from operations 3,793,900 5,303,800 4,645,800
Other income (expense):
Interest expense (175,200) (114,800) (141,400)
Other, net 126,700 64,300 51,000
------------ ----------- -----------
Income before income taxes 3,745,400 5,253,300 4,555,400
Income tax expense 1,273,400 1,905,000 1,674,400
------------ ----------- -----------
Net income $ 2,472,000 3,348,300 2,881,000
============ =========== ===========
Net income per common share $ .72 .99 .86
============ =========== ===========
Weighted average common shares outstanding 3,455,501 3,389,980 3,359,103
============ =========== ===========
See accompanying notes to consolidated financial statements.
22
23
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Stockholders' Equity
Years ended June 30, 1996, 1995, and 1994
(Accumulated
Additional deficit) Total
Common stock paid-in retained stockholders'
Shares Amount capital earnings equity
Balances as of June 30, 1993 3,148,343 $2,500 12,072,300 (6,022,300) 6,052,500
Proceeds from exercise of options 31,750 -- 85,200 -- 85,200
Tax benefit from exercise of options -- -- 118,000 -- 118,000
Net income -- -- -- 2,881,000 2,881,000
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1994 3,180,093 2,500 12,275,500 (3,141,300) 9,136,700
Proceeds from exercise of options 19,950 100 78,600 -- 78,700
Tax benefit from exercise of options -- -- 52,400 -- 52,400
Net income -- -- -- 3,348,300 3,348,300
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1995 3,200,043 2,600 12,406,500 207,000 12,616,100
Proceeds from exercise of options 25,950 -- 84,100 -- 84,100
Tax benefit from exercise of options -- -- 103,400 -- 103,400
Net income -- -- -- 2,472,000 2,472,000
--------- ------ ---------- ---------- ----------
Balances as of June 30, 1996 3,225,993 $2,600 12,594,000 2,679,000 15,275,600
========= ====== ========== ========== ==========
See accompanying notes to consolidated financial statements.
23
24
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995, and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Net income $ 2,472,000 3,348,300 2,881,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 601,400 509,800 430,900
Loss (gain) on sale of property andequipment 31,200 (38,800) --
Changes in operating assets and liabilities:
Trade receivables (215,900) (1,490,800) (531,200)
Inventories (412,500) (530,400) (643,700)
Deferred income taxes (72,300) 106,000 101,000
Prepaid expenses and other current assets (128,000) 7,900 (240,900)
Accrued expenses (65,900) 195,500 (283,200)
Accounts payable 292,800 256,900 (71,200)
Income taxes payable 220,500 (66,000) (158,100)
Other current liabilities 2,600 28,300 (14,100)
----------- ---------- ----------
Net cash provided by operating activities 2,725,900 2,326,700 1,470,500
----------- ---------- ----------
Cash flows from investing activities:
Capital expenditures (769,300) (764,300) (496,100)
Proceeds from sale of property and equipment 17,000 63,900 --
Intangible assets (987,900) -- --
Other assets (297,400) (25,000) (25,000)
----------- ---------- ----------
Net cash used in investing activities (2,037,600) (725,400) (521,100)
----------- ---------- ----------
Cash flows from financing activities:
Issuances of stock 84,100 78,700 85,200
Bank borrowings (repayments), net 1,800,000 (50,000) (570,000)
Principal payments under acquisition notes payable, long-term debt, and other (2,457,800) (1,524,100)
(587,900)
Net cash used in financing activities (573,700) (1,495,400) (1,072,700)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 114,600 105,900 (123,300)
Cash and cash equivalents at beginning of year 321,600 215,700 339,000
----------- ---------- ----------
Cash and cash equivalents at end of year $ 436,200 321,600 215,700
=========== ========== ==========
See accompanying notes to consolidated financial statements.
24
25
INVIVO CORPORATION AND SUBSIDIARIES
(Formerly SafetyTek Corporation)
Notes to Consolidated Financial Statements
June 30, 1996, 1995, and 1994
(1) BUSINESS AND ACCOUNTING POLICIES
The Company
Invivo Corporation (formerly SafetyTek Corporation) and subsidiaries
(the Company) are engaged in the design, manufacture, and marketing of
sensor-based instruments for health, safety, and industrial process
control applications. Subsequent to year-end, the Company changed its
name to Invivo Corporation from SafetyTek Corporation.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash
equivalents are comprised primarily of U.S. Treasury securities and
money market funds.
Inventories
Inventories are stated at the lower of cost or market on a first-in,
first-out basis.
Property and Equipment
Property and equipment are stated at cost net of accumulated
depreciation and amortization. Depreciation is calculated on the
straight-line method over the estimated useful lives of the related
assets, generally three to seven years. Leasehold improvements and
assets under capital leases are amortized on the straight-line method
over the shorter of the lease term or the estimated useful life of the
related asset.
Income Taxes
The Company utilizes the asset and liability method of accounting for
income taxes. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. The measurement of deferred tax assets
is reduced, if necessary, by a valuation allowance for any tax benefits
that are not expected to be realized.
25
26
Intangible Assets
Intangible assets include patents and the cost in excess of amounts
otherwise assigned to net assets of businesses acquired (goodwill).
Patents are amortized on a straight-line basis over their approximate
useful lives, not to exceed 17 years. Goodwill is amortized on a
straight-line basis over 40 years. The Company assesses the
recoverability of goodwill by projecting results of operations over the
remaining useful lives of the businesses acquired. Accumulated
amortization as of June 30, 1996 and 1995 was approximately $555,200
and $419,000, respectively. Amortization expense was approximately
$136,100, $132,800, and $106,200 for 1996, 1995, and 1994,
respectively.
Net Income Per Common Share
Net income per common share is computed using the weighted average
number of shares outstanding including the dilutive effect, if any, of
common stock options outstanding.
Revenue Recognition
The Company recognizes revenue and all related costs upon shipment of
products to its customers.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Impairment of Long-Lived Assets
In fiscal 1996, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of. SFAS No. 121
requires that long-lived assets and certain identifiable intangibles to
be held and used by an entity by reviewed for impairment whenever
events or changes indicate that the carrying amount of an asset may not
be recoverable. Upon adoption, the Company identified no long-lived
assets or identifiable intangibles which were impaired.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting
for Stock-Based Compensation. SFAS No. 123 will be effective for fiscal
year beginning after December 15, 1995, and will require that the
Company either recognize in its financial statements costs on a fair
value basis related to its employee stock based compensation plans,
such as stock option and stock purchase plans, or make pro forma
disclosures of such costs in a note to the financial statements.
The Company expects to continue to use the intrinsic value-based method
of Accounting Principles Board Opinion No. 25, as allowed under SFAS
No. 123, to account for all of its employee stock-based compensation
plans. Therefore, in fiscal 1997, the Company will make the required
pro forma disclosures in a note to its consolidated financial
statements. The adoption of SFAS No. 123 is not expected to have a
material effect on the Company's consolidated results of operations or
financial position.
26
27
(2) ACQUISITION OF INVIVO RESEARCH INC.
On December 31, 1992, the Company acquired 80% of the outstanding
common stock of Invivo Research Inc., a company which designs,
manufactures, and markets sensor-based patient safety devices.
In fiscal 1994, the Company entered into an agreement to acquire the
remaining 20% of the Invivo Research Inc. shares. The purchase price
for the remaining shares will be paid in five installments. An
installment of $987,900 was paid during fiscal 1996. One installment
will become payable on January 1, 1997 and 1998, and two installments
will become payable on January 1, 1999. The installment is to be paid
on June 1 of the respective year. The value of each installment will be
determined based upon a formula involving after-tax profits, subject to
a minimum share price if certain milestones are achieved. Based upon
the formula, the amount of each installment is variable from $-0- to an
amount calculated based upon the future operating results of Invivo
Research Inc. If the formula were applied based solely upon fiscal 1996
results for Invivo Research Inc. and assuming no changes through the
referenced periods, the future installment amounts would be
approximately $536,500 each. No assurance can be given that the amounts
ultimately payable will be of this magnitude as the amounts are
dependent upon the future operating results of Invivo Research Inc.
(3) INVENTORIES
A summary of inventories as of June 30 follows:
1996 1995
---- ----
Raw materials $ 3,811,900 3,306,900
Work in process 1,090,700 1,288,200
Finished goods 1,053,000 862,800
----------- ----------
5,955,600 5,457,900
Less inventory reserves 451,200 375,500
----------- ----------
$ 5,504,400 5,082,400
=========== ==========
(4) PROPERTY AND EQUIPMENT
A summary of property and equipment as of June 30 follows:
1996 1995
---- ----
Land and building $1,290,100 1,290,100
Equipment 2,784,300 2,362,800
Furniture and fixtures 895,200 716,300
Vehicles 147,000 85,700
---------- ---------
5,116,600 4,454,900
Less accumulated depreciation and amortization 2,353,700 1,938,300
---------- ---------
$2,762,900 2,516,600
========== =========
27
28
(5) DEBT AND BANK BORROWINGS
A summary of debt and bank borrowings as of June 30 follows:
1996 1995
---- ----
Termloan with principal payable in monthly installments of
approximately $27,100 and interest payable monthly at prime plus
1/4%; all unpaid principal and interest is due December 31,
1996; secured by accounts receivable and inventory and equipment
$ 189,600 487,500
Term loan payable in monthly installments of $8,500, including
interest at 8-1/2%; balloon payment of $685,000 on April 15,
1998; secured by land and building 762,300 796,700
Borrowings under the $4,000,000 revolving loan, which expires and is
payable on December 31, 1996; collateralized by accounts
receivable and inventory and equipment; interest payable monthly
at prime plus 1/4% 1,800,000 --
Unsecured note payable to president of subsidiary in quarterly
principal installments of approximately $41,800 through December
31, 1995; interest payable quarterly at prime -- 125,500
Unsecured note payable to president of subsidiary; due July 15, 1995 -- 2,000,000
---------- ---------
2,751,900 3,409,700
Less current portion 2,022,400 2,483,300
---------- ---------
$ 729,500 926,400
========== =========
The aggregate maturities of debt and bank borrowings for each of the
years subsequent to June 30, 1996 are as follows: 1997, $2,022,400 and
1998, $729,500.
In December 1995, the Company and its bank lender agreed to renew the
revolving loan to December 31, 1996 and increase the amount available
under the line of credit from $3,000,000 to $4,000,000. The revolving
loan requires the Company to maintain a minimum tangible net worth, a
maximum ratio of total liabilities to tangible net worth, a minimum
working capital balance, quarterly profitability, a minimum debt
service ratio, and prohibits the Company from paying dividends. As of
June 30, 1996, $2,200,000 was available under the line of credit.
In July 1996, the Company refinanced the term loan due April 15, 1998.
The new payment terms will extend through the year 2012.
28
29
(6) ACCRUED EXPENSES
A summary of accrued expenses as of June 30 follows:
1996 1995
---- ----
Accrued compensation and benefits $1,123,700 1,364,600
Other 777,600 602,600
---------- ---------
$1,901,300 1,967,200
========== =========
(7) LEASE COMMITMENTS
The Company leases certain facilities and equipment under operating
leases. The facilities' leases require the Company to pay certain
executory costs such as taxes, insurance, and maintenance. Rent expense
related to operating leases was approximately $416,900, $465,600, and
$442,100 for the years ended June 30, 1996, 1995, and 1994,
respectively.
A summary of future minimum lease payments required under noncancelable
operating leases with terms in excess of one year, net of sublease
rental income, as of June 30, 1996 follows:
Fiscal
year ending
1997 $ 371,600
1998 368,900
1999 314,600
2000 213,700
2001 155,400
----------
Future minimum lease payments $1,424,200
==========
(8) INCOME TAXES
A summary of the components of income tax expense (benefit) follows:
Current Deferred Total
------- -------- -----
1996:
Federal $ 1,101,800 (56,400) 1,045,400
State 243,900 (15,900) 228,000
----------- ---------- ---------
$ 1,345,700 (72,300) 1,273,400
=========== ========== =========
1995:
Federal $ 1,529,000 62,000 1,591,000
State 270,000 44,000 314,000
----------- ---------- ---------
$ 1,799,000 106,000 1,905,000
=========== ========== =========
1994:
Federal $ 1,249,500 42,700 1,292,200
State 323,600 58,600 382,200
=========== ========== =========
$ 1,573,100 101,300 1,674,400
=========== ========== =========
29
30
Deferred tax benefits are attributable primarily to depreciation, accrued
expenses, and allowances.
The effects of temporary differences that give rise to significant portions of
the deferred tax assets and liabilities as of June 30 are as follows:
1996 1995 1994
---- ---- ----
Deferred tax assets:
Reserves and other accruals $ 587,000 519,500 571,400
Capital loss carryover 1,500 15,400 88,300
Accumulated depreciation -- -- 29,100
--------- -------- --------
Gross deferred tax assets 588,500 534,900 688,800
Valuation allowance (1,500) (15,400) (88,300)
--------- -------- --------
Net deferred tax assets 587,000 519,500 600,500
--------- -------- --------
Deferred tax liabilities:
Federal depreciation in excess of books (11,000) (24,000) --
Acquired intangibles from acquisitions (149,700) (141,500) (140,500)
--------- -------- --------
Gross deferred tax liabilities (160,700) (165,500) (140,500)
--------- -------- --------
Net deferred tax assets $ 426,300 354,000 460,000
========= ======== ========
The net change in the valuation allowance for the year ended June 30,
1996, was a decrease of $13,900, resulting principally from the
expiration of $41,000 in capital loss carryforwards during the year
ended June 30, 1996. Management believes that it is more likely than
not that the results of future operations will generate sufficient
taxable income to realize the net deferred tax assets or that the
amounts will be recovered from previously paid taxes.
The following summarizes the differences between the income tax expense
and the amount computed by applying the 34% federal statutory corporate
rate to income before income taxes as follows:
1996 1995 1994
---- ---- ----
Federal income tax at statutory rate $ 1,273,400 1,786,100 1,548,800
State income taxes, net of federal income tax benefit, including credits 150,500 207,200 252,200
Utilization of research, experimental, and other credits -- (51,300) (37,500)
Benefit of foreign sales corporation (111,500) (123,400) (76,500)
Other, net (39,000) 86,400 (12,600)
----------- ---------- ----------
$ 1,273,400 1,905,000 1,674,400
=========== ========== ==========
(9) STOCK OPTIONS
The Company has 1986 and 1994 incentive and nonqualified stock option
plans, which provide for the granting of stock options to employees
(including officers and directors) at prices not less than the fair
market value of the Company's common stock at the date of grant.
Options vest ratably
30
31
over 4 years and expire in 10 years. The Company has reserved 314,400
and 200,000 shares of its common stock for issuance under the 1986 and
1994 plans, respectively.
A summary of transactions under the stock option plans follows:
Options outstanding
Options ---------------------------------
available Exercise
for grant Shares price
Balances as of June 30, 1993 18,400 296,000 $ 2.00 - 5.75
Options exercised -- (31,750) 2.00 - 5.75
----------- ----------- ---------------
Balances as of June 30, 1994 18,400 264,250 2.00 - 5.75
Options authorized 200,000 -- --
Options granted (138,800) 138,800 7.00 - 8.50
Options exercised -- (19,950) 2.00 - 5.75
----------- ----------- ---------------
Balances as of June 30, 1995 79,600 383,100 2.00 - 8.50
Options granted (12,750) 12,750 12.50 - 16.13
Options exercised -- (25,950) 2.00 - 8.50
Options canceled 5,500 (5,500) 7.00 - 8.50
----------- ----------- ---------------
Balances as of June 30, 1996 72,350 364,400 2.00 - 16.13
=========== ===========
As of June 30, 1996, 234,675 options were exercisable.
(10) SALARY DEFERRAL PLAN
The Company's executive officers, together with all other eligible
employees, may participate in the Company's 401(k) Salary Deferral Plan
(the Plan). Employees become eligible upon completion of one year of
service. Each eligible employee receives a retirement benefit based
upon accumulated contributions to the Plan by the employee and the
Company plus any earnings on such contributions. The Company
contributes an amount equal to 25% of the first 4% of compensation that
the employee contributes. The Plan currently provides that participants
begin vesting in the Company's contributions after three years of
employment and are fully vested after seven years. Company
contributions to the Plan for the year ended June 30, 1996, 1995, and
1994 were $43,200, $48,100, and $38,200, respectively.
(11) LEGAL PROCEEDINGS
The Company is involved in litigation arising in the ordinary course of
its business. While the ultimate results of such proceedings cannot be
predicted with certainty, management expects that these matters will
not have a material adverse effect on the Company's financial position
or results of operations.
(12) MAJOR CUSTOMERS AND CREDIT RISK
In fiscal 1996, 1995, and 1994 no individual customer accounted for
greater than 10% of the Company's revenues or trade accounts
receivable.
The Company has a customer base that is diverse geographically and by
industry. Customer credit evaluations are performed on an ongoing
basis, and collateral is generally not required for trade accounts
receivable. Management does not believe the Company has any significant
concentration of credit risk as of June 30, 1996.
31
32
(13) SUPPLEMENTAL CASH FLOWS INFORMATION
Noncash investing and financing activities and supplemental cash flow
information are summarized as follows:
1996 1995 1994
---- ---- ----
Note issued for contingent payment $ -- -- 3,000,000
Tax benefit associated with exercise of stock options 103,400 52,400
118,000
Cash paid:
Income taxes 1,076,700 1,884,000 1,630,300
Interest 175,300 110,300 136,500
32
33
SELECTED QUARTERLY FINANCIAL DATA (NOT COVERED BY REPORT OF INDEPENDENT
ACCOUNTANTS):
In millions, except per share amounts 1ST QTR 2ND QTR 3RD QTR 4TH QTR
- --------------------------------------------------------------------------------
FISCAL YEAR 1996
Sales $7,842 $7,865 $7,905 $7,779
Gross Profit 3,950 4,078 4,028 3,524
Net Income 820 861 691 100
Net Income per common share 0.24 0.25 0.20 0.03
FISCAL YEAR 1995
Sales $7,587 $7,463 $8,525 $8,914
Gross Profit 3,927 3,746 4,432 4,541
Net Income 659 737 939 1,015
Net Income per common share 0.20 0.22 0.28 0.30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There were no changes in the accountants or disagreements with the Company's
accountants on accounting and financial disclosure matters in fiscal 1995.
PART III
ITEMS 10 TO 13 INCLUSIVE.
These items have been omitted in accordance with instructions to Form 10-K
Annual Report. The Registrant will file with the Commission in October 1996,
pursuant to regulation 14A, a definitive proxy statement that will involve the
election of directors.
33
34
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT
NUMBER
------
EXHIBIT PAGE
- ------- ----
3.01 Certificate of Incorporation
of the Registrant, as amended
3.02 By-Laws of the Registrant (1)
4.01 Form of Common Stock Certificate (1)
10.01 Sensor Control Corporation 1986 Incentive
Stock Option Plan and 1986 Non-statutory
Stock Option Plan As Amended (2)
10.02 Indemnity Agreement (1)
10.03 SafetyTek 1994 Stock Option Plan (3)
10.04 Stock purchase agreement dated as of November 8,
1989 by and between Data Design Laboratories
and Sensor Control Corporation. (4)
10.05 Stock purchase agreement dated January 14, 1991
between G.C. Industries Inc. and Sensor Control
Corporation (5)
10.06 Stock purchase agreement dated June 21, 1991 by
and between Electronic Safety Products Inc. and
Sensor Control Corporation (6)
10.07 Stock purchase agreement dated December 31, 1992
by and between Invivo Research Inc. and SafetyTek
Corporation (7)
10.08 Amended and Restated Credit Agreement dated
December 21, 1995 by and between First Interstate
Bank of California and SafetyTek Corporation (10)
10.09 Real Estate Unconditional Guaranty dated January
21, 1993 by and between First Union National Bank
of Florida and SafetyTek Corporation (8)
34
35
EXHIBIT
NUMBER
EXHIBIT PAGE
- ------- ----
10.10 First Amendment to Stock Purchase Agreement dated
July 1, 1993 and related Stock Pledge Agreement dated
July 1, 1993 by and between Invivo Research Inc. and
SafetyTek Corporation (9)
10.11 Lease between Lincoln-Whitehall Realty LLC
and SafetyTek Corporation for the 5696 Stewart Ave.
Fremont, CA facility (11)
10.12 Construction Loan Agreement between Invivo Research
and First Union Bank dated July 31, 1996
10.13 First Amendment to Amended and Restated Credit
Agreement between First Interstate Bank of California
and SafetyTek Corp. dated August 5, 1996
11.01 Statement regarding computation of per
share earnings
21.01 Subsidiaries of Registrant
23.01 Consent of Independent Auditors
27.01 Financial Data Schedule
FOOTNOTES DESCRIPTIONS:
(1) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 28, 1990. (File (No. 0-15963)
(2) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 28, 1991
(3) Incorporated by reference to corresponding Exhibit included with
Registrant's Form S-8 filed January 27, 1995 (File No. 33-88798)
(4) Incorporated by reference to corresponding Exhibit included with
Registrant's Registration Statement on Form S-1 filed on December 23, 1991 (File
No. 33-44623)
(5) Incorporated by reference to corresponding Exhibit included with
Registrant's Amended Registration Statement on Form S-1 filed on February 5,
1992 (File No. 33-44623)
(6) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed March 13, 1992.(File No. 0-15963)
(7) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 8-K filed January 14, 1993. (File No. 0-15963)
35
36
(8) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-K filed September 24, 1993.
(File No. 0-15963)
(9) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed November 1, 1993.
(File No. 0-15963)
(10) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed February 9, 1996.
(File No. 0-15963)
(11) Incorporated by reference to corresponding Exhibit included with
Registrant's Form 10-Q filed May 15, 1996.
(File No. 0-15963)
(b)REPORTS ON FORM 8-K
The Company was not required to file any reports on Form 8-K for the
quarter ended June 30, 1996.
36
37
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Invivo Corporation
/S/ JOHN F. GLENN
-----------------
John F. Glenn
Vice President-Finance\
Chief Financial Officer
September 27, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/S/ ERNEST C. GOGGIO
- --------------------
Ernest C. Goggio Chairman of the Board September 27, 1996
/S/ JAMES B. HAWKINS
- --------------------
James B. Hawkins President, Chief September 27, 1996
Executive Officer, Director
(principal executive
officer)
/S/ JOHN F. GLENN
- -----------------
John F. Glenn Chief Financial Officer September 27, 1996
(principal financial
and accounting officer)
/S/ PAUL KUTLER
- ---------------
Paul Kutler, Ph.D. Director September 27, 1996
/S/ GEORGE S. SARLO
- -------------------
George S. Sarlo Director September 27, 1996
37