Item 1. BUSINESS
(a) General Description of Business
IMTEC, Inc. (the "Company" or "IMTEC") designs, assembles, markets and sells high performance barcode labels, and label application and label lamination equipment.
The Company's Hot Stamp printer business was discontinued in August 1994. Reference is made to the Company's current report on Form 8-K, dated August 19, 1994, the contents of which are incorporated herein by reference for further information in these regards.
The Company was incorporated in Vermont on March 17, 1982 under the name Imaging Technologies, Inc., and was reincorporated in Delaware under its present name on September 22, 1983. The Company's executive offices are located at One Imtec Lane, Bellows Falls, Vermont 05101, and its telephone number is (802) 463-9502.
(b) Financial Information About Industry Segments
Not Applicable.
(c) Narrative Description of Business
Products and Services
The Company markets high-performance labels, label material, ribbons and laminates, and produces preprinted bar code labels for customers who prefer outsourcing of label printing. Although the Company sells a broad variety of label materials, the Company focuses on high performance label materials, designed to perform in demanding environments. Sales of such labeling supplies accounted for 56.5%, 50.7%, and 59.9% of the Company's revenues during fiscal years 1996, 1995 and 1994, respectively.
The Company also markets bar code label printer/applicators and bar code label printer/laminators. The printer/applicators print bar codes and variable alpha numeric information onto pressure sensitive labels and automatically applies the label in a single integrated process to a product or package. These devices are typically used to automate information transfer and labeling processes in a real time production or distribution environment. The printer/laminators enable rapid automated printing of bar code and variable information on labels with a laminated surface. These labels are often used in environments where resistance to temperatures, chemicals and weather are valued.
These labeling systems are micro-processor driven and involve proprietary software, label applicator elements and transport, cutting and laminating devices. The systems often include scanners, detectors and printers supplied by unaffiliated manufactures. Equipment sales accounted for 43.5%, 49.3% and 40.1% of the Company's revenue during fiscal years 1996, 1995 and 1994, respectively.
Marketing and Sales
The Company's marketing efforts are directed to those industries and businesses which have need of in-house bar coding equipment. The Company conducts its marketing and sales efforts primarily through an in-house sales staff of 12 full-time employees and its executive officers; 3 sales management offices in the Metropolitan areas of Chicago, IL, Philadelphia, PA, and Santa Rosa, CA, respectively, each of which employs one full- time sales employee; and approximately 12 independent reseller organizations throughout the United States who market other bar code products in addition to the Company's.
The Company also conducts marketing efforts and sales throughout Canada, Latin America, Europe, and the Far East through resellers and distributors.
The Company supplements these efforts by advertising, publishing articles in trade and business journals, and participation at trade shows.
Manufacturing and Sources of Supply
The Company purchases substantially all of the printers that it incorporates into its bar code printers from non-affiliated manufacturers. As there are numerous manufacturers and distributors of printers, the Company does not anticipate experiencing any curtailment in the availability of printers.
The Company is not materially dependent on any one supplier for its computer software, bar code printing supplies or components used in assembling its present or proposed products. It currently uses a number of outside contractors to fabricate machine parts and sub-assemblies for its products but is not currently materially dependent on any one such contractor.
Patents and Trademarks
During the current fiscal year the Company received no new patents. As of June 30, 1996, the Company owned eight patents, expiring at various dates ranging from 2001 to 2009, and eleven trademarks, respectively. Applications for registration of trademarks in seven foreign countries were then pending. Applications for four patents were also pending at June 30, 1996. The Company does not believe the proprietary protection afforded by such patents and trademarks is of material importance to its current or future operations or prospects.
Warranty
The Company's personnel install its products and, if necessary, train customers' personnel in their operation and service. The Company's personnel also service such products when a customer's own staff is unable to diagnose or correct a problem. The Company currently warrants its enhanced printers for a one year period for parts and in-house labor. The Company also offers service and warranty contracts directly to its customers as well as through third party service groups.
Customers
The Company's primary customers are those businesses in industries that utilize in-house bar coding equipment. The Company's customers include, but are not limited to, the fields of electronics, automotive, distribution and consumer's goods manufacturers. During fiscal year 1996, sales pursuant to a single customer (United Parcel Service) accounted for approximately 13.2% of the Company's revenues. This customer, which also accounted for 31% of the Company's revenues during fiscal 1995, is not presently anticipated to account for greater than 10% of the Company's revenues for its fiscal year ending June 30, 1997. No other customer accounted for more than 10% of the Company's revenues during fiscal year 1996, 1995 and 1994. Export sales aggregated approximately $1,435,000 in 1996, $1,704,000 in 1995, and $1,373,000 in 1994.
Backlog
The aggregate backlog of firm orders for the Company's products as of June 30, 1996 was approximately $2,228,000 as compared with $2,803,000 at June 30, 1995. Approximately $1,320,000 of the current backlog is for media supplies with scheduled shipping dates over the next 12 months. The balance of the current backlog ($908,000) is for equipment, including several orders for multiple units, with scheduled delivery over several months. The Company anticipates that substantially all of its backlog will be filled during the current fiscal year.
Competition
The Company competes with several other companies in the sale of its bar code accessories, supplies and services, many of which are larger and have greater financial resources. The Company recognizes approximately 10 direct competitors in its field; however, the Company believes that no one competitor is a dominant factor therein.
The Company may face potential competition with respect to its specialized bar code labeling systems from other companies engaged in various areas of the bar code industry which have both the technical knowledge to develop competing systems and financial resources substantially greater than those of the Company.
The Company believes that it presently competes based on performance, simplicity of operation, reliability of products, and price. It expects to compete with respect to specialized bar code labeling systems presently under development, based upon its chemical and systems engineering capabilities.
Research and Development
The Company conducts on-going research and development to refine, improve and enhance its product lines. Research and development expenses were $625,149, $643,081 and $516,990 in the fiscal years ended June 30, 1996, 1995 and 1994, respectively. The research and development expenses were primarily attributable to the Company's efforts with respect to its specialized bar code labeling systems and proprietary materials.
Employees
As of August 30, 1996, the Company employed 69 persons on a full time basis, including 6 employees in administration, 16 in marketing and sales, 10 in research and development and 37 in service and manufacturing. .
None of the Company's employees are represented by a labor union, and the Company has experienced no work stoppages. The Company believes that its employee relations are good.
(d) Financial Information about Foreign and Domestic Operations and Export Sales
Export sales aggregated approximately $1,435,000 in fiscal 1996, $1,704,000 in fiscal 1995 and $1,373,000 in fiscal 1994, representing 15.7%, 16.6% and 21.0%, respectively, of the Company's sales in such fiscal years. The Company has no significant assets outside of the United States and all export sales in such years were made to persons or entities that had no affiliation to the Company.
Fiscal Years Ended June 30, 1996 1995 1994 Pacific Rim 57% 49% 46% Europe 18% 24% 20% Canada 12% 19% 30% Others 13% 8% 4%
Item 2.
Item 2. PROPERTIES
The Company occupies approximately 15,000 square feet in leased facilities and a plot of land measuring 11.59 acres on which the Company's facilities are situated in the Rockingham Industrial Park, Bellows Falls, Vermont, which house the Company's executive and administrative offices, and its bar code manufacturing and shipping facilities under a lease which expires on December 31, 1999. The Company has the right to extend the lease for an additional five-year term and to purchase the building at any time at a purchase price equal to the then outstanding principal balance and accrued interest of a $525,000 Vermont Industrial Development Authority Industrial Development Revenue Bond, issued in May, 1985. Annual rent is $54,000. The lease provides that the Company shall pay property taxes and utility charges. Sufficient land is available to allow for future expansion.
The Company also leases approximately 19,100 square feet in facilities at 33 Bridge Street, Bellows Falls, Vermont, which house additional manufacturing and storage facilities. This lease expires December 31, 2000 and the Company has the right to extend the lease for two terms of five years each. Annual rent through December 31, 1996 is $67,680. Rent thereafter can be adjusted for inflation.
The Company believes that these facilities are adequate for its present and currently contemplated future operations.
Item 3.
Item 3. LEGAL PROCEEDINGS
In January, 1994, the Windham County Superior Court rendered a settlement of $175,000 plus interest to a former employee in settlement of a wrongful discharge lawsuit based on a termination dating back to 1991. This case was appealed to the Vermont Supreme Court. On November 22, 1995, the Vermont Supreme Court reversed the lower court settlement. The Supreme Court's decision resulted in the Company's reversal of a $215,000 reserve, the majority of which was originally expensed in June, 1994. The effect of the reversal represents $.08 per share in earnings.
There is no material litigation currently pending, or, to the Company's knowledge, threatened against the Company.
Item 4.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 1996.
PART II
Item 5.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Market Information
The Company's Common Stock is quoted on Nasdaq-SmallCap Market tier of The Nasdaq Stock Market under the symbol IMTC. The following table sets forth, for the periods indicated, the bid price range of the Common Stock as reported by National Quotation Bureau Incorporated. These quotations represent prices between dealers, do not include retail markups, markdowns or commissions and do not necessarily represent actual transactions:
1995 HIGH TRADE LOW TRADE
First Quarter $ 5 $ 3-3/4 Second Quarter 5 4-3/4 Third Quarter 11 5 Fourth Quarter 9-1/2 8-1/2
First Quarter $ 14 $ 9 Second Quarter 13 10 Third Quarter 10-3/4 7-1/2 Fourth Quarter 8-3/4 6-1/4
(b) Holders
At August 30, 1996, there were approximately 256 holders of record of the Company's Common Stock.
(c) Dividends
The Company has not paid any cash dividends since its inception and the Board of Directors does not contemplate doing so in the near future. Any decision as to future payment of dividends will depend on the earnings and financial position of the Company and such other factors as the Board of Directors deem relevant.
Item 7.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal year ended June 30, 1996, as compared to fiscal year ended June 30, 1995.
Revenues for the fiscal year ended June 30 1996, decreased approximately 11.3% over the fiscal year ended June 30, 1995.
Revenues from Bar Code labels and printing supplies were $5,146,749 for the fiscal year ended June 30, 1996, as compared to $5,187,457 for the year ended June 30, 1995, a decrease of 0.8%. The sale of Bar Code labels and printing supplies represented approximately 56.5% of total revenues for fiscal year 1996 as compared to 50.7% of total revenues for fiscal year 1995. There was a backlog of $1,319,601 as of June 30, 1996 for Bar Code labels and printing supplies, as compared to $956,402 for June 30, 1995.
Revenues from the sales and service of Industrial Bar Code Equipment were $3,967,656 for the year ended June 30, 1996, down 21.5% when compared to $5,051,666 for the year ended June 30, 1995. Industrial Bar Code Equipment revenues represented 43.5% of total revenues in fiscal year 1996 compared to 49.3% of total revenues in fiscal year 1995. The decrease in bar code equipment sales in fiscal year 1996, when contrasted with fiscal year 1995, is primarily attributable to the completion, in October, 1995, of a contract with a single customer. When this contract is removed from the revenues, the core equipment business increased 49.3% from $1,854,071 in fiscal year 1995, to $2,768,240 in fiscal year 1996. The increase in the core equipment business is a direct result of increased sales and marketing activities and efforts to expand the Company's distribution network. Backlog as of June 30, 1996, was $908,175 for Industrial Bar Code Equipment as contrasted with $1,846,535 (of which $1,115,752 represented orders from the above mentioned single customer) for June 30, 1995. This represents a net increase of 24.3% in backlog for the core equipment when the single customer is excluded.
Cost of sales remained steady, at 55.1% of revenues, not withstanding the Company's inability to secure volume discounts on purchased parts in fiscal 1996 as it had in fiscal 1995.
Selling, general and administrative expenses represented 26.0% of sales in fiscal year 1996 and 27.1% of sales in fiscal year 1995. These expenses for fiscal 1996 decreased by about $411,000 over fiscal 1995 levels. However, the majority of the decrease is attributable to the Vermont Supreme Court's ruling in favor of the Company in a wrongful termination suit, reversing a lower court's earlier ruling in favor of the plaintiff, in the amount of $175,000 plus interest. The Supreme Court's decision resulted in the Company's reversal of a $215,000 reserve, the majority of which was originally expensed in June, 1994. The effect of the reversal represents approximately $.08 per share in earnings.
Research and Development expenses represented 6.9% of sales in fiscal year 1996 and 6.3% of sales in fiscal year 1995, though the actual costs decreased by about $18,000.
There was no Interest Expense for fiscal year 1996 compared to $39,603 for the previous fiscal year. This decrease is the result of efforts to reduce debt. At June 30, 1995, all of the Company's long-term and short-term debt had been paid in full, with funds generated through operations.
Interest Income generated during fiscal year 1996 was $48,578, compared to $11,925 during fiscal year 1995. This interest is earned on the balance of cash and cash equivalents and marketable investment securities.
Income before taxes was $1,176,569 in fiscal year 1996 compared to $1,196,532 in fiscal year 1995, reflecting an 1.7% decrease, compared to the 11.3% decrease in revenues.
Income tax expense was $457,246 for fiscal year ended June 30, 1996, compared to $345,437 in fiscal year 1995. The difference is due primarily to an increase in the effective tax rate from 28.9% for fiscal year 1995 to 38.9% of income for fiscal year 1996. Fiscal year 1995 income tax expense was favorably impacted by the utilization of a loss carryforward.
At June 30, 1996 and 1995, the Company had accrued $119,954 and $289,906, respectively, against future product warranty claims based on experience with customer claims. Warranty expense charged to operations amounted to a benefit of $9,546 and an expense of $215,171 for the years ended June 30, 1996 and 1995, respectively. The 1995 warranty accrual included approximately $140,000 of additional reserve due to estimated warranty costs related to shipments of a new product during fiscal year 1995, and fiscal year 1996 reflects a reversal of that reserve of $127,000 during fiscal year 1996 as those units came out of warranty.
Accounts receivable at June 30, 1996 decreased 21.9% when compared to June 30, 1995, while revenues during the 4th quarter decreased 13.9% when compared to the 4th quarter in the prior year . The decrease in shipments in the fourth quarter contributed to a corresponding decrease in accounts receivable. Account receivable days (the number of days to collect the receivable) decreased from 58 days during fiscal year 1995 to 51 days during fiscal year 1996, reflecting a better efficiency in collections. The Company considers all of these amounts to be collectible.
Fiscal year ended June 30, 1995, as compared to fiscal year ended June 30, 1994.
Revenues for the fiscal year ended June 30 1995, increased approximately 57.3% over the fiscal year ended June 30, 1994.
Revenues from the sales of Industrial Bar Code Equipment were $5,051,666 for the year ended June 30, 1995, up 99.9% when compared to $2,526,915 for the year ended June 30, 1994. Industrial Bar Code Equipment revenues represented 49.3% of total revenues in fiscal year 1995 compared to 40.1% of total revenues in fiscal year 1994. The increase in bar code equipment sales in fiscal year 1995, when contrasted with fiscal year 1994, is primarily attributable to an increase in shipments of approximately $1,472,000 of the Company's recently introduced high performance label applicator line to a single customer. Other product lines showed increases of approximately 60% to 70% over the previous year's shipments. These increases are a direct result of increased sales and marketing activities and efforts to expand the Company's distribution network. Backlog as of June 30, 1995, was $1,846,535 ($1,115,752 represents orders to a single customer) for Industrial Bar Code Equipment as contrasted with $3,540,107 ($3,390,400 represents orders to a single customer) for June 30, 1994. The decline in backlog is the result of an increase in shipping levels.
Revenues from Bar Code labels and printing supplies were $5,187,457 for the fiscal year ended June 30, 1995, as compared to $3,873,469 for the year ended June 30, 1994, an increase of 33.9%. The Company believes that increased marketing efforts, proprietary materials, and the increasing cumulative quantity of machines in the field consuming these goods has resulted in the growth of this product line. The sale of Bar Code labels and printing supplies represented approximately 50.7% of total revenues for fiscal year 1995 as compared to 59.9% of total revenues for fiscal year 1994. There was a backlog of $956,402 as of June 30, 1995 for Bar Code labels and printing supplies, as compared to $486,000 for June 30, 1994.
The Company discontinued its Hot Stamp printer business in August, 1994, resulting in a one time charge of $385,386, recorded in June, 1994. Revenues from Hot Stamp equipment and supplies were $125,252 for the fiscal year ended June 30, 1994. These revenues are included in the prior years numbers discussed in the above paragraphs. (See Notes 13 and 14 to the financial statements [for fiscal year 1995] of the Company).
Cost of sales as a percentage of revenues decreased from 61.9% for fiscal year 1994 to 55.1% for fiscal year 1995. This decrease is attributable to a decrease in the cost of materials due to volume purchasing of parts and the out-sourcing of certain assemblies. While direct labor and overhead costs increased in actual dollars (up 13.8% and 19.5% respectively), the ratio of these costs as a percentage of sales decreased to 4.9% and 7.5% from 6.9% and 9.9% in the prior year, respectively.
Selling, general and administrative expenses represented 27% of sales in fiscal year 1995 and 40% of sales in fiscal year 1994, though the actual costs for fiscal 1995 increased by about $141,000 over fiscal 1994 levels. The majority of the increase is attributed to sales commission expenses, increasing about $90,000, the result of increased shipments, and trade show expenses, increasing approximately $85,000 as the Company introduced several new products and attended twice as many trade shows compared to fiscal 1994. General and Administrative expenses include approximately $23,000 in additional accrued settlement costs occasioned by a judgment in the amount of $175,000 (plus interest) rendered against the Company following a jury trial in a wrongful discharge case instituted against the Company in 1991 by a former employee. The unfavorable verdict against the Company has been appealed to the Vermont Supreme Court. [See the Management's Discussion and Analysis for fiscal year 1996.]
Research and Development expenses represented 6.3% of sales in fiscal year 1995 and 7.9% of sales in fiscal year 1994, though the actual costs increased by about $126,000. The additional expenses are related to new product development, including, but not limited to, the Company's recently announced ApplyPro series of printer/applicators.
Fiscal year 1995 Interest Expense was $39,603 compared to $50,732 for the previous fiscal year. This decrease is the result of efforts to reduce debt. At June 30, 1995, all of the Company's long-term and short-term debt had been paid in full, with funds generated through operations.
Income before taxes was $1,196,532 in fiscal year 1995 compared to a loss of $1,099,956 in fiscal year 1994. Income tax expense was $345,437 for fiscal year ended June 30, 1995, compared to a benefit of $228,598 in fiscal year 1994. The difference is due primarily to an increase in revenues, resulting in a corresponding increase in pre-tax earnings for fiscal year 1995. (See Note 7 to the financial statements.)
At June 30, 1995 and 1994, the Company had accrued $289,906 and $87,107, respectively, against future product warranty claims based on experience with customer claims. Warranty expense charged to income amounted to $215,171 and $81,003 for the years ended June 30, 1995 and 1994, respectively. This increase includes approximately $140,000 of additional reserve due to increased shipments of new product with no warranty history. Warranty expense represented 2.1% of sales for fiscal year 1995 compared to 1.2% of sales for fiscal year 1994.
CAPITAL RESOURCES AND LIQUIDITY:
During fiscal year 1996, the Company's principal source of liquidity was cash flow from operations. The Company had no bank borrowings as of June 30, 1996. The Company believes that the cash generated from operations and bank borrowings, including borrowings available under its line of credit, will be sufficient to meet its cash needs on both a short-term (i.e., 12 months) and long-term ( i.e., at least 24 months) basis.
The Company has secured a line of credit agreement in the amount of $700,000, all of which was available at June 30, 1996. The line of credit is secured by the Company's accounts receivable, inventory and property and equipment. The interest rate varies from time to time with changes in the prime interest rate.
Long-term and short-term debt, including current installments, had been paid in full as of June 30, 1995. This debt was paid entirely with funds generated from operations.
During fiscal year 1996, the Company spent $427,461 on property and equipment, computer software and other intangible assets, which is a small decrease over the previous year's $494,297. The cash for these expenditures was generated from the Company's operating activities.
The Company believes that its capital expenditures for fiscal year 1997 will increase by approximately 50% over the capital expenditures for fiscal 1996.
NEW ACCOUNTING STANDARDS:
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" which the Company will be required to adopt during fiscal year 1997. The Company does not expect that the adoption of SFAS No. 121 will have a material affect on the Company's financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") which is effective for the Company in fiscal 1997. As permitted under SFAS No. 123, the Company has elected not to adopt the fair valued based method of accounting for its stock-based compensation plans, but will continue to account for such compensation under the provisions of APB Opinion No. 25. The Company will comply with the disclosure requirements of SFAS No. 123 in 1997.
Item 8.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
The Stockholders and Board of Directors IMTEC, Inc.:
We have audited the financial statements of IMTEC, Inc. as listed in the index included herein in Part IV, Item 14. In connection with our audits of the financial statements, we also have audited the financial statement schedule listed in the index included herein in Part IV, Item 14. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule 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 financial statements referred to above present fairly, in all material respects, the financial position of IMTEC, Inc. as of June 30, 1996 and 1995, and the results of its operations and its cash flows for each of the years in the three-year period ended June 30, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
/s/KPMG Peat Marwick LLP
Albany, New York August 2, 1996
See accompanying notes to financial statements.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
See accompanying notes to financial statements.
IMTEC, INC.
Notes to Financial Statements
June 30, 1996, 1995 and 1994
(1) Description of the Company's Business and Summary of Significant Accounting Policies
Description of the Company's Business IMTEC, Inc. (the "Company") designs, manufactures and sells labeling systems. These systems include label printer laminators, label printer applicators, pre-printed labels and labeling supplies. IMTEC products are designed for automated identification (bar coding) applications in the electronics, pharmaceutical, transportation, textile, automotive and warehousing industries. The Company conducts its marketing and sales efforts primarily through its in-house sales staff, 3 sales offices in different metropolitan areas in the United States and throughout Canada, Latin America, Europe and the Far East through resellers and distributors.
Summary of Significant Accounting Policies
(a) Basis of Presentation The accompanying financial statements have been prepared on an accrual basis. 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 disclosure 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.
(b) Revenue Recognition Product sales, including sales under contract, are recorded when the products are shipped or in accordance with customer agreements.
(c) Cash and Cash Equivalents For purposes of the statement of cash flows, the Company considers as cash equivalents all highly liquid investments purchased with a maturity of three months or less and which are readily convertible to known amounts of cash.
(d) Marketable Investment Securities Marketable investment securities at June 30, 1996 consist of state bonds which the Company considers as trading securities. The Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities" during 1995. Under SFAS No. 115, the Company classifies its debt and marketable equity securities in one of three categories: trading, available-for-sale, or held-to-maturity. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company has the ability and intent to hold the security until maturity. All other securities not included in trading or held-to-maturity are classified as available-for-sale. Trading and available-for-sale securities are recorded at fair value.
(e) Inventories Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
(f) Property and Equipment Property and equipment are carried at cost. Depreciation, including amortization of leasehold improvements and capital lease assets, is computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterment's are capitalized. Deduction is made for retirements resulting from renewals or betterment's.
(g) Computer Software The cost of computer software to be included in the Company's products is expensed until the technological feasibility of the software is established. Subsequent costs are capitalized. Capitalized computer software costs are amortized over the greater of the ratio of current product revenue to estimated future revenues or the straight-line method using estimated lives of two to five years.
(h) Other Intangibles The cost of product documentation, organization, patents and trademark applications and license agreements is amortized over the estimated useful lives of the assets, which range from three to seventeen years, using the straight-line method.
(i) Income Taxes The Company accounts for income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
(j) Product Warranties Estimated costs related to product warranties are recorded at the time of the sale of the product.
(k) Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value because of the short maturity of these instruments.
(2) Inventories Inventories consist of:
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
(3) Marketable Investment Securities Marketable investment securities at June 30, 1996 consist of state bonds due October 1, 1998 which are classified as trading securities. Their amortized cost of $54,671 approximates fair value at June 30, 1996; therefore, there are no unrealized gains or losses included in income.
Marketable investment securities at June 30, 1995 consist of trading securities at fair value of $400,000. As the fair value of the trading securities at June 30, 1995 approximates cost, there are no unrealized gains or losses included in income.
(4) Property and Equipment Property and equipment consists of the following:
Depreciation and amortization expense amounted to $532,744, $528,069 and $520,973 in 1996, 1995 and 1994, respectively. Included in depreciation and amortization expense is amortization of computer software cost of $72,511, $73,950 and $67,877, and amortization of other intangibles of $84,441, $85,736, and $120,034, in 1996, 1995 and 1994, respectively.
(5) Other Accrued Liabilities Other accrued liabilities consist of: June 30 ----------------------- 1996 1995 ---- ----
Accrued warranty $ 119,954 289,906 Accrued medical 120,441 69,327 Accrued settlement costs - 207,063 Other 176,635 235,576 ------------ ---------- Total $ 417,030 801,872 ============ ==========
(6) Short-term and Long-term Debt TheCompany has a secured line of credit agreement in the amount of $700,000, all of which is available at June 30, 1996. The line of credit is secured by the Company's accounts receivable, inventories, and property and equipment. The interest rate varies from time to time with changes in the prime interest rate.
TheCompany paid $0, $39,603, and $50,732, for interest on notes payable, long-term debt, and capital lease obligations in the years ended June 30, 1996, 1995 and 1994, respectively.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
(7) Income Taxes Income tax expense (benefit) consists of the following:
Total income tax expense (benefit) differs from the amount computed by applying the statutory Federal income tax rate of 34% to pretax income (loss). The computed amount and the items which make total income tax expense (benefit) vary from it, are as follows:
The Company paid $422,720, $181,081, and $2,409 for income taxes during 1996, 1995 and 1994, respectively.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
For the year ended June 30, 1996, the deferred income tax expense of $52,159 results from the changes in temporary differences for the year. The tax effects of temporary differences that give rise to deferred tax assets and deferred tax liabilities as of June 30, 1996 and 1995 are presented below:
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the projected future taxable income and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the deferred tax assets are deductible, management believes it is more likely than not the Company will realize the benefits of these deductible differences.
(8) Leases (a) Capital Leases The Company leased certain computer equipment under a long-term lease agreement which expired in 1995. Machinery, equipment and tooling of $153,114 had been fully depreciated as of June 30, 1995. There were no new capital leases entered into during 1996.
(b) Operating Leases The Company leases its facilities under lease agreements expiring in 2000 which are classified as operating leases. The lease for the main building is noncancellable by the Company except through the exercise of an option to purchase the property for the remaining principal and interest balance on the Vermont Industrial Revenue Bond held by the lessor. The lease for the Bridge Street plant is noncancellable. The Company also leases office equipment under short-term, cancelable operating leases.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
Future minimum rental payments under the noncancellable operating leases for each of the years subsequent to June 30, 1996 are as follows:
1997 $ 121,680 1998 121,680 1999 121,680 2000 94,680 2001 33,840 ----------- $ 493,560
Rental expense under cancelable and noncancellable operating leases amounted to $104,272, $107,241, and $117,938 during 1996, 1995 and 1994, respectively.
(9) Employee Benefit Plan During 1993, the Company established a 401(k) savings plan. The plan covers all employees meeting certain eligibility requirements. The Company contributed $52,225 and $14,360 to the plan during 1996 and 1995, respectively. No contributions were made during 1994.
(10) Stock Options and Warrants (a) Stock Option Plans The Company has three plans, the 1983 Incentive Stock Option Plan which was adopted in August 1983, the 1985 Incentive Stock Option Plan which was adopted in November 1984 and the 1993 Stock Option Plan which was adopted on August 19, 1993. These plans provide for granting of options on common stock to directors, officers and key employees. The options granted are exercisable in four annual installments beginning one year after the date of the grant and expire five to ten years after the date of the grant, depending on stock ownership on the grant date.
The following is a summary of outstanding options under the 1983, 1985 and 1993 Incentive Stock Option Plans at June 30, 1996, 1995 and 1994:
Price per share of shares under option was $1.375 to $8.50 at June 30, 1996 and $1.336 to $8.50 at June 30, 1995 and 1994. Price per share of options exercised was $1.375 to $3.25 in 1996, $1.336 to $3.25 in 1995, and $1.375 to $2.50 in 1994.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
Also, the Company granted an option on 25,000 shares of its common stock to a Director on November 15, 1990. The option was exercisable on November 19, 1990 and annually thereafter in 5,000 share increments through January 31, 1995 at $3.00 per share, which was the approximate market value of the shares when the Director agreed to join the Board. During 1995, all of these options were exercised.
Also, the Company granted an option on 25,000 shares of its common stock to a Director on November 1, 1993. The option is exercisable on November 18, 1993 and annually thereafter in 5,000 share increments through January 31, 1998 at $2.75 per share, which was the market value of the shares when the Director agreed to join the Board. As of June 30, 1996, none of these options have been exercised.
(b) Stock Warrants On August 12, 1985, the Company sold warrants to purchase 123,750 shares of common stock for a total of $750 to three of its directors. These warrants were originally exercisable at $4.00 per share and expired July 14, 1990. On September 28, 1988, the Directors approved modification of the terms of the warrants to be exercisable at $1.375 per share. During 1989, 22,500 shares of common stock were purchased under these warrants for $30,938. During 1990, the Directors extended the expiration date to July 14, 1991. During 1991, the Directors extended the expiration date to July 14, 1995. No shares were purchased under these warrants during 1994. During 1995, 61,875 shares were purchased under these warrants at $1.375 per share.
(11) Concentration of Sales During 1996, 1995 and 1994, there were sales to one customer which accounted for 10% or more of total sales.
Export sales aggregated approximately $1,435,000, $1,704,000, and $1,373,000 in 1996, 1995 and 1994, respectively.
(12) Earnings Per Common Share Primary earnings per share were computed by dividing net earnings by the weighted average number of shares of common stock and common stock equivalents outstanding during the year, if dilutive. Common stock equivalents (stock options and warrants) are assumed to be exercised when they are issued and the proceeds used to repurchase outstanding shares of the Company's common stock at the average market price during the period.
Thefully-diluted computation is performed using the same method as for the primary computation, except that proceeds from exercise of stock options and warrants are assumed to be used to repurchase outstanding shares of the Company's common stock at the higher of the average or the June 30 market price.
(Continued)
IMTEC, Inc.
Notes to Financial Statements, Continued
Theaverage number of common shares and common share equivalents entering into the calculation of primary and fully-diluted earnings per share are as follows:
(13) Hot Stamp Assets On March 7, 1990, the Company acquired certain assets, liabilities, and a ten-year exclusive worldwide license to manufacture, market and sell the products of Nevis Imaging Systems, Inc. in a transaction accounted for as a purchase. The assets and license agreement were acquired at a cost of $860,245; representing cash paid of $40,000, liabilities assumed of $360,245 and the issuance of 92,000 shares of IMTEC, Inc. common stock valued at $5.00 per share. As a result of this transaction, the Company had recorded intangible assets of $592,500 representing the license agreement acquired and $98,598 representing goodwill. These intangible assets were being amortized over a ten-year period. At June 30, 1993, the Company determined that the goodwill no longer retained any value to the Company and, therefore, wrote off the unamortized balance of $66,589. At June 30, 1994, the Company determined that the license agreement, inventory, and equipment no longer retained any value to the Company and, therefore, wrote off the remaining unamortized balance of $385,386.
(14) Commitments At June 30, 1996, the Company had an outstanding capital expenditure purchase commitment of approximately $310,000. A deposit of approximately $95,000 has been made on the purchase and has been recorded in deposits at June 30, 1996.
(Continued)
Item 9.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in accountants nor have there been any disagreements on accounting and financial disclosures during the twenty-four months prior to June 30, 1996.
PART III
Item 10.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for hereunder has been omitted pursuant to Paragraph G(3) of the General Instructions (the "Instructions") inasmuch as the Company shall file definitive proxy materials containing such information with the Securities and Exchange Commission prior to the expiration of 120 days following the close of the Company's fiscal year which is the subject of this Annual Report.
Item 11.
Item 11. EXECUTIVE COMPENSATION
The information called for hereunder has been omitted pursuant to the Instructions inasmuch as the Company shall file definitive proxy materials containing such information with the Securities and Exchange Commission prior to the expiration of 120 days following the close of the Company's fiscal year which is the subject of this Annual Report.
Item 12.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for hereunder has been omitted pursuant to the Instructions inasmuch as the Registrant shall file definitive proxy materials containing such information with the Securities and Exchange Commission prior to the expiration of 120 days following the close of the Company's fiscal year which is the subject of this Annual Report.
Item 13.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for hereunder has been omitted pursuant to the Instructions inasmuch as the Registrant shall file definitive proxy materials containing such information with the Securities and Exchange Commission prior to the expiration of 120 days following the close of the Company's fiscal year which is the subject of this Annual Report.
PART IV
Item 14.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements :
Included in Part II, Item 8, of this report:
(a) Report of Independent Auditors
(b) Balance Sheets, June 30, 1996 and 1995.
(c) Statements of Operations for the years ended June 30, 1996, 1995 and 1994.
(d) Statements of Stockholders' Equity for the years ended June 30, 1996, 1995 and 1994.
(e) Statements of Cash Flows for the years ended June 30, 1996, 1995 and 1994.
(f) Notes to Financial Statements.
2. Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts and Reserves, years ended June 30, 1996, 1995 and 1994.
All other schedules have been omitted because of the absence of conditions requiring them or because the required information is shown in financial statements or the notes thereto.
3. Exhibits
(a) Certificate of Incorporation as amended (1).
(b) By-Laws, as amended (1).
(c) Consent of KPMG Peat Marwick LLP
(d) The Exhibits required by 601 of Regulation S-K are set forth in (3) (a) above.
(e) The financial statement schedule required by Regulation S-K, which is excluded from the Annual Report to Shareholders is set forth in (2) above.
(b) Reports on Form 8-K
None - ------------------------------ (1) Denotes document filed as an Exhibit to the Company's Registration Statement on Form S-1 (File No. 2-86978) and incorporated herein by reference.
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.
IMTEC, INC.
By: /s/ Richard L. Kalich ------------------------------- Richard L. Kalich, President
By: /s/ George S. Norfleet III ------------------------------- George S. Norfleet III, Secretary - Treasurer
Dated: September 26 , 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following person in the capacities and on the dates indicated:
Signatures Title Date
/s/ Ralph E. Crump Chairman, Director September 16, 1996 --------------------------- Ralph E. Crump
/s/ Robert W. Ham Director September 16, 1996 --------------------------- Robert W. Ham
/s/ David C. Sturdevant Director September 16, 1996 --------------------------- David C. Sturdevant
EXHIBIT 23
The Board of Directors IMTEC, Inc.
We consent the incorporation by reference in the registration statements (Nos. 33-62361 and 33-00666) on Form S-8 of IMTEC, Inc. of our report dated August 2,1996, relating to the balance sheets of IMTEC, Inc. as of June 30, 1996 and 1995, and the related statements of operations, stockholders' equity, and cash flows for each of the years in the three-year period ended June 30, 1996, and the schedule of valuation and qualifying accounts, which report appears in the June 30, 1996 annual report on Form 10-K of IMTEC, Inc.
/s/KPMG Peat Marwick LLP
Albany, New York September 26, 1996