-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrJhWu0AIT7y1IUbOklr/bUtwM0fFjnJMQIQ5WMEgRr6Pg56CxNyVPoBsoCdDWJO oXKwDQor8f66b4t3biF4UQ== 0000730045-98-000006.txt : 19980916 0000730045-98-000006.hdr.sgml : 19980916 ACCESSION NUMBER: 0000730045-98-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980915 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMTEC INC CENTRAL INDEX KEY: 0000730045 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 030283466 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12661 FILM NUMBER: 98709680 BUSINESS ADDRESS: STREET 1: ONE IMTEC LN CITY: BELLOWS FALLS STATE: VT ZIP: 05101 BUSINESS PHONE: 8024639502 MAIL ADDRESS: STREET 1: ONE IMTEC LN CITY: BELLOWS FALLS STATE: VT ZIP: 05101 10-K 1 10-K FOR YEAR ENDED JUNE 30, 1998 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, 1998 Commission file Number: 0-12661 Exact Name of Registrant as Specified in its Charter: IMTEC, Inc. State of Incorporation: Delaware I. R. S. Employer Identification Number: 03-0283466 Address of Principal Executive Offices: One Imtec Lane Bellows Falls, VT 05101 Registrant's Telephone Number: 802-463-9502 Securities registered pursuant to Section 12(g) of the Act: Class: Common Exchange: NASDAQ SmallCap Market Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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. [X] YES [ ] NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of the this chapter)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] State the aggregate market value of the voting stock held by non-affiliates of the registrant as of August 19, 1998: $7,465,430. APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common shares outstanding as of August 19, 1998: 1,585,713 DOCUMENTS INCORPORATED BY REFERANCE Part III Registrant's Proxy Statement for its Annual Meeting scheduled to be convened on October 26, 1998 PART I Item 1. BUSINESS (a) General Development of Business IMTEC, Inc. (the "Company") designs, manufactures and sells labeling systems. These systems include label printer laminators, label printer applicators, preprinted 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 acquired the Customark division of Markem Corporation in August 1997. Reference is made to the Company's report on Form 8-K, dated August 26, 1997, 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 71.5 %, 72.1% and 56.5% of the Company's revenues during fiscal years 1998, 1997 and 1996, respectively. The Company also markets bar code label printer/applicators, label applicators, label dispensers and bar code label printer/laminators. Printer/applicators print bar codes and variable alphanumeric 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. Label applicators apply pre-printed labels to product or packages. Label dispensers present pre-printed labels for hand application. 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 microprocessor 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 28.5%, 27.9% and 43.5% of the Company's revenue during fiscal years 1998, 1997 and 1996, respectively. Marketing and Sales The Company's marketing efforts are directed to those industries and businesses that have need for bar coded labels and labeling systems. The Company conducts its marketing and sales efforts primarily through an in-house sales staff of 26 full-time employees and its executive officers; 2 sales management offices in the Metropolitan areas of Chicago, IL and Roseville, CA, respectively, each of which employs one full- time sales employee; and an independent reseller network consisting of 41 certified distributors and an additional 60 resellers 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 Pacific Rim through resellers and distributors. The Company supplements these efforts by advertising, publishing articles in trade and business journals, and participation in 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 one new patent. As of June 30, 1998, the Company owned nine patents and licensing rights to two others, expiring at various dates ranging from 2001 to 2009, and eleven trademarks, respectively. Registrations of trademarks in nine foreign countries have been issued. Applications for three patents were also pending at June 30, 1998. 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 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 provides warranty for 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 bar code labels and labeling systems. The Company's customers include, but are not limited to, the fields of electronics, distribution, automotive and consumer's goods manufacturers. During fiscal year 1996, sales pursuant to a single customer (United Parcel Service) accounted for approximately 13% of the Company's revenues. No other customer accounted for more than 10% of the Company's revenues during fiscal year 1998, 1997 and 1996. Backlog The aggregate backlog of firm orders for the Company's products as of June 30, 1998 was approximately $1,590,000 as compared with $1,510,000 at June 30, 1997. Approximately $1,259,000 of the current backlog is for media supplies with scheduled shipping dates over the next 12 months. The balance of the current backlog ($331,000) 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 also 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 $577,864, $591,767 and $625,149 in the fiscal years ended June 30, 1998, 1997 and 1996, 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, 1998, the Company employed 88 persons on a full time basis, including 6 employees in administration, 28 in marketing and sales, 8 in research and development and 46 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 $2,125,000 in fiscal 1998, $1,979,000 in fiscal 1997 and $1,435,000 in fiscal 1996, representing 17.0%, 22.5% and 15.7%, 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, 1998 1997 1996 _____ _____ _____ Pacific Rim 35% 46% 57% Latin America 32% - - Canada 14% 15% 12% Europe 12% 26% 18% Others 7% 13% 13% ---- --- --- 100% 100% 100% ==== ==== ====
Item 2. PROPERTIES The Company occupies approximately 15,000 square feet in leased facilities and a plot of land measuring 11.59 acres 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. The lease 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 at this facility 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, 1998 at this facility is $68,000. The Company also leases approximately 9,000 square feet in facilities at 17 Bradco Road, Keene, New Hampshire, which house additional manufacturing and sales facilities. This lease expires May 31, 2000 and the Company has the right to extend the lease for another term of three years. Annual rent through December 31, 1998 at this facility is $52,920. The Company also leases approximately 5,500 square feet in facilities at 90 Pattison Street, Evans City, Pennsylvania, which house additional manufacturing facilities. This lease expires April 30, 2001 and the Company has the right to extend the lease for another term of three years. Annual rent through December 31, 1998 at this facility is $19,250. The Company believes that these facilities are adequate for its present and currently contemplated future operations. Item 3. LEGAL PROCEEDINGS There is no material litigation currently pending, or, to the Company's knowledge, threatened against the Company. 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, 1998. PART II 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: 1997 HIGH TRADE LOW TRADE First Quarter $ 8 $ 5-3/4 Second Quarter 9-1/4 6-3/4 Third Quarter 10-3/4 7 Fourth Quarter 10-1/2 8 1998 First Quarter $ 10 $ 8 Second Quarter 12-1/2 8-1/2 Third Quarter 11-1/2 8-3/4 Fourth Quarter 13 10-1/16 (b) Holders At August 19, 1998, there were approximately 233 registered shareholders 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 6. SELECTED FINANCIAL DATA
Years Ended June 30, 1998 1997 1996 1995 1994 ---- ---- ---- ---- ---- Net sales $12,510,555 $8,801,389 $9,114,405 $10,272,846 $ 6,529,755 Earnings (Loss) Before Income Tax $ 1,632,801 $ 921,458 $1,176,569 $ 1,196,532 $(1,099,956) Income Tax Expense (Benefit) $ 648,179 $ 365,384 $ 457,246 $ 345,437 $ (228,598) Net income (loss) $ 984,622 $ 556,074 $ 719,323 $ 851,095 $ (871,358) Basic income (loss) per common share $ .63 $ .36 $ .48 $ .58 $ (.65) Diluted income (loss) per common share $ .60 $ .34 $ .46 $ .57 $ (.65) At year end: Total Assets $ 8,353,749 $6,152,363 $5,439,085 $ 5,268,176 $ 3,763,499 Long-term debt and capital lease obligation $ 575,118 $ 0 $ 0 $ 0 $ 386,904 - ----------------
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995 The statements contained in the following Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical are "forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 31E of the Securities Exchange Act of 1934, as amended. These forward looking statements represent the Company's present expectations or beliefs concerning future events, however the Company cautions that such statements are qualified by important factors such as the Company's continued ability to develop and introduce innovative label products and applications, actions by competitors, the effect of economic conditions and other considerations and risks identified from time to time in the Company's filings with the Securities and Exchange Commission. Such factors, considerations and risks could cause actual results to differ materially from those indicated in Management's Discussion and Analysis of Financial Condition and Results of Operations. Fiscal year ended June 30, 1998, as compared to fiscal year ended June 30, 1997. Revenues for the fiscal year ended June 30 1998, increased approximately 42.1% over the fiscal year ended June 30, 1997. Revenues from Bar Code labels and printing supplies were $8,942,540 for the fiscal year ended June 30, 1998, as compared to $6,345,046 for the year ended June 30, 1997, an increase of 40.9%. The sale of Bar Code labels and printing supplies represented approximately 71.5% of total revenues for fiscal year 1998 as compared to 72.1% of total revenues for fiscal year 1997. Approximately 70% of the increase is the result of the acquisition of the Customark division of Markem Corporation in August, 1997. Revenues from the sales and service of Industrial Bar Code Equipment were $3,568,015 for the year ended June 30, 1998, up 45.3% when compared to $2,456,343 for the year ended June 30, 1997. Industrial Bar Code Equipment revenues represented 28.5% of total revenues in fiscal year 1998 compared to 27.9% of total revenues in fiscal year 1997. The increase in bar code equipment sales in fiscal year 1998, when contrasted with fiscal year 1997, is primarily attributable to the increase in sales and marketing activity and a broader, more comprehensive product line. Cost of sales improved to 52.5% of net sales for fiscal 1998 compared to 53.2% for fiscal 1997. Selling, general and administrative expenses represented 29.5% of sales in fiscal year 1998 and 30.1% of sales in fiscal year 1997. These expenses for fiscal 1998 increased by $1,036,332 over fiscal 1997 levels. The majority of the dollar increase is related to compensation for the growing sales and marketing personnel. Research and Development expenses represented 4.6% of sales in fiscal year 1998 and 6.7% of sales in fiscal year 1997. The actual costs decreased by about $13,900. Interest Expense for fiscal year 1998 was $78,242,reflecting debt incurred to finance the acquisition of the Customark business. The Company had no interest expense for fiscal years 1997 and 1996. Interest Income generated during fiscal year 1998 was $28,502, compared to $42,357 during fiscal year 1997. This interest is earned on the balance of cash and cash equivalents and marketable investment securities. The decrease is the result of using the cash to acquire the above-mentioned business. Income before taxes was $1,632,801 in fiscal year 1998 compared to $921,458 in fiscal year 1997, reflecting a 77.2% increase. Income tax expense was $648,179 for fiscal year ended June 30, 1998, compared to $365,384 in fiscal year 1997. The tax rate remains approximately 40% of income before taxes. At June 30, 1998 and 1997, the Company had accrued $124,570 and $149,306, respectively, against future product warranty claims based on experience with customer claims. Warranty expense charged to operations amounted to an expense of $77,266 and $77,095 for the years ended June 30, 1998 and 1997, respectively. Fiscal year ended June 30, 1997, as compared to fiscal year ended June 30, 1996. Revenues for the fiscal year ended June 30 1997, decreased approximately 3.4% over the fiscal year ended June 30, 1996. Revenues from Bar Code labels and printing supplies were $6,345,046 for the fiscal year ended June 30, 1997, as compared to $5,146,749 for the year ended June 30, 1996, an increase of 23.3%. The sale of Bar Code labels and printing supplies represented approximately 72.1% of total revenues for fiscal year 1997 as compared to 56.5% of total revenues for fiscal year 1996. This increase is the result of increased sales activity. Revenues from the sales and service of Industrial Bar Code Equipment were $2,456,343 for the year ended June 30, 1997, down 38.0% when compared to $3,967,656 for the year ended June 30, 1996. Industrial Bar Code Equipment revenues represented 27.9% of total revenues in fiscal year 1997 compared to 43.5% of total revenues in fiscal year 1996. The decrease in bar code equipment sales in fiscal year 1997, when contrasted with fiscal year 1996, is primarily attributable to the completion, in October, 1996, of a contract with a single customer. Excluding this contract, the core equipment business decreased 11.3% from $2,768,240 in fiscal year 1996. The decrease in the core equipment business is the result of a change in the Company's equipment sales personnel. The Company has increased it product line with the announcement of ten new products and has hired an equipment-marketing specialist. Cost of sales improved to 53.2% of net sales for fiscal 1997 verses 55.2% for fiscal 1996. Selling, general and administrative expenses represented 30.1% of sales in fiscal year 1997 and 26.0% of sales in fiscal year 1996. These expenses for fiscal 1997 increased by about $285,000 over fiscal 1996 levels. However, the majority of the increase 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 in fiscal 1996, the majority of which was originally expensed in June, 1994. Research and Development expenses represented 6.7% of sales in fiscal year 1997 and 6.9% of sales in fiscal year 1996. The actual costs decreased by about $33,000. There was no Interest Expense for either fiscal year 1997 or 1996. 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 1997 was $42,357, compared to $48,578 during fiscal year 1996. This interest is earned on the balance of cash and cash equivalents and marketable investment securities. Income before taxes was $921,458 in fiscal year 1997 compared to $1,176,569 in fiscal year 1996, reflecting a 21.7% decrease. Income tax expense was $365,384 for fiscal year ended June 30, 1997, compared to $457,246 in fiscal year 1996. The tax rate remains approximately 40% of income before taxes. At June 30, 1997 and 1996, the Company had accrued $149,306 and $119,954, respectively, against future product warranty claims based on experience with customer claims. Warranty expense charged to operations amounted to an expense of $ 77,095 and a benefit of $9,546 for the years ended June 30, 1997 and 1996, respectively. The increased warranty expense is the result of new products entering the markets. Accounts receivable at June 30, 1997 increased 17.0% when compared to June 30, 1996, while revenues during the 4th quarter increased 15.7% when compared to the 4th quarter in the prior year . The increase in shipments in the fourth quarter contributed to a corresponding increase in accounts receivable. CAPITAL RESOURCES AND LIQUIDITY: As of June 30, 1998, the Company's principal available sources of liquidity were, respectively, operations, a $1,000,000 bank line of credit, all of which was available as of June 30, 1998 and a five year term loan, with a remaining balance of $810,685 at June 30, 1998. The purpose of the term loan was the acquisition of Customark, discussed in the Company's 8-K filing on August 26, 1997. Accounts receivable at June 30, 1998 increased 50.7% when compared to June 30, 1997, while revenues during the fourth quarter increased 64.8% when compared to the fourth quarter in the prior year. The increase in shipments in the fourth quarter contributed to a corresponding increase in accounts receivable. Inventories increased by $883,805, from $1,402,318 at June 30, 1997 to $2,286,123 at June 30, 1998, as a result of increasing levels of business in sales across the entire product line. The Company's capital commitments for fiscal 1999 are expected to be at approximately the same level as fiscal 1998. The Company believes that it will be able to offset the effects of inflation by selected price increases in its products, although it can give no assurances in this regard. The Company anticipates that cash flows from operations, together with current cash and marketable securities balances and funds available under the Company's line of credit, will be sufficient to meet the Company's working capital and capital equipment expenditure requirements for the foreseeable future. Recent Accounting Pronouncements: In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 130 will be adopted by the Company during the first quarter of fiscal 1999 and SFAS No. 131 will be adopted by the Company during the fourth quarter of fiscal 1999. These standards are not expected to have a material effect on the Company's financial position or results of operations. However, SFAS No. 131 may have an impact on the Company's financial statement disclosures. Year 2000 The Company has reviewed the issue of Year 2000. All of the manufacturing and accounting software has been brought into compliance, effective June 16, 1998. There are neither internal clocks nor dating mechanisms within the Company's products that would be effected by changing dates. The Company is confident that its products and services will continue uninterrupted into the new millennium. No material additional costs are anticipated at this time. The Companys contingency plan in the event other parties should be unable to provide Year 2000 compliant electronic data is to revert to paper documentation from these parties. However, to the extent that customers, vendors or other entities with which the Company has material relationships do not adequately address Year 2000 issues, the Company could experience payment delays. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of June 30,1998, the Company maintains a portion of its cash and cash equivalents in financial instruments with original maturities of three months or less. These financial instruments are subject to interest rate risk, and will decline in value if interest rates decline. Due to the short duration of these financial instruments, an immediate 10 percent decrease in interest rates would not have a material effect on the Company's financial condition. The Company's outstanding long-term and short-term debt at June 30, 1998 bears interest at variable rates; therefore, the Company's results of operations would be affected by interest rate changes to the extent of the notes outstanding. Due to the short-term nature and insignificant amount of the Company's notes payable and the decreasing amounts of the long-term debt, an immediate 10 percent change in interest rates would not have a material effect on the Company's results of operations over the next fiscal year. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of IMTEC, Inc. Bellows Falls, Vermont We have audited the accompanying balance sheets of IMTEC, Inc. as of June 30, 1998 and 1997, and the related statements of operations, stockholders' equity, and cash flows for the years then ended. Our audits also included the financial statement schedule listed in the Index at 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 the 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, such financial statements present fairly, in all material respects, the financial position of IMTEC, Inc. as of June 30, 1998 and 1997, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles. Also, in our opinion, such 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/ Deloitte & Touche LLP Worcester, Massachusetts August 5, 1998 INDEPENDENT AUDITORS REPORT The Board of Directors and Stockholders of IMTEC, Inc. Bellows Fall, Vermont We have audited the accompanying statements of operations, stockholders equity, and cash flows of IMTEC, Inc. for the year ended June 30, 1996. In connection with our audit of the financial statements, we also have audited the financial statement schedule for the year ended June 30, 1996, listed in the index included herein in Part IV, Item 14. These financial statements and the financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of IMTEC, Inc.s operations and its cash flows for the year ended June 30, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule for the year ended June 30, 1996, 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 IMTEC, INC.
BALANCE SHEETS JUNE 30, 1998 AND 1997 - ------------------------------------------------------------------------------------------------------------------------- ASSETS 1998 1997 CURRENT ASSETS: Cash and cash equivalents $ 84,100 $1,352,562 Marketable investment securities - 92,999 Accounts receivable (less allowance for doubtful accounts of $198,000 in 1998 and $175,000 in 1997) 2,259,107 1,499,283 Inventories 2,286,123 1,402,318 Prepaid expenses, deferred charges and other current assets 60,725 45,423 Deferred income taxes 85,941 159,508 Total current assets 4,775,996 4,552,093 PROPERTY AND EQUIPMENT - Net 1,587,914 1,234,488 DEPOSITS 60,347 48,991 COMPUTER SOFTWARE - Net 97,469 94,759 OTHER INTANGIBLES - Net 1,832,023 222,032 ---------- ---------- $8,353,749 $6,152,363 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt $ 235,567 $ - Accounts payable 469,972 324,651 Income taxes payable 33,323 223,935 Accrued liabilities: Salaries and wages 486,555 191,502 Commissions 68,375 95,229 Other 432,165 351,275 --------- --------- Total current liabilities 1,725,957 1,186,592 --------- --------- LONG-TERM DEBT 575,118 - --------- --------- COMMITMENTS AND CONTINGENT LIABILITIES STOCKHOLDERS' EQUITY: Common stock - $.01 par value; authorized, 5,000,000 shares; issued and outstanding: 1998, 1,585,713 shares; 1997, 1,553,088 shares 15,857 15,531 Additional paid-in capital 2,591,629 2,489,674 Retained earnings 3,445,188 2,460,566 --------- --------- Total stockholders' equity 6,052,674 4,965,771 --------- --------- $8,353,749 $6,152,363 ========== ========== See notes to financial statements.
IMTEC, INC.
STATEMENTS OF OPERATIONS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - ------------------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 NET SALES $12,510,555 $ 8,801,389 $ 9,114,405 COST OF SALES 6,568,050 4,682,513 5,029,394 ----------- ----------- ---------- GROSS PROFIT 5,942,505 4,118,876 4,085,011 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,689,271 2,652,939 2,367,674 RESEARCH AND DEVELOPMENT EXPENSE 577,864 591,767 625,149 ----------- ---------- --------- OPERATING INCOME 1,675,370 874,170 1,092,188 ----------- ---------- --------- OTHER INCOME (EXPENSE): Interest income 28,502 42,357 48,578 Interest expense (78,242) - - Gain on disposal of property and equipment and other assets 7,171 4,931 35,803 ----------- ---------- --------- (42,569) 47,288 84,381 ----------- ---------- --------- INCOME BEFORE INCOME TAX EXPENSE 1,632,801 921,458 1,176,569 INCOME TAX EXPENSE 648,179 365,384 457,246 ----------- ---------- --------- NET INCOME $ 984,622 $ 556,074 $ 719,323 =========== =========== =========== BASIC INCOME PER COMMON SHARE $ 0.63 $ 0.36 $ 0.48 =========== =========== =========== DILUTED INCOME PER COMMON SHARE $ 0.60 $ 0.34 $ 0.46 =========== =========== ========== SHARES FOR BASIC COMPUTATION 1,566,652 1,548,095 1,509,533 =========== =========== ========== SHARES FOR DILUTED COMPUTATION 1,654,658 1,617,739 1,574,129 =========== =========== ========== See notes to financial statements.
IMTEC, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - ----------------------------------------------------------------------------------------------------------------------------------- Common Stock Additional Number of Paid-in Retained Shares Amount Capital Earnings Total BALANCE, JULY 1, 1995 1,470,138 $ 14,701 $ 2,199,689 $ 1,185,169 $ 3,399,559 Tax benefit from exercise of stock options - - 73,614 - 73,614 Common stock issued 74,950 750 176,214 - 176,964 Net income - - - 719,323 719,323 --------- -------- ---------- ---------- ---------- BALANCE, JUNE 30, 1996 1,545,088 15,451 2,449,517 1,904,492 4,369,460 Tax benefit from exercise of stock options - - 19,393 - 19,393 Common stock issued 8,000 80 20,764 - 20,844 Net income - - - 556,074 556,074 --------- -------- ---------- ---------- ---------- BALANCE, JUNE 30, 1997 1,553,088 15,531 2,489,674 2,460,566 4,965,771 Common stock issued 32,625 326 101,955 - 102,281 Net income - - - 984,622 984,622 --------- -------- ---------- ---------- ---------- BALANCE, JUNE 30, 1998 1,585,713 $ 15,857 $ 2,591,629 $ 3,445,188 $ 6,052,674 ========== ========== =========== =========== =========== See notes to financial statements.
IMTEC, INC. STATEMENTS OF CASH FLOWS YEARS ENDED JUNE 30, 1998, 1997 AND 1996 - -------------------------------------------------------------------------------------------------------------------- 1998 1997 1996 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 984,622 $ 556,074 $ 719,323 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 544,899 534,024 532,744 Gain on disposal of property and equipment and other intangible assets (7,171) (4,931) (35,803) Deferred income taxes 73,567 (63,178) 52,159 Tax benefit from exercise of stock options - 19,393 73,614 Increase (decrease) in cash from: Accounts receivable (759,824) (218,182) 358,907 Inventories (770,798) 109,719 (270,074) Marketable investment securities 92,999 (38,328) 345,329 Prepaid expenses, deferred charges and other assets (15,302) 89,227 (55,967) Income tax refund receivable - 87,086 (87,086) Accounts payable 145,321 (105,769) (206,301) Income taxes payable (190,612) 223,935 (4,161) Accrued liabilities 349,089 (1,199) (588,530) --------- --------- --------- Net cash provided by operating activities 446,790 1,187,871 834,154 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Expenditures for computer software (43,100) (46,704) (20,359) Proceeds from disposal of property and equipment 7,171 6,199 59,525 Expenditures for property and equipment and other intangible assets (680,933) (723,771) (407,102) Deposits (11,356) 101,490 (122,276) Acquisition of Customark (1,900,000) - - ------------ ---------- --------- Net cash used in investing activities (2,628,218) (662,786) (490,212) ------------ ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 1,200,000 - - Principal payments on long-term debt (389,315) - - Proceeds from issuance of common stock 102,281 20,844 176,964 --------- -------- ------- Net cash provided by financing activities 912,966 20,844 176,964 --------- -------- ------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,268,462) 545,929 520,906 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 1,352,562 806,633 285,727 ----------- --------- ------- CASH AND CASH EQUIVALENTS, END OF YEAR 84,100 1,352,562 806,633 ======== =========== ======= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Income taxes paid $ 765,000 $ 182,000 $ 423,000 Interest paid $ 78,242 $ - $ - See notes to financial statements.
IMTEC, INC. NOTES TO FINANCIAL STATEMENTS - ------------------------------------------------------------------------------- 1. 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, preprinted 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, three sales offices in different metropolitan areas in the United States and throughout Canada, Latin America, Europe and the Far East through resellers and distributors. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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. Significant estimates include the allowance for doubtful accounts, useful lives of depreciable assets and intangibles, warranty accrual, and deferred income taxes, among others. Actual results could differ from those estimates. Revenue Recognition - Product sales, including sales under contract, are recorded when the products are shipped or in accordance with customer agreements. Cash and Cash Equivalents - Cash and cash equivalents include all highly liquid investments purchased with a remaining maturity of three months or less. Marketable Investment Securities - Under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," 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. Marketable investment securities at June 30, 1997 consisted of state bonds, which the Company considered as trading securities. Inventories - Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) 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 or amortization 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 expense as incurred and significant renewals and betterments are capitalized. Computer Software - The cost of developing 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. Accumulated amortization was approximately $492,000 and $451,000 at June 30, 1998 and 1997, respectively. Included in amortization expense is amortization of computer software of approximately $40,000, $61,000 and $73,000 during 1998, 1997 and 1996, respectively. Other Intangibles - Other intangibles consists of the cost of product documentation, goodwill, patents and trademarks which are amortized over the estimated useful lives. The composition at June 30 is as follows:
Period of 1998 1997 Amortization Goodwill $1,655,112 $ - 20 years Patents and trademarks 243,134 225,704 17 years Product documentation 556,386 521,554 3 years --------- --------- 2,454,632 747,258 Less accumulated amortization (622,609) (525,226) ---------- --------- $1,832,023 $ 222,032 ========== =========
Amortization expense related to other intangibles amounted to approximately $97,000, $79,000 and $84,000 during 1998, 1997 and 1996, respectively. Income Taxes - The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." This statement requires an asset and liability approach to accounting for income taxes based upon the expected future values of the related assets and liabilities. 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 operations in the period that includes the enactment date. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Per Share - In February 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 128, "Earnings Per Share," which establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. Prior to 1998, the Company computed income per common share using the methods outlined in Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per Share," and its interpretations. The Company adopted SFAS No. 128 in 1998 and restated its income per share for 1997 and 1996. Basic income per common share is computed using the weighted-average number of common shares outstanding during each year. Diluted income per common share reflects the effect of the Company's outstanding options, except where such items would be antidilutive. A reconciliation of weighted-average shares used for the basic computation and that used for the diluted computation is as follows:
Years Ended June 30 1998 1997 1996 Weighted-average shares - basic 1,566,652 1,548,095 1,509,533 Dilutive effect of options 88,006 69,644 64,596 --------- --------- --------- Weighted-average shares - diluted 1,654,658 1,617,739 1,574,129 ========== ========== =========
Product Warranties - Estimated costs related to product warranties are recorded at the time of the sale of the product. 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. The fair value of long-term debt approximates the carrying value due to the consistency of interest rates since its issuance. Stock-Based Compensation - The Company accounts for stock-based compensation in accordance with APB Opinion No. 25, using the intrinsic value method. The difference between accounting for stock-based compensation under APB Opinion No. 25 and SFAS No. 123 is disclosed in Note 12. Impairment of Long-Lived Assets - During 1997, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. This statement has had no effect on the financial position and results of operations of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) New Accounting Pronouncements - In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 130 establishes standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also establishes standards for related disclosures about products and services, geographic areas and major customers. SFAS No. 130 will be adopted by the Company during the first quarter of fiscal 1999 and SFAS No. 131 will be adopted by the Company during the fourth quarter of fiscal 1999. These standards are not expected to have a material effect on the Company's financial position or results of operations. However, SFAS No. 131 may have an impact on the Company's financial statement disclosures. Reclassifications - Certain amounts in the 1997 and 1996 financial statements have been reclassified to conform with the 1998 presentation. 3. ACQUISITION OF CUSTOMARK In August 1997, the Company completed the acquisition of the Markem Corporation's Customark Division ("Customark") for a cash purchase price of $1.9 million. The Customark acquisition has been accounted for by the purchase method of accounting, and, accordingly, the results of operations of Customark for the period from August 11, 1997 are included in the accompanying financial statements. The assets acquired consist primarily of $113,000 of inventory and $132,000 of property and equipment. The excess of cost over the estimated fair value of net assets acquired was allocated to goodwill. A total of $1,655,112 was allocated to goodwill and will be amortized on a straight-line basis over 20 years. Customark's accounting policies have been conformed with those of the Company. The following unaudited pro forma information presents the results of operations of the Company as if the acquisition had taken place as of the beginning of each period presented:
Year Ended Year Ended June 30, 1998 June 30, 1997 Revenues $12,705,159 $10,746,845 Net earnings $968,597 $688,798 Diluted income per common share $.59 $.43
These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred on the date indicated, or which may result in the future. 4. INVENTORIES Inventories consist of:
1998 1997 Finished products $ 158,907 $ 78,263 Work in process 190,122 145,391 Raw materials and purchased components 1,937,094 1,178,664 ----------- ---------- $2,286,123 $1,402,318
5. MARKETABLE INVESTMENT SECURITIES Marketable investment securities consisted of state bonds due October 1, 1998, which were classified as trading securities at June 30, 1997. Their amortized cost of $92,999 approximated fair value, therefore, there were no unrealized gains or losses included in income. 6. PROPERTY AND EQUIPMENT Property and equipment consists of the following:
Estimated Useful 1998 1997 Lives Machinery, equipment and tooling $ 3,609,794 $ 3,256,336 3-10 years Furniture and fixtures 872,570 547,383 5-7 years Leasehold improvements 447,445 365,536 5-10 years ----------- ----------- 4,929,809 4,169,255 Less accumulated depreciation and amortization (3,341,895) (2,934,767) ----------- ----------- Property and equipment, net $ 1,587,914 $ 1,234,488 ============ ============
7. OTHER ACCRUED LIABILITIES Other accrued liabilities consist of:
1998 1997 Accrued warranty $124,570 $149,306 Accrued medical 69,837 50,000 Other 237,758 151,969 -------- -------- Total $432,165 $351,275 ======== ========
8. NOTE PAYABLE AND LONG-TERM DEBT The Company has a secured line-of-credit agreement in the amount of $1,000,000, all of which is available at June 30, 1998 and expires October 31, 1998. The interest rate varies from time to time with changes in the prime interest rate. Long-term debt consists of the following at June 30:
1998 1997 Term note payable to a commercial lender; payable in monthly installments of $24,620 including principal and interest at 8.5% through August 2002 $ 810,685 $ - Less current portion (235,567) - --------- --------- $ 575,118 $ - ========== =========
8. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED) During fiscal 1998, the Company made additional principal payments of $115,000. The line of credit and term note are secured by the Company's accounts receivable, inventories and property and equipment. The following is a summary of the maturities of long-term debt as of June 30: Year Ending 1999 $235,567 2000 256,389 2001 279,051 2002 39,678 --------- $810,685 ========= 9. INCOME TAXES Income tax expense (benefit) consists of the following for the years ended June 30:
1998 1997 1996 Federal: Current $454,664 $340,964 $320,237 Deferred 54,421 (50,584) 40,406 -------- --------- -------- 509,085 290,380 360,643 -------- --------- -------- State: Current 119,948 87,598 84,850 Deferred 19,146 (12,594) 11,753 -------- --------- -------- 139,094 75,004 96,603 -------- --------- -------- $648,179 $365,384 $457,246 ======== ======== ========
Total income tax expense differs from the amount computed by applying the statutory federal income tax rate of 34% to pretax income. The computed amount, and the items which make total income tax expense (benefit) vary from it, are as follows for the years ended June 30:
1998 1997 1996 Federal statutory rate 34 % 34 % 34 % State income taxes, net of federal income tax effect 6 6 5 ---- ---- ---- Income tax expense 40 % 40 % 39 % ==== ==== ====
9. INCOME TAXES (CONTINUED) Deferred tax assets and liabilities as of June 30, 1998 and 1997 are attributable to the following:
1998 1997 Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 79,651 $ 69,937 Inventories, principally due to reserves for obsolescence 35,609 67,066 Vacation accrual 13,501 13,079 Warranty accrual 43,823 59,633 -------- ------- Total gross deferred tax assets 172,584 209,715 -------- ------- Deferred tax liabilities: Prepaid expenses and other assets 27,267 17,905 Property and equipment, computer software and other intangible assets principally due to differences in depreciation and amortization methods 59,376 32,302 -------- ------- Total gross deferred tax liabilities 86,643 50,207 -------- ------- Net deferred tax asset $ 85,941 $159,508 ========= ========
In assessing the reliability 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 that the Company will realize the benefits of these deductible differences. 10. COMMITMENTS AND CONTINGENT LIABILITIES The Company leases its facilities under lease agreements expiring through 2001 which are classified as operating leases. The lease for the Company's main building is noncancelable 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 remaining three locations are noncancelable. The Company is also subject to various other legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on the Company's financial position or results of operations. 10. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED) Future minimum rental payments under the noncancelable operating leases for each of the years subsequent to June 30, 1998 are as follows: 1999 $ 193,848 2000 162,438 2001 49,880 ---------- $ 406,166 Rental expense under cancelable and noncancelable operating leases amounted to approximately $151,000, $107,000 and $104,000 during 1998, 1997 and 1996, respectively. 11. EMPLOYEE BENEFIT PLAN The Company has a 401(k) savings plan under which eligible employees are allowed to contribute certain percentages of their pay, up to the maximum allowed under Section 401(k) of the Internal Revenue Code. The plan covers all employees meeting certain eligibility requirements. The Company contributed approximately $60,000, $45,000 and $52,000 to the plan during 1998, 1997 and 1996, respectively. 12. STOCKHOLDERS' EQUITY Stock Option Plans - The Company has three plans: the 1985 Incentive Stock Option Plan, the 1993 Stock Option Plan, and the 1997 Stock Option Plan. These plans provide for granting of options for common stock to officers and key employees. The options granted are generally 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 the option activity for the Company:
Weighted- Average Exercise Price Shares Shares Per Share Exercisable Balance, July 1, 1995 269,400 $3.48 Granted 23,000 7.60 Exercised (99,950) 2.52 Canceled (31,750) 5.48 --------- Balance, June 30, 1996 160,700 4.27 54,700 ====== Granted 3,000 6.75 Exercised (8,000) 2.61 Canceled (4,000) 7.60 -------- Balance, June 30, 1997 151,700 4.32 98,300 ====== Granted 53,000 8.51 Exercised (32,625) 3.14 Canceled (1,000) 8.50 -------- Balance, June 30, 1998 171,075 $5.80 159,075 ========= =======
12. STOCKHOLDERS' EQUITY (CONTINUED) Stock Option Plans (Continued) - The following table sets forth information regarding options outstanding at June 30, 1998:
Options Outstanding Options Exercisable ----------------------------------------------------------- --------------------------- Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Number Contractual Exercise Exercise Prices Outstanding Life (Years) Prices Number Prices $1.38 - 2.38 7,700 3.65 $1.98 7,700 $1.98 2.50 - 3.31 66,000 4.78 2.75 66,000 2.75 3.75 1,625 5.93 3.75 1,625 3.75 6.75 - 8.50 80,750 8.15 7.98 80,750 8.04 9.63 15,000 9.33 9.63 3,000 9.63 -------- ------- 171,075 6.73 5.80 159,075 5.54 ======== ========
As described in Note 2, the Company uses the intrinsic value method (in accordance with APB No. 25) to measure compensation expense associated with grants of stock options to employees. Had the Company used the fair value method to measure compensation, the Company's net income and diluted net income per share for the years ended June 30, 1998, 1997 and 1996 would have been $949,791 or $.57 per share, $539,782 or $.33 per share and $711,740 or $.45 per share, respectively. The fair value of each option is estimated on the date of the grant using the Black-Scholes option-pricing model with the following assumptions used:
1998 1997 1996 Dividend yield None none none Expected volatility factor 38.1 % 45.8 % 45.8 % Average risk-free interest rate 5.4 % 6.2 % 6.2 % Expected lives 6 years 6 years 6 years
The weighted-average fair value of options granted in 1998, 1997 and 1996 was $3.94, $4.50 and $3.95, respectively. The option-pricing model used was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of ten years. However, management believes that the assumptions used and the model applied to value the awards yield a reasonable estimate of the fair value of the grants made under the circumstances. 13. CONCENTRATION OF SALES During 1998 and 1997, no single customer accounted for 10% or more of total sales. During 1996, sales to one customer accounted for 10% or more of total sales. Export sales aggregated approximately $2,125,000, $1,979,000 and $1,435,000 in 1998, 1997 and 1996, respectively. * * * * * *
Schedule II IMTEC, Inc. Valuation and Qualifying Accounts Years ended June 30, 1998, 1997, and 1996 Balance at Charged to beginning cost and Additions Balance Description of year expenses other accounts (deductions) end of year Allowance for doubtful accounts: Year ended 6/30/98 $175,104 88,404 - (65,987) 197,521 Year ended 6/30/97 $ 93,915 98,400 - (17,211) 175,104 Year ended 6/30/96 $101,042 6,000 - (13,127) 93,915 Reserve for obsolete inventory: Year ended 6/30/98 $167,918 95,536 - (168,599) 94,855 Year ended 6/30/97 $ 67,086 168,480 - (67,648) 167,918 Year ended 6/30/96 $109,134 85,358 - (127,406) 67,086
PART IV 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) Reports of Independent Auditors (b) Balance Sheets, June 30, 1998 and 1997. (c) Statements of Operations for the years ended June 30, 1998, 1997 and 1996. (d) Statements of Stockholders' Equity for the years ended June 30, 1998, 1997 and 1996. (e) Statements of Cash Flows for the years ended June 30, 1998, 1997 and 1996. (f) Notes to Financial Statements. 2. Financial Statement Schedule. Schedule II - Valuation and Qualifying Accounts and Reserves, years ended June 30, 1998, 1997 and 1996. 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) The Exhibits required by 601 of Regulation S-K are set forth in (3) (a) above. (d) 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 (Principal Executive Officer) By: /s/ George S. Norfleet III ---------------------------------- George S. Norfleet III, Secretary - Treasurer (Principal Financial & Accounting Officer) Dated: September 15, 1998 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 15, 1998 - ------------------------- Ralph E. Crump /s/ Douglas T. Granat Director September 15, 1998 - ------------------------- Douglas T. Granat /s/ Robert W. Ham Director September 15, 1998 - ------------------------- Robert W. Ham /s/ David C. Sturdevant Director September 15, 1998 - ------------------------- David C. Sturdevant EXHIBIT 11.1 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Years Ended June 30, 1998 1997 1996 BASIC Weighted Average Shares Outstanding 1,566,652 1,548,095 1,509,533 ---------- ---------- --------- TOTAL 1,566,652 1,548,095 1,509,433 ======== ======== ======== Net income $984,622 $556,074 $719,323 ======== ======== ======== Net income per share $0.63 $0.36 $0.48 ======== ======== ======== DILUTED Weighted Average Shares Outstanding 1,566,652 1,548,095 1,509,433 Net effect of dilutive stock options- Based on the treasury stock method Using average market price 88,006 69,644 64,596 ---------- ---------- --------- TOTAL 1,654,658 1,617,739 1,574,129 ======== ======== ======== Net income $984,622 $556,074 $719,323 ======== ======== ======== Net income per share $0.60 $0.34 $0.46 ======== ======== ========
EXHIBIT 23.1 The Board of Directors IMTEC, Inc. We consent the incorporation by reference in Registration Statement Nos. 33-62361 and 33-00666 of IMTEC, Inc. on Form S-8 of our report dated August 5, 1998, appearing in this Annual Report on Form 10-K of IMTEC, Inc. for the year ended June 30, 1998. /s/ Deloitte & Touche LLP Worcester, Massachusetts September 15, 1998 EXHIBIT 23.2 The Board of Directors IMTEC, Inc. We consent to the incorporation by reference in Registration Statement Nos. 33-62361 and 33-00666 of IMTEC, Inc. on Form S-8 of our report dated August 2, 1996, relating to the statements of operations, stockholders' equity, and cash flows of IMTEC, Inc. for the year ended June 30, 1996, and the schedule of valuation and qualifying accounts for the year ended June 30, 1996, which report appears in the June 30, 1998 annual report on Form 10-K of IMTEC, Inc. /s/ KPMG Peat Marwick LLP Albany, New York September 15, 1998 EX-27 2 FDS, YEAR ENDED JUNE 30, 1998 FOR IMTEC, INC.
5 IMTEC, Inc., EX-27, FDS for 10-K, June 30, 1998 0000730045 IMTEC, Inc. 1 U.S. 12-MOS JUN-30-1998 JUL-01-1997 JUN-30-1998 1 84100 0 2457107 198000 2286123 4775996 7973483 4456079 8353749 1725960 575118 0 0 15857 2591629 6052674 12510555 12510555 6568050 6568050 4267135 197522 78242 1632801 648179 984622 0 0 0 984622 0.63 0.60
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