_______________________________________________________________________________
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-9800
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
INCSTAR CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1254731
(State of Incorporation) (I.R.S. Employer Identification No.)
1990 Industrial Boulevard
Stillwater, Minnesota 55082
(Address of principal executive offices) (Zip Code)
(612) 439-9710
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE
SECURITIES EXCHANGE ACT OF 1934:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.01 Par Value American Stock Exchange
Per Share
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934:
None.
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 such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days, Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K, [ X ].
The aggregate market value of voting stock held by non-affiliates of the
Registrant as of March 20, 1996 was approximately $39,749,000.
The number of shares of the Registrant's Common Stock outstanding on March 20,
1996 was 16,413,350.
_______________________________________________________________________________
DOCUMENTS INCORPORATED BY REFERENCE:
Documents Form 10-K Reference
Proxy Statement for annual meeting to be held May 21, 1996 Part III
PART I.
ITEM 1. BUSINESS
GENERAL
INCSTAR Corporation and its subsidiaries (the "Company") develop,
manufacture, and market test kits and related products used by major hospitals,
clinical reference laboratories and researchers involved in diagnosing and
treating immunological conditions. Since December 1989, the Company has been
majority-owned by BioFin Holding International B.V. (BFHI), a subsidiary of
Sorin Biomedica Diagnostics S.p.A. (Sorin) which is an Italian affiliate of
Fiat, Inc. The Company was incorporated in Minnesota in 1975 under the name of
Immuno Nuclear Corporation. The Company's principal executive offices are
located at 1990 Industrial Boulevard, Stillwater, Minnesota, 55082.
PRODUCTS
The Company currently markets, develops and manufactures individual test
reagents and test kits, using primarily RIA, EIA, immunoturbidimetric assay
(ITA) and immunofluorescent assay (IFA) technologies for clinical diagnostic
and medical research purposes. The Company also produces and markets
histochemical antisera and natural and synthetic peptides also used in clinical
diagnostic and medical research. The Company's product focus is on diagnostic
tests for autoimmune, infectious disease, endocrinology and bone and mineral
metabolism product segments, utilizing a variety of technologies. The
immunodiagnostic market is shifting away from manual testing to automated or
semi-automated testing in an effort to reduce laboratory costs involved in
processing medical diagnostic tests. As a result, the research and development
activities of the Company are mainly focused on developing non-isotopic tests
that can be run on open instrument systems that are either currently in the
customers labs, or can be placed there in a cost effective manner.
DIAGNOSTIC AND RESEARCH KITS. The Company believes that it is one of the
largest producers of RIA products in the world. The total RIA market, however,
has been significantly decreasing in recent years due to two factors: (1)
isotopic technologies such as RIA are not easily convertible to automated
instrument testing systems and (2) disposal issues relative to radioactive
materials. Current trends in the immunodiagnostic market are to employ
technologies such as EIA, which require less labor to process test results.
Consequently, the challenge facing the Company is, and will continue to be, to
develop products that are non-isotopic and amiable to semi and fully automated
assay systems. Although the current trend in the domestic market, and to a
lesser degree in the international market, is away from manual, RIA testing,
the Company feels that its strengths in RIA manufacturing and marketing will
allow it to maintain or grow its share of this declining market. The Company
believes that in the near-term its RIA products will provide it with the
capital resources necessary to pursue new research and development activities.
RIA test procedures are used to precisely measure the extremely low
levels of certain hormones, peptides and other substances present in the human
body. Antibodies are proteins produced by higher animals in response to some
foreign material, known as the "antigen," entering the blood or tissue. The
antibody protects the animal by binding to the antigen and helping other body
mechanisms destroy it. When human hormones and peptides are injected as
antigens into a laboratory animal, the animal develops antibodies to eliminate
the antigens. Serum containing these antibodies (antiserum) is taken from the
laboratory animals and processed into a binding reagent for the specific human
hormone or peptide. The reagent is then combined with other reagents in a test
kit to create an analytical system to measure the level of that human hormone
or peptide present in the specimen to be tested.
Precise amounts of antiserum, which act as the binder, are mixed with
radioactively-labeled (isotopic) tracer antigen and a lower concentration
unlabeled antigen. The tracer antigen and the unlabeled antigen compete for
binding locations on the antibody in the antiserum. The bound antigen is
measured by a radiation counter and the level of bound antigen is calculated.
The results of this controlled procedure are repeated for several
concentrations of known antigen and a standard curve is plotted. A fluid
specimen is then taken from a patient for testing and substituted for the
unlabeled antigen. The results of the competitive binding of the tracer antigen
and the antigen in the fluid specimen are compared with the standard curve, and
the precise quantity of hormone or peptide being measured is determined. The
sensitivity and accuracy of RIA tests depend primarily upon the quality of the
binding antisera and tracer antigen.
The Company currently markets approximately 90 RIA products, primarily
used in the analysis of endocrine, neuroendocrine, bone and mineral metabolism,
therapeutic drug monitoring and thyroid function. The majority of thyroid
function testing products are marketed under the Clinical Assays product line
that the Company, together with Sorin, acquired in 1990 from Baxter
International Inc. (Baxter). Each RIA kit contains the following: an antiserum
consisting of primary antibodies and, in most cases, a reagent used to
precipitate the primary antigen antibody complex; a radioactively-labeled
antigen to act as tracer; a non-radioactive or cold antigen to act as test
calibrators; and a protocol booklet that provides specific test instructions.
The tracers in the RIA kits have shelf lives of six to twelve weeks depending
on the product. The process of RIA testing requires the use of skilled labor
in diagnostic laboratories.
The Company markets approximately 55 EIA products primarily for
infectious disease and autoimmune disorders. The basic principles of EIA
technology is very similar to RIA in that a highly specific and sensitive
reaction of an antigen and antibody must take place. With EIA, the result is
measured by color development intensity rather than radioactivity. EIA
technology uses standard laboratory procedures and facilitates throughput of
large testing volumes such as those of a large reference laboratory. EIA
product lines include the Epstein Barr Virus ("EBV") and TheraTest products, as
discussed below, and the ToRCH group of tests (toxoplasmosis, rubella,
cytomegalovirus and herpes).
The Company also markets approximately 20 products based on IFA
technology for infectious disease and autoimmune disorders. The kits based on
IFA technology are employed in sophisticated diagnostic laboratories for
antibody detection and semi-quantitation in infectious disease and autoimmune
disorders. Patient serum samples are incubated on microscope slides containing
prepared antigen substrate, for example, virus-infected mammalian cells. The
antibody, if present, will bind to the antigen. After a saline rinse which
removes unbound serum, the microscope slide is reacted with a fluorescein
conjugate which binds to antigen-antibody complexes, which formed during
initial incubation. Following a saline rinse, the slides are viewed under a
fluorescence microscope and examined for fluorescent staining on the specific
antigen sites. Immunofluorescence kits provide prepared multi-sample slides,
positive and negative reference serum controls, fluorescein conjugate, buffered
saline and mounting medium as ready-to-use stabilized reagents. The Company's
infectious disease IFA assays include Toxoplasmosis, Cytomegalovirus, Herpes
and a confirmatory test for syphilis. The autoimmune product offerings
incorporate a broad range of kits and components intended for detection of
antinuclear antibodies and anti-native DNA antibodies (useful in systemic lupus
erythematosus testing), antimitochondrial antibody testing and antithyroid
antibodies intended for diagnosis of primary biliary cirrhosis and Grave's
disease, respectively.
In addition to the distribution of those products which the Company
develops and manufactures, the Company is the exclusive distributor in the
United States and Canada of certain of Sorin's hepatitis in vitro diagnostic
products. Sorin has developed RIA and EIA microplate hepatitis tests that are
used worldwide in the diagnosis of Hepatitis A and Hepatitis B. Each of
Sorin's RIA and EIA hepatitis markers consist of 7 different marker-reagent
kits that are FDA approved.
SERUM PROTEIN MEASUREMENT. The Company currently markets 16 ITA kits for
the assessment of specific human serum proteins. Sold under the trade name
"SPQ Test System", the tests are designed for use on common automated clinical
chemistry analyzers. The ITA kits are utilized on a large number of different
automated analyzers. Consequently, the development of new instrument-specific
applications is required on an ongoing basis. Each assay is based on the
principle of immunoturbidimetric or immunonephelometric measurement of antigen-
antibody complexes. These antigen-antibody complexes are formed when patient
samples are combined with the specific antibody of the test kit. As a part of
the SPQ Test System, specific human protein controls, patient sample diluents
and specific antibodies are provided as separate products. ITA technology
offers the clinical laboratory the advantages of superior speed, precision and
automation. Included in the ITA product line are specific assays for
Apolipoprotein A-, Apolipoprotein B and Lipoprotein(a), which are useful in
cardiac risk assessment. The remaining ITA assays in the SPQ Test System are
used in the assessment of immunological disorders, nutritional status, acute
response and kidney failure.
ANTISERA PRODUCTS. The antisera product lines from the Company are used
for the analysis of human serum proteins present in the human serum. Common
clinical laboratory procedures using the antisera products include
immunofixation electrophoresis, immunoelectrophoresis and radial
immunodiffusion methods. The techniques utilized by the laboratory result in
the determination of specific protein levels and the assessment of specific
protein components following the binding of the antiserum to a specific serum
protein. The presence of the serum protein is determined by protein staining
or through the use of fluorescent or enzyme staining procedures.
BULK AND CUSTOM ANTISERA PRODUCTS. The bulk and custom antisera products
produced by the Company are used by major medical diagnostic instrumentation
manufacturers worldwide in the production of diagnostic test kits to be used on
their instruments. The Company offers an extensive line of antisera products
to human serum proteins that are monospecific, avid, and of high titer.
Antisera products are produced as nephelometric quality, standard antisera, IgG
fractions and fluorescent or enzyme conjugated preparations. The Company also
produces calibrators to be used as reference standards in conjunction with the
various antisera products offered.
Custom antisera from the Company's standard supply are also produced
according to specifications provided by customers. The Company also performs
custom immunization and development of specific antibodies upon customer
request.
HISTOCHEMICAL ANTISERA. Unlike RIA, ITA and EIA methods which are used
to analyze fluid samples taken from the human body, histochemical antisera are
utilized in an in vitro procedure to determine the presence of hormones or
peptides in body tissue. A histochemical antiserum is used as a binding
reagent for a specific hormone or peptide. Once binding has occurred, the
presence of the hormone or peptide is determined by fluorescent or enzyme
staining procedures performed on the tissue specimen. The Company's
histochemical products are used in clinical diagnoses and medical research,
frequently in conjunction with RIA, ITA or EIA technologies.
RECENT DEVELOPMENTS
Dr. Pierre M. Galletti, currently affiliated with Brown University in
Providence, Rhode Island, was appointed to the position of Chairman of the
Board effective March 1, 1995, replacing Dr. Orwin L. Carter, who resigned from
this position.
During the second quarter of 1995 the Company announced the completion
of the manufacturing transfer of its TheraTest trademark product line of
diagnostic assays to its Stillwater facility. INCSTAR acquired this Food
and Drug Administration (FDA)-cleared ELISA-based panel of autoimmune
diagnostic assays in May 1994 from TheraTest Laboratories, Inc. of
Chicago. The TheraTest products are used as a confirmatory test for the
diagnosis of rheumatoid arthritis and other connective tissue diseases
such as systemic lupus erythematosus and scleroderma. The TheraTest products
are also an extension of the Company's existing immunofluorescence autoimmunity
product line and complement the Company's Enzyme Immunoassay (EIA) product
offerings.
Also during the second quarter of 1995 the Company received approval
from the FDA for its second generation EBV diagnostic tests. EBV is the
causative agent of infectious mononucleosis, and can cause lymphomas, chronic
fatigue syndrome and a variety of other diseases in patients with a weakened
immune system. International market introduction of these tests began in the
third quarter of 1994.
The Company launched two autoimmune products in the international market
during the second quarter of 1995 -- a quantitative thyroid stimulating
autoantibodies assay (TRAb), which is used for the diagnosis of Grave's disease
and the complement activation enzyme assay (CAE) which provides general
information about the immune system in disease states such as rheumatic and
rare connective tissue disorders as well as tissue injury. The Company
received 510K clearance from the FDA in the fourth quarter of 1995 for its CAE
kit.
During the third quarter of 1995 the Company launched worldwide its
second generation Parathyroid Hormone-related Protein (PTHrP) assay. PTHrP is
the agent responsible for the condition of humoral hypercalcemia of malignancy
(HHM). This is a condition in which serum calcium is increased to potentially
life threatening levels. This assay provides customers with a superior product
that has significantly improved sensitivity and better definition of the
protein under investigation than the first generation product. This product is
being distributed as a "research use only" product in the US and is targeted to
the clinical research market. Internationally, the Company is pursuing
registration in several European countries as well as Japan.
During the third quarter of 1995, the Company experienced an increase in
demand for one of its hepatitis assays due to a competitor's kit becoming
unavailable to the market. This opportunity resulted in approximately $2.9
million in sales during 1995. The competitor re-entered the marketplace during
the first quarter of 1996. While the Company believes that a portion of these
sales may be maintained, the impact on future sales is uncertain at this time.
During the fourth quarter of 1995 the Company received the approved
licensure from the FDA for the final two assays within the Hepatitis line which
gave the Company a complete panel of seven EIA approved/licensed assays used in
the diagnosis of hepatitis A and B infections.
MARKETING
The Company's medical products are sold to commercial and public health
laboratories, blood banks, research and teaching institutions and hospital
laboratories, which use the Company's kits to conduct tests ordered by
physicians. Increased frequency of use of the Company's kits will depend, in
part, upon the acceptance by practicing physicians of the need and desirability
for measuring certain therapeutic drug, hormone, peptide and serology levels in
the evaluation of diseases and body disorders.
In North America, the Company's principal market for its medical products
includes approximately 1,200 clinical reference laboratories and 2,500
hospitals, which have laboratories that perform immunodiagnostic testing. In
the United States and Canada, the Company utilizes a direct sales force,
combined with selected independent distributors, to market its products.
The Company also utilizes foreign distributors in conjunction with a
subsidiary in the United Kingdom to market its products abroad. Since 1989
Sorin has been the distributor for the Company's products in Italy, Spain,
Portugal, Germany and the Benelux countries. As part of the 1990 acquisition
from Baxter, the Company manufactures and sells to Sorin the Clinical Assays
products for distribution in the above mentioned countries and France. Pursuant
to these arrangements, the Company recorded sales to Sorin of $7,625,000 for
the year ended December 31, 1995, which comprised 16.7% of total sales. Other
transactions entered into with Sorin and its subsidiaries are set forth in Note
6 of the Company's consolidated financial statements contained elsewhere
herein. Other than Sorin, the Company is not dependent on any single customer
for more than 15% of its business.
The Company's international sales constitute 46% of sales for the year
ended December 31, 1995; 50% of sales for the year ended December 31, 1994 and
46% of sales for the year ended December 31, 1993.
Because of the limited shelf life of the Company's radioactive tracer,
the Company delivers products by international air freight to its foreign
markets.
RESEARCH AND PRODUCT DEVELOPMENT
The ability of the Company to compete effectively in the marketplace will
depend upon the success of its efforts to improve existing products and to
develop new products, primarily non-isotopic and conducive to instrumentation,
that are useful to the medical diagnostic and research markets. The levels of
research and development expenditures by the Company during the periods shown
below were as follows:
Percent of
Amount Net Sales
Year ended December 31, 1995 $3,748,000 8.2%
Year ended December 31, 1994 $5,069,000 11.9%
Year ended December 31, 1993 $5,719,000 13.2%
The reduction in research spending in 1995 from previous years levels,
results primarily from the discontinuance of a development program discussed in
Note 2 of the financial statements contained elsewhere herein.
The Company has established scientific advisory panels for its
autoimmune and bone and mineral metabolism segments. In addition, the Company
intends to establish a third scientific panel in its infectious disease
segment. These panels are overseen by a scientific advisory board led by
INCSTAR's Chairman Dr. Pierre M. Galetti. Also, Dr. Michael Steffes, a
director of the Company, is a member of the Scientific Advisory Board. These
panels are intended to enhance and strengthen the Company's ties with the
scientific community.
MANUFACTURING
The Company manufactures its immunoassay kits and serum protein products
in two locations within the United States. It maintains manufacturing and
administration activities in its principal facility in Stillwater, Minnesota,
which consists of 120,000 square feet. Additionally, the Company is vertically
integrated into the production of bulk antisera and maintains a USDA licensed
animal facility on 116 acres in Windham, Maine (the Serum Proteins segment of
the Company's business). Management believes that it will have adequate
capability to meet its anticipated manufacturing needs in all current product
lines for the foreseeable future.
The steps involved in manufacturing the Company's immunoassay and serum
protein kits include the following: i) the isolation and production of
antigens; ii) the development and production of antibodies; iii) the design and
development of the required reagent system; iv) the iodination or conjugation
of precursors; v) the manufacture and packaging of the components in the kit
format; and vi) ongoing quality control to meet all regulatory requirements.
As a result of strategic alliances and acquisitions over the past several
years, the Company has an extensive line of immunoassay and serum protein
assays which are manufactured in a cost effective manner in a quality
environment. The Company's products and kits consist of the components
necessary to perform specific assays in consistent and reproducible fashion.
Antisera are a critical component in the products which are manufactured using
RIA, ITA, EIA and IFA technologies and the Company insures the quality of this
raw material from its source in its Serum Protein segment of the business. In
addition to these antiserums, the components of the immunoassay kits include
specialized chemical reagents, reference standards and performance data
required to properly calibrate test results. Raw materials used in these
components meet design specifications. The Company is not dependent on any
particular supplier for ongoing operations. Some raw materials critical in the
production of the Company's products have extensive lead times for supply.
Lack of supply of critical raw materials would have a materially adverse affect
on the Company. For this reason the Company continually strives to maintain
multiple sources for its most critical raw materials.
The Company maintains quality controls for the assurance of accurate and
reliable test kits and to meet FDA good manufacturing standards. The Company
also complies with procedures mandated by the Nuclear Regulatory Commission
(NRC) for the use and disposal of radioactive materials.
COMPETITION
Historically the Company has developed and marketed diagnostic and
research products serving specialized markets not adequately served by its
largest competitors. Included here are the fields of endocrinology, bone and
mineral metabolism and therapeutic drug monitoring. However, as a result of
the Company's acquisition of the Clinical Assay product lines from Baxter and
relationship with Sorin, the Company now competes with a number of the larger
immunodiagnostic companies offering similar lines of RIA and EIA products.
The Company's major competition, outside the specialty product area,
includes Abbott Diagnostics, Diagnostic Products Corporation, Hybritech, Ares-
Serono, and CIBA Corning Diagnostic Corporation. The principle elements of
competition for the Company are based upon providing quality, consistent and
reliable products and services. Price is only a factor for those tests in the
larger, more competitive markets. The Company intends to maintain its
competitive differentiation in the market by selecting new and innovative
technology approaches to both the routine and specialty market analytes. The
Company intends to develop and maintain quality customer relationships with
health care professionals.
GOVERNMENT REGULATION
Under the Medical Device Amendments of 1976, the Company is required to
file an annual registration statement with the FDA and to provide updated
device listings. The Company is also required to submit a pre-market
notification submission to the FDA for each new diagnostic product. This
submission may be either a 510(k), a premarket approval application, or a
product license application, unless the product is being distributed for
research or investigational use only. The FDA also imposes rules with respect
to good manufacturing practices (GMP). The Company believes it is in
compliance with FDA regulations. The Company also complies with foreign
government regulations, specifically for Japan, France, Germany, Canada,
England and other countries where required. These requirements include
adherence to GMP, device listings, premarket notifications, or product licenses
where applicable. Additionally, the Company is in the process of certifying
its Quality Assurance system to ISO 9000 standards and hopes to complete the
registration process under this standard by the end of 1996.
Because the Company uses radioactive isotopes in the manufacture of some
of its products, it is required to maintain licenses authorizing the
possession, use and distribution of radioactive material. The licenses were
renewed in 1993 and will expire by their terms in 1998. To maintain the
licenses, the Company is required to keep certain records and to demonstrate
continued compliance with NRC regulations and the conditions of its radioactive
licenses. Although not expected, loss of these licenses would have a
materially adverse affect on the Company.
The Company believes it is in compliance with all federal, state and
local regulations regarding the discharge of material into the environment.
Additionally, the cost to maintain licenses and meet environmental and safety
requirements is not material to the Company's consolidated financial statements
and the Company does not expect any material financial commitment in the near-
term.
FOREIGN AND DOMESTIC OPERATIONS AND INTERNATIONAL SALES
Company information with respect to foreign and domestic operations and
international sales is set forth in Note 12 to the Company's consolidated
financial statements contained elsewhere herein.
PATENTS
The Company has been issued patents covering (i) the method and
radioactive tracers used for the immunoassay of C-terminal parathyroid hormone,
(ii) bioassay for parathyroid hormone, and (iii) usage of iodinated or
fluorescent forms of cyclosporin in immunoassay kits. These patents expire on
July 26, 1999; January 17, 2000; and April 1, 2002, respectively.
The Company does not believe patent protection will be a material factor
in its operations because of the Company's proprietary know-how regarding the
production and development of its product lines. Certain other companies may
have been issued or applied for patents with respect to products or technology
manufactured by, or of interest to the Company. Management is unable at this
time to determine the impact, if any, which any such patents may have on the
Company.
LICENSES AND TRADEMARKS
The Company holds certain licenses for technology, intellectual property
and distribution rights. The Company also holds certain registered trademarks
such as CYCLO-Trac registered trademark, N-tact registered trademark and
PTH-MM registered trademark as well as several other non-registered trademarks.
The terms of these licenses and trademarks vary. The Company does not believe
that any of these licenses or trademarks is material to its business or
operations.
EMPLOYEES
As of December 31, 1995 the Company had 290 employees, including part-
time employees.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are listed below:
John J. Booth President and Chief Executive Officer since
September, 1994 and Senior Vice President and
Chief Financial Officer since May, 1992, age 41.
Mr. Booth joined the Company in December, 1989
as Vice President of Finance and Administration
and prior to that was Vice President, Controller
and Secretary of CSI from October, 1989 to
December, 1989.
Fabio Lunghi Executive Vice President and Chief Operating
Officer of the Company since September, 1994,
age 51. Prior to joining the Company, from 1986
to 1994 Mr. Lunghi was Vice President and
General Manager of the radiopharmaceutical
business unit at Sorin Biomedica, S.p.A.
Gerald L. Majewski, Ph.D. Vice President of Research and Development since
October 1992, age 46. Prior to joining the
Company, from 1983 to 1992 Dr. Majewski held a
variety of positions at Fisher
Scientific/Instrumentation Laboratory, most
recently as Director of Research and
Development, Reagents Development from 1989 to
1992.
Thomas P. Maun Vice President and Chief Financial Officer of
the Company since September, 1994 and Director
of Finance since January, 1990, age 42. Mr.
Maun joined the Company in 1987 as Corporate
Controller.
George E. Wellock Vice President of Manufacturing of the Company
since March 1991, age 46. From June 1988 to
March 1991, Mr. Wellock was Vice
President of Operations of Baxter Dade in
Cambridge, Massachusetts, a subsidiary of
Baxter International. From June 1984 to
June 1988, he served as Manufacturing Manager
for Travenol Genentech Diagnostics and
Baxter Dade.
At each annual meeting of the Board of Directors, the board elects
executive officers as necessary. Such elected officers hold office until the
next annual meeting of the directors or until their successors are elected and
qualified.
ITEM 2. PROPERTIES
The Company presently owns three adjacent concrete buildings totaling
approximately 120,000 square feet located on a 14 acre site in Stillwater,
Minnesota, which is part of the metropolitan area of Minneapolis-St. Paul. One
building houses all manufacturing operations. A second building houses a
research laboratory. The third building houses the Company's executive
offices. The Company believes this capacity to be adequate for present and
future needs. The Company owns a farm operation of 116 acres and related
buildings in Windham, Maine, which houses laboratory animals.
ITEM 3. LEGAL PROCEEDINGS
The Company is engaged in routine litigation incident to its business,
which management believes will not have an adverse effect upon its operations
or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's Common Stock is currently traded on the American Stock
Exchange (AMEX) under the symbol: "ISR". As of December 31, 1995, there were
approximately 1,425 shareholders of record holding 16,363,477 shares. The
following table sets forth for the calendar quarters indicated the high and low
sales prices as reported by the AMEX.
High Low
1994
First Quarter $ 3 15/16 $ 2 3/4
Second Quarter 3 5/16 2 3/8
Third Quarter 2 3/4 1 3/4
Fourth Quarter 2 3/8 1 11/16
1995
First Quarter 2 3/4 1 1/2
Second Quarter 3 3/4 2 1/2
Third Quarter 5 5/16 2 7/8
Fourth Quarter 5 3 3/4
DIVIDENDS. The Company did not pay cash dividends on its common stock during
1994 or 1995. It is not currently anticipated that cash dividends will be paid
in the future on the Company's Common Stock. The Board of Directors of the
Company will review its dividend policy from time to time. Any future
determination as to the payment of dividends on the Company's Common Stock will
depend upon future earnings, results of operations, capital requirements, the
financial condition of the Company and any other factors the Board of Directors
of the Company may consider relevant.
ITEM 6. SELECTED FINANCIAL DATA
Summary Operations Statement Year Ended
December 31,
1995 1994 1993 1992 1991
Domestic sales $24,494,000 $21,282,000 $23,321,000 $24,712,000 $18,601,000
International sales 21,266,000 21,221,000 19,967,000 21,272,000 19,585,000
Net sales 45,760,000 42,503,000 43,288,000 45,984,000 38,186,000
Cost of goods sold 23,271,000 22,039,000 23,007,000 22,052,000 16,450,000
Inventory valuation
adjustment --- 750,000a --- --- ---
Gross profit 22,489,000 19,714,000 20,281,000 23,932,000 21,736,000
Operating expenses:
Selling,general and
administrative 12,592,000 12,853,000 12,761,000 13,621,000 12,001,000
Research and
development 3,748,000 5,069,000 5,719,000 3,277,000 3,023,000
Unusual items --- 5,750,000a 750,000a --- ---
Total operating
expenses 16,340,000 23,672,000 19,230,000 16,898,000 15,024,000
Operating
income (loss) 6,149,000 (3,958,000) 1,051,000 7,034,000 6,712,000
Interest expense (348,000) (365,000) (472,000) (656,000) (1,551,000)
Investment and other
income (expenses) 33,000 11,000 (42,000) 73,000 116,000
INCOME (LOSS) BEFORE
INCOME TAXES AND
EXTRAORDINARY ITEMS 5,834,000 (4,312,000) 537,000 6,451,000 5,277,000
Provision for
income taxes 1,571,000 193,000 284,000 1,577,000 1,521,000
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEMS 4,263,000 (4,505,000) 253,000 4,874,000 3,756,000
Extraordinary items --- --- --- --- 329,000
NET INCOME (LOSS) $ 4,263,000 $(4,505,000)$ 253,000 $ 4,874,000 $ 4,085,000
INCOME (LOSS) PER
SHARE BEFORE
EXTRAORDINARY ITEMS $ 0.26 $ (0.28)$ 0.02 $ 0.30 $ 0.23
NET INCOME (LOSS)
PER SHARE $ 0.26 $ (0.28)$ 0.02 $ 0.30 $ 0.25
Weighted average
shares and
equivalents 16,491,501 16,322,301 16,432,883 16,337,857 16,203,750
Balance Sheet Information December 31,
1995 1994 1993 1992 1991
Total assets $38,761,000 $38,154,000 $43,426,000 $45,069,000 $43,985,000
Working capital 14,947,000 13,873,000 14,555,000 13,863,000 12,434,000
Long-term debt 3,000 4,143,000 6,501,000 8,167,000 12,295,000
Shareholders'equity 28,384,000 23,889,000 28,240,000 27,277,000 21,974,000
Book value per share 1.72 1.46 1.73 1.69 1.38
<FN>
Note 1.For information with respect to dividends, see Item 5 above.
a) Relates to the write off of certain tangible and intangible costs,
severance and related costs and inventory write downs as discussed in Note 2 to
the consolidated financial statements contained elsewhere herein.
</FN>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
Sales in 1995 were $45,760,000, an 8 percent increase from $42,503,000
in 1994. Contributing to the increase were sales from the Company's hepatitis
assays, as discussed below, and many new products introduced during the last 16
months in the Company's autoimmune disease, bone and mineral metabolism and
infectious disease market segments. These gains were partially offset by
declines in the Company's oncology and endocrinology market segments due to the
continued shift in the diagnostic industry from isotopic, manual testing to non-
isotopic, automated and semi-automated testing. 1994 sales declined 2 percent
from $43,288,000 in 1993 due to these shifts away from isotopic, manual
testing.
Domestic sales increased to $24,494,000, a 15 percent increase from 1994
sales of $21,282,000. Sales increased in the autoimmune disease market segment
due primarily to sales of an ELISA-based panel of diagnostic assays acquired
from TheraTest Laboratories, Inc. in May, 1994. The manufacturing transfer of
these tests to the Company's Stillwater facility was completed in the second
quarter of 1995. The bone and mineral metabolism market segment has been
favorably impacted by sales of the Company's Vitamin D assays. In addition,
since June, 1995, the Company has experienced an increase in demand for one of
its hepatitis assays due to a competitor's kit becoming unavailable to the
market. This opportunity resulted in approximately $2.9 million in sales
during 1995. The competitor re-entered the marketplace during the first
quarter of 1996. While the Company believes that a portion of these sales may
be maintained, the impact on future sales is uncertain at this time. Domestic
sales have continued to be negatively impacted by declines in the Company's
oncology and endocrinology market segments, as discussed above. 1994 sales
decreased from $23,321,000 in 1993 due primarily to these declines.
1995 international sales of $21,266,000 remained flat with 1994 sales of
$21,221,000. Sales were favorably impacted in 1995 due to the introduction of
a second generation Epstein Barr Virus diagnostic kit and a Thyroid Receptor
Autoantibody (TRAb) assay. Sales were negatively impacted, however, in the
serum protein segment resulting mainly from declines in demand for the
Company's bulk antisera products. 1994 sales increased from $19,967,000 in
1993 primarily due to the introduction of new products in the Company's bone
and mineral metabolism market segment.
Gross margins were 49 percent of sales in 1995 compared with 46 percent
of sales in 1994 and 47 percent in 1993. The decline in 1994 was attributable
to the $750,000 charge for excess inventories as discussed in Note 2 of the
Company's consolidated financial statements contained elsewhere herein.
Exclusive of the inventory write down, gross margins were 48 percent of sales
in 1994. Gross margins have improved during the last two years due to improved
product mix as well as efficiencies derived from operational restructuring.
Pricing pressures associated with healthcare cost containment measures, and
shifts away from isotopic testing resulting in production volume declines in
the Company's endocrinology market segment, continue to negatively impact gross
margins. Despite these negative pressures, the Company expects to maintain or
slightly improve its gross margins during 1996.
The Company's ratio of selling, general and administrative expenses to
sales was 28 percent in 1995, 30 percent in 1994 and 29 percent in 1993. These
expenses, as a percentage of sales, are expected to remain relatively
consistent with 1995.
Research and development expenses were $3,748,000 in 1995, compared with
$5,069,000 in 1994 and $5,719,000 in 1993. The continued decreases are
attributable to the discontinuance during 1994 of the Fluorescence Polarization
Immunoassay (FPIA) development project as discussed in Note 2 of the Company's
consolidated financial statements contained elsewhere herein. Exclusive of
FPIA, these expenses represent 8 percent, 9 percent and 7 percent of sales in
1995, 1994 and 1993, respectively. Research and development expenses are
projected to increase slightly due to the Company's increased emphasis on new
development activities.
Interest expense declined by 5 percent in 1995 to $348,000 compared with
$365,000 in 1994 and 26 percent from $472,000 in 1993. The decrease was
attributable to lower average debt levels. 1995 expense includes interest on
certain tax obligations.
Income tax expense was 27 percent of income before taxes or $1,571,000,
compared with $193,000 in 1994 and $284,000 in 1993. The tax expense in 1994
related primarily to book reserves and liabilities not deductible for tax
purposes until paid. These book reserves and liabilities created deferred tax
assets subject to a valuation allowance. The effective rate is expected to
decline slightly in 1996 as this valuation allowance is reduced.
Net income in 1995 was $4,263,000, or 26 cents per share, compared with
a net loss of $4,505,000, or 28 cents per share, in 1994 and net income of
$253,000, or 2 cents per share, in 1993. The 1994 loss results from $6.5
million in charges, as discussed in Note 2 to the Company's consolidated
financial statements contained elsewhere herein. 1993 net income was impacted
by a $750,000 pre-tax charge in the first quarter relating to employee
severance and related costs.
LIQUIDITY AND CAPITAL RESOURCES
INCSTAR's free cash flow (operating cash flow less investment
activities) was $5,190,000 in 1995, compared to $3,118,000 in 1994 and
$1,954,000 in 1993. These funds were used to eliminate all outstanding debt
obligations, which were in excess of $4.0 million at the beginning of the year.
The Company's ratio of total debt to total capital was 16 percent in 1994 and
20 percent in 1993.
Working capital increased to $14,947,000 at year-end 1995 from
$13,873,000 at the end of 1994, resulting from higher accounts receivable and
inventory balances associated with increased sales levels.
Capital expenditures for 1995 were $1,557,000, compared with $923,000 in
1994 and $1,535,000 in 1993. For 1996, capital expenditures are expected to be
approximately $2.8 million, primarily for manufacturing improvements and
laboratory equipment.
The Company's primary sources of liquidity are a $1 million revolving
bank credit line secured by Company assets and a $4.5 million unsecured credit
line with Fiat Finance USA, Inc. (Fiat). At year-end, the Company had no
outstanding borrowings under these credit lines. The Company anticipates that
the generation of free cash flow and the resources available within the Fiat
Group will provide sufficient sources of liquidity for planned capital and
research and development expenditures.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company and financial
statement schedules are listed under Items 6, 14 (a) (1) and 14 (a) (2) of
this report and contained elsewhere herein.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
[The remainder of this page left blank intentionally.]
PART III
Part III, Items 10, 11, 12 and 13, except for certain information
relating to Executive Officers included in Part I, Item 1, is omitted inasmuch
as the Company intends to file with the Securities and Exchange Commission
within 120 days of the close of the fiscal year ended December 31, 1995, a
definitive proxy statement containing such information pursuant to Regulation
14A of the Securities Exchange Act of 1934 and such information shall be deemed
to be incorporated herein by reference from the date of filing such document.
[The remainder of this page left blank intentionally.]
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations - Years Ended
December 31, 1995, December 31, 1994, and
December 31, 1993
Consolidated Balance Sheets - As of December 31,
1995 and 1994
Consolidated Statements of Cash Flows - Years Ended
December 31, 1995, December 31, 1994; and
December 31, 1993
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1995; December 31, 1994; and
December 31, 1993
Consolidated Quarterly Results (unaudited) for
the Years Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of INCSTAR
Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8
(File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended to date
[incorporated by reference to Exhibit 4.2 to
the Registrant's Registration Statement on Form S-8
(File No. 33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3
(File No. 33-37805)].
4.2 Note Purchase Agreement, dated December 27,
1991 between the Registrant and Fiat Finance, U.S.A.
Inc. [incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)]
4.3 Form of Warrant Certificate issued by the
Registrant in favor of Bioengineering International
B.V. (now BioFin Holding International B.V.)
[incorporated by reference to Exhibit 10.11 of the
Registrant's Registration Statement on Form S-4
(File No. 33-30785)].
4.4 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated
by reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
10.1+* INCSTAR Corporation Stock Option Plan, as
amended to date, filed herewith.
10.2* Economic Value Sharing Plan [incorporated by
reference to Exhibit 10.1 of the Registrant's Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and
certain of its employees [incorporated by reference
to Exhibit 10.4 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income Continuation Plan
covering certain executive officers of the Registrant
[incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the Registrant
and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between the
Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report
on Form 10-K for the year ended December 31, 1993
(File No. 1-9800)].
10.7* Employment Continuation Agreement between the
Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report
on Form 10-Q for the quarter ended September 30, 1994
(File No. 1-9800)].
10.8* Separation Agreement between the Registrant and
Jacques A. Bagdasarian [incorporated by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-K
for the year ended December 31, 1994
(File No. 1-9800)].
10.9+ Form of Scientific Advisory Board agreement between
the Registrant and Dr. Pierre M. Galetti and Dr.
Michael Steffes filed herewith.
10.10+ Consulting Agreement between the Registrant and Dr.
Michael Steffes filed herewith.
10.11 Form of Distributorship Agreement between the
Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between Sorin
Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
10.13 Distribution Agreement, dated October 30, 1986,
between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to
Exhibit 10.17 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement between
the Registrant and Sorin Biomedica S.p.A.
[incorporated by reference to Exhibit 10.18 of the
Registrant's Registration Statement on Form S-4
(File No. 33-30785)].
10.15 Distribution and Supply Agreement between Baxter
International Inc. and the Registrant dated September
19, 1990 [incorporated by reference to Exhibit 10(b)
of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between Centocor, Inc.
and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and February
19, 1993 amending the product distribution agreement
filed as Exhibit 10.15 [incorporated by reference to
Exhibit 10.14.1 of the Registrant's Report on Form
10-K for the year ended December 31, 1993
(File No. 1-9800)].
10.18 Revolving Credit, Security and Note Agreement, with
exhibits thereto, dated as of December 27, 1993
between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-K
for the year ended December 31, 1994
(File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16 [incorporated by reference to Exhibit 10.1 of
the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16 [incorporated by reference to Exhibit 10.1 of
the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.3+ Third Amendment dated January 29, 1996 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16.
10.19 Agreement for Purchase, Sale and Distribution of
Assets between TheraTest Laboratories Inc. and the
Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-9800)].
11+ Statement Re: Computation of Net Income (Loss)
Per Common Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
* Executive Compensation Plans and Arrangements
+ Filed with this Annual Report on Form 10-K
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter ended
December 31, 1995.
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.
INCSTAR CORPORATION
Dated: March 28, 1996 By: /s/John J. Booth
John J. Booth
President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 21, 1996.
/s/Pierre M. Galetti Chairman of the Board,
Pierre M. Galletti, M.D., Ph.D. Director
/s/John J. Booth President and Director
John J. Booth (Principal Executive Officer)
/s/Thomas P. Maun Vice President and Chief Financial Officer
Thomas P. Maun (Principal Accounting and Financial
Officer)
/s/Ennio Denti Director
Ennio Denti
/s/Michael W. Steffes Director
Michael W. Steffes, M.D., Ph.D.
_________________ Director
George H. Dixon
_________________ Director
Umberto Rosa
/s/Carlo Vanoli Director
Carlo Vanoli
/s/D. Ross Hamilton Director
D. Ross Hamilton
/s/Franco Fornasari Director
Franco Fornasari
/s/Ezio Garibaldi Director
Ezio Garibaldi
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
1995 1994 1993
Net sales $45,760,000 $ 42,503,000 $ 43,288,000
Cost of goods sold 23,271,000 22,039,000 23,007,000
Inventory valuation adjustment --- 750,000 ---
Gross profit 22,489,000 19,714,000 20,281,000
Operating expenses:
Selling, general and
administrative 12,592,000 12,853,000 12,761,000
Research and development 3,748,000 5,069,000 5,719,000
Unusual items --- 5,750,000 750,000
Total operating expenses 16,340,000 23,672,000 19,230,000
Operating income (loss) 6,149,000 (3,958,000) 1,051,000
Interest expense (348,000) (365,000) (472,000)
Investment and other
income (expense) 33,000 11,000 (42,000)
INCOME (LOSS) BEFORE
INCOME TAXES 5,834,000 (4,312,000) 537,000
Provision for income taxes 1,571,000 193,000 284,000
NET INCOME (LOSS) $ 4,263,000 $ (4,505,000) $ 253,000
INCOME (LOSS) PER SHARE:
Net income (loss) per share $ 0.26 $ (0.28) $ 0.02
Weighted average shares
and equivalents 16,491,501 16,322,301 16,432,883
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 460,000 $ 153,000
Restricted cash 251,000 251,000
Accounts receivable, net of allowance for
doubtful accounts of $107,000 and
$113,000, respectively 7,575,000 6,759,000
Other receivables 24,000 119,000
Inventories 13,445,000 12,368,000
Other current assets 294,000 562,000
TOTAL CURRENT ASSETS 22,049,000 20,212,000
PROPERTY AND EQUIPMENT:
Land and land improvements 1,573,000 1,573,000
Buildings and improvements 13,252,000 13,103,000
Equipment and furniture 18,170,000 16,924,000
Construction in progress 6,000 114,000
33,001,000 31,714,000
Less allowance for depreciation and
amortization (18,387,000) (16,482,000)
14,614,000 15,232,000
INTANGIBLE ASSETS 1,105,000 1,744,000
OTHER ASSETS 993,000 966,000
$ 38,761,000 $ 38,154,000
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 76,000 $ 278,000
Accounts payable and cash overdraft 1,914,000 2,262,000
Accrued compensation 1,972,000 1,418,000
Accrued expenses 2,928,000 2,286,000
Income taxes payable 212,000 95,000
TOTAL CURRENT LIABILITIES 7,102,000 6,339,000
LONG-TERM DEBT 3,000 4,143,000
OTHER NON-CURRENT LIABILITIES 3,272,000 3,783,000
SHAREHOLDERS' EQUITY:
Undesignated stock, authorized 5,000,000 shares - - - - - -
Common stock, par value $.01, authorized
25,000,000 shares; issued and outstanding
16,363,477 and 16,322,521 shares, respectively 164,000 163,000
Additional paid-in capital 17,940,000 17,676,000
Foreign currency translation adjustment (151,000) (118,000)
Retained earnings 10,431,000 6,168,000
TOTAL SHAREHOLDERS' EQUITY 28,384,000 23,889,000
$ 38,761,000 $ 38,154,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995 1994 1993
OPERATING ACTIVITIES:
Net income (loss) $4,263,000 $(4,505,000) $ 253,000
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Provision for deferred taxes -- -- (79,000)
Cumulative effect of accounting
change -- -- 16,000
Provision (payments) for unusual
items and inventory valuation
adjustment (1,060,000) 5,371,000 --
Provision for retirement plans 272,000 529,000 489,000
Depreciation and amortization 2,910,000 3,395,000 3,280,000
Changes in operating assets and
liabilities:
Accounts receivable (816,000) 39,000 297,000
Other receivables 95,000 (29,000) 82,000
Inventories (1,077,000) 194,000 414,000
Other current assets 212,000 (21,000) 75,000
Accounts payable 254,000 (229,000) 156,000
Accrued compensation 554,000 (108,000) 51,000
Accrued expenses 975,000 90,000 (380,000)
Income taxes payable 320,000 (56,000) (27,000)
Other, net (33,000) 35,000 (11,000)
Net cash provided by operating
activities 6,869,000 4,705,000 4,616,000
INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment -- -- 610,000
Additions to property and equipment,
net (1,557,000) (923,000) (1,535,000)
Payments for product distribution
rights -- (599,000) (1,350,000)
Payments for intellectual property
and purchased technology (86,000) -- (508,000)
(Increase) decrease in other assets (36,000) (65,000) 121,000
Net cash used in investing activities (1,679,000) (1,587,000) (2,662,000)
FINANCING ACTIVITIES:
Net repayments under lines of credit -- (422,000) (563,000)
Net increase (decrease) in cash
overdraft (602,000) (512,000) 275,000
Increase in restricted cash -- (11,000) (10,000)
Payments on long-term debt (4,342,000) (2,364,000) (2,059,000)
Payments on officer loans -- -- 35,000
Issuance of common stock -- -- 296,000
Issuance of common stock to employees 61,000 119,000 219,000
Net cash used in financing activities (4,883,000) (3,190,000) (1,807,000)
Effects of exchange rate changes on
foreign currency cash balances -- -- 1,000
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 307,000 (72,000) 148,000
Cash and cash equivalents at
beginning of year 153,000 225,000 77,000
Cash and cash equivalents at end of
year $ 460,000 $ 153,000 $ 225,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Common Stock Additional Currency
Number of Paid-In Translation Retained
Shares Amount Capital Adjustment Earnings
Balance at December 16,156,615 $ 162,000 $16,832,000 $ (137,000) $10,420,000
31, 1992
Common stock issued
under employee stock
purchase plan and
and upon exercise of
stock options 46,847 -- 219,000 -- --
Officer loans related
to options exercised -- -- 35,000 -- --
Issuance of shares
to BFHI 77,595 1,000 295,000 -- --
Compensation expense on
executive stock options -- -- 176,000 -- --
Translation adjustments -- -- -- (16,000) --
Net income -- -- -- -- 253,000
Balance at December
31, 1993 16,281,057 $ 163,000 $17,557,000 $ (153,000) $10,673,000
Common stock issued
under employee stock
purchase plan and
upon exercise of
stock options 41,464 -- 119,000 -- --
Translation adjustments -- -- -- 35,000 --
Net loss -- -- -- -- (4,505,000)
Balance at December
31, 1994 16,322,521 $ 163,000 $17,676,000 $ (118,000) $ 6,168,000
Common stock issued
under employee stock
purchase plan and
upon exercise of
stock options 40,956 1,000 61,000 -- --
Translation adjustments -- -- -- (33,000) --
Compensation expense on
executive stock options -- -- 203,000 -- --
Net income -- -- -- -- 4,263,000
Balance at December
31, 1995 16,363,477 $ 164,000 $17,940,000 $ (151,000) $10,431,000
The accompanying notes are an integral part of the consolidated financial
statements.
INCSTAR CORPORATION
QUARTERLY RESULTS (UNAUDITED):
(in thousands, except per share data)
Net Sales Gross Profit
Year Ended Year Ended
December 31, December 31,
Quarter 1995 1994 Quarter 1995 1994
First $ 11,117 $ 10,657 First $ 5,130 $ 5,036
Second 11,041 11,188 Second 5,319 5,434
Third 11,664 10,451 Third 5,873 5,131
Fourth 11,938 10,207 Fourth 6,167 4,113
Net Income (Loss) Net Income (Loss) Per Share
Year Ended Year Ended
December 31, December 31,
Quarter 1995 1994 Quarter 1995 1994
First $ 799 $ 104 First $ 0.05 $ 0.01
Second 827 (2,443) Second 0.05 (0.15)
Third 1,092 487 Third 0.07 0.03
Fourth 1,545 (2,653) Fourth 0.09 (0.16)
INCSTAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1_SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
INCSTAR Corporation (the "Company") is a medical immunodiagnostics
company focused on the development, production and worldwide marketing of
reagents, particularly for bone/mineral metabolism, endocrinology, infectious
and autoimmune diseases. The Company predominantly markets these products in
North America, Europe and Asia.
PRICIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of INCSTAR Corporation and its wholly-owned subsidiaries, Atlantic Antibodies,
Inc., INCSTAR Ltd. and Immuno Nuclear Export Ltd. All material inter-company
accounts and transactions have been eliminated in consolidation. Certain
amounts for periods prior to the year ended December 31, 1995 have been
reclassified to conform with the current classifications.
CASH EQUIVALENTS
Cash equivalents consist primarily of investments in mutual funds with
current maturities.
The Company's cash management system is designed to maintain zero
balances at certain banks in order to minimize interest expense by reducing
outstanding debt. Accounting records classify checks written but not presented
to these banks as cash overdraft in the balance sheet heading Accounts payable
and cash overdraft.
RESTRICTED CASH
Through December 31, 1995 the Company maintained a self insured workers
compensation insurance plan. Pursuant to the plan, the Company holds a
certificate of deposit with current maturity as a compensating balance with a
bank. These funds are restricted to assure future credit availability for the
potential self insured aggregate limits under the plan. The funds are required
to be on deposit with a bank under Minnesota state regulations and are expected
to be released in the second quarter of 1996. As of January 1, 1996, the
Company is no longer self insured.
INVENTORIES
Inventories are valued at the lower of average cost, which approximates
the first-in, first-out (FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment, including equipment under capital leases, is
reported at cost less accumulated depreciation and amortization. Maintenance
and repairs are charged to expense as incurred. The Company computes
depreciation and amortization using the straight-line method based on estimated
useful lives of three to seven years for equipment and furniture and seven to
thirty years for buildings and improvements.
INTANGIBLE ASSETS
Intangible assets includes patents, trademarks, intellectual property and
purchased technology, goodwill and product distribution rights. Patents and
trademarks are amortized using the straight-line method over a five-year
period. Goodwill, which represents the cost in excess of the fair value of net
assets acquired, is amortized using the straight-line method over a ten-year
period. Intellectual property and purchased technology is amortized using the
straight line method over the properties estimated useful lives which range
from seven to ten years. Product distribution rights are amortized using the
straight line method over the life of the agreement or the estimated product
life, whichever is shorter.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed when incurred.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard (SFAS) No. 109. Under the asset and liability
method of SFAS No. 109, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. 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. Under
SFAS No. 109, 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.
INCOME (LOSS) PER SHARE
Income (loss) per share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and common stock equivalents,
consisting of stock options and warrants, outstanding during the period. For
all periods presented, fully diluted and primary income or loss per share are
the same. For 1994, the effects of stock options and warrants were excluded
from the computation of weighted average shares outstanding because their
effects were antidilutive.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign operations are translated at rates of
exchange in effect at period end. Statement of operations amounts are
translated at the average rate of exchange for the period. Gains and losses
resulting from translation are accumulated in a separate component of
shareholders' equity. Foreign currency transaction gains and losses, which are
not material, are included in the consolidated statements of operations.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" in March, 1995. This statement will be effective for the
Company's year ended December 31, 1996. Management believes that adoption of
this pronouncement will not have a significant impact on the financial position
or results of operations of the Company.
In addition, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Awards for Stock-Based Compensation to Employees" in October,
1995. This statement will be effective for the Company's year ended December
31, 1996. Management intends to adopt the disclosure provisions of SFAS No.
123 during 1996.
NOTE 2_ UNUSUAL ITEMS AND INVENTORY VALUATION ADJUSTMENTS
In December, 1994 the Company recorded a $750,000 charge related to the
write down of excess inventories and a $2,450,000 unusual charge related to the
termination of certain distribution and supply agreements ($540,000) as well as
severance and other costs related to senior management changes ($1,910,000).
Amounts remaining to be paid at December 31, 1995 pursuant to this charge are
$498,000 included in Accrued expenses and $102,000 included in Other non-
current liabilities, exclusive of amounts included in Note 9, Executive
Retirement Plans. The non-current portion will be paid in 1997.
In May, 1994 the Company discontinued the development of certain purchased
technology acquired in 1992 from Robert Dowben Associates, a diagnostic
research company, and incurred a one-time pre-tax charge of $3,300,000. The
majority of this charge related to the write off of tangible and intangible
assets ($1,560,000), costs incurred to terminate contracts with outside vendors
and consultants ($797,000), as well as severance and related costs for
terminated employees ($943,000). Amounts remaining to be paid at December 31,
1995 pursuant to this charge, exclusive of amounts included in Note 9,
Executive Retirement Plans, are $49,000, and are included in Accrued expenses.
In March, 1993 the Company reduced its workforce by approximately 40
positions, or 10% of its employee base. This resulted in a $750,000 pre-tax
charge to earnings for severance and related costs. None of this amount
remains to be paid on December 31, 1995. This reduction was accomplished
through lay-offs and elimination of open positions.
NOTE 3 - INVENTORIES
Inventories consist of the following:
December 31, December 31,
1995 1994
Raw materials $ 2,281,000 $ 2,242,000
Work in progress 9,421,000 8,521,000
Finished goods 1,743,000 1,605,000
$ 13,445,000 $ 12,368,000
NOTE 4 - INTANGIBLE ASSETS
Intangible assets consist of the following:
December 31, December 31,
1995 1994
Patents $ 717,000 $ 717,000
Trademarks 17,000 17,000
Goodwill 619,000 619,000
Intellectual property and purchased 734,000 648,000
technology
Product distribution rights 2,700,000 2,700,000
4,787,000 4,701,000
Less accumulated amortization (3,682,000) (2,957,000)
$ 1,105,000 $ 1,744,000
NOTE 5_LONG-TERM DEBT, LEASE AND ROYALTY COMMITMENTS
Long-term debt consists of the following:
December 31, December 31,
1995 1994
Long-term note from affiliate due December
1996, interest at LIBOR plus 125 basis $ --- $ 4,020,000
points
Capitalized lease obligations, 8.0%,
due through 1996 72,000 390,000
Other 7,000 11,000
79,000 4,421,000
Less current portion (76,000) (278,000)
Total long-term debt $ 3,000 $ 4,143,000
The Company has a revolving line of credit from a bank which provides for
maximum borrowings of $1,000,000 through January 31, 1996 and is secured by
accounts receivable. This credit line has been renegotiated for another one-
year term at the prime interest rate or LIBOR plus 2.50%. In addition, the
Company has a $4,500,000 revolving line of credit with Fiat Finance U.S.A.,
Inc. which expires on April 29, 1996. It is anticipated that this credit line
will continue to be renewed at one year terms.
At December 31, 1995 and 1994, property and equipment includes capital
lease costs of $842,000 and accumulated amortization of $773,000 and $615,000,
respectively. Lease amortization included in depreciation was $158,000 for the
year ended December 31, 1995 and $264,000 for the year ended December 31, 1994.
Aggregate annual maturities of long-term debt are $76,000 in 1996 and
$3,000 in 1997. These amounts include payments on capitalized leases, net of
$2,000 representing future interest payments.
The Company leases certain manufacturing and other equipment in
connection with its normal operations. Rent expense under these operating
leases was $295,000 for the year ended December 31, 1995 and $238,000 for the
year ended December 31, 1994. Future minimum lease payments for all
noncancelable operating leases having a remaining term in excess of one year
are as follows: 1996_$226,000; 1997_$145,000; 1998_$21,000.
The Company is obligated to make royalty payments under several
distribution and licensing agreements. The majority of these agreements call
for payments based on a percentage of sales and contain no minimum royalty
clause. Royalty expense under these agreements was $1,715,000 in 1995,
$1,099,000 in 1994 and $1,564,000 in 1993.
NOTE 6 - RELATED PARTY TRANSACTIONS
As part of the ongoing operations of the Company, various transactions
were entered into during 1995, 1994 and 1993 with its affiliates, Sorin
Biomedica S.p.A. and its subsidiaries (Sorin), an affiliate of the Fiat group,
and Fiat Finance U.S.A., Inc. The following tables summarize transactions and
related year end balances:
Operating Sorin Fiat Finance U.S.A., Inc.
Statement Data: Year Ended December 31, Year Ended December 31,
1995 1994 1993 1995 1994 1993
Product sales $7,625,000 $6,903,000 $6,842,000 $ --- $ --- $ ---
Product purchases 1,807,000 1,248,000 1,240,000 --- --- ---
Royalty expense 582,000 176,000 211,000 --- --- ---
Interest expense --- --- --- 170,000 312,000 389,000
Balance Sheet Data:
December 31, December 31,
1995 1994 1995 1994
Assets
Trade receivables $1,965,000 $ 1,743,000 $ --- $ ---
Other receivables 6,000 5,000 --- ---
Liabilities
Accounts payable $ 675,000 $ 389,000 $ --- $ ---
Accrued royalty 480,000 47,000 --- ---
Accrued interest --- --- 4,000 3,500
Long-term debt --- --- --- 4,020,000
NOTE 7_INCOME TAXES
The provision for income taxes is summarized as follows:
Year Ended December 31, Federal State Foreign Total
1995
Current $1,505,000 $ 89,000 $ (23,000) $ 1,571,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $1,505,000 $ 89,000 $ (23,000) $ 1,571,000
1994
Current $ 123,000 $ 34,000 $ 36,000 $ 193,000
Deferred - - - - - - - - - - - -
Provision for Income Taxes $ 123,000 $ 34,000 $ 36,000 $ 193,000
1993
Current $ 428,000 $ (58,000) $ (7,000) $ 363,000
Deferred (79,000) - - - - - - (79,000)
Provision for Income Taxes $ 349,000 $ (58,000) $ (7,000) $ 284,000
The provision for income taxes differs from the statutory federal tax
rate of 34% applied to income (loss) before income taxes as follows:
Year Ended December 31,
1995 1994 1993
Federal tax calculated at the
statutory rate $1,984,000 $(1,466,000) $ 183,000
Tax credits - - - - - - (120,000)
Change in the valuation allowance
for deferred taxes (532,000) 1,872,000 528,000
Amortization and depreciation of
intangible and fixed assets acquired 34,000 34,000 34,000
Exempt income attributable to
foreign sales (333,000) (288,000) (269,000)
Tax differential of foreign
subsidiary income 6,000 13,000 6,000
State taxes, net of federal benefit 59,000 22,000 52,000
State refunds, net of federal tax benefit - - - - - - (90,000)
Compensation expense on executive
stock options 203,000 - - - 47,000
Other, net 150,000 6,000 (87,000)
Provision for income taxes $1,571,000 $ 193,000 $ 284,000
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are as follows:
December 31, December 31,
1995 1994
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 29,000 $ 32,000
Accrued vacation pay 27,000 33,000
Inventories, reserves and additional
costs inventoried for tax purposes 728,000 798,000
Patents, due to different book and tax lives 27,000 30,000
Retirement plans 1,066,000 984,000
Tax credits 492,000 527,000
Net operating loss carryforward --- 72,000
Severance and related costs not
currently deductible 189,000 650,000
Other 26,000 75,000
Gross deferred tax assets 2,584,000 3,201,000
Valuation allowance (2,553,000) (3,084,000)
Net deferred tax asset $ 31,000 $ 117,000
Deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation and
capitalized interest $ 41,000 $ 127,000
Other 5,000 5,000
Deferred tax liability $ 46,000 $ 132,000
Total net deferred tax liability $ ( 15,000) $ ( 15,000)
At December 31, 1995, the Company has research and development tax credits of
$492,000, expiring in years through 2005.
NOTE 8_EMPLOYEE SAVINGS RETIREMENT AND VALUE SHARING PLAN
The Company adopted a Salary Savings Plan under Section 401(k) of the
Internal Revenue Code, effective November 1, 1985. Participants make pre-tax
contributions of up to 15% of their wages subject to an annual limit of $9,500.
The Company is required to match 50% of that portion of the participant's pre-
tax contribution which does not exceed 6% of the participant's compensation.
The Company contributed $262,000 for the year ended December 31, 1995, $273,000
for the year ended December 31, 1994, and $230,000 for the year ended December
31, 1993.
In 1994 the Company changed its profit sharing plan to a non-contributory
value sharing plan. Cash payments to all eligible employees are based on the
improvement in economic value as well as a targeted performance factor for
economic value added (EVA). The Company incurred $984,000 and $0 expense under
this plan for the years ended December 31, 1995 and 1994, respectively.
Prior to the adoption of an EVA value sharing plan the Company sponsored
a non-contributory profit sharing plan covering all eligible employees. Cash
payments to participants were based on a sliding scale of pre-tax income. There
was no expense under this plan for the year ended December 31, 1993.
NOTE 9_EXECUTIVE RETIREMENT PLANS
The Company has individual retirement agreements with certain current and
prior executive officers which are intended to provide continued compensation
to such individuals or their respective beneficiaries upon the later of their
retirement from the Company after attainment of sixty years of age (fifty-five
years of age for one plan participant) or attainment of sixty years of age
(fifty-five years of age for one plan participant) following termination of
employment, or upon death during the term of employment (the "triggering
events"). Subject to vesting requirements, the retirement agreements provide
for the payment to these individuals or their respective beneficiaries, of
annual benefits for a period of fifteen years following the occurrence of a
triggering event. The amount of annual benefits is adjusted annually to
reflect changes in the cost of living. The annual benefit amounts vest at the
rate of 10% per year.
The Company maintains an executive income continuation plan for the
benefit of executive officers not covered under the agreements discussed above.
The plan provides payments for fifteen years to such officers or their
respective beneficiaries upon the later of an officer's retirement from the
Company after attainment of sixty years of age or attainment of sixty years of
age following termination of employment, or upon death during the term of
employment. The annual retirement payment is the product of an annual benefit
rate set by the Board of Directors ($3,333 for 1995) multiplied by the number
of years of employment, up to a maximum of fifteen years, and as adjusted to
reflect the cost of living changes during the payment period. An officer's
rights under the plan are fully vested after ten years of employment.
In connection with both of the above plans, included in other noncurrent
liabilities at December 31, 1995 and 1994 is $3,136,000 and $2,895,000,
respectively, representing the present value of the future liability. Also,
included in Accrued expenses at December 31, 1995 is $31,000 representing the
current portion of this liability. The Company intends to fund this obligation
through life insurance contracts on the individual executives. Included in
Other assets at December 31, 1995 and 1994 is $934,000 and $905,000,
respectively, of cash surrender value in connection with these policies.
NOTE 10_EMPLOYEE STOCK PURCHASE AND OPTION PLAN
The Company's Employee Stock Purchase Plan enables eligible employees to
purchase the Company's Common Stock at the lower of 85% of the fair market
value on the first or the last day of each plan year. The number of shares
reserved for sale under this plan is 300,000, of which 250,127 shares have been
sold.
Under the Company's Stock Option Plan, as amended, stock options are
awarded to key employees, consultants and directors at a price equal to the
fair market value at the date of grant. All options have five or ten year
terms and become exercisable in varying amounts after the grant date.
A summary of activity under the Company's various options plans follows:
Shares Options Outstanding
reserved Option
for grant Shares price
Balance December 31, 1992 109,968 582,875 $ 1.44/8.50
Exercised --- (13,500) 2.50/3.63
Canceled 49,200 (49,200) 3.63/8.25
Granted (322,000) 322,000 3.375/5.63
Additional shares reserved
-1989 plan as amended 500,000 --- ---
Balance December 31, 1993 337,168 842,175 $ 1.44/8.50
Exercised --- (1,500) 1.44/2.50
Canceled 136,000 (136,000) 2.50/8.50
Granted (119,000) 119,000 2.50/3.00
Balance December 31, 1994 354,168 823,675 $ 2.50/8.50
Exercised outside the plan (1,000) 1.44
Canceled 206,000 (206,000) 2.50/8.25
Canceled outside the plan (14,035) 1.44/2.50
Granted (103,000) 103,000* 2.375/4.75
Balance December 31, 1995 457,168 705,640 $ 2.375/8.25
As of December 31, 1995 options for 464,923 shares were exercisable at
prices ranging from $1.44 to $8.25 per share. *Includes 12,000 options issued
subject to approval at the Company's annual shareholder meeting to be held May
21, 1996.
NOTE 11_SUPPLEMENTARY CASH FLOW INFORMATION
Year Ended December 31,
1995 1994 1993
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 192,000 $ 369,000 $ 474,000
Income taxes, net 1,151,000 242,000 390,000
Schedule of non-cash investing and
financing activities:
Capital lease obligations incurred under
new equipment leases --- --- 510,000
NOTE 12_GEOGRAPHIC SEGMENT DATA
Comparative geographical data for the Company's operations is summarized
as follows:
1995 1994 1993
SALES
United States $ 24,494,000 $ 21,282,000 $ 23,321,000
Europe 13,110,000 12,478,000 12,562,000
Asia 4,798,000 5,290,000 3,949,000
Other Foreign 3,358,000 3,453,000 3,456,000
Total $ 45,760,000 $ 42,503,000 $ 43,288,000
OPERATING INCOME
United States $ 3,515,000 $ 877,000 $ 638,000
Europe 938,000 639,000 388,000
Asia 971,000 290,000 76,000
Other Foreign 725,000 736,000 699,000
6 ,149,000 2,542,000 1,801,000
Unusual items --- (5,750,000) (750,000)
Inventory valuation adjustment --- (750,000) ---
Other expenses, net (315,000) (354,000) (514,000)
Income (loss) before income taxes $ 5,834,000 $ (4,312,000) $ 537,000
TOTAL ASSETS
United States $ 38,059,000 $ 37,272,000 $ 42,615,000
Europe 702,000 882,000 811,000
Asia --- --- ---
Other Foreign --- --- ---
Total $ 38,761,000 $ 38,154,000 $ 43,426,000
NOTE 13_WARRANTS AND STOCK PURCHASE RIGHTS
The Company has issued to BFHI a warrant to purchase up to 730,720 shares
of Common Stock at the prevailing market price and has granted BFHI the right
to purchase additional Common Stock at a price identical to any new issuances.
These agreements enable BFHI to maintain a minimum 51% ownership in the
Company.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of INCSTAR Corporation:
We have audited the consolidated financial statements of INCSTAR
Corporation and subsidiaries as listed in the accompanying index in Item
14(a)(1) on page 17. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index in Item 14(a)(2) on page 17. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of INCSTAR
Corporation and subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1995, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material aspects, the
information set forth therein.
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 26, 1996
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
INCSTAR CORPORATION AND SUBSIDIARIES
Column A Column B Column C Column D Column E
Balance at Charged
the to Balance at
Beginning Charged Other the
of to Costs & Accounts Deductions End of
Period Expenses Describe (Describe) Period
Allowance for doubtful
accounts receivable:
Year ended December
31, 1995 $113,000 $ 16,000 $ - - $22,000(A) $107,000
Year ended December
31, 1994 195,000 23,000 - - 105,000(A) 113,000
Year ended December
31, 1993 170,000 39,000 - - 14,000(A) 195,000
<FN>
(A) Uncollectible accounts written off, net of recoveries
</FN>
EXHIBIT INDEX
(a) List of documents filed as part of this report:
(1) Consolidated Statements of Operations - Years Ended
December 31, 1995, December 31, 1994, and December 31,
1993
Consolidated Balance Sheets - As of December 31,
1995 and 1994
Consolidated Statements of Cash Flows - Years
Ended December 31, 1995, December 31, 1994; and
December 31, 1993
Consolidated Statements of Shareholders' Equity -
Years Ended December 31, 1995; December 31, 1994; and
December 31, 1993
Consolidated Quarterly Results (unaudited) for
the Years Ended December 31, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
(2) Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
All other financial statement schedules not listed have been
omitted since the required information is included in the
consolidated financial statements or the notes thereto or is
not applicable or required.
(3) Exhibits:
Number Description
3.1 Restated Articles of Incorporation of INCSTAR
Corporation, as amended to date [incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-8
(File No. 33-84498)].
3.2 Bylaws of INCSTAR Corporation, as amended to date
[incorporated by reference to Exhibit 4.2 to
the Registrant's Registration Statement on Form S-8
(File No. 33-84498)].
4.1 Specimen Certificate representing the
Registrant's Common Stock [incorporated by
reference to Exhibit 4.1 to the Registrant's
Registration Statement on Form S-3
(File No. 33-37805)].
4.2 Note Purchase Agreement, dated December 27, 1991
between the Registrant and Fiat Finance, U.S.A. Inc.
[incorporated by reference to Exhibit 4.2 to the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)]
4.3 Form of Warrant Certificate issued by the Registrant
in favor of Bioengineering International B.V. (now
BioFin Holding International B.V.) [incorporated by
reference to Exhibit 10.11 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
4.4 Form of Purchase Rights Agreement between
Bioengineering International B.V. (now BioFin Holding
International B.V.) and the Registrant [incorporated
by reference to Exhibit 10.12 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
10.1+* INCSTAR Corporation Stock Option Plan, as amended to
date, filed herewith.
10.2* Economic Value Sharing Plan [incorporated by
reference to Exhibit 10.1 of the Registrant's Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-9800)].
10.3* Form of Executive Survivor Benefit Income
Continuation Agreement between the Registrant and
certain of its employees [incorporated by reference
to Exhibit 10.4 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.4* Executive Survivor Benefit Income Continuation Plan
covering certain executive officers of the Registrant
[incorporated by reference to Exhibit 10.4 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1993 (File No. 1-9800)].
10.5* Form of Employment Agreement between the Registrant
and John J. Booth [incorporated by reference to
Exhibit 10.13 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.6* Amendments to Employment Agreement between the
Registrant and John J. Booth [incorporated by
reference to Exhibit 10.8 of the Registrant's Report
on Form 10-K for the year ended December 31, 1993
(File No. 1-9800)].
10.7* Employment Continuation Agreement between the
Registrant and Orwin L. Carter [incorporated by
reference to Exhibit 10.1 of the Registrant's report
on Form 10-Q for the quarter ended September 30, 1994
(File No. 1-9800)].
10.8* Separation Agreement between the Registrant and
Jacques A. Bagdasarian [incorporated by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-K
for the year ended December 31, 1994
(File No. 1-9800)].
10.9+ Form of Scientific Advisory Board agreement between
the Registrant and Dr. Pierre M. Galetti and Dr.
Michael Steffes filed herewith.
10.10+ Consulting Agreement between the Registrant and
Dr. Michael Steffes filed herewith.
10.11 Form of Distributorship Agreement between the
Registrant and Sorin Biomedica S.p.A., without
exhibits or schedules [incorporated by reference to
Exhibit 10.15 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.12 Form of Distributorship Agreement between Sorin
Biomedica S.p.A. and the Registrant [incorporated by
reference to Exhibit 10.16 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
10.13 Distribution Agreement, dated October 30, 1986,
between Clinical Sciences Inc. and Sorin Biomedica
S.p.A., as amended [incorporated by reference to
Exhibit 10.17 of the Registrant's Registration
Statement on Form S-4 (File No. 33-30785)].
10.14 Form of Technology Transfer Agreement between the
Registrant and Sorin Biomedica S.p.A. [incorporated
by reference to Exhibit 10.18 of the Registrant's
Registration Statement on Form S-4
(File No. 33-30785)].
10.15 Distribution and Supply Agreement between Baxter
International Inc. and the Registrant dated September
19, 1990 [incorporated by reference to Exhibit 10(b)
of the Registrant's report on Form 10-Q for the
quarter ended September 30, 1990 (File No. 1-9800)].
10.16 Product Distribution Agreement between Centocor, Inc.
and the Registrant dated December 2, 1991
[incorporated by reference to Exhibit 10.14 of the
Registrant's Report on Form 10-K for the year ended
December 31, 1991 (File No. 1-9800)].
10.17.1 Letter agreements dated August 3, 1992 and
February 19, 1993 amending the product distribution
agreement filed as Exhibit 10.15 [incorporated by
reference to Exhibit 10.14.1 of the Registrant's
Report on Form 10-K for the year ended December 31,
1993 (File No. 1-9800)].
10.18 Revolving Credit, Security and Note Agreement, with
exhibits thereto, dated as of December 27, 1993
between Norwest Bank Minnesota, National Association
and the Registrant [incorporated by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-K
for the year ended December 31, 1994
(File No. 1-9800)].
10.18.1 First Amendment dated January 3, 1995 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16 [incorporated by reference to Exhibit 10.1 of
the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.2 Second Amendment dated February 15, 1995 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16 [incorporated by reference to Exhibit 10.1 of
the Registrant's Report on Form 10-K for the year
ended December 31, 1994 (File No. 1-9800)].
10.18.3+ Third Amendment dated January 29, 1996 to Revolving
Credit, Security and Note Agreement filed as Exhibit
10.16.
10.19 Agreement for Purchase, Sale and Distribution of
Assets between TheraTest Laboratories Inc. and the
Registrant dated May 16, 1994 [incorporated by
reference to Exhibit 10.1 of the Registrant's Report
on Form 10-K for the year ended December 31, 1994
(File No. 1-9800)].
11+ Statement Re: Computation of Net Income (Loss)
Per Common Share.
21+ Subsidiaries of the Registrant.
23+ Independent Auditors' Consent
27+ Financial Data Schedules
* Executive Compensation Plans and Arrangements
+ Filed with this Annual Report on Form 10-K