UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED APRIL 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ___________ to ___________
COMMISSION FILE NUMBER 0-13608
INNOSERV TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 95-3619990
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
320 WESTWAY, SUITE 530, ARLINGTON, TEXAS 76018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 468-3377
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common stock, $.01 Par Value NASDAQ National 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 twelve 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 From 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 July 24, 1997 was $2,947,866.
At July 24, 1997, the Registrant had outstanding 5,035,833 shares of its
common stock, $.01 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the proxy statement for
the Annual Meeting of Shareholders to be held on September 15, 1997.
PART I
ITEM 1. BUSINESS.
GENERAL
InnoServ Technologies, Inc.-Registered Trademark- ("InnoServ") is a
California corporation organized in 1981. InnoServ provides comprehensive asset
management programs and services, multi-vendor maintenance and repair services
and other specialized services to radiology, cardiology, biomedical and
laboratory departments of hospitals and other healthcare providers. The
foregoing business is reported as one segment. Except where the context
otherwise requires, the term "InnoServ" and "Registrant" as used in this report
refers to InnoServ Technologies, Inc. and its subsidiaries.
InnoServ operates its business primarily through its wholly-owned
subsidiary InnoServ Technologies Maintenance Services, Inc. ("InnoServ
Maintenance") and through its imaging operation.
INNOSERV TECHNOLOGIES MAINTENANCE SERVICES, INC.
In August 1994, InnoServ acquired (the "Acquisition") the capital stock of
MEDIQ Equipment & Maintenance Services, Inc. ("MEMS") which provided products
and services comparable to that of InnoServ Maintenance. Subsequent to the
Acquisition, InnoServ combined the operations of MEMS with those of InnoServ
Maintenance. See Management's Discussion and Analysis of Financial Condition
and Results of Operations - Acquisition of MEDIQ Equipment and Maintenance
Services, Inc.
InnoServ Maintenance provides maintenance, consulting and technical
services for customer operated magnetic resonance imaging ("MRI") and
computed tomography ("CT") scanners and a wide array of diagnostic imaging,
biomedical and laboratory equipment on a nationwide basis. Comprehensive
maintenance service agreements covering virtually all the equipment operated
by a hospital's radiology, biomedical and laboratory departments ("Asset
Management") usually have terms of three years or more. Maintenance
agreements for individual MRI and CT scanners and X-ray tube replacement
agreements typically have terms of one to three years, with limited
termination provisions, on either a fixed or volume related basis.
Maintenance services are performed at a customer's site by InnoServ
Maintenance's field service engineers and equipment specialists and are
offered as a cost-effective alternative to maintenance service offered by
medical equipment manufacturers. InnoServ Maintenance's personnel, through
the use of proprietary software information systems, also provide customers
of the Asset Management services with an array of analytical reports and
consulting services to help manage the customer's imaging, biomedical and
laboratory capital equipment. In addition to performing regular preventive
maintenance services, InnoServ Maintenance's engineers are on call 24 hours a
day, seven days a week, to provide emergency maintenance of medical
equipment. InnoServ Maintenance also sells X-ray tubes and spare parts for
many different makes and models of MRI and CT scanners, and used and
refurbished diagnostic imaging equipment as a service to its customers.
2
In support of its field service operations, InnoServ Maintenance maintains
a supply of spare parts in strategic locations across the nation. Analysis and
repair of defective parts is performed at InnoServ's Arlington, Texas facility.
In addition to having the capability to repair electronic circuit boards and
systems, InnoServ Maintenance reloads X-ray tubes and rebuilds high voltage
components such as transformers.
IMAGING OPERATION
InnoServ owns 6 mobile CT scanners and 6 cardiac catheterization
laboratories (the "Imaging Operation") which are offered to customers under
lease agreements. Customers typically enter into these leases while their
in-house equipment is being installed, serviced or upgraded or to supplement
in-house equipment during periods of heavy patient volume. InnoServ may also
provide additional support services pursuant to the lease. Typically, customers
execute an agreement for a specific period ranging from one month to periods
in excess of one year and are billed monthly on a fixed rate basis regardless
of the number of procedures performed.
In June 1995, InnoServ discontinued providing mobile CT scanners under
shared service arrangements. These arrangements were for terms of up to three
years and customers were billed on a fee-for-service basis for the procedures
actually performed. During the time InnoServ's equipment and employees were at
a shared services customer location, they operated under the direction of a
licensed physician on the customer's staff. InnoServ worked closely with
physicians to tailor operating protocols. InnoServ personnel did not, however,
provide professional medical services. InnoServ's customers, rather than
InnoServ, were responsible for scheduling the number of patients on whom the
procedures were performed during scheduled service.
CUSTOMERS AND MARKETING
InnoServ markets its services to healthcare providers through a direct
sales force consisting of sales representatives and supervisory personnel.
InnoServ's strategy emphasizes its multi-vendor, multi-modality Asset Management
programs, the skill and experience of its service engineers, the quality of its
equipment, the reliability and cost effectiveness of its service, and its
ability to tailor service programs to specific customer needs.
Hospitals and other healthcare providers which operate MRI and CT scanners
and other diagnostic, biomedical and laboratory equipment require regular
preventive maintenance programs and emergency repair services for their
equipment. Since the quality and reliability of patient care depends in part
upon the reliability of the equipment used, hospitals arrange for regular
maintenance of the equipment and contract for maintenance and repair services
with the equipment manufacturers or independent maintenance companies such as
InnoServ.
When larger hospitals desire to replace, upgrade or augment their existing
CT or cardiac catheterization equipment, they may require interim rental
equipment such as that provided by InnoServ. By using such equipment for an
interim period, hospitals may continue to offer their regular services during a
major renovation.
3
During fiscal 1997, InnoServ provided its Asset Management, maintenance,
distribution and diagnostic services in 42 states to customers including
hospitals, health maintenance organizations, out-patient clinics and private
physician offices. No single customer accounted for more than ten percent of
InnoServ's consolidated revenues.
COMPETITION
The healthcare industry in general and the market for medical equipment
maintenance, distribution and diagnostic imaging services in particular is
highly competitive.
With respect to its medical equipment maintenance services, InnoServ
competes with both medical equipment manufacturers, most of which have
substantially greater financial and marketing resources than InnoServ, and other
third party maintenance service companies. Certain large hospital systems also
provide in-house maintenance service on their own equipment.
With respect to its distribution services, InnoServ competes with other
distributors, manufacturers and equipment resellers such as brokers, leasing
companies, and individual healthcare providers, many of whom have financial and
marketing resources substantially greater than those of InnoServ.
INTELLECTUAL PROPERTY
Most of InnoServ's diagnostic software products were developed by InnoServ
or its acquired businesses. Software products including certain diagnostic
software programs are licensed to InnoServ by various vendors and equipment
manufacturers, some of whom are competitors. If selected licensed software
products were no longer available, a material hardship on InnoServ could result.
Software products developed or used by InnoServ may from time to time raise
questions of infringement of patents or copyrights owned by others and not
licensed to InnoServ. No claims of such infringement have been raised; however,
if such claims are raised and it is determined that licenses under patents or
copyrights owned by others are essential, but not available, a material hardship
on InnoServ might result.
SOURCES AND AVAILABILITY OF REPAIR PARTS
Most of the mechanical, electrical and electronic parts and components used
in the performance of repair service are purchased from medical equipment
manufacturers and after-market part suppliers. InnoServ believes that
materials, components and parts of the type and in the quantities necessary for
its continued service operations are readily available, and in many cases
alternate sources currently exist. InnoServ procures certain X-ray tubes and
other proprietary components from certain sole source suppliers. In the event
any sole source item becomes unavailable from the present supplier or the
supplier's time to deliver such items is abruptly extended beyond normal,
InnoServ could experience difficulty, delay and expense in obtaining delivery
from other sources and InnoServ's ability to maintain and repair customer's
equipment could be impeded.
4
INSURANCE
InnoServ maintains a comprehensive insurance program which covers the
replacement value of its equipment and vehicles, subject to normal deductibles,
when appropriate. Additionally, InnoServ maintains professional and general
liability, and employee health insurance coverage, subject to normal
deductibles. InnoServ believes its present insurance coverage is adequate.
EMPLOYEES
At July 22, 1997, InnoServ had 217 employees. None of InnoServ's employees
are represented by a labor organization and InnoServ is not aware of any
activity seeking such organization. InnoServ considers its relationship with
its employees generally to be satisfactory.
ITEM 2. PROPERTIES.
InnoServ leases approximately 78,000 square feet of office, maintenance and
storage facilities in seventeen locations at an approximate annual cost of
$650,000. Individual lease terms extend up to 53 months with various renewal
options.
While InnoServ believes that its facilities are adequate for its current
and near-term needs, to the extent InnoServ expands its activities either
geographically or with respect to the number of hospitals, clinics or group
practices to which it provides its services, InnoServ may be required to obtain
additional office, maintenance or storage facilities.
ITEM 3. LEGAL PROCEEDINGS.
InnoServ is party to a lawsuit filed on April 12, 1995 in Superior Court in
the County of Riverside, California by two former employees who have claimed
wrongful termination in retaliation for filing a claim with the U.S. Department
of Labor. The plaintiffs have sought damages in the amount of approximately
$1,000,000. InnoServ has responded and is defending vigorously. While the
ultimate outcome of this matter is not currently determinable, InnoServ
believes that the ultimate liability related to this matter will not exceed
amounts currently accrued in the financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
InnoServ's common stock is traded in the NASDAQ National Market under the
symbol ISER. The ranges of high and low transaction prices for the common stock
as reported by The National Stock Market, Inc. for fiscal 1997 and 1996 are set
forth in the following table. Such quotations are prices between dealers
without retail markups, markdowns or commissions and do not represent actual
transactions.
High Low
---- ---
1997
- ----
4th Quarter $3 1/8 $1 13/16
3rd Quarter $3 1/8 $2 1/8
2nd Quarter $5 $2 7/8
1st Quarter $5 5/8 $3 5/8
1996
- ----
4th Quarter $4 1/2 $3 5/8
3rd Quarter $4 5/8 $2
2nd Quarter $4 $2 1/2
1st Quarter $4 1/4 $2 3/4
InnoServ estimates that it had approximately 1,000 beneficial shareholders
as of July 17, 1997.
In April 1995, InnoServ's Board of Directors discontinued the payment of
dividends for an indefinite period. InnoServ's current loan agreement prohibits
the payment of cash dividends.
6
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth certain selected financial data for each of
the five years in the period ended April 30, 1997. The acquired operations of
MEMS have been included effective August 3, 1994 (see Note 9 to the Notes to
Consolidated Financial Statements). The selected financial data presented below
should be read in conjunction with the consolidated financial statements of
InnoServ and the notes thereto appearing in Item 8 of Part II of this report and
the information set forth in Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Year Ended
----------
April 30, April 30, April 30, April 30, April 30,
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Operating Data:
Revenues $ 42,387 $ 45,727 $ 46,366 $ 40,464 $ 45,263
Net income (loss) (1,573) (7,189) (3,630) 1,507 2,265
Net income (loss)
per share (a) (0.31) (1.43) (0.81) 0.49 0.76
Cash dividends per
share (a) $ --- $ --- $ 0.23 $ 0.16 $ 0.11
Weighted average
shares outstanding 5,036 5,036 4,511 3,049 2,977
Balance Sheet Data:
Total assets $ 19,102 $ 23,840 $ 30,506 $ 21,430 $ 22,191
Working capital 978 1,023 4,077 6,784 5,177
Total long-term debt 479 910 141 --- ---
Total shareholders'
equity $ 8,393 $ 9,966 $ 17,155 $ 15,400 $ 14,236
(a) Restated to reflect a 10% stock dividend declared March 4, 1993, and
distributed April 5, 1993.
7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
Consolidated revenues for fiscal 1997 were $42,387,000, a decrease of
$3,340,000 from fiscal 1996 consolidated revenues of $45,727,000. The
decrease occurred primarily as a result of the continued decline in the
number and average contract amount of CT maintenance service agreements in
effect as a result of older equipment being upgraded or removed from service
by customers and InnoServ's decision to not renew certain CT maintenance
contracts in unprofitable locations. Revenues for fiscal 1997 related to CT
maintenance contracts declined by approximately $3,566,000 as compared to
fiscal 1996 revenues. In addition, sales of parts, tubes, and equipment
declined by $1,555,000, which relates to the reduction in CT maintenance
contract revenues, and non-contract service revenue declined by $540,000
as compared to fiscal 1996. The decline in fiscal 1997 revenues is also
attributed to a decrease of approximately $965,000 from fiscal 1996 in
revenues generated from Advanced Imaging Technologies, Inc. (AIT) primarily
due to the disposition of substantially all of its revenue producing assets
on March 17, 1997 (See Note 4 to the Notes to Consolidated Financial
Statements). AIT's business was no longer consistent with the strategic
focus of InnoServ. These declines were partially offset by revenue increases
in InnoServ's other product lines, principally Asset Management services
which grew by $3,849,000 as compared to 1996 revenues and MRI services which
grew by $344,000 over 1996 revenues as InnoServ continues to focus on the
growing market for those services. In addition, the decline was partially
offset by a reduction of approximately $200,000 in the reserve for sales
allowances during the fourth quarter of fiscal 1997. This reduction was a
result of management's ongoing analysis of service billings.
Cost of operations for fiscal 1997 decreased by $3,958,000 as those costs
were approximately 85% of fiscal 1997 revenues as compared to approximately
87% of revenues in fiscal 1996. These decreases were the result of cost
reduction actions including employment terminations taken in fiscal 1997 and
1996 by management as well as the increase in Asset Management services which
generally have higher operating margins than the operating margins of most of
InnoServ's other product lines including CT maintenance contracts which have
margins that continue to decline. In addition, during the fourth quarter of
fiscal 1997, InnoServ recorded a reduction of approximately $300,000 in
certain accruals as determined through management's ongoing evaluation of
estimated liabilities.
Depreciation and amortization expense for fiscal 1997 was $98,000
less than in fiscal 1996 which reflects the reduction in expenditures for
fixed assets, principally test equipment used in the maintenance service
product lines as InnoServ concentrates its activities on the Asset Management
services which require less capital than the other InnoServ product lines.
Selling and administrative expenses decreased in fiscal 1997 by $2,134,000
to $6,223,000 which is the result of management's efforts to reduce expenses in
fiscal 1997 which included reductions in InnoServ's sales force and
administrative personnel. Additionally, the decrease is due to the elimination
of certain nonrecurring
8
costs incurred in fiscal 1996 of $313,000 in restructuring costs recorded in
the third quarter of fiscal 1996 as well as other training and duplicate
salary expenses for the relocation of InnoServ's headquarters.
Loss before income taxes declined by $3,090,000 to $1,620,000 in fiscal
1997 from $4,710,000 in fiscal 1996, partially as a result of improved
operating margins resulting from the increase in revenue from Asset
Management services which have a higher operating margin than the other
product lines. In addition, the loss before income taxes in fiscal 1996
reflected special charges of $2,267,000, restructuring costs to effect the
relocation of InnoServ's headquarters and spare parts repair operations, and
unfavorable operating margins associated with the CT maintenance business.
Because InnoServ employs field service engineers over a wide geographic area,
the current level of revenues are not sufficient in certain locations to
cover the direct costs of providing maintenance and repair services and the
infrastructure costs to support these activities. InnoServ continues to
implement plans to reorganize its service operations to more cost effectively
provide the services required by its customers and to discontinue the service
in selected locations upon the expiration of the existing maintenance
agreements in those locations. InnoServ believes these actions, coupled with
the strategic changes made in the focus and operations of InnoServ, will
continue to improve InnoServ's operations.
InnoServ recorded a $47,000 tax benefit in fiscal 1997 representing an
estimated tax refund for state income taxes paid in prior years. InnoServ did
not recognize a tax benefit from the operating loss for fiscal 1997. At April
30, 1997, InnoServ had an estimated net deferred tax asset before valuation
allowance of $5,513,000, primarily as a result of net operating loss and tax
credit carryforwards. In accordance with SFAS 109, InnoServ recorded a
valuation allowance for the full amount of the net deferred tax asset. The
ultimate realization of the deferred tax asset depends on the ability of
InnoServ to generate sufficient taxable income in the future. While InnoServ
believes the deferred tax asset will be substantially realized by future
operating results, due to the cumulative losses incurred in recent years, the
deferred tax assets do not currently meet the criteria for recognition under
SFAS 109.
FISCAL 1996 COMPARED TO FISCAL 1995
ACQUISITION OF MEDIQ EQUIPMENT & MAINTENANCE SERVICES, INC.
On August 3, 1994, InnoServ acquired MEMS, a wholly-owned subsidiary of
MEDIQ Incorporated ("MEDIQ") in exchange for 2,006,438 shares of InnoServ's
common stock and a warrant to purchase 325,000 shares thereof at an exercise
price of $6.25 per share exercisable through August 3, 1998. An additional
20,000 shares of InnoServ's common stock were issued to MEDIQ in connection with
a noncompetition agreement which became effective as of the closing of the
Acquisition. The estimated aggregate purchase price, including expenses of the
Acquisition, was approximately $6,565,000. Following the Acquisition, InnoServ
combined the operations of its InnoServ Maintenance subsidiary with those of
MEMS.
Consolidated revenues for fiscal 1996 were $45,727,000, a decline of
$639,000 from fiscal 1995 revenues of $46,366,000. As a result of the
acquisition of MEMS on August 3, 1994, the fiscal 1995 revenues included those
of the acquired operations for nine months. On a pro forma basis after giving
effect to the acquisition of MEMS, the fiscal 1996 revenues declined $5,215,000
as a result of the continued decline in the
9
number and average contract amount of CT maintenance service agreements in
effect as a result of older equipment being upgraded or removed from service
by customers and strategic changes at both Advanced Imaging Technologies
(AIT), and InnoServ's Imaging Operations. Revenues for fiscal 1996 related to
CT maintenance agreements declined $7,553,000 as compared to fiscal 1995 pro
forma revenues. Revenues at AIT declined $1,986,000, primarily from lower
sales of equipment, X-ray film, chemistry and related accessories as a result
of AIT's planned exit from the traditionally low margin institutional X-ray
film market. Revenues at InnoServ's Imaging Operation decreased $1,020,000
resulting from the discontinuance of its shared services program, decreased
utilization of rental equipment and fewer rental units in the fleet. These
declines were offset by an increase in revenues from Asset Management
services for fiscal 1996 of $5,435,000 as compared to the fiscal 1995 pro
forma revenues.
Cost of operations for fiscal 1996 decreased $1,251,000 as the costs in
fiscal 1995 were 89 percent of revenues, declining to 87 percent of revenues in
fiscal 1996. This decline as a percentage of revenues was due primarily to the
increase in Asset Management services which has higher operating margins than
the operating margins of CT maintenance agreements. In addition, InnoServ had
fewer CT maintenance agreements in effect in fiscal 1996 as compared to fiscal
1995.
InnoServ's management team, under the direction of its Chief Executive
Officer who was hired in the third quarter of fiscal 1996, undertook a detailed
assessment of InnoServ's internal operations, customers, competition, and
InnoServ's positioning within its marketplace. This assessment led to a
strategic focus which emphasized Asset Management. In support of this strategy,
InnoServ adopted a plan to reorganize its operations and evaluated the
realization of its assets. The financial impact of these actions was included
in the special charges of $2,267,000 recorded in the fourth quarter of fiscal
1996. These charges were primarily noncash related and included: charges of
$1,636,000 for the writedown of certain spare parts inventory no longer required
to support InnoServ's on-going business operations, for the writedown of certain
CT scanners and other equipment held for resale to their estimated market value
and for physical inventory adjustments related to spare parts inventory;
charges of $394,000 to expense engineering development costs of certain
diagnostic software which were previously capitalized; severance costs of
$154,000 resulting from InnoServ's plan to reorganize its operations; and
depreciation expense of $83,000 as a result of lowering the estimated useful
lives of certain equipment (see Notes 8 and 10 to the Notes to Consolidated
Financial Statements).
The cost of operations for fiscal 1995 also included special charges of
$2,609,000. These charges included a writedown of $671,000 as a result of
InnoServ's election to expense all items of consumable inventory individually
costing less than $100, a writedown of $426,000 in the value of certain spare
parts inventory held for the repair of certain models of CT scanners under
maintenance agreements which had become a minor part of InnoServ's future
revenues, and a writedown of MRI equipment and related leasehold improvements,
severance costs and facility closing costs associated with the relocation of the
spare parts repair operation located in Corona, California to Arlington, Texas
(see Note 10 to the Notes to Consolidated Financial Statements).
Depreciation and amortization expense decreased $813,000, or 28 percent,
from the prior year primarily as a result of purchase accounting adjustments
recorded in the fourth quarter of fiscal 1995 associated with the Acquisition
and the cost of certain rental units operated by InnoServ's Imaging Operation
becoming fully depreciated at the end of fiscal 1995. Selling and
administrative expenses increased $730,000, or ten percent, primarily due to
the inclusion of labor expenses associated with the Acquisition for the full
year in fiscal 1996 compared to only nine
10
months in fiscal 1995. Selling and administrative expenses in fiscal 1996
also included $313,000 in restructuring costs recorded in the third quarter
as well as other training and duplicate salary expenses for the relocation of
InnoServ's headquarters.
The loss before income taxes declined by $694,000 to $4,710,000 in fiscal
1996 from $5,404,000 in fiscal 1995 as a result of improved operating margins
as operating units reduced operating infrastructure costs and the shift in
revenues from CT maintenance agreements with lower operating margins to Asset
Management service agreements which have higher operating margins. The
fiscal 1996 loss before income taxes was primarily due to the special charges
recorded in the fourth quarter of $2,267,000, restructuring costs, including
the $411,000 recorded in the third quarter, incurred throughout the year to
effect the relocation of InnoServ's headquarters and spare parts repair
operations, and unfavorable operating margins associated with the CT
maintenance business.
In accordance with Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," InnoServ recorded a tax provision
in fiscal 1996 of $2,479,000 as a valuation allowance to reduce its net deferred
tax asset, primarily net operating loss carryforwards, tax credits and timing
differences associated with accrued expenses, potentially available to InnoServ
to the amount that is "more likely than not to be realized." The ultimate
realization of the deferred tax assets depends on the ability of InnoServ to
generate sufficient taxable income in the future. While InnoServ believes the
deferred tax assets will be substantially realized by future operating results,
due to the cumulative losses incurred in recent years the deferred tax assets do
not currently meet the criteria for recognition under SFAS 109.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at April 30, 1997, totaled $1,806,000. The
principal sources of cash for fiscal 1997 were operating activities which
generated $929,000 and the disposition of substantially all of the assets of
AIT which generated cash flows of $788,000. Cash flows from operating
activities were due primarily to the effects of depreciation and
amortization, and reduction in receivables and inventory offset by and the
timing of cash payments on accounts payable and accrued liabilities. The
decline in inventory of $2,202,000 was primarily due to a decline in CT tube
inventory as a result of lower requirements for inventory due to the
declining number of CT maintenance service agreements in effect, management
controls on purchases, the sale of refurbished CT and magnetic resonance
imaging scanners, and the amortization of spare parts inventory. Also,
deferred revenues decreased $529,000 as a result of the decrease in the
number of CT service contracts. The funds generated from these sources
financed $188,000 in purchases of new equipment and the net payment of
$664,000 on InnoServ's long term debt.
InnoServ's allowance for doubtful accounts at April 30, 1997 was $910,000
or 20% of gross accounts receivable. InnoServ's customers include hospitals,
physician practices, outpatient clinics, and entrepreneurial operations. Some
of these customers are thinly capitalized, operate on small margins and
experience cash flow difficulties due to the lengthy time required to receive
reimbursements from Medicare and insurance companies. Factors impacting
InnoServ's allowance for doubtful accounts include the changes occurring in
the health care industry, primarily the move to managed care, which has
weakened healthcare providers' ability to honor their debts and have forced
some of the providers out of business.
On April 14, 1997 InnoServ entered into a new loan agreement with a bank
pursuant to which amounts outstanding under InnoServ's term loan, and
revolving line of credit with the bank were converted into a new term loan of
$1,198,000. Borrowings under the new term loan bear interest at the rate of
prime plus 1% per annum with principal payments of $125,000 which was made on
April 30, 1997,
11
and monthly installments of $54,000 beginning June 8, 1997 through January 8,
1999. Obligations under the loan agreement are secured by a security
interest in InnoServ's accounts receivable, inventory and equipment. The
loan agreement contains financial covenants including maintenance of certain
financial ratios, net worth requirements, and restrictions on future
borrowings and payment of dividends.
InnoServ does not foresee the need to make a significant amount of capital
expenditures in fiscal 1998 and believes sufficient funds will be generated
from its operations to meet its working capital requirements. Should cash flows
from operations not be sufficient to meet all of InnoServ's cash requirements,
InnoServ would attempt to obtain a line of credit to provide the necessary
funds.
CAUTIONARY STATEMENT
The statements in this Management's Discussion and Analysis and elsewhere
in this report that are forward looking are based on current expectations which
involve numerous risks and uncertainties. InnoServ's future results of
operations and financial condition may differ materially due to many factors
including InnoServ's ability to attract and retain Asset Management
contracts, competitive and regulatory conditions in the healthcare industry
and other factors, many of which are beyond the control of InnoServ.
12
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements and Financial Statement Schedule
The following financial statements and financial statement schedule of
InnoServ and the Report of Ernst & Young LLP, Independent Auditors, are
included herein on the pages indicated:
PAGE
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors 14
Consolidated Balance Sheets at April 30, 1997 and April 30, 1996 15
Consolidated Statements of Operations for the fiscal years ended
April 30, 1997, April 30, 1996 and April 30, 1995 16
Consolidated Statements of Shareholders' Equity for the fiscal years
ended April 30, 1997, April 30, 1996 and April 30, 1995 17
Consolidated Statements of Cash Flows for the fiscal years ended
April 30, 1997, April 30, 1996 and April 30, 1995 18
Notes to Consolidated Financial Statements 20
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
Schedules not filed herewith are omitted because of the absence of
conditions under which they are required or because the information called for
is shown in the Consolidated Financial Statements or Notes thereto.
13
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
InnoServ Technologies, Inc.
We have audited the accompanying consolidated balance sheets of InnoServ
Technologies, Inc. as of April 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity, and cash flows
for each of the three years in the period ended April 30, 1997. Our audits
also included the financial statement schedule listed at the Index at Item 8.
These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and 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 consolidated financial position of
InnoServ Technologies, Inc. at April 30, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Fort Worth, Texas
July 15, 1997
14
INNOSERV TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
April 30, April 30,
1997 1996
--------- ---------
ASSETS
Current assets
Cash and cash equivalents $ 1,806 $ 941
Receivables 3,693 5,238
Inventory 5,256 7,458
Prepaid expenses 453 350
--------- ---------
Total current assets 11,208 13,987
Equipment, net 4,491 6,186
Goodwill, net 3,392 3,544
Other assets 11 123
--------- ---------
$ 19,102 $ 23,840
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 629 $ 862
Accounts payable 3,658 4,613
Accrued liabilities 2,224 3,090
Deferred revenues 3,719 4,399
--------- ---------
Total current liabilities 10,230 12,964
Long-term debt, less current portion 479 910
Commitments and contingencies
Shareholders' equity
Preferred stock, $.01 par value: 5,000,000
shares authorized; no shares issued -- --
Common stock, $.01 par value: 10,000,000
shares authorized; 5,035,833 issued 51 51
Paid-in capital 17,303 17,303
Accumulated deficit (8,961) (7,388)
--------- ---------
Total shareholders' equity 8,393 9,966
--------- ---------
$ 19,102 $ 23,840
--------- ---------
--------- ---------
The accompanying notes are an integral part of these financial statements.
15
INNOSERV TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
For the years ended April 30, 1997, April 30, 1996 and April 30, 1995
1997 1996 1995
-------- -------- --------
Revenues:
Service revenues $37,894 $40,533 $39,321
Sale of parts 4,493 5,194 7,045
------- -------- --------
Total revenues 42,387 45,727 46,366
Costs:
Cost of parts 2,744 3,533 5,118
Cost of services 33,110 36,279 35,945
------- -------- --------
Total cost of operations 35,854 39,812 41,063
Gross profit 6,533 5,915 5,303
Depreciation and amortization 1,998 2,096 2,909
Selling and administrative 6,223 8,357 7,627
------- -------- --------
Loss from operations (1,688) (4,538) (5,233)
Interest expense, net (112) (172) (171)
Other income 180 -- --
------- -------- --------
Loss before income taxes (1,620) (4,710) (5,404)
Provision (benefit) for income taxes (47) 2,479 (1,774)
------- -------- --------
Net loss $(1,573) $ (7,189) $ (3,630)
------- -------- --------
------- -------- --------
Per share information:
Net loss $ (0.31) $ (1.43) $ (0.81)
------- -------- --------
------- -------- --------
Weighted average shares outstanding 5,036 5,036 4,511
------- -------- --------
------- -------- --------
The accompanying notes are an integral part of these financial statements.
16
INNOSERV TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands, except share amounts)
For the years ended April 30, 1997, April 30, 1996 and April 30, 1995
Common Stock Retained
($.01 par value) earnings
------------------------- Paid-in (accumulated
Shares Amount capital deficit) Total
------------ --------- ---------- ------------ --------
Balance, April 29, 1994 2,951,495 $ 30 $ 11,172 $ 4,198 $ 15,400
Net loss -- -- -- (3,630) (3,630)
Acquisition of MEMS 2,026,438 20 5,914 -- 5,934
Cash dividends ($.23 per share) -- -- -- (767) (767)
Exercise of stock options 57,900 1 217 -- 218
--------- ------ -------- -------- --------
Balance, April 30, 1995 5,035,833 51 17,303 (199) 17,155
Net loss -- -- -- (7,189) (7,189)
--------- ------ -------- -------- --------
Balance, April 30, 1996 5,035,833 51 17,303 (7,388) 9,966
Net loss -- -- -- (1,573) (1,573)
--------- ------ -------- -------- --------
Balance, April 30, 1997 5,035,833 $ 51 $ 17,303 $ (8,961) $ 8,393
--------- ------ -------- -------- --------
--------- ------ -------- -------- --------
The accompanying notes are an integral part of these financial statements.
17
INNOSERV TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
For the years ended April 30, 1997, April 30, 1996 and April 30, 1995
1997 1996 1995
---- ---- ----
Cash flows from operating activities:
Net loss $(1,573) $(7,189) $(3,630)
Adjustments to reconcile net loss
to net cash flows from operations:
Depreciation and amortization 1,998 2,096 2,909
Loss (gain) on disposal of equipment -- (98) 681
Provision for deferred income taxes -- 3,347 (1,839)
Changes in assets and liabilities:
Receivables 977 (701) 1,062
Inventory 1,840 1,741 1,774
Prepaid expenses (105) 182 163
Accounts payable (942) 1,398 399
Accrued liabilities (849) (1,138) (561)
Deferred revenues (529) 1,894 (155)
Other assets 112 459 (205)
----- ------ -----
Net cash provided by operations 929 1,991 598
Cash flows from investing activities:
Acquisition of business operations -- -- (346)
Sale of equipment -- 180 234
Sale of AIT assets 788 -- --
Purchase of equipment (188) (1,427) (844)
----- ------ -----
Net cash provided by (used for)
investing activities 600 (1,247) (956)
(continued on next page)
18
INNOSERV TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(continued)
For the years ended April 30, 1997, April 30, 1996 and April 30, 1995
1997 1996 1995
------- ------- ------
Cash flows from financing activities:
Increase (decrease) in borrowings from line of credit (256) (2,649) 2,905
Proceeds from the issuance of long-term debt 198 1,500 --
Payments on long-term debt (500) (125) --
Payments under capital lease obligations (106) (356) (1,512)
Exercise of stock options -- -- 218
Payment of dividends -- -- (767)
------ ------- ------
Net cash provided by (used for) financing activities (664) (1,630) 844
------ ------- ------
Net increase (decrease) in cash and cash equivalents 865 (886) 486
Cash and cash equivalents at beginning of period 941 1,827 1,341
------ ------- ------
Cash and cash equivalents at end of period $1,806 $ 941 $1,827
------ ------- ------
------ ------- ------
The accompanying notes are an integral part of these financial statements.
19
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements
April 30, 1997
1. Description of Business
InnoServ provides comprehensive asset management systems and services and
multi-vendor maintenance and repair services for healthcare facilities, offers
mobile computed tomography and cardiac catheterization units for lease and
distributes radiology supplies and equipment on a nationwide basis.
2. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of InnoServ and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated. In April 1995, InnoServ changed
its fiscal year end to April 30. Previously, InnoServ's fiscal year ended on
the Friday nearest the end of April. As a result, the year ended April 30, 1995
consisted of 52 weeks and two days.
Certain reclassifications have been made in the prior years' consolidated
financial statements to conform to the fiscal 1997 presentation.
Use of estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash equivalents
Cash equivalents include highly liquid investments with an original
maturity of three months or less.
Receivables
Receivables are stated net of an allowance for doubtful accounts of
$910,000 and $1,015,000 at April 30, 1997 and 1996, respectively.
Concentrations of credit risk
Concentrations of credit risk with respect to trade receivables are limited
due to the large number of customers comprising InnoServ's customer base.
InnoServ reviews a potential customer's credit history before extending credit.
An allowance for doubtful accounts is established based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
20
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Inventory
Equipment held for resale, X-ray tubes, film and other radiological
supplies are carried at the lower of cost or market value. Spare parts relating
to maintenance services are carried at average cost and expensed when used or
sold. Spare parts inventory is amortized over the estimated useful lives of
the parts which range from seven to ten years. Spare parts inventory is stated
at cost net of such accumulated amortization and allowances of $5,040,000 and
$4,611,000 at April 30, 1997 and 1996, respectively. The estimated useful lives
and carrying value of spare parts inventory are evaluated based upon historical
usage and the type and duration of the maintenance contracts in effect.
Inventory at April 30, 1997 and 1996 consisted of the following (in thousands):
April 30, April 30,
1997 1996
---------- ----------
Spare parts and supplies, net $ 4,484 $ 5,580
Inventory held for resale 772 1,878
---------- ----------
$ 5,256 $ 7,458
---------- ----------
---------- ----------
Equipment
Equipment is stated at cost less accumulated depreciation. Depreciation is
provided using the straight-line method over estimated useful lives ranging from
three to ten years. Maintenance and repairs are charged against income and
betterments are capitalized. Equipment at April 30, 1997 and 1996 consisted of
the following (in thousands):
April 30, April 30,
1997 1996
----------- -----------
Cost $ 27,907 $28,090
Less accumulated depreciation (23,416) (21,904)
---------- -----------
$ 4,491 $ 6,186
----------- -----------
----------- -----------
Depreciation expense for fiscal years ended April 30, 1997, April 30, 1996
and April 30, 1995 was $1,846,000, $1,942,000 and $2,779,000, respectively.
Income taxes
Deferred tax assets and liabilities are recognized for the anticipated
future tax effects of differences between their carrying amounts for financial
reporting purposes and the amounts used for income tax purposes (See Note 11).
21
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Goodwill
Cost of approximately $4,445,000 in excess of the net assets acquired in
purchase transactions is being amortized using the straight-line method over
periods ranging from 20 to 40 years. Related accumulated amortization at April
30, 1997 and 1996 was $1,053,000 and $901,000, respectively.
Long-term assets
InnoServ evaluates the carrying value of long-term assets, including
goodwill based upon future anticipated undiscounted cash flows and recognizes an
impairment when it is probable that such estimated future cash flows will be
less than the carrying value of the asset.
Revenues
Generally, revenues are recognized when services are rendered or when
parts, supplies and equipment are shipped. Revenues from the sale of major
items of equipment are recognized when the customer accepts the equipment. Such
acceptance is generally conditioned upon successful installation of the
equipment on the customer's premises. Revenues under lease agreements are
recognized ratably over the term of the lease.
Amounts invoiced in advance of the provision of service under maintenance
contracts are not included in receivables as of the balance sheet date. Such
amounts are classified as deferred revenues if payment was received as of the
balance sheet date.
Interest expense, net
Interest expense is net of interest income of $33,000, $22,000 and,
$99,000 for the years ended April 30, 1997, 1996, and 1995, respectively.
22
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Stock based compensation
InnoServ grants stock options for a fixed number of shares to employees and
non-employee directors with an exercise price equal to the fair value of the
underlying common stock at the date of grant. InnoServ has elected to follow
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), and related interpretations in accounting for its employee
stock options because, as discussed in Note 6, the alternative fair value
accounting provided for under Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation ("SFAS 123"), requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of InnoServ's stock
options equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Proceeds from common stock issued pursuant
to InnoServ's employee stock option plans are credited to common stock and
paid-in capital at the time an option is exercised.
Earnings per share
Earnings per share amounts are computed based upon the weighted average
shares of common stock and common stock equivalents outstanding during each
period. Outstanding stock options are included as common stock equivalents
using the treasury stock method. If the computation of fully diluted earnings
per share is anti-dilutive, only primary earnings per share amounts are
presented.
Impact of recently issued accounting standards
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings per Share. InnoServ is required to adopt SFAS No. 128 in
the third quarter of fiscal 1998. The adoption of this standard is expected
to impact earnings per share calculations. However, the adoption will have no
impact on InnoServ's results of operations.
3. Supplemental Cash Flow Disclosure
Interest and income taxes paid in the years ended April 30, 1997, April 30,
1996 and April 30, 1995 were as follows (in thousands):
1997 1996 1995
------ ------ ------
Interest $ 211 $ 209 $ 225
Income taxes $ 55 $ 20 $ --
In August 1994, InnoServ acquired (the "Acquisition") MEDIQ Equipment and
Maintenance Services, Inc. ("MEMS"), a wholly-owned subsidiary of MEDIQ
Incorporated ("MEDIQ"), in exchange for 2,006,438 shares of InnoServ's
common stock and a warrant to purchase 325,000 shares of InnoServ's
common stock. The fair value of net assets acquired in the Acquisition less
liabilities assumed or incurred was $4,928,000. The appraised fair value of
the common stock and the warrant issued by InnoServ in the Acquisition was
23
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
$5,900,000 plus other costs associated with the Acquisition of $665,000. Cash
acquired amounted to $173,000.
4. Asset Sales
On March 17, 1997, InnoServ sold substantially all of the net assets of
Advanced Imaging Technologies, Inc. to Merry X-Ray Corporation for $788,000
in cash, which approximated the net carrying value of such assets. In
connection with the sale, InnoServ also entered into a consulting agreement
pursuant to which InnoServ received $180,000. InnoServ believes all services
which are required to be provided under the consulting agreement were
provided before April 30, 1997. Accordingly, the amount received by InnoServ
for consulting services is reflected as "Other income" in the Statement of
Operations for fiscal 1997. Revenues for AIT in fiscal 1997, 1996, and 1995
were $5,221,000, $6,186,000, and $8,172,000, respectively.
24
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
5. Long term debt
Long term debt at April 30, 1997 and 1996 consisted of the following (in
thousands):
April 30, April 30,
1997 1996
-------- --------
Bank term loan $ 1,073 $ 1,375
Bank revolving line of credit -- 256
Capital lease obligations payable in varying
installments through December 1997,
at fixed rates ranging from 9.50% to 12.05% 35 141
-------- --------
1,108 1,772
Less amount classified as current (629) (862)
-------- --------
Total long-term debt $ 479 $ 910
-------- --------
-------- --------
On April 14, 1997, InnoServ entered into a new loan agreement with a bank
pursuant to which amounts outstanding under InnoServ's prior revolving line
of credit and term loan agreements with the bank were converted into a new
term loan aggregating $1,198,000. Borrowings under the new term loan bear
interest at the rate of prime (8.5% at April 30, 1997) plus 1% per annum with
principal payments of $125,000 which was made on April 30, 1997 and monthly
installments of $54,000 beginning June 8, 1997 through January 8, 1999.
Obligations under the loan agreement are secured by a security interest in
InnoServ's accounts receivable, inventory and equipment. The weighted
average interest rate in effect on all short-term borrowings for the years
ended April 30, 1997 and 1996, were 9.50% and 8.80%, respectively. The loan
agreement contains financial covenants including maintenance of certain
financial ratios, net worth requirements and restrictions on future
borrowings and payment of dividends.
Annual principal payments on long-term debt are required as follows (in
thousands):
Year
Ending
April 30
--------
1998 $ 629
1999 479
-----
$ 1,108
-------
-------
25
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
6. Stock Options
InnoServ has incentive plans which provide for the granting of stock
options to key employees to purchase common stock at a purchase price of not
less than fair market value, as defined by such plans, on the date of the
grant. In September 1988, InnoServ adopted a stock option plan for
nonemployee directors to purchase common stock at a purchase price of not
less than the fair market value, as defined by the plan, on the date of the
grant. The options granted under the plans are exercisable in three equal
installments over a three year vesting period, and expire over periods ranging
from five to ten years after the grant date. The changes in stock options
outstanding for the years ended April 30, 1997, April 30, 1996 and April 30,
1995 were as follows:
Number Weighted-Average
of Shares Exercise Price
--------- ----------------
Outstanding at April 29, 1994 413,873 $4.47
Granted 68,000 4.35
Canceled (96,139) 4.67
Exercised (57,900) 3.76
--------- -------
Outstanding at April 30, 1995 327,834 4.34
Granted 373,000 3.51
Canceled (266,934) 4.39
--------- -------
Outstanding at April 30, 1996 433,900 3.60
Granted 46,000 3.52
Canceled (48,500) 3.35
--------- -------
Outstanding at April 30, 1997 431,400 $ 3.62
--------- -------
--------- -------
Options exercisable at April 30, 1997 152,069 $ 3.77
--------- -------
--------- -------
Options exercisable at April 30, 1996 44,500 $ 4.06
--------- -------
--------- -------
Options exercisable at April 30, 1995 232,344 $ 4.20
--------- -------
--------- -------
The weighted average fair value of options granted during fiscal 1997 is $1.29.
At April 30, 1997 and 1996, there were 48,600 and 279,573 shares of
common stock available for future grant, respectively. The weighted average
remaining contractual life of the outstanding options at April 30, 1997 is
7.7 years.
26
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Pro forma information regarding net income and earnings per share is
required by SFAS 123, and has been determined as if the Company had accounted
for its stock options under the fair value method of that statement. The
fair value for these options was estimated at the date of grant using the
Black-Scholes option valuation model with the following weighted-average
assumptions for fiscal 1997 and 1996, respectively: risk-free interest rates
of 6.25% for both years; no dividend yields for both years; volatility
factors of the expected market price of the Company's common stock of .405
and .504; and a weighted-average expected life of the options of 4.5 years.
The Black-Scholes option valuation model is used in estimating the fair
value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility
and the average life of the options. Because the Company's stock options
have characteristics significantly different from those of traded options,
and because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its stock
options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense on a straight-line basis over the options'
vesting period. The pro forma effects on the net loss for fiscal 1997 and
1996 are not representative of the pro forma effect on net income in future
years because they do not take into consideration pro forma compensation
expense related to grants made prior to fiscal 1996. The Company's pro forma
information follows (in thousands of dollars, except for earnings per share
information):
1997 1996
------ ------
Pro forma net loss $(1,679) $(7,232)
Pro forma net loss per share
(primary and fully diluted) $ (0.33) $ (1.44)
27
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
7. Retirement Plan
InnoServ sponsors a voluntary retirement benefit plan (the "Plan") under
the provisions of Section 401(k) of the Internal Revenue Code. The Plan is
available to all employees of InnoServ who have completed three months of
continuous service and are age twenty-one or older. Employee contributions are
based on a percentage of pre-tax compensation as elected by the employee to a
maximum of 15 percent. InnoServ contributes an amount equal to 25 percent of
the employee's pre-tax contributions limited to a maximum matching of $500
annually. InnoServ's costs related to the Plan for the years ended April 30,
1997, April 30, 1996 and April 30, 1995 were $96,000, $85,000, and $117,000,
respectively.
8. Restructuring
In the fourth quarter of fiscal 1996, InnoServ adopted a plan to reorganize
its operations in order to strategically focus on its comprehensive asset
management services business ("Asset Management"). As a result of this
reorganization, InnoServ recorded restructuring charges in the fourth quarter of
fiscal 1996 of $154,000 for employee termination benefits for 25 employees. As
of April 30, 1997, the reorganization was completed. In addition, during the
third quarter of fiscal 1996, InnoServ relocated its headquarters from
Corona, California to Arlington, Texas which resulted in additional
restructuring charges of $411,000 during that quarter.
28
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
9. Acquisition of MEDIQ Equipment & Maintenance Services, Inc.
On August 3, 1994, InnoServ acquired MEMS, a wholly-owned subsidiary of
MEDIQ, in exchange for 2,006,438 shares of InnoServ's common stock and a warrant
to purchase 325,000 shares thereof at an exercise price of $6.25 per share
exercisable through August 3, 1998. An additional 20,000 shares of InnoServ's
common stock were issued to MEDIQ in connection with a noncompetition agreement
which became effective as of the closing of the Acquisition. The aggregate
purchase price, including expenses of the Acquisition, was approximately
$6,565,000. The excess of the purchase price over the fair values of the net
assets acquired was $1,637,000 and is being amortized on a straight-line basis
over 20 years. Following the Acquisition, InnoServ combined the operations of
its InnoServ Maintenance subsidiary with those of MEMS.
The accounts of MEMS are included in InnoServ's consolidated financial
statements and, accordingly, the Consolidated Statement of Operations for the
year ended April 30, 1995 includes the operating results of MEMS beginning
August 3, 1994. The following unaudited Pro Forma summary for fiscal 1995 gives
effect to the Acquisition as if such transaction had occurred as of April 30,
1994, and in the opinion of InnoServ includes all adjustments, consisting of
normal recurring adjustments, necessary for a fair presentation of the results
of operations for the period presented.
Year Ended
April 30, 1995
-----------------
(In thousands,
except net earnings
per share)
Revenues $ 50,942
Net loss $ (2,872)
Earnings per share $ (0.57)
29
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
10. Special Charges
In fiscal 1996, InnoServ's management team undertook a detailed assessment
of InnoServ's internal operations, customers, competition, and InnoServ's
positioning within its marketplace. This assessment led to a strategic focus
which emphasizes the Asset Management, capabilities, and services of InnoServ
Technologies Maintenance Services, Inc. In support of this strategy, InnoServ
adopted a plan to reorganize its operations and evaluated the realization of its
assets. The financial impact of these actions was recorded as special charges
of approximately $2,267,000 in the fourth quarter of fiscal 1996. These charges
were included in cost of operations and consisted of the following (in
thousands):
Inventory:
Writedown for impairment of inventory (1) $ 1,003
Writedown of equipment held for resale (2) 292
Writedown for physical inventory of spare parts 192
Other 149
------
1,636
Capitalized development costs expensed (3) 394
Severance arrangements (4) 154
Equipment accumulated depreciation (5) 83
------
$ 2,267
------
------
Notes:
(1) Represents the unamortized balance of spare parts inventory no longer
required to support InnoServ's on-going business.
(2) Certain CT scanners and other equipment held for resale were written
down to their estimated market value.
(3) Engineering development costs of certain diagnostic software which
were previously capitalized have been charged to expense.
(4) Relates to severance amounts estimated to be paid to employees as a
result of InnoServ's plan to reorganize its operations to strategically
focus on its Asset Management business (See Note 8).
(5) Represents additional depreciation as a result of lowering the
estimated useful lives of certain equipment.
30
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Fiscal 1995 results included special charges of approximately $2,961,000
which were classified as follows (in thousands):
Charges included in cost of operations:
Writedown of consumable inventory (1) $ 671
Writedown for impairment of inventory (2) 426
Writedown for impairment of MRI equipment
and related leasehold improvements (3) 948
Severance arrangements (3) 385
Closure of California repair operations (3) 179
------
2,609
Charges included in selling and administrative expenses:
Severance arrangements (4) 280
Other 72
------
352
------
$ 2,961
------
------
Notes:
(1) In the fourth quarter of fiscal 1995, InnoServ elected to simplify its
accounting by expensing all items of consumable inventory individually
costing less than $100.
(2) Relates primarily to spare parts held for the repair of certain models
of CT scanners under maintenance agreements which had become a minor
part of InnoServ's future revenues.
(3) In the fourth quarter of fiscal 1995, InnoServ made a decision to move
its spare parts repair operation located in Corona, California to
Arlington, Texas.
(4) Relates primarily to severance amounts payable to InnoServ's former
President and Chief Executive Officer as a result of his separation
from the employment of InnoServ on March 13, 1995.
31
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
11. Income Taxes
The provision (benefit) for income taxes for the years ended April 30,
1997, April 30, 1996 and April 30, 1995 consisted of the following (in
thousands):
1997 1996 1995
---- ---- ----
Current:
Federal $ -- $ (868) $ --
State (47) -- 65
---- ---- -----
(47) (868) 65
Deferred:
Federal -- 2,983 (1,597)
State -- 364 (242)
---- ---- -----
-- 3,347 (1,839)
---- ---- -----
$ (47) $ 2,479 $ (1,774)
---- ---- -----
---- ---- -----
32
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the net deferred tax asset at April 30, 1997 and 1996 were as follows (in
thousands):
April 30, April 30,
1997 1996
------- ------
Deferred tax assets:
Net operating loss carryforwards $ 3,137 $ 2,429
Tax credits 1,400 1,400
Accrued expenses 350 428
Allowance for doubtful accounts 335 383
Inventory 343 361
Deferred compensation 268 311
Other --- 29
------ -----
Gross deferred tax asset 5,833 5,341
Valuation allowance for deferred
tax asset (5,513) (5,031)
------ ------
Total deferred tax asset 320 310
Deferred tax liabilities:
Equipment (320) (310)
------ ------
Net deferred tax asset $ --- $ ---
------ ------
------ ------
In accordance with SFAS 109, InnoServ recorded a tax provision in fiscal
1996 of $2,479,000 as a valuation allowance to reduce its net deferred tax asset
potentially available to InnoServ to the amount that is "more likely than not to
be realized" due to continuing operating losses. The ultimate realization of
the deferred tax assets depends on the ability of InnoServ to generate
sufficient taxable income in the future. While InnoServ believes the deferred
tax assets will be substantially realized by future operating results, due to
the cumulative losses incurred in recent years the deferred tax assets do not
currently meet the criteria for recognition under SFAS 109.
33
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
The net change in the valuation allowance during fiscal 1997 was $482,000.
Approximately $1,214,000 of the recorded valuation allowance of $5,513,000
relates to deferred tax assets resulting from the acquisition of MEMS (see Note
9). To the extent realized, any tax benefit related to the valuation allowance
arising from the Acquisition will be applied to reduce costs in excess of net
assets acquired.
The following is a reconciliation of income tax computed at the U.S.
federal statutory tax rates to the rates utilized to compute the provision
(benefit) for income taxes for the years ended April 30, 1997, April 30, 1996,
and April 30, 1995:
1997 1996 1995
---- ---- ----
Tax at U.S. statutory rates (34.0)% (34.0)% (34.0)%
State income taxes net of
federal tax benefit (3.5) (3.8) (3.9)
Change in valuation allowance 30.7 88.6 2.4
Other 3.8 1.8 2.7
---- ----- -----
(3.0)% 52.6% (32.8)%
---- ----- ----
---- ----- ----
For federal income tax purposes, InnoServ has approximately $1,200,000 of
investment tax credit carryforwards which expire between 2000 through 2002.
InnoServ also has an alternative minimum tax credit carryforward of
approximately $200,000 for federal income tax purposes. InnoServ has net
operating loss carryforwards for federal income tax purposes of $8,172,000 as of
April 30, 1997 which will begin to expire in 2011.
34
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
12. Capital and Operating Leases
InnoServ acquired certain equipment leases with third parties associated
with the Acquisition. InnoServ also leases real properties under operating
leases expiring on various dates through September 2001. Some of the leases
contain renewal options. All real property leases require the payment by
InnoServ of property taxes, maintenance, insurance and other incidental
expenses. Rent expense for the years ended April 30, 1997, April 30, 1996, and
April 30, 1995 was approximately $732,000, $779,000 and $834,000, respectively.
Future minimum rental payments, including interest thereon, under these
capital and noncancelable operating leases with third parties at April 30, 1997
were as follows (in thousands):
Year Capital Operating
Ending Leases Leases Total
------ ------ -------- -----
1998 $ 35 $ 595 $ 630
1999 -- 549 549
2000 -- 549 549
2001 -- 549 549
2002 -- 229 229
---- ------ -----
$ 35 $ 2,471 $ 2,506
---- ------ -----
---- ------ -----
Equipment includes the following assets held under capital leases at April
30, 1997 and 1996:
April 30, April 30,
1997 1996
-------- --------
Cost $ 38 $ 414
Less accumulated depreciation (31) (378)
--- ---
$ 7 $ 36
--- ---
--- ---
35
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
13. Commitments and Contingencies
InnoServ is party to a lawsuit filed on April 12, 1995 in Superior Court
in the County of Riverside, California by two former employees who have
claimed wrongful termination in retaliation for filing a claim with the U.S.
Department of Labor. The plaintiffs have sought damages in the amount of
approximately $1,000,000. InnoServ has responded and is defending vigorously.
While the outcome of this matter is not currently determinable, InnoServ
believes that the ultimate liability related to this matter will not
materially exceed amounts currently accrued in the financial statements.
InnoServ is involved in other various legal actions, claims and proceedings
of a nature considered normal to the conduct of its business. InnoServ
believes, after reviewing such matters and consulting with counsel, that any
liability which may ultimately be incurred with respect to these matters is not
expected to have a material effect on either InnoServ's financial condition or
results of operations.
36
InnoServ Technologies, Inc.
Notes to Consolidated Financial Statements (continued)
14. Quarterly Financial Information (Unaudited)
Unaudited summarized financial data by quarter for the years ended April
30, 1997 and 1996 were as follows (in thousands, except per share amounts):
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1997
----
Revenues $11,788 $10,684 $10,231 $ 9,684
Gross profit 1,765 1,563 2,102 1,103
Income (loss) before
income taxes (b) ( 627) ( 456) 36 ( 573)
Net income (loss) ( 627) ( 456) 36 ( 526)
Net income (loss) per share (0.12) ( 0.09) 0.01 ( 0.11)
Weighted average shares
outstanding 5,036 5,036 5,036 5,036
1996
----
Revenues $ 11,968 $ 11,898 $ 11,062 $ 10,799
Gross profit (loss) 2,502 2,651 1,799 (1,037)
Income (loss) before
income taxes (a) (188) 308 (902) (3,928)
Net income (loss) (113) 185 (540) (6,721)
Net income (loss) per share (0.02) 0.04 (0.11) (1.33)
Weighted average shares
outstanding 5,039 5,036 5,037 5,036
(a) Loss before income taxes in the fourth quarter of fiscal 1996 included
special charges aggregating $2,267,000, as described in Note 10.
(b) Loss before income taxes in the fourth quarter of fiscal 1997
included a reduction of approximately $500,000 in certain
reserves for sales allowances and other liabilities. Such
reductions were a result of management's ongoing evaluation of
estimated obligations.
37
INNOSERV TECHNOLOGIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
Balance at Balance at
Beginning of Charged to Deductions/ End of
Description Period Cost Writeoffs Period
----------- ------------ ---------- ----------- ----------
Allowance for
Doubtful Accounts
April 30, 1995 $ 842 $ 961(1) $ (374) $ 1,429
April 30, 1996 1,429 (89) (325) 1,015
April 30, 1997 1,015 ( 8) ( 97) 910
Allowance for
Inventory Amortization
April 30, 1995 $ 4,376 $ 584 $ (1,500) $ 3,460
April 30, 1996 3,460 1,299 (148) 4,611
April 30, 1997 4,611 850 (421) 5,040
(1) Includes an additional allowance of $539,000 from the MEMS Acquisition.
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
39
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item will be included in the registrant's
definitive Proxy Statement for InnoServ's Annual Meeting of Shareholders
scheduled for September 15, 1997, which will be filed with the Securities and
Exchange Commission and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item will be included in the registrant's
definitive Proxy Statement for InnoServ's Annual Meeting of Shareholders
scheduled for September 15, 1997, which will be filed with the Securities and
Exchange Commission and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item will be included in the registrant's
definitive Proxy Statement for InnoServ's Annual Meeting of Shareholders
scheduled for September 15, 1997, which will be filed with the Securities and
Exchange Commission and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item will be included in the registrant's
definitive Proxy Statement for InnoServ's Annual Meeting of Shareholders
scheduled for September 15, 1997, which will be filed with the Securities and
Exchange Commission and is incorporated herein by reference.
40
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K.
(a) Financial Statements and Financial Statement Schedule:
The financial statements and schedule listed in the "Index to
Consolidated Financial Statements and Financial Statement Schedule"
included in Item 8 of Part II of this report, commencing at page 13,
are filed as part of this report.
(b) Reports on Form 8-K:
During the three months ended April 30, 1997, no reports were filed
by Registrant on Form 8-K.
(c) Exhibits:
The information required by this portion of Item 14 is set forth in
the Index to Exhibits beginning on page 45.
41
POWER OF ATTORNEY
The Registrant and each person whose signature appears below hereby
appoints each of Michael G. Puls and Michael Sandler as attorney-in-fact, each
with full power to act alone, to execute in the name and on behalf of the
Registrant and any such person, individually and in each capacity stated below,
one or more amendments to this report, which amendments may make such changes in
this report as any of said attorneys-in-fact deems appropriate, and to file each
such amendment to this report together with all exhibits thereto and any and all
documents in connection therewith.
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.
INNOSERV TECHNOLOGIES, INC.
(Registrant)
Date: July 29, 1997 By: /s/ Michael Sandler
---------------------
Michael Sandler
Vice President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Dudley Rauch Chairman of the Board July 29, 1997
- ------------------ of Directors
Dudley A. Rauch
/s/ Samuel Salen Vice Chairman and July 29, 1997
- ------------------ Secretary of the
Samuel Salen, M.D. Board of Directors
/s/ Michael G. Puls President and Chief July 29, 1997
- --------------------- Executive
Michael G. Puls Officer, Director
/s/ Michael Sandler Vice President and July 29, 1997
- --------------------- Chief Financial
Michael Sandler Officer, Principal
Financial and
Accounting Officer,
Director
42
Signatures Title Date
- ---------- ----- ----
/s/ Bernard Korman Director July 29, 1997
- --------------------
Bernard J. Korman
/s/ Michael M. Sachs Director July 29, 1997
- ----------------------
Michael M. Sachs
/s/ Michael Sandler Director July 29, 1997
- ---------------------
Michael F. Sandler
/s/ David A. Wegmann Director July 29, 1997
- ----------------------
David A. Wegmann
/s/ Thomas Carroll Director July 29, 1997
- --------------------
Thomas Carroll
43
INDEX TO EXHIBITS
Exhibit
No. Description of Exhibit
- ------- ----------------------
2.1 Agreement of Merger and Plan of Reorganization dated May 18, 1994,
among Registrant, MMI Acquisition Subsidiary, Inc., MEDIQ
Incorporated and MEDIQ Equipment and Maintenance Services, Inc. (6).
3.1 Articles of Incorporation of the Registrant, as amended prior to
September 14, 1988 (1).
3.2 Certificate of Amendment of Articles of Incorporation of the
Registrant dated September 14, 1988 (4).
3.3 Certificate of Determination of Preferences of Series A Preferred
Stock of the Registrant (1).
3.4 Certificate of Amendment to Certificate of Determination of
Preferences (4).
3.5 Bylaws of the Registrant, as amended (1).
4.1 Registration Agreement dated as of April 29, 1983 by and among the
Registrant and certain investors (1).
9.1 Voting Agreement dated as of April 29, 1983 between Dudley A. Rauch
and certain investors (1).
10.1 1982 Incentive Stock Option Plan (1).
10.2 Service agreement with Drs. Moehring, Salen & Botvin, a medical
corporation (1).
10.3 Program License Agreements for Diagnostic Software Package dated as
of September 5, 1981, February 12, 1982, April 8, 1982, August 19,
1982, October 25, 1982, February 3, 1983, April 16, 1983, June 16,
1983, August 8, 1983, September 23, 1983, December 21, 1983, April
16, 1984 and May 16, 1984 by and between General Electric Company
and the Registrant (1).
10.4 Amended and Restated Credit Agreement dated as of March 31, 1993 by
and between Bank of America and the Registrant and related Exhibits
(5).
10.5 Employee Stock Purchase Plan (2).
44
INDEX TO EXHIBITS (Continued)
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.6 Stock Purchase Agreement dated as of July 17, 1985 among Registrant
and the shareholders of R Squared Scan Systems, Inc. (2).
10.7 1988 Nonemployee Director Stock Plan (3).
10.8 Form of Agreement of Indemnification between Registrant and Alan
Margulis, Donald Moehring, M.D., Dudley A. Rauch, Michael Sachs,
Samuel Salen, M.D., and David Wegmann as Directors and Ian MacSween,
Alan D. Margulis, Christopher J. Purcell and Dudley A. Rauch as
officers (4).
10.9 Employment Agreement and Amendment between Registrant and Alan
Margulis (5).
10.10 Form of Warrant Agreement between Registrant and MEDIQ Incorporated
(6).
10.11 Form of Noncompetition Agreement by and between Registrant, MEDIQ
Equipment and Maintenance Services, Inc. and MEDIQ Incorporated (6).
10.12 Form of Standstill Agreement of Registrant (6).
10.13 Employment Agreement between MEDIQ Equipment and Maintenance
Services, Inc. and J. Thomas Owings and Registrant (6).
10.14 Form of Voting Agreement of MEDIQ Incorporated and certain
shareholders of Registrant (6).
10.15 Form of Piggy-back Registration Rights Agreement by and between MEDIQ
Incorporated and Registrant (6).
10.16 Separation Agreement dated March 13, 1995 between Alan D. Margulis
and Registrant (7).
10.17 Amendment No. 5 to Business Loan Agreement dated as of September 20,
1995 by and between Registrant and Bank of America National Trust and
Savings Association (8).
10.18 Security Agreement dated as of September 20, 1995 by and between
Registrant and Bank of America National Trust and Savings Association
(8).
45
INDEX TO EXHIBITS (Continued)
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.19 Loan Agreement dated as of December 15, 1995 by and between
Registrant and Overton Bank & Trust, N.A. (9).
10.20 Term Loan Agreement dated as of January 12, 1996 in the principal
amount of $1,500,000 payable by Registrant to Overton Bank & Trust,
N.A. (9).
10.21 Security Agreement dated as of January 12, 1996 by and between
Registrant and Overton Bank & Trust, N.A. (9).
10.22 Revolving Credit Agreement dated as of January 12, 1996 in the
principal amount of $1,500,000 payable by Registrant to Overton Bank
& Trust, N.A. (9).
10.23 Security Agreement dated as of January 12, 1996 by and between
Registrant and Overton Bank & Trust, N.A. (9).
10.24 Letter Agreement dated July 25, 1996 amending the Loan Agreement
dated as of December 15, 1995 by and between Registrant and Overton
Bank & Trust, N.A.
10.25 Letter Agreement of Employment dated December 8, 1995 between
Registrant and Michael G. Puls.
10.26 Letter Agreement of Employment dated January 3, 1996 between
Registrant and Thomas E. Hoefert.
10.27 Indemnity Agreement dated as of January 25, 1996 by and between
Registrant and Michael G. Puls (9).
10.28 Indemnity Agreement dated as of January 25, 1996 by and between
Registrant and Thomas E. Hoefert (9).
10.29 Revolving Credit Agreement dated as of August 12, 1996, in the
principal amount of $500,000 payable by the Registrant to Overton
Bank & Trust, N.A. (10)
10.30 Revolving Credit Agreement dated as of October 12, 1996, in the
principal amount of $500,000 payable by the Registrant to Overton
Bank & Trust, N.A. (11)
46
INDEX TO EXHIBITS (Continued)
Exhibit
No. Description of Exhibit
- ------- ----------------------
10.31 Revolving Credit Agreement dated as of November 12, 1996, in the
principal amount of $500,000 payable by the Registrant to Overton
Bank & Trust, N.A. (11)
10.32 Form of Security Agreement dated as of November 12, 1996, between
Overton Bank & Trust, N.A. and each of InnoServ Technologies, Inc.,
InnoServ Technologies Maintenance Services, Inc., Advanced Imaging
Technologies, Inc. and Sietec, Inc. (11)
10.33 Letter Agreement dated December 12, 1996, amending the Loan Agreement
dated as of December 15, 1995, by and between Registrant and Overton
Bank & Trust, N.A. (11)
10.34 Indemnity Agreement dated as of September 17, 1996 by and between
Registrant and Thomas E. Carroll as director. (12)
10.35 Stock Option Agreement dated as of December 11, 1996 by and between
Registrant and Michael G. Puls. (12)
10.36 Bonus Agreement dated December 20, 1996, between Registrant and
Michael G. Puls. (12)
10.37 Bonus Agreement dated December 20, 1996, between Registrant and
Thomas Hoefert. (12)
10.38 Amended Bonus Agreement for Michael G. Puls
10.39 Amended Bonus Agreement for Thomas E. Hoefert
10.40 Loan agreement dated as of April 14, 1997 in the principal
amount of $1,197,573.00 payable by the Registrant to Overton
Bank & Trust, N.A.
11.1 Computation of Per Share Earnings.
21.1 Subsidiaries.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
47
INDEX TO EXHIBITS (Continued)
(1) Previously filed as an exhibit to the Registrant's Registration
Statement on Form S-1 (No. 2-91168) and incorporated herein by
reference.
(2) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended May 2, 1986.
(3) Previously filed as an exhibit to the Registrant's Proxy materials
dated August 22, 1988.
(4) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended April 28, 1989.
(5) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended April 30, 1993.
(6) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended April 29, 1994.
(7) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended April 30, 1995.
(8) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended October 31, 1995.
(9) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended January 31, 1996.
(10) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended July 31, 1996.
(11) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended October 31, 1996.
(12) Previously filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q for the period ended January 31, 1997.
(13) Previously filed as an exhibit to the Registrant's Annual Report on
Form 10-K for the year ended April 30, 1996.
48