SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
Commission file number 0-28227
IVES HEALTH COMPANY, INC.
(Exact name of Registrant as specified in its charter)
Oklahoma 73-1430235
(State of Incorporation) (I.R.S. Employer
Identification No.)
817 North J.M. Davis
Claremore, Oklahoma 74017
(Address of Principal Executive Offices)
(918) 283-1226
(Registrant's telephone number, including area code)
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 (__)
As of March 31, 2000 there were 12,856,946 shares of common
stock, $0.001 par value per share, outstanding.
<PAGE>
PART 1 - Financial Information
ITEM 1. FINANCIAL STATEMENTS
IVES HEALTH COMPANY, INC.
BALANCE SHEETS
FOR THE PERIODS ENDING
MARCH 31, 2000 AND DECEMBER 31, 1999
ASSETS
March 31 Dec. 31
2000 1999
------------ ------------
Current Assets
Cash $ 3,609 $ 3,165
Accounts Receivable 15 78,704
Less Allowance For Doubtful Accounts -- (10,000)
Inventories 235,280 153,970
Prepaid expenses 46,240 110,952
Loans to officers -- 5,000
------------ ------------
Total Current Assets 285,144 341,791
------------ ------------
Property and Equipment
Property, Plant & Equipment 500,604 491,180
Less Accumulated Depreciation 62,097 62,097
------------ ------------
Net Property and Equipment 438,507 429,083
------------ ------------
Other Assets
Goodwill-net 284,700 284,700
Deposits 600 600
Marketing design program-net 13,849 13,849
Investments 39,825 39,825
------------ ------------
Total Other Assets 338,974 338,974
------------ ------------
TOTAL ASSETS $ 1,062,625 $ 1,109,848
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 195,681 $ 252,847
Payroll & sales taxes payable 35,344 22,924
Accrued Expenses 30,970 11,283
<PAGE>
Balance Sheets (Continued)
March 31 Dec. 31
2000 1999
------------ ------------
Note payable to officer 72,480 121,137
Current Portion of Long Term Debt 129,139 151,434
------------ ------------
Current Liabilities 463,614 559,625
------------ ------------
Long-Term Liabilities
Notes Payable 763,971 681,758
Less current portion long-term debt (129,139) (151,434)
------------ ------------
Total Long-term Liabilities 634,832 530,324
------------ ------------
Total Liabilities 1,098,446 1,089,949
------------ ------------
Shareholders' Equity
Common Stock (Par $.001) 12,857 12,847
12,856,946 and 12,846,946 outstanding
at March 31, 2000 and Dec. 31, 1999
respectively
Additional Paid in Capital 1,107,030 1,100,040
Retained Earnings (1,092,988) (502,746)
Net Income (Loss) (62,720) (590,242)
------------ ------------
Total Shareholder's Equity (35,821) 19,899
------------ ------------
TOTAL LIABILITIES & SHAREHOLDER'S EQUITY $ 1,062,625 $ 1,109,848
------------ ------------
(The accompanying notes are an integral part of these Financial Statements)
<PAGE>
IVES HEALTH COMPANY, INC
STATEMENT OF OPERATIONS
FOR THE PERIODS
JANUARY 1 - MARCH 31, 2000 AND 1999
Jan - Mar '00 Jan - Mar '99
REVENUES
SALES $ 262,134 $ 72,422
COST OF SALES 87,227 43,937
TOTAL GROSS PROFIT $ 174,906 $ 28,485
OPERATING EXPENSE
SELLING EXPENSE $ 78,490 $ 50,283
GENERAL & ADMINISTRATIVE 142,406 101,408
INTEREST & FACTORING 16,730 12,467
TOTAL OPERATING EXPENSE $ 237,626 $ 164,158
NET OPERATING INCOME (LOSS) ($ 62,720) ($ 135,673)
NET INCOME (LOSS) BEFORE TAX ($ 62,720) ($ 135,673)
(The accompanying notes are an integral part of these Financial Statements)
<PAGE>
IVES HEALTH COMPANY, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIODS ENDING MARCH 31, 2000 AND DECEMBER 31, 1999
March 31 Dec. 31
2000 1999
Net Cash Provided (Used) by Operating Activities 119,358 (456,134)
---------- ----------
Net Cash Provided (Used) by Investing Activities (777,480) (36,876)
---------- ----------
Net Cash Provided (Used) by Financing Activities 661,731 471,388
---------- ----------
NET INCREASE (DECREASE) IN CASH 3,609 (21,622)
CASH AT BEGINNING OF PERIOD 3,165 24,787
CASH AT END OF PERIOD $ 6,744 $ 3,165
========== ==========
(The accompanying notes are an integral part of these Financial Statements)
<PAGE>
Ives Health Company, Inc.
Notes to Financial Statements
January 1- March 31, 2000 and 1999, and December 31, 1999
NOTE 1 - SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Ives Health Company,
Inc. (the "Company") is presented to assist in understanding the Company's
financial Statements. The financial statements and notes are representations of
the Company's management which is responsible for the integrity and objectivity
thereof. These accounting policies conform to generally accepted accounting
principles and have been consistently applied in the presentation of the
financial statements.
ORGANIZATION
The Company was incorparated on February 12,1998 pursuant to an agreement
between Maxxon, Inc. and M. Keith Ives, entered into and made effective December
31, 1997. SEVI, (a wholly owned subsidiary of Maxxon, Inc.) and Maxxon agreed to
separate. The separation was accomplished by, a non-pro-rata split-off of
non-monetary assets in accordance with Issue 96-4 of the Emerging Issues Task
Force, a recapitalization and the issuance of 7,000,000 shares of The Company
common stock to M. Keith Ives, and 1,700,000 shares of The Company common shares
to Maxxon, Inc. The Company began operations January 1, 1998 and was
incorporated in Oklahoma on February 12, 1998.
The Company is engaged in developing and marketing innovative, safe, high
quality natural non-prescription medicines and nutritional supplements. The
Company's products, which are guaranteed for potency and purity, include natural
medicines, herbal formulas, vitamins, minerals and homeopathic medicines. The
Company wholesales their products to national, regional and local pharmacies.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid assets with maturities of three
months or less to be cash equivalents.
INVENTORY
Inventory consists primarily of bulk product that will be packaged into
capsules, bottled, and packaged for distribution to customers. Inventory is
stated at the lower of cost or market value using the first-in, first-out
method. Obsolete products are written off in the year they are determined to be
obsolete.
FISCAL YEAR END
The Company's fiscal year ends on December 31.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. All material property and
equipment additions are capitalized and depreciated on a straight-line basis
over the estimated useful life of the asset.
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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.
INCOME TAXES
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which requires the
measurement of deferred tax assets for deductible temporary differences and
operating loss carry-forwards, and of deferred tax liabilities for taxable
temporary differences. Measurement of current and deferred tax liabilities and
assets is based on provisions of enacted tax law. The effects of future changes
in tax laws or rates are not included in the measurement. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the period
and the change during the period in deferred tax assets and liabilities.
EARNINGS PER SHARE
Earnings (Loss) Per Share
-------------------------
The Company computes net income per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under
provision of SFAS No. 128 and SAB 98 basic net income (loss) per share is
calculated by dividing net income (loss) available to common stockholders for
the period by the weighted average shares of common stock of the Company
outstanding during the period. Diluted net income per share is computed by
dividing the net income for the period by the weighted average number of common
and common equivalent shares outstanding during the period. The calculation of
fully diluted income (loss) per share of common stock assumes the dilutive
effect of stock options outstanding.
Segment Information
-------------------
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information." The
Company identifies its operating segments based on business activities,
management responsibility and geographical location. During the years ended
December 31, 1999 and 1998, and in the first quarter of 2000, the Company
operated in the single business segment engaged in developing and marketing
selected healthcare products.
New Accounting Standards
------------------------
During 1998 The Company adopted SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information"Therefore, net loss equals comprehensive income. The Company
had no comprehensive income items during 1999 and 1998. The Company operates in
only one business segment. The Company adopted SFAS No. 133, "Accounting for
Derivative Investments and Hedging Activities" during 1999. As of March 31,
2000, the Company did not engage in hedging activities or other transactions
involving derivatives.
<PAGE>
REVENUE RECOGNITION
Revenue is recognized monthly based upon the terms of the sale. The Company
issues credit to customers on a discount basis of 2% if paid within ten days of
the invoice or the full balance due within thirty days of the invoice.
Management uses the allowance method of recognizing bad debts. A provision for
doubtful accounts was required at December 31, 1999, for a doubtful account of
$10,000.
NOTE 2 - PROPERTY AND EQUIPMENT
The following is a summary of the major classes of property and equipment:
ESTIMATED
USEFUL LIFE 1999
----------- ----
Building 30 years $ 249,347
Building Improvements 30 years 100,400
Land - 20,000
Equipment 5-7 years 68,387
Furniture 5-7 years 11,075
Master Dies 5 years 4,355
Vehicles 3 years 37,616
-----------------------
491,180
Accumulated Depreciation 62,097
----------
Property and equipment (net) $ 429,083
----------
NOTE 3 - OTHER ASSETS
GOODWILL
--------
Effective December 31, 1997 M. Keith Ives exchanged 275,360 shares of
Maxxon Inc. common shares valued at $1.01 per share (using the average of the
last five trading days in 1997) for 7,000,000 common shares of the Company's
stock. Maxxon retained 1,700,000 shares of the newly formed Ives Health Company,
Inc. After the issuance of the 8,700,000 common shares, M. Keith Ives owned
80.5% of the outstanding shares and Maxxon owned 19.5% of the outstanding
shares. The exchange was accounted for as a purchase using the fair market value
of the Maxxon common stock as consideration for 80.5% of the newly formed
company. The transaction was a non-pro-rata split-off of certain non-monetary
assets, whereby Maxxon exchanged assets for a non-controlling interest in a new
entity. The transaction was recorded in accordance with the Emerging Issues Task
Force Issues # 96-4 and #89-7. Goodwill in the amount of $328,500 was recorded
with a resulting credit to Paid-in Capital. The Goodwill is being amortized over
its estimated useful life of fifteen years.
INVESTMENT IN LICENSING AND OPTION TO PURCHASE AGREEMENTS
---------------------------------------------------------
On August 24, 1998, the Company entered into a License Agreement with Dr.
Robert Bedeen for the rights to certain technology known as (1) the T-Factor
Immune System Optimizer and (2) The Burn Treatment Therapy. The rights to the
technology were acquired for future development of the technology for the
consumer market. These products achieved technological feasibility as of the
<PAGE>
NOTE 3 (CONTINUED)
- ------------------
licensing date and have future uses in research and development and other
aspects of Ives' business. Dr. Bedeen conducted an 18 month study in Jakarta,
Indonesia, in which 186 AIDS patients were given the T-Factor medicine and their
T-cell count increased favorably from 3 to 22 points with an average increase in
T-cell count of 11 points per month. Studies performed on the burn creme showed
it to be very effective in clinical trials. The products have already been
developed for the consumer market by Dr. Bedeen and are expected to become two
of Ives' primary products as soon as funds are available for inventory build up
and marketing. The rights to the license, which included a royalty provision to
Dr. Bedeen extends through August 24, 2049, were acquired for approximately
$25,000. The cost related to the license and rights were capitalized and is
being amortized over five years.
On July 30, 1999, the Company purchased for $10,000 and expensed the cost
of the royalty provision that was required under the License Agreement. The
purchase eliminated any future royalty obligations to the previous owner of the
technology.
In January 1998, Ives Health Company paid $10,000 for the option to
purchase VEGI-Snack Foods, Inc., in which Ives had the exclusive right to sell
VEGI BEARS and related products and retained the right to purchase VEGI-Snack
Foods, Inc. until the end of 1999. The option to purchase VEGI-Snack Foods
expired at the end of 1999 and the $10,000 investment made to secure this
purchase option was written off during 1999.
Investments 1999 1998
-----------
Veggie Snack Foods $ -- $ 10,000
Quantum License 34,602 24,602
Summa Formulas 16,000 --
---------------------
Total Investments $ 50,602 $ 34,602
Accumulated Amortization (10,777) (547)
---------------------
$ 39,825 $ 34,055
NOTE 4 - NOTES PAYABLE-OFFICERS
During 1998 M. Keith Ives and JoEtta Hughes, officers of the Company loaned
the Company funds to cover operating expenses. The notes accrue interest at a
rate of 10% per year and are payable on demand. During 1998 payments were made
to the officer in the amount of $81,711 to reduce the note balances. As of
December 31, 1998, there remained a balance due JoEtta Hughes of $41,752. During
1999 certain officers and shareholders of the Company advanced $270,487 to the
Company to cover certain operating expenses. During the year a total of $191,101
was paid on these notes, leaving a balance due of $121,137 at December 31, 1999.
<PAGE>
NOTE 5 - NOTES PAYABLE 1999
NationsBank, N.A
Interest @ 9%, This Note originated June 17, 1998 $ 39,613
due in sixty monthly installments of $1,097, principal and
interest through June 2, 2003. This Note is secured by
inventory and equipment, a security agreement with William
D. Elliott a shareholder and by a personal guarantee of M
Keith Ives, an officer and major shareholder of the Company
Certain personal assets of Mr. Ives also collateralize this
Note.
Seven Brothers, LLC
Interest @ 8.5%, due in one hundred twenty monthly $154,305
installments of $1,888, principle and interest, through
August 1, 2008. This Note is secured by land and building.
Armstrong Bank
Interest @ 9.30%. This Note originated July 9, 1999 $121,382
And is personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
Armstrong Bank
Interest @ 8.75%. This Note originated July 9, 1999 $273,849
And is personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
Armstrong Bank
Interest @ 9.50 %. This Note originated June 18, 1999 $ 42,379
And is personally guaranteed by Dr. Bill Elliot (shareholder)
and M. Keith Ives.
State Bank
Interest @ 10.12%. This Note originated September 24, 1999 $ 19,755
And is personally guaranteed by M. Keith Ives.
Ford Motor Credit
Interest @ 8.90%. This Note originated August 3, 1999, as $ 30,476
to purchase three automobiles. This Note is secured by three
1998 Ford Taurus automobiles and bears a monthly payment
equaling $1075.
TOTAL NOTES PAYABLE $681,759
--------
Less current maturities: $151,434
--------
Long-term Debt $530,325
========
<PAGE>
Maturities of long-term debt are as follows for the next five years:
2000 $ 151,434
2001 116,760
2002 122,215
2003 107,204
2004 105,682
Thereafter 78,464
---------
Total $ 681,759
---------
NOTE 6 - INCOME TAXES
The Company has incurred net operating losses since inception and has a
loss carry-forward of approximately $1,093,000 at December 31, 1999, expiring in
years beginning 2014. Deferred tax assets have not been recorded for future
reduction in income taxes that may result from the net operating loss
carry-forward.
The deferred tax assets and liabilities are as follows at December 31,1999:
1999
-----------
Net operating loss carry-for $ 1,092,988
Depreciation 16,480
-----------
Total 1,076,508
Less valuation allowance (1,076,508)
-----------
Net Deferred Tax Liability $ 0
-----------
Deferred taxes reflect a combined federal and state tax rate of
approximately 40%. For financial reporting purposes, a valuation allowance equal
to the deferred tax asset has been established in accordance with the provisions
of FASB Statement No. 109, "Accounting for Income Taxes". The Company will
continually review the adequacy of the valuation allowance and will recognize
these benefits only as assessment indicates that it is more likely than not that
the benefits will be realized.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Not applicable.
NOTE 8 - COMMON STOCK AND ADDITIONAL PAID-IN-CAPITAL
In February 12, 1998, the Company issued 7,000,000 shares of common stock
to M. Keith Ives and 1,700,000 common shares to Maxxon, Inc., in accordance with
the separation agreement between M. Keith Ives and Maxxon, Inc. The shares were
issued in a tax free exchange under the terms of the agreement.
From April 20, 1998 through December 31, 1998 the Company sold 877,650
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The 552,650 shares issued
under the 504 offering to individual investors were sold at an average purchase
price of $0.72 per share. The 305,000 restricted shares issued to employees and
officers, and 20,000 restricted shares issued to Summa Laboratories for the
purchase of rights to product formulas were issued at par value of $0.001 per
share, which was the fair market value at the time of sale. The stock
certificates for Summa Laboratories were prepared in 1998, but the terms of the
agreement were not completed until 1999 when the Summa formula investment was
recorded at a fair market value of $0.80 per share.
From January 1, 1999 through December 31, 1999 the Company sold 400,736
shares of common stock to various purchasers pursuant to Rule 504 of Regulation
D and Section 4 (2) of the Securities Act of 1933. The average purchase price
was $0.72 per share which includes commissions and expenses.
During 1999 the Company issued 2,868,560 to various employees, officers and
directors pursuant to Rule 504 of Regulation D and Section 4 (2) of the
Securities Act of 1933. These shares were issued for services rendered and were
issued at an average price of $0.05 per share which was the fair market value at
the time of sale.
During the first quarter of 2000 a total of 10,000 shares of Ives Common
stock was sold to one investor for a price of $.70 per share pursuant to Rule
506 of Regulation D and Section 4(2) of the Securities Act of 1933.
<PAGE>
ITEM 2.
Ives Health Company, Inc.
Management's Discussion And Analysis of Financial Condition
And Result's of Operations
During the first quarter of the year ending March 31, 2000, the Company posted
significant sales increases over the same period in 1999. The net sales for the
three months ending March 31, 2000, increased by $189,712 or 362% as compared to
sales of $72,422 for the three months ending March 31, 1999. This increase in
revenues was primarily due to a significant increase in business with Albertsons
Pharmacies which attributed to $225,962 or 86% of the sales. Earnings for the
quarter ending March 31, 2000 were also significantly better as compared to the
same period in 1999. For the quarter ending March 31, 2000 gross profit was
$174,906 increasing from $28,485 the same quarter in 1999 a 614% increase.
Cost of sales improved dramatically during the quarter ending March 31, 2000 to
33.2% of sales as compared to the same period for 1999 which was 60.7% of sales.
Operating expense ratios as compared to sales were also better for the quarter
ending March 31, 2000 as compared to the same period in 1999. For the three
month period ending March 31, 2000, total operating expenses divided by sales
yields a ratio of 90.7% and for the same period in 1999 the ratio was 226.7%.
This ratio is expected to continue to drop as the Company continues to increase
sales.
During the quarter ending March 31, 2000 the Company hired two additional sales
representatives. These additional employees were necessary to service the
growing number of large chain pharmacy customers, such as, Albertsons stores,
Winn Dixie, Dillon's and others. The Company is planning to continue to
concentrate sales efforts in the large chain pharmacy arena. Targeted Companies
are Kroger's, Additional Albertson's (2000 possible targets), Randall's,
Homeland, and several smaller chains.
Through the refocus on large chain pharmacy sales the Company expects to post
record sales and earnings for the year. In addition, the Company expects to
expand into the direct marketing sector with private label products, open a
doctor and hospital direct division, open a chiropractic division, open an
international division, and sell products through health food stores.
The year 2000 expansion will be funded through the sale of Ives Common Stock and
a $750,000 loan which the Company expects to secure during 2000. These funds
will be used to purchase additional inventory and hire two additional sales
representatives which will be necessary to pursue large chain pharmacy sales on
a much larger scale.
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
IVES HEALTH COMPANY, INC.
Date May 12, 2000 By /s/ Michael Harrison
Michael Harrison, CEO
