<PAGE> 1
U.S. Securities And Exchange Commission
Washington, D.C. 20549
-------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
COMMISSION FILE NUMBER 0-15963
INVIVO CORPORATION
----------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
(State or other jurisdiction of incorporation) (IRS Employer Identification No.)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
TELEPHONE: (510) 468-7600
(Registrant's telephone number)
-----------------------------------------------------
Indicate by check whether the registrant (1) 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 ( )
The number of shares outstanding of the issuer's Common Stock, par value $.0008
per share, at September 30, 1996 was 3,233,993 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
SEPTEMBER 30, (DERIVED FROM
1996 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
----------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 135,800 436,200
Trade receivables, net 6,358,400 6,415,500
Inventories 6,154,600 5,504,400
Deferred income taxes 587,000 587,000
Prepaid expenses and other current assets 742,800 584,500
----------- ----------
Total current assets 13,978,600 13,527,600
Property and equipment, net 3,101,000 2,762,900
Intangible and other assets 5,839,600 5,913,100
----------- ----------
$22,919,200 22,203,600
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 1,849,200 1,901,300
Accounts payable 1,891,600 1,636,300
Current portion of long-term debt and
bank borrowings 2,401,200 2,022,400
Income taxes payable 323,400 384,900
Other 82,700 92,900
----------- ----------
Total current liabilities 6,548,100 6,037,800
Long-term debt, excluding current portion 885,200 729,500
Deferred income taxes 160,700 160,700
----------- ----------
Total liabilities 7,594,000 6,928,000
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,640,600 12,594,000
Retained earnings 2,682,000 2,679,000
----------- ----------
Total stockholders' equity 15,325,200 15,275,600
Commitments and contingencies
----------- ----------
$22,919,200 22,203,600
=========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
2
<PAGE> 3
INVIVO CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Sales $7,892,200 7,842,000
Cost of goods sold 3,930,500 3,892,000
---------- ----------
Gross profit 3,961,700 3,950,000
---------- ----------
Operating expenses:
Selling, general
and administrative 3,333,300 2,184,500
Research and experimental 593,800 467,800
---------- ----------
Total operating expenses 3,927,100 2,652,300
---------- ----------
Income from operations 34,600 1,297,700
Other income (expense):
Interest expense (53,300) (59,000)
Other, net 23,200 3,900
---------- ----------
Income before income taxes 4,500 1,242,600
Income tax expense 1,500 422,500
---------- ----------
Net income $ 3,000 820,100
========== ==========
Net income per common share $ .00 .24
========== ==========
Weighted average common
shares outstanding 3,417,664 3,460,332
========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
2
<PAGE> 4
INVIVO CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,000 820,100
Adjustments to reconcile net income to
cash (used in) provided by operating activities:
Depreciation and amortization 162,700 132,100
Change in operating assets and liabilities:
Trade receivables 57,100 (104,700)
Inventories (650,200) 80,200
Prepaid expenses and other current assets (158,300) (27,900)
Accrued expenses (52,100) (365,300)
Accounts payable 255,300 85,300
Income taxes payable (61,500) 367,000
Other current liabilities (10,200) (20,300)
--------- ---------
Net cash (used in) provided by operating
activities (454,200) 966,500
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (464,900) (163,000)
Proceeds from notes receivable 37,600 --
--------- ---------
Net cash used in investing activities (427,300) (163,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 46,600 28,900
Bank borrowings 615,800 1,125,000
Principal payments under acquisition notes
payable, long term debt and other (81,300) (2,131,300)
--------- ---------
Net cash provided by (used in) financing
activities 581,100 (977,400)
--------- ---------
Net decrease in cash and cash equivalents (300,400) (173,900)
Cash and cash equivalents at beginning of period 436,200 321,600
--------- ---------
Cash and cash equivalents at end of period $ 135,800 147,700
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 63,000 5,000
========= =========
Interest $ 53,300 61,800
========= =========
</TABLE>
See accompanying note to consolidated financial statements.
4
<PAGE> 5
INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of September 30, 1996 and the related
consolidated statements of income for the three month periods ended September
30, 1996 and 1995 and the consolidated statements of cash flows for the three
month periods ended September 30, 1996 and 1995 are unaudited. The consolidated
financial statements reflect, in the opinion of management, all adjustments
necessary to present fairly the financial position and results of operations as
of and for the periods indicated. Interim results are not necessarily
indicative of results for a full year.
The consolidated financial statements and notes are presented as
permitted by Form 10-Q, and do not contain certain information included in the
Company's Annual Report on Form 10-K.
<PAGE> 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1996 AND 1995
Sales
Sales for the three month period ended September 30, 1996 were
essentially unchanged as compared to the same period in fiscal 1996. Sales
growth at the Company's patient safety monitoring business and oxygen monitoring
business offset the loss of sales from the sale of the Gamma Instruments
subsidiary in April of 1996 along with a slight decline in sales at the gas
detection business. Initial shipments of the Company's new "Millennia" vital
signs monitor were made in the quarter.
Gross Profit
Gross profit margin remained stable at approximately 50.2% as higher
gross margins at the Company's gas detection business and oxygen monitoring
business offset lower gross margins at the patient safety monitoring business.
Operating Expenses
Selling, general and administrative expenses increased 52.6% or
$1,148,800 in the three month period ended September 30, 1996 compared with the
same period in fiscal 1996. Selling, general and administrative expenses were
42.2% of sales for the first quarter of fiscal 1997 compared with 27.9% for the
first quarter of fiscal 1996. The increase in these expenditures was due to a
significant expansion of the direct sales force and sales and marketing
infrastructure at the patient safety monitoring business in connection with the
introduction of the "Millennia" monitor in July 1996. The Company intends to
continue to increase aggregate selling, general and administrative expenses over
the next twelve months.
Research and experimental expenses increased $126,000 or 26.9% in the
first quarter of fiscal 1997 compared to the first quarter of fiscal 1996.
Research and experimental expenses were 7.5% of sales for the three month period
ended September 30, 1996 compared to 6.0% for the comparable period in fiscal
1996. The increase in aggregate research and experimental expenses for the three
month period ended September 30, 1996 was due to higher expenditures on behalf
of the patient safety monitoring business as the Company continues its efforts
in developing and enhancing its "Millennia" monitor and other vital signs
monitoring products.
Other Income and Expense
Interest expense of $53,300 in the first three months of fiscal 1997
reflected the interest expense incurred from the Company's revolving bank line
of credit and acquisition related term loan and the interest portion of the
Company's mortgage on the patient safety monitoring facility.
Provision for Income Taxes
The effective tax rate for the first three months of fiscal 1997
remained at approximately 34.0%.
6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1996 was $7,430,500 compared with
$7,489,800 at June 30, 1996. Cash and cash equivalents at September 30, 1996
were $135,800 compared with $436,200 at June 30, 1996. Net cash used in
operating activities was $454,200 for the three months ended September 30, 1996
compared with cash provided by operations of $966,500 for the three months ended
September 30, 1995. This decrease was the result of the decline in net income
and negative changes in operating assets and liabilities particularly
inventories at the patient safety monitoring and gas detection businesses.
Capital expenditures were $464,900 for the three months ended September 30, 1996
compared to $163,000 for the first three months of fiscal 1996. The increase in
capital expenditures was primarily due to a significant increase in sales
demonstration equipment for the expanded direct sales force at the patient
safety monitoring business.
In fiscal 1993, the Company purchased 80% of the outstanding common
stock of Invivo Research, Inc. The agreement provided for a contingent payment
resulting in an initial payment of $1,000,000 made on July 15, 1994 and a final
payment of $2,000,000 paid on July 15, 1995. In fiscal 1994, the Company entered
into an agreement to acquire the remaining 20% of the Invivo Research, Inc.
shares. The contingent purchase price for such shares is to be paid in one or
more installments. One-fifth of the price "vests" on each of January 1, 1996,
1997 and 1998 and two-fifths vest on January 1, 1999. The former Invivo Research
shareholders can make one election each year beginning in 1996 to be paid any
vested payment. The amount of any payment is based on the after tax profits of
Invivo Research for the calendar year preceding the year that the payment is
made, regardless of when the payment vested, subject to a minimum share price if
certain milestones are achieved. The former Invivo Research shareholders must,
generally, elect to receive a payment in any calendar year by giving notice to
the Company by March of that year and the payment so elected is to be made on
June 1 of that year. The payments are to be made in cash, but if the
shareholders require that more than one-fifth of the payments be made in any
year, the Company can elect to make the excess amount of the payment in the form
of its shares. The Company was informed in March of 1996 that the former Invivo
Research shareholders would elect to be paid on their first installment. Based
on the 1995 calendar year results for Invivo Research, payment was made on June
1, 1996, for $987,900.
Bank borrowings increased $615,800 in the first quarter of fiscal 1997.
The Company's revolving bank line of credit and $108,300 acquisition related
term loan are collateralized by the Company's accounts receivable, inventory,
and equipment. In December 1995, the Company renewed the bank line of credit to
December 1, 1996 and increased the amount available under the revolving line of
credit from $3,000,000 to $4,000,000. At September 30, 1996, $2,260,000 was
outstanding on the line of credit. The Company is currently in discussions with
its bank regarding the renewal of the line of credit. In September of 1996, the
Company obtained construction financing of approximately $900,000 to finance the
expansion of its patient safety monitoring facility in Orlando, Florida.
Construction is expected to be completed in January of 1997.
The Company believes that its cash flow from operations and amounts
available from the bank line of credit will be adequate to meet its anticipated
cash needs for working capital and capital expenditures throughout fiscal 1997.
The Company will continue to explore opportunities for the possible acquisitions
of technologies or businesses, which may require the Company to seek additional
financing.
7
<PAGE> 8
OUTLOOK. The statements contained in this Outlook and the foregoing discussion
of Results of Operations and Liquidity and Capital Resources are based on
current expectations. These statements are forward looking, and actual results
may differ materially. These forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In April, 1996 the Company's Invivo Research subsidiary received FDA
approval to market its new "Millennia" portable multi-parameter vital signs
monitor. The Company believes this product positions it to expand from its
current MRI monitoring market niche into the much larger mainstream patient
monitoring market. The Company expects this product to have a substantial impact
on future revenue growth and that its future financial results will to a large
extent depend on the success of this product. In connection with the
introduction of the new vital signs monitor, the Company significantly expanded
its direct domestic sales force and increased associated marketing expenses.
Based on typical sales cycles in the patient monitoring industry, the Company
does not expect to begin to receive sizable orders for this product until the
end of the second quarter of fiscal 1997. Therefore, the Company's earnings for
the second quarter of fiscal 1997 are expected to be below those of the
comparable period in fiscal 1996.
The success of this new product will be dependent on a variety of
factors, some of which may be beyond the control of the Company. Among the
factors that could cause actual results to differ from those anticipated by the
Company are: economic conditions affecting the healthcare industry and general
economy; successful integration of the planned expansion of the Company's direct
sales force; adoption of an appropriate marketing program for the new product;
competitive factors, such as competitor's new products and pricing pressures;
and manufacturing ramp and capacity.
8
<PAGE> 9
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
None.
ITEM 2: CHANGES IN SECURITIES:
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
None.
ITEM 5: OTHER INFORMATION:
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index included herein on page 10.
(b) Reports on Form 8-K:
None.
9
<PAGE> 10
INVIVO CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION OF EXHIBIT
11.1 Statement of computation of net income per share
27.0 Financial Data Schedule
10
<PAGE> 11
SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVIVO CORPORATION
Date: November 14 , 1996 By:/S/ John F. Glenn
-------------------
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
11
<PAGE> 12
EXHIBIT 11.1
INVIVO CORPORATION STATEMENT OF COMPUTATION OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1996 1995
---------- ---------
<S> <C> <C>
Net income $ 3,000 820,100
========== =========
Computation of average weighted
common and common equivalent
shares outstanding:
Common stock 3,229,922 3,203,535
Common stock
equivalents 187,742 256,797
---------- ---------
Weighted common and common
equivalent shares used
in the calculation of
income per share 3,417,664 3,460,332
========== =========
Net income per common share $ .00 .24
========== =========
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 136
<SECURITIES> 0
<RECEIVABLES> 6,727
<ALLOWANCES> 369
<INVENTORY> 6,155
<CURRENT-ASSETS> 13,979
<PP&E> 6,202
<DEPRECIATION> 3,101
<TOTAL-ASSETS> 22,919
<CURRENT-LIABILITIES> 6,548
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 15,323
<TOTAL-LIABILITY-AND-EQUITY> 22,919
<SALES> 7,892
<TOTAL-REVENUES> 7,892
<CGS> 3,931
<TOTAL-COSTS> 3,931
<OTHER-EXPENSES> 3,927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53
<INCOME-PRETAX> 5
<INCOME-TAX> 2
<INCOME-CONTINUING> 3
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
