<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, 1997
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 (IRS Employer Identification No.)
incorporation)
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, 1997 was 3,258,668 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1997
SEPTEMBER 30, (DERIVED FROM
1997 AUDITED CONSOLIDATED
(UNAUDITED) FINANCIAL STATEMENTS
------------- --------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 201,100 171,100
Trade receivables, net 8,648,200 7,898,800
Inventories 6,660,300 7,100,900
Deferred income taxes 802,300 802,300
Prepaid expenses and other current assets 622,500 516,200
----------- ----------
Total current assets 16,934,400 16,489,300
Property and equipment, net 4,431,600 4,460,100
Intangible assets 5,403,500 5,442,400
Other assets 219,700 219,700
----------- ----------
$26,989,200 26,611,500
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,325,300 2,871,000
Accrued expenses 2,307,100 2,153,200
Current portion of long-term debt and
bank borrowings 3,320,700 3,487,900
Income taxes payable 988,700 481,200
Other 18,800 21,900
----------- ----------
Total current liabilities 8,960,600 9,015,200
Long-term debt, excluding current portion 1,550,800 1,584,400
Deferred income taxes 145,400 145,400
Other liabilities 52,000 52,000
----------- ----------
Total liabilities 10,708,800 10,797,000
----------- ----------
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,823,300 12,817,400
Retained earnings 3,454,500 2,994,500
----------- ----------
Total stockholders' equity 16,280,400 15,814,500
----------- ----------
Commitments and contingencies
$26,989,200 26,611,500
=========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
2
<PAGE> 3
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
----------- ----------
<S> <C> <C>
Sales $ 9,383,700 7,892,200
Cost of goods sold 4,964,200 3,930,500
----------- ----------
Gross profit 4,419,500 3,961,700
Operating expenses:
Selling, general
and administrative 3,085,800 3,333,300
Research and experimental 610,300 593,800
----------- ----------
Total operating expenses 3,696,100 3,927,100
----------- ----------
Income from operations 723,400 34,600
Other income (expense):
Interest expense (95,800) (53,300)
Other, net 31,400 23,200
----------- ----------
Income before income taxes 659,000 4,500
Income tax expense 199,000 1,500
----------- ----------
Net income $ 460,000 3,000
=========== ==========
Net income per common share $ .14 .00
=========== ==========
Weighted average common
shares and common share
equivalents outstanding 3,371,468 3,417,664
=========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
3
<PAGE> 4
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 460,000 3,000
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 191,900 162,700
Change in operating assets and liabilities:
Trade receivables (749,400) 57,100
Inventories 440,600 (650,200)
Prepaid expenses and other current assets (106,300) (158,300)
Accrued expenses 153,900 (52,100)
Accounts payable (545,700) 255,300
Income taxes payable 507,500 (61,500)
Other current liabilities (3,100) (10,200)
--------- ---------
Net cash provided by (used in) operating activities 349,400 (454,200)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (124,500) (464,900)
Other - 37,600
--------- ---------
Net cash used in investing activities (124,500) (427,300)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 5,900 46,600
Bank borrowings (repayments), net (186,300) 615,800
Principal payments under acquisition notes
payable and long term debt (14,500) (81,300)
--------- ---------
Net cash (used in) provided by financing activities (194,900) 581,100
--------- ---------
Net increase (decrease) in cash and cash equivalents 30,000 (300,400)
Cash and cash equivalents at beginning of period 171,100 436,200
--------- ---------
Cash and cash equivalents at end of period $ 201,100 135,800
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 19,500 63,000
========= =========
Interest $ 95,800 53,300
========= =========
</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, 1997 and the related
consolidated statements of income for the three month periods ended September
30, 1997 and 1996; and the consolidated statements of cash flows for the three
month periods ended September 30, 1997 and 1996 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 the end of and for the periods indicated. Interim results are not necessarily
indicative of results for a full year.
The financial statements and note are presented as permitted by Form
10-Q, and do not contain certain information included in the Company's annual
consolidated financial statements and notes.
5
<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, 1997 AND 1996
Sales
Sales for the first quarter ended September 30, 1997 were $9,383,700, an
increase of 18.9% over sales of $7,892,200 for the same period of fiscal 1997.
The sales increase was primarily due to sales of the "Millennia", the new
portable multi-parameter vital signs monitor introduced by the Company's patient
safety monitoring business in the first quarter of fiscal 1997. Sales for the
first quarter ended September 30, 1997 were also positively affected by
increased sales at the Company's oxygen monitoring and industrial process
control businesses.
Gross Profit
The gross profit margin declined to 47.1% from 50.2% in the first
quarter ended September 30, 1997 as compared to the same period in the prior
fiscal year. The decline was primarily due to the product mix of sales at the
Company's patient safety monitoring business as the "Millennia" monitor has
lower gross margins than the MRI vital signs monitor. Increased sales at the
Company's oxygen monitoring business was also a factor as that business has
inherently lower gross margins than the Company's other businesses.
Operating Expenses
Selling, general and administrative expenses for the three month period
ended September 30, 1997 decreased 7.4% or $247,500 compared to the previous
fiscal period. Selling, general and administrative expenses were 32.9% of sales
for the quarter ended September 30, 1997 compared with 42.2% for the same period
in fiscal 1997. The decrease in these expenditures in aggregate was largely due
to a reduction in selling expenses at the Company's patient safety monitoring
business as many of the non-recurring expenses associated with the significant
expansion in the Company's direct sales force in fiscal 1997 have decreased.
Research and experimental expenses increased slightly to $610,300 in the
first quarter of fiscal 1998 from $593,800 in the prior year quarter as the
Company continues its efforts in developing and enhancing the "Millennia" and
other vital signs monitoring products.
Other Income and Expense
Interest expense increased to $95,800 for the three month ended
September 30, 1997 compared with $53,300 for the same period in fiscal 1997.
This increase was the result of increased outstandings on the Company's
revolving bank line of credit along with the increased mortgage on the Company's
recently expanded patient safety monitoring facility.
Provision for Income Taxes
The effective tax rate for the first three months of fiscal 1998 was
30.2% compared with 34.0% for the same period in fiscal 1997. This reduction in
the effective tax rate was principally due to an adjustment of prior year's
taxes.
6
<PAGE> 7
LIQUIDITY AND CAPITAL RESOURCES
Working capital at September 30, 1997 increased to $7,973,800 compared
with $7,474,100 at June 30, 1997. Cash and cash equivalents at September 30,
1997 were $201,100 compared with $171,100 at June 30, 1997. Net cash provided by
operating activities was $349,400 for the three months ended September 30, 1997
compared with $454,200 used in operations for the three months ended September
30, 1996. This increase was primarily the result of the increase in net income
for the quarter ended September 30, 1997 as compared to the same period in the
prior year. Capital expenditures were $124,500 for the three months ended
September 30, 1997 compared to $464,900 for the first three months of fiscal
1997 as less demonstration equipment was needed for the direct sales force at
the Company's 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. The former Invivo Research shareholders did not elect to
be paid on their vested second installment in June of 1997.
Bank borrowings decreased $186,300 in the first three months of fiscal
1998. The Company's revolving bank line of credit is collateralized by the
Company's accounts receivable, inventory, and equipment. The Company is
currently in discussions with its bank regarding the renewal of the line of
credit that expires on December 1, 1997. At September 30, 1997, $3,208,700 was
outstanding on the line of credit.
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 1998.
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 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 early fiscal 1997, the Company introduced its new "Millennia" portable
multi-parameter vital signs monitor and has substantially increased selling,
general and administrative expenses in connection with this product coming on
line. The Company believes this product positions it to expand from its MRI
monitoring market niche into the much larger mainstream patient monitoring
market. The Company expects this product to continue 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.
The success of the "Millennia" 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 and
competitive factors, such as competitor's new products and pricing pressures.
The statements contained in this Outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
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:
None.
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
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, 1997 By:/S/ JOHN F. GLENN
----------------------------------
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
10
<PAGE> 11
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
11
<PAGE> 1
EXHIBIT 11.1
INVIVO CORPORATION AND SUBSIDIARIES STATEMENT OF COMPUTATION OF NET INCOME PER
SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996
---------- ----------
<S> <C> <C>
Net income $ 460,000 3,000
========== ==========
Computation of weighted
average common shares
and common share
equivalents outstanding:
Common shares issued
and outstanding 3,256,059 3,229,922
Common stock
equivalents 115,409 187,742
---------- ----------
Weighted average common
shares and common share
equivalents outstanding 3,371,468 3,417,664
========== ==========
Net income per common share $ .14 .00
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 9,050
<ALLOWANCES> 402
<INVENTORY> 6,660
<CURRENT-ASSETS> 16,934
<PP&E> 8,112
<DEPRECIATION> 3,680
<TOTAL-ASSETS> 26,989
<CURRENT-LIABILITIES> 8,961
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 16,277
<TOTAL-LIABILITY-AND-EQUITY> 26,989
<SALES> 9,384
<TOTAL-REVENUES> 9,384
<CGS> 4,964
<TOTAL-COSTS> 4,964
<OTHER-EXPENSES> 3,696
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 659
<INCOME-TAX> 199
<INCOME-CONTINUING> 460
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 460
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
