<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 MARCH 31, 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 (IRS Employer
of incorporation) 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 March 31, 1997 was 3,246,688 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30,
1996
MARCH 31, (DERIVED FROM
1997 AUDITED FINANCIAL
(UNAUDITED) STATEMENTS)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 422,500 436,200
Trade receivables, net 8,992,800 6,415,500
Inventories 6,742,800 5,504,400
Deferred income taxes 587,000 587,000
Prepaid expenses and other current assets 592,300 584,500
----------- -----------
Total current assets 17,337,400 13,527,600
Property and equipment, net 4,346,700 2,762,900
Intangible and other assets 5,780,300 5,913,100
----------- -----------
$27,464,400 22,203,600
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accrued expenses $ 1,978,800 1,901,300
Accounts payable 3,743,100 1,636,300
Current portion of long-term debt and
bank borrowings 3,273,900 2,022,400
Income taxes payable 610,100 384,900
Other 76,400 92,900
----------- -----------
Total current liabilities 9,682,300 6,037,800
Long-term debt, excluding current portion 1,526,900 729,500
Deferred income taxes 160,700 160,700
Total liabilities 11,369,900 6,928,000
----------- -----------
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,708,300 12,594,000
Retained earnings 3,383,600 2,679,000
----------- -----------
Total stockholders' equity 16,094,500 15,275,600
----------- -----------
Commitments and contingencies $27,464,400 22,203,600
=========== ==========
</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 NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $10,002,600 7,905,000 27,395,800 23,612,100
Cost of goods sold 5,014,600 3,876,900 13,933,700 11,556,600
----------- --------- ---------- ----------
Gross profit 4,988,000 4,028,100 13,462,100 12,055,500
Operating expenses:
Selling, general
and administrative 3,726,900 2,448,300 10,446,800 6,883,700
Research and experimental 576,800 541,400 1,778,500 1,513,900
----------- --------- ---------- ----------
Total operating expenses 4,303,700 2,989,700 12,225,300 8,397,600
----------- --------- ---------- ----------
Income from operations 684,300 1,038,400 1,236,800 3,657,900
Other income (expense):
Interest expense (84,300) (28,300) (205,300) (129,000)
Other, net 11,200 36,600 36,000 64,900
----------- --------- ---------- ----------
Income before income taxes 611,200 1,046,700 1,067,500 3,593,800
Income tax expense 207,800 355,900 362,900 1,221,900
----------- --------- ---------- ----------
Net income $ 403,400 690,800 704,600 2,371,900
=========== ========= ========== ==========
Net income per common share $ .12 .20 .20 .69
=========== ========= ========== ==========
Weighted average common
shares outstanding 3,491,181 3,455,830 3,472,830 3,461,187
=========== ========= ========== ==========
</TABLE>
See accompanying note to consolidated financial statements.
3
<PAGE> 4
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 704,600 2,371,900
Adjustments to reconcile net income to
cash (used in) provided by operating activities:
Depreciation and amortization 537,600 435,400
Change in operating assets and liabilities:
Trade receivables (2,577,300) (615,600)
Inventories (1,238,400) (709,500)
Prepaid expenses and other current assets (7,800) 24,400
Accrued expenses 77,500 (360,900)
Accounts payable 2,106,800 357,100
Income taxes payable 225,200 221,300
Other current liabilities (16,500) 24,800
----------- ----------
Net cash (used in) provided by operating activities (188,300) 1,748,900
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (2,007,200) (472,200)
Payment for business acquired -- (963,400)
Intangible asset acquired (35,000) --
----------- ----------
Net cash used in investing activities (2,042,200) (1,435,600)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of options 114,300 84,100
Bank borrowings 2,238,500 915,000
Proceeds from notes receivable 53,600 --
----------- ----------
Principal payments under acquisition notes
payable, long term debt and other (189,600) (1,431,400)
----------- ----------
Net cash provided by (used in) financing activities 2,216,800 (432,300)
----------- ----------
Net decrease in cash and cash equivalents (13,700) (119,000)
Cash and cash equivalents at beginning of period 436,200 321,600
----------- ----------
Cash and cash equivalents at end of period $ 422,500 202,600
=========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 137,800 951,800
=========== ==========
Interest $ 205,400 129,100
=========== ==========
</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 March 31, 1997 and the related
consolidated statements of income for the three and nine month periods ended
March 31, 1997 and 1996; and the consolidated statements of cash flows for the
nine month periods ended March 31, 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
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 AND NINE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
Sales
Sales for the third quarter ended March 31, 1997 were $10,002,600, an
increase of 26.5% over sales of $7,905,000 for the same period of fiscal 1996.
Sales for the nine month period increased 16.0% to $27,395,800 compared with
$23,612,100 in the same period last year. The sales increase for the three and
nine month periods 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
third quarter ended March 31, 1997 were also positively affected by increased
sales of the Company's MRI vital signs monitors. Sales growth at the Company's
oxygen monitoring and industrial process control businesses for the three and
nine month periods of fiscal 1997 offset a sales decline at the Company's gas
detection business.
Gross Profit
The gross profit margin declined for the three and nine month periods
ended March 31, 1997 to 49.9% and 49.1% from 51.0% and 51.1%, respectively, in
the prior fiscal periods. 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. Additional
production costs associated with the resolution of certain product issues
encountered in the initial production runs of the "Millennia" monitor also
contributed to the lower gross margins for the nine month period ended March 31,
1997. 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 and nine
month periods ended March 31, 1997 increased 52.2% or $1,278,600 and 51.8% or
$3,563,100, respectively, over the previous fiscal periods. Selling, general and
administrative expenses were 37.2% and 38.1% of sales for the three and nine
month periods ended March 31, 1997 compared with 31.0% and 29.2%, respectively,
for the same periods fiscal 1996. The increase in these expenditures in
aggregate and as a percentage of sales was due to a significant increase in the
Company's direct sales force and sales and marketing infrastructure in
connection with the introduction of its new "Millennia" vital signs monitor.
Research and experimental expenses were 5.8% and 6.5% of sales for the
three and nine month periods ended March 31, 1997 compared to 6.8% and 6.4% for
the same periods in fiscal 1996. The increase in aggregate research and
experimental expenses for the three and nine month periods ended March 31, 1997
was due to higher research and experimental expenditures on behalf of the
patient safety monitoring business as the Company continues its efforts in
developing and enhancing its new multi-parameter vital signs monitor and other
vital signs monitoring products.
6
<PAGE> 7
Other Income and Expense
Interest expense increased to $84,300 and $205,300 for the three and
nine months ended March 31, 1997 compared with $28,300 and $129,000 for the same
periods in fiscal 1996. 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 nine months of fiscal 1997
remained at approximately 34.0%.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1997 increased to $7,655,100 compared with
$7,489,800 at June 30, 1996. Cash and cash equivalents at March 31, 1997 were
$422,500 compared with $436,200 at June 30, 1996. Net cash used in operating
activities was $188,300 for the nine months ended March 31, 1997 compared with
$1,748,900 provided by operations for the nine months ended March 31, 1996. This
decrease was the result of the decline in net income and negative changes in
operating assets and liabilities particularly inventories and accounts
receivable at the patient safety monitoring business. Capital expenditures were
$2,007,200 for the nine months ended March 31, 1997 compared to $472,200 for the
first nine months of fiscal 1996. The increase was primarily due to the
significant increase in sales demonstration equipment for the expanded direct
sales force at the patient safety monitoring business along with the expansion
of the patient safety monitoring facility in Orlando, Florida.
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. In March of 1996, the former Invivo Research shareholders elected
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 Company
was informed in March of 1997 that the former Invivo Research shareholders would
not elect to be paid on their "vested" second installment in June of 1997.
Bank borrowings increased $2,238,500 in the first nine months of fiscal
1997. The Company's revolving bank line of credit is collateralized by the
Company's accounts receivable, inventory, and equipment. On December 1, 1996,
the Company renewed the $4,000,000 bank line of credit to December 1, 1997. At
March 31, 1997, $3,160,000 was outstanding on 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 was completed in February of 1997.
7
<PAGE> 8
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.
OUTLOOK. The statements contained in this Outlook are based on current
expectations. These statements are forward looking, and actual results may
differ materially.
In April, 1996 the Company's Invivo Research subsidiary received FDA
approval to market the "Millennia", its new portable multi-parameter vital signs
monitor. The Company believes this product will enable 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. Therefore, revenue and earnings
growth for the Company's upcoming fourth quarter as compared to the third
quarter ended March 31, 1997 will largely depend on the revenue contribution
made by the "Millennia".
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 forecast by the
Company are: economic conditions affecting the healthcare industry and general
economy; successful integration of the expanded direct sales force; successful
implementation of the product marketing strategy; competitive factors, such as
competitor's new products and pricing pressures; and manufacturing
effectiveness, efficiency 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:
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
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: May 15, 1997 By: /s/ JOHN F. GLENN
-------------------------
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
11
<PAGE> 1
EXHIBIT 11.1
INVIVO CORPORATION AND SUBSIDIARIES STATEMENT OF COMPUTATION OF NET INCOME PER
SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C>
Net income $ 403,400 690,800 704,600 2,371,900
========== ========= ========= =========
Computation of weighted
average common shares
outstanding:
Common stock 3,244,066 3,221,327 3,236,501 3,213,412
Common stock
equivalents 247,115 234,503 236,329 247,775
---------- --------- --------- ---------
Weighted average common
shares outstanding 3,491,181 3,455,830 3,472,830 3,461,187
========== ========= ========= =========
Net income per common share $ .12 .20 .20 .69
========== ========= ========= =========
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 423
<SECURITIES> 0
<RECEIVABLES> 9,246
<ALLOWANCES> 253
<INVENTORY> 6,743
<CURRENT-ASSETS> 17,337
<PP&E> 7,744
<DEPRECIATION> 3,397
<TOTAL-ASSETS> 27,464
<CURRENT-LIABILITIES> 9,682
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 16,091
<TOTAL-LIABILITY-AND-EQUITY> 27,464
<SALES> 10,003
<TOTAL-REVENUES> 10,003
<CGS> 5,015
<TOTAL-COSTS> 5,015
<OTHER-EXPENSES> 4,304
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84
<INCOME-PRETAX> 611
<INCOME-TAX> 208
<INCOME-CONTINUING> 403
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
