<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, 1998
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
incorporation) Identification No.)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
TELEPHONE: (925) 468-7600
-------------------------------
(Registrant's telephone number)
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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, 1998 was 3,269,418 shares.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997
MARCH 31, (DERIVED FROM
1998 AUDITED CONSOLIDATED
(UNAUDITED) FINANCIAL STATEMENTS
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 177,400 171,100
Trade receivables, net 10,517,300 7,898,800
Inventories 6,407,600 7,100,900
Deferred income taxes 802,300 802,300
Prepaid expenses and other current assets 448,100 516,200
----------- -----------
Total current assets 18,352,700 16,489,300
Property and equipment, net 4,303,200 4,460,100
Intangible assets 5,789,600 5,442,400
Other assets 319,500 219,700
----------- -----------
$28,765,000 26,611,500
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,731,300 2,871,000
Accrued expenses 2,229,800 2,153,200
Current portion of long-term debt and
bank borrowings 3,628,300 3,487,900
Income taxes payable 985,800 481,200
Other 18,800 21,900
----------- -----------
Total current liabilities 9,594,000 9,015,200
Long-term debt, excluding current portion 1,504,600 1,584,400
Deferred income taxes 145,400 145,400
Other liabilities 52,000 52,000
----------- -----------
Total liabilities 11,296,000 10,797,000
----------- -----------
Stockholders' equity:
Common stock 2,600 2,600
Additional paid-in capital 12,894,300 12,817,400
Retained earnings 4,572,100 2,994,500
----------- -----------
Total stockholders' equity 17,469,000 15,814,500
----------- -----------
Commitments and contingencies -- --
$28,765,000 26,611,500
=========== ===========
</TABLE>
See accompanying note to unaudited 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,
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 10,424,600 10,002,600 29,532,000 27,395,800
Cost of goods sold 5,533,200 5,014,600 15,481,300 13,933,700
------------ ------------ ------------ ------------
Gross profit 4,891,400 4,988,000 14,050,700 13,462,100
------------ ------------ ------------ ------------
Operating expenses:
Selling, general
and administrative 3,322,800 3,726,900 9,578,800 10,446,800
Research and experimental 585,200 576,800 1,835,400 1,778,500
------------ ------------ ------------ ------------
Total operating expenses 3,908,000 4,303,700 11,414,200 12,225,300
------------ ------------ ------------ ------------
Income from operations 983,400 684,300 2,636,500 1,236,800
Other income (expense):
Interest expense (96,200) (84,300) (291,400) (205,300)
Other, net (16,800) 11,200 7,300 36,000
------------ ------------ ------------ ------------
Income before income taxes 870,400 611,200 2,352,400 1,067,500
Income tax expense 295,900 207,800 774,800 362,900
------------ ------------ ------------ ------------
Net income $ 574,500 403,400 1,577,600 704,600
============ ============ ============ ============
Basic net income per common share $ .18 .12 .48 .22
============ ============ ============ ============
Diluted net income per common share $ .17 .12 .46 .20
============ ============ ============ ============
Weighted average common
shares outstanding (basic) 3,269,143 3,244,066 3,263,478 3,236,501
============ ============ ============ ============
Dilutive stock options 159,771 247,115 141,992 236,329
------------ ------------ ------------ ------------
Weighted average common
shares outstanding (diluted) 3,428,914 3,491,181 3,405,470 3,472,830
============ ============ ============ ============
</TABLE>
See accompanying note to unaudited consolidated financial statements.
3
<PAGE> 4
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,577,600 704,600
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 599,700 537,600
Change in operating assets and liabilities:
Trade receivables (2,618,500) (2,577,300)
Inventories 693,300 (1,238,400)
Prepaid expenses and other current assets 68,100 (7,800)
Accrued expenses 76,600 77,500
Accounts payable (139,700) 2,106,800
Income taxes payable 504,600 225,200
Other current liabilities 345,900 (16,500)
----------- -----------
Net cash provided by (used in) operating activities 1,107,600 (188,300)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (324,700) (2,007,200)
Other assets (99,800) --
Intangible asset acquired (465,300) (35,000)
----------- -----------
Net cash used in investing activities (889,800) (2,042,200)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 76,900 114,300
Bank (repayments) borrowings, net (220,100) 2,238,500
Proceeds from note receivable -- 53,600
Principal payments under acquisition notes
payable and long term debt (68,300) (189,600)
----------- -----------
Net cash (used in) provided by financing activities (211,500) 2,216,800
----------- -----------
Net increase (decrease) in cash and cash equivalents 6,300 (13,700)
Cash and cash equivalents at beginning of period 171,100 436,200
Cash and cash equivalents at end of period $ 177,400 422,500
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 598,100 137,800
=========== ===========
Interest $ 272,200 205,400
=========== ===========
</TABLE>
See accompanying note to unaudited consolidated financial statements.
4
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INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of March 31, 1998 and the related
consolidated statements of income for the three and nine month periods ended
March 31, 1998 and 1997; and the consolidated statements of cash flows for the
nine month periods ended March 31, 1998 and 1997 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.
For the quarter ended December 31, 1997, the Company adopted Statement
of Financial Accounting Standards No. 128, "Earnings per Share". This standard
requires reporting of both "basic" and "diluted" earnings per share. Prior
period results have been restated to conform with the new standard.
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.
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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, 1998 AND 1997
Sales
Sales for the third quarter ended March 31, 1998 were $10,424,600, an
increase of 4.2% over sales of $10,002,600 for the comparable period of fiscal
1997. Sales for the nine month period increased 7.8% to $29,532,000 compared
with $27,395,800 in the same period last year. The sales increase for the three
month period ended March 31, 1998 was primarily due to sales growth at the gas
detection business. Sales for the patient safety monitoring business were
essentially flat for the quarter ended March 31, 1998 as increased sales of the
"Millennia" portable vital signs monitor were offset by a decline in MRI vital
sign monitors relative to the March 31, 1997 quarter, as MRI monitor revenues in
that quarter included a particularly large order. The sales increase for the
nine month period was primarily due to sales growth at the Company's patient
safety monitoring business as sales of the "Millennia" portable vital signs
monitor continued to increase from prior year levels. Sales for the nine month
period ended March 31, 1998 were also positively affected by increased sales at
the Company's industrial process control businesses.
Gross Profit
The gross profit margin decreased for the three and nine month periods
ended March 31, 1998 to 46.9% and 47.6% from 49.9% and 49.1%, respectively, for
the same periods in fiscal 1997. The decrease was largely attributable to
increased sales of the "Millennia" vital signs monitor which has lower margins
than the Company's MRI vital sign monitors. In addition, pricing pressures at
the Company's oxygen monitoring business contributed to the lower gross margins.
Operating Expenses
Selling, general and administrative expenses for the three and nine
month periods ended March 31, 1998 decreased 10.8% or $404,100 and 8.3% or
$868,000 respectively, over the previous fiscal periods. Selling, general and
administrative expenses were 31.9% and 32.4% of sales for the three and nine
month periods ended March 31, 1998 compared with 37.3% and 38.1%, respectively,
for the same periods in fiscal 1997. The decrease in these expenditures in
aggregate and as a percentage of sales was largely due to a reduction in
selling, general and administrative 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 were 5.6% and 6.2% of sales for the
three and nine month periods ended March 31, 1998 compared to 5.8% and 6.5% for
the same periods in fiscal 1997. A substantial amount of the research and
experimental expenses are on behalf of the patient safety monitoring business as
the Company continues its efforts in developing and enhancing its "Millennia"
vital signs monitor and other vital signs monitoring products.
Other Income and Expense
Interest expense increased to $96,200 and $291,400 for the three and
nine months ended March 31, 1998 compared with $84,300 and $205,300 for the same
periods in fiscal 1997. This increase in interest expense was the result of
higher
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outstanding balances 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 1998 was
32.9% 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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 1998 increased to $8,758,700 compared with
$7,474,100 at June 30, 1997. Cash and cash equivalents at March 31, 1998 were
$177,400 compared with $171,100 at June 30, 1997. Net cash provided by operating
activities was $758,600 for the nine months ended March 31, 1998 compared with
$188,300 used in operations for the nine months ended March 31, 1997. This
increase was primarily the result of the increase in net income for the nine
months ended March 31, 1998 as compared to the same period in the prior year.
Capital expenditures were $324,700 for the nine months ended March 31, 1998
compared to $2,007,200 for the first nine months of fiscal 1997. The fiscal 1997
capital expenditure figure included approximately $900,000 of construction in
progress for the expansion of the patient safety monitoring facility which was
completed in February 1997. The remaining difference in capital spending is
largely due to less demonstration equipment requirements for the direct sales
force at the Company's patient safety monitoring business in fiscal 1998.
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 vested on January 1, 1996, 1997 and
1998 and two-fifths vest on January 1, 1999. The former Invivo Research
shareholders can make an 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. In March of 1998, the former Invivo Research shareholders
elected to be paid on the second vested installment which amounted to $465,342.
The former Invivo Research shareholders agreed to a payment of $116,335 in
March, 1998 with the remainder to be paid in nine equal monthly payments
beginning in April, 1998.
Bank borrowings decreased $220,100 in the first nine 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 renewed the
$5,000,000 line of credit on December 1, 1997 to December 1, 1998. At March 31,
1998, $3,174,900 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
7
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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.
RECENT ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME. In 1997, the financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, which establishes standards for reporting and
displaying comprehensive income and its components. The statement is effective
for fiscal years beginning after December 15, 1997 and will be adopted by Invivo
Corporation in fiscal year 1999.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. In
1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 131, disclosures about Segments of an Enterprise and
Related Information, which establishes standards for the way the public business
enterprises are to report selected information about operating segment in
interim financial reports issued to stockholders. The statement is effective for
periods beginning after December 15, 1997, and will be adopted by Invivo
Corporation in fiscal year 1999.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS No. 132"), and amendment of FASB Statements No.
87, 88, and 106. SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans. It does not change the measurement or
recognition of those plans. It standardizes the disclosure requirements for
pensions and other postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures that are no longer useful as they were when FASB Statement No. 87,
Employer's Accounting for Pensions, No. 88, Employers' Accounting for Accounting
for Postretirement Benefits Other Than Pensions, were issued. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997 and requires
restatement of disclosures for earlier periods provided for comparative
purposes, if available. Because the Company does not have any of these type of
plans, it believes that SFAS No. 132 will have no impact on the consolidated
financial statements.
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 fiscal 1997, the Company introduced its new "Millennia" portable
multi-parameter vital signs monitor and 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
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actual results to differ from those anticipated by the Company are: customer
acceptance of new product; effectiveness of sales and marketing efforts;
customer buying patterns; changes in healthcare delivery and reimbursement;
availability of components; impact of the Asian economic environment; execution
of new product manufacturing ramp 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.
YEAR 2000
Many existing computer systems and related software applications use
only two digits to identify a year in the date field, without considering the
impact of the upcoming change in the century. Such systems and applications
could fail or create erroneous results unless corrected so that they can process
data related to the year 2000. The Company relies on such computer systems and
applications in operating and monitoring all major aspects of its business. The
Company is currently in the process of evaluating the potential impact of the
year 2000 issue on its business and the related expenses that would be incurred
in attempting to remedy such impact. Management's current estimate is that the
costs associated with the year 2000 issue should not have a material adverse
effect on the results of operations or financial position of the Company in any
given year. However, despite the Company's efforts to address the year 2000
impact on its internal systems, the Company is not sure that it has fully
identified such impact or that it can resolve it without disruption of its
business and without incurring significant expense.
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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.
10
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INVIVO CORPORATION
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
<S> <C>
27.0 Financial Data Schedule
</TABLE>
11
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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 13, 1998 By:/S/ JOHN F. GLENN
-----------------
Vice President-Finance
and Chief Financial
Officer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 177
<SECURITIES> 0
<RECEIVABLES> 10,897
<ALLOWANCES> 380
<INVENTORY> 6,408
<CURRENT-ASSETS> 18,353
<PP&E> 8,312
<DEPRECIATION> 4,009
<TOTAL-ASSETS> 28,765
<CURRENT-LIABILITIES> 9,594
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 17,466
<TOTAL-LIABILITY-AND-EQUITY> 28,765
<SALES> 10,425
<TOTAL-REVENUES> 10,425
<CGS> 5,533
<TOTAL-COSTS> 5,533
<OTHER-EXPENSES> 3,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 96
<INCOME-PRETAX> 870
<INCOME-TAX> 296
<INCOME-CONTINUING> 575
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 575
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.17
</TABLE>
