<PAGE> 1
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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, 1999
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 Identification No.)
Of incorporation)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
TELEPHONE: (925) 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 $.01
per share, at September 30, 1999 was 4,280,949 shares.
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<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 JUNE 30,
(UNAUDITED) 1999
------------ ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 527,000 207,800
Short term investments 7,069,200 8,219,100
Trade receivables, net 13,190,500 12,173,800
Inventories 8,644,000 8,177,200
Deferred income taxes 1,289,000 1,289,000
Prepaid expenses and other current assets 714,100 577,800
------------ ----------
Total current assets 31,433,800 30,644,700
Property and equipment, net 5,767,400 5,026,200
Intangible assets 8,634,600 8,700,300
Other assets 281,600 269,800
------------ ----------
$ 46,117,400 44,641,000
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,193,000 2,914,800
Accrued expenses 3,215,300 3,574,300
Current portion of long-term debt and
bank borrowings 140,200 140,200
Income taxes payable 1,490,700 1,066,500
------------ ----------
Total current liabilities 8,039,200 7,695,800
Long-term debt, excluding current portion 1,500,700 1,526,700
Deferred income taxes 200,000 200,000
Other liabilities 52,000 52,000
------------ ----------
Total liabilities 9,791,900 9,474,500
------------ ----------
Stockholders' equity:
Common stock 42,800 42,800
Additional paid-in capital 26,080,100 26,076,600
Retained earnings 10,233,100 9,074,900
Accumulated other comprehensive loss (30,500) (27,800)
------------ ----------
Total stockholders' equity 36,325,500 35,166,500
------------ ----------
Commitments and contingencies
$ 46,117,400 44,641,000
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 3
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 12,863,800 11,500,600
Cost of goods sold 6,405,400 5,736,000
------------ ------------
Gross profit 6,458,400 5,764,600
Operating expenses:
Selling, general
and administrative 4,012,400 3,845,200
Research and experimental 772,500 690,900
------------ ------------
Total operating expenses 4,784,900 4,536,100
------------ ------------
Income from operations 1,673,500 1,228,500
Other income (expense):
Interest income 109,800 --
Interest expense (31,300) (82,700)
Other, net 2,900 4,600
------------ ------------
Income before income taxes 1,754,900 1,150,400
Income tax expense 596,700 391,100
------------ ------------
Net income $ 1,158,200 759,300
============ ============
Basic net income per common share $ .27 .23
============ ============
Weighted average common
shares outstanding (basic) 4,280,680 3,269,947
============ ============
Diluted net income per common
Share $ .26 .22
============ ============
Weighted average common
shares outstanding (diluted) 4,523,255 3,516,389
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,158,200 759,300
Adjustments to reconcile net income to
cash provided by (used in) operating activities:
Depreciation and amortization 311,500 222,500
Loss on sale of property and equipment -- --
Change in operating assets and liabilities:
Trade receivables (1,016,700) (363,800)
Inventories (466,800) (333,300)
Prepaid expenses and other current assets (136,300) (263,400)
Accrued expenses (359,000) 44,000
Accounts payable 278,200 (86,600)
Income taxes payable 424,200 4,700
----------- -----------
Net cash provided by (used in) operating activities 193,300 (16,600)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of short term investments 1,147,200 --
Capital expenditures (986,900) (356,200)
Intangible assets -- (116,300)
Other assets (11,800) 8,200
----------- -----------
Net cash provided by (used in) investing activities 148,500 (464,300)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 3,500 12,600
Bank borrowings (repayments), net -- 249,100
Principal payments under long-term debt and other liabilities (26,100) (26,000)
----------- -----------
Net cash (used in) provided by financing activities (22,600) 235,700
----------- -----------
Net increase (decrease) in cash and cash equivalents 319,200 (245,200)
Cash and cash equivalents at beginning of period 207,800 554,100
----------- -----------
Cash and cash equivalents at end of period $ 527,000 308,900
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 252,000 373,300
=========== ===========
Interest $ 31,300 85,500
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INVIVO CORPORATION
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The consolidated balance sheet as of September 30, 1999 and the related
consolidated statements of income for the three month periods ended September
30, 1999 and 1998; and the consolidated statements of cash flows for the three
month periods ended September 30, 1999 and 1998 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 notes 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.
2. SEGMENT INFORMATION
The Company has adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 131, Disclosure About Segments of an Enterprise and
Related Information. SFAS 131 establishes standards for the reporting by
public business enterprises of information about operating segments,
products and services, geographic areas, and major customers. The method
for determining what information to report is based on the way that
management organizes the operating segments within the Company for making
operating decisions and assessing financial performance.
The Company's chief operating decision-maker is considered to be the Chief
Executive Officer (CEO). The CEO reviews financial information presented on
a consolidated basis accompanied by information by business segment. The
Company operates in two business segments: (i) patient safety monitoring,
which designs, manufactures, and markets monitoring systems that measure
and display vital signs of patients in medical settings; and (ii) safety
and industrial instrumentation, which is engaged in the design,
manufacture, and marketing of sensor-based instruments for safety and
industrial process control applications. These segments are managed
separately because of different customers and products which require
different business strategies. The Company evaluates the operating
performance of its segments based on net sales and income from operations.
Summarized financial information concerning the Company's business segments
is shown in the following table. The "Corporate" column includes general
and administrative and corporate-related expenses not allocated to
reportable segments (in thousands).
<TABLE>
<CAPTION>
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE TOTAL
-------------- --------------- --------- -----
<S> <C> <C> <C> <C>
For the three months ended September 30,
1999
Net sales........................... $ 7,954 4,910 -- 12,864
Income from operations.............. 1,232 864 (422) 1,674
Depreciation and amortization....... 219 84 9 312
Total assets........................ 26,534 10,064 9,519 46,117
</TABLE>
<TABLE>
<CAPTION>
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE TOTAL
-------------- --------------- --------- ------
<S> <C> <C> <C> <C>
For the three months ended September 30,
1998
Net sales........................... $ 7,111 4,390 -- 11,501
Income from operations.............. 950 703 (424) 1,229
Depreciation and amortization....... 151 69 2 222
Total assets........................ 21,076 8,123 1,837 31,036
</TABLE>
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998
Sales
Sales for the first quarter ended September 31, 1999 were $12,863,800, an
increase of 11.9% over sales of $11,500,600 for the comparable period of fiscal
1999. The sales increase was primarily due to sales growth at the Company's
patient safety monitoring business. Continued strong demand for the Company's
next generation MRI vital signs monitor was largely responsible for the sales
increase. Sales were also positively affected by increased sales of the
Company's gas detection and oxygen monitoring product lines.
Gross Profit
The gross profit margin remained stable at 50.2% for the three months ended
September 30, 1999 as compared to 50.1% for the year earlier period.
Operating Expenses
Selling, general and administrative expenses for the three months ended
September 30, 1999 increased 4.3% or $167,200 over the previous fiscal period.
Selling, general and administrative expenses were 31.2% of sales for the first
quarter of fiscal 2000 compared with 33.4% for the comparable period in fiscal
1999. The increase in these expenditures in aggregate was largely due to
increased administrative expenses in support of the higher sales volume at the
patient safety monitoring business. The decrease in these expenditures as a
percentage of sales was due to increased efficiency on behalf of the direct
sales force at the patient safety monitoring business. The Company expects that
selling, general and administrative expenses could increase in the future as the
Company seeks to augment the direct sales force.
Research and experimental expenses remained at 6.0% of sales for the
three-month period ended September 30, 1999. A substantial amount of the
aggregate research and experimental expenses are on behalf of the patient safety
monitoring business as the Company continued to develop additional features to
its Millennia vital signs monitor for specialized market areas.
Other Income and Expense
Interest income was $109,800 for the first quarter of fiscal 2000. Interest
expense decreased to $31,300 in the first quarter of fiscal 2000 compared with
$82,700 for the comparable period in fiscal 1999. These changes were the result
of the investment of, and the payoff of the outstanding balances on the
Company's revolving bank line of credit and term loan with, the proceeds from
the secondary stock offering in March, 1999.
Provision for Income Taxes
The effective tax rate for the first quarter of fiscal 2000 remained at
34%. The effective rate differs from the statutory rate due principally to the
benefit of a foreign sales corporation and other credits.
LIQUIDITY AND CAPITAL RESOURCES
On March 15, 1999, the Company completed the sale of 900,000 additional
shares of common stock at a price of $14.75 per share. The Company netted
approximately $12,100,000 prior to the repayment of its outstanding bank
borrowings of approximately $2,500,000. Working capital at September 30, 1999
increased to $23,394,600 from $22,948,900 at June 30, 1999. Net cash provided by
operating activities was $193,300 for the three months ended September 30, 1999
compared with $16,600 used in operations for the three months ended September
30, 1998. This increase was largely the result of the increase in net income
offset by changes in operating assets and liabilities, particularly inventories,
accounts receivable, and accrued expenses.
6
<PAGE> 7
Capital expenditures were $986,900 for the first three months of fiscal
2000 compared to $356,200 for the prior year period. The increase was primarily
the result of the purchase of new manufacturing equipment for the Company's
oxygen monitoring product line.
The Company's bank line of credit of $7,500,000 expires on December 1,
1999. The Company fully expects to renew the line of credit. The Company's
revolving bank line of credit is collateralized by the Company's accounts
receivable, inventory, and equipment. At September 30, 1999, $7,500,000 was
available under the line of credit.
The Company believes that its cash flow from operations and proceeds from
its secondary stock offering will be adequate to meet its anticipated cash needs
for working capital and capital expenditures throughout fiscal 2000. The Company
will continue to explore opportunities for the possible acquisitions of
technologies or businesses, which may require the Company to seek additional
financing.
YEAR 2000
READINESS FOR 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 incorrect or unintended results unless corrected so that they can
process data related to the year 2000 and thereafter. The Company relies on
such computer systems and applications in operating and monitoring most major
aspects of our business. The Company has evaluated the impact of the year 2000
issue on its business and the related expenses incurred in attempting to remedy
such impact. The year 2000 issue could affect the Company in at least three
different ways:
o The software or the chips embedded within computers and other systems used in
the Company's offices and manufacturing facilities could be affected.
o The software or the chips used in the products the Company sells could be
affected.
o Third parties who do business with the Company may not be prepared for the
year 2000.
The Company determined that regardless of the year 2000 issue, replacement of
existing office and other systems would provide more efficient operations and
added functionality. The Company contracted with outside information consulting
companies both to install new hardware and to replace its current
mission-critical software systems with year 2000 compliant software. All
information system upgrades and conversions are completed and fully
operational. The Company is currently assessing its electronic office and
manufacturing equipment to determine if such equipment is dated-sensitive and
will require upgrades. If after this assessment the Company determines that
some of its equipment needs to be upgraded or replaced, it plans to finish the
required work by October 1999.
The Company believes that its currently marketed products are year 2000
compliant. Some of its products are not affected because they do not contain a
date field in the software. On some previously marketed products which are not
year 2000 compliant, the Company will make an upgrade available to its
customers to ensure year 2000 compliance.
The Company cannot predict the effect of year 2000 problems on its vendors,
customers and other entities with which it transacts business, or with whose
products its products interact. The Company has undertaken a survey of the year
2000 readiness of these third parties and believes its key vendors are 2000
compliant.
COSTS
Through September 30, 1999, the Company incurred approximately $350,000 of costs
associated with its new information systems, of which approximately $325,000 has
been capitalized. Of this, approximately $225,000 has been spent on replacing
old hardware, and approximately $100,000 has been spent on replacing old
software. Because the Company would have replaced these systems even without the
year 2000 problem, its year 2000 expenditures have not deferred other projects
that the Company otherwise would have undertaken.
RISKS
The Company expects to make the changes required to address the year 2000
problems for the software and embedded chips in its offices and manufacturing
facilities and in the products it makes. The Company presently believes that
with the new software and hardware it purchased and with any required
modifications to its office and other systems which it assessment shows to be
needed, the year 2000 issues is not reasonably likely to pose significant
problems with respect to the Company's operations or products. However, if
unforeseen difficulties arise, such modifications, conversions and replacements
are not completed on time, or if or customers's or suppliers' systems are not
modified to become year 2000 compliant, the year 2000 issue may have a material
adverse effect on the Company's business, financial condition and results of
operations.
7
<PAGE> 8
The Company cannot presently assess the likelihood that it will experience
significant problems due to the unresolved year 2000 problems of third parties
with which it does business. Although the Company has not been put on notice
that any known third party problem will not be timely resolved, it has limited
information and no assurance can be made concerning the year 2000 readiness of
third parties. If third parties fail to achieve year 2000 compliance, the year
2000 issue may have a material adverse effect on the Company's business,
financial condition and results of operations. Similarly, there can be no
assurance that the Company can timely mitigate its risks related to a third
party's failure to resolve its year 2000 issues. If it fails to timely mitigate
such risks, that failure may have a material adverse effect on the Company's
business and results of operations.
CONTINGENCY PLANS
The Company has not attempted to quantify its most likely year 2000 worst-case
scenario nor has it considered any contingency plans in case the installations
by its outside information consulting companies are not satisfactory for year
2000 compliance, as it believes that the installations will prove sufficient to
address the year 2000 issue.
8
<PAGE> 9
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's primary market risk exposure is that of currency risk. During
the three months ended September 30, 1999, 16% of the Company's total sales came
from non-United States domiciled customers. The Company requires payment in
United States (U.S.) currency. If these customers currency devalues against the
U.S. dollar, the customers could potentially encounter difficulty in making the
U.S. dollar denominated payments.
PART II - OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS:
Not Applicable.
ITEM 2: CHANGES IN SECURITIES:
Not Applicable.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES:
Not Applicable.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
Not Applicable.
ITEM 5: OTHER INFORMATION:
Not Applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a)
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
<S> <C> <C>
Exhibit 11.1 Statement of Computation of Net Income Per Share p. 12
Exhibit 27.0 Financial Data Schedule p. 13
</TABLE>
(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 15, 1999 By: /s/ JOHN F. GLENN
-------------------------------
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit Page
----------- ---------------------- ----
<S> <C> <C>
Exhibit 11.1 Statement on Computation of Net Income Per Share p. 12
Exhibit 27.0 Financial Data Schedule p. 13
</TABLE>
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,
----------------------------
1999 1998
---------- ----------
<S> <C> <C>
BASIC:
Weighted average common
Shares outstanding 4,280,680 3,269,947
========== ==========
Net Income $1,158,200 759,300
========== ==========
Basic net income per common share $ 0.27 0.23
========== ==========
DILUTED:
Weighted average common
Shares outstanding (basic) 4,280,680 3,269,947
Dilutive stock options 242,575 246,442
---------- ----------
Weighted average common
Shares outstanding (diluted) 4,523,255 3,516,389
========== ==========
Net Income $1,158,200 759,300
========== ==========
Diluted net income per common share $ 0.26 0.22
========== ==========
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-01-1999
<CASH> 527
<SECURITIES> 7,069
<RECEIVABLES> 13,567
<ALLOWANCES> 376
<INVENTORY> 8,644
<CURRENT-ASSETS> 31,434
<PP&E> 10,839
<DEPRECIATION> 5,072
<TOTAL-ASSETS> 46,117
<CURRENT-LIABILITIES> 8,039
<BONDS> 0
0
0
<COMMON> 43
<OTHER-SE> 36,283
<TOTAL-LIABILITY-AND-EQUITY> 46,117
<SALES> 12,864
<TOTAL-REVENUES> 12,864
<CGS> 6,405
<TOTAL-COSTS> 6,405
<OTHER-EXPENSES> 4,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31
<INCOME-PRETAX> 1,755
<INCOME-TAX> 597
<INCOME-CONTINUING> 1,158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,158
<EPS-BASIC> .27
<EPS-DILUTED> .26
</TABLE>
