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, 1995
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from to .
Commission file No. 0-18476
AMRION, INC.
(Exact name of Registrant as specified in its charter)
Colorado 84-1050628
(State or other jurisdiction (IRS Employer ID No.)
of incorporation or organization)
6565 Odell Place, Boulder, CO 80301
(Address of principal executive offices) (Zip Code)
303-530-2525
(Telephone Number)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act 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
Common stock, par value $.0011 per share: 5,013,938 shares outstanding as of
9/30/95.
1
<PAGE>
PART 1. FINANCIAL
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
2
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
September 30, December 31,
1995 1994
(Unaudited) (Audited)
Assets
<S>
Current:
<C> <C>
Cash and cash equivalents $ 1,429,728 $ 120,931
Accounts receivable, less allowance
of $3,338 and $60,000
for possible losses 549,660 539,301
Inventories 3,321,862 4,704,771
Mail supplies 1,273,033 588,711
Deferred promotional mailing costs, net 569,691 886,909
Other 564,012 247,173
Total current assets 7,707,986 7,087,796
Property and equipment, net 3,671,794 3,333,857
Other assets:
Marketable securities available for sale 7,653,768 7,495,769
Mailing lists, net 1,841,831 974,244
Intangible assets, net 132,639 141,177
Total other assets 9,628,238 8,611,190
Total assets $21,008,018 $19,032,843
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
3
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
<TABLE>
September 30, December 31,
1995 1994
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
<S>
Current:
<C> <C>
Accounts payable $ 1,730,775 $ 2,551,992
Accrued liabilities 480,479 265,514
Income taxes payable 135,422 5,200
Total current liabilities 2,346,676 2,822,706
Deferred income taxes 74,000 74,000
Total liabilities 2,420,676 2,896,706
Minority interest (37,858) 8,681
Stockholders' equity:
Common stock, $.0011 par value - shares
authorized, 10,000,000; issued 5,013,938
and 4,981,096 5,515 5,479
Additional paid-in capital 11,771,234 11,676,881
Retained earnings 7,130,672 4,979,484
Marketable securities valuation
allowance (232,221) (484,388)
18,675,200 16,177,456
Treasury stock, at cost, 34,091 shares (50,000) (50,000)
Total stockholders' equity 18,625,200 16,127,456
$21,008,018 $19,032,843
</TABLE>
See accompanying notes to the consolidated financial statements
<PAGE>
4
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
Nine months Three months
ended ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S>
Sales <C> <C> <C> <C>
Product sales $31,174,897 $19,034,020 $11,229,282 $ 6,881,862
Returns and
discounts (1,494,517) (659,602) (490,824) (167,229)
Net sales 29,680,380 18,374,418 10,738,458 6,714,633
Cost of sales:
Cost of products 12,960,231 8,168,483 4,903,272 2,988,962
Cost of mailings 5,652,387 2,704,524 1,791,994 1,014,265
Cost of sales 18,612,618 10,873,007 6,695,266 4,003,227
Gross profit 11,067,762 7,501,411 4,043,192 2,711,406
Operating expenses:
Selling, general and
administration 8,305,581 5,639,395 2,889,827 2,070,182
Income from operations 2,762,181 1,862,016 1,153,365 641,224
Other income, net 631,880 673,795 216,035 171,084
Income before taxes
on income 3,394,061 2,535,811 1,369,400 812,308
Income taxes 1,242,873 941,883 504,323 249,364
Net income $2,151,188 $1,593,928 $ 865,077 $ 562,944
Net income per common
and common equivalent
share $ .42 $ .31 $ .17 $ .11
Weighted average number of
common shares and common
stock equivalents
outstanding 5,075,379 5,111,873 5,136,322 5,137,073
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements
<PAGE>
5
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE AND THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
<TABLE>
Nine Months Three Months
ended ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S>
<C> <C> <C> <C>
Cash flow from operating activities:
Net income $2,151,188 $1,593,928 $ 865,077 $ 562,944
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 608,651 384,692 248,471 157,911
Minority interest share of loss
on subsidiary (46,539) -- (14,945) --
Changes in operating assets and
liabilities:
Accounts receivable (10,359) (146,784) (90,386) (42,471)
Inventories 1,382,909 (2,653,966) 1,700,084 865,971
Mailing supplies (684,322) (141,390) (150,900) 127,500
Deferred promotional mailing costs 317,218 (213,059) 236,580 27,852
Other assets (316,839) (825) (474,984) 39,904
Accounts payable (821,217) 229,004 49,281 (945,573)
Accrued liabilities 214,965 546,433 29,086 (33,951)
Income taxes payable 130,222 (15,000) 51,737 (105,533)
Cash provided by operating activities 2,925,877 (416,967) 2,449,101 654,554
Cash flows from investing activities:
Sales and maturities of marketable securities
available for sale in 1995 94,168 - (412,477) -
Purchase of property and equipment (598,692) (2,280,811) (323,618) (196,136)
Purchase of mailing lists and intangible
assets (1,206,945) (571,837) (387,820) (5,771)
Cash used in investing activities (1,711,469) (2,852,648) (1,123,915) (201,907)
Cash flows from financing activities:
November 1993 stock offering expenses -- (35,050) -- --
Proceeds from director's violation of
Section 16(b) of the 1934 SEC act -- 2,758 -- --
Proceeds from issuance of common stock - net 94,389 82,260 44,875 8,755
Cash provided by financing activities 94,389 49,968 44,875 8,755
Net decrease in cash and cash equivalents 1,308,797 (3,219,647) 1,370,061 461,402
Cash and cash equivalents,
at beginning of period 120,931 4,745,061 59,667 1,064,012
Cash and cash equivalents, at end of period $1,429,728 $1,525,414 $1,429,728 $1,525,414
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements
<PAGE>
6
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The unaudited consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the year ended December 31, 1994.
The consolidated financial statements include the accounts of Amrion, Inc.
("Amrion") and those of its 90% owned subsidiary, Natrix International, LLC
("Natrix"), a Colorado Limited Liability Company. Amrion develops, manufactures
and markets vitamins, herbal formulas, nutraceuticals and other nutritional
supplements throughout the United States using a combination of direct mail,
telemarketing and print advertising. Natrix is engaged in the marketing and
distribution domestically of Bilberry 2020.
The financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the periods
presented. All significant intercompany accounts and transactions have been
eliminated in consolidation.
NOTE 2
The Company's financial instruments exposed to concentrations of credit risk
consist primarily of trade accounts receivable, cash equivalents and marketable
securities. Concentrations of credit risk with respect to such accounts
receivable are limited due to the Company's large customer base, generally short
payment terms, and their dispersion across geographic areas.
The Company's cash equivalents are high quality money market accounts placed
with major financial institutions. Marketable securities consist primarily of
preferred and common stock and AAA rated tax-exempt municipal bonds. The
Company considers cash and all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
investment policy limits the Company's exposure to concentrations of credit
risk.
At September 30, 1995, all marketable equity and debt securities have been
categorized as available for sale and as a result are stated at fair value.
Unrealized gains and losses are included as a component of stockholders' equity
until realized.
NOTE 3
Inventories are valued at the lower-of-cost or market. Cost is determined using
the weighted average cost method.
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of related assets,
generally 3 to 31.5 years. Maintenance and repair costs are expensed as
incurred.
NOTE 4
The costs of mailed promotional materials are amortized over the expected
promotional benefit period of three months.
Purchased mailing lists, trademarks and copyrights are amortized by the
straight-line method over their estimated useful lives, which range from five
to ten years. On an ongoing basis, the Company reviews the recoverability and
amortization periods of intangible assets, taking into consideration any events
or circumstances which could impair the assets' carrying value, and records
adjustments when necessary.
<PAGE>
7
PART I FINANCIAL
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Period from
January 1, 1995, to September 30, 1995.
The following review concerns the three and nine-month periods ended September
30, 1995, and September 30, 1994, which should be read in conjunction with the
financial statements and notes thereto presented in this Form 10-Q.
Results of Operations
For the three and nine-month periods ended September 30, 1995, and
September 30, 1994.
Net sales for the three months ended September 30, 1995, were $10,738,000, an
increase of $4,023,000 (60%) over the same period in 1994. Net sales for the
nine months ended September 30, 1995, were $29,680,000, an increase of
$11,306,000 (62%) over the same period in 1994. The continued growth in net
sales for the quarter and nine months ended September 30, 1995, was a direct
result of the Company's marketing program which enlarged the number of new
customers by approximately 35%, and to a lesser extent, the Company's effort to
diversify the product base with the introduction of 44 new products.
The Company has been able to expand sales through larger and more frequent
customer acquisition mailings due to the nationwide trend towards preventive
health care as a viable alternative to traditional medical treatment. The
retail market for vitamin and nutritional supplements has grown dramatically
from $3.5 billion in 1991 to an estimated $4.7 billion in 1994. The Company
also attributes a portion of the increase in net sales to improvements in
customer segmentation mailing programs within the existing customer base. In
essence, the Company was able to continue to generate excellent sales response
rates on smaller and more targeted mailings to its existing customers.
The Company intends to continue to implement new customer acquisition programs
through mailings, telemarketing, direct response television, field sales
representatives and expanded retail distribution programs. The Company will
add up to 60 new products through these scheduled marketing programs for the
remaining three months in 1995.
Cost of products increased to $4,903,000 and $12,960,000 for the three and nine-
month periods ended September 30, 1995, compared to $2,989,000 and $8,168,000,
respectively, for the same periods in 1994. However, as a percentage of net
sales, cost of products decreased by 1% over the same nine-month period in the
prior year due to reductions in product costs from in-house manufacturing. The
Company believes its manufacturing facility will continue to reduce the cost of
its products in 1995 and 1996. However, these savings may be offset by the
increasing cost of raw materials from the Company's suppliers due to the
possible continued deterioration of the value of the U.S. Dollar against
foreign currencies and the general increase in demand for these products.
Cost of mailings increased to $1,792,000 and $5,652,000 for the three and nine-
month periods ended September 30, 1995, compared to $1,014,000 and $2,705,000,
respectively, for the same periods in 1994. As a percentage of net sales, cost
of mailings increased to 17% for the three-month period ended September 30,
1995, from 15% for the same three-month period one year ago.
Overall, as a percentage of net sales, cost of mailings increased to 19% for
the nine-month period ended September 30, 1995, from 15% for the same nine-
month period one year ago. The increase as a percentage of net sales was due
to the increased investment in customer acquisition mailings which have lower
response rates than existing customer mailings. Additionally, the Company
experienced increases in postage rates and paper costs for the nine-month
period ended September 30, 1995. The Company is estimating the cost of
mailings to be 19% of sales for the twelve months ended December 31, 1995.
<PAGE>
8
In the three months ended September 30, 1995, selling, general and
administrative expenses ("SG&A") increased by $820,000 (40%) to $2,890,000 from
the same period in the prior year. SG&A for the nine months ended September 30,
1995, increased by $2,667,000 (47%) to $8,306,000 compared to $5,639,000 for the
nine months ended September 30, 1994. This significant increase of SG&A was due
primarily to additional general and administrative expenses of approximately
$1,723,000 and substantial increases in product marketing and development
expenses of approximately $944,000 which were necessary to support the 62%
growth in sales for the nine-month period ended September 30, 1995. However,
SG&A as a percentage of net sales decreased to 28% for the nine-month period
ended September 30, 1995, from 31% for the same nine-month period one year ago.
In the three months ended September 30, 1995, net income increased by $302,000
(54%) to $865,000 compared to net income of $563,000 for the three months ended
September 30, 1994. In the nine months ended September 30, 1995, net income
increased by $557,000 (35%) to $2,151,000 compared to net income of $1,594,000
for the nine months ended September 30, 1994. As a percentage of net sales, net
income decreased to 7.2% for the nine-month period ended September 30, 1995,
from 8.7% for the same nine-month period one year ago. The decrease in net
income as a percentage of net sales was due to the ongoing investment in the
development of the Company's newer retail product lines. Liquidity and Capital
Resources The Company generated $2,926,000 in cash from operating activities
during the nine months ended September 30, 1995, compared to cash used of
$417,000 for the
same period in 1994. The net increase in cash from operating activities of
$3,343,000 during the nine months ended September 30, 1995, versus the same
period in 1994, was due to the increase in net income of $557,000 and the
decrease of product inventories by $1,383,000 in 1995 compared to increases of
$2,654,000 during 1994. The continued decrease of inventories by $1,700,000 and
$1,383,000 during the three and nine-month periods ended September 30, 1995, was
due to the Company's in-house manufacturing facility that began production in
June 1994. This facility enhanced the Company's ability to increase product
inventory turns during a period of rapidly expanding sales.
These cash sources were offset by a decrease of $606,000 in accounts payable and
accrued liabilities and mailing supply inventory increases of $684,000 for the
nine-month period ended September 30, 1995. For the same nine-month period in
1994, accounts payable and accrued liabilities increased by $775,000 and mailing
supply inventories increased by $141,000.
Cash flows used by investing activities totaled $1,711,000 during the nine
months ended September 30, 1995, versus $2,853,000 for the same period in 1994.
The decrease in cash flows used by investing activities of $1,142,000 during
1995 compared to 1994, resulted from the acquisition of the Company's
manufacturing facility for a cost of $1,770,000 in 1994. Cash flows generated by
financing activities totaled $94,000 during the nine months ended September 30,
1995 as a result of stock options being exercised that were granted to directors
and employees during 1993 and 1992. The Company has a $355,000 revolving line of
credit agreement with a bank which bears interest at 1% over the bank's prime
lending rate and expires on January 10, 1996. No amounts were outstanding at
December 31, 1994 or June 30, 1995.
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
On July 20, 1995, the Company held its 1995 Annual Meeting of Shareholders. The
following matters, and the shareholder vote on each matter, were considered by
the Company's shareholders:
1. To adopt the Company's 1994 Non-Qualified Stock Option Plan:
2,058,483 shares voted for the proposal
259,863 shares voted against the proposal; and
<PAGE>
9
30,091 shares abstained (including broker non-votes).
2. To adopt the Company's 1994 Non-Employee Director Stock Option Plan:
2,069,805 shares voted for the proposal
285,918 shares voted against the proposal; and
31,452 shares abstained (including broker non-votes).
3. To adopt certain administrative amendments to the Company's Articles
of Incorporation:
3,589,064 shares voted for the proposal
166,562 shares voted against the proposal; and
30,939 shares abstained (including broker non-votes).
4. To adopt Article XI to the Company's restated articles of
incorporation, specifying the circumstances under which certain related party
transactions are permissible.
3,561,905 shares voted for the proposal
187,997 shares voted against the proposal; and
36,663 shares abstained (including broker non-votes).
5. To adopt Articles XII and XIII of the Company's restated articles of
incorporation, revising the indemnification provisions relating to officers and
directors and limiting the monetary liability of officers and directors in
accordance with the Colorado Business Corporation Act.
3,562,578 shares voted for the proposal
190,293 shares voted against the proposal; and
33,694 shares abstained (including broker non-votes).
6. To ratify the appointment of BDO Seidman as the Company's
independent public accountants.
3,755,006 shares voted for the proposal
10,772 shares voted against the proposal; and
9,964 shares abstained (including broker non-votes).
The Annual Meeting has been further adjourned to November 17, 1995 to consider
certain other matters which were not voted upon during the July 20, 1995
meeting.
No other information is required to be included in response to Items 1-6 under
Part II of this form 10-Q. No report on Form 8-K was filed during the quarter
ending September 30, 1995.
<PAGE>
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMRION, INC.
Date: November 14, 1995
by:
Jeffrey S. Williams, Chief Financial Officer
<PAGE>
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
AMRION, INC.
Date: November 14, 1995
by: /s/ Jeffrey S. Williams
Jeffrey S. Williams, Chief Financial Officer
12
