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, 1996
[ ] 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 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
Common stock, par value $.0011 per share: 5,301,814 shares outstanding
as of September 30, 1996.
<PAGE>
PART 1. FINANCIAL
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current:
Cash and cash equivalents $ 1,216,910 $ 831,544
Accounts receivable, less allowance
of $38,000 and $48,000
for possible losses 718,651 624,006
Inventories 7,487,706 5,035,872
Mail supplies 586,095 1,026,463
Deferred promotional mailing costs, net 1,241,789 1,103,987
Other 408,555 393,273
---------- ----------
Total current assets 11,659,706 9,015,145
---------- ---------
Property and equipment, net 5,189,478 4,368,672
---------- ----------
Other assets:
Marketable securities available for sale 7,175,722 7,934,514
Mailing lists, net 2,532,685 2,111,556
Intangible assets, net 137,489 170,429
Total other assets 9,845,896 10,216,499
---------- ----------
Total assets $26,695,080 $23,600,316
========== ==========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<TABLE>
September 30, December 31,
1996 1995
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
Current:
<S> <C> <C>
Accounts payable $ 1,252,835 $ 3,094,662
Accrued liabilities 1,102,207 456,183
Income taxes payable 304,002 193,255
---------- ----------
Total current liabilities 2,659,044 3,744,100
Deferred income taxes 104,000 104,000
---------- ----------
Total liabilities 2,763,044 3,848,100
---------- ----------
Minority interest (15,528) 32,865
Stockholders' equity:
Common stock, $.0011 par value - shares
authorized, 10,000,000; issued 5,301,81
and 5,026,813 5,832 5,529
Additional paid-in capital 12,849,614 11,788,856
Retained earnings 11,343,141 8,090,756
Marketable securities valuation
allowance (251,023) (165,790)
---------- ----------
Total stockholders' equity 23,947,564 19,719,351
---------- ----------
$26,695,080 $23,600,316
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE AND THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Nine months Three months
ended ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $39,316,695 $29,680,380 $14,063,408 $10,738,458
----------- ---------- ---------- ----------
Cost of sales:
Cost of products 16,656,699 12,960,231 5,858,904 4,903,272
Cost of mailings 7,406,515 5,652,387 2,630,110 1,791,994
---------- ---------- ---------- ----------
Cost of sales 24,063,214 18,612,618 8,489,014 6,695,266
---------- ---------- ---------- ----------
Gross profit 15,253,481 11,067,762 5,574,394 4,043,192
Operating expenses -
Selling, general and
administration 11,011,631 8,305,581 3,894,552 2,889,827
---------- ---------- ---------- ----------
Income from operations 4,241,850 2,762,181 1,679,842 1,153,365
---------- ---------- ---------- ----------
Other income, net 466,316 631,880 139,820 216,035
---------- ---------- ---------- ----------
Income before taxes
on income 4,708,166 3,394,061 1,819,662 1,369,400
Taxes on income 1,455,781 1,242,873 664,980 504,323
---------- ---------- ---------- ----------
Net income $3,252,385 $2,151,188 $1,154,682 $ 865,077
========== ========== ========== ==========
Net income per common
and equivalent share $ .63 $ .42 $ .22 $ .17
========== ========== ========== ==========
Weighted average number
of common shares and
equivalents
outstanding 5,177,180 5,075,379 5,298,248 5,136,322
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE AND THREE-MONTH PERIODS ENDED
SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Nine Months Three Months
ended ended
September 30, September 30,
1996 1995 1996 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $3,252,385 $2,151,188 $1,154,682 $ 865,077
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,068,936 608,651 386,287 248,471
Changes in operating assets and liabilities:
Accounts receivable (94,645) (10,359) 96,384 (90,386)
Inventories (2,451,834) 1,382,909 753,401 1,700,084
Mailing supplies 440,368 (684,322) 136,785 (150,900)
Deferred promotional mailing costs (137,802) 317,218 (207,619) 236,580
Other assets (15,282) (316,839) (91,032) (474,984)
Accounts payable (1,841,827) (821,217) (838,347) 49,281
Accrued liabilities 646,024 214,965 358,901 29,086
Income taxes payable 110,747 130,222 70,807 51,737
--------- --------- ------ ------
Cash provided by operating activities 977,070 2,972,416 1,820,249 2,464,046
------- ---------- --------- ---------
Cash flows from investing activities:
Sales of marketable securities
available for sale 673,559 94,168 193,744 (412,477)
Purchase of property and equipment (1,349,965) (598,692) (617,774) (323,618)
Purchase of mailing lists and intangible
assets (976,359) (1,253,484) (307,054) (402,765)
--------- ----------- -------- ---------
Cash used in investing activities (1,652,765) (1,758,008) (731,084) (1,138,860)
---------- ---------- --------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
stock - net 1,061,061 94,389 (78) 44,875
----------- ---------- ------- ----------
Net increase in cash and cash equivalents 385,366 1,308,797 1,089,087 1,370,061
Cash and cash equivalents,
at beginning of period 831,544 120,931 127,823 59,667
---------- -------- ----------- -----------
Cash and cash equivalents,
at end of period $1,216,910 $1,429,728 $1,216,910 $1,429,728
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
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, 1995.
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 (collectively the Company).
Amrion markets nutritional supplements principally throughout the United States
as well as to customers in the Far East, Europe and Mexico, using a combination
of direct mail, telemarketing, print advertising and a network of distributors
and brokers. Natrix is engaged in the marketing and distribution domestically of
its Advanced Botanics product line to major retail drug and food chains.
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 large number of customers dispersed across geographic areas
and generally short payment terms.
The Company's cash equivalents are high quality money market accounts held with
major financial institutions. Marketable securities consist primarily of AAA
rated tax-exempt municipal bonds and preferred stock. 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.
The Company accounts for marketable securities in accordance with Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." All marketable equity and debt securities have been
categorized as available for sale as the Company does not have the positive
intent to hold to maturity or does not intend to trade actively. These
securities are stated at fair value with unrealized gains and losses included as
a component of stockholders' equity until realized.
NOTE 3
Inventories are valued at the lower-of-cost (Standard, which approximates
First-in, First-out) or market.
Property and equipment is 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
Direct-response advertising consists primarily of direct-mail advertising,
including deferred promotional mailing costs, of the Company's products. The
capitalized costs of mailed promotional materials and print advertising in the
Direct Marketing Division are amortized over the expected promotional benefit
period of three months. Other advertising and promotional costs are expensed at
the time the advertising takes place.
Income per common and equivalent share is based on the weighted-average number
of common shares outstanding during each of the periods presented. Options to
purchase stock are included as common stock equivalents when dilutive.
Certain items included in prior years' financial statements have been
reclassified to conform to the current year presentation.
PART I FINANCIAL
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Period from January 1, 1996,
to September 30, 1996.
The following review concerns the three and nine-month periods ended September
30, 1996, and September 30, 1995, which should be read in conjunction with the
financial statements and notes thereto presented in this Form 10-Q.
The information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" below includes "forward looking statements"
within the meaning of Section 27A of the Securities Act, and is subject to the
safe harbor created by that section. Factors that could cause actual results to
differ materially from those contained in the forward looking statements are set
forth in "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Results of Operations
For the three and nine-month periods ended September 30, 1996, and September 30,
1995.
Net sales for the three months ended September 30, 1996 were $14,063,000, an
increase of $3,325,000 (31%) over the same period in 1995. Net sales for the
nine months ended September 30, 1996 were $39,317,000, an increase of $9,637,000
(32%) over the same period in 1995. The continued growth in sales for the
quarter and nine months ended September 30, 1996 was due to the continued growth
in the retail market for nutritional supplement products (sales growth of more
than 51% from $3.5 billion in 1991 to $5.3 billion in 1995). Also, the Company
was successful with its customer acquisition programs and promotional marketing
campaigns and continued to improve efficiencies in customer segmentation mailing
programs within the existing customer base. As a result, the Company was able to
cost-effectively generate positive sales response rates on smaller and more
targeted mailings to its existing customers. Finally, the Company's primary
marketing efforts are directed toward persons aged 45 years and older, which is
the fastest growing segment of the U.S. population, and trending towards
preventative health care as a viable alternative to traditional medical
treatment.
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 through its network of
distributors and brokers.
Cost of products increased to $5,859,000 and $16,657,000 for the three and
nine-month periods ended September 30, 1996, compared to $4,903,000 and
$12,960,000, respectively, for the same periods in 1995. However, as a
percentage of net sales, cost of products decreased by 2% over the same
nine-month period in the prior year due to reductions in product costs from
lower raw material prices through multi-sourcing and strategic alliances with
raw material suppliers and in-house manufacturing. The Company believes its
strategic alliances, multi-sourcing of suppliers and cost reductions through
greater volumes along with in-house manufacturing will continue to reduce the
cost of its products in 1996 and 1997. However, the Company is subject to
variations in the costs of its raw materials, which may offset any cost savings
realized from strategic alliances, multi-sourcing, and in-house manufacturing.
Cost of mailings increased to $2,630,000 and $7,407,000 for the three and
nine-month periods ended September 30, 1996, compared to $1,792,000 and
$5,652,000, respectively, for the same periods in 1995. As a percentage of net
sales, cost of mailings remained the same for the nine-month period ended
September 30, 1996, compared to the same nine-month period one year ago. The
Company is estimating the cost of mailings to be 19% of sales for the twelve
months ended December 31, 1996. However, cost of mailings may be higher due to
further increases in postage rates, paper costs and lower response rates from
targeted mailings during the remaining three months of 1996.
In the three months ended September 30, 1996, selling, general and
administrative expenses ("SG&A") increased by $1,005,000 (35%) to $3,895,000
from the same period in the prior year. SG&A for the nine months ended September
30, 1996, increased by $2,706,000 (33%) to $11,012,000 compared to $8,306,000
for the nine months ended September 30, 1995. This increase of SG&A was due
primarily to additional general and administrative expenses of approximately
$1,693,000 and increases in product marketing and development expenses of
approximately $1,013,000 which were necessary to support the 32% growth in sales
for the nine-month period ended September 30, 1996. As a percentage of net
sales, SG&A remained the same, at 28%, for the nine-month period ended September
30, 1996, compared to the same nine-month period one year ago.
In the three months ended September 30, 1996, net income increased by $290,000
(33%) to $1,155,000 compared to net income of $865,000 for the three months
ended September 30, 1995. In the nine months ended September 30, 1996, net
income increased by $1,101,000 (51%) to $3,252,000 compared to net income of
$2,151,000 for the nine months ended September 30, 1995. As a percentage of net
sales, net income increased to 8% for the nine-month period ended September 30,
1996, from 7% for the same nine-month period one year ago. Overall, the growth
in net income for the quarter and nine-month periods ended September 30, 1996,
was due to the Company's increased sales and effective cost control efforts.
Liquidity and Capital Resources
The Company generated $977,000 in cash from operating activities during the nine
months ended September 30, 1996, compared to cash generated of $2,972,000 for
the same period in 1995. The net decrease in cash from operating activities of
$1,995,000 during the nine months ended September 30, 1996, versus the same
period in 1995, was due to the increase in product inventories by $2,452,000
compared to decreases of $1,383,000 during 1995. The significant increase in
product inventories was necessary to allow the Company to respond to future
demand for its products due to projected sales growth during 1996. Additionally,
deferred promotional mailing costs increased by $138,000 compared to decreases
of $317,000 during 1995 to support the continued sales growth. Finally, the
decline in cash from operating activities resulted from a decrease in accounts
payable of $1,842,000 compared to a decrease of $821,000 for the same period one
year ago.
These cash outflows were offset by net income of $3,252,000, an increase of
$1,101,000 from $2,151,000 in 1995 and a decrease of $440,000 in mailing
supplies from December 31, 1995.
Cash flows used by investing activities totaled $1,653,000 during the nine
months ended September 30, 1996 versus $1,758,000 for the same period in 1995.
The use of cash during 1996 resulted from the purchase of equipment for the
Company's manufacturing facility and new computer software for the Company's
conversion to a state-of-the-art software database and financial
applications for a total of $1,350,000. Additionally, the Company used $976,000
to purchase mailing lists and other intangible assets.Finally, the Company
generated $674,000 from sales of marketable securities. The Company believes
the cash invested in marketable securities and its current working capital
position will be adequate to meet future operating needs.
Cash flows generated by financing activities totaled $1,061,000 during the nine
months ended September 30, 1996 as a result of stock options being exercised
that were granted to employees and directors during 1994, 1993 and 1992.
The Company has a $650,000 revolving line of credit agreement with a bank which
bears interest at 1% over the bank's prime lending rate and expires on June 21,
1997. No amounts were outstanding at December 31, 1995 or September 30, 1996.
PART II OTHER INFORMATION
No other information is required to be included in response to Items 1-6 under
Part II of this form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Number: Description:
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ending
September 30, 1996.
<PAGE>
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, 1996
by:
Jeffrey S. Williams,
Chief Financial Officer
<PAGE>
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, 1996
by: /s/ Jeffrey S. Williams
Jeffrey S. Williams, Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812788
<NAME> Jeffrey S. Williams, CFO
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUN-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,216,910
<SECURITIES> 7,175,722
<RECEIVABLES> 718,651
<ALLOWANCES> 38,000
<INVENTORY> 7,487,706
<CURRENT-ASSETS> 11,659,706
<PP&E> 5,189,478
<DEPRECIATION> 1,639,096
<TOTAL-ASSETS> 26,695,080
<CURRENT-LIABILITIES> 2,659,044
<BONDS> 0
0
0
<COMMON> 12,849,805
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,695,080
<SALES> 14,063,408
<TOTAL-REVENUES> 14,203,228
<CGS> 5,858,904
<TOTAL-COSTS> 8,489,014
<OTHER-EXPENSES> 3,894,552
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,819,662
<INCOME-TAX> 664,980
<INCOME-CONTINUING> 1,154,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,154,682
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
