UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the fiscal year ended December 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required)
For the transition period from to
Commission file number 0-18476
AMRION, INC.
(Exact name of registrant as specified in its charter)
Colorado 84-1050628
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
6565 Odell Place Boulder, Colorado 80301
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 530-2525
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0011 per share
(Title of class)
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
As of March 4, 1996, the aggregate market value of the voting stock held by
non-affiliates was approximately $56,569,184 based upon the last transaction in
the common stock known to the registrant.
The number of shares of the Registrant's $.0011 par value common stock
outstanding as of March 4, 1996 was 5,035,563.
Documents Incorporated By Reference:
Proxy Statement for the 1996 Annual Shareholders' Meeting is
incorporated by reference into Part III.
<PAGE>
Part I
ITEM I: Business
GENERAL
Amrion, Inc. and its 90% owned subsidiary, Natrix International, LLC
(collectively, the Company), are engaged in developing, producing and marketing
innovative, safe, high quality nutritional supplements. The Company's products,
which are guaranteed for potency and purity, include herbs, herbal formulas,
nutraceuticals, vitamins, minerals and homeopathic medicinals.
The Company currently markets and sells approximately 600 products under
Company-owned trademarks through four principal divisions and its subsidiary
which target consumers through direct marketing, specialty retail and mass
merchandising, health care professionals and international sales. The Company
operates in one segment with four separate marketing divisions. Each division
utilizes a combination of marketing strategies which may include catalog and
direct mailings, print advertising, free standing inserts, package insert
programs, retail merchandising, radio, coupons, point of sale materials and
customer service calls. The Company does not depend on a few major customers and
the loss of any single customer would not have an adverse effect on the
Company's sales.
The Company's direct marketing sales are conducted by the Direct Marketing
Division through two product lines.The Specialty Products Division markets
nutritional supplement products primarily to health food stores, retail outlets,
general sporting goods stores and independent distributors. The Health Care
Professional Division was established to market nutritional supplements
exclusively to health care professionals for dispensing to patients under
professional supervision. The Company's International Division markets the
Company's product lines primarily through distributors in Brazil, Hong Kong,
Italy, Mexico, Malaysia, Portugal, Russia, Saudi Arabia and Taiwan. The
Company's subsidiary, Natrix International, markets a line of nutritional
supplements through mass merchandisers.
In 1994, the Company established its own manufacturing facility and is currently
producing approximately 75% of its products, which account for nearly 95% of
the Company's sales. The establishment of its own manufacturing facility
enhanced the Company's current operations by providing it the ability to better
control and enhance turnaround time from order to delivery, reduce inventory
levels, increase quality control and increase profit margins through the
reduction of product costs.
The Company anticipates that it is well-positioned to continue its strategy of
increasing sales to existing customers and attracting new customers through
creative customer acquisition programs. In addition, the Company anticipates
expanding its existing product lines to gain greater market share in the direct
marketing, retail,mass merchandise, health care professional and international
markets.
HISTORY
The Company was formed on January 21, 1987 under the name Herbs of China, Ltd.
and was primarily engaged in the sale of Chinese herbal formulas to athletes. On
August 18, 1988, the Company acquired 100% of the outstanding shares of
Bioenergy Nutrients, Inc., a private Colorado corporation formed by the
Company's President, Mark S. Crossen, which engaged in the developmen and
marketing of nutritional supplements. Subsequently, Bioenergy Nutrients, Inc.
was merged into the Company. In October 1988, the Company changed its name to
Bioenergy Nutrients, Inc. to reflect the merger and in March 1993, the Company's
name was changed to Amrion, Inc. to more adequately reflect its diverse
operations.
On October 17, 1989, the Company completed a public offering of 341,772 shares
of Common Stock through a warrant conversion program at a price of $1.47 per
share. The net proceeds to the Company from the offering were approximately
$446,000. The proceeds from this offering were used to expand the markets served
by the Company, develop the Company's product lines and fulfill working capital
requirements.
On November 2, 1993, the Company completed a public offering of 1,520,000 shares
of Common Stock and 380,000 shares were sold by a shareholder at a price of
$6.75 per share. On December 17, 1993 an additional 285,000 shares of Common
Stock were sold at $6.75 through the Underwriter's 45-day option to cover
over-allotments. The Company has also agreed to sell to John G. Kinnard,
Incorporated, as representative of the Underwriters, for $50,a five-year warrant
to purchase 190,000 shares of Common Stock exercisable at 120% of the price to
the public. The net proceeds to the Company from the stock offering were
$11,004,000 after expenses of $1,179,000. The net proceeds of this offering were
used to establish and equip a manufacturing facility, develop and market new
products for retail distribution and fulfill working capital needs.
See Prospectus dated November 2, 1993.
INDUSTRY OVERVIEW
According to industry sources, the retail market for vitamin and nutritional
supplements has grown dramatically from $3.5 billion in 1991 to an estimated
$5.2 billion in 1995. This growth is largely a result of an increased national
interest in preventative health choices; favorable consumer attitude shifts
toward natural health care; increased consumer willingness toward self-care in
resistance to rising health care costs; and a rapidly growing demographic
segment of the population over 40 years old concerned with aging and disease.
Nutritional supplement sales in the drugstore chain market are estimated to
reach approximately $630 million in 1995 and are predicted to become a
significant force in the growth of the total vitamin, mineral and supplement
market. Herbal supplements are the fastest growing segment in food and drug
chains, growing by 35% in food and 20% in drug chains, to comprise over $150
million in sales during 1995.
Population and economic growth over the past ten years has occurred primarily in
the western region of the United States. The West has the highest incidence of
daily vitamin and mineral use at 43% of the population, according to a survey
conducted for Prevention magazine. The Midwest is at the low end with 28%. The
South, at 34%, and the East, at 37%, are close to the national average.
Mass market retailers (drug stores, supermarkets and discount stores) account
for approximately 60% of dietary supplement sales. Health food stores, direct
selling and mail order comprise the remaining 40%. While sales of multi-vitamin
account for more than 40% of total retail sales, sales of individual vitamins,
such as vitamins C and E, have been increasing.
Public awareness of the positive effects of vitamins and other nutritional
supplements on health has been heightened by widely publicized reports of
favorable research findings. Such reports have cited a correlation between the
consumption of micro-nutrients such as beta carotene, vitamins C and E
(antioxidant vitamins) and reduced incidence of diseases such as heart disease,
cancer and stroke. In February 1995, the University of Southern California
School of Medicine reported that vitamin E reduces arterial plaque buildup in
people with diagnosed coronary artery disease. In October 1995, the Journal of
The American Medical Association reported on research which suggests that higher
blood levels of folic acid could lead to a lower level of vascular disease.
While the vast majority of studies continue to suggest that vitamin intake can
have positive effects on long-term health, there are occasional studies that
find negative relationships between vitamin intake and health. One of the more
significant negative studies was the "Finnish" study released in the Spring of
1994. This study examined the impact of beta carotene and vitamin A on a group
of middle-aged , Finnish smokers. The study suggested that beta carotene and
vitamin A were not effective in reducing lung cancer. After its release, many
scientists found fault with several aspects of the study, and it was dismissed
by many in the medical community. Based upon increased consumer awareness, the
Company anticipates that the market for vitamins and other nutritional
supplements will continue to increase. However, there can be no assurance that
the absence of media attention or publication of controversial reports regarding
vitamins and other nutritional supplements will not have a material adverse
effect on the market for such products or on the Company's sales or income.
SALES AND MARKETING
The Company utilizes direct mail of Company designed catalogs, brochures and
individual mail pieces which highlight product lines and current promotional
activities. The Company complements its direct mail activities with outbound
courtesy sales calls designed to identify specific customer groups, provide
market research data on customer needs and satisfaction and assist in monitoring
sales by product line or user group.
Additionally, the Company's retail and health care professional divisions, which
target health food stores, health care providers and mass merchandisers, utilize
marketing strategies which include direct mail, telemarketing contact, personal
visits from sales representatives, consumer and trade advertising, point of sale
materials, free standing inserts with coupons in newspapers and radio
advertising.
Direct Marketing Division
The Direct Marketing Division (DMD) accounted for 90% of the Company's net sales
during 1995 and markets the Bioenergy Nutrients (BN) and HealthSmart Vitamins
(HSV) product lines. The BN line consists of approximately 200 nutritional
supplement products and several homeopathic remedies which are marketed to
consumers nationwide through direct mail (catalogs, mini-catalogs, and other
direct mail programs), outbound telephone sales and magazine and newspaper
advertisements. In July 1994, the Direct Marketing Division introduced
HealthSmart Vitamins, a line of value-priced nutritional supplements. This line
presently consists of approximately 80 vitamin and nutritional supplement
products which are marketed to consumers nationwide through direct mail.
The Company's success in direct marketing has been accomplished through the
development of sophisticated information systems capable of capturing, storing,
retrieving, reporting and interpreting buying patterns and customer sales data
to evaluate product and promotional activities. In this regard, the Company
utilizes several fundamental aspects of database marketing in both its direct
mail customer acquisition programs and customer maintenance programs.
Database marketing is utilized to maintain a record of every customer and
prospect which includes detailed transaction history and other pertinent data
elements that can be captured and tracked by computer. These data elements are
analyzed to determine the most effective direct marketing tactics to maximize
sales and profits.
The Direct Marketing Division acquires customers through two primary mediums: 1)
direct mail, and 2) print advertising. In the past, the primary method of
customer acquisition was direct mail, whereby the Company rented other
companies' customer lists, and in return it was necessary to allow those
companies to rent the Companys customer list. As the Company expands its types
of customer acquisition programs, it is believed that the need to rent out its
customer list on a reciprocal basis will diminish.
The Company plans to continue to study, test and evaluate new marketing
techniques, such as direct response television, radio, free standing inserts and
mini-catalogs, which promote selected products. The Company also places
advertising in magazines and professional journals in an attempt to add new
customers to its mailing list.
Specialty Products Division
The Specialty Products Division was created in response to a marketing
opportunity to complement the core Direct Marketing Division. This division
markets the BioDynamax line of nutritional herbs and formula supplements to
health food store retailers and accounted for 3% of the Company's net sales
during 1995.
The BioDynamax line of nutritional supplements is comprised of 30 products,
including 13 Guaranteed Potency Herbs and 10 Guaranteed Performance Formulas,
each scientifically formulated to be the highest quality supplements in the
retail health food industry.
BioDynamax' Guaranteed Potency Herbs include the most popular herbal extract
available in health food stores. Each extract is standardized to a specific
level of active constituents, and this standardization is verified by
independent third-party laboratory analysis. The Guaranteed Performance Formulas
combine high quality vitamins and minerals with guaranteed potency herbs and
other botanicals to create unique and effective nutritional products.
Health Care Professional Division
The Health Care Professional Division markets the PhysioLogics product line of
nutritional supplements and homeopathic medicinals exclusively to health care
professionals for dispensing to patients in clinics and offices under
professional supervision. This division accounted for 4% of the Company's net
sales during 1995.
The general marketing goals adopted for the Division during 1995 focused on
providing improved service and product selection to the existing PhysioLogics
doctor account base and a concentrated effort toward the acquisition of new
accounts.
The PhysioLogics line has traditionally been marketed directly to health care
professionals, primarily chiropractors. In 1996, further market expansion into
alternative medicine practices will be investigated. This strategy will be
tested with direct marketing methodologies throughout 1996. Inroads are expected
to be made into alternative health professional markets including naturopathy,
nutritional counseling, physical therapy, massage therapy, alternative practice
medical doctors and rehabilitation clinics.
In the fourth quarter of 1995, the PhysioLogics product line was expanded to
include 35 new and reformulated products. Plans for the product line in 1996
include a revamped and expanded version of the current product line. Careful
consideration has been given to the expansion of this line to formulate products
which will provide significant therapeutic assistance in the rehabilitation of
specific and general health related conditions.
Cevan International
The Company organized its Cevan International Division in 1993 to pursue
international sales of the Company's products. Cevan's mission is to establish a
strong presence in markets worldwide.
Cevan experienced significant sales growth in 1995 with net sales of $899,000
(2% of the Company's net sales) compared to net sales of $110,000 in 1994.
Currently, this division markets its products through distributors in Brazil,
Hong Kong, Italy, Mexico, Malaysia, Portugal, Russia, Saudi Arabia and Taiwan.
Throughout 1995, the emphasis was on managing existing accounts while focusing
on acquiring new accounts and assisting current distributors with growing their
businesses.
During 1996, Cevan will implement strategies to position the division for steady
growth in sales and profits. Additionally, a comprehensive marketing package
will be developed that will help new and existing international customers build
their businesses. In 1996 and beyond, Cevan International anticipates continued
development of new businesses worldwide, with ongoing evaluation of existing
clients to ensure that they continue to optimize sales potential for Amrion's
products in their respective markets. Natrix International, LLC - majority-owned
subsidiary
Natrix International was formed as a Colorado limited liability company in
February 1994 by two member organizations; Amrion, Inc. and Indena Spa. Natrix
was established to develop the North American mass market for herbal based
health maintenance products. It is the Company's intention to expand this
business opportunity by establishing the leading brand of natural products in
each targeted category within the health and beauty sector. Natrix products are
sold under the Advanced Botanics product line through food and drug chains as
well as discount mass merchandisers. The specially formulated botanical extracts
are positioned as stand-alone brands in their respective categories and target
the same channels of distribution, utilize the same management team, and
generally target the same customer profile.
Bilberry 2020 Optometric Nutritional FormulaTM , the first product in the
Advanced Botanics product line, hasbeen positioned as "Europe's Leading
Antioxidant for the Eyes." This product was introduced into Portland, Oregon;
Tampa, Florida; and Upstate New York in 1994, with expansion into Colorado in
early 1995. The Advanced Botanics product line was expanded in February 1996 to
include five new products.
The product line is supported in the retail market with a comprehensive
marketing program which includes the services of a new product introduction
advertising/marketing agency and a public relations firm. The emphasis will be
on gaining full distribution in existing markets and evaluation of the marketing
elements. Chain specific programs will be developed to support expansion through
major drug chains. Natrix International accounted for 1% of the Company's net
sales during 1995.
MANUFACTURING
The Company purchased a 31,000 square foot building for its manufacturing
operations in Longmont, Colorado in March 1994. The finished area provides
approximately 5,000, 12,000 and 14,000 square feet for administrative,
manufacturing and distribution needs, respectively. The manufacturing operation
is currently producing approximately 75% of the Company's products representing
nearly 95% of total net sales. The Company purchases the balance of its products
from its existing third party manufacturers.
The establishment of its own manufacturing facility enhanced the Company's
current operations by increasing its profit margins; reducing its need for
private contractors and increasing its ability to control the quality and the
supply of its products. In addition, inventory turns and product mix have been
improved. The Company seeks to maintain a sufficient level of product inventory
to meet customer demand in the event of manufacturing delays or supply
shortages.
Through education, training and supervision, the Company places a strong
emphasis on quality control, and all raw materials and finished products are
subject to sample testing for weight and purity prior to shipment to its
customers. As the Company continues to expand its product lines and increase its
vertical integration, quality assurance will continue to be a major emphasis.
The Company will focus on expanding its process controls in 1996 to ensure
proper efficiency, reduction of waste and improved product quality.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company currently imports approximately 80% of its raw materials from
various foreign countries. The raw materials are sent to the Company's
manufacturing facility or various independent third party manufacturers who are
contracted for blending, mixing, tableting, encapsulating, liquid preparation
and bottling. Due to the increase in demand for the Company's products from the
overall growth in the natural products industry, Amrion has developed strategic
partnerships with key domestic and international raw material suppliers. These
written supply contracts between Amrion and principal raw material suppliers are
negotiated each year in the fourth quarter for the following year and provide
reasonable assurance that the Company's supply of raw materials will not be
interrupted. However, alternative sources of the Company's materials are
available in the event a supplier is unable to deliver as specified in the
written supply contract. The termination of supply by one or more of its vendors
could have a temporary material adverse effect on the Company's sales.
The cost incurred by the Company for its raw materials could rise due to the
possible continued deterioration of the value of the U.S. Dollar against the
foreign currencies of the Company's suppliers. Further cost increases could
result due to the increase in demand relative to the supply of these products
from the overall growth in the natural products industry.
DESCRIPTION OF MATERIAL PRODUCTS
The Company's products are dietary nutritional supplements; they are not
pharmaceutical or medicinal products. As such, the Company makes no specific
claims of efficacy regarding treatment of any disease. The Company's nutritional
supplements have been found effective by the Company's customers, and the
Company markets its products to satisfy the nutritional needs of those
customers.
The Company has not conducted its own scientific research of its product
components; however, it has made a thorough investigation of American and
international scientific and medical studies and has concluded that there is
general scientific support for the nutritional benefits associated with its
products.
Coenzyme Q10
Coenzyme Q10 (CoQ10) was discovered in 1957 at the University of Wisconsin
Enzyme Institute. CoQ10 is a naturally occurring nutrient. Its crucial function
is to act as a "spark plug" within the body's cells, igniting enzymes to
manufacture pure energy in the form of ATP (adenosine triphosphate). Studies
support CoQ10's ability to help nutritionally support the cardiovascular system,
revitalize the body's natural defense system, energize the body's cells to
increase stamina and endurance and minimize the effects of "free radical" damage
through its antioxidant properties. Proponents further believe that, in some
circumstances, CoQ10 can help improve metabolism, nutritionally support healthy
gums and help to nutritionally support healthy blood pressure. CoQ10 is imported
as a raw material powder in kilograms. CoQ10 is encapsulated and packaged at the
Company's manufacturing facility.
<PAGE>
Bilberry
Known scientifically as Vacciunium Myrtillus, the Bilberry bush belongs to the
family of Ericaceae. It is a shrubby perennial plant that grows in the woods of
northern Europe and the sandy areas of northern America and Canada. To date,
over 70 clinical studies provide support that this extract can help
nutritionally support the tiny capillaries that feed eye muscles and nerves, and
by this action, can help to inhibit the damage caused by blood vessel
deterioration. Bilberry is perceived by its users to: 1) offer nutritional
support for healthy eye function in fighting blurred vision, eye strain and
near-sightedness, 2) help extend the range of vision and promote the sharpness
of images, 3) aid the eye's ability to focus and adapt to the dark. Bilberry is
encapsulated and packaged at the Company's manufacturing facility.
Ginkgo Biloba
Ginkgo Biloba Extract (GBE) comes from the extract of the leaves of the
Ginkgo tree. Over 40 European clinical studies support GBE's ability
to: 1) enhance intracellular energy production, 2) increase cellular
glucose uptake, 3) improve vascular cellular health, 4) demonstrate free
radical scavenging activity (attack substances that can cause tissue damage and
inflammation), and 5) help improve blood flow to the brain and peripheral
extremities, although some of these perceived benefits have not been
clinically proven. Ginkgo Biloba is encapsulated and packaged at the Company's
manufacturing facility.
MARKET DEVELOPMENT ACTIVITIES
During 1995 and 1994 the Company spent $2,204,000 and $1,222,000 on product
marketing and development expenses, including costs associated with development
of its retail products divisions. The Company has continued to engage in an
expansive market research program to enlarge and diversify its product lines and
expand its customer base beyond direct marketing. These efforts increased the
Company's products by 150 products to 600 products during the twelve months
ended December 31, 1995. Supported by extensive market research studies to
measure consumer needs, competitive products and future trends, each of the new
product lines satisfies specific dietary supplement needs for those consumers
who see the value of nutritional support.
COMPETITION
The market for vitamins and other nutritional supplements is highly competitive.
It is not possible to estimate accurately the number of competitors, as the
nutritional supplement industry is fragmented by many small companies, many of
which are privately-held and do not publish sales and marketing figures. The
Company believes that its competitive pricing, quality of advertising, quality
of products and customer service commitment enable it to compete favorably with
other companies.
The DMD uses direct marketing offerings of nutritional supplements in order to
be more price competitive than companies selling similar products through retail
outlets. The DMD believes that it competes favorably with other direct market
sellers of similar products on the basis of price and customer service,
including speed of delivery and new product offerings.
Similarly, the Company believes its Retail Products and Health Care Professional
Divisions, which sell to retailers and alternative doctors, can compete
favorably with other companies on the basis of price, reputation, customer
service and other provided services. The sales strategy will emphasize the
unique design, quality and efficacy of the product lines while maintaining a
highly trained sales force. Primary positioning in all sales efforts will focus
on standardization of high quality herbal products, scientifically researched
for efficacy and safety.
The Company believes it has favorable competitive factors over non-manufacturing
competitors through the manufacturing of its products, which has led to a
reduction in the cost of the final product, improved inventory management and
superior quality control.
Mass market retailers (drug, grocery and discount stores) account for
approximately 60% of dietary supplement sales. Industry analysts predict
significant growth in sales of vitamins and nutritional supplements through this
distribution channel. Less than 5% of vitamin and dietary supplement sales are
derived from direct marketing methods. In an effort to increase market share,
the Company has entered the mass market through its retail divisions and
subsidiary.
TRADEMARKS AND COPYRIGHTS
The Company owns common law trademarks and has obtained 107 trademark
registrations on its product names from the United States Patent and Trademark
Office.
Thirty five additional applications have been made and are pending before the
U.S. Patent and Trademark Office. The Company has not applied for trademark
protection in any foreign jurisdictions. During the remainder of 1996, the
Company anticipates an additional 40 federal applications will be filed with
respect to the addition of new products. Federally registered trademarks have
perpetual life, provided they are renewed by the holder on a timely basis and
properly used as a trademark, subject to the rights of third parties to seek
cancellation of the trademark. Additionally, the Company will register 130
copyrights on advertising literature, product catalogs and trade secrets with
the United States Copyright Office. The Company believes its trademarks and
copyrights are significant in the marketing of its products and vigorously
protects its trademarks and copyrights from infringement.
GOVERNMENT REGULATION
The processing, formulation, labeling, distribution and advertising of the
Company's products are subject to regulation by several federal agencies,
including the United States Food and Drug Administration ("FDA"), the Federal
Trade Commission ("FTC"), the Consumer Product Safety Commissions, the United
States Department of Agriculture, the Occupational Safety and Health
Administration, the United States Environmental Protection Agency, and the
United States Postal Service ("USPS"). The Company's products are also subject
to regulatory preview of various state and local agencies.
On October 25, 1994, President Clinton signed the Dietary Supplement Health and
Education Act of 1994 ("DSHEA") into law. In passing the DSHEA, Congress
acquiesced to the sentiment and will of the American public and acknowledged
"the importance of nutrition and the benefit of dietary supplements to health
promotion and disease prevention." Congress noted "a link between the ingestion
of certain nutrients or dietary supplements and the prevention of chronic
diseases." Perhaps the most compelling provision of the DSHEA is the assertion
that "preventative health measures, including education, good nutrition, and
appropriate use of safe nutritional supplements will limit the incidence of
chronic diseases and reduce long-term health care expenditures."
Arguably, the provision of the DSHEA with the greatest impact on the nutritional
supplement industry is the legislative establishment and legal definition of a
separate class of substances known as "dietary supplements." This definition
eliminates much of the legal limbo and regulatory uncertainty that existed under
the previously established categories: food, food additive and drug. A dietary
supplement will require evidence of a history of use or other evidence of safety
establishing that it will reasonably be expected to be safe. Such evidence must
be provided by the manufacturer or distributor to the appropriate authority
before it may be marketed. The legislation allows for the dissemination of
information about the benefits of supplementation, as long as that information
is not false or misleading. The information must present a balanced view of
available scientific information on a dietary supplement. The DSHEA expressly
permits manufacturers of dietary supplements to make "structure/function"
statements of nutritional support in advertising and on labels. Such statements
may explain how a nutrient or dietary supplement affects the structure or
function of the body. The statements may also document the mechanism by which a
vitamin or other dietary ingredient maintains that structure or function.
However, the DSHEA fails to establish complete guidelines for allowable claims,
delegating that function to the Commission on Dietary Supplement Labels. The
appointment of the Commission members was completed in October 1995. The
Commission is required under the DSHEA to submit a report to the President by
October 25, 1996, however, respected analysts anticipate that the Commission
will delay its report until October 1997. The Company believes it is consistent
with the spirit and intent of the DSHEA and responsive to the desires and needs
of customers to place substantiated structure/function and nutritional support
statements on the labels of products.
The Company will continue to refine its policies and systems to effectively
communicate truthful information about dietary and nutritional supplements while
ensuring compliance with applicable federal, state and local regulations.
EMPLOYEES
The Company employs approximately 275 full-time persons, of whom 38 are employed
in executive, administrative and support functions; 136 in sales, customer
relations and marketing positions; 26 in product development, purchasing and
quality control functions; and 75 in shipping, receiving and manufacturing
positions. None of the Company's employees are represented by a collective
bargaining unit. The Company believes that its relationship with its employees
is good.
INDUSTRY SEGMENTS
The Company operates in a single Industry Segment.
ITEM 2: Properties
PROPERTY, PLANT AND EQUIPMENT
In March 1994, the Company purchased a 31,000 square foot manufacturing facility
and a 64,500 square foot adjacent lot for future expansion for a total cost of
$1,020,000. The Company used a portion of the net proceeds obtained from its
November 2, 1993 stock offering to purchase the facility and land. The cash
outlay for this manufacturing facility did not significantly affect the
Company's working capital position. Approximately 12,000 square feet (39%) is
utilized for manufacturing operations, with the remaining balance used for
administrative, distribution and warehousing needs.
The Company also owns a 20,000 square foot office building located in Boulder,
Colorado, which was acquired in April 1993. The Company leases an additional
4,400 square feet of office space from a non-affiliated third party, which lease
expires in November 1997. Both of these facilities consist of administrative,
marketing and sales offices.
The Company believes its facilities will need to be expanded in 1997 to meet its
growth needs for administration, marketing and manufacturing functions. The
Company maintains general commercial/casualty insurance on its properties, which
it deems to be adequate for its present needs.
ITEM 3: Legal Proceedings
From time to time the Company is a party to litigation arising in the ordinary
course of business. The Company has never been the subject of a suit for product
liability, although the marketing and sale of nutritional supplements exposes
the Company to the risk of product liability suits. The Company currently has
its own product liability insurance of $2,000,000 and is an additional insured
on all of the policies of its manufacturers.
ITEM 4: Submission of Matters To a Vote of Security Holders
On November 17, 1995, the Company held its adjourned 1995 Annual Meeting of
Shareholders, which was initially held on July 20, 1995. The following matter,
and the shareholder vote on such matter, was considered by the Company's
shareholders:
1. To reduce the quorum and voting requirements for action by the
Company's shareholders from a majority of the outstanding shares to one-third
for quorum, and from two-thirds of the outstanding shares to a majority for
voting on certain significant corporate actions:
3,342,635 shares voted for the proposal
387,068 shares voted against the proposal; and
64,046 shares abstained (including broker non-votes).
The Company also submitted a proposal to its shareholders to authorize a class
of 2,000,000 shares of preferred stock, which was not voted upon at the
adjourned meeting.
3,125,050 shares voted for the proposal
494,585 shares voted against the proposal; and
70,937 shares abstained (including broker non-votes).
As the voting requirement for this proposal was two-thirds of the outstanding
common stock, this proposal did not pass.
Part II
ITEM 5: Market for Registrant's Common Equity and Related Stockholder Matters
(a) Principal Market or Markets. The Company's common stock is traded in
the over-the-counter market on the NASDAQ National Market System under the
symbol "AMRI."
The following table sets forth quarter-by-quarter data for 1994 and 1995. The
range of high and low representative bid and asked quotations are for the
Company's Common Stock as quoted by NASDAQ National Market System. These
quotations reflect inter-dealer prices, without retail markups, markdowns, or
commissions, and may not necessarily represent actual transactions.
<TABLE>
Bid Asked
High Low High Low
<CAPTION>
<S> <C> <C> <C> <C>
Calendar Year 1994
First Quarter $13.25 $6.38 $14.63 $6.88
Second Quarter 11.50 6.75 11.88 6.88
Third Quarter 7.75 5.75 8.00 6.13
Fourth Quarter 8.63 5.75 8.88 6.13
Calendar Year 1995
First Quarter $ 9.63 $6.50 $10.00 $ 6.88
Second Quarter 10.38 8.75 10.75 9.00
Third Quarter 12.50 9.38 12.63 9.75
Fourth Quarter 12.38 9.88 12.50 10.00
<FN>
(b) Approximate Number of Holders of Common Stock. The number of holders of
record of the Company's $0.0011 par value Common Stock at March 4, 1996, was
approximately 878. This does not include an indeterminate number of shareholders
whose shares are held by brokers in street name.
(c) Dividends. Holders of Common Stock are entitled to receive such dividends as
may be declared by the Company's Board of Directors. No dividends have been paid
with respect to the Company's Common Stock and no dividends are anticipated to
be paid in the foreseeable future.
</FN>
</TABLE>
ITEM 6: Selected Financial Data
The following table sets forth certain selected financial data with respect to
the Company, and is qualified in its entirety by reference to the financial
statements and notes thereto.
<TABLE>
<S> <C> <C> <C> <C> <C>
Balance Sheet Data: 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91
Working capital $ 5,271,000 $ 4,265,000 $ 6,694,000 $ 1,324,000 $ 681,000
Total assets 23,600,000 19,033,000 15,523,000 2,631,000 1,901,000
Current liabilities 3,744,000 2,823,000 588,000 679,000 1,045,000
Stockholders' equity 19,719,000 16,127,000 14,425,000 1,995,000 1,200,000
Operations Data: 1995 1994 1993 1992 1991
Net sales $38,756,000 $25,244,000 $16,418,000 $10,606,000 $6,899,000
Cost of products 16,311,000 10,786,000 4,901,000 2,738,000 7,286,000
Net income 3,111,000 795,000 454,000 2,137,000 1,426,000
Net income per common share .60 .42 .41 .26 .15
</TABLE>
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following review concerns the three years ended December 31, 1995, 1994 and
1993, which should be read in conjunction with the financial statements and
notes thereto presented in this 10-K.
General
Over the last three years, the Company's net sales and net income have grown
substantially. Net sales have increased to $38,756,000 in 1995 from $25,244,000
in 1994 and $16,418,000 in 1993. Similarly, net income has increased to
$3,111,000 in 1995 from $2,137,000 in 1994 and $1,426,000 in 1993. Management
believes this growth is the result of being market driven, adaptive to industry
trends and responsive to its customers' needs, as well as a proficiency to
maintain disciplined financial controls. The Company financed this growth
primarily through cash flow from operations. However, a public offering of the
Company's Common Stock was completed in the fourth quarter of 1993 (net proceeds
of $11,004,000) that significantly strengthened the Company's financial
structure. There is no seasonality in the Company's business.
See Liquidity and Capital Resources on page 14 for future trends due to the
establishment of manufacturing capabilities and new marketing programs.
Results of Operations
Net sales for the twelve months ended December 31, 1995 were $38,756,000, an
increase of $13,512,000 (54%) from $25,244,000 for the same period one year ago.
Net sales for the twelve months ended December 31, 1994 increased by $8,826,000
(54%) compared to net sales of $16,418,000 during the twelve months ended
December 31, 1993. This represents a growth in net sales of more than $22.3
million, or 136%, for the three years ended December 31, 1995. Continued growth
in net sales for the twelve months ended December 31, 1995, was a direct result
of the Company's marketing programs which increased the number of new customers
by 65% and the Company's diversification of its product base with the
introduction of approximately 50 new products, which generated $2,200,000 in net
sales. The increase in net sales during the year ended December 31, 1994, as
compared to December 31, 1993 was due to a 65% increase in new customers and the
introduction of 100 new products which generated $1,553,000 in net sales.
The Company has been able to expand sales through larger and more frequent
customer acquisition mailings and, it believes, through the nationwide trend
towards preventive health care as a viable alternative to traditional medical
treatment. A portion of the increase in net sales is attributable to
improvements in customer segmentation mailing programs within the existing
customer base. Such mailings have generated excellent sales response rates on
smaller and more targeted mailings to 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 plans to
add 40 to 60 new products and approximately 116,000 new customers through these
scheduled marketing programs in 1996.
Cost of products was $16,311,000, $10,786,000, and $7,286,000 for the years
ended December 31, 1995, 1994 and 1993, respectively. This represents 42%, 43%
and 44% of net sales for the twelve months ended December 31, 1995, 1994 and
1993, respectively. During the years ended December 31, 1995 and 1994, cost of
products as a percentage of net sales decreased by 1% over the prior year due to
reductions in product costs from in-house manufacturing and volume discounts on
raw materials due to the Company's increased sales during this period.
Cost of mailings was $7,118,000, $4,003,000 and $2,385,000 for the years ended
December 31, 1995, 1994 and 1993, respectively. This represents 18%, 16% and 15%
of net sales for the twelve months ended December 31, 1995, 1994 and 1993,
respectively. The 20% increase in cost of mailings as a percentage of net sales
from the year ended December 31, 1995 compared to the year ended December 31,
1993 was due to the increased use of customer acquisition mailings. These
mailings cost more due to increased costs associated with acquiring each new
customer and such mailings typically have lower response rates than mailings to
existing customers. As a result, the number of new customers increased by 65% in
1995 and 1994, compared to 33% for the year ended December 31, 1993.
Additionally, the Company experienced a 14% and 70% increase in postage rates
and paper costs, respectively, during 1995. The Company is expecting these
costs to remain constant in 1996 and is estimating the cost of mailings to be
18% of net sales for the twelve months ended December 31, 1996.
In the year ended December 31, 1995, selling, general and administrative (SG&A)
expenses increased by $3,289,000 or 41% to $11,323,000 from the prior year. In
the year ended December 31, 1994, SG&A expenses increased by $3,282,000 or 69%
to $8,034,000 from the same period one year ago. This significant increase in
SG&A in 1995 was primarily due to the start-up and market development costs of
$968,000 by Natrix International (Natrix), the Company's majority owned
subsidiary. Further increases were due primarily to the Company's sales growth,
which necessitated additional staffing requirements of approximately $1,685,000
in 1995 and $1,196,000 in 1994 and substantial increases in product marketing
and development expenses of approximately $636,000 in 1995 and $1,222,000 in
1994.
SG&A as a percentage of net sales was 29%, 32% and 29% for the years ended
December 31, 1995, 1994 and 1993, respectively. SG&A as a percentage of net
sales in 1994 was higher than in 1993 and 1995, due to the substantial start-up
and market development costs incurred by the Company and its subsidiary, Natrix
International, during 1994. During 1996, the Company is estimating a 28%
increase in net sales from 1995, however, the Company anticipates SG&A as a
percentage of net sales to remain constant at 29% due to the continued
investment in the market development of the Natrix product line in 1996.
For the years ended December 31, 1995, 1994 and 1993, the Company generated
interest income of $365,000, $359,000 and $109,000 and produced rental income on
its customer list of $125,000, $114,000 and 104,000, respectively.
Net income as a percentage of net sales was 8.0%, 8.5% and 8.7% for the three
years ended December 31, 1995, 1994 and 1993, respectively. Net income for 1995
increased by $974,000 (46%) from the prior year. Net income for 1994 increased
by $711,000 (50%) to $2,137,000 compared to net income of $1,426,000 in 1993.
Overall, for the three years ended December 31, 1995 net income increased by
$1,685,000 due to the Company's increased sales, cost control efforts and lower
product costs from in-house manufacturing during a period of significant
expenditures on product and market development in the Company's newer retail
product lines.
Liquidity and Capital Resources
On November 2, 1993, the Company completed a public offering of its Common
Stock. The net proceeds to the Company from the stock offering were $11,004,000.
During 1995 and 1994, the Company spent approximately $2 and $1.7 million,
respectively, of these proceeds to develop a manufacturing facility and a line
of dietary supplements to be sold in the retail mass market (Natrix). Despite
these significant expenditures, the Company generated enough cash from internal
cash flows in 1995 and 1994 to have a cash and marketable securities balance of
$8,766,000 at December 31, 1995 compared to a cash and marketable securities
balance of $10,651,000 at December 31, 1993, with no long term debt in either
year.
The Company has generated cash from operating activities of $3,713,000 and
$323,000 during the years ended December 31, 1995 and 1994, respectively. The
increase in cash from operating activities of $3,390,000 during the twelve
months ended December 31, 1995 versus the same period in 1994 is primarily due
to net income of $3,111,000, an increase of $974,000 from net income of
$2,137,000 in 1994, and an increase of $921,000 in accounts payable and accrued
liabilities from December 31, 1994.
These cash sources were offset by product inventories increasing by $331,000 in
1995 compared to increases of $2,739,000 during 1994. Additionally, the
Company's deferred promotional mailing costs increased by $217,000 in 1995
compared to increases of $671,000 for the same period in 1994. Finally, the
Company's mailing supplies increased by $438,000 in 1995 compared to increases
of $163,000 for the same period in 1994. The increases in inventory, deferred
promotional mailing costs and mailing supplies were necessary to support
continued sales growth and expanding product lines. The relatively small
increase in inventories from December 31, 1994 to December 31, 1995 of $331,000
during a period of rapidly expanding sales (54%), was due to the in-house
manufacturing facility which enhanced the Company's ability to increase product
inventory turns.
Cash flows used by investing activities totaled $3,253,000 during the year ended
December 31, 1995 versus $5,095,000 for the same period in 1994. The continued
use of cash in investing activities resulted from the purchase of machinery and
equipment for the manufacturing facility and computer equipment and software for
a total cost of $1,322,000. Additionally, the Company used $1,590,000 to
purchase mail lists and used $221,000 in cash to purchase other fixed and
intangible assets. Finally, the Company used cash of $120,000 to purchase
marketable securities. The Company believes the cash invested in marketable
securities combined with its current working capital position will be adequate
to meet future operating needs.
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 May 19,
1996 and no amounts were outstanding at December 31, 1995.
The Financial Accounting Standards Board recently issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets" and SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 121 requires that long-lived
assets and certain identifiable intangibles be reported at the lower of the
carrying amount or their estimated recoverable amount and the adoption of this
statement by the Company is not expected to have an impact on the financial
statements. SFAS No. 123 encourages the accounting for stock-based employee
compensation programs to be reported within the financial statements on a fair
value based method. If the fair value based method is not adopted, then the
statement requires proforma disclosure of net income and earnings per share as
if the fair value based method had been adopted. The Company has not yet
determined how SFAS No. 123 will be adopted nor its impact on the financial
statements. Both statements are effective for fiscal years beginning after
December 15, 1995.
ITEM 8: Financial Statements and Supplementary Data
The report of independent certified public accountants appears on page F-1 and
the financial statements, notes to financial statements and schedule appear on
pages F-2 through F-19 hereof.
ITEM 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
The information required by Part III of Form 10-K is incorporated herein by
reference to Registrant's definitive Proxy Statement to be filed in connection
with the 1996 Annual Meeting of Shareholders to be held on June 26, 1996.
PART IV
ITEM 14: Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following consolidated financial statements are filed as part of
this report:
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-2 - F-3
Consolidated Statements of Income for each of the Three Years Ended
December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Stockholders' Equity for each of the Three Years
Ended December 31, 1995, 1994 and 1993 F-5
Consolidated Statements of Cash Flows for each of the Three Years Ended
December 31, 1995, 1994 and 1993 F-6 - F-7
Summary of Accounting Policies F-8 - F-10
Notes to Consolidated Financial Statements F-11 - F-18
Schedule 11 - Valuation and Qualifying Accounts F-19
(b) There were no Form 8-K's filed for the Registrant during the Quarter
ended December 31, 1995.
(c) The following Exhibits are filed as part of this report:
Exhibit
No Document
3.0 Articles of Incorporation (1)
3.1 Bylaws (1)
3.2 Articles of Merger (3)
3.3 Articles of Amendment to Articles
of Incorporation (2)
3.4 Articles of Amendment to Articles
of Incorporation (7)
10.0 Material Contracts
10.1 Letter of Agreement Regarding Acquisition of
Bioenergy Nutrients, Inc. (3)
10.2 Stock Redemption Agreement with Sam Barber (3)
10.3 Promissory Note with Roderick J. Crossen (3)
10.4 Assignment and Investment Letter with
James M. Temple (3)
10.5 Agreement for issuance of an option for
15,000,000 treasury shares for $5,000 to
a Director (4)
10.6 Agreement for issuance of an option for
5,000,000 shares, granted and exercised in
the fiscal year ended December 31, 1990 to
a Director and Officer (4)
10.7 Settlement agreement for issuance of an option
exercised in the fiscal year ended December 31,
1990 to a former Director (4)
10.8 Agreement for purchase by the Company for $50,000 of a
beneficial interest in 22,727 shares of the Company's common
stock from two of its Directors (5)
10.9 Purchase agreement on manufacturing facility and adjacent lot (8)
11.0 Statement Regarding Computation of Earnings Per Common Share (7)
16 Change in Registrant's Independent Certified Public Accountant (6)
17 Roderick J. Crossen - Letter of Resignation (3)
23 Consent of BDO Seidman, LLP
(1) Incorporated by reference from the Company's Registration Statement
No. 33-13345-D, on Form S-18 pursuant to the Securities Act of 1933.
(2) Incorporated by reference from the Company's Post Effective Amendment
to Registration Statement No.33 13345-D on Form S-18.
(3) Incorporated by reference from the Company's 10-K, No. 33-13345-D
for its fiscal year ended December 31, 1989 under the Securities
Exchange Act of 1934.
(4) Incorporated by reference from the Company's 10-K, No. 0-18476 for
its fiscal year ended December 31, 1990 under the Securities Exchange
Act of 1934.
(5) Incorporated by reference from the Company's 10-Q, No. 0-18476
for its quarter ended September 30, 1991 under the Securities Exchange
Act of 1934.
(6) Incorporated by reference from the Company's two 8-K's, No. 0-18476
filed on June 28, 1991 and December 15, 1991 under the Securities
Exchange Act of 1934.
(7) Incorporated by reference from the Company's 10-K, No. 0-18476 for
its fiscal year ended December 31, 1992 under the Securities Exchange
Act of 1934.
(8) Incorporated by reference from the Company's 10-KSB, No. 0-18476
for its fiscal year ended December 31, 1993 under the Securities
Exchange Act of 1934.
(9) Incorporated by reference from the Company's 10-KSB, No. 0-18476
for its fiscal year ended December 31, 1994 under the Securities
Exchange Act of 1934.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
AMRION, INC.
Date: March 29, 1996 /s/ Mark S. Crossen
Mark S. Crossen, Chief Executive Officer & President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Mark S. Crossen Chairman of the Board of March 29, 1996
Mark S. Crossen Directors, Principal Executive
Officer and President
/s/ Jeffrey S. Williams Director, Principal March 29, 1996
Jeffrey S. Williams Financial Officer,
Secretary and Treasurer
/s/ Theodore W. Brin Director and Assistant March 29, 1996
Theodore W. Brin Treasurer
<PAGE>
BDO SEIDMAN, LLP
Denver, Colorado
March 29, 1996
Report of Independent Certified Public Accountants
The Board of Directors and Stockholders
Amrion, Inc. and Subsidiary
Boulder, Colorado
We have audited the accompanying consolidated balance sheets of Amrion, Inc. and
subsidiary as of December 31, 1995 and 1994 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 1995. We have also audited the schedule
listed in the accompanying index. These financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and dlosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Amrion, Inc. and
subsidiary at December 31, 1995 and 1994, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1995 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule presents fairly, in all material respects,
the information set forth therein.
BDO SEIDMAN, LLP
Denver, Colorado
March 8, 1996
F-1
<PAGE>
<TABLE>
Amrion, Inc. and Subsidiary
Consolidated Balance Sheets
<CAPTION>
<S> <C> <C>
December 31, ......................................... 1995 1994
Assets
Current:
Cash and cash equivalents .......................... $ 831,544 $ 120,931
Accounts receivable, less allowance of
$48,000 and $60,000 for possible losses (Note 4) 624,006 539,301
Inventories (Notes 1 and 4) ........................ 5,035,872 4,704,771
Mail supplies ...................................... 1,026,463 588,711
Deferred promotional mailing costs, net ............ 1,103,987 886,909
Other .............................................. 393,273 247,173
Total current assets ................................. 9,015,145 7,087,796
Property and equipment, net of accumulated
depreciation (Notes 2 and 4) ...................... 4,368,672 3,333,857
Other assets:
Marketable securities available for sale (Note 3) .. 7,934,514 7,495,769
Mailing lists, net of accumulated amortization
of $1,083,229 and $629,889 ....................... 2,111,556 974,244
Intangible assets, net of accumulated amortization
of $72,945 and $18,126 ........................... 170,429 141,177
Total other assets ................................... 10,216,499 8,611,190
$23,600,316 $19,032,843
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-2
<PAGE>
<TABLE>
Amrion, Inc. and Subsidiary
Consolidated Balance Sheets
(Continued)
<CAPTION>
<S> <C> <C>
December 31, ........................................1995 1994
Liabilities and Stockholders' Equity
Current:
Accounts payable ..................................$ 3,094,662 $ 2,551,992
Accrued liabilities:
Payroll and payroll taxes ....................... 275,195 153,722
Income taxes .................................... 193,255 5,200
Other ........................................... 180,988 111,792
Total current liabilities ........................... 3,744,100 2,822,706
Deferred income taxes (Note 5) ...................... 104,000 74,000
Total liabilities ................................... 3,848,100 2,896,706
Minority interest ................................... 32,865 8,681
Commitments (Note 7)
Stockholders' equity (Note 6):
Common stock, $.0011 par value - shares authorized,
10,000,000; issued 5,026,813 and 4,981,096 ...... 5,529 5,479
Additional paid-in capital ........................ 11,788,856 11,676,881
Retained earnings ................................. 8,090,756 4,979,484
Marketable securities valuation allowance (Note 3) (165,790) (484,388)
19,719,351 16,177,456
Treasury stock, at cost, 34,091 shares (Note 6)...... -- (50,000)
Total stockholders' equity .......................... 9,719,351 16,127,456
$23,600,316 $ 19,032,843
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE>
<TABLE>
Amrion, Inc. and Subsidiary
Consolidated Statements of Income
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31, ............... 1995 1994 1993
Net sales ............................. $ 38,756,288 $ 25,244,237 $ 16,418,352
Cost of sales:
Cost of products ...................... 16,311,467 10,786,215 7,286,024
Cost of mailings ...................... 7,118,374 4,002,900 2,384,664
Cost of sales ........................ 23,429,841 14,789,115 9,670,688
Gross profit .......................... 15,326,447 10,455,122 6,747,664
Operating expenses - selling, general
and administration .................... 11,322,857 8,033,599 4,752,268
Income from operations ................ 4,003,590 2,421,523 1,995,396
Other income (expense):
Interest income ....................... 365,184 359,159 108,608
Other, net ............................ 229,861 326,663 123,622
Total other income .................... 595,045 685,822 232,230
Income before income taxes and minority
interest in loss of subsidiary ........ 4,598,635 3,107,345 2,227,626
Taxes on income (Note 5) .............. (1,552,000) (1,060,000) (802,000)
Minority interest in loss of subsidiary 64,637 89,319 --
Net income ............................ $ 3,111,272 $ 2,136,664 $ 1,425,626
Net income per common and
common equivalent share ............... $ .60 $ .42 $ .41
Weighted average number of common
shares and common share equivalents
outstanding ........................... 5,146,572 5,031,721 3,436,923
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE>
<TABLE>
Amrion, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1995, 1994 and 1993
Marketable
Common Stock Additional Securities Total
--------------- Paid-In Retained Treasury Valuation Stockholders
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares Amount Capital Earnings Stock Allowance Equity
Balance, January 1, 1993 ............... 3,125,915 $ 3,439 $ 624,565 $1,417,194 $(50,000) $ -- $ 1,995,198
Issuance of common stock pursuant
to public offering - net of
$1,179,362 of issuance costs (Note 6) 1,805,000 1,985 11,002,403 -- -- -- 11,004,388
Net income ........................... -- -- -- 1,425,626 -- -- 1,425,626
Balance, December 31, 1993 ............. 4,930,915 5,424 11,626,968 2,842,820 (50,000) -- 14,425,212
Marketable securities
valuation allowance ................ -- -- -- -- -- (484,388) (484,388)
Costs associated with prior
year public offering ............... -- -- (35,050) -- -- -- (35,050)
Sale of stock through options
exercised (Note 6) ................. 50,181 55 84,963 -- -- -- 85,018
Net income ........................... -- -- -- 2,136,664 -- -- 2,136,664
Balance, December 31, 1994 ............. 4,981,096 5,479 11,676,881 4,979,484 (50,000) (484,388) 6,127,456
Marketable securities
valuation allowance ................ -- -- -- -- -- 318,598 318,598
Sale of stock through
options exercised (Note 6) ......... 45,717 50 161,975 -- -- -- 162,025
Retirement of Treasury
Stock (Note 6) ..................... -- -- (50,000) -- 50,000 -- --
Net income ........................... -- -- -- 3,111,272 -- -- 3,111,272
Balance, December 31, 1995 ............. 5,026,813 $ 5,529 $11,788,856 $8,090,756 $ -- $(165,790) $19,719,351
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE>
Amrion, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<S> <C> <C> <C>
Year Ended December 31, ...................1995 1994 1993
Cash flows from operating activities:
Net income ..............................$ 3,111,272 $ 2,136,664 $1,425,626
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization ....... 934,456 558,623 311,404
Deferred tax expense (benefit) ...... 50,000 (19,000) (6,000)
Provision for losses on accounts
receivable ........................ (12,000) 49,000 14,000
Minority interest share in loss
of subsidiary ..................... (64,637) (89,319) --
Other ............................... -- -- (12,000)
Changes in operating assets and
liabilities:
Accounts receivable .............. (72,705) (292,902) (225,190)
Inventories ...................... (331,101) (2,739,086) (1,405,288)
Mailing supplies ................. (437,752) (163,199) (206,306)
Deferred promotional mailing costs (217,078) (670,811) (92,793)
Other assets ..................... (146,100) (224,809) (24,404)
Accounts payable ................. 542,670 1,673,688 469,296
Accrued liabilities .............. 378,724 103,692 (12,087)
Cash provided by operating activities ..... 3,735,749 322,541 236,258
Cash flows from investing activities:
Purchase of marketable securities
available for sale .................... (120,147) (2,074,482) (5,905,675)
Purchase of property and equipment ...... (1,481,112) (2,338,115) (1,178,029)
Purchase of intangible assets ........... (1,674,723) (682,042) (279,721)
Cash used in investing activities ......... (3,275,982) (5,094,639) (7,363,425)
</TABLE>
F-6
<PAGE>
<TABLE>
Amrion, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Continued)
Increase (Decrease) in Cash and Cash Equivalents
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31, .................... 1995 1994 1993
Cash flows from financing activities:
Proceeds from issuance of common
stock - net ............................ 162,025 49,968 11,004,388
Minority interest contributions .......... 88,821 98,000 --
Cash provided by financing
activities ............................... 250,846 147,968 11,004,388
Net increase (decrease) in cash
and cash equivalents ..................... 710,613 (4,624,130) 3,877,221
Cash and cash equivalents, beginning of year 120,931 4,745,061 867,840
Cash and cash equivalents, end of year ..... $831,544 $ 120,931 $ 4,745,061
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-7
<PAGE>
Amrion, Inc. and Subsidiary
Summary of Accounting Policies
Organization and The consolidated financial statements include
Business the accounts of Amrion, Inc. ("Amrion") and
those of its 90% owned subsidiary, Natrix
International, LLC ("Natrix"), a Colorado
Limited Liability Corporation (collectively
the "Company"). Amrion markets nutritional
supplements principally throughout the United
States, with the balance to customers in the
Far East, Europe and Mexico, using a
combination of direct mail, telemarketing and
space advertising. Natrix is engaged in the
marketing and distribution domestically of
Bilberry 20/20. The Company's primary products
are Coenzyme Q10, Bilberry and Ginkgo Biloba
which comprised 46% of the Company's net sales
for the year ended December 31, 1995.
Principles of All significant intercompany accounts and
Consolidation transactions have been eliminated in
consolidation.
Concentrations of The Company's financial instruments exposed to
credit risk concentrations of consist Credit Risk 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, 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 common stock and AAA rated
tax-exempt municipal bonds. The investment
policy limits the Company's exposure to
concentrations of credit risk.
Inventories Inventories are valued at the lower of cost or
market. Cost is determined using the weighted
average cost method.
Property and Property and equipment are stated at cost.
Equipment 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.
F-8
<PAGE>
Marketable The Company accounts for marketable securities
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.
Advertising The Company expenses the production costs of
advertising the first time the advertising
takes place, except for direct-response
advertising, which is capitalized and amortized
over its expected period of future benefits.
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 are amortized over the
expected promotional benefit period of three
months.
Advertising expense for the years ended
December 31, 1995, 1994 and 1993 was
$7,702,000, $4,607,000 and $2,543,000.
Income Taxes The Company accounts for income taxes in
accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for
Income Taxes" which requires the use of the
"liability method". Accordingly, deferred tax
liabilities and assets are determined based on
the temporary differences between the financial
statement and tax bases of assets and
liabilities, using enacted tax rates in effect
for the year in which the differences are
expected to reverse.
Intangible Purchased mailing lists, trademarks and
Assets 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.
F-9
<PAGE>
Income Per Income per common and common equivalent share
Common and is based on the weighted average number of
Common Equivalent Share common shares outstanding during each of the
periods presented. Options to purchase stock
are included as common stock equivalents when
dilutive. In 1995, 1994 and 1993, options
representing common stock equivalents of
124,942,67,920 and 83,924 shares, respectively,
are included in the weighted average number
of common shares and common share equivalents
outstanding.
Cash The Company considers cash and all highly
Equivalents liquid investments purchased with an original
maturity of three months or less to be cash
equivalents.
Use of The preparation of financial statements in
Estimates conformity with generally accepted accounting
principles requires management to make
estimates and assumptions that affect the
reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities
at the date of the consolidated financial
statements and the reported amounts of revenues
and expenses during the reporting period.
Actual results could differ from those
estimates.
Recent Accounting The Financial Accounting Standards Board has
Pronouncements recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived
Assets" and SFAS No. 123, "Accounting for Stock
Based Compensation." SFAS No. 121 requires that
long-lived assets and certain identifiable
intangibles be reported at the lower of the
carrying amount or their estimated recoverable
amount and the adoption of this statement by
the Company is not expected to have an impact
on the financial statements. SFAS No. 123
encourages the accounting for stock-based
employee compensation programs to be reported
within the financial statements on a fair value
based method. If the fair value based method is
not adopted, then the statement requires
pro-forma disclosure of net income and earnings
per share as if the fair value based method had
been adopted. The Company has not yet
determined how SFAS No. 123 will be adopted nor
its impact on the financial statement. Both
statements are effective for fiscal years
beginning after December 15, 1995.
Reclassifications Certain items included in prior years financial
statements have been reclassified to conform to
current year presentation.
F-10
<PAGE>
Amrion, Inc. and Subsidiary
Notes to Consolidated Financial Statements
1. Inventories Inventories consisted of the following:
December 31, 1995 1994
Finished goods $ 2,071,756 $ 3,556,565
Work in process 1,111,137 395,272
Raw materials 1,852,979 752,934
$ 5,035,872 $ 4,704,771
2. Property and Property and equipment consisted of the following:
Equipment
December 31, 1995 1994
Land $ 326,000 $ 326,000
Building and leasehold improvements 1,967,495 1,909,946
Computer equipment and
software 1,218,686 714,486
Machinery and equipment 1,109,731 855,638
Furniture and equipment 293,263 249,984
Equipment not yet in service 563,431 -
5,478,606 4,056,054
Less accumulated depreciation 1,109,934 722,197
Net property and equipment $4,368,672 $ 3,333,857
Depreciation expense for the years ended December 31, 1995,
1994 and 1993 was approximately $446,000, $322,000 and
$158,000.
F-11
<PAGE>
3. Marketable Marketable securities consisted of the following:
Securities
<TABLE>
Gross Gross
Amortized Unrealized Unrealized Fair
<CAPTION>
<S> <C> <C> <C> <C>
Cost Gains Losses Value
December 31, 1995:
Debt Securities -
Municipal securities $ 7,052,722 $ 27,605 $ (144,768) $ 6,935,559
Equity Securities-
Preferred stock 1,047,582 3,361 (51,988) 998,955
$ 8,100,304 $ 30,966 $ (196,756) $ 7,934,514
December 31, 1994:
Debt Securities -
Municipal securities $ 6,493,135 $ - $ (271,383) $ 6,221,752
Equity Securities:
Common stock 430,345 2,465 (32,285) 400,525
Preferred stock 1,056,677 - (183,185) 873,492
$ 7,980,157 $ 2,465 $ (486,853) $ 7,495,769
</TABLE>
Contractual maturities of debt securities available for sale
at December 31, 1995 are as follows:
<TABLE>
<S> <C> <C>
Amortized Fair
Cost Value
Maturities within one year $ 1,209,189 $ 1,173,136
Maturities after one year and within five years 5,512,514 5,452,322
Maturities after ten years 331,019 310,101
$ 7,052,722 $ 6,935,559
</TABLE>
F-12
<PAGE>
4. Financing The Company has a $355,000 line-of-credit agreement with a
Agreement bank. The line bears interest at 1% over the bank's prime
lending rate (10.25% at December 31, 1995). The line expires
in May 1996 and is secured by inventories, accounts
receivable, furniture, fixtures, and equipment. There were
no amounts outstanding under the line of credit at December
31, 1995 and 1994.
5. Taxes on Taxes on income consisted of the following components:
Income
Year Ended December 31, 1995 1994 1993
Current:
Federal $ 1,286,000 $ 922,000 $ 695,000
State 216,000 157,000 113,000
1,502,000 1,079,000 808,000
Deferred (reduction):
Federal 46,000 (17,000) (5,000)
State 4,000 (2,000) (1,000)
50,000 (19,000) (6,000)
$ 1,552,000 $ 1,060,000 $ 802,000
The components of the net deferred tax assets and liabilities
are shown below.
<TABLE>
<S> <C> <C> <C>
Year Ended December 31, 1995 1994
Accumulated depreciation and amortization $ (105,000) $ (74,000)
Marketable securities net unrealized loss 62,000 181,000
Allowance for product returns 39,000 29,000
Accrued payroll costs 21,000 13,000
Allowance for doubtful accounts 18,000 22,000
Other, net (28,000) 5,000
7,000 176,000
Valuation allowance (62,000) (181,000)
Net deferred income tax liabilities $ (55,000) $ (5,000)
</TABLE>
F-13
<PAGE>
Deferred tax assets of $49,000 and $69,000 as of December 31,
1995 and 1994 are included in other current assets.
At December 31, 1995, the Company has recorded a valuation
allowance equal to the deferred tax effects of the marketable
securities net unrealized loss as management of the Company
has not been able to determine that it is more likely than
not that the net unrealized capital loss will be realized.
A reconciliation of the effective tax rates with the federal
statutory rate is shown below:
Year Ended December 31, 1995 1994 1993
Federal income tax computed
at statutory rate $1,585,000 $1,057,000 $757,000
State income taxes, net of
federal benefit 135,000 104,000 75,000
Tax-exempt interest income (131,000) (97,000) (24,000)
Other (37,000) (4,000) (6,000)
Taxes on income $ 1,552,000 $1,060,000 $802,000
6. Stockholders' Non-Qualified Stock Option Plan
Equity
The Company has a Non-Qualified Stock Option
Plan (the "Plan"), expiring December 30, 1999,
reserving for issuance 511,000 shares of the
Company's common stock. The Plan provides for
grants to either employees, officers or
employee directors, at the discretion of the
compensation committee of the Board of
Directors, stock options to purchase common
stock of the Company at a price not less than
80% of the fair market value, as defined, on
the date of grant. Options granted primarily
vest ratably on an annual basis over a five
year period. Any options granted under the Plan
must be exercised within ten years of the date
they were granted.
F-14
<PAGE>
During 1994, the Company granted options to
purchase an aggregate of 511,000 shares of its
common stock under the Plan at an exercise
price of $6.20 per share. During the year ended
December 31, 1995, 3,000 shares of common stock
were issued to employees under the terms of
options previously granted. No options were
exercised in 1994. At December 31, 1995, there
were options outstanding under the Plan
covering 508,000 shares of common stock.
Non-Employee Director Stock Option Plan
The Company has a Non-Employee Director Stock
Option Plan (the "Director Plan"), expiring
January 13, 2000, reserving for issuance 70,000
shares of the Company's common stock. The
Director Plan provides that each person who was
a non-employee director of the Company on
December 31, 1994 and who is a non-employee
director of the Company on December 31st of
each succeeding year shall be granted, each
year, a five-year option to purchase up to
3,000 shares of common stock of the Company at
an exercise price based upon the fair market
value, as defined, on the date of grant.
Options issued under the Director Plan are
fully exercisable on the date of grant. Any
options granted under the Director Plan must be
exercised within five years of the date they
were granted.
During 1994, the Company granted options to
purchase an aggregate of 9,000 shares of its
common stock under the Director Plan at an
exercise price of $6.80 per share. During 1995,
the Company granted options to purchase an
aggregate of 9,000 shares of its common stock
under the Director Plan at an exercise price of
$10.88 per share. During the year ended
December 31, 1995, 3,000 shares of common stock
were issued to a non-employee director under
the terms of options previously granted. At
December 31, 1995, there were options
outstanding under the Director Plan covering
15,000 shares of common stock.
F-15
<PAGE>
Other Stock Options
During 1995, 1994 and 1993, the Company granted
various options to purchase an aggregate of
16,500, 68,200 and 29,500 shares of its common
stock to directors and employees for services
rendered. At December 31, 1995, 137,459 of
these options were outstanding. Under the terms
of the options, employees and directors may
exercise their options at prices ranging from
$1.28 to $9.13 (which approximated the fair
market value at the date of grant) per share
over a four to six year period beginning on the
grant date, provided they remain directors or
employees of the Company. During the years
ended December 31, 1995 and 1994, 39,717 and
50,181 shares of common stock were issued to
officers and employees under the terms of
options previously granted. No options were
exercised in 1993.
Warrants
In November 1993, the Company completed a
public offering of its common shares, whereby
the Company sold 1,520,000 shares at $6.75 per
share, and in December 1993, the underwriters
exercised an option to purchase 285,000
additional shares to cover overallotments. Net
proceeds after underwriters' commissions and
other expenses of $1,179,362, were $11,004,388.
In connection with the 1993 public offering,
the Company issued a five-year warrant to
purchase 190,000 shares of common stock at an
exercise price of $8.10.
All warrants were still outstanding at December
31, 1995.
Treasury Stock
The Company retired its treasury stock as
a result of a January 1, 1995 change in the
Colorado Business Corporation Act.
F-16
<PAGE>
7. Commitments Self-Insurance
The Company is partially self insured for
employee medical liabilities which covers risk
up to $12,500 per individual covered under the
plan. The Company has purchased excess medical
liability coverage for individual claims in
excess of $12,500 and aggregate claims in
excess of approximately $200,000 annually with
a national medical insurance carrier. Premiums
and claim expenses associated with the medical
self insurance program are included in the
accompanying statements of income.
Supplier Agreements
The Company entered in an agreement to purchase
certain raw materials from a vendor over a
two-year period effective January 1, 1996. The
maximum commitment by the Company is
$2,820,000.
The Company currently imports approximately 80%
of its product ingredients from various foreign
countries. While the Company does not have
supply contracts with all of its vendors,
alternative sources of the Company's materials
are available. The termination of supply by one
or more of its vendors could have a temporary
adverse effect on the Company's sales.
8. Supplemental Year Ended December 31, 1995 1994 1993
Disclosures of
Cash Flow
Information Cash paid during the
period for:
Income taxes $ 1,207,000 $ 1,032,000 $ 793,000
Interest $ 6,000 $ 19,000 $ 9,000
F-17
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
9. Selected 1st 2nd 3rd 4th
Quarterly Year ended December 31, 1995:
Financial Data
(Unaudited)
Net sales $10,131,780 $ 8,810,143 $10,738,458 $ 9,075,907
Gross profit 3,741,886 3,282,684 4,043,192 4,258,685
Income from operations 1,101,483 507,333 1,153,365 1,241,409
Net income 793,129 492,982 865,077 960,084
Net income per common
and common equivalent
share .16 .10 .17 .17
Year ended December 31, 1994:
Net sales 6,035,289 5,624,496 6,714,633 6,869,819
Gross profit 2,561,904 2,228,101 2,711,406 2,953,711
Income from operations 803,457 417,335 641,224 559,507
Net income 562,573 468,409 562,944 542,738
Net income per common
and common equivalent
share .11 .09 .11 .11
</TABLE>
F-18
<PAGE>
Accounts Receivable - Allowance for possible losses
Additions
Balance Charged to Balance
at Beginning Costs and at End
of Period Expenses Deductions of Period
Year Ended December 31, 1993 $ 25,000 $ 26,369 $ 12,369 $ 39,000
Year Ended December 31, 1994 39,000 34,968 13,968 60,000
Year Ended December 31, 1995 60,000 59,754 71,754 48,000
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Amrion, Inc.
Boulder, Colorado
We hereby consent to the incorporation by reference in this Registration
Statement of our report dated March 8, 1996 relating to the consolidated
financial statements of Amrion, Inc. and subsidiary appearing in the Company's
Annual Report on orm 10-K for the year ended December 31, 1995.
BDO SEIDMAN, LLP
Denver, Colorado
March 29, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000812788
<NAME> JEFFREY S. WILLIAMS
<MULTIPLIER> 1,000
<CURRENCY> <blank>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 831,544
<SECURITIES> 7,934,514
<RECEIVABLES> 624,006
<ALLOWANCES> 48,410
<INVENTORY> 5,035,872
<CURRENT-ASSETS> 9,015,145
<PP&E> 4,368,672
<DEPRECIATION> 1,109,936
<TOTAL-ASSETS> 23,600,316
<CURRENT-LIABILITIES> 3,743,921
<BONDS> 0
0
0
<COMMON> 5,529
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,600,316
<SALES> 38,756,288
<TOTAL-REVENUES> 39,415,541
<CGS> 16,311,467
<TOTAL-COSTS> 23,429,841
<OTHER-EXPENSES> 11,322,857
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,662,844
<INCOME-TAX> 1,551,572
<INCOME-CONTINUING> 3,111,272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,111,272
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
