U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 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 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: 5,035,938 shares outstanding
as of March 31, 1996.
<PAGE>
PART 1. FINANCIAL
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
Assets
<S> <C> <C>
Current:
Cash and cash equivalents $ 957,735 $ 831,544
Accounts receivable, less allowance
of $45,000 and $48,000
for possible losses 695,470 624,006
Inventories 7,958,312 5,035,872
Mail supplies 859,121 1,026,463
Deferred promotional mailing costs, net 647,173 1,103,987
Other 424,412 393,273
---------- ----------
Total current assets 11,542,223 9,015,145
---------- ----------
Property and equipment, net 4,453,488 4,368,672
---------- ----------
Other assets:
Marketable securities available for sale 7,680,119 7,934,514
Mailing lists, net 2,325,358 2,111,556
Intangible assets, net 120,993 170,429
Total other assets 10,126,470 10,216,499
---------- ----------
Total assets $ 26,122,181 $23,600,316
========== ==========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1996 AND DECEMBER 31, 1995
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
Liabilities and Stockholders' Equity
<S> <C> <C>
Current:
Accounts payable $ 4,458,837 $ 3,094,662
Accrued liabilities 473,573 456,183
Income taxes payable 431,112 193,255
---------- ----------
Total current liabilities 5,363,522 3,744,100
Deferred income taxes 104,000 104,000
---------- ----------
Total liabilities 5,467,522 3,848,100
---------- ----------
Minority interest 22,275 32,865
Stockholders' equity:
Common stock, $.0011 par value - shares
authorized, 10,000,000; issued 5,035,938
and 5,026,813 5,539 5,529
Additional paid-in capital 11,841,871 11,788,856
Retained earnings 9,013,846 8,090,756
Marketable securities valuation
allowance (228,872) (165,790)
---------- ----------
Total stockholders' equity 20,632,384 19,719,351
---------- ----------
$26,122,181 $23,600,316
========== ==========
</TABLE>
See accompanying notes to the consolidated financial statements
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
<TABLE>
<CAPTION>
Three months
ended
March 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net sales $13,381,956 $ 10,131,780
---------- ----------
Costs of sales:
Cost of products 5,939,529 4,355,623
Cost of mailings 2,883,308 2,034,271
--------- -----------
Cost of sales 8,822,837 6,389,894
--------- -----------
Gross profit 4,559,119 3,741,886
Operating expenses - selling, general
and administration 3,384,418 2,640,403
--------- ----------
Income from operations 1,174,701 1,101,483
--------- ----------
Other income, net 159,138 174,313
--------- ----------
Income before taxes on income 1,333,839 1,275,796
Taxes on Income 410,749 482,667
------------ ----------
Net income $ 923,090 $ 793,129
========== ==========
Net income per common and common
equivalent share $ .18 $ .16
========== ==========
Weighted average number of common shares
and common share equivalents outstanding 5,204,489 5,070,112
========== ==========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
Three months
ended
March 31,
1996 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flow from operating activities:
Net income $ 923,090 $ 793,129
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 299,794 191,820
Changes in operating assets and liabilities:
Accounts receivable (71,464) (30,738)
Inventory (2,922,440) 212,363
Mailing supplies 167,342 (236,332)
Deferred promotional mailing costs 456,814 112,459
Other assets (41,729) 116,661
Accounts payable 1,364,175 (348,145)
Accrued liabilities 17,390 161,825
Income taxes payable 237,857 482,664
---------- ---------
Cash provided by operating activities 430,829 1,455,706
---------- ---------
Cash flows from investing activities:
Sales of marketable securities
available for sale 191,313 197,144
Purchase of property and equipment (217,589) (190,500)
Purchase of mailing lists and intangible assets (331,387) (373,466)
----------- ----------
Cash used in investing activities (357,663) (366,822)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common stock - net 53,025 33,514
---------- ----------
Net increase in cash and cash
equivalents 126,191 1,122,398
Cash and cash equivalents, beginning of period $ 831,544 $ 120,931
--------- ---------
Cash and cash equivalents, of period $ 957,735 $1,243,329
========= =========
See accompanying notes to the consolidated financial statements
</TABLE>
<PAGE>
AMRION, INC. AND SUBSIDIARY
CONSOLIDATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The unaudited consolidated financial statements and related notes have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such rules and regulations.
The accompanying financial statements and related notes should be read in
conjunction with the audited financial statements of the Company, and notes
thereto, for the year ended December 31, 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,
with the balance to customers in the Far East, Europe and Mexico, using a
combination of direct mail, telemarketing and print advertising. Natrix is
engaged in the marketing and distribution domestically of the Advanced Botanics
line.
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
preferred stock and AAA rated tax-exempt municipal bonds. The Company considers
cash and 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(at Standard which approximates
First-in, First-out)or market.
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method based on the estimated useful lives of related assets,
generally 3 to 31.5 years. Maintenance and repair costs are expensed as
incurred.
Purchased mailing lists, trademarks and copyrights are amortized by the
straight-line method over their estimated useful lives which range from five to
ten years. On an ongoing basis the Company reviews the recoverability and
amortization periods of intangible assets taking into consideration any events
or circumstances which could impair the assets' carrying value and records
adjustments when necessary.
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 are amortized over the
expected promotional benefit period of three months. Other advertising and
promotional costs are expensed the first time the advertising takes place.
Income per common and common 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 March 31, 1996.
The following review concerns the three-month periods ended March 31, 1996, and
March 31, 1995, which should be read in conjunction with the financial
statements and notes thereto presented in this Form 10-Q.
Results of Operations
For the three-month periods ended March 31, 1996, and March 31, 1995.
Net sales for the three months ended March 31, 1996, were $13,382,000, an
increase of $3,250,000, or 32%, over the same period in 1995. The continued
growth in net sales for the three months ended March 31, 1996, was a direct
result of the Company's marketing programs which increased the number of new
customers by approximately 6%, and, to a lesser extent, the Company's effort to
diversify the product base with the introduction of 20 new products.
The Company has been able to expand sales through larger and more frequent
customer acquisition mailings and, as a result of 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. In essence, the Company has continued to be generate excellent
sales response rates on smaller and more targeted mailings to specified
customers within the existing customer base.
The Company intends to continue to implement new customer acquisition programs
through mailings, print advertising, telemarketing, direct response television,
radio,field sales represenatives and expanded retail distribution programs.
The Company plans to add 20 to 40 new products and approximately 80,000
new customers through these scheduled marketing programs during the
remaining nine months in 1996.
Cost of products increased to $5,940,000 for the first three months of 1996,
compared to $4,356,000 for the same period in 1995. As a percentage of net
sales, cost of products increased by 1% over the same period in the prior year
due to the expanded use of product promotionals in the Company's marketing
programs.
Cost of mailings increased to $2,883,000 for the first three months of 1996,
compared to $2,034,000 for the same period in 1995. As a percentage of net
sales, cost of mailings increased by 1% over the same period in the prior year
due to the increased use of customer acquisition mailings. The increase as a
percentabe of net sales was due to the increased investment in customer
acquistion mailings that have lower response rates than mailings to existing
customers. The Company is estimating the cost of mailings to be 19% of
sales for the twelve months ended December 31, 1996.
During the three months ended March 31, 1996, selling, general and
administrative expenses ("SG&A") increased by $744,000 or 28% to $3,384,000 from
the same period in 1995. This significant increase in SG&A was due
primarily to additional staffing requirements of approximately $223,000 and
substantial increases in product marketing and development expenses of
approximately $521,000 that were necessary to support the 32% growth in sales.
However, SG&A as a percentage of net sales decreased by 1% over the same period
in 1995 to 25% for the three months ended March 31, 1996.
In the three months ended March 31, 1996, net income increased by $130,000 (16%)
to $923,000 compared to net income of $793,000 for the three months ended March
31, 1995. Overall, the growth in net income for the quarter ended March 31,
1996, was due to increased sales, cost control efforts and lower product costs
from in-house manufacturing during a period of significant expenditures on
customer acquisition and market development in the Company's newer retail
product lines.
Liquidity and Capital Resources
The Company generated $431,000 and $1,456,000 in cash from operating activities
during the three months ended March 31, 1996 and 1995, respectively. The
decrease in cash from operating activities of $1,025,000 during the three months
ended March 31, 1996, as compared to the same period in 1995 was due to the
increase in product inventories by $2,922,000 in 1996 compared to decreases
of $212,000 during 1995. This cash outflow was offset by net income of $923,000,
an increase of $130,000 from net income of $793,000 in 1995 and an increase of
$1,364,000 in accounts payable from December 31, 1995. The increase in
inventory and corresponding increase in accounts payable was necessary to
support continued sales growth and expanding product lines.
Additional cash sources provided by operating activites arose from a decrease of
$624,000 in the Company's mailing supply inventories and deferred promotional
mailing costs compared to an increase of $124,000 during the same period in
1995. This decrease in mailing supply inventories and deferred promotional
mailing costs was due to an increase in customer acquisition mailings that
were necessary to support continued sales growth.
Cash flows used by investing activities totaled $358,000 during the three months
ended March 31, 1996, versus $367,000 for the same period in 1995. The continued
use of cash in investing activities resulted from the purchase of machinery and
equipment for the Company's manufacturing facility and computer equipment and
software for a total cost of $218,000. The Company used $331,000 to purchase
mailing lists and other intangible assets. Finally, the Company generated
$191,000 from sales of 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.
Cash flows generated by financing activities totaled $53,000 as a result
the exercise of stock options that were granted to directors and employees
during 1994, 1993 and 1992.
The Company has a $355,000 revolving line of credit agreement with a bank which
bears interest at 1% over the bank's prime lending rate and expires on May 19,
1996. No amounts were outstanding at December 31, 1995 or March 31, 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. No report on Form 8-K was filed during the quarter
ending March 31, 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: May 12, 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: May 12, 1996
by: /s/ Jeffrey S. Williams
Jeffrey S. Williams, Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<CIK> 0000812788
<NAME> Jeffrey S. Williams
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 957,735
<SECURITIES> 7,680,119
<RECEIVABLES> 695,470
<ALLOWANCES> 45,000
<INVENTORY> 7,958,312
<CURRENT-ASSETS> 11,542,223
<PP&E> 4,453,488
<DEPRECIATION> 1,242,708
<TOTAL-ASSETS> 26,122,181
<CURRENT-LIABILITIES> 5,363,522
<BONDS> 0
0
0
<COMMON> 5,539
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 26,122,181
<SALES> 13,381,956
<TOTAL-REVENUES> 13,541,094
<CGS> 5,939,529
<TOTAL-COSTS> 8,822,837
<OTHER-EXPENSES> 3,384,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,333,839
<INCOME-TAX> 410,749
<INCOME-CONTINUING> 923,090
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,090
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
