UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1995
0-6944
(Commission File Number)
RESEARCH INDUSTRIES CORPORATION
(Exact name of registrant as specified in its charter)
UTAH 87-0277827
(State of Incorporation) (IRS Employer
Identification number)
6864 SOUTH 300 WEST, SALT LAKE CITY, UTAH 84047
(Address of registrant's principal executive office)
801-562-0200
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), (2) has been subject to such filing requirements
for the past 90 days. (1) Yes X No (2) Yes X No
--- ----
The number of shares of common stock outstanding as of September 30, 1995 was
9,504,775.
<PAGE>
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 1995 and June 30, 1995
Consolidated Statements of Income and Retained Earnings for the
Three Month Periods Ended September 30, 1995 and 1994
Consolidated Statements of Income and Retained Earnings for the
Three Month Periods Ended September 30, 1995 and 1994
Notes to Consolidated Financial Statements
ITEM 2. Management's Discussion and Analysis
PART II OTHER INFORMATION
Signatures
<PAGE>
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, June 30,
1995 1995
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,739,396 $ 2,093,326
Short-term investments 4,169,398 3,923,055
Accounts receivable 6,578,759 6,118,031
Current portion of notes receivable 4,647,614 3,931,583
Inventories 9,881,336 8,084,838
Prepaid expenses 816,643 1,006,990
Deferred tax asset 393,500 401,300
TOTAL CURRENT ASSETS 29,226,646 25,559,123
LAND HELD FOR RESALE 1,720,025 2,314,924
PROPERTY AND EQUIPMENT 8,459,530 7,949,774
LONG-TERM INVESTMENTS 2,247,230 2,483,277
NOTES RECEIVABLE, less current portion 6,172,524 5,586,078
PATENTS AND LICENSES 2,601,503 2,651,516
$50,427,458 $46,544,692
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,071,032 $ 913,330
Income taxes payable 613,754 103,260
Accrued payroll, commissions and royalties 493,536 746,005
Other accrued expenses 409,472 171,415
Current portion of long-term debt 99,996 99,996
TOTAL CURRENT LIABILITIES 2,687,790 2,034,006
LONG-TERM DEBT, less current portion 147,431 172,430
DEFERRED INCOME TAXES 382,000 485,800
SHAREHOLDERS' EQUITY
Common Stock, par value $.50 per share;
authorized: 20,000,000 shares, issued
9,616,507 shares in September
and 9,407,634 shares in June 4,808,254 4,759,846
Additional paid-in capital 10,748,674 9,391,071
Retained earnings 32,570,196 30,621,604
Treasury stock, at cost (916,887) (920,065)
47,210,237 43,852,456
$50,427,458 $46,544,692
<PAGE>
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
Three Months Ended September 30,
1995 1994
REVENUES
Health care $7,599,971 $6,001,707
Real estate 1,236,789 1,251,970
8,836,760 7,253,677
COSTS AND EXPENSES
Cost of health care sales 2,995,496 2,394,162
Real estate transaction costs 791,158 906,265
Selling, general and administrative 1,773,722 1,564,377
Research and development 421,181 220,769
5,981,557 5,085,573
OPERATING INCOME 2,855,203 2,168,104
OTHER INCOME (EXPENSE)
Interest expense (6,469) (8,962)
Interest income and other 194,858 150,463
188,389 141,501
INCOME BEFORE INCOME TAXES 3,043,592 2,309,605
INCOME TAX EXPENSE 1,095,000 830,000
NET INCOME 1,948,592 1,479,605
Retained earnings at beginning of period 30,621,604 23,176,599
RETAINED EARNINGS AT END OF PERIOD $32,570,196 $24,656,204
PRIMARY EARNINGS PER SHARE $ .20 $ .16
WEIGHTED AVERAGE SHARES OUTSTANDING 9,835,000 9,342,000
FULLY-DILUTED EARNING PER SHARE $ .20 $ .16
FULLY-DILUTED WEIGHTED AVERAGE SHARES
OUTSTANDING 9,870,000 9,418,000
<PAGE>
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended September 30,
1995 1994
OPERATING ACTIVITIES
Net income $1,948,592 $1,479,605
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 319,032 222,033
Deferred income taxes (96,000) (8,000)
Income tax benefit from exercise of
non-qualified stock options 670,506 7,793
Changes in operating assets and
liabilities:
Accounts receivable (460,728) (23,392)
Notes receivable (1,159,543) (1,116,975)
Inventories (1,796,498) (335,296)
Land held for resale 594,899 230,000
Other assets 187,186 (253,878)
Current liabilities 653,784 (678,949)
NET CASH PROVIDED BY OPERATING ACTIVITIES 861,230 (477,059)
INVESTING ACTIVITIES
Net change in investments (10,296) 348,032
Issuance of investment notes receivable (161,436)
Repayment of investment notes receivable 18,502 20,511
Purchase of property and equipment (775,614) (1,205,331)
NET CASH USED IN INVESTING ACTIVITIES (928,844) (836,788)
FINANCING ACTIVITIES
Repayment of long-term debt (24,999) (25,000)
Purchase of treasury stock (338,140)
Reissuance of treasury stock 3,178
Proceeds from the sale of Common Stock 735,505 53,040
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 713,684 (310,100)
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 646,070 (1,623,947)
Cash and Equivalents at Beginning of Period 2,093,326 2,794,092
CASH AND EQUIVALENTS AT END OF PERIOD $2,739,396 $1,170,145
<PAGE>
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The consolidated financial statements of Research Industries Corporation and
its subsidiaries as of September 30, 1995, and for the three month period
then ended, were prepared without audit pursuant to the rules and regulations
of the Securities and Exchange Commission. 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. In the opinion of management, all necessary
adjustments (which are of a normal recurring nature) have been made to the
financial statements to present fairly its financial position, results of
operations and cash flows. The results of operations for the periods
presented are not necessarily indicative of the results for the respective
complete years. The Company has an audited annual report for the three years
ended June 30, 1995. It is suggested that the attached financial statements
be read in conjunction with the annual report and the financial statements and
notes contained therein.
INVENTORIES
September 30, June 30,
1995 1995
Raw materials $4,086,044 $3,574,729
Work-in-process 1,400,253 861,860
Finished goods 4,395,039 3,648,249
$9,881,336 $8,084,838
EARNINGS PER SHARE
Earnings per share of Common Stock are computed on the basis of the weighted
average shares outstanding plus any common stock equivalents which would arise
from the exercise of stock options when material.
STATEMENTS OF CASH FLOWS
Interest paid was approximately $6,000 in fiscal 1996 and $9,000 in fiscal
1995. Income taxes paid were $10,000 and $571,000 for the first three months
of fiscal 1996 and 1995, respectively.
CONTINGENCIES
The Company is a party to certain legal actions which have arisen in the
ordinary course of business. After consultation with legal counsel,
management is of the opinion that there are no pending or threatened legal
matters which will have a material effect on the consolidated financial
position of the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS
CONSOLIDATED OPERATING HIGHLIGHTS
Research Industries Corporation's earnings were $1,948,592 for the first
quarter of fiscal 1996, a 32% increase over net income of $1,479,605 recorded
in the same quarter of the prior year. Earnings per share were $.20 and $.16
for these two periods, respectively. Total revenues increased from $7,253,677
in the first quarter of fiscal 1995 to $8,836,760 in the same quarter of
fiscal 1996, which represents a growth rate of 22%. The total growth rate is
comprised of a 27% increase in health care revenues and a 1% decrease in real
estate revenues over the comparable period in 1995.
Selling, general and administrative expenses (SG&A) for the first quarter of
fiscal 1996 were 23% of health care revenues compared to 26% in 1995. SG&A
has been compared only against health care revenues since there are
substantially no such costs charged against real estate operations and the
nature of real estate sales can result in unusual fluctuations in ratios that
are difficult to understand if SG&A is compared against total revenue The
growth in SG&A of 13% is lower than health care revenue growth for the period
providing positive leverage for the year. The modest growth is reflective of
the Company's desire to maintain its current organizational structure to focus
more of its resources into several significant research and development
projects.
Interest income and other has increased for the first three months of 1996
compared with 1995, reflecting slightly higher interest rates and more
investable assets.
The effective federal and state income tax rate was approximately 36% for
both periods.
HEALTH CARE OPERATIONS
Net health care sales were $7,599,971 in the first quarter of 1996 compared to
$6,001,707 in the same quarter of 1995, which represents a 27% increase.
Medical device and solution sales increased by 34%, proprietary
pharmaceuticals by 28% and sterile solution product sales decreased by 27% for
the quarter. The growth in medical device and solution revenues reflects an
increase in domestic and international open-heart surgeries as well as market
share gains for bypass circuitry cannulae, balloon cardioplegia delivery
catheters, cardiac-assist devices and its new vascular products. Vascular
sales continued to show improvement, but were lower than expectations due to
ongoing vendor quality issues with the IschemiaAlerta Monitor product. These
quality issues and other relationship concerns with Zertl Medical have forced
the Company to initiate litigation aiming at resolution of these concerns.
Also during the quarter, a new line of latex balloons was sourced to
compliment the existing silicone balloon products in our vascular shunt line.
The growth in proprietary pharmaceuticals resulted from more units sold,
particularly to distributors in anticipation of an October 1 price increase.
Sterile solutions sales are directly attributable to OEM customer orders which
have been lower during the current year. The Company has new products in
various stages of development and approval which it believes will contribute
to sales growth in the future. Management also believes that it will continue
to experience growth in the sales of its existing cardiovascular surgical
products.
Although the Company does not have foreign operations, it does sell
worldwide to specialized cardiovascular distributors and other customers in
foreign markets. Foreign sales increased by 52% in the first quarter over the
same quarter of the prior year. These sales represented 23% of sales in the
first quarter of 1996 compared to 20% in 1995.
Gross margins were 61% in the first quarter of fiscal 1996 compared to 60%
for the same quarter in the prior year. Gross margins improved primarily as
a result of cost improvements in the manufacturing processes reducing the
standard cost of certain products as well as from a sales mix that included
higher margin products.
SG&A costs are discussed in the consolidated operating highlights since
direct SG&A costs related to real estate have become insignificant which makes
the allocation of corporate SG&A costs between health care and real estate
rather arbitrary, impractical and difficult for investors to understand.
Management believes the comparison of total SG&A costs provides the investor
with a better understanding of its efforts to control costs and yet provide
the Company with the necessary infrastructure to continue its growth.
The Company continues to invest resources in research and product
development to introduce new products. Royalty costs, which in many respects
represent the cost of acquired research and development technologies, are
recorded as a component of cost of sales. All R&D expenses relate to the
health care segment. These expenditures increased 91% from $220,769 in the
first quarter of 1995 to $421,181 in the first quarter of fiscal 1996. This
increase reflects the Company's preparation for new products, such as
Biofiltera hemocentrator, carotid artery vascular shunts, the ongoing human
clinical trials of its Heparin Removal Device, the Autologous Fibrinogen
Delivery Kit and CirkuitGuarda.
REAL ESTATE OPERATIONS
The Company has a real estate portfolio remaining from its earlier years of
operations. In past years this portfolio was used to help finance the
Company's start-up of health care operations. The Company continues to divest
these assets as reasonable offers are received.
Real estate sales in the first quarter of 1996 include the sale of
industrial land, interest on real estate contracts and revenue from the sale
of the Company's interests in other real estate projects.
Gross margins for real estate were 36% for the first quarter of 1996
compared to 28% for the same period in 1995. The gross margins are reflective
of the Company's cost basis in the specific properties sold and the related
selling prices. The gross margins, therefore, may vary significantly between
specific pieces of property sold.
FINANCIAL CONDITION
The Company's balance sheet continued to improve during the first quarter of
fiscal 1996. The following key measurements are indicative of the excellent
liquidity and strong financial position of the Company:
SEPT.30, June 30,
(In thousands except ratios) 1995 1995
Cash and investments $9,156 $8,500
Working capital 26,539 23,525
Shareholders' equity 47,210 43,852
Current ratio 11:1 13:1
Cash and investments increased from June 30, 1995 as a result of the
Company's operations. Funds used in investing activities were primarily
generated from the sale of common stock though the exercise of stock options.
Accounts receivable increased by approximately $460,728 or 8% from June 30,
1995. This increase is a result of sales during the month of September
generating the higher level of receivables.
Inventories increased by approximately $1,796,000 or 22% from June 30, 1995.
This increase is comprised of higher inventory levels in all components. As
the Company adds new products, its inventory levels increase significantly.
Each new product category adds numerous product codes for various sizes and
configurations of the products. Each of the new product codes must be stocked
in finished goods inventory and raw materials purchased for the appropriate
sizes. Additionally, with the commencement of manufacturing operations to
produce previously purchased catheters, all of the component parts of the
manufactured products must now be carried in inventory. As the Company began
producing the new raw material catheters, it continued purchasing a sufficient
quantity of catheters from its suppliers assuring a continuous flow of
finished goods products through the transition to in-house produced raw
material catheters resulting in a larger than normal supply of raw materials
at year end. Prices for many raw materials used in the process have also
increased from the prior year.
The Company is just completing a $2 million manufacturing facility
remodeling which not only updates its processes for certain currently
manufactured products but also provides additional manufacturing capabilities
for products not now produced in-house.
There have been no other significant changes in capitalization or financial
status during the quarter that are not reflected in the financial statements.
REGULATORY AND COMPETITIVE ENVIRONMENT
Products manufactured or sold by the Company in the United States are
subject to regulation by the Food and Drug Administration ("FDA"), as well as
by other federal and state agencies. The FDA's approval process for new drugs
and devices is complex and often requires long-term and sustained investment
with no reliable basis for predicting the FDA's eventual decision regarding
market approval, nor how long the approval process may continue. The FDA has
the power to seize drugs or devices which it considers to be adulterated or
misbranded or to require the manufacturer to remove them from the market and
the power to publicize relevant facts.
Recent political and regulatory changes and uncertainties relating to the
health care industry may affect both the underlying demand for health care
products and the pricing of such products.
Historically, competition in the health care industry has been characterized
by the search for technological and therapeutic innovations in the treatment,
diagnosis and prevention of disease. The Company believes that it has
benefited from the technological advantages of certain of its products. While
competitors will continue to introduce new products in competition with those
sold by the Company, the Company believes that its research and development
efforts will permit it to remain competitive in the product areas where it now
competes; however, all medical technologies are subject to the unanticipated
risk of technological or scientific progress which may subject the Company's
products, both those already manufactured and those in development, to the
risk of technological obsolescence.
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Incorporated by reference from "Notes to Consolidated Financial
Statements--Contingencies" on page 6 herein.
ITEM 2. CHANGES IN THE RIGHTS OF THE COMPANY'S SECURITY HOLDERS
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Listing of Exhibits
Exhibit 11--Statement Re: Computation of Per Share Earnings
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
RESEARCH INDUSTRIES CORPORATION
/s/ Gary L. Crocker October 27, 1995
Gary L. Crocker, President and Date
Chief Executive Officer
/s/ Mark W. Winn October 27, 1995
Mark W. Winn, Vice President and Date
Chief Financial Officer
/s/ V. Kelly Randall October 27, 1995
V. Kelly Randall, Secretary, Date
EXHIBIT 11
RESEARCH INDUSTRIES CORPORATION AND SUBSIDIARIES
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended September 30,
1995 1994
PRIMARY
Average shares outstanding 9,441,000 9,179,000
Net effect of dilutive stock options based on
treasury stock method using average market price 394,000 163,000
Total 9,835,000 9,342,000
Net income $1,948,592 $1,479,605
Earning per share $.20 $.16
FULLY DILUTED
Average shares outstanding 9,441,000 9,179,000
Net effect of dilutive stock options based on
the treasury stock method using period-end
market price 429,000 239,000
Total 9,870,000 9,418,000
Net income $1,948,592 $1,479,605
Earnings per share $.20 $.16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Research
Industries Corporation Third Quarter 10-Q and is qualified in its entirety by
reference to such 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> SEP-30-1995
<CASH> 2,739,396
<SECURITIES> 4,169,398
<RECEIVABLES> 6,960,123
<ALLOWANCES> (383,000)
<INVENTORY> 9,881,336
<CURRENT-ASSETS> 29,226,646
<PP&E> 11,596,573
<DEPRECIATION> (3,137,043)
<TOTAL-ASSETS> 50,427,458
<CURRENT-LIABILITIES> 2,687,790
<BONDS> 0
<COMMON> 4,808,254
0
0
<OTHER-SE> 42,401,983
<TOTAL-LIABILITY-AND-EQUITY> 50,427,458
<SALES> 8,836,760
<TOTAL-REVENUES> 8,836,760
<CGS> 3,786,654
<TOTAL-COSTS> 5,981,557
<OTHER-EXPENSES> (194,858)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,469
<INCOME-PRETAX> 3,043,592
<INCOME-TAX> 1,095,000
<INCOME-CONTINUING> 1,948,592
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,948,592
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
