U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] Quarterly report under 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 number 0-21116
USANA, INC.
(Exact name of small business issuer as specified in its charter)
Utah 87-0500306
(State or other jurisdiction (I.R.S. Employer )
of incorporation or organization) Identification No.)
4550 South Main Street
Salt Lake City, Utah 84107
(Address of principal executive offices)
(801) 288-2290
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or Section 15(d) of the Exchange Act
during the past 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] or No [ ]
The number of shares outstanding of the Company's common
stock, no par value, as of April 30, 1996 was 6,280,119.
Transitional Small Business Disclosure Format
(Check one) Yes [ ] No [X]
Part I
Financial Information
ITEM 1. FINANCIAL STATEMENTS
The interim (unaudited) financial statements of the
Company for the reporting period and the comparable quarter
for the preceding year are attached to and form a part of this
report. The interim financial statements should be read in
conjunction with the following explanatory notes.
Notes to Financial Statements
Note 1. Presentation of Interim Financial Statements
The interim financial statements presented herein are
unaudited and have been prepared in accordance with generally
accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB. These
statements should be read in conjunction with the financial
statements and notes thereto included in the Company's annual
report on Form 10-KSB for the year ended December 31, 1995.
The accompanying financial statements have not been examined
by independent accountants, but in the opinion of management
such financial statements include all adjustments (consisting
only of normal recurring adjustments) considered necessary to
present fairly the Company's financial position, results of
operations, and cash flows. The results of operations and
cash flows for the three months ended March 31, 1996 may not
be indicative of the results that may be expected for the year
ending December 31, 1996.
Note 2. Property and Equipment
In the early Spring of 1995, as a result of the
considerable growth of the Company, USANA began looking for
larger facilities. Because no suitable leased space could be
located, the Company decided to build its own space, and
subsequently acquired 16 acres of land for its current and
future expansion. Construction was begun in September 1995 on
a 95,000 square-foot building, approximately 30,000 square
feet of warehouse space and 65,000 square feet of office and
clean-room manufacturing space. The construction is expected
to be complete in June 1996 at which time the Company will
move from its current leased facilities into the newly
constructed world headquarters, manufacturing, and
distribution facilities.
The latest estimated cost for the total land, building,
and associated facilities is approximately $6.7 million. The
Company has financed the purchase of the land and construction
costs to-date (approximately $4.5 million) through internally
generated funds and from the sale of 964,377 shares of
restricted stock to Gull Holdings, Ltd., the Company's largest
shareholder, wholly-owned by Dr. Myron Wentz, the Company's
founder.
USANA Inc. has obtained from First Interstate Bank a
commitment to loan up to $5,000,000 construction loan and
permanent financing on the new headquarters land and building.
The construction loan is at a variable interest rate of prime
plus .25%. The construction loan is for one year. First
Interstate Bank has given USANA Inc. a commitment to provide
the Company with permanent financing up to $5,000,000.
Specific rates and terms are yet to be determined.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Three months ended March 31.
Net sales for the three months ended March 31, 1996
totaled $10,750,160, compared to net sales of $3,199,955 for
the same period in 1995. This is an increase of $7,550,205 or
236%. Cost of sales of $815,182 for the three months ended
March 31, 1995 were 25.5% of net sales. Cost of sales of
$2,037,757 for the same period in 1996 represented an
improvement to 19.0% of net sales. The improvement was due
primarily to increased efficiency of operations, resulting
substantially from larger batch sizes made possible by the
significant increase in sales volume.
Distributor incentives of $4,794,435 during the first
three months of 1996 (44.6% of net sales) represented an
increase of $3,440,071 over the $1,354,364 (42.3% of net
sales) paid in the same period in 1995. The increase in the
amount was due to significantly higher sales. The increase as
a percentage of net sales was due to the maturation of the
network marketing distribution system.
Selling, general and administrative expenses (excluding
distributor incentives) during the three months ended March
31, 1996 totaled $1,532,914 or 14.3% of sales, compared to
$590,237 or 18.4% for the same period in 1995. The increase
of 160% in selling, general and administrative expenses was
due primarily to increases in sales and the number of
distributors, which resulted in an increased number of
employees and facilities to service distributors. The
improvement as a percentage of net sales was due largely to
expected economies of scale, partially offset by the effects
of rapid growth. Management expects the dollar amount of
these expenses to increase in line with net sales. However,
the percentage of selling, general and administrative expenses
to net sales will likely continue to decline slightly
throughout 1996.
The Company recognized net income of $1,443.649 during
the three months ended March 31, 1996, compared to $282,764
during the first quarter of 1995. The improvement of 410% was
due principally to increased sales, accompanied by more
efficient use of personnel and other administrative resources.
Net earnings per share during the first quarter of 1996 were
approximately $.23 per share, compared to $.05 per share
during the first three months of 1995.
Liquidity and Capital Resources
At March 31, 1996, current assets of the Company were
approximately $5.3 million and current liabilities were
approximately $3.4 million, resulting in working capital of
$1.9 million, compared to working capital of $1.8 million at
December 31, 1995. The Company's current ratio was 1.57:1 at
March 31, 1996, compared to 1.50:1 at December 31, 1995. The
increases resulted largely from a slight decrease in current
liabilities as increased inventories were offset by decreased
cash balances. Cash totaling $1,195,344 was used to fund the
construction of the Company's new headquarters building.
Other capital expenditures during the first quarter of 1996
required the expenditure of an additional $154,572 of cash.
The Company's total long-term debt of $12,203 consisted
of a lease on computer software.
As a result of the Company's growth in Canada, in
February 1995, the Company established USANA Canada Inc. and
invested Can$100,000 in this wholly-owned subsidiary. Net
sales of USANA Canada were $3.0 million in 1995 and $1.8
million in the first quarter of 1996 (approximately 12.3% and
16.8%, respectively, of consolidated net sales). Net earnings
for the Canadian subsidiary were $27,000 and $78,000 in the
first quarter of 1995 and the first quarter of 1996,
respectively.
The Company believes that existing cash balances of
approximately $2.4 million, together with borrowings and
additional capital sources related to a financing of the
Company's new facilities will be adequate to meet the
Company's anticipated cash requirements through March 31,
1997. However, in the event the Company experiences adverse
operating performance or above anticipated capital expenditure
requirements, additional financing may be required. There can
be no assurance that additional financing, if required, would
be available on favorable terms.
Material Commitments for Capital Expenditures
Estimated remaining costs on the construction of the
Company's new headquarters, manufacturing, and distribution
facilities described earlier are approximately $2.2 million.
A commitment for financing of up to $5.0 million on the
project has been received from First Interstate Bank, as
mentioned above. The Company anticipates finalizing financing
of the project within the next month.
Inflation
Inflation has not had a significant impact on the
Company's operations in the past three years and is not
expected to have a significant impact in the foreseeable
future.
Part II
Other Information
ITEM 1. LEGAL PROCEEDINGS
On March 6, 1996, International Nutrition Company ("INC")
filed a patent infringement action against USANA, and
seventeen other defendants, alleging infringement of U.S.
patent number 4,698,360, which is allegedly owned by INC. The
complaint, filed in the United States District Court for the
District of Connecticut, alleges that USANA's Proflavanol
(copyright) product violates the patent. The complaint seeks
preliminary and permanent injunctions against USANA that would
prohibit further sales of the Proflavanol (copyright) product.
INC also seeks monetary damages, including USANA's profits
realized as a result of the alleged infringement, damages
suffered by INC resulting from the alleged infringement, and
attorneys' fees and costs incurred by INC. USANA will
formally respond to the action on June 4, 1996. Having
conducted a thorough investigation of the patent and the
allegations made in the complaint, however, USANA believes
that its manufacture and sale of the Proflavanol (copyright)
does not infringe any valid claim of the asserted patent.
USANA intends to vigorously defend its right to continue
providing its Proflavanol (copyright) product to its customers
and distributors. There can be no assurance, however, that
USANA will succeed in its defense of this matter.
On March 22, 1996, USANA filed a lawsuit against INC in
the United States District Court for the District of Utah.
This complaint seeks a declaratory judgment that U.S. Patent
No. 4,698,360 is invalid, and that USANA's products do not
infringe any valid claim of the patent.
Other than as described herein, the Company is not a
party to any material litigation or proceedings.
ITEM 2. CHANGES IN SECURITIES
There were no changes in the instruments defining the
rights of holders of any class of registered securities during
the quarter.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults in payments of this type during
the reporting period.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the period covered by this report.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
Exhibit 27 -- Financial Data Schedule
b. Reports on Form 8-K
None.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act,
the registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
USANA, Inc.
By: /s/ David Wentz
------------------------------------
David Wentz, Director
Dated: May 14, 1996
<PAGE>
USANA, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
<TABLE>
<CAPTION>
As of March 31,
----------------------------
1996 1995
------------ -----------
<S> <C> <C>
Assets
- --------------------------------------------
Current assets
Cash $ 2,363,325 $ 888,769
Accounts receivable, less allowance
for doubtful accounts of $2,000
in 1996 and $106,698 in 1995 14 35,874
Inventories 2,681,907 975,824
Prepaid expenses and other assets 72,278
Deferred income taxes 170,059
------------ -----------
Total current assets $ 5,287,583 $ 1,900,467
Property and equipment, at cost
Land $ 1,748,877
Building under construction 2,704,230
Equipment and furniture, net of accumulated
depreciation and amortization of $1,000,909
in 1996 and $849,661 in 1995 1,333,823 $ 830,545
Other assets 363,772 258,079
------------ -----------
Total assets $ 11,438,285 $ 2,989,091
============ ===========
Liabilities and Stocholders' Equity
- --------------------------------------------
Current liabilities:
Accounts payable $ 1,566,889 $ 325,285
Accrued liabilities:
Accrued commissions 442,825 646,148
Sales tax payable 427,448
Income taxes payable 673,670
Other 251,198
Current portion of long-term debt 10,909 10,222
------------ ------------
Total current liabilities $ 3,372,939 $ 981,655
Long-term debt, less current portion $ 1,294 $ 3,140
Deferred income taxes $ 49,160
Stockholders' equity
Common stock, no par value, 50,000,000 shares
authorized, 6,280,119 and 5,315,742 shares
issued and outstanding at March 31, 1996
and 1995, respectively $ 6,004,917 $ 3,473,429
Cumulative foreign currency translation adjustment 12,975
Retained earnings (accumulated deficit) 1,997,000 (1,469,133)
------------ ------------
Total stockholders' equity $ 8,014,892 $ 2,004,296
Total liabilities and shareholders' equity $ 11,438,285 $ 2,989,091
</TABLE>
<PAGE>
USANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Sales $ 10,750,160 $ 3,199,955
Cost of sales 2,037,757 815,182
------------- -------------
Gross profit $ 8,712,403 $ 2,384,773
Expenses
Distributor incentives $ 4,794,435 $ 1,354,364
Selling, general and administrative 1,532,914 590,237
Research and development 127,785 17,938
Subtotal expenses $ 6,455,134 $ 1,962,539
Earnings from operations $ 2,257,269 $ 422,234
Other Income (expense)
Interest income $ 49,834 $ 7,874
Interest expense (385) (344)
Other, net 13,132
------------- -------------
Subtotal other income (expense) $ 62,581 $ 7,530
Earnings before income taxes $ 2,319,850 $ 429,764
Income taxes (876,201) (147,000)
------------- -------------
NET EARNINGS $ 1,443,649 $ 282,764
============= =============
Earnings per common and common equivalent share $ 0.23 $ 0.05
============= =============
Weighted average number of common and
common equivalent shares 6,280,119 5,315,742
============= =============
</TABLE>
<PAGE>
USANA, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------
1996 1995
--------------- --------------
<S> <C> <C>
Increase in cash and cash equivalents
Cash flows from operating activities
Net earnings $ 1,443,649 $ 282,764
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and amortization 135,478 65,488
(Gain) loss on sale of property and equipment (5,784)
Provision for doubtful accounts - 14,389
Deferred income taxes 101 23,000
Changes in assets and liabilities
Receivables 11,232 (17,634)
Inventories (554,183) (88,892)
Prepaid expenses and other assets (123,930) (14,389)
Cash overdraft (275,084)
Accounts payable 356,684 260,871
Accrued liabilities (549,922)
-------------- ------------
Total adjustments $ (730,324) $ (32,251)
-------------- ------------
Net cash provided by operating activities $ 713,325 $ 250,513
-------------- ------------
Cash flows from investing activities
Collection of advances to related parties $ 160,000
Equipment deposits (117,648)
Construction in progress of office building $ (1,195,344)
Purchase of property and equipment (154,572) (48,990)
Proceeds from sale of equipment 9,400
-------------- ------------
Net cash used in investing activities $ (1,340,516) $ (6,638)
Cash flows from financing activities
Payments on long-term debt $ (2,616) $ (2,010)
Effect of exchange rate changes on cash $ 16,726
-------------- ------------
Net increase (decrease) in cash and cash equivalents $ (613,081) $ 241,865
Cash and cash equivalents at beginning of period $ 2,976,406 $ 646,904
Cash and cash equivalents at end of period $ 2,363,325 $ 888,769
============== ============
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE INTERIM
FINANCIAL STATEMENTS OF USANA, INC. FOR THE PERIOD ENDED MARCH 31, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> $2,363,325
<SECURITIES> 0
<RECEIVABLES> $2,014
<ALLOWANCES> $2,000
<INVENTORY> $2,681,907
<CURRENT-ASSETS> $5,287,583
<PP&E> $6,787,839
<DEPRECIATION> $1,000,909
<TOTAL-ASSETS> $11,438,285
<CURRENT-LIABILITIES> $3,372,939
<BONDS> 0
0
0
<COMMON> $6,004,917
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> $11,438,285
<SALES> $10,750,160
<TOTAL-REVENUES> $10,750,160
<CGS> $2,037,757
<TOTAL-COSTS> $2,037,757
<OTHER-EXPENSES> $6,455,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> $384
<INCOME-PRETAX> $2,319,851
<INCOME-TAX> $876,202
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> $1,443,649
<EPS-PRIMARY> $0.23
<EPS-DILUTED> 0
</TABLE>
