FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________________ TO ______________________
COMMISSION FILE NUMBER: 0-22212
IVI PUBLISHING, INC.
(Exact Name of Registrant as
specified in its charter)
MINNESOTA 41-1686038
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7500 FLYING CLOUD DRIVE
MINNEAPOLIS, MINNESOTA 55344-3739
(Address of principal executive offices)
(Zip Code)
612-996-6000
(Registrant's telephone number, including area code)
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 _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
CLASS OUTSTANDING AS OF JULY 31, 1996
COMMON STOCK 7,608,475 SHARES
PAR VALUE $.01 PER SHARE
IVI PUBLISHING, INC.
Securities and Exchange Commission Form 10-Q
for the Second Quarter Ended June 30, 1996
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INDEX
Page
Number
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Condensed Statements of Operations (Unaudited) Three months ended
June 30, 1996 and June 30, 1995; Six months ended
June 30, 1996 and June 30, 1995.................................................... 3
Condensed Balance Sheets June 30, 1996
(Unaudited) and December 31, 1995.................................................. 4
Condensed Statements of Cash Flows
(Unaudited) Six months ended
June 30, 1996 and June 30, 1995.................................................... 5
Notes to Condensed Financial Statements (Unaudited)................................ 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 8-10
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings.................................................................. 11
Item 2. Changes in Securities.............................................................. 11
Item 3. Defaults Upon Senior Securities.................................................... 11
Item 4. Submission of Matters to a Vote of Security Holders................................ 11
Item 5. Other Information.................................................................. 12
Item 6. Exhibits and Reports on Form 8-K................................................... 12
SIGNATURES:...................................................................................... 13
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
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<CAPTION>
IVI PUBLISHING, INC.
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues $ 1,651 $ 2,355 $ 4,754 $ 5,759
Cost of revenues 1,054 1,266 2,435 2,656
------- ------- ------- -------
Gross margin 597 1,089 2,319 3,103
Costs and expenses:
Product development 1,517 1,638 3,036 4,104
Sales and marketing 675 1,624 1,399 4,451
General and administrative 1,115 1,269 2,218 2,624
------- ------- ------- -------
Loss from operations (2,710) (3,442) (4,334) (8,076)
Interest income 57 179 149 407
------- ------- ------- -------
Net loss ($2,653) ($3,263) ($4,185) ($7,669)
======= ======= ======= =======
Net loss per share ($ 0.35) ($ 0.44) ($ 0.55) ($ 1.03)
======= ======= ======= =======
Weighted average number of common
shares outstanding 7,569 7,478 7,580 7,478
======= ======= ======= =======
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See notes to condensed financial statements.
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<CAPTION>
IVI PUBLISHING, INC.
CONDENSED BALANCE SHEETS
(IN THOUSANDS)
June 30 December 31
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,335 $ 7,759
Accounts receivable, net 3,598 3,208
Inventory 482 821
Other current assets 702 446
-------- --------
Total current assets 8,117 12,234
Furniture and equipment 6,726 7,342
Less allowances for depreciation (2,987) (2,524)
-------- --------
3,739 4,818
Long-term receivables and other non-current assets 1,945 1,300
-------- --------
Total assets $ 13,801 $ 18,352
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,513 $ 2,363
Other accrued expenses 460 1,264
-------- --------
Total current liabilities 2,973 3,627
Convertible Redeemable Preferred Stock 1,879 1,845
Shareholders' equity:
Common Stock, $.01 par value:
Issued and outstanding shares-- 7,608 at June 30,
1996 and 7,524 at December 31, 1995 76 75
Paid-in capital 70,530 70,297
Accumulated deficit (61,657) (57,492)
-------- --------
Total shareholders' equity 8,949 12,880
-------- --------
Total liabilities and shareholders' equity $ 13,801 $ 18,352
======== ========
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See notes to condensed financial statements.
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<CAPTION>
IVI PUBLISHING, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
Six Months Ended June 30
------------------------
1996 1995
-------- --------
<S> <C> <C>
Operating activities
Net loss ($ 4,185) ($ 7,669)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 705 679
Changes in assets and liabilities:
(Increase) in net receivables (390) (272)
Decrease (Increase) in inventories 339 (89)
(Increase) in other current assets (256) (17)
(Increase) in other long-term assets (645) (613)
(Decrease) in accounts payable and
accrued liabilites (713) (2,351)
-------- --------
Net cash used in operating activities (5,145) (10,332)
Investing activities
Purchase of short-term investments (4,500)
Maturity of short-term investments 20,000
Gross furniture and equipment additions (173) (525)
Gross furniture and equipment disposals 547
-------- --------
Net cash provided in investing activities 374 14,975
Financing activities
Proceeds from exercised stock options 347
-------- --------
Net cash provided by financing activities 347 --
Net (decrease) increase in cash and cash equivalents (4,424) 4,643
Cash and cash equivalents at beginning of period 7,759 2,823
-------- --------
Cash and cash equivalents at end of period $ 3,335 $ 7,466
======== ========
</TABLE>
See notes to condensed financial statements.
IVI PUBLISHING, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1996
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six month period ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
NOTE B -- PRODUCT DEVELOPMENT COSTS
Product development costs consist principally of compensation to Company
employees, interactive design costs paid to outside consultants, travel and
supplies. All costs are expensed as incurred.
Costs related to research, design and development of products are charged to
product development expenses as incurred. Under Statement of Financial
Accounting Standards No. 86 (SFAS No. 86), software development costs are
capitalized beginning when a product's technological feasibility has been
established and ending when a product is available for general release to
customers. The Company has not capitalized any software development costs since
such costs meeting the requirements of SFAS No. 86 have not been significant.
NOTE C -- NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares of
common stock outstanding. Common equivalent shares from stock options and
warrants are excluded from the computation as their effect is anti-dilutive.
NOTE D -- REVENUE RECOGNITION
The Company's revenues consist of product sales and licensing revenue, contract
development revenue, fees relating to the licensing of its content for use on
cable TV, and fees for online services.
Product sales and licensing revenues are made up of retail distribution sales,
direct mail sales, and product sales and royalties on licenses to original
equipment manufacturers. These revenues are recognized upon shipment of the
product or when the Company's obligations under the licensing agreements are
complete. Allowances for returns are recorded at the time revenue is recognized.
Contract development revenue is generated through the use of the Company's
personnel and facilities for the creation of custom multimedia products. This
revenue is recognized by contract on a percentage-of-completion basis.
Revenues are generated through the licensing of the Company's health and medical
content for use on cable channels. The Company recognizes revenue under its
cable network agreement ratably over the life of the contract.
Revenues are also generated through the Company's online agreement with AT&T.
Revenues generated by the online service are recognized as they are earned.
NOTE E -- SUBSEQUENT EVENT
Effective as of August 1, 1996, Ronald G. Buck resigned as the Chairman of the
Board, and Chief Executive Officer for the Company. Timothy I. Maudlin, a
current Board Member was appointed Chairman, and Joy A. Solomon, the Company's
President, was appointed to the Board of Directors and named Chief Executive
Officer.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net revenues for the second quarter of 1996 were $1,651,000, compared to
$2,355,000 for the second quarter of 1995. For the six months ended June 30,
1996 and 1995, net revenues were $4,754,000 and $5,759,000, respectively.
Net revenues for the second quarter of 1996 and 1995 were comprised as follows:
Second Quarter Second Quarter
1996 1995
---------- ----------
CD-ROM Retail $ 364,000 $ 682,000
CD-ROM OEM and License 426,000 1,191,000
Contract Development 305,000 428,000
Amortization of Cable Royalty 493,000
Other Revenue 63,000 54,000
---------- ----------
Total Net Revenues $1,651,000 $2,355,000
========== ==========
Net revenues for the six months ended June 30, 1996 and June 30, 1995 were
comprised as follows:
Six months Six months
ended June 30 ended June 30
1996 1995
---------- ----------
CD-ROM Retail $ 835,000 $2,227,000
CD-ROM OEM and License 2,164,000 2,267,000
Contract Development 651,000 718,000
Amortization of Cable Royalty 986,000
Glencoe Settlement 400,000
Other Revenue 118,000 147,000
---------- ----------
Total Net Revenues $4,754,000 $5,759,000
========== ==========
The reduction in revenues for the second quarter of 1996 and the six months
ended June 30, 1996, as compared to the respective periods of 1995 was due to a
decrease in CD-ROM retail, OEM and license, and contract development revenues
offset by an increase in cable revenues. The reduction in CD-ROM retail sales
was due to pricing adjustments, as well as increased competition for shelf
space. The decrease in OEM and license sales was due to fewer OEM contracts
during the period. Cable revenues increased as a result of the cable television
license agreement with AHN which generated $493,000 of royalty revenue for both
the first and second quarter of 1996.
Gross margins as a percentage of net revenues for the second quarter and six
months ended June 30, 1996, were 36% and 49%, respectively, compared to 46% and
54% for the comparable periods of 1995. Price reductions on certain CD-ROM
titles in the retail market as well as lower OEM sales, which typically generate
higher gross margins, have both adversely affected the overall gross margins.
Product development expenses were $1,517,000 and $3,036,000 for the second
quarter and six months ended June 30, 1996, respectively, compared to $1,638,000
and $4,104,000 for the comparable periods of 1995. The decrease was due to the
Company's efforts to streamline costs as well as fewer CD-ROM titles being
developed. The Company's strategy is to concentrate its development efforts on
cable television and online content, as well as updating its family reference
CD-ROM titles and generating contract development work. It is anticipated that
product development costs will continue to decline as this strategy is further
implemented.
Sales and marketing expenses for the second quarter and six months ended June
30, 1996 were $675,000 and $1,399,000, respectively, as compared to $1,624,000
and $4,451,000 for the comparable periods of 1995. The decrease was due to fewer
new products being introduced in 1996 and the delegation of retail product
distribution to Davidson and Associates, Inc. in the third quarter of 1995. The
relationship with Davidson allowed the Company to reduce its sales staff and
related support functions.
General and administrative expenses decreased in the second quarter of 1996 to
$1,115,000, as compared to $1,269,000 for the second quarter of 1995. Also,
these expenses decreased for the six month period ended June 30, to $2,218,000
in 1996, as compared to $2,624,000 in 1995. This reduction was the result of
management's efforts to reduce operating costs. The Company has experienced an
off-setting increase in general and administrative expenses in the second
quarter of 1996, due primarily to legal costs in connection with the T. Randal
law suit commenced against the Company in the first quarter of 1996.
Net interest income was $57,000 and $149,000 for the second quarter and six
months ended June 30, 1996, compared to $179,000 and $407,000 for the comparable
periods of 1995. The decrease in net interest income resulted from having less
cash available for investing purposes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Capital asset expenditures for the six month period ended June 30, 1996 totaled
$173,000 and consisted principally of computer and studio equipment. The Company
also recorded the last two of six quarterly installment payments in 1996
totaling $650,000 to Time Life for the development of the print version of
Taking Control of Your Health, a home health reference series that will provide
in depth information for a comprehensive listing of ailments, treatments and
medicines.
At June 30, 1996, the Company had cash and cash equivalents totaling $3,335,000.
Total cash used during the six months ended June 30, 1996 was $4,424,000. In
order to continue its operations, the Company believes that it will likely
require additional debt or equity financing prior to the end of the current
calendar year. There is no assurance that such financing would be available or,
if available, whether the financial terms would be reasonable. An equity
financing of any kind is likely to be significantly dilutive.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information under the caption "Legal Proceedings" in the Company's 1995 10-K
is incorporated herein by reference. Additionally, during the second quarter, a
law suit was initiated by the Company against Virdis, Inc. for compensation for
certain equipment leased to Virdis, which was neither paid for nor returned to
the Company. Virdis responded with a counter-suit making various allegations
against the Company, including breach of contract and of an alleged oral
agreement, and seeking an award of damages, including punitive damages. Counsel
for the Company has advised management that, based on its preliminary
investigation, the counter-suit appears to be without merit, but that the matter
is only in the very early stages of the litigation process.
ITEM 2. CHANGES IN SECURITIES
During the period covered by this Report, the constituent instruments defining
the rights of the holders of the common stock were not materially modified, nor
were the rights evidenced by the common stock materially limited or qualified by
the issuance or modification of any other class of securities.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
During the period covered by this Report, there has been no material default
with respect to any indebtedness of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
IVI Publishing, Inc. held its 1996 Annual Shareholders Meeting on May 23, 1996.
The following items were voted on and adopted:
1) To set the Board of Directors at five (5) directors.
For 5,965,121 Against 14,650 Abstentions 8,080 Non-votes 1,555,679
2) To elect the Board of Directors consisting of five (5) directors.
The following results were the same for each director.
For 5,934,331 Against 53,520 Abstentions 0 Non-votes 1,555,679
3) To ratify the appointment of Ernst & Young as the independent auditors
for the Company for the year 1996.
For 5,963,400 Against 15,271 Abstentions 9,180 Non-votes 1,555,679
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
(11) Computation of per share loss.
(27) Financial Data Schedule
(b) None
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.
IVI PUBLISHING, INC.
By
-------------------------------------
Charles A. Nickoloff
Vice President and
Chief Financial Officer
Date: August 8, 1996
EXHIBIT 11 - STATEMENT RE: COMPUTATION OF PER SHARE LOSS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
Three Months Ended June 30 Six Months Ended June 30
------------------------- ------------------------
1996 1995 1996 1995
------- ------- ------- ---------
Average common shares 7,569 7,478 7,580 7,478
Net loss ($2,653) ($3,263) ($4,185) ($ 7,669)
------- ------- ------- ---------
Net loss per share ($ 0.35) ($ 0.44) ($ 0.55) ($ 1.03)
======= ======= ======= =========
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,335
<SECURITIES> 0
<RECEIVABLES> 3,598
<ALLOWANCES> 0
<INVENTORY> 482
<CURRENT-ASSETS> 702
<PP&E> 6,726
<DEPRECIATION> 2,987
<TOTAL-ASSETS> 13,801
<CURRENT-LIABILITIES> 2,973
<BONDS> 0
0
0
<COMMON> 76
<OTHER-SE> 8,873
<TOTAL-LIABILITY-AND-EQUITY> 13,801
<SALES> 1,651
<TOTAL-REVENUES> 1,651
<CGS> 1,054
<TOTAL-COSTS> 1,054
<OTHER-EXPENSES> 3,307
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,653)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,653)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,653)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
