SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A - Amendment #1
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported) April 30, 1996
IVC Industries, Inc.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware
----------------------------------------------
(State or Other Jurisdiction of Incorporation)
33-73406 22-1567481
------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
500 Halls Mill Road, Freehold, New Jersey 07728
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(908) 308-3000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
International Vitamin Corporation
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE>
Item 7. Financial Statements and Exhibits
Financial Statements:
On April 30, 1996 Hall Laboratories, Inc. was merged into the
Registrant. Pursuant to the Registrant's Form 8-K dated May 14, 1996, financial
statement information for Hall Laboratories, Inc. and pro forma financial
statements of the Registrant, after giving effect to the merger with Hall
Laboratories, Inc., would be filed under cover of Form 8-K/A no later than July
15, 1996. Such financial statement information and pro forma financial
statements of the Registrant have been included in this Form 8-K/A Amendment #1.
2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Hall Laboratories, Inc.
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Hall
Laboratories, Inc. and its subsidiary, as of January 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the corporation's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
We have conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Hall
Laboratories, Inc., and subsidiary as of January 31, 1996 and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
March 13, 1996
Yergen and Meyer /s/
3
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 31, 1996 and 1995
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 61,338 $ 219,444
Receivables - trade, less allowance for doubtful accounts
of $88,010 in 1996 and $12,388 in 1995 6,658,274 7,112,588
Receivables - current portion of contract receivable 26,973 20,611
Receivables - other 542 1,480
Inventories 7,205,884 7,149,028
Prepaid expenses 663,219 702,860
Refundable income taxes -- 64,013
Deferred income tax benefit 448,305 288,612
------------ ------------
Total Current Assets 15,064,535 15,558,636
------------ ------------
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Machinery and equipment 3,634,320 3,603,743
Office equipment 580,677 738,356
Leasehold improvements 418,888 413,418
Construction in process -- 44,324
------------ ------------
Total Equipment and Leasehold Improvements 4,633,885 4,799,841
Less: Accumulated depreciation and amortization (3,330,344) (3,270,277)
------------ ------------
Net Equipment and Leasehold Improvements 1,303,541 1,529,564
------------ ------------
OTHER ASSETS
Contract and note receivable 892,435 923,457
Cash surrender value of life insurance, net of
policy loans of none in 1996 and $50,437 in 1995 95,876 83,875
Goodwill 12,000 12,000
Prepaid expenses 130,813 127,726
------------ ------------
Total Other Assets 1,131,124 1,147,058
------------ ------------
TOTAL $ 17,499,200 $ 18,235,258
============ ============
</TABLE>
See accompanying notes and auditors' report.
4
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
January 31, 1996 and 1995
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable - bank $ 3,696,670 $ 4,137,463
Current maturities of long-term debt 154,368 228,576
Accounts payable and accrued expenses 7,447,998 7,508,731
Federal and state income taxes payable 127,300 179,541
Current portion of deferred income taxes 5,689 5,773
------------ ------------
Total Current Liabilities 11,432,025 12,060,084
------------ ------------
LONG-TERM LIABILITIES
Long-term debt, net of current maturities 3,204,742 3,569,122
Notes payable - related parties -- 13,629
Deferred income taxes, net of current portion 203,691 209,685
------------ ------------
Total Long-Term Liabilities 3,408,433 3,792,436
------------ ------------
Total Liabilities 14,840,458 15,852,520
------------ ------------
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock - authorized, 100,000 shares of
no par value; issued and outstanding,
22,250 shares in 1996 and 1995 24,704 24,704
Additional paid-in capital 2,868 2,868
Retained earnings 2,805,677 2,518,518
Foreign currency translation adjustment (174,507) (163,352)
------------ ------------
Total Stockholders' Equity 2,658,742 2,382,738
------------ ------------
TOTAL $ 17,499,200 $ 18,235,258
============ ============
</TABLE>
See accompanying notes and auditors' report.
5
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended January 31, 1996 and 1995
- --------------------------------------------------------------------------------
1996 1995
------------ ------------
SALES $ 39,811,360 $ 41,019,156
COST OF SALES 32,747,546 34,543,048
------------ ------------
Gross profit 7,063,814 6,476,108
------------ ------------
EXPENSES
Distribution 1,292,917 1,246,447
Selling 3,263,442 3,001,259
Administrative 1,649,570 1,727,991
------------ ------------
Total Expenses 6,205,929 5,975,697
------------ ------------
OPERATING INCOME 857,885 500,411
------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (540,529) (389,393)
Interest income 83,965 86,486
Life insurance proceeds -- 60,450
Loss on sale of equipment (8,100) --
Miscellaneous income (expense) 85,923 (13,638)
------------ ------------
Total Other Income (Expense) (378,741) (256,095)
------------ ------------
Income Before Provisions for Income taxes 479,144 244,316
Provisions for income taxes 191,985 96,959
------------ ------------
NET INCOME $ 287,159 $ 147,357
============ ============
Net Income Per Share $ 12.91 $ 6.62
============ ============
See accompanying notes and auditors' report.
6
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
For the Years Ended January 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign
Additional Currency
Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment Total
-------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 22,250 $ 24,704 $ 2,868 $ 2,371,161 $ (155,441) $ 2,243,292
Net income - - - 147,357 - 147,357
Foreign currency translation
adjustment - - - - (7,911) (7,911)
-------- -------------- -------------- -------------- -------------- --------------
Balance, January 31, 1995 22,250 24,704 2,868 2,518,518 (163,352) 2,382,738
Net income - - - 287,159 - 287,159
Foreign currency translation
adjustment - - - - (11,155) (11,155)
-------- -------------- -------------- -------------- -------------- --------------
Balance, January 31, 1996 22,250 $ 24,704 $ 2,868 $ 2,805,677 $ (174,507) $ 2,658,742
======== ============== ============== ============== =============== ==============
</TABLE>
See accompanying notes and auditors' report.
7
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 287,159 $ 147,357
------------ ------------
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization 449,711 346,143
Sales of equipment 8,100 --
Changes in assets - (increase) decrease:
Receivables 455,252 (1,892,961)
Inventories (56,856) (661,805)
Prepaid expenses 36,554 (218,748)
Refundable income taxes 64,013 (28,069)
Other assets (12,001) (3,737)
Deferred income tax benefit (165,771) --
Changes in liabilities - increase (decrease):
Accounts payable 6,804 492,375
Accrued expenses (67,537) 87,657
Income taxes payable (52,241) (162,380)
Deferred income taxes -- (79,414)
------------ ------------
Total Adjustments 666,028 (2,120,939)
------------ ------------
Net Cash Provided (used) by Operating Activities $ 953,187 $ (1,973,582)
------------ ------------
</TABLE>
See accompanying notes and auditors' report.
8
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
For the Years Ended January 31, 1996 and 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Foreign currency translation adjustment $ (11,155) $ (7,911)
Capital expenditures (235,788) (826,321)
Net decrease on contract receivable 6,362 20,611
Net decrease on note receivable 18,298 9,434
Life insurance proceeds -- 61,931
Proceeds from sale of equipment 4,000 --
------------ ------------
Net Cash (Used) by Investing Activities (218,283) (742,256)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from line-of-credit 39,687,491 41,097,312
Repayment under line-of-credit (40,141,913) (38,633,588)
Proceeds from long-term debt -- 590,000
Repayment of long-term debt (438,588) (257,316)
------------ ------------
Net Cash Provided (Used) by Financing Activities (893,010) 2,796,408
------------ ------------
NET INCREASE (DECREASE) IN CASH (158,106) 80,570
CASH AT BEGINNING OF YEAR 219,444 138,874
------------ ------------
CASH AT END OF YEAR $ 61,338 $ 219,444
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 541,272 $ 366,538
============ ============
Income taxes $ 345,984 $ 366,809
============ ============
</TABLE>
See accompanying notes and auditors' report.
9
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Hall Laboratories, Inc., an Oregon corporation incorporated on February 7, 1953,
is a manufacturer and wholesaler of vitamins and nutritional supplements to drug
stores, supermarkets, and mass merchandising chains as well as health food and
independent drug stores located primarily in the Western United States and
Canada. Company headquarters are located in Portland, Oregon.
SUBSIDIARY - Hall Laboratories, Ltd. was incorporated as a Canadian corporation
under laws of the Province of British Columbia in 1980. The company is subject
to Canadian income tax laws. This subsidiary is subject to federal and
provincial taxes at rates of 29% and 16%, respectively.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Hall Laboratories, Inc., and its wholly-owned subsidiary, Hall
Laboratories, Ltd. All material intercompany transactions and accounts have been
eliminated.
FOREIGN CURRENCY TRANSLATION - Assets and liabilities of the subsidiary
operating in Canada are translated into U.S. dollars using the exchange rates in
effect at the balance sheet date. Results of operations are translated using the
average exchange rates prevailing throughout the period. The effects of exchange
rate fluctuations on translating foreign currency assets and liabilities into
U.S. dollars are included in stockholders' equity.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS - For purposes of the consolidated statements of cash
flows, the company considers all highly liquid debt instruments with a maturity
of three months or less to be cash equivalents.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost has
been determined under the last-in, first-out (LIFO) method with respect to the
majority of items in inventory, which includes finished products,
work-in-process, raw materials and packaging materials. The cost of the
remainder of the inventory, which includes labor, overhead, and labels, has been
determined using the first-in, first-out (FIFO) method. The LIFO reserve at
January 31, 1996 and 1995 was $631,185 and $1,185,758, respectively. Inventories
at January 31, 1996 and 1995 consist of:
1996 1995
---------- ----------
Finished products $2,843,361 $3,423,737
Raw materials 2,231,745 1,978,708
Packaging materials 223,783 187,224
Labels 518,678 558,645
In process 1,388,317 1,000,714
---------- ----------
Total $7,205,884 $7,149,028
========== ==========
10
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES, continued
EQUIPMENT AND LEASEHOLD IMPROVEMENTS - Equipment and leasehold improvements are
stated at cost. Major expenditures and those which substantially increase useful
lives are capitalized. Maintenance, repairs and minor renewals are charged to
expense when incurred. When equipment is sold or otherwise disposed of, the
asset account and related accumulated depreciation account are relieved, and any
gain or loss is included in the consolidated statement of income.
The cost of equipment is depreciated over the estimated useful lives of the
related assets. Leasehold improvements are amortized over the lesser of the term
of the related lease or the estimated useful lives of the assets.
Depreciation of equipment and amortization of leasehold improvements are
computed on the straight-line method for financial reporting purposes.
INTANGIBLE ASSETS - Intangible assets consist of goodwill acquired upon the
purchase of Perry Medical Products, Inc. during 1990. Goodwill represents the
excess of cost over the fair value of the net assets acquired in the purchase
and is not amortized.
INCOME TAXES - The company's recognition of deferred tax assets and liabilities
is based upon the future tax consequences of events that have been recognized in
the company's financial statements or tax returns. In estimating future tax
consequences, the company considers all expected future events other than
enactments of changes in the tax law or rates.
Deferred income taxes reflect the tax effects of temporary differences in the
reporting of certain items of income and expenses. The differences arises from
several sources. The largest sources are: certain expenses deducted for
financial reporting purposes which are not as yet deductible for tax purposes;
alternate methods of depreciation are used for tax purposes than that used for
financial reporting, as described in the Equipment and Leasehold Improvements
section of this note; the installment method of reporting gain from the sale of
land and building was elected for tax purposes, which for financial reporting
purposes, was recognized in total at the time of sale; and general and
administrative costs capitalized for tax purposes under Code Section 263(a) have
not been capitalized for financial reporting.
The company has recorded a deferred tax asset of $448,305. Although realization
is not assured, management believes it is more likely than not that all the
deferred tax asset will be realized. The amount of the deferred tax asset
considered realizable, however, could be reduced in the near future if facts
surrounding the estimate of the deferred tax asset changes.
Alternative minimum tax and various credits are included in the provision for
income taxes when applicable. Alternative minimum tax and subsequent credits
result from financial and tax differences between reporting of depreciation and
other miscellaneous items.
11
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2 - CONTRACT RECEIVABLE
1996 1995
--------- ---------
Agora Holding Company, monthly payments of $9,052
including interest at 9%, due January 2012, secured
by real property (see Note 10) $ 919,408 $ 944,068
Less: Payments maturing within one year (26,973) (20,611)
--------- ---------
$ 892,435 $ 923,457
========= =========
NOTE 3 - NOTES PAYABLE - BANK
Note payable to bank represents borrowing from United States National Bank of
Oregon under a committed line-of-credit at January 31, 1996 and 1995, with
maximum borrowings of $6,500,000, bearing interest at 1% above the bank's prime
rate, collateralized by accounts receivable, inventory and equipment. The
agreement with the bank requires the company to comply with the following loan
covenants; maintain certain financial ratios, minimum working capital and
restrictions customary in such financing arrangements including limitations on
capital expenditures. The company is not in violation of these covenants.
1996 1995
---------- ----------
Line of credit balance $3,285,313 $2,599,772
Bank overdraft at January 31, covered by line of credit 411,357 1,537,691
---------- ----------
$3,696,670 $4,137,463
========== ==========
Payable by Hall Laboratories, Ltd. - rate of interest is 1% above Canadian prime
and the maximum borrowing is $250,000 Canadian dollars, collateralized by
accounts receivable and inventory. At January 31, 1996 and 1995 the company was
not borrowing on these funds.
12
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following as of January 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Vendor, collateralized by equipment, inventories
and accounts receivable, due May 30, 1997. At
January 31, 1996 and 1995, the interest rate
is the three month LIBOR rate plus 1% $ 2,471,739 $ 2,681,739
An insurance company, monthly payments of $6,274,
including interest at 10%, due December 10, 2003,
secured by first mortgage on land and building owned
by Agora Holding Company (see Note 10) 405,538 438,471
US National Bank, monthly payments of $9,833, plus interest
at 10.65%, due January 28, 2000, collateralized by equipment 481,833 590,000
US National Bank, monthly payments of $7,292, plus
interest at 9%, due January 1, 1996, collateralized by
machinery and equipment -- 87,488
Note payable to officers, with interest at 1% above prime
adjusted monthly (see Note 10) -- 13,629
----------- -----------
3,359,110 3,811,327
Less: Current maturities (154,368) (228,576)
----------- -----------
$ 3,204,742 $ 3,582,751
=========== ===========
</TABLE>
Aggregate maturities of long-term debt for the five years ending after January
31, 1996, are as follows:
Year ending January 31, 1997 $ 154,368
1998 2,629,915
1999 162,384
2000 176,864
2001 54,165
Remainder 181,414
-----------
$ 3,359,110
===========
13
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FEDERAL AND STATE INCOME TAXES
The provisions for income taxes (benefits) consist of the following for the
years ended January 31, 1996 and 1995:
1996 1995
--------- ---------
Current tax expense $ 357,756 $ 176,374
Deferred tax benefit (165,771) (79,415)
--------- ---------
$ 191,985 $ 96,959
========= =========
The differences between the provision for income taxes and income taxes computed
using the federal income tax rate were as follows:
1996 1995
--------- --------
Income taxes computed using statutory rate $ 162,909 $ 83,067
Surtax exemption -- (4,534)
Canadian taxes 78,638 (57,327)
State taxes 25,810 40,465
Effect of Canadian loss not subject to federal income taxes -- 65,496
Effect of Canadian net operating loss carryover (83,027) --
Permanent differences:
Life insurance 1,499 (19,334)
Inventory (15,124) 12,617
Other 21,280 (23,491)
--------- --------
Income tax provision $ 191,985 $ 96,959
========= ========
14
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - FEDERAL AND STATE INCOME TAXES, continued
Deferred tax (benefit) expense, resulting from differences between accounting
for financial statement purposes and accounting for federal and state tax
purposes were as follows for the years ended January 31:
1996 1995
---------- ---------
Expense accruals $(212,300) $(64,999)
Inventory valuation 52,609 8,190
Depreciation (3,490) (25,893)
Installment contract (2,590) 3,287
--------- --------
$(165,771) $(79,415)
========= ========
Deferred income tax assets and liabilities, as of January 31 of each respective
year consist of the following:
1996 1995
--------- ---------
Current assets and (liabilities)
Allowance for doubtful accounts $ 43,781 $ 21,396
Returns reserve 161,033 --
Inventory 17,457 56,144
Accrued expenses 39,542 32,938
Stock appreciation rights 161,918 132,556
Covenant not to compete -- 17,472
Contributions 24,575 28,106
Installment contract (6,254) (5,601)
Depreciation 564 (172)
--------- ---------
$ 442,616 $ 282,839
========= =========
Non-Current asset and (liability)
Installment contract $(205,782) $(209,025)
Depreciation 2,091 (660)
--------- ---------
$(203,691) $(209,685)
========= =========
15
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - CONTINGENCIES
OPERATING LEASE - The company leases certain production equipment and facilities
and warehouse facilities under long-term operating leases. Rent expense
aggregated $511,320 and $512,916 for the years ended January 31, 1996 and 1995,
of which $161,400 represents amounts paid to related parties in each of the
years. The following is a schedule, by years, of future minimum rental payments
required under operating leases that have initial or remaining noncancelable
lease terms in excess of one year including extension renewals as agreed to
subsequent to year end, as of January 31, 1996:
Year ending January 31, 1997 $ 452,867
1998 416,413
1999 414,082
2000 11,950
2001 9,958
-----------
Total Minimum Rental Payments Required $ 1,305,270
===========
LICENSE AGREEMENT - On June 20, 1995, the company entered into a license
agreement with Revlon Consumer Products Corporation to manufacture, merchandise,
promote, advertise, sell and distribute nutritional supplements for women under
the Revlon trademark. Royalty payments are set at a percentage of net sales of
the product with minimum net sales established by the agreement. The license
terminates December 31, 1997, with two (5) year options.
NOTE 7 - PROFIT SHARING PLAN
The company has established a qualified profit sharing plan for all full-time
employees. The annual contribution is at the discretion of the company's board
of directors and is allocated among eligible employees based upon compensation
and years of service. Employees become eligible at the beginning of the plan
year subsequent to one year of employment. Contributions of $42,597 and $40,000
have been made for the years ended January 31, 1996 and 1995, respectively.
NOTE 8 - STOCK APPRECIATION RIGHTS
The company has granted 6,000 stock appreciation rights ("SARs") to certain key
employees. These SARs entitle such employees to the appreciation in the book
value per share of the company, as defined, over the company's initial book
value ("IBV"), ranging from $41.83 to $148.74 per share, at the date of grant.
The SARs agreement contains a provision that in the event the company is sold to
or merged into another company, that the SARs holder are entitled to receive the
difference between the realized value per unit (determined by dividing the
amount realized by the total number of the company's outstanding shares and
SARs) and the IBV of such SARs. At January 31, 1996 and 1995, the SARs liability
was $493,300 and $409,675, respectively, and are included in accounts payable
and accrued expenses of the consolidated balance sheets.
16
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9 - CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the company to credit risk
consist of cash and accounts receivable. Cash balances are within federally
insured limits. The company's receivables are mainly from credit granted to
business customers located within the United States and Canada.
The company sold a substantial portion of its products to two customers. During
the years ended January 31, 1996 and 1995, net sales to customer one were 50.9%
and 45.6%, respectively. Net sales to the other customer during the years ended
January 31, 1996 and 1995, were 11.4% and 13.5%, respectively. At January 31,
1996 and 1995, amounts due from these customers aggregated $4,608,162 and
$4,835,510, respectively.
NOTE 10 - RELATED PARTIES
The company holds a contract receivable from Agora Holding Company, a
partnership consisting of Hall Laboratories, Inc., current and ex-shareholders.
The partnership purchased land and building from the company for $1,125,000 in
1982 (see Note 2). The company held a note payable to an officer, which was paid
off during the year ended January 31, 1996 (see Note 4).
NOTE 11- FOREIGN CURRENCY TRANSACTIONS
Aggregate foreign currency transaction gains (losses) included in the
calculation of net income totaled $47,943 and ($72,027) for the years ended
January 31, 1996 and 1995, respectively.
17
<PAGE>
- --------------------------------------------------------------------------------
HALL LABORATORIES, INC. AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - FOREIGN OPERATIONS
Transfers between geographic areas are accounted for by the accrual basis of
accounting. Operating profit is total revenue less operating expenses. In
computing operating profit, none of the following items have been added or
deducted: interest expense, interest income, life insurance proceeds,
miscellaneous income and expense items and income taxes.
Identifiable assets are those assets of the company that are identified with the
operations in each geographic area.
The company's operations in different geographic areas for the years ended
January 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
Adjustments
United and
States Canada Eliminations Consolidations
----------- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
January 31, 1996:
Sales to unaffiliated customers $33,219,795 $ 6,591,565 $ -- $39,811,360
Transfers between geographic
areas 4,468,716 -- (4,468,716) --
----------- ----------- ---------------- -----------
Total Revenues 37,688,511 6,591,565 (4,468,716) 39,811,360
=========== =========== ================ ===========
Operating Profit 694,343 163,542 -- 857,885
=========== =========== ================ ===========
Identifiable assets at
January 31, 1996 $15,540,849 $ 1,958,351 $ -- $17,499,200
=========== =========== ================ ===========
January 31, 1995:
Sales to unaffiliated customers $34,405,101 $ 6,614,055 $ -- $41,019,156
Transfers between geographic
areas 6,459,653 -- (6,459,653) --
----------- ----------- ---------------- -----------
Total Revenues 40,864,754 6,614,055 (6,459,653) 41,019,156
=========== =========== ================ ===========
Operating Profit 673,643 (173,232) -- 500,411
=========== =========== ================ ===========
Identifiable assets at
January 31, 1995 $17,925,210 $ 3,031,628 $ (2,721,580) $18,235,258
=========== =========== ================ ===========
</TABLE>
NOTE 13 - MERGER
On November 13, 1995 the company executed an agreement and Plan of Merger (the
"Merger"), which was amended and restated as of February 13, 1996, with IVC
Industries, Inc. ("IVC"). IVC is a publicly traded company engaged in
manufacturing, packaging and worldwide sales and distribution of vitamins and
nutritional supplements through drug stores, supermarkets, and mass
merchandising chains as well as health food stores and independent drug stores.
Terms of the agreement call for conversion of all the company's outstanding
equity securities, including stock appreciation rights, into 3,821,363 newly
issued shares of IVC's common stock. The merger will be accounted for as a
pooling of interests.
IVC had net sales of $49 million for the year ended July 31, 1995.
18
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma condensed combined financial
statements give effect to the Merger under the "pooling of interests" method of
accounting. The pro forma financial statements are presented for illustrative
purposes only, and therefore are not necessarily indicative of the operating
results and financial position that might have been achieved had the transaction
occurred as of an earlier date, nor are they necessarily indicative of operating
results and financial position which may occur in the future.
The condensed historical statements of income for periods presented are
derived from the historical financial statements of IVC and Hall, and should be
read in conjunction with their financial statements. The historical financial
statements as of and for the six months ended January 31, 1996 and 1995 and the
twelve months ended July 31, 1995 and 1994 have been prepared in accordance with
generally accepted accounting principles and, in the opinions of IVC's and
Hall's respective managements, include all adjustments necessary for a fair
presentation of financial information for such periods.
A pro forma condensed combined balance sheet is provided as of January
31, 1996 giving effect to the transaction as though it had been consummated on
that date. Pro forma condensed combined income statements are provided for the
six months ended January 31, 1996 and 1995 and the twelve months ended July 31,
1995 and 1994 giving effect to the transaction as though it had occurred at the
beginning of the earliest period presented.
19
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 1996
(In thousands)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------- ----------------------------
IVC Hall Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents ............... $ 249 $ 61 310
Accounts receivable ..................... 8,736 6,686 (3,187) (1) 12,235
Inventories ............................. 16,382 7,206 -- 23,588
Deferred taxes .......................... 1,055 448 (162) (3cii) 1,341
Prepaid expenses and other .............. 1,337 663 -- 2,000
------- -------- -------- --------
Total current assets .................. 27,759 15,064 (3,349) 39,474
Property and equipment, net ............... 15,177 1,304 -- 16,481
Loans receivable - shareholders ........... 503 -- -- 503
Deferred taxes ............................ 85 -- -- 85
Other assets .............................. 584 1,131 -- 1,715
------- -------- -------- --------
$44,108 $ 17,499 $ (3,349) $ 58,258
======= ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings ................... $ -- $ 3,697 $ -- $ 3,697
Current portion of long-term debt ....... 353 154 -- 507
Accounts payable and accrued expenses ... 14,576 7,447 (3,187) (1) 18,279
820 (3ci)
(1,377) (3cii)
Accrued income taxes .................... 205 133 -- 338
------- -------- -------- --------
Total current liabilities ............. 15,134 11,431 (3,744) 22,821
Long-term debt - less current maturities .. 17,850 3,205 -- 21,055
Deferred taxes ............................ -- 204 -- 204
Other ..................................... 98 -- -- 98
------- -------- -------- --------
33,082 14,840 (3,744) 44,178
------- -------- -------- --------
Shareholders' Equity
Common stock ............................ 132 25 (13) (3a) 144
Additional paid-in capital .............. 9,088 3 13 (3bi) 11,324
2,220 (3bii)
Retained earnings ....................... 1,806 2,806 (820) (3ci) 2,787
(1,005) (3cii)
Foreign currency translation ............ -- (175) -- (175)
------- -------- -------- --------
Total shareholders' equity ............ 11,026 2,659 $ 395 14,080
------- -------- -------- --------
$44,108 $ 17,499 $ (3,349) $ 58,258
======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
20
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JANUARY 31, 1996
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------- ----------------------------------
IVC Hall Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales ................................. $ 28,028 $ 22,736 $ (1,556) (1) $ 49,208
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales ......................... 21,237 17,861 (1,556) (1) 37,542
Selling, general and administrative 5,176 3,723 -- 8,899
Merger and integration costs .......... 339 79 (418) (2) --
------------ ------------ ------------ ------------
26,752 21,663 (1,974) 46,441
------------ ------------ ------------ ------------
Income from operations .................... 1,276 1,073 418 2,767
Other (income) expenses, net .............. (66) 182 -- 116
------------ ------------ ------------ ------------
Income before taxes ....................... 1,342 891 418 2,651
Income taxes .............................. 536 377 167 1,080
------------ ------------ ------------ ------------
Income from continuing operations
806 514 251 1,571
Pro forma income tax provision of
American and Hidel .................... -- -- -- --
------------ ------------ ------------ ------------
Pro forma income from continuing
operations ............................ $ 806 $ 514 $ 251 $ 1,571
============ ============ ============ ============
Income per share from
continuing operations ................. $ .06 $ 23.10 $ .09
============ ============ ============
Pro forma income per share from
continuing operations ................. $ .06 $ 23.10 $ .09
============ ============ ============
Weighted average shares ................... 13,370,585 22,250 17,191,948
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
21
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JANUARY 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
---------------------------- ---------------------------
IVC Hall Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C>
Net sales .................................. $ 24,928 $ 22,088 $ -- $ 47,016
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales .......................... 18,904 18,586 -- 37,490
Selling, general and administrative 5,118 3,269 -- 8,387
Merger and integration costs ........... 402 -- -- 402
------------ ------------ ------------ ------------
24,424 21,855 -- 46,279
------------ ------------ ------------ ------------
Income from operations ..................... 504 233 -- 737
Other expenses, net ........................ 176 229 -- 405
------------ ------------ ------------ ------------
Income before taxes ........................ 328 4 -- 332
Income taxes ............................... 30 31 -- 61
------------ ------------ ------------ ------------
Income (loss) from continuing operations
298 (27) -- 271
Pro forma income tax provision of
American and Hidel ..................... 142 -- -- 142
------------ ------------ ------------ ------------
Pro forma income (loss) from continuing
operations ............................. $ 156 $ (27) $ -- $ 129
============ ============ ============ ============
Income (loss) per share from continuing
operations ............................. $ .02 $ (1.21) $ .02
============ ============ ============
Pro forma income (loss) per share from
continuing operations $ .01 $ (1.21) $ .01
============ ============ ============
Weighted average shares .................... 13,387,906 22,250 17,209,269
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JULY 31, 1995
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------- -----------------------------------
IVC Hall Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales .............................. $ 49,260 $ 39,133 $ (87) (1) $ 88,306
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales ........................ 37,482 33,288 (87) (1) 70,683
Selling, general and
administrative
10,009 5,784 -- 15,793
Merger and integration costs ......... 1,533 30 (80) (2) 1,483
------------ ------------ ------------ ------------
49,024 39,102 (167) 87,959
------------ ------------ ------------ ------------
Income from operations ................. 236 31 80 347
Other expenses, net .................... 332 434 -- 766
------------ ------------ ------------ ------------
Income (loss) before taxes ............. (96) (403) 80 (419)
Income taxes (benefit) ................. (895) (164) 32 (1,027)
------------ ------------ ------------ ------------
Income (loss) from continuing
operations
799 (239) 48 608
Pro forma income tax provision of
American and Hidel ................... 434 -- -- 434
------------ ------------ ------------ ------------
Pro forma income (loss) from
continuing operations ................ $ 365 $ (239) $ 48 $ 174
============ ============ ============ ============
Income (loss) per share from
continuing operations ................ $ .06 $ (10.74) $ (.04)
============ ============ ============
Pro forma income (loss) per
share from continuing
operations $ .03 $ (10.74) $ (.01)
============ ============ ============
Weighted average shares ................ 13,382,734 22,250 17,204,097
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
23
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE TWELVE MONTHS ENDED JULY 31, 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Pro Forma
------------------------------ ----------------------------------
IVC Hall Adjustments Combined
--- ---- ----------- --------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 43,521 $ 39,295 $ (103)(1) $ 82,713
------------ ------------ ------------ ------------
Costs and expenses:
Cost of sales .......................... 32,653 32,643 (103)(1) 65,193
Selling, general and administrative 8,737 5,728 -- 14,465
Merger and integration costs ........... 205 -- -- 205
------------ ------------ ------------ ------------
41,595 38,371 (103) 79,863
------------ ------------ ------------ ------------
Income from operations ..................... 1,926 924 -- 2,850
Other expenses, net ........................ 628 122 -- 750
------------ ------------ ------------ ------------
Income before taxes ........................ 1,298 802 -- 2,100
Income taxes ............................... 220 479 -- 699
------------ ------------ ------------ ------------
Income from continuing operations
1,078 323 -- 1,401
Pro forma income tax provision of
American and Hidel ..................... 315 -- -- 315
------------ ------------ ------------ ------------
Pro forma income from continuing
operations ............................. $ 763 $ 323 $ -- $ 1,086
============ ============ ============ ============
Income per share from continuing
operations ............................. $ .09 $ 12.23 $ .09
============ ============ ============
Pro forma income per share from
continuing operations .................. $ .06 $ 12.23 $ .07
============ ============ ============
Weighted average shares .................... 11,997,395 28,250 14,818,758
============ ============ ============
</TABLE>
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
24
<PAGE>
UNAUDITED PRO FORMA PER SHARE DATA
<TABLE>
<CAPTION>
As of or for the
----------------
Six Months Twelve Months
Ended January 31, Ended July 31,
----------------- --------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
IVC Industries, Inc. - Historical:
Book value per share ...................................... $ .83 $ -- $ .77 $ --
Dividends per share (a) ................................... -- -- --
Income per share from continuing operations ............... .06 .02 .06 .09
Pro forma income per share from continuing
operations (c) .......................................... .06 .01 .03 .06
Hall Laboratories, Inc. - Historical:
Book value per share ...................................... $119.50 -- $100.99 --
Dividends per share ....................................... -- -- -- --
Income (loss) per share from continuing
operations .............................................. 23.10 (1.21) (10.74) 14.52
Pro Forma Combined:
Book value per share ...................................... $ .82 -- $ .71 --
Dividends per share (a) ................................... -- -- -- --
Income (loss) per share from continuing
operations .............................................. .09 .02 .04 .09
Pro forma income (loss) per share from continuing
operations (c) .......................................... .09 .01 .01 .07
Hall Laboratories, Inc. - Pro Forma Equivalents (b):
Book value per share ...................................... $140.83 -- $121.94 $ --
Dividends per share ....................................... -- -- -- --
Income (loss) per share from continuing
operations .............................................. 15.46 3.43 6.87 15.46
Pro forma income (loss) per share from
continuing operations (c) ............................... 15.46 1.72 1.72 12.02
</TABLE>
(a) Pro forma dividends per share are assumed to be the same as the historical
dividends of IVC Industries, Inc. IVC Industries, Inc. has historically
paid no dividends (other than S Corporation distributions to American
shareholders and distributions to partners of Hidel prior to the
combination of these entities with IVC) and has no present intentions of
paying dividends in the foreseeable future.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
25
<PAGE>
(b) The equivalent pro forma per share amounts were calculated by multiplying
the pro forma income per share before non-recurring charges or credits
attributable to the Merger and the pro forma book value of IVC by the
exchange ratio so that the per share amounts are equated to the respective
values for one share of Hall. For example, the pro forma equivalent book
value and income per share from continuing operations as of or for the six
months January 31, 1996 were calculated by multiplying pro forma book value
($.82) by 171.7466516 (the "exchange ratio"), income from continuing
operations ($.09) per share by the exchange ratio and pro forma income from
continuing operations ($.09) per share by the exchange ratio.
(c) Pro forma income per share reflects the effects of the pro forma tax
provisions of American and Hidel.
See Notes to Unaudited Pro Forma Condensed Combined Financial Statements.
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
1. Basis of Presentation
The unaudited pro forma condensed combined financial statements are
presented for illustrative purposes only, giving effect to the combination of
IVC and Hall as accounted for using the "pooling of interests" method. The pro
forma condensed combined statements of income, and the historical statements
from which they are derived, present only income from continuing operations and,
therefore, do not include discontinued operations, extraordinary items, and the
cumulative effects of accounting changes.
Because the Merger has not been consummated and transition plans are
currently being developed, transaction costs and nonrecurring costs and expenses
expected to be incurred in connection with the integration of the companies'
business operations can only be estimated at this time. The pro forma condensed
combined statement of income excludes: (i) the positive effects of potential
cost savings which may be achieved upon combining the resources of the
companies; (ii) investment banking, legal and miscellaneous costs relating to
the Merger, currently estimated to be $0.4 million to $0.5 million; and (iii)
other nonrecurring costs and expenses expected to be incurred subsequent to the
Merger including $0.6 million to $0.8 million in connection with the integration
of the companies' operations, and approximately $0.1 million to $0.2 million
related to termination benefits which may be paid to employees.
The pro forma condensed combined balance sheet as of January 31, 1996
includes the impact of all transactions, whether of a recurring or nonrecurring
nature, that can be reasonably estimated and should be reflected as of that
date. Therefore, current liabilities reflects pro forma adjustments of $1.1
million, net of related taxes of $0.3 million, for the minimum of the above
estimated ranges of amounts for transaction, integration and termination costs
related to the Merger. The pro forma condensed combined balance sheet as of
January 31, 1996 also reflects the assumed exercise of the Hall Options.
Pro forma combined weighted average shares reflects the dilutive effect
of the exercise of the Hall Options which are assumed to be exercised at the
beginning of the periods presented. It is also assumed that the proceeds from
the exercise of these options would have been used to purchase shares of IVC
Common Stock at the average market price during the periods presented. The pro
forma condensed combined balance sheet as of January 31, 1996 also reflects
compensation paid to certain Hall employees, who held Stock Appreciation Rights
("SARs"), in the form of 670,055 shares of IVC Common Stock, at an estimated
price per share of $3 5/16, net of the SARs liability of $0.5 million and
related taxes of $0.7 million.
2. Accounting Period
The pro forma periods are dated in terms of IVC's historical financial
reporting periods.
3. Pro Forma Adjustments
The pro forma financial statements have been adjusted for the items set
forth below, the amounts of which are reflected in the adjustment column of the
pro forma financial statements:
(1) Intercompany Transactions - All intercompany transactions have been
eliminated from the pro forma combined operating results and balance sheet.
Eliminations include sales and purchases and amounts due and from the combining
entities.
27
<PAGE>
(2) Selling, General and Administrative Expenses - Merger costs of
approximately $418,000 and $80,000 for the six months ended January 31, 1996 and
the twelve months ended July 31, 1995, respectively, that had been incurred by
the companies have been eliminated from selling, general and administrative
expenses.
(3) Common Shareholders' Equity - Common shareholders' equity as of
January 31, 1996 has been adjusted to reflect the following:
(a) Common stock accounts are adjusted for the assumed issuance of
an aggregate of 3,821,363 shares of IVC Common Stock pursuant to the
Merger Agreement.
(b) Paid-in capital is adjusted for (i) the effects of the
aforementioned issuance of shares of IVC Common Stock having a par
value of $.01 per share in exchange for Hall common stock with no par
value and (ii) compensation paid to certain Hall employees who held
SARs in the form of 670,055 shares of IVC Common Stock, at an estimated
price per share of $3 5/16.
(c) Retained earnings are adjusted for (i) the minimum of the
estimated range of transaction, integration and termination costs of
$1.4 million, net of related taxes of $0.4 million and (ii)
compensation paid to certain Hall employees who held SARs, in the form
of 670,055 shares of IVC Common Stock, at an estimated price per share
of $3 5/16, net of the SARs liability of $0.5 million and related taxes
of $0.7 million.
28
<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 hereunto duly authorized.
IVC Industries, Inc.
--------------------------
(Registrant)
Date July 12, 1996 By /s/ E. Joseph Edell
------------------------- -----------------------
E. Joseph Edell, Chairman and
Chief Executive Officer
Print name and title of the signing officer under his signature.
29
