SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended April 30, 1996
TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 33-73406.
---------
IVC INDUSTRIES, INC.
--------------------
(exact name of small business issuer as specified in its charter)
DELAWARE 22-1567481
------------------------------ -------------------
(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
500 HALLS MILL ROAD, FREEHOLD, NEW JERSEY 07728
----------------------------------------- -----------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (908) 308-3000
--------------
INTERNATIONAL VITAMIN CORPORATION
---------------------------------
(former name, address and fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 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 No
--- ---
Registrant had 17,094,742 shares of common stock outstanding as of June 13,
1996.
<PAGE>
IVC INDUSTRIES, INC.
--------------------
Table of Contents
-----------------
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 1996 and July 31, 1995............................... 1
Consolidated Statements of Operations
For the Three and Nine Months Ended April 30, 1996
and 1995..................................................... 2
Consolidated Statements of Cash Flows
For the Nine Months Ended April 30, 1996 and 1995.............. 3
Notes To Consolidated Financial Statements..................... 4
Item 2. Management's Discussion and Analysis or Plan
of Operation................................................. 6
Part II. Other Information.............................................. 9
Signature Page........................................................... 11
<PAGE>
Item 1. Financial Statements.
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS AT
(Dollars in Thousands, Except Per Share Information)
(unaudited)
--------------------------
April 30, July 31,
1996 1995
-------- --------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 399 $ 528
Accounts receivable 12,649 8,132
Inventories 24,532 18,662
Refundable and deferred taxes 2,043 1,444
Prepaid expenses and other current assets 2,419 2,103
-------- --------
Total Current Assets 42,042 30,869
Property and Equipment - Net 16,267 16,436
Other Assets 2,690 2,438
-------- --------
Total Assets $ 60,999 $ 49,743
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Note payable $ -- $ 2,831
Current portion of long term debt 350 786
Accounts payable and accrued expenses 21,463 13,532
Accrued income taxes -- 64
-------- --------
Total Current Liabilities 21,813 17,213
Long Term Debt - Less Current Portion 24,358 20,105
Deferred taxes 204 215
Other 98 98
-------- --------
Total Liabilities 46,473 37,631
-------- --------
Shareholders' Equity:
Preferred stock, no par, 2,000,000 shares
authorized -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 17,094,742 and 17,078,742 issued and
outstanding, respectively 171 171
Additional paid-in capital 11,322 9,078
Foreign currency translation adjustment (156) (262)
Retained earnings 3,189 3,125
-------- --------
Total Shareholders' Equity 14,526 12,112
-------- --------
Total Liabilities and Shareholders' Equity $ 60,999 $ 49,743
======== ========
See accompanying notes to consolidated financial statements.
1
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(Dollars in Thousands, Except Per Share Information)
(unaudited)
--------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended April 30, Ended April 30,
--------------- ---------------
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 27,672 $ 21,547 $ 76,880 $ 68,563
Cost of sales 20,313 17,101 57,856 54,591
------------ ------------ ------------ ------------
Gross profit 7,359 4,446 19,024 13,972
Selling, general and administrative expenses 6,134 4,037 15,033 12,424
------------ ------------ ------------ ------------
Income before items shown below 1,225 409 3,991 1,548
Merger and integration costs 2,965 193 3,382 596
------------ ------------ ------------ ------------
Income (loss) from operations (1,740) 216 609 952
Other expenses - net 277 204 393 608
------------ ------------ ------------ ------------
Income (loss) before income taxes (2,017) 12 216 344
Income tax provision (benefit) (761) 36 152 97
------------ ------------ ------------ ------------
Net income (loss) $ (1,256) $ (24) $ 64 $ 247
============ ============ ============ ============
Net income (loss) per share $ (0.07) $ 0.00 $ 0.00 $ 0.01
============ ============ ============ ============
Weighted average shares 17,219,208 17,199,540 17,218,687 17,205,384
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(Dollars in Thousands)
(unaudited)
--------------------------
1996 1995
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64 $ 247
-------- --------
Adjustments to reconcile net income to net cash (used
in) operating activities:
Depreciation and amortization 1,109 796
Deferred income taxes (11) 298
Conversion of stock appreciation rights to common
stock 1,750 --
Gain on sale of assets (225) --
Changes in assets - (increase) decrease:
Accounts receivable (4,517) (3,520)
Inventories (5,870) (85)
Refundable and deferred taxes (599) (191)
Prepaid expenses and other current assets (316) 206
Other assets (252) 408
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses 8,401 4,855
Income taxes payable (64) (81)
Other -- (86)
-------- --------
Total adjustments (594) 2,600
-------- --------
Net Cash Provided (Used) By Operating Activities (530) 2,847
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Foreign currency translation adjustment 106 9
Additions to property and equipment (1,155) (5,772)
Proceeds from sale of assets 440 --
Restricted cash and cash equivalents -- 2,538
-------- --------
Net Cash (Used) By Investment Activities (609) (3,225)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to American shareholders and Hidel -- (1,335)
partners
Net proceeds from demand notes payable - bank -- 272
Proceeds from notes payable - banks 57,443 35,487
Principal payments on notes payable - banks (57,157) (35,322)
Principal payments on long term debt 12,500 680
Proceeds from long term debt (11,800) (858)
Proceeds from exercise of stock options 24 --
-------- --------
Net Cash Provided (Used) By Financing Activities 1,010 (1,076)
-------- --------
NET INCREASE (DECREASE) IN CASH (129) (1,454)
CASH AND CASH EQUIVALENTS - BEGINNING 528 2,190
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 399 $ 736
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,241 $ 1,198
======== ========
Taxes $ 835 $ 207
======== ========
See accompanying notes to consolidated financial statements.
3
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------
Note 1 - Basis of Presentation and Other Matters:
- ---------------------------------------------------
On March 19, 1996 the Company changed its name from International Vitamin
Corporation to IVC Industries, Inc.
The accompanying unaudited consolidated financial statements, which are for
interim periods, do not include all disclosures provided in the annual
consolidated financial statements and reflect the retroactive business
combinations, accounted for as pooling of interests, of Hall Laboratories, Inc.
("Hall") on April 30, 1996 and of American Vitamin Products, Inc. ("American")
and Hidel Partners ("Hidel") on May 5, 1995. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the IVC Industries,
Inc. (the "Company") Annual Report on Form 10-KSB for the year ended July 31,
1995, as filed with the Securities and Exchange Commission. The July 31, 1995
balance sheet was derived from audited financial statements, but does not
include all disclosures required by generally accepted accounting principles.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the full year.
Certain amounts have been reclassified to conform with current period
presentation.
Note 2 - Inventories:
- -----------------------
Inventories consist of the following:
April 30, July 31,
1996 1995
--------- ---------
(dollars in thousands)
Finished Goods $ 8,329 $ 7,531
Bulk 6,062 4,872
Work in Process 1,619 1,347
Raw Materials 6,744 3,238
Packaging Components 1,778 1,674
--------- ---------
Total Inventory $ 24,532 $ 18,662
========= =========
4
<PAGE>
Note 3 - Events Acted Upon at Annual Meeting of Shareholders
- ------------------------------------------------------------
At the annual meeting of shareholders held on March 15, 1996, the
shareholders voted to (i) approve the merger of Hall into the Company, (ii)
approve the Company's 1995 Stock Option Plan, (iii) approve a change in the
Company's name to IVC Industries, Inc., and (iv) elect the Board of Directors.
Note 4 - Merger with Hall Laboratories, Inc.
- --------------------------------------------
On April 30, 1996, Hall, an Oregon corporation engaged in the
manufacturing, packaging, sales and distribution of vitamins and nutritional
supplements primarily on the West Coast, was merged with and into the Company
(the "Merger"). Pursuant to the merger agreement executed in connection
therewith, all of the outstanding equity shares of Hall, including Hall's SARs
(Stock Appreciation Rights), were exchanged for 3,821,363 shares of the Company
common stock. In the nine months ended April 30, 1996, the Company recorded
$3,382,000 of merger and integration costs, including $1,750,000 relating to the
discharging of the obligations relative to Hall's SARs through the issuance of
the Company's common stock.
Note 5 - New Financing Package
- ------------------------------
In connection with the Merger, the Company entered into a $26.5 million
credit facility with The Chase Manhattan Bank (National Association) (the
"Bank"), pursuant to which the Bank was granted certain security interests in
the Company's assets. This financing facility provides for a $21.5 million
revolving line of credit expiring on March 31, 1999 and a $5.0 million letter of
credit relating to the Company's obligations in connection with its 1995 New
Jersey Economic Development Authority tax exempt bond issue. This new financing
facility replaced the Company's and Hall's previous banking facilities.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Three Months Ended April 30, 1996 Compared to the Three Months Ended April 30,
1995
Net Sales. Net sales for the three months ended April 30, 1996 increased
28.4% to $27.7 million, which is an increase of $6.1 million over the $21.5
million for the three months ended April 30, 1995. The increase is attributable
to the initial shipments of the new Revlon product line, initial operations of
Intergel (the Company's soft gelatin encapsulation division) and increased unit
sales and new product introductions in the Company's core business operations.
Cost and Expenses. Cost of sales for the three months ended April 30, 1996
increased 18.8% to $20.3 million, which is an increase of $3.2 million over the
$17.1 million for the three months ended April 30, 1995. Overall gross profit
margins increased by approximately 6%, as a percentage of net sales, due to
lower acquisition costs of certain raw materials attributable to the increased
purchasing power of the Company resulting from the recent merger with Hall,
improved utilization of capacities of the Company's facilities and improvement
in the sales mix towards higher margin branded/licensed product lines, primarily
resulting from the initial shipments of the new Revlon product line. Partially
offsetting these factors was the negative impact of the initial operations of
Intergel, which had not yet reached break-even levels of operations.
Selling, general and administrative expenses for the three months ended
April 30, 1996 increased 51.9% to $6.1 million, which is an increase of $2.1
million over the $4.0 million for the three months ended April 30, 1995. This
increase is attributable to higher advertising and promotional activities
relative to the Company's core business operations, selling and advertising
costs relative to the introduction of the new Revlon line, the initial
operations of the Company's Intergel division and increased distribution costs
associated with the increased overall sales activities.
Merger Costs. Merger costs for the three months ended April 30, 1996 were
$2.965 million and represent costs associated with the Hall merger, including
$1.750 million relating to discharging of the obligations relative to Hall's
SARs (Stock Appreciation Rights). Merger costs for the three months ended April
30, 1995 were $193,000 and represented transaction costs associated with the
merger with American and the acquisition of Hidel.
Other Expenses - Net. The $73,000 increase in other expenses - net for the
three months ended April 30, 1996 is principally attributable to the expensing
of interest costs relative to the Intergel division's initial operations.
Income Taxes. Income taxes generally reflect the effect of statutory
federal and state income tax rates and certain non-deductible expenses.
6
<PAGE>
Nine Months Ended April 30, 1996 Compared to the Nine Months Ended April 30,
1995
Net Sales. Net sales for the nine months ended April 30, 1996 increased
12.1% to $76.9 million, which is an increase of $8.3 million over the $68.6
million for the nine months ended April 30, 1995. This increase is attributable
to increased unit sales and new product introductions in the Company's core
business operations, as well as to the initial shipments of the new Revlon
product line during the third quarter and initial operations of Intergel (which
commenced in January 1996).
Cost and Expenses. Cost of sales for the nine months ended April 30, 1996
increased 6.0% to $57.9 million, which is an increase of $3.3 million over the
$54.6 million for the nine months ended April 30, 1995. Overall gross profit
margins increased by approximately 4.4%, as a percentage of net sales, due to
lower acquisition costs of certain raw materials attributable to the increased
purchasing power of the Company relating to the recent merger with Hall,
improved capacity utilization and increased sales levels of higher margin
branded/licensed product lines. Partially offsetting these factors was the
impact of the Intergel division's operations.
Selling, general and administrative expenses for the nine months ended
April 30, 1996 increased 8.2% to $15.0 million, which is an increase of $2.6
million over the $12.4 million for the nine months ended April 30, 1995. This
increase is principally due to higher advertising and promotional activity, as
well as increased distribution costs relative to the Company's core business
operations, selling and advertising costs relative to the introduction of the
new Revlon line, the initial operations of the Company's Intergel division and
increased distribution costs associated with the increased overall sales
activities.
Merger Costs. Merger costs for the nine months ended April 30, 1996 were
$3.382 million and represent costs associated with the Hall merger, including
$1.750 million relating to discharging of the obligations relative to Hall's
SARs (Stock Appreciation Rights) in the third quarter. Merger costs for the nine
months ended April 30, 1995 were $596,000 and represented transaction costs
associated with the merger with American and the acquisition of Hidel.
Other Expenses - Net. Other expenses - net decreased by $215,000 primarily
as a result of a gain on sale of the Company's contract manufacturing division
recorded in the second quarter of fiscal 1996 and lower interest rates
associated with new financing facilities with its lenders. Offsetting these
factors, in part, was higher outstanding borrowings relative to the Company's
increased level of activity and initial operations of the Intergel division.
Income Taxes. Income taxes generally reflect the effect of statutory
federal and state income tax rates and certain non-deductible expenses.
7
<PAGE>
Liquidity and Capital Resources
As the Company's business has grown its working capital needs, primarily
related to accounts receivable, inventory, startup of the Intergel division,
introduction and launch of the Revlon product line, higher levels of capital
expenditures and costs associated with securing long-term sales contracts, have
been satisfied by cash flow generated from operations and bank borrowings.
Cash flow used by operations for the nine months ended April 30, 1996 was
$0.5 million. Accounts receivable at April 30, 1996 increased by $4.5 million
from July 31, 1995. This is primarily attributable to the increase in sales,
including the Revlon launch and initial sales of the Intergel division.
Inventories and accounts payable and accrued expenses increased by $5.9
million and $8.4 million, respectively, during the nine months ended April 30,
1996. These increases are principally the result of purchases relative to the
start-up of Intergel, higher levels of inventory to support the increase in
sales and new product introductions, including the Revlon product line.
The Company maintains a revolving line of credit facility with its bank
that provides for maximum borrowings of $21.5 million. This facility requires
interest payments at LIBOR, plus 2.25% (7.69% at April 30, 1996). Borrowings
under this facility are collateralized by substantially all the assets of the
Company. This line of credit facility expires March 31, 1999. At July 31, 1995,
the Company had maintained a term loan in the amount of $5.0 million, which was
retired in October 1995 with the proceeds of a New Jersey Economic Development
Authority tax exempt bond issue. Interest on these bonds is payable based upon
the weekly tax-free floating rate. The bond calls for interest only through
April 1997, and then are payable annually over seven years, maturing in May
2003. In connection with this bond issue, the Company is required to maintain a
letter of credit from a bank in an amount equal to the outstanding principal
balance. The bonds are collateralized by certain machinery and equipment.
8
<PAGE>
Part II. Other Information
Item 1. - Legal Proceedings
Not applicable
Item 2. - Changes in Securities
Not applicable
Item 3. - Defaults upon Senior Securities
Not applicable
Item 4. - Submission of Matters to a Vote of Security Holders
At the Registrant's Annual Meeting of Shareholders held on March 15,
1996 the Shareholders were asked to vote on (i) the merger of Hall
Laboratories, Inc., (ii) the Registrant's 1995 Stock Option Plan, (iii) a
change in the Registrant's name, and (iv) the election of directors of the
Registrant to serve for the ensuing year.
The results of the voting were as follows:
<TABLE>
<CAPTION>
Against/ Broker
For Withheld Abstentions Non-Votes
---------- -------- ----------- ---------
<S> <C> <C> <C> <C>
(i) The Merger 10,623,293 3,000 4,000 11,350
(ii) 1995 Stock Option Plan 10,614,063 25,700 1,880 N/A
(iii) Change of Name 10,625,963 15,680 - N/A
(iv) Election of Directors:
E. Joseph Edell 10,638,643 3,000 - N/A
Arthur S. Edell 10,638,643 3,000 - N/A
I. Alan Hirschfeld 10,638,643 3,000 - N/A
Theodore Sall 10,638,643 3,000 - N/A
Andrew M. Pinkowski 10,638,643 3,000 - N/A
Mac Allen Culver III 10,638,643 3,000 - N/A
Dennis E. Groat 10,638,643 3,000 - N/A
</TABLE>
Item 5. - Other Information
Not applicable
9
<PAGE>
Item 6. - Exhibits and Reports on Form 8-K
Exhibits:
Not Applicable
Reports on Form 8-K:
On May 14, 1996 the Registrant filed its Form 8-K reporting that
on April 30, 1996 (i) Hall Laboratories, Inc. had merged into the
Registrant and (ii) the Registrant had entered into a $26.5 million
credit facility with The Chase Manhattan Bank (National Association).
10
<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.
Dated: June 13, 1996 By: /s/ E. Joseph Edell
---------------------------- --------------------------
Chairman of the Board and
Chief Executive Officer
Dated: June 13, 1996 By: /s/ Sheldon Drucker
---------------------------- --------------------------
Chief Financial Officer and
Chief Accounting Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> APR-30-1996
<CASH> 399
<SECURITIES> 0
<RECEIVABLES> 12,649
<ALLOWANCES> 0
<INVENTORY> 24,532
<CURRENT-ASSETS> 42,042
<PP&E> 25,476
<DEPRECIATION> 9,209
<TOTAL-ASSETS> 60,999
<CURRENT-LIABILITIES> 21,813
<BONDS> 24,358
0
0
<COMMON> 171
<OTHER-SE> 14,355
<TOTAL-LIABILITY-AND-EQUITY> 60,999
<SALES> 76,880
<TOTAL-REVENUES> 76,880
<CGS> 57,856
<TOTAL-COSTS> 57,856
<OTHER-EXPENSES> 393
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 216
<INCOME-TAX> 152
<INCOME-CONTINUING> 64
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64
<EPS-PRIMARY> .00
<EPS-DILUTED> .00
</TABLE>
