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, 1997
|_| 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 (732) 308-3000
NOT APPLICABLE
--------------
(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 6, 1997.
<PAGE>
IVC INDUSTRIES, INC.
Table of Contents
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
April 30, 1997 and July 31, 1996................................1
Consolidated Statements of Operations
For the Three and Nine Months Ended April 30, 1997 and 1996.....2
Consolidated Statements of Cash Flows
For the Nine Months Ended April 30, 1997 and 1996...............3
Notes To Consolidated Financial Statements......................4
Item 2. Management's Discussion and Analysis or
Plan of Operation. .............................................6
Part II. Other Information..............................................10
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)
--------------------
April 30, July 31,
1997 1996
--------- --------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 1,021 $ 420
Accounts receivable 11,426 14,947
Inventories 28,781 26,045
Deferred taxes 1,755 1,755
Prepaid expenses and other current assets 2,702 1,864
-------- --------
Total Current Assets 45,685 45,031
Property and Equipment - Net 17,681 18,071
Deferred Taxes 105 105
Other Assets 3,856 2,908
-------- --------
Total Assets $ 67,327 $ 66,115
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long term debt $ 1,434 $ 1,070
Accounts payable and accrued expenses 22,654 21,249
-------- --------
Total Current Liabilities 24,088 22,319
Long Term Debt - Less Current Portion 26,430 28,656
Other 195 99
-------- --------
Total Liabilities 50,713 51,074
-------- --------
Shareholders' Equity:
Preferred stock, no par value, 2,000,000
shares authorized, none issued -- --
Common stock, $.01 par value, 25,000,000
shares authorized; 17,094,742 issued and
outstanding 171 171
Common stock in treasury, 12,000 shares at cost (18) --
Additional paid-in capital 11,345 11,345
Foreign currency translation adjustment (108) (99)
Retained earnings 5,224 3,624
-------- --------
Total Shareholders' Equity 16,614 15,041
-------- --------
Total Liabilities and Shareholders' Equity $ 67,327 $ 66,115
======== ========
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, 1997 AND 1996
(Dollars in Thousands, Except Per Share Information)
(unaudited)
--------------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended April 30, Ended April 30,
--------------- ---------------
1997 1996 1997 1996
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 25,381 $ 27,672 $ 84,211 $ 76,880
Cost of sales 18,392 20,313 62,825 57,856
----------- ------------ ----------- -----------
Gross profit 6,989 7,359 21,386 19,024
Selling, general and administrative expenses 5,898 6,134 17,683 15,033
Merger and integration costs -- 2,965 -- 3,382
----------- ------------ ----------- -----------
Income (loss) from operations 1,091 (1,740) 3,703 609
Other expenses - net 429 277 938 393
----------- ------------ ----------- -----------
Income (loss) before income taxes 662 (2,017) 2,765 216
Income tax provision (benefit) 325 (761) 1,165 152
----------- ------------ ----------- -----------
Net income (loss) $ 337 $ (1,256) $ 1,600 $ 64
=========== ============ =========== ===========
Net income (loss) per share $ .02 $ (0.07) $ .09 $ 0.00
=========== ============ =========== ===========
Weighted average shares 17,130,469 17,219,208 17,154,125 17,218,687
=========== ============ =========== ===========
</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, 1997 AND 1996
(Dollars in Thousands)
(unaudited)
--------------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,600 $ 64
-------- --------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,564 1,109
Deferred income taxes -- (11)
Conversion of stock appreciation rights to common
stock -- 1,750
Gain on sale of assets -- (225)
Changes in assets - (increase) decrease:
Accounts receivable 3,521 (4,517)
Inventories (2,736) (5,870)
Refundable and deferred taxes -- (599)
Prepaid expenses and other current assets (838) (316)
Other assets (948) (252)
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses 1,405 8,401
Income taxes payable -- (64)
Other 96 --
-------- --------
Total adjustments 2,064 (594)
-------- --------
Net Cash Provided (Used) By Operating Activities 3,664 (530)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Foreign currency translation adjustment (9) 106
Additions to property and equipment (1,174) (1,155)
Proceeds from sale of assets -- 440
-------- --------
Net Cash (Used) By Investment Activities (1,183) (609)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of Treasury Stock (18) --
Proceeds from notes payable - banks -- 57,443
Principal payments on notes payable - banks -- (57,157)
Principal payments on long term debt (28,936) 12,500
Proceeds from long term debt 27,074 (11,800)
Proceeds from exercise of stock options -- 24
-------- --------
Net Cash Provided (Used) By Financing Activities (1,880) 1,010
-------- --------
NET INCREASE (DECREASE) IN CASH 601 (129)
CASH AND CASH EQUIVALENTS - BEGINNING 420 528
-------- --------
CASH AND CASH EQUIVALENTS - ENDING $ 1,021 $ 399
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,537 $ 1,241
======== ========
Taxes $ 811 $ 835
======== ========
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:
The accompanying unaudited consolidated financial statements, which are
for interim periods, do not include all disclosures provided in the annual
consolidated financial statements. 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, 1996, as
filed with the Securities and Exchange Commission.
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. These reclassifications had no effect on net income.
Note 2 - Inventories:
Inventories consist of the following:
April 30, July 31,
1997 1996
------- -------
(dollars in thousands)
Finished Goods $10,984 $10,736
Bulk 9,032 9,155
Work in Process 1,804 1,777
Raw Materials 4,771 2,450
Packaging Components 2,190 1,927
------- -------
Total Inventory $28,781 $26,045
======= =======
4
<PAGE>
Note 3 - Merger with Hall Laboratories, Inc.
On April 30, 1996, Hall Laboratories, Inc. ("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 4 - New Financing Package
On February 5, 1997 the Company closed on a new term loan, which is
secured by a mortgage on its recently acquired warehousing and distribution
facility. The loan amount is $1.5 million and bears interest at either the
Treasury Bond rate plus 1.50%, the bank's floating rate less .25%, or LIBOR plus
1.50%, at the Company's option. The loan calls for monthly principal payments of
$8,333 plus interest and matures on February 1, 2002, at which time the
remaining outstanding principal balance is due.
Note 5 - Subsequent Event
On June 5, 1997 the Company entered into an agreement to purchase the
Vitamin Specialties division of HealthRite, Inc. The purchase price is
$1,890,000 plus inventory, and is expected to close during the Company's fourth
quarter.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Three Months Ended April 30, 1997 Compared to the Three Months Ended April
30, 1996
Net Sales. Net sales for the three months ended April 30, 1997 decreased
by $2.3 million, or 8.3%, to $25.4 million from the $27.7 million reported for
the three months ended April 30, 1996. Net sales were impacted by the recent
discontinuation of a supply agreement of private brand merchandise and by the
disappointing sales levels relative to the Revlon line. Increased sales of the
Company's Fields of Nature product line during the quarter partially offset
these factors.
Cost and Expenses. Cost of sales for the three months ended April 30, 1997
decreased by 9.5% to $18.4 million, which is a decrease of $1.9 million over the
$20.3 million for the three months ended April 30, 1996. Overall gross profit
margins increased by approximately 1.0%, as a percentage of net sales, primarily
stemming from an improvement in the sales mix toward branded/higher margined
products, coupled with lower acquisition costs of certain raw materials
attributable, in part, to the increased purchasing power of the Company
resulting from the recent merger with Hall. Offsetting these items, in part, was
the impact of the lower sales levels experienced by the Revlon line, which
entails significantly higher margins than the Company's overall general margins.
Selling, general and administrative expenses for the three months ended
April 30, 1997 decreased to $5.9 million from $6.1 million for the three months
ended April 30, 1996. Increased advertising and promotional support for the
Company's Fields of Nature brand, along with the recent personnel additions to
the Company's sales and marketing departments, which were made in order to
implement the Company's growth strategies, caused selling, marketing and
administrative expenses to increase to 23.2% of net sales, opposed to the 22.2%
recorded in the quarter ended April 30, 1996.
Merger Costs. Merger costs for the three months ended April 30, 1996 were
$3.0 million and represent costs associated with the Hall merger, including $1.8
million relating to discharging of the obligations relative to Hall's SARs
(Stock Appreciation Rights).
Other Expenses - Net. The $152,000 increase in other expenses - net for
the three months ended April 30, 1997 is principally attributable to higher
borrowing levels, coupled with higher interest rates relative to the Company's
revolving line of credit.
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, 1997 Compared to the Nine Months Ended April 30,
1996
Net Sales. Net sales for the nine months ended April 30, 1997 increased by
9.5% to $84.2 million, which is an increase of $7.3 million over the $76.9
million for the nine months ended April 30, 1996. This increase is attributable
to increased sales of the Company's branded/higher-margined product lines, new
product introductions and to generally higher unit sales in the Company's core
business operations. Offsetting these increases, in part, was the reduction in
sales relative to the discontinuation of a private brand supply agreement during
the second quarter of the current year.
Cost and Expenses. Cost of sales for the nine months ended April 30, 1997
increased 8.6% to $62.8 million, which is an increase of $4.9 million over the
$57.9 million for the nine months ended April 30, 1996. Overall gross profit
margins increased by approximately 0.7%, as a percentage of net sales, stemming
from an improvement in the sales mix toward branded/higher-margined products,
coupled with lower acquisition costs of certain raw materials attributable, in
part, to the increased purchasing power of the Company resulting from the recent
merger with Hall. Partially offsetting these items was the impact of the lower
sales levels experienced by the Revlon line, which entails significantly higher
margins than the Company's overall general margins.
Selling, general and administrative expenses for the nine months ended
April 30, 1997 increased 17.6% to $17.7 million, which is an increase of $2.7
million over the $15.0 million for the nine months ended April 30, 1996. This
increase is principally due to higher advertising and promotional activity
relative to the Company's Fields of Nature brand and to the recent personnel
additions to the sales and marketing departments, which were made in order to
implement the Company's growth strategies, as well as increased distribution
costs relative to the Company's core business operations.
Merger Costs. Merger costs for the nine months ended April 30, 1996 were
$3.4 million and represent costs associated with the Hall merger, including $1.8
million relating to discharging of the obligations relative to Hall's SARs
(Stock Appreciation Rights) in the third quarter.
Other Expenses - Net. Other expenses - net increased by $545,000 primarily
as a result of higher borrowings relative to the Company's increased levels of
activity, especially at its Intergel division, coupled with higher borrowing
rates related to the Company's revolving line of credit. Offsetting this
increase was a gain on insurance proceeds received relative to a fire in one of
the Company's warehouse facilities in the second quarter of 1997. In the second
quarter of 1996, the Company reported a gain on sale of a contract manufacturing
division of $225,000.
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 from operations for the nine months ended April 30, 1997 was
$3.7 million. Accounts receivable and accounts payable and accrued expenses
provided $3.5 million and $1.4 million, respectively during the nine months
ended April 30, 1997.
Inventories increased by $2.8 million during the nine months ended April
30, 1997. This increase is principally the result of higher levels of inventory
to support the increase in sales and new product introductions.
In September 1996, the Company entered into a capital lease financing
agreement that provides for up to an additional $1 million for acquisitions of
computer and manufacturing equipment. This lease calls for monthly payments of
principal and interest at the bank's prime rate over a five year period. At
April 30, 1997, the Company had $453,000 available for future equipment
purchases.
On April 30, 1996, the Company entered into a credit agreement with its
bank, which expires on March 31, 1999. The existing agreement can be extended
under certain circumstances through August 31, 1999. Under the agreement, the
Company is allowed to borrow up to $15.0 million under borrowing Facility A, and
$6.5 million under borrowing Facility B, subject to certain borrowing base
limitations, as defined therein. Borrowings under Facility A bear interest at
either the bank's prime rate plus .50%, or at money market rates or LIBOR plus
2.25% (7.875% at April 30, 1997), at the Company's option. Borrowings under
Facility B bear interest at the bank's prime rate, or at money market rates or
LIBOR plus .50% (6.125% at April 30, 1997), at the Company's option. The
agreement has a commitment fee of .375% of the average daily unused portion of
the overall borrowing commitment relative to Facility A, and .25% relative to
Facility B. The amount of borrowings allowable under Facility B are subject to
semi-annual adjustments, based upon purchases from a vendor during the preceding
twelve months. The notes are collateralized by substantially all of the
Company's assets. The agreement with the bank requires the Company to maintain
certain financial ratios, minimum working capital and contains various
restrictions customary in such a financial agreement, including limitations on
capital expenditures and payment of cash dividends.
8
<PAGE>
"Safe Harbor" Statement
When used in this document, the words "believe", "anticipate", "think",
"intend", "will be" and similar expressions identify forward-looking statements.
In addition, other statements that provide more than historical information may
be deemed to constitute forward-looking statements. There are important factors
that could cause results to differ materially from those anticipated by these
forward-looking statements. These factors include risks and uncertainties such
as, among other things, beneficial or adverse trends in the domestic market for
vitamins and nutritional supplements, the gain or loss of significant customers
for the Company's products, the competitive environment in the vitamin and
nutritional supplement industry, and the enactment or promulgation of new
government legislation or regulation, as well as other risks and uncertainties
that may be detailed from time to time in IVC's reports filed with the
Securities and Exchange Commission.
9
<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
Not applicable
Item 5. - Other Information
Not applicable
Item 6. - Exhibits and Reports on Form 8-K
Exhibits:
None
Reports on Form 8-K:
None
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 6, 1997 By: /s/ E. Joseph Edell
-----------------------------
Chairman of the Board and
Chief Executive Officer
Dated: June 6, 1997 By: /s/ I. Alan Hirschfeld
-----------------------------
Executive Vice President and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> APR-30-1997
<CASH> 1,021
<SECURITIES> 0
<RECEIVABLES> 11,426
<ALLOWANCES> 0
<INVENTORY> 28,781
<CURRENT-ASSETS> 45,685
<PP&E> 17,681
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,327
<CURRENT-LIABILITIES> 24,088
<BONDS> 26,430
0
0
<COMMON> 171
<OTHER-SE> 16,443
<TOTAL-LIABILITY-AND-EQUITY> 16,614
<SALES> 84,211
<TOTAL-REVENUES> 84,211
<CGS> 62,825
<TOTAL-COSTS> 62,825
<OTHER-EXPENSES> 938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,765
<INCOME-TAX> 1,165
<INCOME-CONTINUING> 1,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,600
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
