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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended October 31, 1998
|_| 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 0-23624
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IVC INDUSTRIES, INC.
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(exact name of Registrant as specified in its charter)
DELAWARE 22-1567481
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(state or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
500 HALLS MILL ROAD, FREEHOLD, NEW JERSEY 07728
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (732) 308-3000
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NOT APPLICABLE
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(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 17,211,540 shares of common stock outstanding as of December 10,
1998.
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<PAGE>
IVC INDUSTRIES, INC.
Table of Contents
Part I. Financial Information Page No.
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Item 1. Financial Statements
Consolidated Balance Sheets as at
October 31, 1998 and July 31, 1998............................... 3
Consolidated Statements of Income
For the Three Months Ended October 31, 1998 and 1997............. 4
Consolidated Statements of Cash Flows
For the Three Months Ended October 31, 1998 and 1997............. 5
Notes to Consolidated Financial Statements....................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 8
Part II. Other Information, Reports on Form 8-K and Exhibits.............. 11
Signature Page............................................................... 13
<PAGE>
Item 1. Financial Statements.
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands, Except Per Share Information)
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October 31, July 31,
1998 1998
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ASSETS (unaudited)
Current Assets:
Cash and cash equivalents $ 798 $ 1,604
Accounts receivable 14,587 11,725
Inventories 32,572 37,389
Due from related parties 101 95
Deferred taxes 2,238 2,238
Prepaid expenses 2,142 2,006
Other current assets 979 979
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Total Current Assets 53,417 56,036
Property, Plant and Equipment - Net 20,519 20,766
Due from related parties 1,865 1,876
Goodwill - Net 1,709 1,773
Other Assets 3,487 803
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Total Assets $ 80,997 $ 81,254
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 22,369 $ 22,749
Current portion of capital lease payable 145 134
Current portion of deferred gain on building 99 97
Accounts payable 22,470 25,504
Accrued expenses 5,324 3,003
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Total Current Liabilities 50,407 51,487
Long-Term Debt - Less current portion 7,983 7,271
Capital lease obligation 3,273 3,317
Deferred gain on building sale 1,083 1,109
Deferred taxes 211 211
Other liabilities 99 99
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Total Liabilities 63,056 63,494
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Shareholders' Equity:
Preferred stock, no par value, 2,000,000
shares authorized -- --
Common stock, $.01 par value, 25,000,000
shares authorized; 17,211,540 shares issued 172 172
Additional paid-in capital 11,688 11,673
Foreign currency translation adjustment (215) (202)
Retained earnings 6,296 6,117
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Total Shareholders' Equity 17,941 17,760
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Total Liabilities and Shareholders' Equity $ 80,997 $ 81,254
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3
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IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, Except Per Share Information)
(unaudited)
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Three Months Ended
October 31,
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1998 1997
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Net sales $ 29,239 $ 27,709
Cost of sales 22,233 20,908
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Gross profit 7,006 6,801
Selling, general and administrative expenses 6,092 5,779
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Income from operations 914 1,022
Other expenses - net 612 547
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Income before income taxes 302 475
Income tax provision 123 143
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Net income $ 179 $ 332
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Basic earnings per share $ .01 $ .02
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Diluted earnings per share $ .01 $ .02
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Weighted average shares outstanding:
Basic 17,211,540 17,122,522
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Diluted 17,212,356 17,184,964
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4
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(unaudited)
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Three Months Ended
October 31,
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1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 179 $ 332
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Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 667 593
Stock distributed to employee savings plan -- 54
Stock issued to non-employee directors 15 --
Changes in assets - (increase) decrease:
Accounts receivable (2,862) (5,474)
Inventories 4,817 3,303
Prepaid expenses and other current assets (142) (638)
Other assets (2,673) (79)
Changes in liabilities - increase (decrease):
Accounts payable and accrued expenses (713) 2,638
Other (403) --
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Total adjustments (1,294) 397
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Net Cash Provided By (Used In) Operating
Activities (1,115) 729
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (357) (375)
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Net Cash Used In Investment Activities (357) (375)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on long term debt (60) (625)
Proceeds from long term debt 772 983
Principal payments of capital lease
obligations (33) --
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Net Cash Provided By Financing Activities 679 358
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Foreign currency translation adjustment (13) (9)
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NET INCREASE (DECREASE) IN CASH (806) 703
CASH AND CASH EQUIVALENTS - BEGINNING 1,604 179
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CASH AND CASH EQUIVALENTS - ENDING $ 798 $ 882
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 529 $ 294
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Taxes $ 181 $ 258
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5
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IVC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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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-K for the year ended July 31, 1998, 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 the current period
presentation.
Note 2 - Inventories:
Inventories consist of the following:
October 31, July 31,
1998 1998
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(dollars in thousands)
Finished Goods $13,421 $15,129
Bulk and Work in Process 11,192 14,180
Raw Materials and Packaging Components 7,959 8,080
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Total Inventory $32,572 $37,389
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6
<PAGE>
Note 3 - Earnings Per Share (EPS):
Basic EPS is calculated based on income available to common shareholders
and the weighted average number of shares outstanding during the reported
period. Diluted EPS includes additional dilution from potential common stock
issuable pursuant to the exercise of stock options outstanding. Prior year
amounts have been restated to conform with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share".
Note 4 - Comprehensive Income:
As of August 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for the reporting and
displaying of comprehensive income. The following table presents the Company's
comprehensive income for the three months ended October 31, 1998 and 1997.
Three Months Ended
October 31,
1998 1997
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(dollars in thousands)
Net income $ 179 $ 332
Other comprehensive income (loss) , net of tax:
Foreign exchange translation adjustments (13) (9)
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Comprehensive income $ 166 $ 323
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7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Three Months Ended October 31, 1998 Compared to the Three Months Ended October
31, 1997
Results of Operations. For the quarter ended October 31, 1998, net income
was $179,000, equivalent to basic earnings per share of $.01, as compared to
$332,000 or $.02 per share, in the same quarter last year. Diluted earnings per
share were also $.01 as compared to $.02 last year.
Net Sales. Net sales for the quarter were $29.2 million, representing an
increase of $1.5 million or 5.5% versus the same period of 1997. The increase is
primarily due to an increase in private brand (label) sales. This was offset, in
part, by a decline in sales of the Company's branded product lines and sales to
outside customers by the Company's soft gel encapsulation facility, as
production was shifted to meet internal requirements for soft gels.
Costs and Expenses. Cost of sales for the three months ended October 31,
1998 was $22.2 million, an increase of $1.3 million or 6.2% from the $20.9
million for the three months ended October 31, 1997. Cost of sales increased .5%
as a percentage of sales over the prior year's period. This was primarily due to
an unfavorable sales mix towards private label products, which entail lower
margins.
The Company has begun a major effort to reduce overall expenses. In
October, the manufacturing workforce in Freehold and at the soft gel
encapsulation facility was reduced significantly and operations realigned to
meet projected sales growth. Major emphasis has also been focused on reducing
inventory to appropriate levels, which will also increase cash flow.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended October 31, 1998 were $6.1
million, an increase of $.3 million or 5.4% as compared to the prior year's
quarter. This increase is primarily attributable to: (i) higher promotion costs,
commissions and other selling expenses due to the higher sales levels, (ii)
increased sales and distribution staff costs, and (iii) increased cost of
outside professional services. These were partially offset by a decrease in
executive and administrative salaries and staff levels and lower office
expenses.
Other Expenses, Net. Other expenses, net, for the three months ended
October 31, 1998 were $612,000. This principally represents interest expense of
$686,000, which was offset by other miscellaneous income. Other expenses, net,
for the three months ended October 31, 1997 was $547,000. This included interest
expense of $556,000, offset by miscellaneous income.
Income Taxes. Income taxes generally reflect the effect of statutory
federal and state income tax rates and certain non-deductible expenses.
8
<PAGE>
Liquidity and Capital Resources
In August 1998, the Company entered into an equipment lease agreement in
the amount of $2 million to finance the purchase of manufacturing equipment to
upgrade its operation capabilities. To date, the Company utilized $890,000 under
this agreement. The lease is for a seven-year term at an interest rate of 7.2%,
with interest and principal paid monthly. The equipment purchased with the
proceeds of the lease financing secures the lease.
Operating activities utilized $1.1 million in cash for the three-month
period ended October 31, 1998, versus $0.7 million provided for the comparable
period in 1997. $846,000 was generated from net income plus non-cash
depreciation and amortization. A decrease in inventory of $4.8 million and $0.7
million in accounts payable and accrued expenses was offset by an increase of
$2.9 million in accounts receivable and $2.7 million in other assets.
The Company presently has a revolving line of credit and a term loan with
its bank in the amounts of $21.5 million and $1.75 million, respectively. These
agreements expire on March 31, 1999, but can be extended under certain
circumstances to August 31, 1999. The notes are collateralized by substantially
all of the Company's assets. In addition, the Company has lease financing
agreements with two banks in the amount of $3 million for the acquisition of
computer and manufacturing equipment. At October 31, 1998, approximately $1.3
million was available for additions.
The agreement with the bank requires the Company to maintain certain
financial ratios and minimum working capital. At October 31, 1998, the Company
was in violation of certain of these covenants, which have been waived by the
bank. The entire balance due to the bank is classified as a current liability.
The Company believes that its existing cash balance, internally generated
funds from operations and available financing will provide the liquidity
required to satisfy the Company's working capital needs and anticipated capital
expenditures for the next fiscal year.
9
<PAGE>
Forward Looking Statements
This report, including Management's Discussion and Analysis, contains
certain "forward-looking statements", within the meaning of Section 27A of the
Securities Act of 1933, which represent the Company's expectations or beliefs,
including, but not limited to, statements concerning industry performance, the
Company's operations, performance, financial condition, growth and acquisition
strategies, margins and growth in sales of the Company's products. For this
purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may", "will", "expect",
"believe", "anticipate", "intend", "could", "estimate" or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. These statements by their nature involve
substantial risks and uncertainties, certain of which are beyond the Company's
control, and actual results may differ materially depending on a variety of
important factors, including 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 the Company's reports filed with the
Securities and Exchange Commission.
10
<PAGE>
Part II. Other Information
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits:
(II) Computation of earnings per share
(b) Reports on Form 8-K:
No reports on Form 8-K were filed for the three months ended
October 31, 1998
11
<PAGE>
IVC INDUSTRIES, INC. AND SUBSIDIARIES
EXHIBIT II
COMPUTATION OF EARNINGS PER SHARE
(Dollars in Thousands, Except Per Share Information)
(unaudited)
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Three Months ended
October 31,
1998 1997
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Basic:
Net income $ 179 $ 332
Weighted average shares outstanding 17,211,540 17,122,522
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Basic earnings per share $ .01 $ .02
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Diluted:
Net income $ 179 $ 332
Weighted average shares outstanding 17,211,540 17,122,522
Incremental shares under Stock Option Plan 816 62,442
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Adjusted weighted average shares outstanding 17,212,356 17,184,964
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Diluted earnings per share $ .01 $ .02
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12
<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: December 15, 1998 By: /s/ E. Joseph Edell
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Chairman and
Chief Executive Officer
Dated: December 15, 1998 By: /s/ Domenic N. Golato
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Chief Accounting Officer and
Acting Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 798
<SECURITIES> 0
<RECEIVABLES> 14,587
<ALLOWANCES> 0
<INVENTORY> 32,572
<CURRENT-ASSETS> 53,417
<PP&E> 20,519
<DEPRECIATION> 0
<TOTAL-ASSETS> 80,997
<CURRENT-LIABILITIES> 50,407
<BONDS> 0
0
0
<COMMON> 172
<OTHER-SE> 17,769
<TOTAL-LIABILITY-AND-EQUITY> 80,997
<SALES> 29,239
<TOTAL-REVENUES> 0
<CGS> 22,233
<TOTAL-COSTS> 0
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</TABLE>
