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U.S. 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 MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
COMMISSION FILE NUMBER 0-15963
INVIVO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 77-0115161
(State or other jurisdiction (IRS Employer Identification No.)
Of incorporation)
4900 HOPYARD RD. SUITE 210, PLEASANTON, CALIFORNIA 94588
(Address of principal executive offices) (Zip Code)
TELEPHONE: (925) 468-7600
(Registrant's telephone number)
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Indicate by check whether the registrant (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the issuer's Common Stock, par value $.01
per share, at March 31, 2001 was 4,423,249 shares.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
MARCH 31, JUNE 30,
2001 2000
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ASSETS
Current assets:
Cash and cash equivalents $ 1,060,600 969,800
Short term investments 9,408,200 6,817,600
Trade receivables, net 13,977,200 14,656,600
Inventories 10,245,100 10,132,000
Deferred income taxes 1,110,000 1,343,000
Prepaid expenses and other current assets 915,800 407,200
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Total current assets 36,716,900 34,326,200
Property and equipment, net 6,141,700 6,139,600
Intangible assets 7,474,700 8,439,700
Other assets 262,900 570,500
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$50,596,200 49,476,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,967,800 2,725,600
Accrued expenses 3,097,700 3,381,100
Current portion of long-term debt and
bank borrowings 142,700 142,700
Income taxes payable 1,251,200 1,347,200
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Total current liabilities 6,459,400 7,596,600
Long-term debt, excluding current portion 1,277,100 1,392,900
Deferred income taxes 123,000 118,000
Other liabilities -- 52,000
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Total liabilities 7,859,500 9,159,500
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Stockholders' equity:
Common stock 44,200 43,600
Additional paid-in capital 26,440,500 26,257,300
Retained earnings 16,252,000 14,041,800
Accumulated other comprehensive loss -- (26,200)
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Total stockholders' equity 42,736,700 40,316,500
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Commitments and contingencies
$50,596,200 49,476,000
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See accompanying notes to consolidated financial statements.
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INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------------------- -------------------------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
Sales $ 13,800,900 $ 13,232,300 39,508,100 39,123,800
Cost of goods sold 7,088,700 6,854,000 20,242,100 20,110,600
------------ ------------ ------------ ------------
Gross profit 6,712,200 6,378,300 19,266,000 19,013,200
------------ ------------ ------------ ------------
Operating expenses:
Selling, general
and administrative 5,008,700 4,274,300 13,586,200 12,049,300
Research and experimental 883,700 800,800 2,376,300 2,213,000
------------ ------------ ------------ ------------
Total operating expenses 5,892,400 5,075,100 15,962,500 14,262,300
------------ ------------ ------------ ------------
Income from operations 819,800 1,303,200 3,303,500 4,750,900
Other income (expense):
Interest income 109,500 77,200 324,000 282,900
Interest expense (27,900) (34,600) (92,100) (99,200)
Loss on sale of G.C. Industries (600,500) -- (600,500) --
Other, net 439,100 415,500 439,100 417,200
------------ ------------ ------------ ------------
Income before income taxes 740,000 1,761,300 3,374,000 5,351,800
Income tax expense 255,100 598,700 1,163,800 1,819,600
------------ ------------ ------------ ------------
Net income $ 484,900 $ 1,162,600 2,210,200 3,532,200
============ ============ ============ ============
Basic net income per common share $ .11 $ .27 .50 .82
============ ============ ============ ============
Weighted average common
Shares outstanding (basic) 4,410,438 4,362,999 4,394,965 4,317,588
============ ============ ============ ============
Diluted net income per common
Share $ .11 $ .26 .49 .78
============ ============ ============ ============
Weighted average common
Shares outstanding (diluted) 4,463,154 4,497,405 4,475,657 4,506,697
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
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INVIVO CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED MARCH 31, 2001 AND 2000
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,210,200 $ 3,532,200
Adjustments to reconcile net income to
Cash provided by operating activities:
Depreciation and amortization 1,138,200 916,700
Loss on sale of G.C. Industries 600,500 --
Write-off of note receivable 203,600
Deferred income taxes 238,000 --
Change in operating assets and liabilities:
Trade receivables 594,100 (1,609,800)
Inventories (174,700) (1,388,200)
Prepaid expenses and other current assets (508,600) (332,300)
Accrued expenses (402,700) (692,600)
Accounts payable (757,800) 9,000
Income taxes payable (96,000) 405,700
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Net cash provided by operating activities 3,044,800 840,700
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CASH FLOWS FROM INVESTING ACTIVITIES:
(Purchase) sale of short-term investments (2,564,400) 1,483,900
Proceeds from sale of G.C. Industries 664,000 --
Capital expenditures (1,172,400) (1,827,900)
Other assets 50,800 (3,200)
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Net cash (used in) investing activities (3,022,000) (347,200)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock 183,800 179,700
Bank borrowings, net -- (78,400)
Principal payments under long-term debt and other liabilities (115,800) (37,400)
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Net cash provided by financing activities 68,000 63,900
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Net increase in cash and cash equivalents 90,800 557,400
Cash and cash equivalents at beginning of period 969,800 207,800
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Cash and cash equivalents at end of period $ 1,060,600 $ 765,200
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Supplemental disclosures of cash flow information:
Cash paid during the period for:
Income taxes $ 1,018,600 $ 1,478,400
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Interest $ 92,100 $ 99,200
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See accompanying notes to consolidated financial statements.
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INVIVO CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The unaudited consolidated financial statements reflect, in the opinion of
management, all adjustments necessary to present fairly the financial position
and results of operations as of the end of and for the periods indicated.
Interim results are not necessarily indicative of results for a full year.
The financial statements and notes are presented as permitted by Form 10-Q,
and do not contain certain information included in the Company's annual
consolidated financial statements and notes.
2. SEGMENT INFORMATION
The method for determining what information to report is based on the way
that management organizes the operating segments within the Company for making
operating decisions and assessing financial performance. The Company's chief
operating decision-maker is considered to be the Chief Executive Officer (CEO).
The CEO reviews financial information presented on a consolidated basis
accompanied by information by business segment. The Company operates in two
business segments: (i) patient safety monitoring, which designs, manufactures,
and markets monitoring systems that measure and display vital signs of patients
in medical settings; and (ii) safety and industrial instrumentation, which is
engaged in the design, manufacture, and marketing of sensor-based instruments
for safety and industrial process control applications. These segments are
managed separately because of different customers and products that require
different business strategies. The Company evaluates the operating performance
of its segments based on net sales and income from operations.
Summarized financial information concerning the Company's business segments
is shown in the following table. The "Corporate" column includes general and
administrative and corporate-related expenses not allocated to reportable
segments (in thousands).
SAFETY AND
PATIENT SAFETY INDUSTRIAL
MONITORING INSTRUMENTATION CORPORATE TOTAL
-------------- --------------- --------- --------
For the three months ended March 31, 2001
Net sales ........................... $ 9,153 4,648 -- 13,801
Income from operations .............. 905 578 (663) 820
Depreciation and amortization ....... 263 79 15 357
For the three months ended March 31, 2000
Net sales ........................... $ 8,350 4,882 -- 13,232
Income from operations .............. 972 764 (433) 1,303
Depreciation and amortization ....... 144 113 13 270
For the nine months ended March 31, 2001
Net sales ........................... $ 25,617 13,891 -- 39,508
Income from operations .............. 2,873 1,771 (1,340) 3,304
Depreciation and amortization ....... 790 307 41 1138
Total assets at March 31, 2001 .......... 28,750 10,679 11,167 50,596
For the nine months ended March 31, 2000
Net sales ........................... $ 24,401 14,723 -- 39,124
Income from operations .............. 3,445 2,430 (1,124) 4,751
Depreciation and amortization ....... 591 290 36 917
Total assets at March 31, 2000 .......... 28,898 9,747 9,467 48,112
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3. DEBT AND BANK BORROWINGS
The Company's bank line of credit of $1,000,000 was renewed at the same
terms on December 1, 2000 and expires on December 1, 2001. The Company's
revolving bank line of credit is collateralized by the Company's accounts
receivable, inventory, and equipment. At March 31, 2001, $1,000,000 was
available under the line of credit.
4. COMPREHENSIVE INCOME
The components of comprehensive income, net of tax, are as follows:
Three Months Ended Nine Months Ended
Mar. 31, 2001 Mar. 31, 2000 Mar. 31, 2001 Mar. 31, 2000
------------- ------------- ------------- -------------
Net Income 484,900 1,162,600 2,210,200 3,532,200
Change in unrealized
gain (loss) on Short Term
Investments -- (77,800) 26,200 152,900
---------- ---------- ---------- ----------
Comprehensive income 484,900 1,084,800 2,236,400 3,685,100
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED MARCH 31, 2001 AND 2000
Sales
Sales of $13,800,900 for the third quarter ended March 31, 2001 increased
4.3% as compared to sales of $13,232,300 for the third quarter ended March 31,
2000. Sales for the nine months ended March 31, 2001 increased 1.0% to
$39,508,100 compared with $39,123,800 for the comparable period last year. Sales
at the Company's patient safety monitoring business increased 9.6% in the third
quarter as compared to year earlier sales. Continued growth in sales of the
Company's MRI vital signs monitor offset a decrease in "Millennia" product sales
as the general monitoring market continued to experience slowing market
conditions. The sales increase at the patient safety monitoring business for the
third quarter of fiscal 2001 was offset by a sales decline at the Company's
safety and industrial instrumentation segment as the Company's non-contact
infrared temperature products continued to experience competitive pricing
pressures and difficult market conditions. The Company's pressure sensing
devices and oxygen monitoring products also experienced sales declines. An
increase in sales at the Company's gas detection product line for the three and
nine month periods ended March 31, 2001 partially offset the other sales
declines in the safety and industrial segment. For the nine months ended March
31, 2001, the sales increase at the patient safety monitoring business slightly
offset the sales decline in the industrial instrumentation segment.
Gross Profit
The gross profit margin increased slightly for the three and nine month
periods ended March 31, 2001 to 48.6% and 48.8% from 48.2% and 48.6%,
respectively, from the previous fiscal periods. The increase was attributable to
an increase in patient safety monitoring business as a percentage of total
revenue, the effect of which offset the deteriorating gross margins of the
non-contact infrared industrial products due to price discounting and the impact
of decreased sales at the other safety and industrial instrumentation product
lines relative to fixed cost of sale components.
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Operating Expenses
Selling, general and administrative expenses for the three and nine month
periods ended March 31, 2001 increased 17.2% or $734,400 and 12.8% or
$1,536,900, respectively, from the previous fiscal periods. Selling, general and
administrative expenses were 36.3% and 34.4% of sales for the three and nine
month periods ended March 31, 2001 compared with 32.3% and 30.8%, respectively,
for the comparable periods in fiscal 2000. The increase in these expenditures in
aggregate and as a percentage of sales for the three and nine month periods
ended March 31, 2001 was primarily due to higher administrative and selling
expenses at the Company's patient safety monitoring business along with the
write-off of the remaining balance on a note receivable of $203,600, net of a
deferred gain of $52,000, from the sale of a product line in fiscal 1996. The
Company believes that the note receivable is not collectable based on the recent
non-performance of the buyer and the effect of the current economic downturn on
the product line's market. The increase in selling, general and administrative
expenses at the patient safety monitoring business was in anticipation of higher
sales volume for the three and nine month periods than was actually achieved.
The increase in selling expenses was also due to higher sales commission
expenses and higher international selling expenses as the Company established a
U.K. subsidiary in the first quarter of fiscal 2001.
Research and experimental expenses were 6.4% and 6.0% of sales for the three
and nine month periods ended March 31, 2001 compared to 6.1% and 5.7% for the
comparable periods in fiscal 2000. The increase in the third quarter as compared
to the prior year period was due to a portion of the expenditures related to
equipment for the production of the Company's proprietary anesthetic agent
module for the "Millennia" being capitalized in the second and third quarters of
fiscal 2000. The Company plans to continue its efforts in developing new
products and enhancing its existing ones and expects future aggregate research
and experimental expenditures to be consistent with the second quarter of fiscal
2001 levels.
Other Income and Expense
Interest income was $109,500 for the third quarter of fiscal 2001 as compared
to $77,200 for the prior year period. The increase was largely due to the higher
balances on the Company's short-term investments. Interest expense remained
stable at $27,900 in the third quarter of fiscal 2001.
On March 2, 2001, the Company sold G.C. Industries, a gas permeation device
business, for $664,000 in cash. The asset sale resulted in a loss of $600,500.
G.C. Industries was a part of the safety and industrial segment and represented
approximately 1% of the Company's annual sales.
Other income, net for the third quarter of fiscal 2001 of $439,100 included a
gain of $450,000 on the settlement of a patent infringement lawsuit brought by
the Company against a competitor in the MRI monitoring market. Other income, net
for the three months ended March 30, 2000 included a $415,500 gain on the sale
of short-term investments.
Provision for Income Taxes
The effective tax rate for the nine months ended March 31, 2001 was 34.5% as
compared to 34.0% for the prior year period.
LIQUIDITY AND CAPITAL RESOURCES
Working capital at March 31, 2001 increased to $30,257,500 from $26,729,600
at June 30, 2000. Net cash provided by operating activities was $2,789,200 for
the nine months ended March 31, 2001 compared with $840,700 used by operating
activities for the nine months ended March 31, 2000. This increase was largely
the result of changes in operating assets and liabilities, particularly accounts
receivable and deferred income taxes.
Capital expenditures were $1,172,400 for the first nine months of fiscal 2001
compared to $1,827,900 for the prior year period. Capital expenditures were
primarily related to information system software enhancements and additional
demonstration equipment for the direct sales force at the Company's patient
safety monitoring business and leasehold improvements and manufacturing
equipment at the Company's new facility for the oxygen monitoring business.
The Company believes that its cash resources and cash flow from operations
are adequate to meet its anticipated cash needs for working capital and capital
expenditures throughout fiscal 2001. As the Company did not foresee any near
term borrowing
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requirements coupled with the fees associated with maintaining a bank line of
credit, the Company elected to decrease its bank line of credit from $7,500,000
to $1,000,000 in May of 2000. The line of credit was renewed at the same terms
for one year on December 1, 2000. The Company's revolving bank line of credit is
collateralized by the Company's accounts receivable, inventory, and equipment.
At March 31, 2001, $1,000,000 was available under the line of credit.
The Company will continue to explore opportunities for the possible
acquisitions of technologies or businesses, which may require the Company to
seek additional financing.
RECENT ACCOUNTING PRONOUNCEMENTS
SAB 101 In December 1999, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin NO. 101 (SAB 101), Revenue Recognition in Financial
Statements as amended by SAB 101A, which provides guidance on the recognition,
presentation, and disclosure of revenue in financial statements filed with the
SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue
and provides guidance for disclosures related to revenue recognition policies.
In June 2000, the SEC issued SAB 101B which deferred the effective date of SAB
101 until the last quarter of fiscal years beginning after December 15, 1999.
The Company adopted SAB 101 for the quarter ended March 31, 2001. The adoption
of SAB 101 did not have a material effect on the Company's consolidated
financial position or results of operations.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements regarding
the Company's plans, expectations, estimates and beliefs. Actual results could
differ materially from those discussed in, or implied by, these forward-looking
statements. Forward-looking statements are identified by words such as
"believe," "anticipate," "expect," "intend," "plan," "will," "may" and other
similar expressions. In addition, any statements that refer to expectations,
projections or other characterizations of future events or circumstances are
forward-looking statements. The Company is not obligated to update or revise
these forward-looking statements to reflect new events or circumstances. Factors
that could cause actual results, events or circumstances to differ from
forward-looking statements made in this report include those set forth in the
following "Risk Factors" section.
RISK FACTORS
Risks Relating to the Company's Business:
THE COMPANY IS DEPENDENT ON A CONCENTRATED LINE OF PRODUCTS
The Company's future financial performance will be largely dependent on its
patient monitor product line, which includes a limited number of products. The
Company expects its Omni-Trak 3150 MRI patient monitor and its Millennia
portable patient monitor to have a substantial impact on revenue growth. In the
MRI monitoring market, the success of its Omni-Trak 3150 is heavily dependent on
the continued acceptance of MRI technology as a diagnostic tool. In the general
patient monitoring market, the Company's Millennia monitor is heavily dependent
on its ability to penetrate an already competitive market.
In addition, the recent consolidation in the medical care provider market has
resulted in a number of very large purchasers of medical devices. These large
purchasers may prefer to establish relationships with medical device
manufacturers who are larger than the Company and that have broad and diverse
product lines.
The failure of the Company's products to continue to gain market acceptance
or a continued consolidation of the medical care provider market could have a
material adverse effect on its business and results of operations.
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THE COMPANY FACES INCREASED LEVELS OF COMPETITION
The Company has encountered and will continue to encounter significant
competition in the sale of its products. The Company's general patient
monitoring competitors include a number of large multinational corporations.
Some of these competitors may be able to adapt more quickly to new or emerging
technologies and changes in customer requirements, or to devote greater
resources to the development, promotion and sale of their products than the
Company can. In the MRI patient monitoring market, the Company has enjoyed a
significant first-to-market advantage over its competitors. However, competitors
have introduced products designed to compete with its MRI vital signs monitoring
products. In addition, as the market for MRI vital signs monitoring products
expands it may attract competitors with greater resources.
Additionally, competition may increase if new companies enter the Company's
markets or if existing competitors expand their product lines or intensify
efforts within existing product lines. The introduction of competitive products
may result in a decrease in the Company's market share and in a decrease in the
prices at which the Company is able to sell its products. The Company's market
share could also be adversely affected by increasing concentration in the
medical care provider market. Any decrease in the Company's market share or
decrease in the prices at which the Company is able to sell its products could
have a material adverse effect on its business and results of operations.
THE COMPANY'S FINANCIAL RESULTS MAY FLUCTUATE
The Company's financial results may fluctuate significantly from period to
period because of a variety of factors, many of which is beyond its control.
These factors include:
- increased competition
- changes in the Company's pricing policies and those of its competitors
- changes in the Company's operating expenses or capital expenditures
- timing and market acceptance of new and upgraded product introductions by
the Company and its competitors
- seasonal fluctuations in the demand for the Company's products
- introduction of alternative technologies by the Company and its competitors
- effect of potential acquisitions
- other general economic factors
Fluctuations caused by these and other factors could have a material adverse
effect on the Company's business and results of operations.
THE COMPANY IS SUBJECT TO A SIGNIFICANT RISK OF NEW LAWS RELATED TO HEALTH CARE
Changes in the law or new interpretations of existing laws may have a
significant effect on the Company's costs of doing business and the amount of
reimbursement the Company receives from both government and third-party payors.
In addition, economic forces, regulatory influences and political initiatives
are subjecting the health care industry to fundamental changes. Health care
reform proposals have been formulated by the current administration and by
members of Congress. Federal, state and local government representatives are
likely to continue to review and assess alternative health care delivery systems
and payment methods. The Company expects ongoing public debate on these issues.
Any of these efforts or reforms could have a material adverse affect on the
Company's business and results of operations.
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THE COMPANY'S BUSINESS IS SUBJECT TO TECHNOLOGICAL CHANGE AND INTRODUCTION OF
NEW PRODUCTS
Technological change, evolving industry standards and new product
introductions and enhancements characterize the markets for the Company's
products. Many of the Company's products and products under development are
technologically innovative, and therefore require significant planning, design,
development and testing. These activities require the Company to make
significant capital commitments and investments. In addition, industry standards
may change on short notice and new products and technologies may render existing
products and technologies uncompetitive. Additionally, the products that the
Company is currently developing, and those that the Company develops in the
future, may not be technologically feasible or accepted by the marketplace or
they may not be completed in an acceptable time frame. Any increased capital
investments or loss in sales due to technological change could have a material
adverse effect on the Company's business and results of operations.
THE COMPANY CURRENTLY IS INVOLVED IN A LEGAL PROCEEDING
The Company's medical device subsidiary, Invivo Research, was one of two
third-party defendants named in a lawsuit in June of 1994 by Southern Nevada
Surgical Center and Surgex Southern Nevada, Inc. in Nevada State District Court.
The underlying action in this matter stemmed from an incident involving a
surgical patient undergoing a procedure at the Southern Nevada Surgical Center.
The patient suffered a serious permanent brain injury. A lawsuit was filed on
behalf of the patient against the surgical center and the anesthesiologist who
monitored the patient. The defendants in that action made a substantial
settlement to the patient. Southern Nevada Surgical Center ("SNSC") and Surgex
were seeking indemnity and contribution of approximately $14 million from the
manufacturer of the anesthetic gas machine and Invivo Research, which
manufactured the vital signs monitor used in this procedure. SNSC and Surgex
alleged that both the anesthetic gas machine and the vital signs monitor were
defective. The Company believes that the vital signs monitor operated properly
and was properly designed for its intended function.
On August 18, 1999, the Nevada District Court granted the Company's Motion to
Dismiss for Failure to Prosecute. The Order granted dismissal of the SNSC and
Surgex contribution claims, without prejudice, based upon Nevada law that
provides that an action must be brought to trial within five years of the date
of the filing of the original action. The dismissal is being appealed.
In April of 1997, the plaintiff's insurer, CNA, filed an action with
identical causes in the same Nevada State Court. This second action was removed
by the Company to U.S. District Court. The action by CNA was dismissed by the
District Court on January 19, 2000. The dismissal is being appealed.
Any judgment against the Company that exceeds the amount that its insurer is
required to pay could have a material adverse effect on its business and results
of operations.
THE COMPANY FACES PRODUCT LIABILITY AND PRODUCT RECALL RISKS
With respect to all of its products, and particularly its medical devices,
the Company faces the risk of potentially large product liability claims. The
malfunction or misuse of its products could potentially result in serious harm
to a patient. In addition, the Company may be required to indemnify its
distributors and customers for similar claims made against them.
Claims could be made against the Company even if its products did not
contribute to the injury that was sustained. Frequently, the Company's products
are used with products developed by other manufacturers. Even if its products
are not the cause of the injury, the Company may not be able to prove that some
other product malfunction or human error caused a claimant's injury.
The Company has had product liability claims made against it in the past and
may have further claims made against it in the future. While the Company is
insured for certain product liability claims, not all claims will be covered and
the level of its insurance may not be sufficient to protect us from the full
amount of a successful claim. In addition, the Company may not be able to obtain
adequate amounts of insurance at an acceptable cost. Claims made against the
Company that are not insured, or that exceed the amount of the Company's
coverage, could have a material adverse effect on its business and results of
operations.
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Similarly, the Company's products are subject to the potential of being
recalled by government agencies for actual or potential deficiencies or
problems. Any such recall would likely be expensive and would have a material
adverse effect on the Company's business and results of operations.
THE COMPANY FACES INCREASED RISKS OF INTERNATIONAL OPERATIONS
International sales have accounted for over 20% of the Company's sales for
each of the past three years and may increase over time. International sales are
subject to a number of risks, including the following:
- fluctuations in exchange rates may affect the demand for products and
services the Company provides in foreign markets
- adverse changes in local economic conditions, such as those recently
occurring in Asian and South American countries, could depress the demand
for the Company's products
- agreements may be difficult to enforce and receivables difficult to collect
through a foreign country's legal system
- foreign customers may have longer payment cycles
- foreign countries may impose additional withholding taxes or otherwise tax
the Company's foreign income, impose tariffs, or adopt other restrictions on
foreign trade
- U.S. export licenses may be difficult to obtain
- the protection of intellectual property in foreign countries may be more
difficult to enforce
Any of these factors could have a material adverse impact on the Company's
business and results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's sales are primarily denominated in U.S. dollars and as a
result, the Company has relatively little exposure to foreign currency exchange
risk with respect to its sales. The Company does not currently hedge against
foreign currency rate fluctuations. The effect of an immediate 10% change in
exchange rates would not have a material impact on the Company's future
operating results or cash flows.
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 SECURITIES HOLDERS:
Not Applicable
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ITEM 5: OTHER INFORMATION:
Not Applicable.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a)
Exhibit No. Description of Exhibit
----------- ----------------------
Exhibit 10.20 First Amendment to Lease between Principal
Life Insurance Company and Invivo
Corporation dated February 26, 2001
Exhibit 10.21 Lease between Arcadia Management Services
and Invivo Corporation dated November 29,
2000
Exhibit 11.1 Statement of Computation of Net Income Per
Share
(b) Reports on Form 8-K:
None.
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SIGNATURES
In accordance with requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
INVIVO CORPORATION
Date: May 15, 2001 By: /s/ JOHN F. GLENN
-------------------------------
Vice President-Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
13