================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 -------------------------- 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 April 30, 2001 |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 13(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the period from _______________ to ____________________ Commission file number 0-23624 IVC INDUSTRIES, INC. (exact name of Registrant as specified in its charter) DELAWARE 22-1567481 (State of Incorporation) (I.R.S. Employer Identification No.) 500 HALLS MILL ROAD, FREEHOLD, NEW JERSEY 07728 (Address of principal executive office) (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 2,099,051 shares of common stock outstanding as of June 1, 2001 ================================================================================ IVC INDUSTRIES, INC. Table of Contents Part I. Financial Information Page No. -------- Item 1. Financial Statements Independent Accountants' Review Report ......................... 3 Condensed Consolidated Balance Sheets as at April 30, 2001 and July 31, 2000 ............................... 4 Condensed Consolidated Statements of Income For The Three and Nine Months Ended April 30, 2001 and 2000 .... 5 Condensed Consolidated Statements of Cash Flows For the Nine Months Ended April 30, 2001 and 2000 .............. 6 Notes to Condensed Consolidated Financial Statements ........... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ...................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk ..... 13 Part II. Other Information Item 6. Reports on Form 8-K and Exhibits ............................... 14 Signature Page ................................................. 14 Item 1. Financial Statements. Independent Accountants' Review Report To the Board of Directors and Stockholders of IVC Industries, Inc. We have reviewed the accompanying condensed consolidated balance sheet of IVC Industries, Inc. as of April 30, 2001, and the related condensed consolidated statements of operations for the three months and nine months ended April 30, 2001 and condensed consolidated statement of cash flows for the nine months ended April 30, 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements for them to be in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has continuing losses from operations that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. We have previously audited, in accordance with generally accepted auditing standards, the balance sheet as of July 31, 2000, and the related statements of operations, stockholders' equity, and cash flows for the year then ended (not presented herein); and in our report dated October 26, 2000, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed balance sheet as of July 31, 2000, is fairly stated, in all material respects in relation to the balance sheet from which it has been derived. /s/ AMPER POLITZNER & MATTIA, PA June 4, 2001, except for Note 2 and 4, dated June 13, 2001 Edison, New Jersey 3 IVC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands, Except as Noted or Per Share Information)

~~January~~April 3130, July 31, 2001 2000 ----------- -------- ~~ASSETS~~ (unaudited) ASSETS Current assets: Cash and cash equivalents $ ~~595~~803 $ 648 Accounts receivable, net 7,~~298~~875 6,330 Inventories 2220,~~064~~562 27,133 Deferred taxes 1,751 1,751 Prepaid expenses ~~322~~296 252 Refundable income taxes 1,~~597~~340 1,123 Other current assets 6295 120 -------- -------- Total current assets 3332,~~689~~722 37,357 Property, plant and equipment, - net 1918,~~295~~661 20,578 Due from related parties, net ~~509~~517 493 Deferred taxes 1,~~146~~637 1,163 Other assets ~~909~~868 657 -------- -------- Total assets $ 5554,~~548~~405 $ 60,248 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt ~~$ 23~~2,~~928~~286 2,365 Current portion of capital lease ~~obligations~~payable ~~256~~270 230 Current portion of deferred gain on building sale ~~115~~117 112 Accounts payable 98,~~789~~674 10,039 Accrued expenses 34,~~753~~124 5,351 Income taxes payable 8326 91 -------- -------- Total current liabilities 3715,~~924~~497 18,188 Long-term debt - less current portion --22,360 22,653 Capital lease obligations 2,~~768~~696 2,907 Deferred gain on building sale ~~834~~804 893 -------- -------- Total liabilities 41,~~526~~357 44,641 -------- -------- Shareholders' equity: Preferred stock, $.01 par value, 250,000 shares authorized,: none issued -- -- Common stock, $.08 par value, 4,500,000 shares authorized;: issued and outstanding 2,~~096~~099,~~192~~051 as of ~~January~~April 3130, 2001 and 2,088,092 as of ~~July~~April 3130, 2000, respectively 168 167 Additional paid-in capital 11,580 11,553 Foreign currency translation adjustment (~~268~~320) (263) Retained earnings 21,~~542~~620 4,150 -------- -------- Total shareholders' equity 1413,~~022~~048 15,607 -------- -------- Total liabilities and shareholders' equity $ 5554,~~548~~405 $ 60,248 ======== ========

See notes to condensed consolidated financial statements 4 IVC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except as Noted or Per Share Information) (unaudited)

Three Months Ended ~~Six~~Nine Months Ended ~~January~~April 3130, ~~January~~April 3130, ----------------------------- ----------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Net sales $ 1915,~~590~~651 $ 2917,~~625~~234 $ 3551,~~418~~069 $ 5168,~~037~~271 Cost of sales 1411,~~609~~807 2012,~~242~~652 2638,~~733~~540 3649,~~597~~248 ----------- ----------- ----------- ----------- Gross profit 43,~~981~~844 94,~~383~~582 812,~~685~~529 1419,~~440~~023 Selling, general and administrative expenses 4,~~960~~664 76,~~864~~444 914,~~508~~171 1420,~~257~~701 ----------- ----------- ----------- ----------- ~~Income~~Loss ~~(loss)~~ from operations 21(820) (1,~~519~~862) (~~823~~1,642) ~~183~~(1,678) Recovery, price fixing settlement -- --6,305 -- 1016,~~000~~305 Other ~~expense,~~expenses - net ~~742~~631 ~~713~~705 12,~~490~~121 1,~~058~~764 ----------- ----------- ----------- ----------- Income (loss) before income taxes (~~721~~1,451) ~~806~~3,738 (23,~~313~~763) 912,~~125~~863 Income tax expense (benefit) (~~188~~528) ~~348~~1,507 (~~705~~1,233) 35,~~691~~198 ----------- ----------- ----------- ----------- Net income (loss) $ (~~533~~923) $ ~~458~~2,231 $ (12,~~608~~530) $ 57,~~434~~665 =========== =========== =========== =========== Net income (loss) per share - basic $ (0.2544) $ 01.2207 $ (01.7721) $ 23.6067 =========== =========== =========== =========== Net income (loss) per share - diluted $ (0.2544) $ 01.2207 $ (01.7721) $ 23.6067 =========== =========== =========== =========== Weighted average shares - basic 2,~~094~~098,~~529~~151 2,088,092 2,~~092~~094,~~305~~211 2,088,092 =========== =========== =========== =========== Weighted average shares - diluted 2,~~094~~098,~~529~~151 2,~~093~~090,~~929~~003 2,~~092~~094,~~305~~211 2,~~093~~088,~~929~~092 =========== =========== =========== ===========

See notes to condensed consolidated financial statements 5 IVC INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (unaudited)

~~Six~~Nine Months Ended ~~January~~April 3130, ----------------------- 2001 2000 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (12,~~608~~530) $ 57,~~434~~665 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 12,~~358~~155 1,~~263~~951 Gain on sale of assets (5663) -- Deferred income taxes 17(474) 729 Stock and options issued to non-employee directors 28 6479 Changes in assets - (increase) decrease: Accounts receivable (~~968~~1,545) (23,~~689)~~044 Inventories 56,~~069~~571 (56,~~048~~780) Prepaid expenses and other current assets (~~486~~236) 21,~~041~~425 Other ~~Assets~~assets (~~268~~344) ~~936~~1,000 Changes in liabilities - increase (decrease): Accounts payable and accrued expenses (12,~~848~~592) (1,~~434~~761) Income taxes payable (865) ~~-- Other -- 2~~1,~~700~~826 -------- -------- Total adjustments 23,~~838~~435 (1,~~438)~~513 -------- -------- Net cash provided by operating activities ~~1,230~~905 39,~~996~~178 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment (76150) (2,~~247~~983) -------- -------- Net cash used in investment activities (76150) (2,~~247~~983) -------- -------- CASH FLOWS FROM FINANCING ACTVITIES: Principal payments on long -term debt (19,~~297~~568) (65,~~189)~~154 Proceeds from long -term debt 1819,~~207~~196 5(10,~~154~~489) Principal payments on capital lease obligations (~~113~~171) (88133) -------- -------- Net cash used inby financing activities (~~1,203~~543) (15,~~123~~468) -------- -------- Foreign currency translation adjustment (557) (3356) -------- -------- NET INCREASE ~~(DECREASE)~~ IN CASH ~~(53)~~155 ~~593~~671 CASH AND CASH EQUIVALENTS-BEGINNING 648 287 -------- -------- CASH AND CASH EQUIVALENTS-ENDING $ ~~595~~803 $ ~~880~~958 ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 12,~~584~~155 $ 1,~~104~~827 ======== ======== Taxes $ ~~158~~326 $ --633 ======== ========

See notes to condensed consolidated financial statements 6 IVC INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands, Except as Noted or Per Share Information) (unaudited) Note 1 - Basis of Presentation and Other Matters: The accompanying interim period unaudited condensed consolidated financial statements do not include all disclosures provided in the annual consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto contained in the IVC Industries, Inc. (the "Company") Annual Report on Form 10-K for the year ended July 31, 2000, as filed with the Securities and Exchange Commission. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. 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 -Liquidity For the nine months ended April 30, 2001, the Company continued to experience losses from operations. These losses are attributable to an overall softness in the market for herbal and nutritional products, resulting in reduced sales levels for the Company. At April 30, 2001 the Company was not in compliance with the minimum tangible net worth covenant contained in the Company's Loan and Security Agreement with Congress Financial Corporation ("Congress"). On June 13, 2001 the Company entered into an Amended Agreement with Congress. Under the Amended Agreement, Congress has agreed to waive the event of default existing as of April 30, 2001, and the rate of interest was changed to the prime rate plus three percent, increasing to five percent in the event of termination or non-renewal of the loan, or if an event of default occurs. The Amended Agreement also provides for a $500,000 permanent special reserve, an amendment fee of $50,000, and requires the Company to maintain revised minimum tangible net worth amounts. The Company is also pursuing, among other initiatives; i) obtaining alternative sources of financing, ii) seeking additional sales opportunities within its core business, iii) seeking new sales opportunities through non-traditional channels of distribution, iv) reducing expenses to a level that would provide the Company with sufficient cash flows to meet its obligations, v) merger or sale of the Company, and or vi) a combination of any of the foregoing. 7 Although there can be no assurances that the Company will be able to achieve any of the foregoing initiatives, these financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. Note 3 - Inventories: Inventories consist of the following: April 30, July 31, 2001 2000 --------- -------- (unaudited) Finished goods $ 6,023 $ 7,579 Bulk and work in process 8,076 11,864 Raw materials and packaging components 6,463 7,690 ------- ------- Total inventories $20,562 $27,133 ======= ======= Note 4 - Long-Term Debt: On October 16, 2000 the Company entered into a new credit agreement with Congress Financial Corporation, a subsidiary of First Union Corporation, to replace a previously existing credit agreement. The agreement matures on October 16, 2003. The Company can borrow up to $25,000 under a revolving credit commitment and $5,500 under a term loan commitment, subject to borrowing base limitations, as defined. Borrowings under the revolving credit commitment bear interest at either .75% above First Union's "prime rate" or at the Company's option, a rate of 2.75% above the adjusted Eurodollar rate used by the bank. The interest rate on the term loan is .25% higher than the revolving loan rates outlined above. The notes are collateralized by substantially all of the Company's assets. The agreement requires the Company to maintain minimum tangible net worth and contains various restrictions customary in such financial arrangements, including limitations on the payment of cash dividends. At April 30, 2001 the Company was not in compliance with the minimum tangible net worth covenant contained in the Company's Loan and Security Agreement with Congress. On June 13, 2001 the Company entered into an Amended Agreement with Congress. Under the Amended Agreement, Congress has agreed to waive the event of default existing as of April 30, 2001, and the rate of interest was changed to the prime rate plus three percent, increasing to five percent in the event of termination or non-renewal of the loan, or if an event of default occurs. The Amended Agreement also provides for a $500,000 permanent special reserve, an amendment fee of $50,000, and requires the Company to maintain revised minimum tangible net worth amounts. 8 Note 5 - Net Income (Loss) Per Share: Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Note 6 - Comprehensive Income: As of August 1, 1999, 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 (loss) for the three and nine month periods ended April 30, 2001 and 2000.

Three Months Ended ~~Six~~Nine Months Ended ~~January~~April 3130, ~~January~~April 3130, 2001 2000 2001 2000 ------- ------- ------- ------- Net income (loss) $ (~~533~~923) $ ~~458~~2,231 $(12,~~608~~530) $ 57,~~434~~665 Other comprehensive income (loss) , net of tax: Foreign exchange translation adjustments 33(52) (7623) (557) (3356) ------- ------- ------- ------- Comprehensive income (loss) $ (~~500~~975) $ ~~382~~2,208 $(12,~~613~~587) $ 57,~~401~~609 ======= ======= ======= =======

Note 7 - Recovery, price fixing settlement: During the year ended July 31, 2000 the Company entered into price-fixing settlements with three suppliers. The settlement agreements included cash payments to the Company of $16,305. Of this amount, $6,305 was included in the statement of operations during the quarter ended April 30, 2000. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. (Dollars in Thousands, except As Noted or Per Share Information) Three Months Ended April 30, 2001 Compared to the Three Months Ended April 30, 2000 Results of Operations Net loss for the quarter ended April 30, 2001 was $923, equivalent to a basic and diluted loss of $.44 per share versus net income of $2,231, equivalent to basic and diluted earnings of $1.07 per share, for the quarter ended April 30, 2000. Net sales for the quarter ended April 30, 2001 were $15,652 as compared to $17,234 in the prior year's quarter, a decrease of $1,582 or 9.2%. This reduction was primarily attributable to a decrease in private label and branded sales to existing customers due to the softness in the overall market for vitamins, herbs and supplements, and increased price and product competition from competitors. Cost of sales for the quarter ended April 30, 2001 was $11,807, a decrease of $845 or 6.7% from $12,652 for the quarter ended April 30, 2000. Cost of sales increased 2.0% as a percentage of net sales over the prior year's period, primarily due to underutilization of capacity. Selling, general and administrative expenses for the quarter ended April 30, 2001 were $4,664, a decrease of $1,780 or 27.6% as compared to the prior year's quarter. The decrease is the result of lower salary costs due to cuts in staff, and lower promotional, commission and distribution costs due to reduced sales levels. Other expenses-net for the quarter ended April 30, 2001 were $631, representing interest expense of $671, which was offset in part by other miscellaneous income. Other expenses-net for the three months ended April 30, 2000 were $705. This amount principally represented interest expense of $681. Income taxes generally reflect the effect of statutory federal, state and Canadian income taxes and certain non-deductible expenses. The Company's effective tax rate was 36.4% during the three months ended April 30, 2001 and 40.3% during the three months ended April 30, 2000. Due to the Company's net loss for the three months ended April 30, 2001, an income tax benefit was recorded for the quarter. 10 Nine Months Ended April 30, 2001 Compared to the Nine Months Ended April 30, 2000 Results of Operations Net loss for the nine months ended April 30, 2001 was $2,530, equivalent to a basic and diluted loss of $1.21 per share, versus net income of $7,665, or $3.67 per basic and diluted share in the same period last year. The results for the prior year include an after-tax gain of $9,783 or $4.69 per share from the proceeds of a price-fixing settlement with a supplier. Excluding this one-time gain, the Company would have incurred a net loss of $2,118, or $1.01 per diluted share. Net sales for the nine months ended April 30, 2001 were $57,070 as compared to $68,271 in the prior year, a decrease of $17,201 or 25.2%. This reduction occurred as a result of weaker branded and private label sales due to the softness in the overall market for vitamins, herbs and supplements, and increased price and product competition from competitors. Cost of sales for the nine months ended April 30, 2001 was $38,540, or 75.5% of sales, compared to $49,248, or 72.1% of sales, for the nine months ended April 30, 2000. Cost of sales increased 3.3% as a percentage of sales versus the prior year's period as a result of underutilization of capacity. Selling, general and administrative expenses for the nine months ended April 30, 2001 were $14,171 or 27.8% of sales, as compared to $20,701 or 30.3% of sales in the same period of the prior year. The decrease is the result of lower salary costs due to cuts in staff, and lower promotional, commission and distribution costs due to reduced sales levels. Other expenses, net were $2,121 for the nine months ended April 30, 2001. This amount includes interest expense of $2,115. Other expenses, net for the nine months ended April 30, 2000, were $1,764. This amount included interest expense of $1,880, which was offset in part by other miscellaneous income. Income taxes generally reflect the effect of statutory federal, state and Canadian income taxes and certain non-deductible expenses. The Company's effective tax rate was 32.8% for the nine months ended April 30, 2001 as compared to 40.4% in the same period of 2000. Due to the Company's net loss for the nine months ended April 30, 2001, an income tax benefit was recorded for the period. 11 Liquidity and Capital Resources Net cash provided by operating activities for the nine months ended April 30, 2001 was $905. The increase in cash was primarily the result of a decrease in inventories of $6,571, and depreciation and amortization of $2,155. Offsetting these increases in cash were a net loss of $2,530, an increase in accounts receivable of $1,545, a decrease in accounts payable and accrued expenses of $2,592, and an increase in prepaid and other assets of $236. Cash used in investing activities for the nine months ended April 30, 2001 was $150 for additions to buildings and improvements and purchases of equipment. Cash used in financing activities for the nine months ended April 30, 2001 was $543 which consisted of the excess of borrowing repayments over actual borrowings for the period. On October 16, 2000 the Company entered into a new credit agreement with Congress Financial Corporation, a subsidiary of First Union Corporation, to replace a previously existing credit agreement. The agreement matures on October 16, 2003. The Company can borrow up to $25,000 under a revolving credit commitment and $5,500 under a term loan commitment, subject to borrowing base limitations, as defined. Borrowings under the revolving credit commitment bear interest at either .75% above First Union's "prime rate" or at the Company's option, a rate of 2.75% above the adjusted Eurodollar rate used by the bank. The interest rate on the term loan is .25% higher than the revolving loan rates outlined above. The notes are collateralized by substantially all of the Company's assets. The agreement requires the Company to maintain minimum tangible net worth and contains various restrictions customary in such financial arrangements, including limitations on the payment of cash dividends. At April 30, 2001 the Company was not in compliance with the minimum tangible net worth covenant contained in the Company's Loan and Security Agreement with Congress. On June 13, 2001 the Company entered into an Amended Agreement with Congress. Under the Amended Agreement, Congress has agreed to waive the event of default existing as of April 30, 2001, and the rate of interest was changed to the prime rate plus three percent, increasing to five percent in the event of termination or non-renewal of the loan, or if an event of default occurs. The Amended Agreement also provides for a $500,000 permanent special reserve, an amendment fee of $50,000, and requires the Company to maintain revised minimum tangible net worth amounts. 12 The Company is pursuing among other initiatives; i) obtaining alternative sources of financing, ii) seeking additional sales opportunities within its core business, iii) seeking new sales opportunities through non-traditional channels of distribution, iv) reducing expenses to a level that would provide the Company with sufficient cash flows to meet its obligations, v) merger or sale of the Company, and or vi) a combination of any of the foregoing. Although there can be no assurance that the Company will be able to achieve any of the foregoing initiatives, these financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern. 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. Item 3 Quantitative and Qualitative Disclosure about Market Risk The Company's principal financial instrument is long-term notes payable under a secured revolving credit agreement. The Company is affected by market risk exposure primarily through the effect of changes in interest rates on amounts payable by the Company under this credit agreement. Changes in these factors cause fluctuations in the Company's net income and cash flows. The Company does not utilize derivative financial instruments to hedge against changes in interest rates or for any other purpose. 13 Part II. Other Information. Item 6. - Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit Description of Number Exhibit ------ ------- 10 Amendment to the Loan and Security Agreement with Congress Financial Corporation. 11 Computation of earnings (loss) per share (b) Reports on Form 8-K A report on Form 8-K was filed on March 27, 2001, relating to a request for a NASDAQ hearing regarding the Company's listing status. 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 14, 2001 By: /s/ E. Joseph Edell ------------------- ----------------------------- Chairman and Chief Executive Officer Dated: June 14, 2001 By: /s/ Thomas E. Bocchino ------------------- ----------------------------- Vice President and Chief Financial Officer 14

Three Months Ended Six Months Ended January 31, January 31, ---------------------------- ---------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- Basic: Net income (loss) $ (533) $ 458 $ (1,608) $ 5,434 Weighted average shares outstanding 2,094,529 2,088,092 2,092,305 2,088,092 =========== =========== =========== =========== Basic earnings (loss) per share $ (0.25) $ 0.22 $ (0.77) $ 2.60 =========== =========== =========== =========== Diluted: Net income (loss) $ (533) $ 458 $ (1,608) $ 5,434 Weighted average shares outstanding 2,094,529 2,088,092 2,092,305 2,088,092 Incremental shares under stock option plan 5,837 3,798 ----------- ----------- ----------- ----------- Adjusted weighted average shares outstanding 2,094,529 2,093,929 2,092,305 2,091,890 =========== =========== =========== =========== Diluted earnings (loss) per share $ (0.25) $ 0.24 $ (0.77) $ 2.60 =========== =========== =========== ===========

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