International Heritage Reports SEC Affected Second Quarter Financial Results
RALEIGH, N.C., Aug. 14 /PRNewswire/ -- INTERNATIONAL HERITAGE, INCORPORATED (''IHI'' or the ''Company''), (OTC Bulletin Board: IHIN - news) today released its Form 1O-QSB for the period ending June 30, 1998. In addition, IHI announced the success of its first regional convention since the Securities and Exchange Commission action (''SEC action'') in March.
The Nashville regional convention held a record attendance of over 3,000 Independent Retail Sales Representatives (''Representatives'' or ''IRSRs'') and guests, as well as three European money managers who oversee institutional investments in the Company exceeding $10.5 million, and representatives from brokerage firms contemplating making a market in the Company's securities. Participants gathered to hear outstanding speakers, attend leadership and sales training seminars, and to witness the unveiling of exciting new products and innovations in the Company's support and services.
In striving to provide its Representatives with the best support and services for building their businesses, the Company introduced several new products. Some of the new products launched at the convention included a children's chewable multi-vitamin called EarthPals(TM) which is part of the Heritage Essentials(TM) Nutritionals line called Heritage Essentials, Jr.(T,); a Tyra Travel Pack/5-Day Free Trial Pack of the Company's patented skin care product line; a 5-Minute Prepaid Calling Card to be used as a sales recruiting tool featuring a two-minute IHI corporate introduction and three minutes of free long distance calling throughout the continental U.S.; and, the Virtual Office featuring one of the largest voicemail systems in the direct selling industry, pager notification, e-mail connectivity, plus many other features.
Additionally, the Company has made its telecommunications products available for residual commissions to be earned under its Flex-Level(TM) compensation plan. IHI has built a substantial telecommunications business already without paying residual commissions and expects the new compensation to significantly increase the efforts of the Representatives leading to an increase in sales.
As released in the Form 1O-QSB, the Company had a net loss of $7,920,843 for the six months ending June 30, 1998 compared to a loss of $7,375,349 for the six month period ending June 30, 1997. Net Sales for the second quarter of Fiscal 1998 were $10,724,171 as compared to sales for the first quarter of Fiscal 1998 of $19,718,732, or a 46% decrease in revenues which management attributes directly to the SEC action and the temporary closure of its business for the period March 16 through April 9, 1998.
The weekend prior to the commencement of the SEC action, the Company held its third annual convention in New Orleans which was attended by over 12,000 IRSRs and guests. This convention was especially exciting, the Company not only unveiled a new compensation plan, but also new products, new catalogs, and new sales materials. The proprietary line of consumables - Heritage Essentials(TM) - was an overwhelming success and sales for that week reached a record high of $5.4 million. 1998 sales projections, prior to the SEC action, were $150 million and the revised forecast is approximately $75 million for fiscal year end December 31, 1998.
Prior to the SEC action, management had anticipated doubling first quarter 1998 sales from new product launches and increased momentum within the network of IRSRs. From March 16 to April 9, 1998 the Company was ordered not to permit any new IRSRs to join the Company. In addition, the Company was allowed to ship only a limited select line of products to existing IRSRs. Management considers sales generated in the second quarter of Fiscal 1998 to be a strong indication of the belief and confidence its IRSRs continue to have in the Company. Management anticipates that sales momentum will increase in the third quarter, which is generally one of the strongest seasons for the network marketing industry.
The Company has been operating under extremely adverse conditions as a result of the SEC action and, including SEC related costs, the Company lost $8,258,128 for the second quarter and $7,920,843 for the 6 months ending June 30, 1998. The operating loss for the 6 months ending June 30, 1998, excluding SEC related costs of $6,794,305 and finance/interest expenses of $1,041,305, was only $85,038 as compared to a $7,375,349 operating loss for the 6 months ending June 30, 1997. Considering the negative impact of external factors, not limited to the SEC action, management believes the Company has performed well from an operational standpoint.
Gross profit margin for the period ending March 31, 1998 was 27.8% as compared to 3% for the first quarter ending March 31, 1997. Gross profit margins for periods ending June 30, 1998 and June 30, 1997 are 13.7% and 3% respectively. The low profit margin for the period ending June 30, 1998 is related to write-offs of business and marketing materials of $2,000,000 and additional cash outs and refunds of $3,753,000 which management directly attributes to the SEC action. Adding back these costs provides the Company with a 32.5% profit margin. This increase in operational specific margins is from the addition of the higher profit consumable products and the introduction of the Flex-Level(TM) compensation program which caps commission payouts at 55% of commissionable sales. Direct consumable product orders accounted for 34% in the second quarter as compared with 7.8% in the first quarter. Management anticipates consumable product sales to contribute over 50% of its revenues in the third quarter, thereby increasing profitability even further.
Overheads were 39.7% of sales for the period ending June 30, 1998 as compared with 14.3% for the period ending June 30, 1997. The increase in overheads is a direct result of the decrease in sales and increase in expenses related to the SEC action. During the second quarter ending June 30, 1998, management reduced staffing costs by $1,928,000 on an annualized basis. The Company has also implemented a cost justification program thereby examining all facets of the business to ensure efficient use of working capital. The Company's President voluntarily took a 50% pay decrease and other senior managers volunteered reductions in their salaries in order to reduce costs, increase operating profitability and preserve operating capital.
The Court's order dated April 3, 1998 which permitted the Company to continue its business, required the posting of a $5 million bond in order to dissolve the Receivership and permit the Company's management to resume control of the business. At the time, the Company was unable to secure a surety bond. The Company's President, Stanley Van Etten personally posted a $5 million cash bond with the Court on behalf of the Company. Subsequently, using Mr. Van Etten's personal assets, the Company was able to secure and post a 70% collateralized surety bond which was accepted by the Court on July 1, 1998 to replace the $5 million cash bond. On July 21, 1998, the Company's President executed options at a per share price of $1.33 for 1,163,522 shares of Company common stock, thus providing an additional $1,547,484 in capital to the Company.
In addition, the Company's President, through an affiliated company, of which the Company's President is the principal owner and president, extended a loan of $750,000 and a loan of $500,000 to the Company to assist with short- term cash flow needs. The $750,000 loan has subsequently been repaid by the Company and the $500,000 loan remains outstanding. Stan Van Etten, President and CEO, is committed to providing the Company with additional cash on a short-term basis as the Company moves further away from the SEC action and problems. In addition, the European investors continue to stand by the Company and provide the Company with cash on an ongoing basis with certain conditions.
If the SEC action had not been brought and there were no restrictions with respect to capital raising (as there currently are in place pursuant to the court's Order dated April 3, 1998) the Company would have conducted a secondary offering after the completion of its reverse merger, with the goal of raising $25 million to $50 million to fund further domestic growth and international expansion. Furthermore, if the SEC action was not pending, holders of 2,852,100 warrants, exercisable at $4 per share, have indicated their intention to exercise the same, which would provide the Company with $11,408,400 in additional working capital. Management is working diligently to expedite a resolution to or a hearing of the SEC action so as to enable the Company to pursue additional opportunities to satisfy its current and future liquidity concerns and to raise additional capital to fund its proposed international expansion into European markets in 1999. Many of the Company's principal shareholders are comprised of European banking institutions.
For further information and a more complete description of all the events and issues contained herein, please see all corporate filings with the Securities and Exchange Commission available through EDGAR.
IHI is a 3-year-old network marketing company with over 150,000 Independent Retail Sales Representatives in the U.S. and Canada. Among its thousands of retail products are fine jewelry, collectibles, sports equipment, telecommunications services, and a proprietary line of consumables. IHI became a publicly traded company on March 9, 1998 and trades on the OTC-BB under the symbol ''IHIN.'' More information about IHI can be found on its website international-heritage.com.
Statements which are not historical facts contained in this Release including management's estimates regarding sales, anticipated operational profits and other similar financial information in the second six months of 1998 are forward-looking statements under the provisions of the private Securities Litigation Reform Act of 1995. All forward-looking statements involve risks and uncertainties. The company wishes to caution readers that several important factors could affect the Company's actual results which could differ dramatically from those expressed in any forward-looking statements made by or on behalf of the Company. Further information regarding the important factors that could cause actual results to differ from projected results can be found in the Company's reports filed with the Securities and Exchange Commission.
SOURCE: International Heritage, Inc. |
