-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KlX67VSoCcKcXhOHSYR6GP1dTCb+3aqonqgKWung7ZvUVU2KoGxbzh1M8ZfUnm+S NIGd14gj3ndsgK98Y8lKwQ== 0000899243-00-000307.txt : 20000223 0000899243-00-000307.hdr.sgml : 20000223 ACCESSION NUMBER: 0000899243-00-000307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000222 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NUTRITION FOR LIFE INTERNATIONAL INC CENTRAL INDEX KEY: 0000913614 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DRUGS PROPRIETARIES & DRUGGISTS' SUNDRIES [5122] IRS NUMBER: 760416176 STATE OF INCORPORATION: TX FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26362 FILM NUMBER: 550639 BUSINESS ADDRESS: STREET 1: 9101 JAMEEL RD STREET 2: STE 180 CITY: HOUSTON STATE: TX ZIP: 77040 BUSINESS PHONE: 7134601976 MAIL ADDRESS: STREET 1: 9101 JAMEEL RD STREET 2: STE 180 CITY: HOUSTON STATE: TX ZIP: 77040 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended December 31, 1999 Commission file number 0-26362 NUTRITION FOR LIFE INTERNATIONAL, INC. (Exact name of Registrant as specified in its charter) TEXAS 76-0416176 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9101 Jameel Road, Suite 180 Houston, Texas 77040 (Address of Principal Executive Offices) (713) 460-1976 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has 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 [_] As of February 12, 2000 there were 5,808,595 shares of common stock, $0.01 par value per share, outstanding. NUTRITION FOR LIFE INTERNATIONAL, INC. Index PART 1 - Financial Information Page Item 1. Financial Statements Nutrition For Life International, Inc. Consolidated Balance Sheets 3 December 31, 1999 and September 30, 1999 Consolidated Statements of Operations and Comprehensive Income (Loss) For the Three Months Ended December 31, 1999 and 1998 4 Condensed Consolidated Statements of Cash Flows For the Three Months Ended December 31, 1999 and 1998 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 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 NUTRITION FOR LIFE INTERNATIONAL, INC. CONSOLIDATED BALANCE SHEETS
December 31, 1999 September 30, (Unaudited) 1999 -------------- ------------- Assets Current assets: Cash and cash equivalents $ 611,554 $ 1,395,310 Restricted cash 594,517 585,866 Marketable securities -- 996,942 Receivables, net 4,395,151 362,315 Inventories 11,468,125 8,434,220 Deferred tax asset, net 1,664,000 1,647,000 Prepaid expenses and other assets 1,086,743 1,062,513 -------------- -------------- Total current assets 19,820,090 14,484,166 Property and equipment, net 15,518,692 6,038,186 Audio production rights 855,555 972,222 Goodwill 10,069,105 -- Other assets 884,017 746,246 -------------- -------------- $ 47,147,459 $ 22,240,820 ============== ==============
Liabilities and Stockholders' Equity
Current liabilities: Accounts payable $ 6,675,314 $ 2,517,020 Accrued bonuses and commissions 1,334,132 1,384,950 Deferred income 497,168 826,464 Accrued expenses and other liabilities 1,740,065 1,344,001 Current portion of capital lease obligation 177,160 177,160 Current portion of long-term debt 1,665,097 385,304 -------------- -------------- Total current liabilities 12,088,936 6,634,899 Deferred tax liability 3,738,000 778,000 Long-term portion of capital lease obligation 128,088 170,994 Long-term debt 10,933,246 308,725 -------------- -------------- Total liabilities 26,888,270 7,892,618 -------------- -------------- Stockholders' equity: Series A convertible preferred stock, $.001 par value; 1,000,000 authorized; 221,127 issued; stated at liquidation preference at $28.40 per share 6,280,000 -- Common stock; $.01 par value; 20,000,000 shares authorized 58,875 58,875 Additional paid-in capital 11,837,156 11,837,156 Retained earnings 2,612,245 3,110,405 Accumulated other comprehensive income (loss) 3,398 (125,749) -------------- -------------- 20,791,674 14,880,687 Less: Treasury stock 79,000 shares, at cost (532,485) (532,485) -------------- -------------- Total stockholders' equity 20,259,189 14,348,202 -------------- -------------- $ 47,147,459 $ 22,240,820 ============== ==============
See accompanying notes to consolidated financial statements 3 NUTRITION FOR LIFE INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
Three Months Ended December 31, ------------------------------- 1999 1998 -------- -------- Net sales $16,586,996 $16,991,901 Cost of sales 11,476,565 11,020,602 ----------- ----------- Gross profit 5,110,431 5,971,299 Marketing, distribution and administrative expenses 5,618,771 5,613,549 ----------- ----------- Income (loss) from operations (508,340) 357,750 ----------- ----------- Other income (expense): Interest income (expense), net (104,201) 10,000 Foreign exchange income (loss) (33,356) 146,906 Other, net 101,737 180,738 ----------- ----------- (35,820) 337,644 ----------- ----------- Income (loss) before income tax expense (544,160) 695,394 Income tax expense (benefit) (46,000) 291,000 ----------- ----------- Net income (loss) (498,160) 404,394 ----------- ----------- Other comprehensive (loss): Unrealized loss on investments 45,500 (8,651) Foreign currency translation loss 83,647 (66,543) ----------- ----------- 129,147 (75,194) ----------- ----------- Total comprehensive income (loss) $ (369,013) $ 329,200 =========== =========== Basic income (loss) per common share $ (0.09) $ 0.07 =========== =========== Diluted income (loss) per common share $ (0.09) $ 0.07 =========== =========== Weighted average common shares: Basic 5,808,595 5,887,595 =========== =========== Diluted 5,808,595 5,950,747 =========== ===========
See accompanying notes to consolidated financial statements 4 NUTRITION FOR LIFE INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Three Months Ended December 31, ------------------------ 1999 1998 ---- ---- Net cash used in operating activities $(2,352,561) $(1,268,988) Net cash used in investing activities (3,374,316) (144,556) Net cash provided by (used in) financing activities 4,859,474 (119,956) Effect of exchange rates 83,647 (66,543) ----------- ----------- Net decrease in cash and cash equivalents (783,756) (1,600,043) Cash and cash equivalents at beginning of period 1,395,310 4,404,388 ----------- ----------- Cash and cash equivalents at end of period $ 611,554 $ 2,804,345 =========== =========== See accompanying notes to consolidated financial statements 5 NUTRITION FOR LIFE INTERNATIONAL, INC. NOTES FOR CONSOLIDATED STATEMENTS INTERIM FINANCIAL STATEMENTS The accompanying financial statements of Nutrition For Life International, Inc. (the Company) have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of Management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at December 31, 1999, and for all periods presented have been made. Certain information and footnote data necessary for fair presentation of financial position and results of operations in conformity with generally accepted accounting principles have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company's Annual Report on Form 10-K. The results of operations for the period ended December 31, 1999 are not necessarily an indication of operating results for the full year. NOTE 1 - RECENT ACQUISITIONS On November 17, 1999 the Company finalized the acquisitions of Advanced Nutraceuticals, Inc. ("ANI") and Bactolac Pharmaceutical Inc. ("Bactolac"). The acquisition of ANI was completed through a merger with the Company's wholly owned subsidiary, NL Acquisition Company. The acquisition of Bactolac was completed through a merger with the Company's wholly owned subsidiary, BPI Acquisition Company. In connection with the merger of Bactolac into BPI Acquisition Company, the name of the surviving corporation was changed to Bactolac Pharmaceutical Inc. ANI was formed to pursue a consolidation and integration program in the nutrition industry. The former ANI stockholders received an aggregate of 75,000 shares of a newly created Series A Preferred Stock of the Company. Each one share of Series A Preferred Stock will be automatically converted into ten shares of the Company's common stock upon approval of the Company's shareholders. The Series A Preferred Stock has no voting rights (except as required by law) and no dividend rights. Upon liquidation, dissolution or winding up of the Company, the Series A Preferred Stock has a preference of $28.40 per share, payable prior and in preference to any distribution of any assets or surplus funds of the Company to the holders of the Company's common stock. Bactolac headquartered in Westbury, New York, manufactures nutritional supplements for private labeled customers. The purchase price of the Bactolac acquisition consisted of $2,500,000 in cash, a subordinated promissory note in the principal amount of $2,500,000 and 96,831 shares of Series A Preferred Stock. Additionally, up to 17,606 shares of Series A Preferred Stock may be issued pursuant to an earnout agreement. Bactolac entered into an employment agreement and covenant not to compete agreement with its former owner at the closing on November 17,1999. The Company intends to continue the operations of Bactolac and to use its inventory, machinery and equipment in connection with the manufacture of nutritional supplements. On December 1, 1999, the Company finalized the acquisition of Ash Corp. ("Ash"). The acquisition of Ash was completed through a merger with the Company's wholly owned subsidiary Bactolac. The purchase price of Ash consisted of $750,000 in cash, a note payable in the amount of $500,000 and 49,296 shares of Series A Preferred Stock. Additionally, up to 105,634 shares of Series A Preferred Stock may be issued pursuant to an earnout agreement. Each one share of Series A Preferred Stock will be automatically converted into 10 shares of the Company's common stock upon approval of the Company's shareholders. The Company intends to continue the operations of Ash and to use its inventory, machinery and equipment in connection with the manufacture of liquid pharmaceutical and nutraceutical products. Financing for the above acquisitions was provided primarily through a financing arrangement entered into on November 17,1999 with General Electric Capital Corporation ("GECC"). The Company borrowed $2,360,000 from GECC pursuant to a term loan payable in three years, and is subject to limitations based upon eligible accounts. The loan facility is secured by substantially all of the assets of the Company and its subsidiaries. The interest rate on borrowing is 0.5% above the prime rate. There is a fee of 0.25% on the unused portion of the facility and an annual monitoring fee of $10,000. It is required, among other provisions, that the Company maintain as of the end of the fiscal year ending September 30, 1999, a minimum net worth (on a consolidated basis including ASH and BPI) of $18 million and a minimum net worth of $25.5 million at September 30, 2000, and a minimum net worth of $27 million for each fiscal year after September 30, 2000. In addition, the Company is required to maintain a fixed charge coverage ratio of 2.0 to 1.0 through July 1, 2000, and 1.5 to 1.0 at July 2, 2000, and at all times thereafter. The Company is also subject to additional covenants, including filing of reports and significant restrictions on dividend payments, issuance of debt and equity, mergers, changes in business operations and sales of assets. The acquisitions have been accounted for using the purchase method of accounting, and, accordingly, the purchase price has been allocated to the assets purchased and the liabilities assumed based upon their fair values at the acquisition dates. The excess of the purchase price over the fair values of the net assets acquired was approximately $10,129,000 and has been recorded as goodwill, which is being amortized on a straight-line basis over 20 years. 6 The operating results of these acquired businesses have been included in the consolidated statement of operations and comprehensive income (loss) from their dates of acquisition. On the basis of a proforma consolidation of the results of operations as if the acquisition had taken place on October 1, 1998 consolidated results of operations would have been as follows: Three Months Ended December 31, ------------------------------ 1999 1998 ---- ---- Net revenue $19,719,000 $20,779,000 Net income (loss) (1,412,000) (699,000) Net income (loss) per share (0.24) (0.12) These proforma results have been prepared for comparative purposes only and include certain adjustments such as additional depreciation expense as a result of a step-up in the basis of fixed assets, additional amortization expense as a result of goodwill and increased interest expense on acquisition debt. They do not purport to be indicative of the results of operations which actually would have resulted had the acquisitions been in effect on October 1, 1998 and 1999 or of future results of operations of the consolidated entities. NOTE 2 - SEGMENT INFORMATION Information regarding the Company's business segments as required by Statements of Financial Accounting Standards No. 131, "Disclosure About Segments of a Business Enterprise", follows below: Three Months ended December 31, (In Thousands) ------------------------ 1999 1998 Sales to unaffiliated customers: Distribution: North America (1) $13,239 $15,707 United Kingdom (2) 1,358 1,102 Philippines 205 183 Manufacturing 1,785 -- Sales or transfers between geographic areas: Distribution: North America -- -- United Kingdom 394 187 Philippines 43 28 Manufacturing -- -- Operating profit (loss): Distribution: North America (360) 641 United Kingdom (234) (167) Philippines (100) (116) Manufacturing 186 -- Identifiable assets: Distribution: North America 37,870 26,771 United Kingdom 2,197 1,460 Philippines 302 907 Manufacturing(3) 16,283 -- (1) Includes the United States, Canada, and Puerto Rico (2) Includes the United Kingdom, Ireland, and the Netherlands (3) Excludes goodwill 7 ITEM 2. NUTRITION FOR LIFE INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction During the quarter ended December 31, 1999, the Company finalized three acquisitions. On November 17, 1999, the Company completed the acquisitions of Advanced Nutraceuticals, Inc. and Bactolac Pharmaceutical Inc. Advanced Nutraceuticals, Inc. was formed to pursue a consolidation and integration program in the nutrition industry. Bactolac Pharmaceutical, Inc. manufactures nutritional supplements for private labeled customers. On December 1, 1999, the Company acquired Ash Corp., a manufacturer of liquid pharmaceutical and nutraceutical products. The operating results of these acquired businesses have been included in the consolidated statement of operations and comprehensive income (loss) from the dates of acquisition. As a result of these acquisitions, the Company's operations now include manufacturing, as well as distribution, of consumer products. Results of Operations Distribution Operations Net sales for the three months ended December 31, 1999 decreased by $2,190,371 or 12.9% to $14,801,530 as compared to net sales of $16,991,901 for the three months ended December 31, 1998. At December 31, 1999, the Company had approximately 65,300 distributors compared to approximately 76,500 at December 31, 1998 and 67,000 at September 30, 1999. During the three months ended December 31, 1999 the number of active International distributors increased by approximately 1,500, while active distributors in North America decreased by approximately 3,200. The ability of the Company to increase its number of active distributors and its sales per average number of distributors is material to the future operations and financial condition of the Company. The decrease in net sales is recapped below: Decrease in sales due to decreased number of distributors $(2,577,000) Increase in distributor average sales 387,000 ----------- $(2,190,000) =========== The Company's net sales per average number of distributors per month increased from $73 during the three months ended December 31, 1998 to $75 for the three months ended December 31, 1999. Cost of sales decreased by $821,043 or 12.9% to $10,199,559 for the three months ended December 31, 1999 from $11,020,602 for the three months ended December 31, 1998. Cost of sales as a percentage of net sales increased from 64.9% in the three months ended December 31, 1998 to 68.9% in the three months ended December 31, 1999. Cost of sales, which includes product costs, commissions and bonuses paid to distributors, and shipping costs, is recapped below: Three months ended December 31, -------------- 1999 1998 ---- ---- Product costs 25.5% 25.9% Commissions and bonuses paid to distributors 34.1 32.5 Shipping costs 9.3 6.5 ---- ---- 68.9% 64.9% ==== ==== Product costs as a percentage of cost of sales decreased 0.4% primarily as a result of mix of product sales. Commissions and bonuses paid to distributors increased 1.6% as a result of changes in the mix of higher versus lower bonus value products purchased by distributors. Shipping costs increased 2.8% during the three months ended December 31, 1999 primarily because of increased foreign shipping costs which were partially offset by billings for freight and processing fees. 8 Gross profit as percentage of net sales decreased from 35.1% for the three months ended December 31, 1998 to 31.1% for the three months ended December 31, 1999. Gross profit decreased 22.9% or $1,369,327 from $5,971,299 for the three months ended December 31, 1998 to $4,601,972 for the three months ended December 31, 1999. Manufacturing Operations Net sales for the periods from the dates of acquisition to December 31, 1999 were $1,785,466. Cost of sales for the above periods were $1,277,007. Cost of sales as a percentage of net sales was 71.5%. Included in cost of sales were product costs of 70.4% and shipping costs of 1.1%. Gross profit as a percentage of net sales for the above periods was 28.5%. Combined Operations Marketing, distribution and administrative expenses increased $5,222 or 0.1% from $5,613,549 for the three months ended December 31, 1998 to $5,618,771 for the three months ended December 31, 1999. This change in amount resulted primarily from reductions in professional fees and promotion expenses in distribution being offset by increases in personnel expenses in manufacturing. As a percentage of net sales, marketing, distribution, and administrative expenses increased to 33.9% for the three months ended December 31, 1999 from 33.0% for the three months ended December 31, 1998. Income (loss) from operations for the three months ended December 31, 1999 decreased $866,091 or 242.1% to an operating loss of $508,342 from operating income of $357,750 for the three months ended December 31, 1998, principally as a result of the decrease in gross profit being greater than the increase in operating expenses as explained above. Other income (loss) decreased to an other loss of $35,820 for the three months ended December 31, 1999 from other income of $337,644 for the three months ended December 31, 1998. The decrease was primarily the result of a decline in net interest income due to a decrease in interest bearing deposits, an increase in interest incurred from the acquisition financing and less of a foreign exchange gain experienced by the Company's subsidiary in the Philippines. As the Company is not currently able to recognize any tax benefit from foreign operating losses, income tax expense was accrued based on the taxable income from domestic operations for the three months ended December 31, 1999 and 1998. Net (loss) was $498,160 for the three months ended December 31, 1999, a decrease of 223.2% compared to a net income of $404,394 for the three months ended December 31, 1998. The increase was the result of the items discussed above. CHANGES IN FINANCIAL CONDITION The Company had cash and cash equivalents of $611,554 at December 31, 1999 compared to $1,395,310 at September 30, 1999. The cash used in operating activities of $2,352,561 for the three months ended December 31, 1999 was $1,083,573 greater than the cash used in operating activities of $1,268,988 for the three months ended December 31, 1998. Included in the funds used in operating activities for the three months ended December 31, 1999 were significant increases in receivables and inventories and a net reduction in current liabilities. Included in cash used in investing activities for the three months ended December 31, 1999 was approximately $4,100,000 used in acquisitions of subsidiaries. Included in cash provided by financing activities for the three months ended December 31, 1999 was approximately $4,900,000 received from a credit facility used for both the acquisition of the purchased subsidiaries and working capital needs. The Company used approximately $156,000 and $112,000, respectively, to purchase property and equipment during the three months periods ended December 31, 1999 and 1998. The Company had working capital of $7,731,154 at December 31, 1999 compared to $7,849,267 at September 30, 1999. As of December 31, 1999 approximately $2,200,000 of additional borrowing capacity was available to the Company from its credit facility. The Company believes that the cash flow generated from its operations and amounts available under its credit facility should be sufficient to fund its debt service requirements, working capital needs, anticipated capital expenditures and other operating expenses for the near term. 9 Part II Other Information Item 6. Exhibits and Reports on Form 8-K (b) Reports on Form 8-K On December 2, 1999 the Company filed a Report on Form 8-K reporting the Company's acquisitions of Advanced Nutraceuticals, Inc. and Bactolac Pharmaceutical Inc. On December 15, 1999 the Company filed a Report on Form 8-K reporting the Company's acquisition of Ash Corp. On January 31, 2000 the Company filed an amendment to these Reports on Form 8-K which included historical financial statements of the businesses acquired and pro forma financial information. 10 NUTRITION FOR LIFE INTERNATIONAL, INC. 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. NUTRITION FOR LIFE INTERNATIONAL, INC. (Registrant) Dated: February 22, 2000 By: /s/ John R. Brown, Jr. ------------------------------- John R. Brown, Jr. Vice President - Finance By: /s/Julia J. Schreiber ------------------------------- Julia J. Schreiber Controller and Chief Accounting Officer 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 3-MOS SEP-30-2000 OCT-01-1999 DEC-31-1999 611,554 0 4,395,151 0 11,468,125 19,820,090 19,587,394 4,068,702 47,147,459 12,088,936 0 0 6,280,000 58,875 13,920,314 47,147,459 0 16,586,996 0 11,476,565 5,618,771 0 104,201 (544,160) (46,000) 0 0 0 0 (498,160) (0.09) (0.09)
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