1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-24693
NUTRACEUTIX, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1689591
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8340 - 154TH AVENUE NORTHEAST
REDMOND, WASHINGTON 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(425) 883-9518
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) 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 issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of May 9, 2000:
17,489,812
Transitional Small Business Disclosure Format: Yes [ ] No [X]
2
NUTRACEUTIX, INC.
FORM 10-QSB
TABLE OF CONTENTS
PAGE
----
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 1
Balance Sheets at March 31, 2000 (unaudited) and
December 31, 1999 1
Statements of Operations for the three month period ended
March 31, 2000 and March 31, 1999 (unaudited) 2
Statements of Cash Flows for the three month period ended March
31, 2000 and March 31, 1999 (unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation 4
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Signatures 9
i
3
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nutraceutix, Inc.
BALANCE SHEETS
ASSETS
March 31,
2000 December 31,
(unaudited) 1999
------------ ------------
CURRENT ASSETS
Cash $ 100,182 $ 149,321
Accounts receivable - net 1,030,955 936,627
Inventories 1,766,532 1,746,474
Prepaid expenses 136,094 112,021
------------ ------------
Total current assets 3,033.763 2,944,443
EQUIPMENT AND FURNITURE - net 1,702,529 1,461,324
OTHER ASSETS - net 779,918 795,019
------------ ------------
$ 5,516,210 $ 5,200,786
============ ============
LIABILITIES
CURRENT LIABILITIES
Line of credit $ 864,500 $ 839,500
Current maturities of long-term
obligations 182,675 203,998
Current maturities of capital lease
obligations 197,379 217,394
Accounts payable - trade 589,088 550,900
Accounts payable - MET-Rx 651,540 662,841
Advances from landlord for leasehold
improvements 132,710 --
Accrued liabilities 90,145 84,952
Deferred revenue 12,033 15,461
------------ ------------
Total current liabilities 2,720,070 2,575,046
LONG-TERM OBLIGATIONS, less current
maturities 493,380 533,730
CAPITAL LEASE OBLIGATIONS, less current
maturities 498,606 248,148
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock authorized,
5,000,000 shares $.01 par value $ -- $ --
Common stock authorized,
30,000,000 shares $.001 par value 17,489 17,489
Additional contributed capital 11,725,754 11,725,754
Accumulated deficit (9,939,089) (9,899,381)
------------ ------------
Total stockholders' equity 1,804,154 1,843,862
------------ ------------
$ 5,516,210 $ 5,200,786
============ ============
The accompanying notes are an integral part of these statements.
1
4
Nutraceutix, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended
March 31
----------- -----------
2000 1999
----------- -----------
Net revenues $ 2,068,607 $ 1,589,933
Cost of revenues 1,530,530 1,197,816
Gross profit 538,077 392,117
Operating expenses
Marketing and selling 146,368 207,167
Research and development 80,136 87,550
General and administrative 344,478 318,236
----------- -----------
570,982 612,953
----------- -----------
Operating loss (32,905) (220,836)
Other income (expense)
Interest expense (65,228) (50,670)
Other 58,425 (51,153)
----------- -----------
(6,803) (101,823)
----------- -----------
NET LOSS $ (39,708) $ (322,659)
=========== ===========
Net loss per share $ (0.002) $ (0.019)
----------- -----------
Net loss per share assuming dilution $ (0.002) $ (0.019)
=========== ===========
The accompanying notes are an integral part of these statements.
2
5
Nutraceutix, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended
March 31,
-------------------------
Increase (Decrease) in Cash 2000 1999
--------- ---------
Cash flows from operating activities:
Net loss $ (39,708) $(322,659)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities
Depreciation and amortization 102,396 93,258
Write-off of start-up costs -- 50,266
Changes in assets and liabilities
Accounts receivable (94,328) (45,829)
Inventories (20,058) (482,694)
Prepaid expenses (24,073) 20,907
Accounts payable 26,887 502,483
Advances from landlord for
leasehold Improvements 132,710 --
Accrued liabilities and
deferred revenue 1,765 72,869
--------- ---------
Net cash provided by (used in)
operating activities 85,591 (111,399)
--------- ---------
Cash flows from investing activities:
Purchase of equipment (9,355) (69,552)
Patent expenditures (20,803) (3,554)
--------- ---------
Net cash used in investing activities (30,158) (73,106)
--------- ---------
Cash flows from financing activities:
Payments on long-term obligations and
capital lease obligations (129,572) (85,073)
Proceeds from long-term obligations -- 31,760
Net borrowings on line of credit 25,000 276,000
Net proceeds from issuance of common stock -- 15,625
--------- ---------
Net cash (used in) provided by
financing activities (104,572) 238,312
--------- ---------
Net (decrease) increase in cash (49,139) 53,807
--------- ---------
Cash at beginning of period 149,321 93,440
--------- ---------
Cash at end of period $ 100,182 $ 147,247
--------- ---------
Supplemental cash flow information:
Cash paid during the year for interest $ 65,332 $ 51,406
--------- ---------
Noncash investing and financing activities:
Purchase of equipment under capital
lease obligations $ 298,342 $ --
--------- ---------
Issuance of common stock for subscription
receivable $ -- $ 156,250
========= =========
The accompanying notes are an integral part of these statements.
3
6
NUTRACEUTIX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The unaudited financial statements of Nutraceutix, Inc. (the Company) have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the entire fiscal year
ending December 31, 2000. The accompanying unaudited financial statements and
related notes should be read in conjunction with the audited financial
statements and the Form 10-KSB of the Company, for its fiscal year ended
December 31, 1999.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined
by the first-in, first-out method. Inventories consist of the following:
March 21, 2000
(unaudited) December 31, 1999
-------------- -----------------
Raw materials $1,159,339 $1,122,128
Work in progress 538,155 589,720
Finished goods 69,038 34,626
---------- ----------
$1,766,532 $1,746,474
========== ==========
NOTE 3: NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are based on the weighted average number
of shares outstanding during each quarter. The weighted average shares for
computing the Company's basic earnings (loss) per share were 17,489,812 and
16,913,423 for the three months ended March 31, 2000 and 1999, respectively.
Common stock equivalent shares were not included in the calculation of diluted
earnings (loss) per share as their inclusion would be anti-dilutive.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements, including the notes thereto, appearing in this Form
10-QSB and in the Company's 1999 annual report on Form 10-KSB.
Except for the historical information contain herein, the matters
discussed in this quarterly report contain forward-looking statements that are
based on Management's beliefs and assumptions, current expectations, estimates,
and projections. Statements that are not historical facts, including without
limitation, statements which are preceded by, followed by or include the words
"believes", "anticipates," "plans," "expects," "may," "should," or similar
expressions, are forward-looking statements. Many of the factors that will
determine the Company's future results are beyond the ability of the Company to
control or predict. These statements are subject to risks and uncertainties and,
therefore, actual results may differ materially.
4
7
The Company disclaims any obligation to update any forward-looking
statements whether as a result of the new information, future events or
otherwise.
Important factors that may affect future results include, but are not
limited to: the impact of competitive products and pricing, product development,
changes in law and regulations, customer demand, litigation, availability of
future financing and uncertainty of market acceptance of new products.
A more detailed discussion of these factors is presented in the Company's 1999
annual report on Form 10-KSB under the heading "Outlook - Issues and
Uncertainties."
RESULTS OF OPERATIONS
NET REVENUES
Net revenues increased 30% or $478,674 to $2,068,607 for the three months
ended March 31, 2000 from net revenues of $1,589,933 for the three months ended
March 31, 1999. The increase resulted from increased sales of proprietary
technology and fermentation products. Although net revenues increased in the
first quarter of 2000, this increase was offset by a decrease of 76% in revenues
of private label manufacturing of health supplements and a 48% decrease in sales
of COBACTIN microbial feed additives. An analysis of the profit centers is
outlined below.
In 1999, the Company received approximately 57% of its total revenue from
three customers which customers have consolidated under common ownership. The
effect of this consolidation is uncertain as to the order patterns of these
customers and the revenues to be derived from such customers.
RESULTS OF REVENUE GENERATING PROFIT CENTERS
The Company operates four primary revenue-generating profit centers:
1. Proprietary Technology -- The Company's proprietary technologies
include Calcium D-glucarate, LIVEBAC caplets, molecular dispersion technology
and controlled delivery technology. Revenues are realized from the sales of
glucarate as a raw material to other manufacturers for incorporation into
sublicensed customer's private label products, manufacturing by the Company for
sublicensed customer's private label products containing Calcium D-glucarate,
sales of LIVEBAC caplets and manufacture of health supplements incorporating CDT
control delivery technology and molecular dispersion technology.
2. Private Label Manufacturing of Health Supplements -- The Company
manufactures health supplements for private label customers at its manufacturing
facility in Lafayette, Colorado. Revenues are realized from bottling, labeling
and manufacture of tablets, capsules, herbal pre-blends and health supplement
pre-blends for inclusion into food products and bulk packaged products.
3. Fermentation -- The Company manufactures and realizes revenues from
the sale of viable (live) freeze dried bacteria for companies on a private label
and OEM basis at its fermentation plant located in Redmond, Washington.
5
8
4. COBACTIN microbial feed additive -- COBACTIN for feedlot cattle,
dairy cows and poultry is a viable (live) Lactobacillus acidophilus that
provides a stable blend of lactic acid bacteria on a daily basis. Revenues are
realized from the sale of COBACTIN brand proprietary products and royalties
resulting from the microbial feed additive alliance with Biotal, Inc.
PROPRIETARY TECHNOLOGY
Revenues from proprietary technology increased 276% or $985,183 to
$1,342,419 for the three months ended March 31, 2000 from revenues of $357,236
for the three months ended March 31, 1999. The increase is attributed to the
sales of controlled delivery and molecular dispersion products totaling $491,379
during the three months ended March 31, 2000 compared to no sales of controlled
delivery or molecular dispersion products for the three months ended March 31,
1999 and the sales of LIVEBAC caplets that increased $344,845 to $429,868 for
the three months ended March 31, 2000 compared to $85,023 for the three months
ended March 31, 1999.
PRIVATE LABEL MANUFACTURING OF HEALTH SUPPLEMENTS
Sales of private label manufacturing of health supplements decreased 76%
or $502,627 to $156,775 for the three months ended March 31, 2000 compared to
$659,402 for the three months ended March 31, 1999. The decrease was primarily
due to the sales of non-proprietary products to MET-Rx USA totaling $412,354 for
the three months ended March 31, 1999, of which $296,792 were powder fill
products produced as an interim service for MET-Rx USA until their controlled
delivery products were introduced to the body building market for sale in April,
1999. The Company does not expect to continue the powder fill business in 2000.
FERMENTATION
Sales of fermentation products increased 56% or $145,116 to $405,465 for
the three months ended March 31, 2000 compared to $260,349 for the three months
ended March 31, 1999. The private label bacteria increase in sales is due to the
addition of new customers, increased sales to existing customers and the
alliance with Biotal, Inc. for the manufacture of their MICRO-CELL feed additive
product. The Company believes the agreement with Biotal, Inc. will allow it to
realize an increase in fermentation sales through the sales of MICRO-CELL
products and a corresponding decrease in COBACTIN feed additive sales. The
Company also realized a decrease in marketing and sales costs for COBACTIN
products.
COBACTIN
The Company's sales of COBACTIN microbial feed additives decreased 48% or
$148,998 to $163,948 for the three months ended March 31, 2000 compared to
$312,946 for the three months ended March 31, 1999. This decrease resulted from
the September 1, 1999 agreement with Biotal, Inc. which reduced the sales price
of COBACTIN feed additive, and correspondingly decreased sales and marketing
expenses, and increased fermentation sales through the manufacture of MICRO-CELL
feed additive product for Biotal, Inc.
GROSS PROFIT
Gross Profit increased 37% or $145,960 to $538,077 for the three months
ended March 31, 2000 compared to $392,117 for three months ended March 31, 1999.
This increase was primarily a result of increased sales of bulk fermentation
products, bulk calcium D-glucarate and LIVEBAC caplets.
6
9
MARKETING AND SELLING EXPENSES
Selling and marketing expenses decreased 29% or $60,799 to $146,368 for
the three months ended March 31, 2000 from $207,167 for the three months ended
March 31, 1999. The decrease primarily resulted from the September 1, 1999
agreement with Biotal, Inc. which reduced sales and marketing expenses,
decreased the sales price of COBACTIN feed additive and increased fermentation
sales through the manufacture of Biotal's MICRO-CELL feed additive product for
Biotal, Inc.
RESEARCH AND DEVELOPMENT EXPENSES
Research and Development expenses decreased 8% or $7,414 to $80,136 for
the three months ended March 31, 2000 from $87,550 for the three months ended
March 31, 1999.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 8% or $26,242 to $344,478
for the three months ended March 31, 2000 compared to $318,236 for the three
months ended March 31, 1999. The increase is primarily due to building the
infrastructure of the Company to support the sales growth.
INTEREST EXPENSE
Interest expense increased 29% or $14,558 to $65,228 for the three months
ended March 31, 2000 compared to $50,670 for the three months ended March 31,
1999. The increase was due to the addition of equipment leases in both 1999 and
the first quarter 2000. Interest expense also increased in the first quarter
2000 from the first quarter 1999 due to the increase of the available amount
under the Company's line of credit.
OTHER INCOME
Other income was $58,425 for the three months ended March 31, 2000 due to
the recognition of income from non-operating events and the write-off of certain
liabilities.
NET EARNINGS
The net loss for the three months ended March 31, 2000 was $39,708
compared to a net loss of $322,659 for the three months ended March 31, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital requirements primarily
through borrowing and operations. As of March 31, 2000 the Company had working
capital of $313,693 as compared to working capital of $369,397 at December 31,
1999. The decrease in working capital at March 31, 2000 was primarily due to the
net loss for the three months ended March 31, 2000.
The Company's conventional bank line of credit for $1,200,000 was renewed
on May 1, 2000 for the term of twelve months subject to compliance with certain
financial covenants. As of March 31, 2000, the Company had drawn $864,500 from
its line of credit leaving an available balance of $335,500 for borrowing. The
bank line of credit continues to be collateralized by accounts receivable,
inventory and equipment. The Company anticipates that its working capital needs
for the remainder of the year will be met from operations and available
borrowing capacity.
7
10
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT NO. DESCRIPTION
----------- -----------
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule for the Quarter Ended
March 31, 2000
(b) Reports on Form 8-K
None.
8
11
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NUTRACEUTIX, INC.
Date: May 10, 2000. By: /s/ William D. St. John
----------------------------------
WILLIAM D. ST. JOHN
Chief Executive Officer,
President, Chairman of the Board
(Principal Executive Officer)
Date: May 10, 2000. By: /s/ Steven H. Moger
----------------------------------
STEVEN H. MOGER
Vice President, Operations
(Principal Financial Officer)
9