UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)
June 13, 2001
-------------
Advanced Nutraceuticals, Inc.
-----------------------------
(Exact Name of Registrant as Specified in its Charter)
Texas
----------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-26362 76-0642336
------------------------ ------------------------------------
(Commission File Number) (I.R.S. Employer Identification No.)
106 South University Blvd. #14, Denver, Colorado 80209
------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) - (303) 722-4008
---------------------------------------------------------------------
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
On June 13, 2001, Advanced Nutraceuticals, Inc. ("ANI" or the "Company")
completed the sale of its network marketing subsidiary, Nutrition For Life
International, Inc. ("NFLI"), to Everest Group Holdings, Inc. At closing the
Company received $3.2 million in cash and a $5 million note payable by NFLI
based on a ten-year amortization with quarterly payments for three years and a
final balloon payment in June 2004. NFLI entered into a product supply
agreement with the Company's subsidiary, Bactolac Pharmaceutical, Inc. and
Bactolac received a $650,000 note from NFLI due in June 2002. The purchase
price may also be increased up to an additional $750,000, depending upon future
operating results of NFLI's Japanese subsidiary.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not applicable
(b) Pro Forma Financial Information
(1) Unaudited Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 2001.
(2) Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the six months ended March 31, 2001.
(3) Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended September 30, 2000.
(4) Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended September 30, 1999.
(5) Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended September 30, 1998.
(c) Exhibits.
10.54 Stock Purchase Agreement, dated December 29, 2000 among Advanced
Nutraceuticals, Inc., Everest International, LLC and Nutrition For Life
International, Inc. filed as an exhibit to the Company's Report on Form 10-K for
the fiscal year ended September 30, 2000 and incorporated by reference herein.
10.54(a) First Amendment to Stock Purchase Agreement dated June 5, 2001.
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 hereunto duly authorized.
ADVANCED NUTRACEUTICALS, INC.
Dated: June 27, 2001 By: /s/ Jeffrey G. McGonegal
----------------------------------
Jeffrey G. McGonegal
Senior Vice President of Finance
2
ADVANCED NUTRACEUTICALS, INC.
UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet as of
March 31, 2001 and the unaudited pro forma condensed consolidated statements of
operations for the six months ended March 31, 2001 and the three years in the
period ended September 30, 2000, give effect to the disposition of NFLI by ANI,
which closed on June 13, 2001. The unaudited pro forma condensed consolidated
balance sheet as of March 31, 2001 assumes that the disposition took place as of
March 31, 2001. The unaudited pro forma condensed consolidated statements of
operations gives effect to the disposition as if it had occurred at the
beginning of the earliest period presented. The unaudited pro forma consolidated
financial statements give effect to the terms of the disposition, including the
cash portion of the purchase price as well as the $5 million Note issued as part
of the consideration, but do not give effect to any amounts which may be paid in
the future under an earn-out based upon future operations of NFLI Japan. Such
earn-out amounts would be recorded as income at which future time, collection of
such amounts would be assured. For subsequently issued financial statements of
ANI, the operations of NFLI to be included in such financial statements will be
treated as discontinued operations for all prior periods. The pro forma
statements for the year ended September 30, 2000, also give effect to the
acquisitions of Bactolac, ASH and Advanced Nutraceuticals, Inc., a Delaware
corporation ("Old-ANI") as though such acquisitions had occurred as of the
beginning of that year. All periods outstanding share amounts have been
retroactively restated to reflect a four-for-one reverse common stock split that
was effected as of June 1, 2001.
The unaudited pro forma condensed consolidated balance sheet and statements of
operations are presented for information purposes only and are not necessarily
indicative of the financial position or the results of operations that would
have been obtained had the disposition actually occurred as of the dates assumed
nor is it necessarily indicative of the financial position or future results of
operations. The pro forma adjustments are based upon estimates, information and
assumptions available at the time of the filing of this document. The pro forma
condensed consolidated financial statements are based on the historical
consolidated financial statements of ANI, and should be read in conjunction with
the audited consolidated financial statements and related notes thereto of ANI
contained in its Annual Report on Form 10-K/A for the year ended September 30,
2000 and the condensed consolidated financial statements in its Quarterly Report
on Form 10-Q for the quarter ended March 31, 2001, as well as the estimates and
assumptions set forth below and in the notes to the unaudited pro forma
financial statements.
For financial reporting purposes, management of ANI is unable to determine that
it is probable that the future cash flows from NFLI's operations will be
sufficient to fund the entire balloon payment required at maturity under the
terms of the $5 million Note. Accordingly, an allowance of approximately
$2,800,000 is being provided against the face amount of the $5 million Note. ANI
will account for collections on the $5 million Note under the cost recovery
method, whereby any future collections are recorded as a reduction of the
balance recorded for the $5 million Note (after the allowance). Additional
collections above that amount are recorded as income as collected.
3
Advanced Nutraceuticals, Inc.
Unaudited Pro Forma Consolidated Balance Sheet
March 31, 2001
Pro Forma Adjustments - DR (CR)
--------------------------------------- Pro Forma
ANI Ref. Amount Ref. Amount Adjusted
----------- ---- ----------- ---- ----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,681,842 2 $ (628,286) 3 $ 2,873,000 $ 3,926,556
Restricted cash 101,266 2 (101,266) - -
Trade accounts receivable, net 3,920,788 2 (325,519) - 3,595,269
Inventories 7,057,761 2 (5,201,182) - 1,856,579
Net assets of NFLI operation - 2 4,791,893 5 (4,791,893) -
Deferred tax asset, net 1,678,000 2 (1,119,000) - 559,000
Prepaid expenses and other 1,158,050 2 (875,632) 3 500,000 782,418
----------- ----------- ----------- -----------
Total current assets 15,597,707 (3,458,992) (1,418,893) 10,719,822
Property and equipment, net 13,586,596 2 (4,155,235) - 9,431,361
Intangible assets, net 9,048,446 2 (43,400) - 9,005,046
Notes receivable - - 3 1,688,893 1,688,893
Other assets 654,062 2 (518,730) - 135,332
----------- ----------- ----------- -----------
Total assets $38,886,811 $(8,176,357) $ 270,000 $30,980,454
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,688,298 2 $ 3,238,947 $ - $ 2,449,351
Accrued distributor bonuses 991,932 2 991,932 - -
Deferred income 298,956 2 271,178 - 27,778
Accrued expenses and other 2,051,598 2 905,048 3 (270,000) 1,416,550
Credit facility 4,480,945 2 807,509 - 3,673,436
Current portion of long-term debt 3,734,717 2 1,659,743 - 2,074,974
----------- ----------- ----------- -----------
Total current liabilities 17,246,446 7,874,357 (270,000) 9,642,089
----------- ----------- ----------- -----------
Deferred tax liability 2,807,000 302,000 - 2,505,000
Long-term debt 1,750,000 - - 1,750,000
----------- ----------- ----------- -----------
Total liabilities 21,803,446 8,176,357 (270,000) 13,897,089
----------- ----------- ----------- -----------
Stockholders' Equity:
Common stock 20,270 - - 20,270
Additional paid-in capital 18,026,446 - - 18,026,446
Retained earnings (deficit) (1,107,798) - - (1,107,798)
Accumulated other comp. inc. 144,447 - - 144,447
----------- ----------- ----------- -----------
Total stockholders' equity 17,083,365 - - 17,083,365
----------- ----------- ----------- -----------
Total liabilities and equity $38,886,811 $ 8,176,357 $ (270,000) $30,980,454
=========== =========== =========== ===========
See accompanying Headnote and
Notes to Pro Forma Consolidated Financial Statements
4
Advanced Nutraceuticals, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Six Months Ended March 31, 2001
Pro Forma
Adjustments - DR (CR)
--------------------- Pro Forma
ANI Ref. Amount Adjusted
----------- ---- ------------ ----------
Net sales $32,847,462 2 $ 23,124,060 $9,723,402
Cost of sales 21,762,987 2 (15,056,736) 6,706,251
----------- ----------
Gross profit 11,084,475 3,017,151
General and administrative exp. 10,339,539 2 (7,481,674) 2,857,865
----------- ----------
Operating income 744,936 159,286
Other income (expense) (813,081) 2 (363,685) (449,396)
----------- ----------
Income (loss) from operations
Before income tax expense (68,145) (290,110)
Income tax expense (benefit) (227,178) 2 218,178 (14,000)
----------- ------------ ----------
Net income (loss) $ 159,033 $ 435,143 $ (276,110)
=========== ============ ==========
Net income (loss) per share:
Basic and Diluted $ 0.08 $(0.14)
=========== ==========
Shares used in computing
net income (loss) per share:
Basic 2,015,970 6 2,015,970
=========== ==========
Diluted 2,015,970 6 2,015,970
=========== ==========
See accompanying Headnote and
Notes to Pro Forma Consolidated Financial Statements
5
Advanced Nutraceuticals, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended September 30, 2000
Pro Forma Pro Forma
Adjustments - DR Adjustments - DR
(CR) Subtotal - (CR)
------------------- Revised ------------------ Pro Forma
ANI Ref. Amount Historical Ref. Amount Adjusted
----------- ---- ------------ ---------- ---- ----------- -----------
Net sales $69,258,328 2 $ 53,190,439 $16,067,889 4 $(2,694,000) $18,761,889
Cost of sales 48,320,748 2 (37,750,401) 10,570,347 4 2,362,000 12,932,347
----------- ----------- -----------
Gross profit 20,937,580 5,497,542 5,829,542
General and administrative exp. 24,556,847 2 (19,829,044) 4,727,803 4 686,000 5,413,803
----------- ----------- -----------
Operating income (loss) (3,619,267) 769,739 415,739
Other income (expense) (1,042,064) 2 (498,336) (543,728) 4 85,000 (628,728)
----------- ----------- -----------
Income (loss) from operations
before income tax expense (4,661,331) 226,011 (212,989)
Income tax expense (benefit) (657,000) 2 917,000 260,000 4 (65,000) 195,000
----------- ------------ ----------- ----------- -----------
Net income (loss) from
continuing operations $(4,004,331) $ (3,970,342) $ (33,989) $ 374,000 $ (407,989)
=========== ============ =========== =========== ===========
Net income (loss) per share:
Basic and Diluted $ (2.08) $ (0.20)
=========== ===========
Shares used in computing
net income (loss) per share:
Basic and Diluted 1,928,438 6 74,237 2,002,675
=========== =========== ===========
See accompanying Headnote and
Notes to Pro Forma Consolidated Financial Statements
6
Advanced Nutraceuticals, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended September 30, 1999
Pro Forma
Adjustments - DR (CR)
--------------------- Pro Forma
ANI Ref. Amount Adjusted
----------- ---- ------------ ----------
Net sales $66,569,875 2 $ 66,569,875 $ -
Cost of sales 44,742,050 2 (44,742,050) -
----------- ----------
Gross profit 21,827,825 -
General and administrative exp. 22,329,914 2 (21,701,467) 628,447
----------- ----------
Operating income (loss) (502,089) (628,447)
Other income (expense) 210,737 2 210,737 -
----------- ----------
Income (loss) from operations
before income tax expense (291,352) (628,447)
Income tax expense (benefit) 557,000 2 (557,000) -
----------- ------------ ----------
Net loss from continuing operations $ (848,352) $ (219,905) $ (628,447)
=========== ============ ==========
Net income (loss) per share:
Basic and Diluted $ (0.58) $ (0.43)
=========== ==========
Shares used in computing
net income (loss) per share:
Basic and Diluted 1,452,149 6 1,452,149
=========== ==========
See accompanying Headnote and
Notes to Pro Forma Consolidated Financial Statements
7
Advanced Nutraceuticals, Inc.
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended September 30, 1998
Pro Forma
Adjustments - DR (CR)
--------------------- Pro Forma
ANI Ref. Amount Adjusted
----------- ---- ------------ ----------
Net sales $69,658,095 2 $ 69,658,095 $ -
Cost of sales 47,939,482 2 (47,939,482) -
----------- ----------
Gross profit 21,718,613 -
General and administrative exp. 21,021,056 2 (20,435,417) 585,639
----------- ----------
Operating income (loss) 697,557 (585,639)
Other income (expense) (774,963) 2 (774,963) -
----------- ----------
Income (loss) from operations
before income tax expense (77,406) (585,639)
Income tax expense (benefit) 790,050 2 (790,050) -
----------- ------------ ----------
Net loss from continuing operations $ (867,456) $ (281,817) $ (585,639)
=========== ============ ==========
Net income (loss) per share:
Basic and Diluted $ (0.59) $ (0.40)
=========== ==========
Shares used in computing
net income (loss) per share:
Basic and Diluted 1,458,222 6 1,458,222
=========== ==========
See accompanying Headnote and
Notes to Pro Forma Consolidated Financial Statements
8
ADVANCED NUTRACEUTICALS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General
The following unaudited pro forma condensed consolidated balance sheet as of
March 31, 2001 and the unaudited pro forma condensed consolidated statements of
operations for the six months ended March 31, 2001 and the three years in the
period ended September 30, 2000, give effect to the disposition of NFLI by ANI,
which closed on June 13, 2001. The unaudited pro forma condensed consolidated
balance sheet as of March 31, 2001 assumes that the disposition took place as of
March 31, 2001. The unaudited pro forma condensed consolidated statements of
operations gives effect to the disposition as if it had occurred at the
beginning of the earliest period presented. The pro forma statements for the
year ended September 30, 2000, also give effect to the acquisitions of Bactolac,
ASH and Old-ANI as though such acquisitions had occurred as of the beginning of
that year. The pro forma adjustments only give effect to amounts that are
directly attributable to the Sale and acquisition transactions. For subsequently
issued financial statements of ANI, the operations of NFLI to be included in
such financial statements will be treated as discontinued operations for all
prior periods.
Note 2 - NFLI Operations
Adjustments to remove from the balance sheet the individual amounts of assets
and liabilities associated with the NFLI entities sold. Also to delete the
amounts representing the items of revenue and expense associated with the NFLI
entities sold from the statements of operations.
Note 3 - Sale of NFLI
As of June 13, 2001, ANI sold to Everest Group Holdings, Inc., a privately held
entity, all of the outstanding capital stock of NFLI and its subsidiaries
engaged in the network marketing business. The agreement provided for $3.2
million in cash at closing and a $5 million, prime plus one-half percent note,
payable based upon a ten-year amortization with quarterly payments for three
years and final balloon payment at the end of the third year. The note will be
an obligation of NFLI and subordinate to the purchaser's secured lender and will
be without recourse to the purchaser. Accordingly, collectability of the note
will depend upon the success of operations of NFLI after the closing of the
sale, including NFLI's ability to service its debt with its senior lender. For
financial reporting purposes, management of ANI is unable to determine that it
is probable that the future cash flows from NFLI's operations will be sufficient
to fund the entire balloon payment required under the terms of the Note.
Accordingly, an allowance of approximately $2,800,000 is being provided against
the face amount of the Note. ANI will account for collections on the Note under
the cost recovery method, whereby any future collections are recorded as a
reduction of the balance recorded for the Note (after the allowance). Additional
collections above that amount are recorded as income as collected. In addition,
Bactolac Pharmaceutical, Inc. (a subsidiary of ANI) received a $650,000 note
relating to an inter-company liability, due one year and a day from closing. The
following summarizes the sale amounts had closing occurred based upon the NFLI
balance sheet as of March 31, 2001:
Note Receivable received at closing (of which
$500,000 is to be collected within next twelve months) $ 5,000,000
Valuation allowance being established against face amount of Note,
Due to estimated insufficient operating cash flow to pay balloon payment (2,811,107)
-----------
Net carrying value of Note for financial reporting purposes $ 2,188,893
Cash portion at closing:
Cash portion of price $3,200,000
Transaction expenses payable at closing (327,000)
----------
Net cash from closing 2,873,000
-----------
9
Total proceeds 5,061,893
Less transaction expenses payable after closing (270,000)
-----------
Revised total 4,791,893
Financial reporting basis in net assets being disposed 4,791,893
-----------
Financial reporting gain on Sale $ -
===========
Note 4 - Acquisitions
Adjusts the pro forma unaudited statement of operations for the year ended
September 30, 2000 to also give effect to the acquisitions of Bactolac, ASH and
Old-ANI, as though such acquisitions had occurred as of the beginning of that
year.
Note 5 - Net Assets of NFLI Operations
Removes net assets relating to entities sold from the balance sheet.
Note 6 - Net Income (Loss) Per Share
Adjusts average shares outstanding (basic and diluted) for the year ended
September 30, 2000 to record the additional shares issued for the acquisitions
of Bactolac, ASH and Old-ANI, as though the acquisitions had occurred as of the
beginning of that year.
All periods outstanding share amounts have been retroactively restated to
reflect a four-for-one reverse common stock split that was effected as of
June 1, 2001.
On a pro forma basis, the effect of outstanding options and warrants are
presented where applicable, but they have no effect on the rounded computation
of diluted pro forma adjusted income per share.
10