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, 2004
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _____ to _____
Commission file number 0-26362
ADVANCED NUTRACEUTICALS, INC.
-----------------------------
(Exact name of small business issuer as specified in its charter)
Texas 76-0642336
----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
106 South University Blvd., Unit 14
Denver, CO 80209
----------------
(Address of Principal Executive Offices)
(303) 722-4008
--------------
(Issuer's telephone number)
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 May 12, 2004 there were 5,028,622 shares of common stock
$0.01 par value per share, outstanding.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
ADVANCED NUTRACEUTICALS, INC.
Index
PART 1 - Financial Information
Page
Item 1. Unaudited Financial Statements
Advanced Nutraceuticals, Inc.
Consolidated Balance Sheet at March 31, 2004 3
Consolidated Statements of Operations for the Three and
Six Months Ended March 31, 2004 and 2003 4
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2004 and 2003 5
Notes to Unaudited Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis 9
Item 3. Controls and Procedures 13
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
2
ADVANCED NUTRACEUTICALS, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 2004
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 606,748
Receivables, net 3,484,096
Inventories 1,438,234
Deferred tax asset 800,000
Prepaid expenses and other assets 38,616
------------
Total Current Assets 6,367,694
Property and equipment, net 1,160,787
Goodwill 7,563,913
Deferred tax asset 1,200,000
Other assets 201,428
------------
$ 16,493,822
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,000,676
Accrued compensation 112,885
Accrued expenses and other liabilities 213,362
Credit facility 288,600
Current portion of long-term debt 24,226
------------
Total Current Liabilities 1,639,749
------------
Long-term debt:
Credit facility 1,573,131
Other long-term debt 12,653
------------
1,585,784
------------
Total Liabilities 3,225,533
------------
Commitments and contingencies --
Stockholders' equity:
Preferred stock; $.001 par value; 1,000,000
shares authorized; none outstanding --
Common stock; $.01 par value; 20,000,000
shares authorized; 4,992,789 issued and outstanding 49,928
Additional paid-in capital 20,322,048
Accumulated deficit (7,103,687)
------------
Total Stockholders' Equity 13,268,289
------------
$ 16,493,822
============
See accompanying notes to unaudited condensed consolidated financial statements.
3
ADVANCED NUTRACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PERIODS ENDED MARCH 31,
(Unaudited)
Three Months Ended Six Months Ended
------------------ ----------------
2004 2003 2004 2003
---- ---- ---- ----
Net sales $ 4,320,271 $ 3,148,786 $ 8,395,345 $ 6,229,554
Cost of sales 2,800,126 1,995,739 5,546,279 3,857,676
----------- ----------- ----------- -----------
Gross profit 1,520,145 1,153,047 2,849,066 2,371,878
General and administrative
expenses 647,074 684,575 1,348,130 1,413,293
----------- ----------- ----------- -----------
Operating income 873,071 468,472 1,500,936 958,585
Other income (expense):
Interest expense, net (71,471) (67,742) (127,488) (107,245)
Other, net 11,021 35 43,529 3,870
----------- ----------- ----------- -----------
Income from continuing
operations before income
tax benefit 812,621 400,765 1,416,977 855,210
Income tax benefit 1,303,000 -- 1,303,000 --
----------- ----------- ----------- -----------
Income from continuing
operations 2,115,621 400,765 2,719,977 855,210
----------- ----------- ----------- -----------
Discontinued operations:
Loss from discontinued (1,825,420) (570,732) (2,230,481) (807,843)
operations
Income tax benefit - deferred 697,000 -- 697,000 --
----------- ----------- ----------- -----------
Net loss from discontinued operations (1,128,420) (570,732) (1,533,481) (807,843)
----------- ----------- ----------- -----------
Net income (loss) $ 987,201 $ (169,967) $ 1,186,496 $ 47,367
=========== =========== =========== ===========
Earnings (loss) per share:
Basic:
Continuing operations $ .42 $ .08 $ .54 $ .17
Discontinued operations (.22) (.11) (.30) (.16)
----------- ----------- ----------- -----------
Net income (loss) $ .20 $ (.03) $ .24 $ .01
=========== =========== =========== ===========
Diluted:
Continuing operations $ .42 $ .08 $ .54 $ .17
Discontinued operations (.23) (.11) (.30) (.16)
----------- ----------- ----------- -----------
Net income (loss) $ .19 $ (.03) $ .24 $ .01
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 4,992,789 4,992,789 4,992,789 4,992,789
=========== =========== =========== ===========
Diluted 5,070,175 4,992,789 5,036,005 5,155,872
=========== =========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
ADVANCED NUTRACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months Ended March 31,
--------------------------
2004 2003
---- ----
Net cash provided by (used in) operating activities:
Continuing operations $ 675,038 $ 656,861
Discontinued operations (514,122) (470,822)
Net cash provided by (used in) investing activities:
Continuing operations (344,789) (69,809)
Discontinued operations 3,492,684 244,981
Net cash provided by (used in) financing activities:
Continuing operations 563,189 (64,547)
Discontinued operations (4,334,010) (374,881)
----------- -----------
Net increase (decrease) in cash and cash equivalents (462,010) (78,217)
Cash and cash equivalents at beginning of period 1,068,758 793,023
----------- -----------
Cash and cash equivalents at end of period $ 606,748 $ 714,806
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
5
ADVANCED NUTRACEUTICALS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Advanced Nutraceuticals, Inc. (the
"Company" or "ANI") have been prepared in accordance with the instructions to
quarterly reports on Form 10-QSB. 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 March 31, 2004, 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 accounting principles
generally accepted in the United States of America 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.
Certain amounts in the Company's prior year financial statements have been
reclassified to conform to the presentation used in the current year. The
results of operations for the period ended March 31, 2004 are not necessarily an
indication of operating results for the full year.
NOTE 1--OPERATIONS AND MAJOR CUSTOMERS
As described in Note 4, on March 23, 2004, the Company completed the sale
of substantially all of the assets and operations of the Company's subsidiary,
ANI Pharmaceuticals, Inc. ("ANIP") to an unrelated newly formed entity. The
operations of ANIP are accounted for as a discontinued operation within these
financial statements. The Company's operations are currently conducted through
one operating subsidiary, Bactolac Pharmaceutical Inc. ("Bactolac"), a private
label contract manufacturer of vitamins and supplements located in Hauppauge,
New York. The Company determines its operating results consistent with its
management reporting and consolidated accounting policies. All of the assets and
operating results as presented in the accompanying financial statements from
continuing operations are associated with the Bactolac operation.
Major Customers
Other than as detailed under foreign sales, the Company's revenues are
generated from customers located in the United States. The following table
summarizes sales to individual customers that comprised more than 10% of the
Company's net sales for the six-month periods ended March 31.
---------------------------------------- -------------- --------------
Customer 2004 2003
-------- ---- ----
---------------------------------------- -------------- --------------
A 15.3% 9.3%
---------------------------------------- -------------- --------------
B 13.1% 13.9%
---------------------------------------- -------------- --------------
C 12.7% 14.3%
---------------------------------------- -------------- --------------
Foreign Sales
Export sales were approximately $600,000 and $350,000 for the six-month
periods ended March 31, 2004 and 2003. The Company has no foreign assets.
6
NOTE 2 - DEBT AGREEMENTS
During March 2003, the Company completed the refinancing of its Senior Debt
Facility with a new lender. The new debt agreement provided the Company with a
$5.5 million facility, consisting of a $4.0 million revolver, a $1.0 million
equipment term loan and a $500,000 equipment acquisition line. The three-year
agreement which matures in March 2006, is collateralized by substantially all of
the Company's assets, and bears interest at rates that fluctuate with the Prime
Rate, with the revolver at 2% over prime (not to be less than a total rate of
6.5%) and the equipment lines at 4.75% over prime (not to be less than a total
rate of 9.25%). As a result of the "floor" amount of the interest rates under
the facility, those rates represented the period-end
interest rates as well as the effective interest rates for the period. Due to
the fact that the agreement extends for a three-year term, the obligation, other
than the portion payable within the next twelve months, is classified as a
long-term liability on the accompanying consolidated balance sheet. The
Agreement contains a number of covenants, which include among other items;
maintenance of specified minimum net worth and fixed charge ratios, as well as
limitations on capital expenditures.
Upon completion of the sale of ANIP, certain terms of the debt agreement
were modified by an amendment to provide the Company with a $3.65 million
facility, consisting of a $2.5 million revolver, a $650,000 equipment term loan
and a $500,000 equipment acquisition line. Additionally, the term loan portion
of the facility now provides for monthly principal payments of approximately
$24,000, plus interest. All other terms of the facility remained unchanged.
As of March 31, 2004, the total balance outstanding under the facility,
including $861,000 outstanding under the term loan portion, amounted to
$1,862,000, of which $289,000 has been classified as a current liability.
Borrowings under the revolving portion of the secured credit facility totaled
$1,001,000, with additional borrowings available of approximately $1,499,000, at
that point, based upon accounts receivable and inventory levels.
NOTE 3 - STOCK BASED COMPENSATION AND EARNINGS PER SHARE
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its stock-based
employee compensation plans. During the six months ended March 31, 2004, the
Company issued 462,868 options under its plans. The following table illustrates
the effect on net income (loss) and income (loss) per share if the Company had
applied the fair value recognition provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation to its stock-based employee plans, for
the current periods ended.
Three Months Ended Six Months Ended
------------------ ----------------
2004 2003 2004 2003
---- ---- ---- ----
Net income (loss), as reported $ 987,000 $ (170,000) $ 1,186,000 $ 47,000
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for awards granted,
modified or settled, net of related tax
effects (53,000) (49,000) (75,000) (98,000)
Pro forma net (loss) $ 934,000 $ (219,000) $ 1,111,000 $ (51,000)
Earnings (loss) per share:
Basic - as reported $ .20 $ (.03) $ .24 $ .01
Diluted - as reported $ .19 $ (.03) $ .24 $ .01
Basic - pro forma $ .19 $ (.04) $ .22 $ (.01)
Diluted - pro forma $ .18 $ (.04) $ .22 $ (.01)
7
NOTE 4 - DISCONTINUED OPERATIONS
On March 23, 2004, the Company completed the sale of substantially all of
the assets and operations of the Company's subsidiary, ANI Pharmaceuticals, Inc.
("ANIP") to an unrelated newly formed entity. The terms of the sale were cash of
approximately $3.4 million and the assumption by the buyer of approximately $1.7
million in liabilities, primarily trade accounts payable. The Company used the
entire cash proceeds, net of closing expenses and a $250,000, escrow
requirement, to repay the outstanding balance on the mortgage on the ANIP
facility and the balance to reduce the Company's senior credit facility. As a
result of the sale of the assets, the Company recorded a loss of approximately
$1,348,000 less a deferred income tax benefit of $697,000. ANIP had previously
been reported as a separate segment of the Company's business and was a contract
and private label manufacturer of over-the-counter liquid and powder
pharmaceutical products, primarily liquid stomach remedies, located in Gulfport,
Mississippi. As a result of the sale of ANIP, the Company's consolidated
financial statements and related notes thereto have been restated to present the
operations of ANIP as discontinued operations. The Company now operates in only
one segment.
Certain information with respect to discontinued operations of ANIP for the
six-month periods ended March 31 follows. The 2004 results are up to the date of
sale.
2004 2003
---- ----
Net sales $ 4,776,078 $ 6,523,587
----------- -----------
Gross profit 921,283 1,539,394
Operating expenses 1,575,187 1,935,137
----------- -----------
Operating loss (653,904) (395,743)
Other expenses, including interest (228,466) (412,100)
Loss on disposal (1,348,111) --
----------- -----------
Loss before income taxes (2,230,481) (807,843)
Income tax benefit - deferred 697,000 --
----------- -----------
Net loss $(1,533,481) $ (807,843)
=========== ===========
NOTE 5 - INCOME TAXES
As a result of the sale of the ANIP subsidiary, which historically had
produced significant losses and caused the Company to report consolidated
losses, the deferred tax benefit from the net operating losses had been fully
reserved for. As a result of the sale of ANIP, management of the Company
believes that it is more likely than not that the Company will be able to use
the net operating losses and accordingly has reduced the reserve associated with
the Company's regular net operating loss carry forward, resulting in a tax
benefit during the six-month period of $1,303,000.
8
NOTE 6 - SUBSEQUENT EVENTS
During April 2004, employees holding approximately 36,000 incentive stock
options, exercised their options, resulting in approximately $35,400 in proceeds
to the Company.
During May 2004, Bactolac entered into a new lease for expanded facilities
from an unrelated landlord, covering approximately 29,000 square feet in a
facility adjoining the current property. The lease term is five years and
requires initial rent payments of $13,292 per month.
ITEM 2.
ADVANCED NUTRACEUTICALS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
The Company's operations are currently conducted through one operating
subsidiary, Bactolac Pharmaceutical Inc. ("Bactolac"), a private label contract
manufacturer of vitamin and supplement products. As a result of the sale of ANIP
the historical financial statements of the Company have been revised to reflect
the operations of ANIP as a discontinued operation.
Comparison of the Presented Results of Operations for the Six Months Ended March
31, 2004 to the Six Months Ended March 31, 2003.
Net sales for the 2004 period increased $2,166,000 or 34.8% over the 2003
period. The increase was attributable approximately 70% to sales of additional
products to existing customers and 30% in sales to new customers.
Gross profit for the 2004 period increased to $2,849,000, a $477,000
increase over the 2003 amount. Gross profit as a percentage of net sales
decreased to 33.9% in 2004, as compared to 38.0% in the 2003 period. The
majority of the change resulted from changes in the product mix during the
period.
Total operating expenses decreased to $1,348,000 in 2004 from $1,413,000 in
2003. This represents a decrease of $65,000, or 5.0%. The majority of the
decrease relates to continued expense control programs instituted by management
to improve profitability.
As a result of the sale of the ANIP subsidiary, which historically had
produced significant losses and caused the Company to report consolidated
losses, the deferred tax benefit from the net operating losses had been fully
reserved for. As a result of the sale of ANIP, management of the Company
believes that it is more likely than not that the Company will be able to use
the net operating losses and accordingly has reduced the reserve associated with
the Company's regular net operating loss carry forward, resulting in a tax
benefit during the six-month period of $1,303,000.
9
Comparison of the Presented Results of Operations for the Three Months Ended
March 31, 2004 to the Three Months Ended March 31, 2003.
Net sales for the 2004 period increased $1,171,000 or 37.2% over the 2003
period. The increase was attributable approximately 70% to sales of additional
products to existing customers and 30% in sales to new customers.
Gross profit for the 2004 period increased to $1,520,000, a $367,000
increase over the 2003 amount. Gross profit as a percentage of net sales
decreased to 35.2% in 2004, as compared to 36.6% in the 2003 period. The
majority of the change resulted from changes in the product mix during the
period, net of the higher sales levels in the 2004 period, which better absorbed
certain fixed production expenses.
Total operating expenses decreased to $647,000 in 2004 from $685,000 in
2003. This represents a decrease of $38,000, or 5.5%. The majority of the
decrease relates to continued expense control programs instituted by management
to improve profitability.
Discontinued Operations
Net sales for the discontinued operation declined to $4,776,000, a
$1,748,000 or 27% decline over the 2003 period. The reduction was due to lower
sales to several existing customers combined with the fact that the 2004
operations are only recorded up to the date of the sale. Gross profit declined
to 19.3% from 23.6% in 2003. The majority of the decline was due to the lower
sales levels against relatively high fixed production costs. Operating expenses
declined to $1,575,000, a $360,000 or 18.6% decline over the 2003 period. The
decline was due to the shorter 2004 period up to the date of sale combined with
lower depreciation expenses due to the impairment write-down that was recorded
as of September 30, 2003, thereby reducing subsequent depreciation charges. The
Company recognized a loss of $1,348,000 on the disposal of the ANIP assets and a
deferred tax benefit of $697,000.
Liquidity and Capital Resources
During the last two fiscal years, ANI has met its working capital and
capital expenditure requirements, including funding for debt repayments, mainly
through the net cash provided under the Company's credit facility. Following the
sale of ANIP and the corresponding reduction in interest bearing debt and the
elimination of the losses previously being incurred through ANIP, combined with
recent revenue increases from growth at Bactolac and cost reductions that have
been implemented, a significant portion of its current working capital needs are
being met out of cash generated from operating activities.
The agreement for the sale of ANIP included a provision for a potential
adjustment to the purchase price depending upon the final adjusted net working
capital as defined under the agreement. The buyer has the right to request an
adjustment of the price if the final working capital is determined to be
different from the seller's determination at closing. To date the buyer has not
provided the Company with such a request, however the buyer may still do so, and
the amount of any such potential request can not be determined and would be
subject to agreement by the Company or resolution by an independent accounting
firm.
At March 31, 2004, the Company had working capital of $3,928,000.
Borrowings under the revolving portion of the secured credit facility totaled
$1,001,000, with additional borrowings available of approximately $1,499,000, at
that point, based upon accounts receivable and inventory levels. The Company's
line of credit includes a $500,000 capital expenditure line that can be used for
equipment additions in loan amounts exceeding $100,000 per advance, of which
$243,000 was advanced during 2003.
As of March 21, 2003, the Company completed the refinancing of its senior
debt facility with a new lender. The new debt agreement provided the Company
with a $5.5 million facility, consisting of a $4.0 million revolver, a $1.0
million equipment term loan and a $500,000 equipment acquisition line. The
three-year agreement which matures in March 2006, is collateralized by
substantially all of the Company's assets, and bears interest at rates that
fluctuate with the Prime Rate, with the revolver at 2% over prime (not to be
less than a total rate of 6.5%) and the equipment lines at 4.75% over prime (not
to be less than a total rate of 9.25%). As a result of the "floor" amount of the
interest rates under the facility, those rates represented the period-end
interest rates as well as the effective interest rates for the period. Due to
the fact that the agreement extends for a three-year term, the obligation, other
than the portion payable within the next twelve months, is classified as a
long-term liability on the accompanying consolidated balance sheet. The
Agreement contains a number of covenants, which include among other items;
maintenance of specified minimum net worth and fixed charge ratios, as well as
limitations on capital expenditures.
10
Upon completion of the sale of ANIP, certain terms of the debt agreement
were modified by an amendment to provide the Company with a $3.65 million
facility, consisting of a $2.5 million revolver, a $650,000 equipment term loan
and a $500,000 equipment acquisition line. Additionally, the term loan portion
of the facility now provides for monthly principal payments of approximately
$24,000, plus interest. All other terms of the facility remained unchanged.
In connection with the continued expansion of the Bactolac business, the
Company estimates that within the next six months additional capital will be
required to fund equipment purchases and expansion into additional leased space.
Such capital needs are estimated to be $250,000 to $400,000. It is expected that
funding for the capital additions will be provided out of the credit facility
with a portion funded out of working capital.
Operating Activities
Net cash flows from continuing operating activities provided approximately
$675,000 in 2004 and approximately $656,000 in 2003. The net cash flow
provided in 2004, resulted primarily from the $2,720,000 income from continuing
operations plus the non-cash depreciation and amortization of $126,000, less the
deferred tax benefit recorded of $1,303,000. This was reduced by a $755,000
increase in accounts receivable and a $178,000 increase in inventories to
support the higher sales levels.
The net cash flow generated in 2003 resulted primarily from the $855,000
income from continuing operations plus the non-cash depreciation and
amortization of $71,000. This was reduced by a $407,000 increase in accounts
receivable and a $281,000 increase in inventories, net of a decrease of $223,000
in accounts payable and accrued expenses.
Discontinued operations consumed $514,000 in 2004 and $471,000 in 2003. The
majority of this related to the net loss incurred during the periods net of the
changes in working capital items.
Investing Activities
Investing activities from continuing operations consumed approximately
$345,000 in 2004. This consisted of $204,000 in additions to equipment, with the
balance used for additions to other assets.
Investing activities consumed approximately $70,000 in 2003. This consisted
of $184,000 collected on a note received in connection with the June 2001 sale
of a former subsidiary, Nutrition for Life International, Inc., less $40,000 of
cash was used for additions to equipment and $214,000 was used for loan closing
costs.
Discontinued operations provided approximately $3,493,000 in 2004 and
$245,000 in 2003. The 2004 amount related primarily to the proceeds from the
sale of ANIP and the 2003 amount related to the proceeds from the sale of
equipment at ANIP.
11
Financing Activities
Financing activities from continuing operations generated approximately
$563,000 in 2004 and consumed $65,000 in 2003. This consisted primarily of net
borrowings and repayments under the Company's debt obligations.
Discontinued operations consumed approximately $4,334,000 in 2004 and
$375,000 in 2003. These amounts consisted primarily of repayments under the
Company's debt obligations for ANIP.
Recent Accounting Pronouncements
Variable Interest Entities - In January 2003, the Financial Accounting Standards
Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation of
Variable Interest Entities and in December 2003, FIN 46 was revised. FIN 46
clarifies the application of Accounting Research Bulletin No. 51, Consolidated
Financial Statements, for certain entities which do not have sufficient equity
at risk for the entity to finance its activities without additional subordinated
financial support from other parties or in which equity investors do not have
the characteristics of a controlling financial interest ("variable interest
entities"). Variable interest entities will be required to be consolidated by
their primary beneficiary. The primary beneficiary of a variable interest entity
is determined to be the party that absorbs a majority of the entity's expected
losses, receives a majority of its expected returns, or both, as a result of
holding variable interests, which are ownership, contractual, or other pecuniary
interests in an entity. FIN 46 applies immediately to variable interest entities
created after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period ending after December 15, 2003, to variable interest
entities in which an enterprise holds a variable interest. FIN 46 applies to
public enterprises as of the beginning of the applicable interim or annual
period. The Company does not have any variable interest entities, and therefore
the adoption of the provisions of FIN 46 did not have any impact on the Company.
Financial Instruments - In May 2003 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 150, Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity. This statement establishes standards for how an issuer classifies and
measures in its financial position certain financial instruments with
characteristics of both liabilities and equity. In accordance with this
standard, financial instruments that embody obligations of the issuer are
required to be classified as liabilities. SFAS No. 150 is effective for all
financial instruments entered into or modified after May 31, 2003. For existing
financial instruments, SFAS No. 150 is effective at the beginning of the Company
fiscal quarter commencing July 1, 2003. The Company has adopted the applicable
provisions of SFAS No. 150, however, numerous provisions have been delayed and
will be adopted in the future. Management believes that the adoption of the
delayed provisions will not have a material impact on the Company's operations
or financial condition.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements in Management's Discussion and Analysis of Results of
Operations and Financial Condition and other portions of this report are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created
thereby. These statements relate to future events or the Company's future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause the actual results, levels of activity, performance
or achievements of the Company or its industry to be materially different from
those expressed or implied by any forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "could," "would," "should," "expect," "plan," "anticipate," "intend,"
"believe," "estimate," "predict," "potential" or other comparable terminology.
Please see the "Cautionary Note Regarding Forward-Looking Statements" on page 2
of the Company's Form 10-K for the year ended September 30, 2002 for a
discussion of certain important factors that relate to forward-looking
statements contained in this report. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Unless
otherwise required by applicable securities laws, the Company disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
12
Item 3. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The management of the Company, including the Chief Executive Officer and
the Chief Financial Officer, has conducted an evaluation of the effectiveness of
the Company's disclosure controls and procedures pursuant to Rule 13a-14 under
the Securities Exchange Act of 1934 as of a date (the "Evaluation Date") within
90 days prior to the filing date of this report. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that, as of
the Evaluation Date, the Company's disclosure controls and procedures were
effective in ensuring that all material information relating to the Company
required to be filed in this quarterly report has been made known to them in a
timely manner.
(b) Changes in Internal Controls
There have been no significant changes made in the Company's internal
controls or in other factors that have significantly affected internal controls
subsequent to the Evaluation Date.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 31.1, 31.2 and 32 are furnished.
(b) The following Form 8-K reports were filed during the period.
On March 23, 2004, the Company filed an 8-K Report, reporting
under Items 7 and 9, the issuance of a press release announcing
the sale of the Company's subsidiary and information about a
previously announced reverse split of its common stock.
On March 29, 2004, the Company filed an 8-K Report, reporting
under Items 7 and 9, the issuance of a press release announcing
cancellation of its previously announced reverse split of common
stock.
On April 2, 2004, the Company filed an 8-K Report, reporting
under Items 2 and 7, information about the recently completed
sale of the Company's subsidiary.
On April 16, 2004, the Company filed an 8-K Report, reporting
under Items 5 and 7, information about a Corporate Update being
distributed by the Company.
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ADVANCED NUTRACEUTICALS, 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.
ADVANCED NUTRACEUTICALS, INC.
(Registrant)
By: /s/ Jeffrey G. McGonegal
-----------------------------
Jeffrey G. McGonegal
Senior Vice President--Finance and
Chief Financial Officer
Dated: May 18, 2004
14