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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
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(Name of Small Business Issuer in Its Charter)
FLORIDA 65-0452156
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(State of incorporation) (I.R.S. Employer Identification No.)
3750 Investment Lane Suite 5
WEST PALM BEACH, FLORIDA 33407
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(Address of Principal Executive Offices) (Zip Code)
(561) 863-8446
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(Issuer's Telephone Number)
Securities to be registered pursuant to 12 (b) of the Act: None
Securities to be registered pursuant to 12 (g) of the Act:
COMMON STOCK $.001 PAR VALUE
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(Title of Class)
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART 1
Item 1. Description of Business ............................................... 1
Item 2. Management's Discussion and Analysis .................................. 4
Item 3. Description of Property ............................................... 7
Item 4. Security Ownership of Certain Beneficial Owners and Management ........ 7
Item 5. Directors, Executive Officers, Promoters and Control Persons .......... 7
Item 6. Executive Compensation ................................................ 8
Item 7. Certain Relationships and Related Transactions ........................ 10
.
Item 8. Description of Securities ............................................. 10
PART II
Item 1. Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters .................................. 11
Item 2. Legal Proceedings ..................................................... 11
Item 3. Changes in and Disagreements with Accountants ......................... 11
Item 4. Recent Sales of Unregistered Securities .............................. 12
Item 5. Indemnification of Directors and Officers ............................. 12
PART III
Item 1. Index to Exhibits ..................................................... 15
PART FS
Financial Statements .................................................. F-1
</TABLE>
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PART 1
ITEM 1. DESCRIPTION OF BUSINESS
Health & Nutrition Systems International, Inc. (the "Company," "HNS," "we" or
"us") markets and sells health and nutritional dietary supplements. We develop
proprietary herbal and non-herbal formulations for the dietary supplement
markets. An outside manufacturer provides us products which we package and ship.
We sell directly to independent health food stores, pharmacies and convenience
stores, as well as health food chains and pharmacy chains.
We were organized as a Florida corporation on October 25, 1993. Our fiscal year
end is December 31. Our corporate offices are located at 3750 Investment Lane
Building #5, West Palm Beach, Fl. 33404. Our phone number is (561) 863-8446.
MANUFACTURING
We contract our manufacturing out to herbal supplement manufacturers.
Approximately 95% of our manufacturing needs are met by Garden State
Nutritionals, a division of Vitaquest International Inc. Garden State owns a
200,000 square foot, state-of-the-art manufacturing facility in West Caldwell,
New Jersey. Our secondary source of manufacturing is Florida Supplement
Corporation, which houses a 10,000 square foot manufacturing facility located in
Hollywood, Florida. We use Florida Supplement as a backup supplier of product on
a per-order basis in the event we experience a shortfall from Garden State.
FACTORING
We entered into a factoring agreement with Nationsbanc Business Finance
Corporation in November 1998. This agreement provides that Nationsbanc purchases
our receivables from time to time at a certain discount. The term of this
agreement is open ended.
GENERAL NUTRITION CORPORATION, INC. (GNC)
We have served as warehouse vendor for the dietary supplements retailer, GNC,
since the fourth quarter of 1997. GNC is a leading specialty retailer of
nutritional supplements and other health products, with more than 3,500
company-owned and franchised locations worldwide. Selected HNS products are
included in GNC's Plan-o- gram marketing program, a pre-planned, in-store
display format. Other of our products are presently warehoused by GNC and are
available to their corporate and franchise stores.
PHARMACIAS EL AMAL
Since the third quarter of 1999, El Amal, A 50-store pharmacy chain in Puerto
Rico, has sold our product, Thin Tab, under an agreement which provides for an
initial TV and print campaign that runs through November 1999.
Pharmacias El Amal is the largest pharmacy chain in Puerto Rico.
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INDEPENDENT RETAIL LOCATIONS
We recently commenced our marketing efforts to this niche. Our efforts include
agreements of trade shows and telemarketing through our in-house staff of eight
telemarketers. These efforts have yielded 2,000 new accounts since we began in
January 1999. We estimate that over 100,000 potential retail outlets, including
pharmacies, health food stores and convenience stores exist in the U.S.
PRODUCTS
We distribute the following products: Thin Tab(TM), Thin Tab 100, Thin Tab Plus,
Heart Tab Plus(TM), Skin Tab(TM) 400, Ultra Zoom 2000 (TM), Carbcutter(TM), On
The Move(TM), Thin Tab Fat Binding System and Thin Bar(TM). All products are
trademarked. Thin Tab Ripped Max, Super Carbcutter and Thin Shake are new
products under development.
THIN TAB 100
Thin Tab 100 is an herbal supplement tablet formulated as an energy enhancer to
increase stamina, endurance and mental acuity. We market Thin Tab 100 as being
effective in producing positive benefits without the negative side effects of
caffeine. We also believe ThinTab 100 to be effective in weight management, as
it contains ingredients believed to suppress hunger, metabolize fat and optimize
weight control programs.
THIN TAB PLUS is designed to offer the benefits of Thin Tab 100 in an ephedra
- -free formula.
HEART TAB PLUS was formulated to maximize the benefits of alpha ketoglutaric
acid, chromium picolinate, and Coenzyme Q10. These ingredients are widely
acclaimed for their believed multiple beneficial effects including: accelerating
the metabolism of fat, creating lean muscle tissue, reducing cholesterol levels,
increasing cardiac and vascular efficiency and reversing periodontal disease
(gingivitis), among others.
SKIN TAB 400 contains Nutriderm and Botanical Antioxidants, Vitamin A and
Vitamin E and other ingredients believed to benefit the skin.
ULTRA ZOOM 2000(TM) is made of active Ginsenosides and Vitamin B-12, and
designed to deliver instant energy.
CARBCUTTER is a carbohydrate inhibitor that is designed to encourage weight
control by inhibiting carbohydrate absorption.
ON THE MOVE is marketed as a sustained energy, endurance and immune system
booster.
THIN TAB FAT BINDING SYSTEM is designed to promote weight loss and healthy
cholesterol levels through a reduction in fat absorption.
THIN BAR is a high protein and high energy meal replacement bar in a peanut
butter/chocolate flavor.
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The following products are under development:
THIN SHAKE is a meal replacement powder, to be available in chocolate and
vanilla flavors. This shake features high-end phytonutrients, vitamins, minerals
and lipotropics.
THIN TAB RIPPED MAX is designed to be a maximum strength thermogenic for energy
enhancement and appetite suppression.
SUPER CARBCUTTER is believed to be a maximum carbohydrate inhibitor. Also, it is
designed to provide for maximum energy support.
COMPETITION
The dietary supplement industry is highly competitive. Some of our competitors
have greater resources and name recognition. These competitors include: Atkins
Nutritionals, Twinlabs, Metabolife International, Inc. and Rexall Sundown, Inc.
CERTIFICATES OF ANALYSIS
All of our herbal supplement products have certificates of analysis supplied by
each manufacturer. These documents provide clinical test results of product
quality and ingredient accuracies.
GOVERNMENT REGULATION
Generally, the regulations of the Consumer Products Safety Commission and state
imposed labeling standards require full disclosure of our products' ingredients.
Additionally, our manufacturers abide by industry standards for manufacturing
and quality control. Each manufacturer is subject to regulatory oversight of the
United States Department of Health and Human Services, the Department of Public
Health Services and the Food and Drug Administration.
INSURANCE
We are insured for product liability claims up to an aggregate of $2,000,000. In
addition, each of our herbal supplement vendors has supplied us with
industry-standard proof of insurance.
EMPLOYEES
We currently have 30 full time employees, five of which are managerial, ten are
engaged in sales, five administrative personnel and ten are production/assembly
personnel. We believe our relationship with our employees is good.
AVAILABILITY OF ADDITIONAL INFORMATION
This registration statement can be read and copied at the public reference
facilities maintained by the Securities and Exchange Commission at Room 1024,
450 Fifth Street, NW, Washington D. C. 20549. Information about
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the Corporation of the Public Reference Room may be obtained by calling
1-800-SEC-0330. The Registration Statement is also available to the public from
commercial document retrieval services or via EDGAR on the commission's Web site
at www.sec.gov.
Prior to the effective date of the registration statement, we were not subject
to the reporting requirements of the Securities Exchange Act of 1934 ("Exchange
Act") and did not file quarterly and annual reports with the Commission.
Commencing with the annual report for the period ending December 31, 1999, we
will file these and other reports with the Commission. These reports can be
accessed via EDGAR at the Commission's Web site, www.sec.gov. In addition, we
will furnish our shareholders with annual reports containing audited financial
statements and may distribute quarterly reports containing unaudited summary
financial information.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998.
Net Sales: Net sales for the nine months ended September 30, 1999 were
$1,310,163, an increase of $602,894 or 85%, as compared to net sales of $707,269
for the nine months ended September 30, 1998. The increase was due to
restructuring sales and marketing programs from outside marketing and broker
services to in-house sales. Our in-house telemarketing program has generated
sales in the independent health food store and independent pharmacy market. We
have established and maintained sales in health food chain accounts and pharmacy
chain accounts. Also, our new channels of distribution, new products and
advertising have created increased sales volume per account.
Cost of Sales: Cost of sales for the nine months ending September 30, 1999 was
$556,143 or 42% of net sales, as compared to $369,472 or 52% of net sales for
the nine months ending September 30, 1998. The decrease is primarily
attributable to our decision to sell directly to stores without the use of
outside marketing companies. Through this method of sales we are charging higher
prices for our products, which reduces our cost of sales.
Gross Profit: Gross profit for the nine months ended September 30, 1999 was
$754,020, an increase of $416,223 or 123%, as compared to gross profit of
$337,797 for the nine months ending September 30, 1998. As a percent of net
sales, gross profit was 58% for the nine months ending September 30, 1999, as
compared to 48% for the nine months ending September 30, 1998. Each increase is
primarily attributable to increased sales and higher prices charged by us for
our products.
Operating Expenses: Operating expenses were $694,131 for the nine months ending
September 30, 1999, representing an increase of $234,122 as compared to $457,007
for the nine months ending September 30, 1998. As a percent of net sales,
operating expenses were 53% for the nine months ending September 30, 1999 as
compared to 75% for the nine months ending September 30, 1998. Each difference
is primarily attributable to increased sales to new channels of distribution.
Net Profit from Operations: Net profit from operations was $63,559 or $0.01 per
share for the nine months ending September 30, 1999 as compared to $(130,128) or
$(0.02) per share for the nine months ending September 30, 1998. The increase in
income from operations is primarily attributable to increased sales, increased
profit margins and decreased operating expenses.
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Carry Forward Loss
We have net operating loss carry forwards of approximately $339,774 for tax
purposes to affect future taxable income. The net operating loss carry forwards
expire between 2008 and 2018.
Liquidity & Capital Resources
We factor certain of our account receivables with NationsBank. NationsBank
purchases receivables for 96.75% of the face amount of certain invoices and we
maintain a reserve account of 15% of the outstanding receivables held by the
factor. The reserve account may be charged additional fees from 1% to 3% on
invoices paid beyond the agreed terms. Our president guarantees the payment of
the factored receivables. NationsBank has extended credit up to $500,000 for
factoring GNC.
HNS has a $100,000 monthly C. D. at an interest rate of approximately 4.5% in
reserve at Sun Bank.
Sources of Additional Working Capital
HNS has 741,294 outstanding warrants, which, if all are exercised, would provide
an additional $969,780 in proceeds to HNS. The primary factors that would
encourage warrant holders to exercise their warrants is if the common stock of
HNS becomes publicly traded and whether the price at which the common stock
trades exceeds the exercise price of the warrants.
Management believes that the company needs to raise additional capital to expand
our inventory levels, product lines and sales.
TWELVE MONTHS ENDING DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDING DECEMBER
31,1997.
Net Sales: Net sales for the twelve months ending December 31, 1998 were
$922,408, a decrease of $464,301, or 33%, as compared to net sales of $1,386,709
for the twelve months ending December 31, 1997. The decrease was due to
terminating contractual relationships with our single largest account, a sales
agent marketing company that purchased and marketed our products. We decided to
terminate this arrangement and handle all marketing and sales in-house as part
of our change in strategy to sell directly to our customers.
Cost of Sales: Cost of sales for the twelve months ending December 31, 1998 was
$462,008 or 51 % of net sales, as compared to $725,914, or 52% of net sales for
the twelve months ending December 31, 1997, a decrease of $263,906, or 24%. The
increase of sales to stores allows us to receive higher prices for our products,
thereby reducing our cost of sales.
Gross Profit: Gross profit for the twelve months ending December 31, 1998 was
$460,400, a decrease of $200,395 or 30% as compared to gross profit of $600,795
for the twelve months ending December 31, 1997. As a percent of net sales, gross
profit was 50% for the twelve months ending December 31, 1998, as compared to
48% for the twelve months ending December 31, 1997. The decrease is attributable
to decreased sales resulting from the transition of outside sales and marketing
functions to in-house sales and marketing. The increase in gross profit as a
percentage of net sales can be attributed to increased prices for direct to
store sales without outside marketing/broker assistance.
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Operating Expenses: Operating expenses were $696,840 for the twelve months
ending December 31, 1998, representing an increase of $203,258 as compared to
$493,582 for the twelve months ending December 31, 1997. As a percent of net
sales, operating expenses were 76% for the twelve months ending December 31,
1998 as compared to 36% for the twelve months ending December 31, 1997. The
increase is attributed to transitional costs incurred in setting up in-house
sales and marketing as opposed to outside services. In addition, we experienced
an increase of in-house selling expenses associated with our shift to in-house
sales and marketing.
Net Profit from Operations: Net profit from operations was $(254,394) or $(0.04)
per share for the twelve months ending December 31, 1998 as compared to $143,618
or $0.03 per share for the twelve months ending December 31, 1997. The decrease
is a result of the interruption of sales due to the transition from outside
sales and marketing to in-house sales and marketing, increased operating costs
associated with this transition and slower than expected sales growth in direct
sales to pharmacy and health food accounts.
Carry Forward Loss
We have a net operating loss carry forward of approximately $339,774 for tax
purposes to affect future taxable income. The net operating loss carry forwards
expire between 2008 and 2018.
Liquidity & Capital Resources
We factor certain of our accounts receivable with NationsBank. NationsBank
purchases receivables for 96.75% of the face amount of certain invoices and we
maintain a reserve account of 15% of the outstanding receivables held by the
factor. The reserve account may be charged additional fees from 1% to 3% on
invoices paid beyond the agreed terms. Our president personally guarantees the
payment of the factored receivables. NationsBank has extended credit up to
$500,000 for factoring GNC accounts receivable.
As of December 31, 1998, HNS had a $100,000 C.D. in reserve at Sun Bank.
Sources of Additional Working Capital
HNS had 741,294 outstanding warrants, which, if exercised, would provide an
additional $969,780 of proceeds to HNS.
We believe that we need to continue to expand in-house sales through
establishing an in-house telemarketing program to sell directly to pharmacies
and health food stores. In addition, we need to continue to increase advertising
and create new products for the direct category.
Disclosure regarding Forward Looking Statements
Information contained or incorporated by reference in this registration
statement on Form 10-SB and contains "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995 which can be
identified by the use of forward-looking terminology such as "believes,"
"expects," "may," "will," or comparable terminology, or by discussions of
strategy. These forward-looking statements involve certain significant risks and
uncertainties, and actual results may differ materially from the forward-looking
statements. No assurance can be given that future results covered by the
forward-looking statements will be achieved, and
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other factors could also cause actual results to vary materially from the future
results covered in such forward- looking statements. The Company does not
undertake to publicly update or revise any of its forward looking statements
even if experience or future change show that the indicated results or events
will not be realized.
ITEM 3. DESCRIPTION OF PROPERTY
Our corporate offices are located in a 6,000 square foot facility at 3750
Investment Lane, Suite 5, West Palm Beach, Florida, 33404, which also functions
as our warehouse. All packaging and shipping is performed from this location.
This lease expires on January 1, 2003 and provides for lease payments of
approximately $2,000.00 per month.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This chart shows: (i) the name and number of shares of each officer or director;
(ii) the name and number of shares held by each person known to be the
beneficial owner of more than 5% of our company's common stock; and (iii) the
holdings of all officers and directors as a group. The address for each person
is 3750 Investment Lane Suite 5, West Palm Beach, Fl. 33404. As of December 31,
1999 there were approximately 7,487,894 shares of common stock issued and
outstanding.
<TABLE>
<CAPTION>
Amount of Beneficial
Name of Beneficial Owner Ownership of Stock Percentage of Class
- ------------------------ -------------------- -------------------
<S> <C> <C>
Tony Musso 1,138,657 15.2
Steven Pomerantz 973,657 13.0
Christopher Tisi 914,575 12.2
Tony D'Amato 799,104 10.7
J. C. Herbert Bryant III 500,268 6.7
Anthony & Renute Dell'aquilla 610,000 8.1
Napoleon & Tania Paz 620,000 8.3
All Executive Officers & Directors as a group
(3 People) 3,026,889 40.4
</TABLE>
The holdings of Anthony and Renute Dell'aquilla include warrants to purchase an
aggregate of 200,000 shares of common stock at a purchase price of $0.50 per
share, exercisable until April 5, 2001. Napoleon and Tania Pas hold identical
warrants to purchase an aggregate of 200,000 shares.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions with the company and ages of
the executive officers and directors of the company. Directors will be elected
at the Company's annual meeting of shareholders and serve for one year or until
their successors are elected and qualify. The Board elects officers and their
terms of office are, except to the extent governed by employment contract, at
the discretion of the Board.
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<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven Pomerantz 43 President, Chief Executive
Officer, Treasurer, Director
Christopher Tisi 29 VP Sales & Marketing,
Secretary, Director
Tony Musso 50 Chairman of the Board of
Directors
</TABLE>
Each director holds office until the next annual meeting of shareholders and
until his successor is elected and qualified. Each officer holds office until
the first meeting of directors following the annual meeting of shareholders and
until his successor is elected and qualified, subject to earlier removal by our
board of directors.
STEVEN POMERANTZ
Steven Pomerantz has served as President and Chief Executive Officer since March
1998. From 1995 to March 1998, Mr. Pomerantz served as Vice President of Finance
and Chief Operating Officer. Prior to joining HNS, Mr. Pomerantz served as
President of CSP International, Inc., a manufacturer of pepper gas, which he
co-founded with Mr. Musso in 1985 and successfully sold in December 1994. From
1982 to 1984 Mr. Pomerantz was an account executive with NCR Corporation. In
1980, Mr. Pomerantz received his MBA from Emory University in Atlanta, Georgia.
CHRISTOPHER TISI
Christopher Tisi has served as Vice President of Sales and Marketing since March
1998. From 1994 to March 1998, Mr. Tisi served as Vice President of Training.
From 1991 to December 1994, Mr. Tisi served as a Marketing Director at Quorum
International, a multi-level marketing company in Phoenix, Arizona.
TONY MUSSO
Tony Musso serves as Chairman of the board of directors, a position he has held
since March 1998. From 1993 to March 1998, Mr. Musso served as President and
Chief Executive Officer. Mr. Musso has served as Chairman of the Board of
Nutrition Superstore.com since November 1997. In 1985 Mr. Musso co-founded CSP
Int., Inc. with Mr. Pomerantz and successfully sold the Pepper Spray
Manufacturing Company in December 1994. In 1989 Mr. Musso founded International
Marketing Strategies and served as Executive Director until December 1997. The
company distributed Health & Beauty products for NYSE (NUS) Nu-Skin
International. From 1977 to 1985 Mr. Musso served as V.P. of Sales of S.G.M.,
a Halon Fire Extinguisher company. From 1972 to 1976, Mr. Musso served as an
internal auditor for Thomas Jefferson University in Philadelphia, P.A. In 1974,
he received his Law Degree from Delaware Law School and in 1971, he received his
Bachelors of Science from the University of Scranton.
ITEM 6. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table summarizes all compensation recorded by the Company in the
last three fiscal years for the Company's executive officers serving as such.
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<TABLE>
<CAPTION>
NAME YEAR SALARY BONUS POSITION
- ---- ---- ----------- --------- --------
<S> <C> <C> <C> <C>
Steve Pomerantz 1998 $ 41,731.00 0 President
1997 $140,673.00 0 Vice President
1996 0 $7,056.84 Vice President
Tony Musso 1998 $ 10,576.72 0 Vice President
1997 $ 52,778.12 0 President
1996 0 $6,781.58 President
</TABLE>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1998
No options were granted to any executive officers in 1998.
STOCK OPTION PLAN
In May 1998 the Company adopted a stock option plan. Currently, no options are
outstanding. The purpose of the stock option plan was to increase the employees
and non-employee directors' proprietary interest in HNS and to align more
closely their interests with the interests of the shareholders of HNS, as well
as to enable HNS to attract and retain the services of experienced and highly
qualified employees and non-employees directors.
Options granted under this plan may either be options qualifying as incentive
stock options under Section 422 of the Internal revenue Code of 1986, as
amended, or options that do not so qualify. Any incentive option must provide
for an exercise price of not less than 100% of the fair market value of the
underlying shares on the date of such grant, but the exercise price of any
incentive option granted to an eligible employee owning more than 10% of the our
common stock must be at least 110% of such fair market value as determined on
the date of the grant.
The term of each option and the manner in which it may be exercised is
determined by the board of directors, provided that no option may be exercisable
more that 10 years after the date of its grant and, in the case of an incentive
option granted to an eligible employee owning more that 10% of the our common
stock, no more than five years after the date of the grant. The exercise price
of non-qualified options shall be determined by the board of directors.
We reserved an aggregate of 2,500,000 shares of common stock for issuance of
options under the stock option plan. As of November 1, 1999, options to purchase
an aggregate of 335,000 have been granted, all of which have been exercised.
Therefore, options to purchase 2,165,000 remain. The board of directors or a
committee of the board of directors will administer the plan including, without
limitation, the selection of the persons who will be granted plan options under
the plan, the type of plan options to be granted, the number of shares subject
to each plan options and the plan option price.
The per share exercise price of shares granted under the plan may be adjusted in
the event of certain changes in the total purchase price payable upon the
exercise in full of options granted under the plan. Officers, directors and key
employees of and consultants to HNS will be eligible to receive non-qualified
options under the plan.
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Only officers, directors and employees of HNS who are employed by HNS or by any
subsidiary thereof are eligible to receive incentive options.
EMPLOYMENT AGREEMENTS
STEVEN POMERANTZ
Effective January 1, 2000, we entered into a two year employment agreement with
Steven A. Pomerantz, Chief Executive Officer, President and Treasurer. The
agreement provides for an annual base salary of $100,000 and is terminable for
cause. The agreement also provides for quarterly bonuses of up to $10,000, based
upon our attainment of certain quarterly sales revenue benchmarks. Mr. Pomerantz
has, in the past, voluntarily accrued certain portions of his salary owed him by
us. To date, all such amounts have been repaid.
CHRISTOPHER TISI
Effective January 1, 2000, Health & Nutrition Systems International, Inc.
entered into a two year employment agreement with Christopher Tisi, the
company's Vice President of Sales & Marketing and Secretary. The agreement
provides for an annual base salary of $100,000 and is terminable for cause. The
agreement also provides for quarterly bonuses of up to $10,000, based upon our
attainment of certain quarterly sales revenue benchmarks.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has, in the past, engaged in related party transactions with
J.C. Herbert Bryant III, who, at the time of the transactions, was an officer of
the Company, but has since resigned. The entity controlled by this individual,
KMS-Thin Tab 100, Inc., purchased products from the Company for resale to its
customers on terms no more favorable than those given to unaffiliated third
parties in arms'-length transactions. For the nine month period ended September
30, 1999, KMS-Thin Tab 100, Inc. made aggregate purchases of $104,461.
ITEM 8. DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of common stock, par value
$.001 per share of which approximately 7,484,894 shares were issued and
outstanding as of December 31, 1999. The issued and outstanding shares were
fully paid and nonassessable. Holders of the shares are entitled to one vote per
share on each matter submitted to a vote at a meeting of shareholders. The
common stock do not have cumulative voting rights or preemptive rights and there
are no redemption or conversion privileges attached thereto. Holders of common
stock are entitled to receive ratably such dividends as may be declared by the
company and to participate ratably in the distribution of any assets legally
available for distribution with respect to the common stock. The Company does
not expect to pay dividends for the foreseeable future.
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FLORIDA ANTI-TAKEOVER STATUTES; INDEMNIFICATION
Florida has enacted legislation that may deter or frustrate a take-over of a
Florida Corporation. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of the
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested directors or
shareholders of certain specified transactions between a corporation and holders
of more than 10% of the outstanding voting shares of the corporation (or their
affiliates). The Florida law permits the Company's Articles of Incorporation to
require the Company to indemnify the Company's directors, officers, employees
and agents.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
As of December 31, 1999, there were 99 shareholders of record of our common
stock. Our common stock is not included for trading on any exchange or quotation
system. There are approximately 7,484,894 shares of common stock issued and
outstanding.
The Transfer Agent for our common stock is Florida Atlantic Stock Transfer, Inc.
7130 Nob Hill Road, Tamarac, FL 33321.
In January 1997, the shareholders approved an amendment to the articles of
incorporation to increase the number of shares of common stock, par value $0.001
per share. We increased our authorized common stock from 7,500,000 to
30,000,000.
In January 1997, our board of directors authorized a forward stock split of
1.771144278607 shares for each share then outstanding, not including the shares
underlying warrants and other shares of common stock which were issued in
connection with an offering of shares in 1995, which were canceled. The per
share information included in the accompanying financial statements and related
notes are restated to reflect this stock split.
DIVIDED POLICY
We have never paid cash dividends on our common stock. We presently intend to
retain future earnings, if any, to finance the expansion of our business and
does not anticipate that one cash dividends will be paid in the foreseeable
future. The future dividends policy will depend on our earnings, capital
requirements, expansion plans, financial condition and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
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Not Applicable
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In October 1995, we sold in a private placement 59,000 shares for a purchase
price of $0.50 per unit, which were ultimately converted into an aggregate of
59,000 shares of our common stock to 10 persons who were either accredited or
otherwise sophisticated investors with whom we had pre-existing relationships
and access to relevant information concerning us in an offering exempt from
registration under the Securities Act in reliance on Sections 3(b) and Rule 504
of Regulation D of the Securities Act. We received gross proceeds of $29,500 in
this transaction. We did not utilize the services of an underwriter and we paid
no commissions or other compensation for sales made in this private placement.
In January 1997, we consummated the private sale of an aggregate of 265,000
shares of common stock at a purchase price of $.50 per share to 24 persons who
were either accredited or otherwise sophisticated investors. The securities were
exempt from registration under The Securities Act pursuant to Rule 504 of
Regulation D thereunder.
In May 1998, we consummated for sale in a private placement to 6 individuals of
an aggregate of 57,550 units, each unit consisting of one share of common stock
and one warrant to purchase one share of common stock at a purchase price of
$2.00 per share, expiring May 19, 2000 (the "1998 Offering"). Inasmuch as these
individuals were either accredited or otherwise sophisticated individuals with
whom we had preexisting relationships and had access to relevant information
about us, the issuance of these securities was exempt form the registration
requirements of the Securities Act pursuant to the exemption set forth in
Sections 3(b) and Rule 504 of Regulation D of the Securities Act. We received
gross proceeds of $37,325 and we paid no commissions or other compensation for
sales made in this private placement.
In March 1999, we consummated the sale to 51 individuals, in a private placement
of units, each consisting of (i) four shares of common stock, (ii) one warrant
to purchase one share of common stock at a purchase price of $.50 per share
("$.50 Warrants") and (iii) one warrant to purchase one share of common stock at
a purchase price of $2.00 per share (the "1999 Offering"). Each of the $.50
Warrants and the $2.00 Warrants expire in one year from their issuance. We
issued an aggregate of 1,367,488 shares of common stock, 341,872 $.50 Warrants
and 341,872 $2.00 Warrants, receiving gross proceeds of $374,960. Inasmuch as
these investors were accredited or otherwise sophisticated investors or had a
preexisting relationship with us and access to relevant information concerning
us, the issuance of these securities was exempt, from the registration
requirements of the Securities Act pursuant to the exemption set forth in
Sections 3(b) and Rule 504 of Regulation D of the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Florida Business Corporation Act permits the indemnification of directors,
employees, officers and agents of Florida corporations. The Company's Articles
of Incorporation and Bylaws provided that the Company shall indemnify its
directors and officers to the fullest extent permitted by the Corporation Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, the Company has been informed that, in the opinion of
the Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
-12-
<PAGE> 15
PART F/S
The following audited financial statements for Health & Nutrition Systems
International, Inc., including the audited balance sheet at December 31, 1998
and 1997 and the related audited statements of operations, changes in
stockholder's equity and cash flows for each of the years ended December 31 1998
and 1997 have been audited by Butner & Kahle CPA's, PA, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports. Also included are
additional audited financial statements for the Company, including the audited
balance sheet at September 30, 1999 and the related audited statements of
operations for the nine months ended September 30, 1999, which financial
statements also have been prepared by Butner & Kahle CPA's, P.A. independent
certified public accountants.
-13-
<PAGE> 16
PART III
EXHIBITS DESCRIPTION OF EXHIBITS
-------- -----------------------
27.1 Financial Data Schedule
27.2 Financial Data Schedule
-14-
<PAGE> 17
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
Date: March 1, 2000 By: /s/ Steven Pomerantz
-------------------------------
President, Treasurer
-15-
<PAGE> 18
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
Audited Financial Statements
December 31, 1998 and 1997
<PAGE> 19
INDEX TO FINANCIAL STATEMENTS
Independent Auditors Report F-2
Balance Sheets F-3
Statements of Operations F-4
Statement of Stockholders' Equity F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
F-1
<PAGE> 20
INDEPENDENT AUDITORS REPORT
The Board of Directors and Stockholders
Health & Nutrition Systems International, Inc.
West Palm Beach, Florida
We have audited the accompanying balance sheets of Health & Nutrition Systems
International, Inc. as of December 31, 1998 and 1997, and the related statements
of operations, stockholders' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Health & Nutrition Systems
International, Inc. as of December 31, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Butner & Kahle CPAs PA
West Palm Beach, Florida
June 16, 1999
F-2
<PAGE> 21
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 36,805 63,399
Accounts receivable (net of reserve of $13,200 at 1998
and $8,369 at 1997) 31,287 103,777
Inventory 112,859 176,874
Prepaid expenses and other current assets 2,066 13,827
--------- ---------
Total current assets 183,017 357,877
--------- ---------
FIXED ASSETS
Furniture, fixtures and equipment (net of depreciation
of $53,180 at 1998 and $46,139 at 1997) 16,611 20,647
--------- ---------
OTHER ASSETS
Due from related parties 10,861 10,861
Other assets (net of amortization of $691 and 121) 4,504 4,208
--------- ---------
Total other assets 15,365 15,069
--------- ---------
Total Assets $ 214,993 393,593
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 113,923 133,202
Accrued taxes 2,381 67,918
Due to related parties 104,109 105,101
Capital leases -- current portion 3,891 9,192
Other current liabilities 9,145 3,199
--------- ---------
Total current liabilities 233,449 318,612
--------- ---------
Capital leases -- less current portion 4,277 8,168
--------- ---------
Total Liabilities 237,726 326,780
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, authorized 30,000,000 shares,
6,062,606 shares at 1998 and 5,634,750 shares at 1997 issued
and outstanding 6,063 5,635
Additional paid in capital 312,005 147,645
Stock subscription receivable (1,027) (1,087)
Accumulated deficit (339,774) (85,380)
--------- ---------
Total stockholders' equity (deficit) (22,733) 66,813
--------- ---------
Total Liabilities and Stockholders' Equity $ 214,993 393,593
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 22
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUE
Sales of products $ 924,653 1,409,576
Less: Returns and allowances (2,245) (22,867)
----------- -----------
Net sales 922,408 1,386,709
OPERATING EXPENSES
Cost of sales 462,008 725,914
----------- -----------
Gross profit 460,400 660,795
----------- -----------
Other operating expenses:
Selling expenses 180,875 59,965
Office expenses 70,674 70,898
Outside services 45,678 51,572
Salaries, wages and benefits 307,508 195,557
Professional services 31,599 26,030
Occupancy expenses 30,671 28,586
Bad debts 18,359 28,809
Depreciation and amortization 7,611 23,855
Other expenses 3,865 8,310
----------- -----------
Total expenses 696,840 493,582
----------- -----------
Profit (loss) before other expenses and taxes: (236,440) 167,213
----------- -----------
Other expenses 17,954 10,404
Income taxes -- 13,191
----------- -----------
Net profit (loss) $ (254,394) 143,618
=========== ===========
Net profit (loss) per share basic $ (0.04) 0.03
=========== ===========
Net profit (loss) per share assuming dilution $ (0.04) 0.02
=========== ===========
Weighted average number of shares 5,848,678 5,492,500
=========== ===========
Weighted average number of shares assuming dilution 5,848,678 5,835,500
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 23
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
December 31, 1998 and 1997
<TABLE>
<CAPTION>
Total
Number Additional Stock Stockholders'
of Shares Common Paid in Subscription Accumulated Equity
Outstanding Stock Capital Receivable Deficit (Deficit)
----------- --------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 3,025,250 $ 3,025 45,700 (1,087) (228,998) $(181,360)
Stock split, 1.77 shares for 1 and
change in par value 2,325,000 2,325 (2,325) -- -- --
Shares issued for cash 253,000 253 126,302 -- -- 126,555
Stock redemption and re-issuance
with share and par value
adjustment 31,500 32 (22,032) -- -- (22,000)
Net profit -- -- -- -- 143,618 143,618
--------- --------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1997 5,634,750 5,635 147,645 (1,087) (85,380) 66,813
Shares issued for cash 79,000 79 44,821 -- -- 44,900
Options exercised for cash 5,000 5 2,495 -- -- 2,500
Shares issued for services 8,856 9 4,419 -- -- 4,428
Officer and director options for
services exercised 335,000 335 112,625 -- -- 112,960
Collection of subscription receivable -- -- -- 60 -- 60
Net loss -- -- -- -- (254,394) (254,394)
--------- --------- --------- --------- --------- ---------
BALANCES, DECEMBER 31, 1998 6,062,606 $ 6,063 312,005 (1,027) (339,774) $ (22,733)
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE> 24
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net profit (loss) $(254,394) 143,618
Adjustment to reconcile net loss to net cash provided by (used in) operating
activities:
Depreciation and amortization 7,611 23,855
Shares issued for services and options for services exercised 117,388 --
(Increase) decrease in accounts receivable 72,490 (70,086)
(Increase) decrease in inventory 64,015 (152,260)
(Increase) decrease in prepaids and other current assets 11,761 (9,663)
Increase (decrease) in accounts payable (19,279) 71,388
Increase (decrease) in accrued liabilities (59,591) 67,489
--------- ---------
Total adjustments 194,395 (69,277)
--------- ---------
Net cash provided by (used in) operating activities (59,999) 74,341
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in trademarks (866) (2,420)
Acquisition of fixed assets (3,005) (16,604)
Purchase of company shares for cash -- (22,000)
--------- ---------
Net cash provided (used) by investing activities (3,871) (41,024)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 47,460 126,555
Proceeds (repayment) of financing (9,192) 3,037
Advances from (repayments to) related parties (992) (97,380)
--------- ---------
Net cash provided (used) by financing activities 37,276 32,212
--------- ---------
Net increase (decrease) in cash and equivalents (26,594) 65,529
CASH and equivalents, beginning of period 63,399 (2,130)
--------- ---------
CASH and equivalents, end of period $ 36,805 $ 63,399
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
Shares issued for services and options for services exercised $ 117,388 --
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 25
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
DESCRIPTION OF BUSINESS--Health & Nutrition Systems International, Inc. ("HNS"
or the "Company") is a marketer and distributor of health and nutrition herbal
supplements. The Company was incorporated in Florida on October 25, 1993. HNS
product sales consist of nine primary dietary supplements: THIN TAB100(R), HEART
TABPLUS(TM), SKIN TAB400(R), Ultra Zoom 2000(TM), THIN TABPLUS(TM), ON THE
MOVE(TM), THIN TAB(TM) FAT BINDING SYSTEM, CARBCUTTER(TM), THINBAR(TM). These
products are sold primarily wholesale to health stores, drug stores, nutrition
centers, and other retailers. Additionally, the products are sold through
certain related parties to similar customer types. The current markets are
concentrated in North America and Puerto Rico. Three manufacturers produce most
of the HNS dietary supplements.
USE OF ESTIMATES--The preparation of financial statements in accordance with
generally accepted accounting principles requires the use of management's
estimates. These estimates are subjective in nature and involve judgments that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at fiscal year end and the reported amounts of
revenues and expenses during the year. Actual results could differ from those
estimates.
CASH EQUIVALENTS - The Company considers all highly liquid debt instruments
purchased with maturities of three or fewer months to be cash equivalents. Cash
equivalents consist primarily of investments in money market funds.
INVENTORIES--Inventories are stated at the lower of cost or market with cost
being determined on a first-in, first-out basis.
PROPERTY, EQUIPMENT, LEASEHOLD IMPROVEMENTS, AND DEPRECIATION--Property and
equipment are carried at depreciated cost. Depreciation is provided using the
straight-line method over the estimated economic lives of the assets, which
range from three to five years. Leasehold improvements are amortized over the
shorter of five years or the lease term. The Company reviews the valuation of
fixed assets and their remaining economic lives annually and adjusts
depreciation accordingly.
TRADEMARKS--The Company records the costs of trademarks as intangible assets and
amortizes their value of their estimated economic life.
REVENUE RECOGNITION--Sales revenue is recognized at the date of shipment to
customers. Provision is made for an estimate of product returns and doubtful
accounts and is based on historical experience.
ADVERTISING COSTS--Advertising costs are charged to expense as incurred.
Advertising expenses for the 9 month periods ending September 30, 1999 and 1998
were $94,407 and $28,146, respectively.
STOCK-BASED COMPENSATION--The Company applies the intrinsic value method in
accounting for its stock options issued to employees. Accordingly, no
compensation expense has been recognized for options granted with an exercise
price equal to market value at the date of grant. Compensation is recorded when
options are exercised when the exercise price is below the market value of the
stock.
F-7
<PAGE> 26
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES--Deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax basis of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. The Company recognizes a liability or asset
for the deferred tax consequences of temporary differences. Net deferred tax
assets are reviewed for recoverability and valuation allowances are provided, as
necessary.
EARNINGS (LOSS) PER COMMON SHARE--Basic earnings (loss) per share is based on
the weighted effect of all common shares issued and outstanding, and is
calculated by dividing net income (loss) by the weighted average shares
outstanding during the period. Diluted earnings per share is calculated by
dividing net income by the weighted average number of common shares used in the
basic earnings per share calculation plus the number of common shares that would
be issued assuming conversion of all potentially dilutive common shares
outstanding. The exercise or conversion of securities that would be antidilutive
are not presented. This would be the case in 1998. In 1999 the dilutive effect
of options if exercised would have been less than $0.01 per share.
COMPREHENSIVE INCOME--The Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income," in the year ended
December 31, 1998. The Company did not have any components of comprehensive
income during that or the preceding year.
SEGMENT INFORMATION--The Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in the year ended December
31, 1998. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for Segments
of a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing performance as the source of the Company's reportable segments. SFAS
No. 131 also requires disclosures about products and services, geographic areas
and major customers. The adoption of SFAS No. 131 did not affect the Company's
results of operations or financial position, but did affect the disclosure of
segment information.
NOTE 2. INCOME TAXES
The Company has an accumulated deficit since inception. The deferred tax
consequence of temporary differences in reporting items for financial statement
and income tax purposes have not been recognized because the effect has not been
material to the financial statements taken as a whole. Realization of future tax
benefits related to deferred tax assets is dependent upon the Company's ability
to generate taxable income within the net operating loss carry-forward period,
and possible changes in the tax laws prior to or after the filing of tax returns
by the Company. Management has considered these factors in determining the
valuation allowance for financial reporting purposes. The net income tax effect
of temporary differences comprising the deferred tax assets and deferred tax
liabilities were $80,447 and $37,900 for the 9 month periods ending September
30, 1999 and 1998 respectively subject to valuation allowances of the same
amounts.
The reconciliation between statutory federal and state income tax rates and the
effective rate, giving effect to loss carry-forwards used to calculate the tax
asset and valuation allowance were 25% as to federal and 4% as to state for both
September 30, 1999 and 1998.
F-8
<PAGE> 27
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
The Company has net operating loss carry-forwards of approximately $276,213 for
tax purposes to affect future taxable income. The net operating loss carry-
forwards expire between 2008 and 2019.
NOTE 3. FINANCING ARRANGEMENTS
ACCOUNTS RECEIVABLE FACTORING--The Company factors certain of its accounts
receivable with a commercial finance company subsidiary of a bank. The factor
purchases receivables for 96.75% of the face amount of certain invoices and the
Company maintains a reserve account with the factor of 15% of the outstanding
receivables held by the factor. The reserve account may be charged additional
fees from 1% to 3% on invoices paid beyond the agreed to terms. The payment of
the factored receivables by the customer of the Company is guaranteed by the
President of the Company. The factor reserve was 36,447 at September 30, 1999.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company has engaged in related party transactions with an individual who, at
the time of the transactions, was an officer of the Company, but has since
resigned. The entity controlled by this individual, KMS-Thin Tab 100, Inc.,
purchased products from the Company for resale to its customers on terms no more
favorable than those given to unaffiliated third parties in arms'-length
transactions. For the nine month periods ended September 30, 1999 and 1998,
KMS-Thin Tab 100, Inc. made aggregate purchases of $104,461and $45, 819,
respectively.
NOTE 5. COMMON STOCK
AUTHORIZED SHARES--The Company has authorized 30,000,000 shares of common stock,
par value $0.001 per share.
STOCK OFFERINGS IN PRIVATE PLACEMENTS--The Company has engaged in several
private placements of common stock. In 1998, the Company offered 700,000 shares
of common stock and 700,000 warrants to purchase one common share at $2.00 for a
combined price of $1.10 per share and warrant. This offering was amended in
March, 1999 when the Company offered four shares of common stock and two
warrants to purchase one share each, one at $0.50 and one at $2.00. In this
offering the Company received $376,060 and issued 1,363,488 shares of common
stock and the corresponding warrants.
STOCK AND OPTIONS ISSUED FOR SERVICES--The Company authorized the 1998 Stock
Option Plan of the Corporation in May, 1998. The plan set aside a reserve of
2,500,000 shares of common stock for this purpose. At this time, the board of
directors granted 335,000 to two board members to purchase shares at $0.001 per
share. The options were exercised and restricted shares were issued. The Company
recorded $112,960 in compensation to those directors, or $0.337 per share. A
total of 61,800 additional shares were issued during the nine months ended
September 30, 1999 at $0.001 per share.
F-9
<PAGE> 28
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 6. COMMITMENTS, CONTINGENCIES, AND CERTAIN CONCENTRATIONS
LEASE COMMITMENTS--The Company leases its office and warehouse space under the
extension of a lease to December 31, 2002. The lease payments are $2,010 per
month.
The Company also leases various equipment under non-cancelable financing leases.
The future annual lease payments at September 30, 1999 were as follows: $4,040
in the period ending September 30, 2000 and $759 in the period ending September
30, 2001.
LEGAL MATTERS--The Company has been subject to legal proceedings and claims
arising in the ordinary course of business. The Company disputed a bill for
promotional materials from 1995. The vendor has not sought collection since that
time and management does not expect any potential outcome to have a material
adverse effect on the Company's financial condition, results of operations, or
cash flows. The Company is also subject to two actions which in the aggregate
claim $30,000. The Company denies any liability in these actions and is
defending them.
PRODUCT LIABILITY--The Company is insured for product liability claims and uses
vendors who are also insured. There is a risk that that certain vendors may not
have sufficient product liability insurance or may loose their insurance, or the
Company may not be able to insure at reasonable cost. In any of these events,
there could be a material adverse effect on the financial condition, results of
operations, or cash flows of the Company.
CERTAIN CONCENTRATIONS--The Company purchases a number of its products from
single sources and has sales to several major customers. The loss of any one
source or major customer could adversely affect the financial condition, results
of operations, or cash flows.
NOTE 8. SUBSEQUENT EVENTS
The Company has committed approximately $71,000 for advertising in the early
part of the year 2000 and has paid $56,000 of this commitment in advance in
October, 1999. The Company entered into a lease for a new phone system in
October, 1999 with a value of approximately $11,000.
F-10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
AUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 36,805
<SECURITIES> 0
<RECEIVABLES> 44,487
<ALLOWANCES> (13,200)
<INVENTORY> 112,859
<CURRENT-ASSETS> 183,017
<PP&E> 69,791
<DEPRECIATION> (53,180)
<TOTAL-ASSETS> 214,993
<CURRENT-LIABILITIES> 233,449
<BONDS> 4,277
0
0
<COMMON> 6,063
<OTHER-SE> (28,296)
<TOTAL-LIABILITY-AND-EQUITY> 214,993
<SALES> 922,408
<TOTAL-REVENUES> 922,408
<CGS> 462,008
<TOTAL-COSTS> 696,840
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 18,359
<INTEREST-EXPENSE> 17,954
<INCOME-PRETAX> (254,394)
<INCOME-TAX> 0
<INCOME-CONTINUING> (254,394)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (254,394)
<EPS-BASIC> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTACTED FROM AUDITED
FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
AUDITED FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 63,399
<SECURITIES> 0
<RECEIVABLES> 112,146
<ALLOWANCES> (8,369)
<INVENTORY> 176,874
<CURRENT-ASSETS> 357,877
<PP&E> 66,786
<DEPRECIATION> (46,139)
<TOTAL-ASSETS> 393,593
<CURRENT-LIABILITIES> 318,612
<BONDS> 8,168
0
0
<COMMON> 5,635
<OTHER-SE> 61,178
<TOTAL-LIABILITY-AND-EQUITY> 393,593
<SALES> 1,386,709
<TOTAL-REVENUES> 1,386,709
<CGS> 725,914
<TOTAL-COSTS> 493,582
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 28,309
<INTEREST-EXPENSE> 10,404
<INCOME-PRETAX> 156,809
<INCOME-TAX> 13,191
<INCOME-CONTINUING> 143,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 143,618
<EPS-BASIC> .03
<EPS-DILUTED> .02
</TABLE>
