<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission file number 0-21003
TWINLAB CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 11-3317986
(State of incorporation) (IRS Employer Identification No.)
150 Motor Parkway, Suite 210, Hauppauge, New York 11788
(Address of principal executive office) (zip code)
</TABLE>
(516) 467-3140
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES /X/ NO / /
At April 30, 1999, the registrant had 32,705,049 shares of common stock
outstanding.
<PAGE> 2
PART I
FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 22,732 $ 12,489
Accounts receivable, net of allowance for bad
debts of $533 at March 31, 1999 and $502 at
December 31, 1998 53,394 60,254
Inventories 77,475 72,355
Deferred tax assets 1,624 1,629
Prepaid expenses and other current assets 3,611 3,207
--------- ---------
Total current assets 158,836 149,934
Property, plant and equipment, net 35,793 29,551
Deferred tax assets 44,071 45,347
Other assets 66,156 65,186
--------- ---------
TOTAL $ 304,856 $ 290,018
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 15,590 $ 80
Accounts payable 21,679 30,959
Accrued expenses and other current liabilities 10,751 10,043
--------- ---------
Total current liabilities 48,020 41,082
Long-term debt, less current portion 50,938 43,451
--------- ---------
Total liabilities 98,958 84,533
--------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none issued -- --
Common stock, $1.00 par value; 75,000,000 shares
authorized; 32,705,049 shares outstanding as of
March 31, 1999 and December 31, 1998 32,705 32,705
Additional paid-in capital 289,327 289,327
Accumulated deficit (114,865) (116,547)
Treasury stock (1,269) 0
--------- ---------
Total shareholders' equity 205,898 205,485
--------- ---------
TOTAL $ 304,856 $ 290,018
========= =========
</TABLE>
2
<PAGE> 3
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
NET SALES $ 71,463 $ 74,716
COST OF SALES 36,493 36,655
-------- --------
GROSS PROFIT 34,970 38,061
OPERATING EXPENSES 30,856 22,250
-------- --------
INCOME FROM OPERATIONS 4,114 15,811
OTHER (EXPENSE) INCOME:
Interest income 108 101
Interest expense (1,436) (3,108)
Other 6 (71)
-------- --------
(1,322) (3,078)
-------- --------
INCOME BEFORE PROVISION FOR INCOME TAXES 2,792 12,733
PROVISION FOR INCOME TAXES 1,110 4,472
-------- --------
NET INCOME $ 1,682 $ 8,261
======== ========
BASIC INCOME PER SHARE $ 0.05 $ 0.29
======== ========
DILUTED INCOME PER SHARE $ 0.05 $ 0.29
======== ========
Weighted average common shares used in
computing basic income per share 32,697 28,471
======== ========
Weighted average common shares used in
computing diluted income per share 32,697 28,523
======== ========
Pro forma relating to change in tax status:
Historical income before provision for income taxes $ 12,733
Pro forma provision for income taxes 4,996
--------
Pro forma net income $ 7,737
========
Basic net income per share $ 0.27
========
Diluted net income per share $ 0.27
========
</TABLE>
3
<PAGE> 4
TWINLAB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
-------- --------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,682 $ 8,261
Adjustment to reconcile net income to net cash provided by
Operating activities:
Depreciation and amortization 1,538 744
Bad debt expense 31 6
Deferred income taxes 1,281 1,456
Changes in operating assets and liabilities:
Accounts receivable 6,829 5,878
Inventories (5,120) (12,568)
Prepaid expenses and other current assets (404) (456)
Accounts payable (9,280) 3,663
Accrued expenses and other current liabilities 708 4,457
-------- --------
Net cash (used in) provided by operating activities (2,735) 11,441
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (6,883) (452)
Increase in other assets (1,867) (2,443)
-------- --------
Net cash (used in) provided by investing activities (8,750) (2,895)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt 23,000 400
Distributions to shareholders -- (789)
Issuance of Common Stock -- 22
Purchase of Treasury Stock (1,269) --
Payments of debt (3) (4,310)
Principal payments of capital lease obligations -- (36)
-------- --------
Net cash provided by(used in) financing activities 21,728 (4,713)
-------- --------
Net increase in cash and cash equivalents 10,243 3,833
Cash and cash equivalents at beginning of period 12,489 4,212
-------- --------
Cash and cash equivalents at end of period $ 22,732 $ 8,045
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the periods for:
Interest $ 54 $ 375
======== ========
Income taxes $ 491 $ 1,544
======== ========
</TABLE>
4
<PAGE> 5
TWINLAB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying consolidated unaudited
financial statements include all necessary adjustments (consisting of
normal recurring accruals) and present fairly the financial position of
Twinlab Corporation ("Twinlab") and subsidiaries (the "Company") as of
March 31, 1999, the results of their operations for the three months
ended March 31, 1999 and 1998, and their cash flows for the three months
ended March 31, 1999 and 1998 in conformity with generally accepted
accounting principles for the interim financial information applied on a
consistent basis. The results of operations for the three months ended
March 31, 1999 are not necessarily indicative of the results to be
expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements
should be read in conjunction with the audited consolidated financial
statements and notes thereto included in Twinlab Corporation's December
31, 1998 Annual Report to Stockholders on Form 10-K as filed with the
Securities and Exchange Commission.
2. CONDENSED AND SUMMARIZED FINANCIAL INFORMATION
The Company's amended revolving credit facility and restrictive covenants
contained in the indenture governing the senior subordinated notes
restrict the payment of dividends and the making of loans, advances or
other distributions to Twinlab by its subsidiaries, except in certain
limited circumstances. The condensed financial information of Twinlab, on
a stand-alone basis is as follows:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
<S> <C> <C>
CONDENSED BALANCE SHEETS
ASSETS
Cash $ 327 $ 323
Investment in subsidiaries 205,571 205,162
--------- ---------
$ 205,898 $ 205,485
========= =========
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value;2,000,000 shares
authorized; none issued $ -- $ --
Common stock, $1.00 par value; 75,000,000
Shares authorized; 32,705,049 outstanding as of
March 31, 1999 and December 31, 1998 32,705 32,705
Additional paid-in capital 289,327 289,327
Accumulated deficit (114,865) (116,547)
Treasury stock (1,269) --
---------- ---------
$ 205,898 $ 205,485
========== =========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------ ------
<S> <C> <C>
CONDENSED STATEMENTS OF INCOME
Equity interest in net income of subsidiaries $1,707 $8,286
Interest income 4 2
------ ------
Income before provision for income taxes 1,711 8,288
Provision for income taxes 29 27
------ ------
Net income $1,682 $8,261
====== ======
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------- -------
<S> <C> <C>
CONDENSED STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,682 $ 8,261
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Equity investments in subsidiaries (409) (8,281)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options -- 22
Purchase of treasury stock (1,269) --
------- -------
Net cash provided by (used in) financing activities (1,269) 22
------- -------
Net increase in cash 4 2
Cash at beginning of period 323 169
------- -------
Cash at end of period $ 327 $ 171
======= =======
</TABLE>
Twin Laboratories Inc. ("Twin") is a direct wholly owned subsidiary of Twinlab.
Advanced Research Press, Inc. ("ARP"), Changes International of Fort Walton
Beach Inc. ("Changes"), Bronson Laboratories, Inc. and Health Factors
International, Inc., both of which form the Bronson Group ("Bronson"), and PR
Nutrition Inc. ("PR"), are indirect wholly owned subsidiaries of Twinlab.
Twinlab, ARP, Changes, Bronson and PR are guarantors of the senior subordinated
notes of Twin.
The assets, results of operations and shareholders' equity of Twin comprise
substantially all of the assets, results of operations and shareholders' equity
of Twinlab on a consolidated basis. Twinlab has no separate operations and has
no significant assets other than Twinlab's investment in Twin and, through Twin,
in ARP, Changes, Bronson and PR. Twin has no direct or indirect subsidiaries
other than ARP, Changes, Bronson and PR. Twin has no stockholder other than
Twinlab. Accordingly, the Company has determined that separate financial
statements of Twin, ARP, Changes, Bronson, and PR would not be material to
investors and, therefore, are not included herein.
Summarized unaudited financial information as of March 31, 1999 and December 31,
1998 and for the three months ended March 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
BRONSON HEALTH
CHANGES LABORATORIES FACTORS PR
AS OF MARCH 31, 1999: TWIN ARP INTERNATIONAL INC. INC. NUTRITION
- --------------------- -------- ------ ------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets $158,509 $1,770 $11,056 $ 8,563 $ 4,190 $4,697
Noncurrent assets 146,020 184 12,273 39,050 7,422 400
Current liabilities 49,792 646 4,713 2,037 124 2,909
Noncurrent liabilities 50,938 -- -- -- -- --
Shareholder's equity 203,799 1,308 18,616 45,576 11,488 2,188
</TABLE>
<TABLE>
<CAPTION>
BRONSON HEALTH
CHANGES LABORATORIES FACTORS PR
AS OF DECEMBER 31,1998: TWIN ARP INTERNATIONAL INC. INC. NUTRITION
- --------------------- -------- ------ ------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Current assets $ 149,611 $ 1,571 $ 9,008 $ 7,279 $ 4,295 $ 3,373
Noncurrent assets 140,084 186 12,520 39,566 7,491 417
Current liabilities 44,152 470 3,575 1,417 356 1,916
Noncurrent liabilities 43,451 -- -- -- -- --
Shareholder's equity 202,092 1,287 17,953 45,428 11,430 1,874
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
BRONSON HEALTH
CHANGES LABORATORIES FACTORS PR
THREE MONTHS ENDED MARCH 31, 1999: TWIN ARP INTERNATIONAL INC. INC. NUTRITION
- --------------------------------- -------- ------ ------------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $71,463 $1,215 $12,266 $4,330 $2,595 $5,278
Gross profit 34,970 341 10,417 2,275 435 3,466
Net income 1,707 21 663 148 58 314
</TABLE>
<TABLE>
<CAPTION>
CHANGES PR
THREE MONTHS ENDED MARCH 31, 1998: TWIN ARP INTERNATIONAL NUTRITION
- --------------------------------- -------- ------ ------------- ---------
<S> <C> <C> <C> <C>
Net sales $ 74,716 $1,343 $12,566 $5,062
Gross profit 38,061 345 10,250 3,532
Net income 8,286 129 960 1,308
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, 1999 DECEMBER 31,1998
-------------- ----------------
<S> <C> <C>
Raw Materials $ 35,851 $ 36,257
Work in Process 10,475 11,337
Finished Goods 31,149 24,761
--------- ------------
Total $ 77,475 $ 72,355
========= ============
</TABLE>
NET INCOME PER SHARE
Basic net income per common share was calculated based upon the weighted
average number of common shares outstanding during the respective
periods. Diluted net income per common share was calculated based upon
the weighted average number of common shares outstanding and includes
the potential common shares for dilutive options outstanding during the
respective periods.
The weighted average common shares outstanding for the computation of
basic net income per common share for the three months ended March 31,
1999 and 1998 were 32,697,049 and 28,471,064, respectively.
Additionally, for the diluted calculation, 51,943 of potential common
shares were included for the three months ended March 31, 1998
representing the dilutive effect of the Company's stock options. There
were no dilutive stock options for the three months ended March 31,
1999.
5. RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in
1998. For the three months ended March 31, 1999, and 1998, there were no
items of comprehensive income as defined in the pronouncement.
Recent pronouncements of the Financial Accounting Standards Board, which
are not required to be adopted at this date, include SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS No.
133 is not expected to have a material impact on the Company's financial
statements.
7
<PAGE> 8
ITEM 2.: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis should be read in conjunction with the
response to Part I, Item 1 of this report.
The Company operates through five primary business divisions: the TWINLAB
division, the herbal supplements and teas division, the Changes
International division, the Bronson division and the PR*Nutrition division.
Products sold by the TWINLAB division include vitamins, minerals, amino
acids, herbs, sports nutrition products and special formulas primarily under
the TWINLAB brand name. The herbal supplements and teas division produces
and markets a full line of herbal supplements and phytonutrients marketed
under the Nature's Herbs and HealthCare Naturals brands and a full line of
herb teas marketed under the Alvita brand. The Company's network marketing
activities are conducted through Changes International, which was acquired
by the Company in November 1997. The Bronson division, acquired effective
April 30, 1998, markets vitamins, herbs, nutritional supplements and health
and beauty aids through its Bronson catalog, and produces and markets a line
of vitamins and supplements for sale exclusively to United States military
commissaries and also manufactures, through Health Factors, private label
vitamins and supplements for a number of other companies on a contract
marketing basis. The PR*Nutrition division markets nutritionally enhanced
food bars marketed under the PR*Bar and Ironman Triathlon trademarks. The
Company's publishing activities are conducted through ARP.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1999 1998
---- ----
Net Sales: (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
TWINLAB Division $36.8 51.5% $30.8 41.2%
Herbal Supplements and
Teas Division 9.1 12.8 25.0 33.6
Changes International Division 12.3 17.1 12.6 16.8
Bronson Division 6.9 9.7 ---- ----
PR*Nutrition Division 5.3 7.4 5.1 6.8
Publishing Division 1.1 1.5 1.2 1.6
--- --- --- ---
Net Sales 71.5 100.0 74.7 100.0
Gross Profit 35.0 48.9 38.1 50.9
Operating Expenses 30.9 43.2 22.3 29.8
---- ---- ---- ----
Income From Operations $4.1 5.8% $15.8 21.2%
==== ==== ===== =====
</TABLE>
8
<PAGE> 9
NET SALES: Net sales for the three months ended March 31, 1999 were $71.5
million, a decrease of $3.2 million, or 4.4%, as compared to net sales of
$74.7 million for the three months ended March 31, 1998. Net sales at the
TWINLAB division contributed $36.8 million, an increase of $6.0 million, or
19.3% as compared to $30.8 million for the three months ended March 31,
1998. The increase in net sales was primarily due to an increase in
vitamins, sports nutrition and special formula product sales. Sales of
herbal supplements and teas contributed $9.1 million, a decrease of $15.9
million or 63.6 % as compared to $25.0 million for the three months ended
March 31, 1998. The herbal supplements and tea division experienced strong
demand in the first quarter of 1998 for herbal products such as St. John's
Wort. The Changes International division contributed $12.3 million to net
sales for the three months ended March 31, 1999 as compared to $12.6 million
in the three months ended March 31, 1998. The Bronson division, which was
acquired effective April 30, 1998, contributed $6.9 million to net sales
for the three months ended March 31, 1999. The PR Nutrition division
contributed $5.3 million, an increase of 4.3% compared to $5.1 million for
the three months ended March 31, 1998. Publishing activities contributed
$1.1 million as compared to $1.2 million for the three months ended
March 31, 1998.
GROSS PROFIT: Gross profit for the three months ended March 31, 1999 was
$35.0 million, which represented a decrease of $3.1 million, or 8.1%, as
compared to $38.1 million for the three months ended March 31, 1998. Gross
profit margin was 48.9% for the three months ended March 31, 1999, as
compared to 50.9% for the three months ended March 31, 1998. The overall
decrease in gross profit dollars was primarily attributable to the Company's
lower sales volume for the three months ended March 31, 1999. The decrease
in gross profit margin for the three months ended March 31, 1999, as
compared to the three months ended March 31, 1998 was due primarily to the
write off and disposal of approximately $1.2 million in product labels which
were made obsolete by new federal regulations.
OPERATING EXPENSES: Operating expenses were $30.9 million for the three
months ended March 31, 1999, representing an increase of $8.6 million, or
38.7%, as compared to $22.3 million for the three months ended March 31,
1998. As a percent of net sales, operating expenses increased from 29.8% for
the three months ended March 31, 1998 to 43.2% for the three months ended
March 31, 1999. The increase in operating expenses and operating expenses as
a percent of net sales was primarily attributable to increased selling and
marketing expenses comprised primarily of an increase in the Company's
advertising expenses, and higher general and administrative expenses as a
result of the Company adding to its infrastructure.
INCOME FROM OPERATIONS: Income from operations was $4.1 million for the
three months ended March 31, 1999, representing a decrease of $11.7 million,
or 74.0%, as compared to $15.8 million for the three months ended March 31,
1998. Income from operations margin decreased to 5.8% of net sales for the
three months ended March 31, 1999, as compared to 21.2 % of net sales for
the three months ended March 31, 1998. The decrease in income from
operations and income from operations margin was primarily due to higher
operating expenses as well as the Company's lower sales and gross margins.
Income from operations was impacted by one-time charges in the three months
ended March 31, 1999, consisting of a $1.2 million charge relating to the
write-off of label inventory and a $0.5 million in accrued severance
compensation.
OTHER EXPENSE: Other expense was $1.3 million for the three months ended
March 31, 1999, as compared to $3.1 million for the three months ended March
31, 1998. The net decrease of $1.8 million is primarily due to decreased
interest expense of $1.7 million, primarily as a result of reduced debt
levels and increased cash balances.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
For the three months ended March 31, 1999, cash used in operating activities
was $2.7 million, as compared to cash provided by operating activities of
$11.4 million for the three months ended March 31, 1998.
Capital expenditures were $6.9 million and $.5 million for the three months
ended March 31, 1999 and 1998, respectively. Capital expenditures were
primarily for the purchase of production equipment to expand capacity or
improve manufacturing efficiency and include $3.1 million for the expansion
of the Utah facility. Capital expenditures are expected to be approximately
$10.0 million during 1999, of which approximately $5.0 million is being used
to complete the expansion of the Utah facility and the remainder for the
purchase of production equipment. The Company estimates that its historical
level of maintenance capital expenditures has been approximately $0.5
million per fiscal year.
Net cash provided by financing activities was $21.8 million for the three
months ended March 31, 1999 and resulted primarily from borrowings under the
Company's Revolving Credit Facility ($15 million) and mortgage financing of
the Utah plant expansion ($8 million).
Twinlab has no operations of its own, and accordingly, has no independent
means of generating revenue. As a holding company, Twinlab's internal
sources of funds to meet its cash needs, including payment of expenses, are
dividends and other permitted payments from its direct and indirect
subsidiaries. The indenture, dated as of May 7, 1996, as amended, among
Twinlab, Twin Laboratories Inc., ARP, Changes International, Bronson, PR and
State Street Bank and Trust Company, as trustee, relating to the senior
subordinated notes and the amended revolving credit facility impose upon the
Company certain financial and operating covenants, including, among others,
requirements that the Company maintain certain financial ratios and satisfy
certain financial tests, limitations on capital expenditures and
restrictions on the ability of the Company to incur debt, pay dividends or
take certain other corporate actions.
Management believes that the Company has adequate capital resources and
liquidity to meet its borrowing obligations, fund all required capital
expenditures and actively pursue its business strategy for the next 18 to 24
months. The Company's capital resources and liquidity are expected to be
provided by the Company's cash flow from operations, and borrowings under
the existing $50 million Revolving Credit Facility. As of March 31, 1999,
approximately $35 million of borrowings were available under the Revolving
Credit Facility for working capital requirements and general corporate
purposes.
On February 25, 1999, the Company announced that its Board of Directors had
approved a share repurchase program authorizing the Company to buy up to 5
million shares of its Common Stock. The Company has obtained the required
waivers under its $50 million Revolving Credit Agreement to engage in
purchases and intends to use funds available under the agreement and
internally generated cash to purchase such shares. The Company may purchase
Common Stock from time to time in the open market and in individually
negotiated transactions. The amount and timing of any purchase will be
dependent upon a number of factors, including the price and availability of
the Company's shares and general market conditions. As of March 31, 1999,
the Company had purchased 150,000 shares at a total cost of $1.3 million
pursuant to this authorization. As of May 10, 1999 a total of 845,000 shares
had been purchased at a total cost of $7.8 million.
One of the Company's business strategies is to pursue acquisition
opportunities that complement or extend its existing products or product
lines, or are compatible with its business philosophy and strategic goals.
Future acquisitions could be financed by internally generated funds, bank
borrowings, public offerings or private placements of equity or debt
securities, or a combination of
10
<PAGE> 11
the foregoing. As of March 31, 1999 up to $35.0 million of borrowings under
the Revolving Credit Facility was available to fund acquisitions. There can
be no assurance that the Company will be able to make acquisitions on terms
favorable to the Company and that funds to finance an acquisition will be
available or permitted under the Company's financing instruments.
YEAR 2000
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define a specific year. Absent corrective
actions, a computer program that has date sensitive software may recognize a
date using "00" as the year 1900 instead of the year 2000. This could result
in system failures or miscalculations causing disruptions to various
activities and operations.
The Company recognizes the importance of ensuring that neither its customers
nor its business operations are disrupted as a result of Year 2000 software
failures. The Company has surveyed, and continues to communicate with,
customers, suppliers, financial institutions and other vendors with which it
does business to coordinate Year 2000 conversion efforts. Based on the
results of this ongoing information exchange, the Company believes it has
identified any existing risks to be addressed. At this time, the Company
believes that any risks are minimal and it believes that its systems are
substantially Year 2000 compliant. Management has initiated a Company-wide
program to prepare the Company's internal computer systems for Year 2000
compliance by August 1, 1999. The Company expects to incur internal staff
costs as well as other expenses necessary during the course of such
compliance efforts and the Company expects to both replace some systems and
upgrade others. The total cost of their effort is estimated to be in the
range of $150,000 - $250,000. The Company does not expect Year 2000 issues
to materially effect its products, services, competitive position or
financial performance. However, there can be no assurance that this will be
the case. The ability of third parties with which the Company transacts
business to adequately address their internal Year 2000 issues is outside
the Company's control. There can be no assurance that the failure of such
third parties to adequately address their respective Year 2000 issues will
not have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this periodic report
on Form 10-Q and in other SEC filings by the Company 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,"
"should" or "anticipates" or the negative thereof, other variations thereon
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. For further details and discussion of these
risks and uncertainties see Twinlab Corporation's SEC filings including, but
not limited to, its annual report on Form 10-K. No assurance can be given
that future results covered by the forward-looking statements will be
achieved, and 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 changes show
that the indicated results or events will not be realized.
11
<PAGE> 12
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDING
In December 1998, two shareholder class action lawsuits were filed in the United
States District Court for the Eastern District of New York against the Company
and certain of its officers and directors. The plaintiffs allege that the
Company and the other defendants violated the securities laws by making material
misstatements and failing to state material facts about the Company's business
and financial condition, among other things, in securities act filings and
public statements. Plaintiffs' motion to consolidate these lawsuits and all
subsequent lawsuits relating to the same issues has been granted. On February
25, 1999, plaintiffs' co-lead counsel announced that it would amend the
complaints to enlarge the class of plaintiffs suing the Company to include all
buyers of the Company's stock from March 17, 1998 through February 24, 1999.
On February 11, 1999, William Logue, Sheri Sears and Barry Nussbaum, the former
owners of PR*Nutrition, commenced a lawsuit in the United States District Court
for the Southern District of New York against the Company, Twin and certain of
its officers and directors. The plaintiffs' claims include alleged violations of
the securities laws, breach of contract, fraud and negligent misrepresentation
in connection with the Company's purchase of 100% of the stock of PR*Nutrition.
More specifically, the plaintiffs allege that the Company and the other
defendants made material misstatements or failed to disclose material facts
about the Company's business and financial condition, among other things, in
securities act filings and other statements.
In the first quarter of 1999, a series of separate shareholder class action
lawsuits were filed in the United States District Court for the Eastern District
of New York against the Company, and certain of its officers and directors.
These lawsuits have not yet been served on the Company. The plaintiffs generally
allege that the Company and the other defendants violated the securities laws by
making material misstatements and failing to state material facts about the
Company's business and financial condition, among other things, in securities
act filings and public statements. The class of plaintiffs suing the Company in
these actions is generally all buyers of the Company's stock from April 28, 1998
through February 24, 1999. It is expected that these lawsuits will be
consolidated with the previously filed shareholder class actions.
The Company intends to vigorously defend itself against these securities law
litigations. It is premature, however, to determine the effect, if any, such
actions may have on the Company's consolidated financial position, results of
operations or liquidity.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Report on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1999
12
<PAGE> 13
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.
TWINLAB CORPORATION
By: /s/ Ross Blechman
-------------------------------------------
Ross Blechman
Chairman, President and Chief Executive Officer
By: /s/ John McCusker
-------------------------------------------
John McCusker
Chief Financial Officer
DATED: May 12, 1999
--------------------
13
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