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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NO: 0-24567
NATROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3560780
( State of Incorporation ) (I.R.S. Employer Identification No.)
21411 PRAIRIE STREET
CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(818) 739-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY A 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding as of March 31, 1999
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<S> <C>
Common stock, $0.01 par value 13,301,990
</TABLE>
<PAGE>
PART 1
FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NATROL, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,217 $ 559
Marketable securities 18,542 19,011
Accounts receivable, net of allowances of
$383 and $332 at March 31, 1999 and
December 31, 1998, respectively 13,042 9,987
Inventories 12,106 13,437
Deferred taxes 1,214 1,214
Prepaid expenses and other current assets
1,001 499
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Total current assets 47,122 44,707
Property and equipment:
Building and improvements 7,103 6,882
Machinery and equipment 3,984 3,826
Furniture and office equipment 1,394 1,239
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12,481 11,947
Accumulated depreciation (1,973) (1,756)
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10,508 10,191
Goodwill, net of accumulated amortization of $823
and $588 at March 31, 1999 and December 31,
1998, respectively 13,540 13,775
Other assets 83 34
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13,623 13,809
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Total assets $ 71,253 $ 68,707
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</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
(Consolidated Balance Sheets - continued)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31,
1999 1998
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(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,876 $ 5,943
Accrued expenses 3,263 2,067
Accrued payroll and related liabilities 958 805
Income taxes payable 1,435 220
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Total current liabilities 9,532 9,035
Deferred income taxes, noncurrent 32 32
Commitments
Stockholders' equity:
Preferred stock, par value of $0.01 per share:
Authorized shares - 2,000,000
Issued and outstanding shares - none - -
Common Stock, par value of $0.01 per share:
Authorized shares - 50,000,000
Issued and outstanding shares - 13,301,990 at
March 31, 1999 and December 31, 1998 ,
respectively 133 133
Additional paid-in capital 60,187 60,187
Retained earnings (deficit) 1,932 (117)
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62,252 60,203
Receivable from stockholder (563) (563)
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Total stockholders' equity 61,689 59,640
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Total liabilities and stockholders' equity $ 71,253 $ 68,707
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SEE ACCOMPANYING NOTES
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NATROL, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
1999 1998
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(UNAUDITED)
<S> <C> <C>
Net sales $ 17,837 $ 13,169
Cost of goods sold 8,495 6,151
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Gross profit 9,342 7,018
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Selling and marketing expenses 4,247 3,551
General and administrative expenses 2,028 1,377
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Total operating expenses 6,275 4,928
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Operating income 3,067 2,090
Interest income 230 20
Interest expense - (153)
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Income before income tax provision 3,297 1,957
Income tax provision 1,248 782
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Net income $ 2,049 $ 1,175
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Basic earnings per share $0.15 $0.17
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Diluted earnings per share $0.15 $0.11
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Weighted average shares outstanding - basic 13,301,990 7,100,000
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Weighted average shares outstanding - diluted 13,608,803 10,272,859
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</TABLE>
SEE ACCOMPANYING NOTES
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NATROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
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(UNAUDITED)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,049 $ 1,175
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 217 192
Amortization of goodwill 235 50
Provision for bad debts 51 12
Changes in operating assets and liabilities:
Accounts receivable (3,106) (204)
Inventories 1,331 1,231
Income taxes receivable/payable 1,215 526
Deposits (49) -
Prepaid expenses and other current asset (502) (115)
Accounts payable (2,067) (638)
Accrued expenses 1,196 954
Accrued payroll and other related
liabilities 153 171
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Net cash provided by operating activities 723 3,354
INVESTING ACTIVITIES
Assets purchased, net of liabilities assumed in
connection with Pure-Gar acquisition - (11,086)
Purchases of property and equipment (534) (110)
Purchases of marketable securities 6,728 -
Sales of marketable securities 7,197 -
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Net cash used in investing activities (65) (11,196)
FINANCING ACTIVITIES
Proceeds from long-term debt - 9,000
Repayments on long-term debt - (3,730)
Proceeds from line of credit, net - 3,000
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- 8,270
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Net increase in cash and cash equivalents 658 428
Cash and cash equivalents, beginning of period 559 1,800
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Cash and cash equivalents, end of Period $ 1,217 $ 2,228
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Supplemental disclosures of cash flows information:
Cash paid for:
Interest $ - $ 152
</TABLE>
SEE ACCOMPANYING NOTES
<PAGE>
NATROL, INC.
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 unaudited consolidated financial
statements include all necessary adjustments (consisting of normal recurring
accruals) and present fairly in all material respects the consolidated financial
position of Natrol, Inc. and its subsidiaries (collectively, the "Company" or
"Natrol") as of March 31,1999 and the results of its operations and its cash
flows for the three months ended March 31, 1999 and 1998, in conformity with
generally accepted accounting principles for 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 reclassifications have been made to the
quarterly information as previously reported by the Company for the three month
period ended March 31, 1998 to conform to the presentation for the three month
period ended March 31, 1999 and the year ended December 31, 1998.
Certain information and footnote disclosures which are 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 Natrol's December 31, 1998 audited consolidated financial statements
included in the Company's Form 10-K for the year ended December 31, 1998 as
filed with the Securities and Exchange Commission (file number 000-24567).
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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<S> <C> <C>
Raw material and packaging supplies $ 6,801 $ 7,549
Finished goods 5,305 5,888
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$ 12,106 $ 13,437
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</TABLE>
3. COMPREHENSIVE INCOME
In the year ended December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No 130, "Reporting Comprehensive Income." The
provisions of SFAS No 130 require companies to classify items of comprehensive
income by their nature in financial statements and display the accumulated
balance of other comprehensive income separately from retained earnings in the
financial statements. The Company's comprehensive income items are not material
at March 31, 1999 or December 31, 1998 and therefore no disclosures have been
made.
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4. EARNINGS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128
"Earnings per share". Basic earnings per share has been computed by dividing
net income by the weighted average number of common shares outstanding. Diluted
earnings per share has been computed by dividing net income by the weighted
average of securities or other contracts to issue Common Stock as if these
securities were exercised or converted to Common Stock. Common Stock equivalent
shares from stock options representing 485,000 shares have been excluded from
the computation of diluted earnings per share because the effect would be
antidilutive.
5. STOCKHOLDERS' EQUITY
STOCK OPTIONS
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." Please refer to Natrol's prospectus dated July 22, 1998 with the
Securities and Exchange Commission for detail on the Company's Amended and
Restated 1996 Stock Option and Grant Plan ("the Stock Option Plan") and the
related disclosures. During the three months ended March 31, 1998, 50,000
options were granted.
6. SUBSEQUENT EVENTS
Commitments
In May, 1999 the Company entered into a $3.5 million, 15 year, fully amortizing
mortgage loan from Wells Fargo Bank, NA at a fixed interest rate equal to 7.75%
per annum. The loan is a non-recourse loan secured by the Company's headquarters
and manufacturing facility.
Stock repurchase
On April 28, 1999 the Board of Directors of the Company authorized a stock
repurchase program for the Company's Common Stock. The Board resolution
authorizes the Company to effect stock repurchases of up to $10 million of its
Common Stock. The resolution has no expiration date, nor does it require that
the Company repurchase its stock.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 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." The Company is including this statement for the express purpose of
availing itself of protections of the safe harbor provided by the Private
Securities Litigation Reform Act of 1995 with respect to all such forward
looking statements. Examples of forward looking statements include, but are not
limited
<PAGE>
to, 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.
The Company's ability to predict results or the effect of certain events on the
Company's operating results is inherently uncertain. Therefore, the Company
wishes to caution each reader of this report to carefully consider the following
factors and certain other factors discussed herein and in other past reports,
including but not limited to, the Company's Prospectus dated July 22, 1998 and
the Company's 10-K for the year ended December 31, 1998, each of which are filed
with the Securities and Exchange Commission.
Factors that could cause or contribute to the Company's actual results differing
materially from those discussed herein or for the Company's stock price to be
affected adversely include, but are not limited to: - (i) industry trends,
including a potential general downturn or slowing of the growth of the dietary
supplement industry, (ii) increased competition from current competitors and new
market entrants, (iii) adverse publicity regarding the dietary supplement
industry or the Company's products, (iv) the Company's dependence upon its
ability to develop new products, (v) government regulation, (vi) exposure to
product liability claims,(vii) dependence on significant customers, (viii) the
Company's ability to keep and attract key management employees, (ix) the
Company's inability to manage growth and execute its business plan, (x) the
Company's ability to consummate future acquisitions and its ability to integrate
acquired businesses and to retain key personnel associated with any acquisition,
(xi) the absence of clinical trials for many of the Company's products, (xii)
the Company's inability to obtain raw materials that are in short supply, (xiii)
sales and earnings volatility, (xiv) the Company's ability to manufacture its
products efficiently, (xv) the Company's reliance on independent brokers to sell
its products, (xvi) the inability of the Company to protect its intellectual
property, (xvii) control by principal shareholders, (xviii) the possible sale of
large amounts of stock by controlling shareholders, (xiv) volatility in the
stock markets, (xx) a failure of the Company to properly address the year 2000
issue and (xxi) a general downturn in the national economy as a whole. These
and other such factors are discussed in more detail in previous filings with the
Securities and Exchange Commission including, under the caption "Risk Factors
and Factors Affecting Forward Looking Statements" in the Company's Annual Report
and on Form 10-K for the year ended December 31, 1998 and elsewhere in this
report.
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION OF
THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE RESPONSE TO PART I, ITEM 1 OF
THIS REPORT.
THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
NET SALES. Sales are recognized at the time product is shipped. Net sales are
net of discounts, allowances, and estimated returns and credits. Net sales
increased 35.4%, or $4.6 million, to $17.8 million for the three months ended
March 31, 1999 from $13.2 million for the three months ended March 31, 1998. Of
the $4.6 million increase in net sales, $1.9 million, or 41.3%, was attributable
to net sales of Laci Le Beau acquired on October 1, 1998. On February 27, 1998
the Company acquired Pure-Gar, L.P., incorporating the business of Pure-Gar into
the Company's business. At the time of the acquisition, the business of Pure-Gar
consisted of the sale of two brands of garlic supplements to consumers as well
as an ingredient supply business which supplies raw ingredients, primarily
nutraceutical grade garlic and other vegetable powders, to manufacturers,
marketers and co-packers of nutritional supplements and functional foods. During
1998, the Company stopped selling Pure-Gar's branded garlic supplements but
continued to build the ingredient supply business. In the first quarter of 1998,
<PAGE>
Pure-Gar's net sales of branded supplements amounted to $514,000 and its net
sales of ingredients amounted to $764,000 for a total of $1.3 million. During
the three months ended March 31, 1999, Pure-Gar sold no branded supplements and
net sales of ingredients amounted to $1.6 million for a net increase of $300,000
or 6.5% of the increase in the Company's net sales. $2.4 million or 52.2%, of
the increase in the Company's net sales was attributable to increased sales of
the Company's Natrol brand and private label business. A combination of new
product introductions, increased sales of existing products and increased
penetration in the mass market and health food channels of distribution
contributed to the Company's net sales growth during the three month period
ended March 31, 1999.
GROSS PROFIT. Gross profit increased 33.1%, or $2.3 million, to $9.3 million
for the three months ended March 31, 1999 from $7.0 million for the three months
ended March 31, 1998. Gross margin decreased to 52.4% for the three months ended
March 31, 1999 from 53.3% for the three months ended March 31, 1998. The decline
was primarily due to a shift in product mix and discounts related to promotional
activity.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist
primarily of advertising and promotional expenses, cost of distribution and
related payroll expenses and commissions. Selling and marketing expenses
increased 19.6%, or $696,000 to $4.2 million for the three months ended March
31, 1999 from $3.6 million for the three months ended March 31, 1998. The
increase was primarily due to additional advertising as well as promotional and
payroll expenses to support increased net sales.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
consist primarily of personnel costs related to general management functions,
finance, accounting and information systems, research and development expenses,
as well as professional fees related to legal, audit and tax matters and
depreciation and amortization. General and administrative expenses increased
47.2%, or $650,000, to $2.0 million for the three months ended March 31, 1999
from $1.4 million for the three months ended March 31, 1998. Of this increase,
28.4% was attributable to an increase in goodwill stemming from the acquisitions
of Pure-Gar and Laci Le Beau during 1998. Goodwill during the three months
ended March 31, 1999 amounted to $235,000 as opposed to $50,000 for the three
months ended March 31, 1998. The remainder of the increase was due to increases
in payroll and other infrastructure expenses necessary to support the Company's
increased level of sales and the administration of the Company's Pure-Gar and
Laci Le Beau businesses which were acquired in late February 1998 and early
October 1998, respectively.
INTEREST EXPENSE. The Company recorded no interest expense for the three months
ended March 31, 1999 as compared to $152,000 for the three months ended March
31, 1998. The decrease was a result of the Company's use of cash generated from
the Company's IPO concluded on July 27, 1998 to eliminate all outstanding
indebtedness.
INTEREST INCOME. Interest income for the three months ended March 31, 1999
increased $210,000 to $230,000 from $20,000 for the three months ended March 31,
1998. Interest income was earned on funds received in connection with the
Company's IPO which are maintained in the Company's cash management accounts. A
portion of interest income is taxable while a portion is not.
INCOME TAX PROVISION. The Company's effective tax rate was reduced to 37.9% in
the first quarter of 1999 from 39.9% in the first quarter of 1998. The increase
in the income tax provision at March 31, 1999 from March 31, 1998 is directly
related to the increase in pretax income offset by the decrease in the effective
rate.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to its IPO, the Company had financed its operations and capital
requirements primarily through funds from operations and, to a lesser extent,
borrowings. At March 31, 1999, the Company had working capital of $37.6 million,
as compared to $ 35.7 million at December 31, 1998. The increase was primarily
due to an increase in trade receivables and prepaid expenses that fluctuate in
the normal course of the Company's business.
On July 27, 1998, the Company completed the sale of its IPO of 3,940,000 shares
of Common Stock priced at $15.00 per share. Of the total shares offered,
3,200,000 shares were sold by the Company. The Company sold an additional
295,500 shares of Common Stock on August 6, 1998, pursuant to the underwriters'
exercise of the overallotment option granted in the IPO. The net proceeds to
the Company from the IPO were $47.7 million, including the shares sold pursuant
to the underwriters' exercise of the overallotment option. Of the net proceeds
to the Company, $8.4 million was used to repay in full long-term debt. As more
fully described in Natrol's prospectus dated July 22, 1998, all of the 27,000
shares of convertible participating preferred stock purchased by certain
investors in September 1996 were converted into 2,700,000 shares of Common Stock
of the Company and shares of redeemable preferred stock, which were immediately
redeemed for a total of $6.0 million. The redemption price of the redeemable
preferred stock was funded from the proceeds of the IPO.
Net cash provided by operating activities was $723,000 for the three months
ended March 31, 1999 as compared to $3.4 million during the three months ended
March 31, 1998. The decrease in cash provided by operating activities was
primarily due to an increase in accounts receivable of $3.1 million and a
decrease of accounts payable of $2.1 million during the first quarter of 1999
which were partially offset by net income of $2.0 million, a decrease in
inventories of $1.3 million, an increase in income taxes payable of $1.2 million
and higher levels of goodwill amortization and depreciation as a result of the
Pure-Gar and Laci Le Beau acquisitions.
Net cash used in investing activities was $65,000 for the three months ended
March 31, 1999 and $11.2 million during the three months ended March 31, 1998.
During the first quarter of 1999, the Company invested $533,000 in new plant,
property, & equipment. This investment was offset by net changes in marketable
securities of 469,000. Of the net cash used in investing activities in the
three months ended March 31, 1998, the Company used $11.1 million to consummate
the Pure-Gar Acquisition and $110,000 to invest in property, plant, and
equipment.
No cash was provided by financing activities during the three months ended March
31, 1999 as opposed to the three months ended March 31, 1998 when financing
activities provided $8.3 million in cash. Net cash provided by financing
activities in the first quarter of 1998 consisted of net proceeds of $9.0
million of long-term borrowings and $3.0 million of proceeds on the Company's
line of credit which were used to finance the acquisition of Pure-Gar in late
February 1998 as well as operations. This inflow of funds was offset by the
repayment of $3.7 million of long-term debt during the first quarter of 1998.
As of March 31, 1999, the Company had no outstanding debt, nor did it have any
credit facilities in place. In May, 1999 the Company refinanced the acquisition
of its headquarters building, acquired on December 24, 1998, with its prime
bank, Wells Fargo, NA. The note is a non-recourse mortgage loan of $3.5 million,
fully amortizing over a 15 year period with a fixed interest rate of 7.75%.
The Company's cash and marketable securities balances combined at March 31, 1999
was approximately $19.8 million. The Company believes that this amount, together
with cash generated from operations and the cash it will receive from financing
of
<PAGE>
its headquarters facility, will be sufficient to fund its anticipated working
capital needs and capital expenditures (other than financing necessary to
complete future acquisitions, if any) for at least the next 12 months. Future
acquisitions, if any, could be funded with cash-on-hand, cash from operations
as well as future borrowings. Future borrowings may include covenants
restricting the Company's ability to issue dividends or to make additional
acquisitions. There can be no assurance that attractive acquisition
opportunities will be available to the Company or will be available at prices
and upon such other terms that are attractive to the Company. The Company
regularly evaluates the potential acquisition of other businesses, products
and product lines and may hold discussions regarding such potential
acquisitions. As a general rule, the Company will publicly announce such
acquisitions only after a definitive agreement has been signed. The Company
currently has no commitments or agreements with respect to any acquisition.
In addition, in order to meet its long-term liquidity needs or consummate
future acquisitions, the Company may be required to incur additional
indebtedness or issue additional equity and debt securities, subject to
market and other conditions. There can be no assurance that such additional
financing will be available on terms acceptable to the Company or at all. The
failure to raise the funds necessary to finance its future cash requirements
or consummate future acquisitions could adversely affect the Company's
ability to pursue its strategy and could negatively affect its operations in
future periods.
IMPACT OF INFLATION
Generally, inflation has not had a material impact on the Company's historical
operations or profitability.
YEAR 2000 READINESS DISCLOSURE
The statements in the following section include "Year 2000 readiness disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
Many existing computer programs and databases use two digits to identify a year
in the date field (i.e., 98 would represent 1998). These programs and databases
were designed and developed without considering the impact of the upcoming
millennium. If not corrected, many computer systems could fail or create
erroneous results relating to the year 2000. If the Company, its significant
customers, or suppliers fail to make necessary modifications and conversions on
a timely basis, the year 2000 issue could have a material adverse effect on
Company operations. However, the impact cannot be quantified at this time. The
Company believes that its competitors face a similar risk.
The Company has developed plans to address the possible exposures related to the
impact on its computer systems of the year 2000 issue. Key financial,
information and operational systems, including equipment with embedded
microprocessors, have been or are currently being inventoried and assessed, and
detailed plans have been or are currently being developed for the required
systems modifications or replacements. Progress against these plans is
monitored and reported to management on a regular basis. Implementation of
required changes to critical systems is expected to be completed during the
first half of 1999. The Company is also focusing on major customers and
suppliers to assess their compliance. The Company has received assurances from
customers that such customers expect to be Year 2000 compliant and is seeking
such assurances from its other material customers and suppliers. Nevertheless,
there can be no assurance that there will not be a material adverse effect on
the Company if third party, governmental or business entities do not convert or
replace their systems in a timely manner and in a way that is compatible with
the Company's systems. In the event a material customer or supplier is not Year
2000 compliant, the Company's business, financial condition and results of
operations could be materially and adversely affected.
<PAGE>
The costs incurred to date related to these programs have not been material and
the Company does not expect its future costs related to these programs to be
material. Such costs have been and will continue to be funded through operating
cash flows. The Company presently believes that the total cost of achieving year
2000 compliant systems is not expected to be material to its financial
condition, liquidity, or results of operations.
Time and cost estimates are based on currently available information.
Developments that could affect estimates include, but are not limited to, the
availability and cost of trained personnel; the ability to locate and correct
all relevant computer code and systems; and remediation success of the Company's
customers and suppliers.
The preceding "Year 2000 Readiness Disclosure" contains various forward-looking
statements within the meaning of Section 21E of the Securities Exchange Act of
1934 and the Section 27A of the Securities Act of 1933. These forward-looking
statements represent the Company's beliefs or expectations regarding future
events. When used in the "Year 2000 Readiness Disclosure", the words "believes,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
modification and testing phases of its Year 2000 project plan as well as its
Year 2000 contingency plans; its estimated cost of achieving Year 2000
readiness; and the Company's belief that its internal systems will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 problems.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) The Company completed its initial public offering (the "IPO") in July
1998. The IPO was made pursuant to a Registration Statement on Form S-1,
originally filed with the Securities and Exchange Commission on May 7,
1998, as amended (Commission File No. 333-52109), which was declared
effective on July 21, 1998. The IPO commenced on July 22, 1998 and
terminated shortly thereafter after the sale into the public market of
all of the registered shares of Common Stock.
The shares of Common Stock sold in the IPO were offered for sale by a
syndicate of underwriters represented by Adams, Harkness & Hill, Inc.,
NationsBanc Montgomery Securities LLC and Piper Jaffray Inc.
The Company registered an aggregate of 4,531,000 shares of Common Stock
(including 591,000 shares issuable upon the exercise of the underwriters'
overallotment option) for sale in the IPO at a per share price of $15.00,
for an aggregate offering price of approximately $68.0 million. Of the
4,531,000 shares sold in the IPO, 3,495,500 shares were registered for the
<PAGE>
Company's account.
The Company incurred the following expenses in connection with the IPO:
<TABLE>
<S> <C>
Underwriting discounts and commissions $3.67 million
Other expenses $1.05 million
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Total expenses $4.72 million
</TABLE>
After deducting the expenses set forth above, the Company received
approximately $47.7 million in net proceeds from the IPO. The Company used
approximately (a) $8.4 million of the proceeds to repay in July 1998
borrowings under the Company's then existing senior credit facility with
Wells Fargo Bank, N.A., including fees and accrued and unpaid interest, (b)
$6.0 million to redeem all of the outstanding shares of the Company's
Redeemable Preferred Stock in July 1998, (c) $7.5 million to complete the
acquisition of the Laci Le Beau tea business in October 1998, and (d) $5.25
million to purchase its headquarters/ manufacturing facility in December
1998.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to change in interest rates.
The Company maintains a portfolio of highly liquid cash equivalents and
marketable securities. Marketable securities consist primarily of certificates
of deposits, commercial paper and corporate and municipal bonds. Given the
short-term nature and liquidity of these investments, and that the Company has
no borrowings outstanding at March 31, 1999, the Company believes that it is not
subject to significant interest rate risk.
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
No current reports on Form 8-K were filed by the Company during the three month
period ended March 31, 1999.
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.
NATROL, INC.
Date: 5/15/99 By: /s/ Elliott Balbert
Chairman, President and Chief Executive Officer
Date: 5/15/99 By: /s/ Dennis R. Jolicoeur
Chief Financial Officer and Executive
Vice President
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