<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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 number 333-52534
GLOBAL HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3267801
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization Identification Number)
987 N. Enterprise Street
Orange, California 92867
(Address and zip code of principal executive offices)
(714) 633-2320
(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 / /
*Registrant has been subject to this filing registration since August 12, 1998.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date:
As of May 11, 1999, 495,148 Shares of Global Health Sciences, Inc. Common Stock,
par value $0.01 per share, were outstanding.
-1-
<PAGE>
<TABLE>
<CAPTION>
ADDITIONAL REGISTRANTS
ADDRESS, INCLUDING
PRIMARY COMMISSION FILE ZIP CODE AND
EXACT NAME OF STATE OR OTHER STANDARD NO./ TELEPHONE NUMBER
REGISTRANT AS JURISDICTION OF NO. OF INDUSTRIAL IRS EMPLOYER AREA CODE OF
SPECIFIED IN ITS INCORPORATION SHARES CLASSIFICATION IDENTIFICATION REGISTRANT'S PRINCIPAL
CHARTER OR ORGANIZATION OUTSTANDING CODE NUMBER NO. EXECUTIVE OFFICER
- ------------------------ ----------------- ------------- --------------- ------------------ -------------------------------
<S> <C> <C> <C> <C> <C>
Global Health Sub., Inc. California 100 2833 33-0801650 987 N. Enterprise St.
Orange, California 92867
(714) 633-2320
Raven Industries Inc. California 100 2833 33-0042849 987 N. Enterprise St.
Orange, California 92867
(714) 633-2320
West Coast Sales Inc. California 100 2833 33-0554820 987 N. Enterprise St.
Orange, California 92867
(714) 633-2320
Dynamic Products California 100 2833 33-023847 987 N. Enterprise Street
Orange, California 92867
(714) 633-2320
D&F Industries, Inc California 100 2833 33-0801652 987 N. Enterprise Street
Orange, California 92867
(714) 633-2320
</TABLE>
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<PAGE>
GLOBAL HEALTH SCIENCES, INC.
INDEX
PAGE REFERENCE
COVER PAGE......................................................... 1
INDEX..............................................................
COVER PAGE......................................................... 1
INDEX.............................................................. 3
PART I--FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (unaudited)....
Condensed Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998.................... 4
Condensed Consolidated Statements of Operations For The
Three Months Ended March 31, 1999 and 1998.............. 5
Condensed Consolidated Statements of Cash Flows For The
Three Months Ended March 31, 1999 and 1998.............. 6
Notes to Condensed Consolidated Financial Statements....... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 10
Item 3. Quantitative and Qualitative disclosures about Market Risk 14
PART II--OTHER INFORMATION
Item 1. Legal Proceedings........................................ 14
Item 2. Changes in Securities and use of Proceeds................ 14
Item 3. Defaults Upon Senior Securities.......................... 14
Item 4. Submission of Matters to a Vote of Security Holders...... 14
Item 5. Other Information........................................ 14
Item 6. Exhibits and Reports on Form 8-K......................... 14
SIGNATURES......................................................... 15
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 13,687 $ 7,987
Accounts receivable, net 14,886 11,912
Inventories 17,181 14,784
Prepaid expenses and other current assets 2,600 2,454
--------- ---------
Total current assets 48,354 37,137
Property and equipment, net 13,508 7,490
Intangibles and other assets, net 149,706 158,116
--------- ---------
Total $ 211,568 $ 202,743
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued expenses $ 25,794 $ 18,554
Accrued interest payable 10,869 4,125
Line of credit -- 31,000
--------- ---------
Total current liabilities 36,663 53,679
Long-term debt 249,998 218,832
--------- ---------
Total liabilities 286,661 272,511
--------- ---------
Commitments and contingencies
Stockholders' Deficit:
Common stock (495,148 shares) issued and outstanding
473 473
Retained deficit (75,566) (70,241)
--------- ---------
Total stockholders' deficit (75,093) (69,768)
========= =========
Total $ 211,568 $ 202,743
========= =========
</TABLE>
See notes to condensed consolidated financial statements
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<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
MARCH 31, MARCH 31,
1999 1998
-------- --------
<S> <C> <C>
Net sales $ 52,096 $ 22,372
Cost of sales 36,833 15,595
-------- --------
Gross profit 15,263 6,777
Selling, general and administrative expenses 5,120 1,750
Amortization of intangibles 8,183 --
-------- --------
Operating income 1,960 5,027
Interest expense (income), net 7,192 (38)
-------- --------
Income (loss) before income taxes (5,232) 5,065
Provision for state income taxes 23 76
======== ========
Net income (loss) $ (5,255) $ 4,989
======== ========
</TABLE>
See notes to condensed consolidated financial statements
-5-
<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
MARCH 31, MARCH 31,
1999 1998
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (5,255) $ 4,989
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 369 105
Amortization of goodwill 8,183 --
Non cash portion of interest expense 422 --
Changes in assets and liabilities:
Accounts receivable (2,974) (249)
Inventories (2,397) 626
Prepaid expenses and other current assets (146) (264)
Accounts payable and accrued liabilities 7,240 219
Accrued interest 6,744 --
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 12,186 5,426
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (6,387) (367)
Acquisition costs (29) --
-------- -------
NET CASH (USED IN) INVESTING ACTIVITIES (6,416) (367)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (70) (3,226)
Net repayment of line of credit -- (20)
-------- -------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (70) (3,246)
-------- -------
Increase in cash 5,700 1,813
Cash at beginning of period 7,987 3,768
-------- -------
======== =======
Cash at end of period $ 13,687 $ 5,581
======== =======
</TABLE>
See notes to condensed consolidated financial statements
-6-
<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On April 23, 1998, D&F Industries ("D&F," the predecessor), Raven d/b/a
Omni-Pak Industries ("Omni-Pak"), Dynamic Products Inc. ("Dynamic") and
West Coast Sales ("West Coast") entered into a reorganization agreement
pursuant to which (a) D&F changed its name to Global Health Sciences,
Inc., (b) Global Health Sciences, Inc. formed a new subsidiary, Global
Health Sub, Inc. ("Global Sub"), (c) Global Sub formed four new
subsidiaries named D&F Industries, Inc. ("D&F Sub"), Raven Sub, Inc.
("Omni-Pak Merger Sub"), New West Coast Sales, Inc. ("West Coast Merger
Sub") and Dynamic Sub, Inc. ("Dynamic Merger Sub"), (d) Global Health
Sciences, Inc. transferred to D&F Sub all of its assets and liabilities
except for its obligation under the 11% Senior Notes due 2008 (the
"Notes") and the common stock of Global Sub, (e) Global Health
Sciences, Inc. through Global Sub acquired Omni-Pak, Dynamic and West
Coast (together referred to as Omni-Pak and Affiliates) from their
respective shareholders for approximately $137.9 million in cash and
expenses (the "Acquisition"), in transactions accounted for under the
purchase method of accounting pursuant to the mergers of Omni-Pak
Merger Sub and Omni-Pak (with Omni-Pak as the surviving corporation),
Dynamic Merger Sub and Dynamic (with Dynamic as the surviving
corporation), and West Coast Sub and West Coast (with West Coast as the
surviving corporation) and (f) the shareholders of Global Health
Sciences, Inc. received approximately $58.7 million in cash to
repurchase approximately 543,000 outstanding shares from its
stockholders (the "Recapitalization"). The transactions above are
referred to as the "Reorganization".
The Acquisition of Omni-Pak and Affiliates was accounted for under the
purchase method of accounting. The purchase price consisted of $136.9
million of cash and $1 million of estimated transaction costs and has
been allocated to Omni-Pak and Affiliates assets and liabilities based
on their respective values as of the closing date.
On December 11, 1998, Global Health Sciences, Inc. acquired the stock
of American Ingredients, Inc. for $36 million in a transaction
accounted for under the purchase method of accounting.
The statement of operations and cash flow for the 1998 period are those
of D&F. The financial statements presented for the 1999 period are
those of Global Health Sciences, Inc. (which include the operations of
D&F, Omni-Pak and Affiliates and American Ingredients.) The following
is summarized pro forma operating results assuming that the
Reorganization and the acquisition of American Ingredients occurred as
of January 1, 1998:
THREE MONTHS ENDED MARCH 31, 1998:
Sales (net) $ 53,376
Operating income 2,805
Interest expense and other 7,155
Net income (loss) (4,523)
-7-
<PAGE>
NOTE 1 - BASIS OF PRESENTATION (CONTINUED)
ACQUISITION FACILITY - The Company maintains a credit facility (the
"Acquisition Facility"), which provides for borrowings of up to $75
million under a line of credit through April 2003, of which no more
than $10 million is available for working capital and general corporate
purposes.
The terms of the acquisition facility were modified in April, 1999 to
increase the maximum allowable leverage and reduce the minimum
allowable cash interest coverage. The Company is in compliance with the
terms of the amended facility. The facility has been classified as long
term debt at March 31, 1999.
GLOBAL HEALTH SCIENCES, INC. is a holding Company with no independent
operations other than its investments in its subsidiaries, principally
D&F, Omni-Pak and Affiliates and American Ingredients. Pursuant to the
indenture governing the Notes, Global Health Sciences, Inc.'s
subsidiaries (the "Subsidiary Guarantors") have jointly and severally
guaranteed the Notes on a full and unconditional basis. Separate
financial statements related to the Subsidiary Guarantors are not
included herein, as the management of Global Health Sciences, Inc. has
determined that the separate financial statements of the Subsidiary
Guarantors are not material to investors. All significant intercompany
balances and transactions have been eliminated in consolidation.
INTERIM PERIOD PRESENTATION - The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and with the instructions to Article 10 of Regulation S-X.
In the opinion of management, all adjustments (consisting of only
normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the interim period ended
March 31, 1999 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1999.
NEW ACCOUNTING STANDARDS In September 1998, the FASB issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities".
This statement will be effective January 1, 2000. The Company has not
yet analyzed the impact of adopting the statement.
In September 1997, The Financial Accounting Standards Board ("FASB")
issued SFAS No.130, "Reporting Comprehensive Income." Statement of
Financial Accounting Standards ("SFAS") No.130 establishes new
standards for reporting and displaying comprehensive income, its
components and accumulated balances. The statement, which the Company
adopted in the first quarter of 1998, establishes standards for
reporting and displaying comprehensive income and its components in a
full set of general purpose financial statements. There are no
adjustments between net income and comprehensive income for the
periods presented.
RECLASSIFICATIONS--Certain amounts from the December 31, 1998 balance
sheet have been reclassified to conform to the current classifications.
-8-
<PAGE>
NOTE 2 - INVENTORIES
Inventories at March 31, 1999 consist of the following (amounts in thousands):
Raw materials $13,441
Work in process 2,027
Finished goods 1,713
-------
Total Inventory $17,181
=======
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 1999 consist of the following
(amounts in thousands):
Equipment $ 14,256
Leasehold improvements 9,477
Land 150
Less accumulated depreciation and amortization (10,375)
--------
Net property and equipment $ 13,508
========
NOTE 4 - INTANGIBLES AND OTHER ASSETS
Intangibles and Other assets at March 31, 1999 consist of the following
(amounts in thousands):
Goodwill and other intangibles, net $ 165,723
Deferred financing costs, net 8,695
Accumulated Amortization
Goodwill (23,857)
Deferred financing costs (855)
---------
$ 149,706
=========
NOTE 5 - COMMITMENTS & CONTIGENCIES
The Company is a defendant in certain litigation in the normal course of
business. The Company believes, after consultation with legal counsel, that
liability incurred in connection with pending or threatened litigation, if any,
will not be material to the Company's results of operations or financial
condition.
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the consolidated
financial statements included elsewhere herein.
Prior to its Reorganization, the operations of Global Health Sciences Inc. (the
"Company") were conducted by four subchapter S corporations: D&F (D&F),
Omni-Pak, Dynamic and West Coast (Omni-Pak and Affiliates). Together these
companies are one of the world's leading developers and custom manufacturers of
dietary and nutritional supplements. These companies develop specialty products
for branded distribution companies, branded retailers, television marketing
companies and network marketing organizations who then distribute such products
throughout the world. These companies were reorganized in the Reorganization to
consolidate related and complementary business activities under one holding
company, Global Health Sciences, Inc. (see Note 1 to the financial statements).
These companies (together the "Combined Companies") historically operated under
common management and had a high degree of common ownership, customers and
systems, including similar accounting and financial reporting systems. As
subchapter S corporations, all federal and state income taxes (other than a
minimum state income tax of 1.5%) for each of such corporations are paid
directly by its shareholder. The Company makes quarterly distributions to its
shareholder to allow the shareholder to pay his state and federal income taxes.
The Company has historically distributed, and intends to continue to distribute,
as a dividend to its shareholder amounts sufficient for the shareholder to pay
their required income taxes.
The Company's historical growth in sales and EBITDA has been primarily
attributable to increased sales to Herbalife, the Company's largest customer.
Sales by the Combined Companies to Herbalife have increased from approximately
$70.5 million in fiscal year 1995, representing approximately 83% of the
Company's sales in that year, to approximately $108.1 million in fiscal year
1998, representing approximately 61% of the Company's sales in that year. Due to
the significant percentage of the Company's sales attributable to Herbalife,
fluctuations in Herbalife's sales and inventory levels have had adverse effects
on Company sales in the past and could have adverse effects in the future. The
Company and Herbalife have a supply agreement, which extends through January
2001. The Company's sales to Herbalife for the three months ended March 31, 1999
were approximately $31.2 million or 60% of net sales.
Results of Operations
The following summarizes historical operating results for Global Health
Sciences, Inc. for the three months ended March 31, 1999 and supplemental pro
forma operating results for the three months ended March 31,1998, assuming that
the Reorganization and the acquisition of American Ingredients occurred as of
January 1, 1998.
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<PAGE>
HISTORICAL STATEMENT OF INCOME
FOR GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F)
(AMOUNTS IN THOUSANDS)
(THREE MONTHS ENDED MARCH 31, 1999)
1999 1998
-------- --------
Sales (net) $ 52,096 $ 22,372
Cost of sales 36,833 15,595
-------- --------
Gross profit 15,263 6,777
Selling, general and administrative 5,120 1,750
Amortization of intangible assets 8,183 0
-------- --------
Operating income 1,960 5,027
Interest (income) expense, net 7,192 (38)
-------- --------
Income (loss) before state taxes (5,232) 5,065
Provision for state income taxes 23 76
-------- --------
Net income (loss) $ (5,255) $ 4,989
======== ========
SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF INCOME DATA
FOR GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F) (1)
(AMOUNTS IN THOUSANDS)
(THREE MONTHS ENDED MARCH 31, 1998)
1999 1998
-------- --------
Sales (net) $ 52,096 $ 53,376
Cost of sales 36,833 36,816
-------- --------
Gross profit 15,263 16,560
Selling, general and administrative 5,120 5,541
Amortization of intangible assets 8,183 8,214
-------- --------
Operating income 1,960 2,805
Interest expense, net 7,192 7,155
-------- --------
Income (loss) before state taxes (5,232) (4,350)
Provision for state income taxes 23 173
-------- --------
Net income (loss) $ (5,255) $ (4,523)
======== ========
EBITDA (2) 10,512 $ 11,277
EBITDA margin (2) 20.2% 21.1%
(1) THE SUPPLEMENTAL PRO FORMA COMBINED STATEMENT OF INCOME DATA REFLECTS
THE FOLLOWING AS IF THE TRANSACTIONS OCCURRED JANUARY 1, 1998.
a. The acquisition of American Ingredients, Inc.
b. The acquisition of Omni-Pak and Affiliates
c. The impact of borrowing for the recapitalization of Global Health
Sciences, Inc. and the acquisition of American Ingredients, Inc.
d. The amortization of intangibles resulting from the acquisition of
American Ingredients, Inc. and acquisition of Omni-Pak and
Affiliates.
(2) EBITDA IS DEFINED AS NET INCOME BEFORE INTEREST INCOME (EXPENSE),
INCOME TAXES AND DEPRECIATION AND AMORTIZATION. MANAGEMENT BELIEVES
THAT EBITDA AND EBITDA MARGIN ARE MEASURES COMMONLY USED BY ANALYSTS
AND INVESTORS TO DETERMINED A COMPANY'S ABILITY TO SERVICE AND INCUR
DEBT. ACCORDINGLY, THIS INFORMATION HAS BEEN PRESENTED TO PERMIT A MORE
COMPLETE ANALYSIS. HOWEVER, EBITDA AS REPORTED MAY NOT BE COMPARABLE TO
SIMILARLY TITLED MEASURES USED BY OTHER COMPANIES. EBITDA MARGIN IS
COMPUTED BY DIVIDING EBITDA BY NET SALES. EBITDA SHOULD NOT BE
CONSIDERED A SUBSTITUTE FOR NET INCOME OR CASH FLOW DATA PREPARED IN
ACCORDANCE WITH GENERAL ACCEPTED ACCOUNTING PRINCIPLES OR AS A MEASURE
OF PROFITABILITY OR LIQUIDITY.
-11-
<PAGE>
QUARTER ENDED MARCH 31, 1999 COMPARED TO QUARTER ENDED MARCH 31, 1998
The following discussion of results of operations is based on a
comparison of historical 1999 operating results to the 1998 supplemental pro
forma operating data because management believes that such comparison provides
the most meaningful analysis of comparative results.
SALES. In the first quarter of 1999, sales decreased by $1.3 million or
2.4%, to $52.1 million compared to $53.4 million in the first quarter of 1998.
Sales to Herbalife were $31.2 million in the first quarter of 1999 as compared
to $32.6 million in the first quarter of 1998. Sales to the Company's second
largest customer, EAS, continue to grow with EAS' continued growth.
COST OF SALES AND GROSS PROFIT. Cost of sales was unchanged at $36.8
million in the first quarter of 1999 as compared to $36.8 million in the first
quarter of 1998. Cost of sales as a percentage of sales increased to 70.6% in
the first quarter of 1999 compared to 68.9% in the first quarter of 1998,
thereby decreasing the gross margin in the first quarter of 1999 to 29.4% from
31.1% in the first quarter of 1998. The reduction in gross margin was primarily
due to the effect of lower sales on fixed manufacturing costs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Company selling, general
and administrative decreased by $0.4 million to $5.1 million in the first
quarter of 1999 compared to $5.5 million in the first quarter of 1998. As a
percentage of sales, selling, general and administrative expenses (excluding
amortization of goodwill and other intangibles) decreased by 0.5% to 9.8% in the
first quarter of 1999 as compared to 10.3% in the first quarter of 1998. The
decreased expenses were primarily the net effect of lower bonus accruals at
American Ingredients and increased expenses related to capacity expansion.
NET LOSS. Company net loss increased by $0.8 million to a net loss of
$5.3 million in the first quarter of 1999 compared to a $4.5 million net loss in
the first quarter of 1998. This decrease resulted primarily from the effect of
lower sales on fixed manufacturing costs and changes in the Company's sales mix,
which resulted in a lower gross margin percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, prospective
acquisitions and capital expenditures. The Company expects to meet its liquidity
requirements through cash flow from operations and the Acquisition Facility.
Cash and cash equivalents were $13.7 million at March 31, 1999 compared to $8.0
million at December 31, 1998. The Company's is required to make semi annual
interest payments on the Notes of $12.4 million on May 1 and November 1.
Cash provided by operating activities for the period ended March 31, 1999 was
$12.2 million. This amount primarily represents depreciation and amortization of
$8.6 million, increases in accounts payable and accrued liabilities of $7.2
million and accrued interest of $6.7
-12-
<PAGE>
million, net of the loss of $5.3 million and increases in accounts receivable
and inventory of $5.4 million.
Capital expenditures of $6.4 million for the period ended March 31, 1999 were
primarily for leasehold improvements on the Company's new manufacturing facility
and payments on management information systems. The Company estimates the
remaining capital expenditures related to the new manufacturing facility and the
management information system will not exceed $4 million.
Cash used by financing activities for the period ended March 31, 1999 was $0.1
million. The Company has elected S Corporation status for federal and state tax
purpose, and other than the 1.5% state tax, income tax is paid by its
shareholders. The Company distributes cash dividends to its shareholder to pay
federal and state taxes.
The Company maintains the Acquisition Facility which provides for borrowings of
up to $75 million under a line of credit which expires in April 2003, of which
no more than $10 million is available for working capital and general corporate
purposes. Borrowings under the facility were $31 million at March 31, 1999.
There were no borrowings under the working capital portion of the facility at
March 31, 1999.
YEAR 2000 COMPLIANCE
The Company is in the process of replacing its computer software applications
and systems. The new systems will accommodate the "year 2000" dating changes
necessary to permit correct recording of year dates for 2000 and later years.
The cost of the new systems is expected to approximate $2 million. The Company
believes that it will be able to achieve compliance by the end of 1999, and does
not currently anticipate any material disruption of its operations as the result
of any failure by the Company to be in compliance. The Company does not
currently have any information concerning the compliance status of its
suppliers. Failure by the Company's suppliers to be in compliance could have a
material adverse effect to the Company.
FORWARD LOOKING STATEMENTS
Statements other than the actual reported financial results and other historical
information, including without limitation, certain statements under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", and located elsewhere herein regarding Year 2000 compliance and its
effects, if any, if the Company is unable to achieve such compliance, and the
Company's operations and financial position, may constitute forward-looking
statements and are intended to qualify for the safe harbor from liability
established by the Private Securities Litigation Reform Act of 1995. In
addition, forward-looking statements generally can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe," or "continue," or the negative thereof or
variations thereon or similar terminology. All such forward-looking statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those contemplated by the relevant forward-looking
statement. Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable at this time, it can give no assurance
that such expectations will prove to have been correct.
-13-
<PAGE>
ITEM 3. MARKET RISK
The Company currently uses no material derivative financial instruments which
expose the Company to significant market risk. However, the Company's cash flow,
earnings and the fair value of its debt, may be adversely effected due to
changes in interest rates with respect to its long-term debt. Other than the
amendments to the acquisition facility, as described in the Liquidity and
Capital Resources, there have been no significant changes in the Company's
market risk in the quarter ended March 31, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in certain litigation in the normal course of
business. The Company believes, after consultation with legal counsel, that
liability incurred in connection with pending or threatened litigation, if any,
will not be material to the Company's results of operations or financial
condition.
ITEM 2. NONE
ITEM 3. NONE
ITEM 4. NONE
ITEM 5. NONE
ITEM 6. EXHIBITS
Financial Data Schedule for the quarter ended March 31, 1999, which is submitted
electronically to the Commission for information only.
-14-
<PAGE>
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.
Date: May 11, 1999
Global Health Sciences, Inc.
Global Health Sub, Inc.
D&F Industries, Inc.
Raven Industries, Inc.
West Coast Sales
Dynamic Products, Inc.
By: /s/ Paul M. Buxbaum
-------------------------------------
Paul M. Buxbaum
Chief Executive Officer
By: /s/ Donald J. Lewis
-------------------------------------
Donald J. Lewis
Chief Financial Officer
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 5,581 13,687
<SECURITIES> 0 0
<RECEIVABLES> 3,114 14,886
<ALLOWANCES> 0 0
<INVENTORY> 7,414 17,181
<CURRENT-ASSETS> 16,453 48,354
<PP&E> 0 23,883
<DEPRECIATION> 0 10,375
<TOTAL-ASSETS> 18,698 211,568
<CURRENT-LIABILITIES> 9,339 36,663
<BONDS> 400 249,998
0 0
0 0
<COMMON> 1,026 473
<OTHER-SE> 9,359 (75,566)
<TOTAL-LIABILITY-AND-EQUITY> 18,698 211,568
<SALES> 0 0
<TOTAL-REVENUES> 22,372 52,096
<CGS> 15,595 36,833
<TOTAL-COSTS> 15,595 36,833
<OTHER-EXPENSES> 1,750 5,120
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (38) 7,192
<INCOME-PRETAX> 5,065 (5,232)
<INCOME-TAX> 76 23
<INCOME-CONTINUING> 4,989 (5,255)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 4,989 (5,255)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
