<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
(MARK ONE)
<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 333-52534
------------------------
GLOBAL HEALTH SCIENCES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
CALIFORNIA 95-3267801(I.R.S. Employer
(State or other jurisdiction Identification Number)
of incorporation or organization)
</TABLE>
987 N. ENTERPRISE STREET
ORANGE, CALIFORNIA 92867
(Address and zip code of principal executive offices)
(714) 765-8330
(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 / /
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of the latest practicable date:
As of March 31, 2000, 495,148 Shares of Global Health Sciences, Inc. Common
Stock, par value $0.01 per share, were outstanding.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
ADDRESS, INCLUDING
STATE OR OTHER PRIMARY ZIP CODE AND
EXACT NAME OF JURISDICTION OF STANDARD INDUSTRIAL COMMISSION FILE TELEPHONE NUMBER
REGISTRANT AS SPECIFIED INCORPORATION NO. OF CLASSIFICATION NO./ AREA CODE OF
IN ITS OR SHARES CODE IRS EMPLOYER REGISTRANT'S PRINCIPAL
CHARTER ORGANIZATION OUTSTANDING NUMBER IDENTIFICATION NO. EXECUTIVE OFFICER
- ----------------------- --------------- ----------- -------------- ------------------ ----------------------
<S> <C> <C> <C> <C> <C>
Global Health Sub., California 100 2833 33-0801650 987 N. Enterprise St.
Inc. Orange, California
92867 (714) 765-8330
Raven Industries Inc. California 100 2833 33-0042849 987 N. Enterprise St.
Orange, California
92867 (714) 765-8330
West Coast Sales Inc. California 100 2833 33-0554820 987 N. Enterprise St.
Orange, California
92867 (714) 765-8330
Dynamic Products California 100 2833 33-023847 987 N. Enterprise
Street Orange,
California 92867 (714)
765-8330
D&F Industries, Inc. California 100 2833 33-0801652 987 N. Enterprise
Street Orange,
California 92867 (714)
765-8330
</TABLE>
2
<PAGE>
GLOBAL HEALTH SCIENCES, INC.
INDEX
PAGE REFERENCE
PART I--FINANCIAL INFORMATION
<TABLE>
<S> <C> <C>
Item 1. Condensed Consolidated Financial Statements (unaudited)..... 4
Condensed Consolidated Balance Sheets as of March 31, 2000
and
December 31, 1999......................................... 4
Condensed Consolidated Statements of Operations For The
Three Months Ended
March 31, 2000 and 1999................................... 5
Condensed Consolidated Statements of Cash Flows For The
Three Months Ended
March 31, 2000 and 1999................................... 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
Signatures........................................................................ 15
Exhibit 1--Financial Data Schedule................................................ 16
</TABLE>
3
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GLOBAL HEALTH SCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 12,578 $ 6,400
Accounts receivable, net.................................. 17,166 20,882
Inventories............................................... 25,339 31,532
Prepaid expenses and other current assets................. 2,051 1,601
-------- --------
Total current assets.................................... 57,134 60,415
Property and equipment, net................................. 20,768 18,749
Intangibles and other assets, net........................... 115,214 123,683
Other assets................................................ 561 30
-------- --------
Total....................................................... $193,677 $202,877
======== ========
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current Liabilities:
Accounts payable and accrued expenses..................... $ 26,732 $ 37,224
Accrued interest payable.................................. 10,313 4,125
Line of credit............................................ 38,500 38,500
-------- --------
Total current liabilities................................. 75,545 79,849
Long-term debt............................................ 219,658 219,493
-------- --------
Total liabilities....................................... 295,203 299,342
======== ========
Commitments and contingencies
Stockholder's Deficit:
Common stock no par value, 2,000,000 authorized; 495,148
shares issued and outstanding........................... 473 473
Accumulated deficit....................................... (101,999) (96,938)
-------- --------
Total stockholder's deficit............................... (101,526) (96,465)
-------- --------
Total....................................................... $193,677 $202,877
======== ========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE>
\
GLOBAL HEALTH SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
Net sales................................................... $71,167 $52,096
Cost of sales............................................... 53,943 36,833
------- -------
Gross profit................................................ 17,224 15,263
Selling, general and administrative expenses................ 6,476 5,120
Amortization of intangibles................................. 8,183 8,183
------- -------
Operating income............................................ 2,565 1,960
Interest expense, net....................................... 7,601 7,192
------- -------
Loss before income taxes.................................... (5,036) (5,232)
Provision for state income taxes............................ 25 23
------- -------
Net income (loss)........................................... $(5,061) $(5,255)
------- -------
</TABLE>
See notes to condensed consolidated financial statements
5
<PAGE>
GLOBAL HEALTH SCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss).................................................. $ (5,061) $ (5,255)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 823 369
Amortization of goodwill.................................. 8,183 8,183
Non cash portion of interest expense...................... 451 422
Changes in assets and liabilities:
Accounts receivable....................................... 3,716 (2,974)
Inventories............................................... 6,193 (2,397)
Prepaid expenses and other current assets................. (587) (146)
Accounts payable and accrued liabilities.................. (10,492) 7,240
Accrued interest.......................................... 6,188 6,744
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 9,413 12,186
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....................... (2,842) (6,387)
Other assets.............................................. (394) --
Acquisition costs......................................... -- (29)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES....................... (3,235) (6,416)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid............................................ -- (70)
Borrowings (Repayments) of credit line.................... -- --
-------- --------
NET CASH USED IN FINANCING ACTIVITIES....................... -- (70)
-------- --------
Increase in cash............................................ 6,178 5,700
Cash at beginning of period................................. 6,400 7,987
-------- --------
Cash at end of period....................................... $ 12,578 $ 13,687
======== ========
</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 $225 million, 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".
On December 11, 1998, Global Health Sciences, Inc. acquired the stock of
American Ingredients, Inc. ("American") for $36.3 million in cash and expenses
in a transaction accounted for under the purchase method of accounting.
CREDIT FACILITY--The Company's bank line of credit, (the "Facility"),
provides for up to $31 million for acquisitions plus up to $10.0 million for
working capital and general corporate purposes. It is secured by all of the
assets of the Company and matures in January 2001. As of March 31, 2000, the
Company had drawn the acquisition portion of the Facility and all but
$2.5 million of the working capital portion. The Facility requires the Company
to maintain certain ratios of leverage, fixed charge coverage and interest
coverage, all as defined. The unused balance of the Facility cannot be drawn
unless the Company complies with all of these covenants.
As of March 31, 2000, the Company did not meet the minimum EBITDA
requirement under the Facility, as a result of which it failed to comply with
several financial covenants and the lenders under the Facility are entitled to
declare an event of default. These lenders have notified the Company that, on a
day to day basis, they will forbear declaring an event of default, but they have
informally advised the Company that their continued forbearance is contingent on
the Company's success in raising additional capital or obtaining a replacement
lending source. There can be no assurance that the Company will be able to raise
sufficient capital or find a replacement lender before the facility matures or
the current lenders declare an event of default under the facility.
The Company is actively engaged in discussions with other lenders to replace
or refinance the Facility at or prior to its maturity. There is a risk that the
Company will not be able to replace or refinance the Facility or that the terms
of any new or replacement facility that may be available will not be
advantageous. Failure to refinance or replace the Facility or to cure the
existing covenant violations could have material adverse consequences for the
Company and could result in a default under the Notes. In any event, the Company
does not anticipate that any replacement facility it obtains will
7
<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 1--BASIS OF PRESENTATION (CONTINUED)
provide it with significant additional liquidity, capital financing or funding
for acquisitions; accordingly, for the foreseeable future, the Company expects
to depend primarily on cash flow from operations to meet its liquidity and
capital needs. Under these circumstances, the Company does not plan or expect to
make additional acquisitions, except in circumstances where the costs of each
acquisition are funded through incremental debt or equity financing on a basis
that reduces the Company's ratio of total debt to EBITDA. Failure to obtain
additional funding for acquisitions could limit the Company's ability to expand
its marketing and production capabilities as necessary to grow its business and
compete effectively.
GLOBAL HEALTH SCIENCES, INC. is a holding company which conducts all of its
operations through subsidiaries, principally D&F, Omni-Pak and Affiliates, and
American Ingredients, Inc. Pursuant to the indenture governing the Notes, these
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, 2000 are not necessarily
indicative of the results that may be expected for the year ending December 31,
2000.
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, 2001. The company has not yet analyzed the impact
of adopting the statement.
COMPREHENSIVE INCOME--There are no adjustments between net income and
comprehensive income for the periods presented.
8
<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 2--INVENTORIES
Inventories consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Raw materials............................................... $20,118 $19,360
Work in process............................................. 3,628 5,565
Finished goods.............................................. 1,593 6,607
------- -------
Total Inventory............................................. $25,339 $31,532
======= =======
</TABLE>
NOTE 3--PROPERTY AND EQUIPMENT
Property and equipment consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Equipment................................................... $ 18,385 $ 18,274
Leasehold improvements...................................... 14,761 12,030
Land........................................................ 150 150
-------- --------
Gross property and equipment................................ 33,296 30,454
Less accumulated depreciation and amortization.............. (12,528) (11,705)
-------- --------
Net property and equipment.................................. $ 20,768 $ 18,749
======== ========
</TABLE>
NOTE 4--INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following (amounts in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Goodwill and other intangibles.............................. $165,702 $165,702
Deferred financing costs.................................... 9,166 9,166
-------- --------
Gross intangible assets..................................... 174,868 174,868
Accumulated Amortization
Goodwill.................................................. (56,537) (48,355)
Deferred financing costs.................................. (3,117) (2,830)
-------- --------
Net intangible assets....................................... $115,214 $123,683
======== ========
</TABLE>
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 in April 1998, the operations of Global Health
Sciences Inc. (the "Company") were conducted by four subchapter S corporations:
D&F, Omni-Pak, Dynamic and West Coast. Together these companies (together, the
"Combined 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 their products throughout the world. 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 were paid directly by its shareholder. The
Company has historically distributed, and intends to continue to distribute, as
a quarterly dividend to its shareholder amounts sufficient for the shareholder
to pay his 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 $141.6 million in fiscal year
1999, representing approximately 57% 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, 2000 were approximately $42.0 million or 59.0% of net sales; as
compared to $31.2 million or 59.9% of net sales for the three months ended
March 31, 1999.
10
<PAGE>
GLOBAL HEALTH SCIENCES, INC. (FORMERLY D&F INDUSTRIES)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
<S> <C> <C>
Net sales................................................... $71,167 $ 52,096
Cost of sales............................................... 53,943 36,833
------- --------
Gross profit................................................ 17,224 15,263
Selling, general and administrative expenses................ 6,476 5,120
Amortization of intangibles................................. 8,183 8,183
------- --------
Operating income............................................ 2,565 1,960
Interest expense, net....................................... 7,601 7,192
------- --------
Income (loss) before income taxes........................... (5,036) (5,232)
Provision for state income taxes............................ 25 23
------- --------
Net income (loss)........................................... $(5,061) $ (5,255)
======= ========
EBITDA (1).................................................. $11,554 $ 10,512
EBITDA margin (1)........................................... 16.2% 20.2%
</TABLE>
- ------------------------
(1) EBITDA is defined as 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
determine 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, 2000 COMPARED TO QUARTER ENDED MARCH 31, 1999
SALES. In the first quarter of 2000, sales increased by $19.1 million or
36.7%, to $71.2 million as compared to $52.1 million in the first quarter of
1999. Sales to Herbalife were $42.0 million in the first quarter of 2000 as
compared to $31.2 million in the first quarter of 1999.
COST OF SALES AND GROSS PROFIT. Cost of sales increased by $17.1 million or
46.5%, to $53.9 million in the first quarter of 2000, as compared to
$36.8 million in the first quarter of 1999. Cost of sales as a percentage of
sales increased to 75.7% in the first quarter of 2000 as compared to 70.6% in
the first quarter of 1999, thereby decreasing the gross margin in the first
quarter of 2000 to 24.3% from 29.4% in the first quarter of 1999. The reduction
in gross margin was primarily due to relatively higher raw material costs and
higher costs related to expanded manufacturing capacity.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $1.4 million to $6.5 million in the first
quarter of 2000, as compared to $5.1 million in the first quarter of 1999. As a
percentage of sales, selling, general and administrative decreased to 9.1% in
the first quarter of 2000, as compared to 9.8% in the first quarter of 1999. The
increased expenses were primarily related to increased sales and the expansion
of sales and manufacturing capacity.
NET LOSS. The Company's net loss decreased by $0.2 million to a net loss of
$5.1 million in the first quarter of 2000, as compared to a $5.3 million net
loss in the first quarter of 1999. The decreased loss resulted primarily from
the effect of significantly higher sales volume and for the reasons described
above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are for working capital, prospective
acquisitions and capital expenditures. In the absence of available capacity
under its current credit facility, the Company expects to meet its liquidity
requirements through cash flow from operations.
Cash and cash equivalents were $12.6 million at March 31, 2000 compared to
$6.4 million at December 31, 1999. The Company 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 quarter ended March 31, 2000
was $9.0 million. This amount primarily represents depreciation and amortization
of $9.0 million, increase in accrued interest of $6.2 million, decreases in
accounts receivable of $3.7 million and inventory of $6.2 million, net of the
loss of $5.1 million and decreases in accounts payable and accrued liabilities
of $10.5 million.
Capital expenditures of $2.8 million for the period ended March 31, 2000
were primarily for additional manufacturing equipment.
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
shareholder.
CREDIT FACILITY. The Company's bank line of credit (the "Facility")
provides for up to $31 million for acquisitions plus up to $10.0 million for
working capital and general corporate purposes. It is secured by all of the
assets of the Company and matures in January, 2001. As of March 31, 2000, the
Company had drawn the acquisition portion of the Facility and all but
$2.5 million of the working capital portion. The Facility requires the Company
to maintain certain ratios of leverage, fixed charge coverage and interest
coverage, all as defined. The unused balance of the Facility cannot be drawn
unless the Company complies with all of these covenants.
As of March 31, 2000, the Company did not meet the minimum EBITDA
requirement under the Facility, as a result of which it failed to comply with
several financial covenants and the lenders under
12
<PAGE>
the Facility are entitled to declare an event of default. These lenders have
notified the Company that, on a day to day basis, they will forbear declaring an
event of default, but they have informally advised the Company that their
continued forbearance is contingent on the Company's success in raising
additional capital or obtaining a replacement lending sources. There can be no
assurance the facility matures or that the Company will be able to raise
sufficient capital or find a replacement lender before the current lenders
declare an event of default under the Facility.
The Company is actively engaged in discussions with other lenders to replace
or refinance the Facility at or prior to its maturity. There is a risk that the
Company will not be able to replace or refinance the Facility or that the terms
of any new or replacement facility that may be available will not be
advantageous. Failure to refinance or replace the Facility or to cure the
existing covenant violations could have material adverse consequences for the
Company and could result in a default under the Notes. In any event, the Company
does not anticipate that any replacement facility it obtains will provide it
with significant additional liquidity, capital financing or funding for
acquisitions. Accordingly, for the foreseeable future, the Company expects to
depend primarily on cash flow from operations to meet its liquidity and capital
needs. Under these circumstances, the Company does not plan or expect to make
additional acquisitions, except in circumstances where the costs of each
acquisition are funded through incremental debt or equity financing on a basis
that reduces the Company's ratio of total debt to EBITDA. Failure to obtain
additional funding for acquisitions could limit the Company's ability to expand
its marketing and production capabilities as necessary to grow its business and
compete effectively.
13
<PAGE>
FORWARD LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q which are not
historical facts are forward-looking statements. Such forward-looking statements
are necessarily estimates reflecting the Company's best judgment based upon
current information and involve a number of risks and uncertainties, and there
can be no assurance that other factors will not affect the accuracy of such
forward-looking statements. While it is impossible to identify all such factors,
factors which could cause actual results to differ materially from those
estimated by the Company include, but are not limited to, risks associated with
acquisitions, the financial condition of customers, non-renewal of contracts,
government regulation, as well as operating risks, general conditions in the
economy and capital markets, and other factors which may be identified from time
to time in the Company's Securities and Exchange Commission filings and other
public announcements.
ITEM 3. MARKET RISK
The Company currently uses no material derivative financial instruments that
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. There have been no
significant changes in the Company's market risk in the quarter ended March 31,
2000.
PART II--OTHER INFORMATION
ITEM 6. EXHIBITS
Exhibit 27.1-- Financial Data Schedule for the quarter ended March 31, 2000,
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 3, 2000
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
<NAME> GLOBAL HEALTH
<CIK> 0001060980
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 13,687 12,578
<SECURITIES> 0 0
<RECEIVABLES> 15,460 17,851
<ALLOWANCES> 574 685
<INVENTORY> 17,181 25,339
<CURRENT-ASSETS> 48,354 57,134
<PP&E> 23,883 33,296
<DEPRECIATION> 10,375 12,528
<TOTAL-ASSETS> 211,568 193,677
<CURRENT-LIABILITIES> 67,663 75,545
<BONDS> 218,998 219,658
0 0
0 0
<COMMON> 473 473
<OTHER-SE> (75,566) (101,999)
<TOTAL-LIABILITY-AND-EQUITY> 211,568 193,677
<SALES> 0 0
<TOTAL-REVENUES> 52,096 71,167
<CGS> 36,833 53,943
<TOTAL-COSTS> 36,833 53,943
<OTHER-EXPENSES> 5,120 6,476
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 7,192 7,601
<INCOME-PRETAX> (5,232) (5,036)
<INCOME-TAX> 23 25
<INCOME-CONTINUING> (5,255) (5,061)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5,255) (5,061)
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
