FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended
July 31, 1997 Commission File No. 0-17174
HAUSER, INC.
(formerly Hauser Chemical Research, Inc.)
Colorado 84-0926801
(State or other jurisdiction of (I.R.S. Identification
incorporation or organization) Number)
5555 Airport Boulevard, Boulder, Colorado 80301
(Address of Principal executive offices) (Zip Code)
Registrant's telephone number,
including area code:
(303) 443-4662
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
issuer's classes of common stock, as of the latest practicable
date.
Common Stock, $.001 par value 10,623,021
Class Outstanding at July 31, 1997
<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Operations (Unaudited) -
Three months ended July 31, 1997 and July 31, 1996 1
Consolidated Balance Sheets -
July 31, 1997 and April 30, 1997 2
Consolidated Statements of Cash Flows -
Three months ended July 31, 1997 and July 31, 1996 3
Notes to Condensed Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-15
Part 2. OTHER INFORMATION
Item 1. Legal Proceedings. n/a
Item 2. Changes in Securities. n/a
Item 3. Defaults Upon Senior Securities. n/a
Item 4. Submission of Matters to a Vote of
Security Holders. n/a
Item 5. Other Information. n/a
Item 6. Exhibits and Reports on Form 8-K. n/a
SIGNATURE PAGE 16
<PAGE>
<TABLE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited
Three months ended July 31,
1997 1996
REVENUES:
<S> <C> <C>
Natural product processing $ 4,782,298 $ 2,677,099
Technical services 2,763,219 2,239,596
Total revenues 7,545,517 4,916,695
COST OF REVENUES:
Natural product processing 3,765,077 2,854,938
Technical services 2,012,445 1,740,064
Total cost of revenues 5,777,522 4,595,002
GROSS PROFIT 1,767,995 321,693
OPERATING EXPENSES:
Research and development 457,312 495,915
Sales and marketing 526,483 413,200
General and administrative 1,335,553 1,270,990
Total operating expenses 2,319,348 2,180,105
LOSS FROM OPERATIONS (551,353) (1,858,412)
OTHER INCOME (EXPENSE):
Interest income 110,120 188,249
Interest expense (2,382) (12,102)
Other 187,645 -
Other income - net 295,383 176,147
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (255,970) (1,682,265)
INCOME TAX BENEFIT 74,233 471,034
LOSS FROM CONTINUING OPERATIONS (181,737) (1,211,231)
DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of
applicable income tax of $110,211 - (283,386)
Loss on disposal, including provision for losses
through estimated disposal date of $157,000,
net of applicable income taxes of $1,080,548 - (2,776,452)
LOSS FROM DISCONTINUED OPERATIONS (3,059,838)
NET LOSS $ (181,737) $(4,271,069)
LOSS PER SHARE:
Continuing operations $ (0.02) $ (0.12)
Discontinued operations $ - $ (0.29)
Net loss per share $ (0.02) $ (0.41)
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING 10,420,475 10,375,881
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HAUSER, INC.
CONSOLIDATED BALANCE SHEETS
July 31, April 30,
ASSETS 1997 1997
(unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 3,184,356 $ 8,379,551
Held-to-maturity investments 3,690,652 196,751
Accounts receivable, less allowance for doubtful accounts:
July 31, 1997, $387,753; April 30, 1997, $359,632 6,413,086 4,961,132
Income taxes receivable 1,445,046 1,445,046
Inventories, current 6,806,243 7,073,295
Prepaid expenses and other 516,760 406,325
Net deferred income tax assets 2,173,318 1,684,961
Total current assets 24,229,461 24,147,061
PROPERTY AND EQUIPMENT
Land and buildings 7,417,383 7,418,526
Lab and processing equipment 30,176,875 29,513,011
Furniture and fixtures 4,322,438 4,459,006
Total property and equipment 41,916,696 41,390,543
Accumulated depreciation and amortization (19,012,116) (18,204,486)
Net property and equipment 22,904,580 23,186,057
OTHER ASSETS:
Goodwill, less accumulated amortization:
July 31, 1997, $722,635; April 30, 1997, $651,772 2,111,928 2,182,791
Inventories, non-current 14,967,684 14,710,409
Other 2,552,462 2,571,560
Total other assets 19,632,074 19,464,760
TOTAL $66,766,115 $66,797,878
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,385,158 $ 1,486,499
Current portion of long term debt 169,624 171,916
Accrued salaries and wages 1,145,219 960,698
Deposits 400,000 200,000
Other accrued current liabilities 217,500 165,447
Total current liabilities 3,317,501 2,984,560
LONG TERM LIABILITIES 86,249 121,764
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued: July 31, 1997, 10,623,021; April 30, 1997, 10,419,028 10,620 10,419
Additional paid-in capital 58,634,514 58,622,066
Unrealized gain on available-for-sale investment, net of income taxes 86,018 246,119
Retained earnings 4,631,213 4,812,950
Net stockholders' equity 63,362,365 63,691,554
TOTAL $66,766,115 $66,797,878
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HAUSER, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three months ended July 31,
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (181,737) $(4,271,069)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization 878,493 1,106,634
Provision for bad debt 28,121 95,199
Provision for excess inventories 174,108 -
Loss on disposal of discontinued operation - 2,776,452
Gain on sale of investment (187,639) -
Deferred income tax (benefit) provision (74,233) -
Change in deposits and other (606,677) (54,871)
Change in assets and liabilities:
Accounts receivable (1,480,075) 272,700
Income taxes receivable - (581,247)
Inventories (164,331) (3,515,796)
Prepaid expenses and other (110,435) (80,164)
Accounts payable (101,341) 561,142
Other accrued liabilities 436,574 57,533
Net cash used in operating activities (1,389,172) (3,633,487)
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (526,153) (445,937)
Proceeds from sales of investments 239,189 -
Purchase of investments (7,585,272) -
Maturity of investments 4,091,371 4,000,000
Net cash provided by (used in) investing activities (3,780,865) 3,554,063
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt and capitalized leases (37,807) (304,426)
Proceeds from issuance of common stock and warrants 12,649 94,319
Net cash used in financing activities (25,158) (210,107)
Net decrease in cash and cash equivalents (5,195,195) (289,531)
Cash and cash equivalents, beginning of period 8,379,551 7,428,752
Cash and cash equivalents, end of period $ 3,184,356 $ 7,139,221
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for interest $ 2,382 $ 15,094
See notes to consolidated financial statements.
</TABLE>
HAUSER, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JULY 31,
1997 AND APRIL 30, 1997 AND FOR THE THREE MONTH PERIODS ENDED
JULY 31, 1997 AND 1996 (UNAUDITED)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited
financial statements contain all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly
the Company's financial position as of July 31, 1997 and
results of its operations and cash flows for the periods ended
July, 1997 and 1996. The year-end balance sheet data was
derived from audited financial statements, but does not
include all disclosures required by generally accepted
accounting principles. Certain fiscal 1997 amounts have been
reclassified to conform to the fiscal 1998 presentation.
2. DISCONTINUED OPERATIONS
On October 11, 1996, the Company sold substantially all of the
net assets of its secondary forest products subsidiary, Hauser
Northwest, Inc., d/b/a Ironwood Evergreens (Ironwood). The
operations of Ironwood have been reflected as discontinued in
the accompanying financial statements.
3. INVENTORIES
Raw material, work in process, and finished goods inventories,
which include costs of materials, direct labor and
manufacturing overhead, are priced at the lower of average
cost or market. Writedowns for excess and obsolete inventories
are charged to expense in the period when conditions giving
rise to the writedowns are first recognized.
Non-current inventories represent raw materials and work in
process in various stages of completion in excess of shipments
expected to occur in the next fiscal year.
Inventories are classified as follows:
<TABLE>
July 31, April 30,
1997 1997
<S> <C> <C>
Raw materials and supplies $ 3,451,483 $ 3,373,554
Work in process 14,085,652 13,019,432
Finished goods 4,972,959 5,952,775
Total before valuation allowance 22,510,094 22,345,761
Less valuation allowance (736,167) (562,057)
Total Inventories 21,773,927 21,783,704
Less non-current inventories 14,967,684 14,710,409
Current portion of inventories $ 6,806,243 $ 7,073,295
</TABLE>
4. LONG TERM DEBT
At July 31, 1997 and April 30, 1997, the Company's debt was
$255,873 and $293,680, respectively, and consisted of capital
lease obligations and notes payable to Shuster employees as
part of the Shuster acquisition, with interest rates ranging
from 5.5% to 15.4%.
5. NET EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Net earnings (loss) per share is computed based on the
weighted average number of common and common equivalent shares
outstanding during each of the periods. The Company uses the
treasury stock method for determining the effect of
outstanding stock options on earnings per share.
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128
"Earnings per Share", which is to be effective December 15,
1997. This statement establishes standards for computing and
presenting earnings per share. Had this statement been adopted
as of July 31, 1997, (loss) earnings per share would have been
as follows:
<TABLE>
July 31,
1997 1996
<S> <C> <C>
Basic loss per share $ (0.02) $ (0.39)
Diluted loss per share (0.02) $ (0.41)
</TABLE>
Part 1, Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
OVERVIEW
The Company realized significant financial performance
improvement in the quarter ended July 31, 1997. Compared to
the prior fiscal year, total revenues increased 53%, gross
margin increased from approximately 7% of total revenues to
23% of total revenues, total operating expenses increased only
6%, and the loss from continuing operations declined 85%.
The Company's operating results for the first quarter of
fiscal 1998, were consistent with management's expectations.
Management believes that the Company can attain break-even
results in fiscal 1998, based upon achieving certain sales
goals and the continuation of cost controls; however, there
can be no assurance of when profitability will again be
realized.
The Company and its customer, Yew Tree Pharmaceuticals ("Yew
Tree") had been named in a lawsuit filed by Bristol
Myers-Squibb Company ("Bristol") in the Netherlands, alleging
patent infringement in Europe. On July 24, 1997, the District
Court in the Netherlands ruled against Bristol in this
proceeding denying Bristol's request for an injunction to stop
Yew Tree from selling their product while the patent validity
is determined. Yew Tree's paclitaxel product, Yewtaxan
[Registered Trademark],has been approved in the Netherlands.
Subsequent to this result, Bristol has appealed the court's findings.
Bristol has also applied for and been granted patents related to
paclitaxel-based treatments in the United States. Such actions
by Bristol, if successful, could substantially reduce the
market for the Company's paclitaxel-based products. The
Company believes that these actions by Bristol cannot be
sustained, and intends to devote significant resources to
defend its right to market its paclitaxel product in the
United States and Europe. If the Company is not successful in
these efforts, the recovery of its investment in paclitaxel
related assets may be significantly delayed.
Further, the Company's customers wishing to enter the market
for paclitaxel-based therapies must obtain proper regulatory
approval before they can formulate and sell paclitaxel in
final form. Approval for the sale of generic paclitaxel in
Canada was obtained by Immunex Corporation ("Immunex"),
majority owned by American Home Products, Inc. ("AHP"), in
July 1997. Any delays in obtaining such approval in the United
States will delay the Company's recovery of its investment in
its paclitaxel-based products. On July 24, 1997, Immunex
submitted its application to The U.S. Food and Drug
Administration ("FDA") for approval to sell generic paclitaxel
in the United States. One day later, Immunex filed a lawsuit
seeking a permanent injunction ordering the FDA to accept this
filing for review. Immunex is seeking to achieve
"first-to-file" status for its generic paclitaxel drug.
On September 13, 1996, the Company adopted plans to sell
substantially all of the net assets of its secondary forest
products subsidiary, Hauser Northwest, Inc., d/b/a Ironwood
Evergreens ("Ironwood"). On October 11, 1996, this sale was
completed. Revenues for Ironwood were $2,670,389 in fiscal
year ended April 30, 1997 and $1,561,395 for the three months
ended July 31, 1996.
The following is a discussion of the Company's activities in
its continuing operations.
PHARMACEUTICALS
On May 12, 1994, the Company entered into a multi-year,
worldwide and mutually exclusive Supply Agreement ("Supply
Agreement") with AHP, formerly American Cyanamid Company,
whereby the Company will supply bulk paclitaxel to AHP. The
Company has been supplying bulk paclitaxel to AHP on a
two-part formula price basis which includes an initial minimum
payment upon shipment of the bulk paclitaxel and a subsequent
final payment, in the form of a royalty, when AHP sells
finished products which contain the bulk paclitaxel. The
contract calls for certain minimum purchase requirements
(which are subject to variation based upon the Company's
production costs) which are expected to result in aggregate
minimum payments of approximately $8,700,000 during the first
three years (ending August 1997). The minimum aggregate
payments are nonrefundable subject only to traditional product
warranty criteria. AHP is not required to purchase additional
product after August 1997.
The Supply Agreement has a ten year term which can be renewed
by AHP for an additional ten year period. Either company may
terminate the contract upon the occurrence of uncured breaches
of contract or the insolvency of the other party. In addition,
during the first five contract years, AHP can terminate the
Agreement in whole or in part if (i) the FDA or a foreign
regulatory agency imposes significant restrictions upon the
manufacture, use or sale of bulk paclitaxel or finished
product; (ii) the development program in foreign markets is
significantly more burdensome than contemplated; (iii) a third
party claim (including a claim of patent infringement)
materially inhibits AHP from developing, manufacturing or
selling the finished product; (iv) a U.S. or European patent
issues with claims which materially impact AHP's marketing
activities; or (v) the commercial viability of the finished
product deteriorates so that AHP cannot reasonably expect to
profitably capture more than a designated portion of the
defined taxane market.
The contract also called for advance purchase payments
totaling up to $3,400,000 contingent upon the following
milestones being met: the first filing of a product
registration for a finished product anywhere in the world,
first approval of such product registration, the first filing
of such a product registration in the United Kingdom, Germany
or France, upon approval of such foreign product registration,
upon filing of such product registration with the FDA and upon
approval of such FDA registration. Amounts otherwise payable
to the Company by AHP as royalties when finished products are
sold will be reduced by as much as 30% in any calendar year
until such reductions aggregate advance purchase payments
previously made. The Company has accounted for these advance
payments as customer deposits on the balance sheet.
AHP has agreed to indemnify Hauser against damages based upon
use or sale of the finished product, except that the parties
have agreed to share the costs of defending any patent
infringement case based upon such use or sale.
During the first quarter of fiscal 1998, the Company sold bulk
paclitaxel to AHP for its development needs, including final
product formulations and clinical trials. On July 8, 1997, the
Company announced that AHP, through Immunex, had received
approval to sell generic paclitaxel in Canada. This marked the
first approval in North America for a generic form of
paclitaxel and is the first approval under the Company's
ten-year agreement with AHP. This approval provides the
Company the possibility of realizing royalty income depending
upon the success of Immunex' marketing efforts in Canada.
Management does not expect royalty income to be significant in
fiscal 1998.
During the first quarter of fiscal 1997, AHP notified the
Company of its decision to maintain exclusivity of the supply
of paclitaxel from Hauser in the United States and Canada. In
addition, AHP released its exclusive supply position in the
rest of the world.
On November 7, 1996, the Company signed a contract with Yew
Tree to supply GMP bulk paclitaxel for use in Europe and
Eastern Europe. The value of this contract is estimated to be
$11,000,000 and has an initial three year term. The agreement
is mutually exclusive to both parties, except for the
Company's existing obligation to supply paclitaxel to AHP in
Europe and Eastern Europe, which obligation is pursuant to the
Company's existing contract.
NATURAL INGREDIENTS
Nutraceuticals - The term nutraceuticals is used to identify
the broad range of natural, healthful products that are used
to supplement the diet by increasing the total dietary intake
of important nutrients. The United States market for herbal
and botanical supplements is estimated to be $2.3 billion and
is growing at over 20% per year, according to industry
sources. The Company's current NaturEnhance[TradeMark] Nutraceuticals
products include extracts of echinacea, valerian, Siberian
ginseng, panax ginseng, rosemary, goldenseal and chamomile.
Management believes that the Company's expertise in the
production of special products from natural sources and its
extensive regulatory experience position it well in this
market area.
On November 14, 1996, the Company signed a three year contract
to supply RoseOx[TradeMark], a new anti-oxidant nutraceutical
product, to D&F Industries, a manufacturer of vitamin and food
supplement products. The value of this contract is estimated
to be $12,700,000. The Company has granted this customer
certain rights to use the RoseOx[TradeMark] and RoseOx 660[TradeMark]
trademarks for use in the nutraceutical dietary supplement and
cosmetic markets. The Company began shipping product under
this contract during the third quarter of fiscal year 1997,
and delivered all contractual quantities in the first quarter
of fiscal 1998.
Natural Flavor Extracts - The Company manufactures, markets
and sells natural flavor extracts. The extracts are marketed
under the Company's brand name NaturEnhance[TradeMark] Flavor
Extracts. Competition for products in the flavor extract
market is based on flavor quality and concentration,
availability, customer service, and price. Many of these
factors are beyond the direct control of the Company.
Natural Food Ingredients - Food ingredients are products which
perform a function in foods, such as preservatives,
stabilizers, colorants, antioxidants, and nutritional
additives. The Company's objective is to build a quality line
of products generating revenues and profits as a leader in the
development, manufacture and sale of natural food ingredients.
Minimal revenue from natural food ingredients products was
recognized in the first quarter of fiscal 1998, but shipments
are expected to increase during fiscal year 1998, because of
increased interest expressed by potential customers. However,
management is unable to predict the timing and amount of
future revenues from natural food ingredients products.
TECHNICAL SERVICES
Technical Services includes Shuster and Hauser Laboratories.
Hauser Laboratories consists of Chemistry Services,
Engineering Services and Materials Science. During the first
quarter of fiscal 1998, the Company concentrated its efforts
to increase the number of new projects that relate to custom
synthesis and natural product isolation for clients in the
pharmaceuticals industry. Management believes that demand for
technical services provided by the Company will continue, and
expects this service group to grow.
DISCONTINUED OPERATIONS
During the first and second quarters of fiscal 1997, certain
events occurred which had significant negative impacts on the
Company's secondary forest products business. Ironwood's
operating results during the first and second quarters of
fiscal 1997 were unacceptable and well below management's
expectations, especially in light of corrective measures
imposed over the prior nine months. Ironwood's operating loss
in the three and six month periods ended July 31, 1996 and
October 31, 1996 was $393,597 and $846,232, respectively.
Because of the foregoing, and in order to retain cash for its
core businesses and improve the Company's operating position
going forward, management decided on September 13, 1996, that
this business should be sold. This sale was completed on
October 11, 1996. The results for the first quarter of fiscal
1997 include a non-recurring charge for the divestiture of
Ironwood.
The Company received cash of $250,000, a promissory note of
$400,000 and a basic earnout of no more than $550,000. The
earnout is based upon 75% of the buyer's net cash flow, if
any, derived from the business for the four year period ending
December 31, 2000. An additional earnout of 5% of the excess
(if any) of net cash flow over the projected net cash flow in
the buyer's five year plan is available to the Company. The
maximum additional earnout is $400,000. The Company has not
earned any amounts available under either the basic or
additional earnout.
RESULTS OF CONTINUING OPERATIONS:
Below is a table which summarizes the Company's results of
continuing operations as a percentage of total revenues.
<TABLE>
Three months ended July 31,
1997 1996
<S> <C> <C>
Total revenues 100.0 % 100.0 %
Gross margin 23.4 % 6.5 %
Research and development 6.1 % 10.1 %
Sales and marketing 7.0 % 8.4 %
General and administrative 17.7 % 25.9 %
Loss from operations (7.3)% (37.8)%
Other income, net 3.9 % 3.6 %
Loss from continuing operations before taxes (3.4)% (34.2)%
Loss from continuing operations (2.4)% (24.6)%
Loss from discontinued operations - (62.2)%
Net loss (2.4)% (86.9)%
</TABLE>
REVENUES. A breakout of the Company's revenues by product and
service groupings for its continuing operations is as follows:
<TABLE>
Three months ended July 31,
1997 1996
<S> <C> <C>
Pharmaceuticals $ 1,960,143 $ 919,025
Natural ingredients products (includes nutraceuticals,
natural flavor extracts and food ingredients) 2,822,155 1,758,074
Technical services (includes chemistry and
engineering services and Shuster) 2,763,219 2,239,596
$ 7,545,517 $ 4,916,695
</TABLE>
Total revenues increased 53% to $7,545,517 in the first
quarter of fiscal 1998, from $4,916,695 in the first quarter
of fiscal 1997, the result of increased revenues in all
product and services groupings.
Pharmaceuticals:
Revenues from pharmaceutical products in the quarter ended
July 31, 1997, increased about 113% compared to the same
quarter in fiscal 1997. This was because of increased sales of
bulk paclitaxel to customers for their use in development of
paclitaxel products. These customers did not purchase bulk
paclitaxel from the Company in the first quarter of fiscal
1997. The Company does not have long-term supply agreements
with these customers and future sales of bulk paclitaxel to
these customers are not certain.
The Company recognized revenues of $205,982 for the shipment
of sanguinaria extract to Colgate during the first quarter of
fiscal 1997, while no revenues from the sale of sanguinaria
extract were recognized in the first quarter of fiscal 1998,
because the Company's contract with Colgate was completed in
fiscal 1997. The Company does not expect additional orders for
this product in the foreseeable future. The expiration of the
contract with Colgate did not and will not have a material
impact on the operations of the Company.
Natural Ingredients:
Natural ingredients product revenues increased approximately
61% in the first quarter of fiscal 1998, to $2,822,155 from
$1,758,074 in the first quarter of fiscal 1997. The increase
is primarily attributable to success in selling nutraceutical
products as revenues were $2,455,375 in the first quarter of
fiscal 1998, an increase of $1,477,520, or 151% from revenues
of $977,855 in the same quarter last year. Revenues from the
sales of natural flavor extracts in the first quarter of
fiscal 1998 were $349,310, a 53% decrease from revenues of
$747,949 in the first quarter of fiscal 1997. This decrease
was the result of the loss of specific product sales to a
customer that decided to use other ingredients in its final
product. Management believes that other sales opportunities
exist to replace this customer loss. In addition, the Company
sold food ingredients products of $17,470 in the first quarter
of fiscal 1998, compared to revenues of $32,270 in the first
quarter of fiscal 1997.
Technical Services:
Technical services revenues were $2,763,219 in the quarter
ended July 31, 1997, compared to $2,239,596 in the same
quarter of fiscal 1997, an increase of about 23%. This
increase was due primarily to a general price increase for
services provided as well as concentrated efforts to increase
the number of new projects that relate to custom synthesis and
natural product isolation for clients in the pharmaceuticals
industry.
GROSS PROFIT. Total gross profit for the Company was
23.4% of total revenues in the quarter ended July 31, 1997,
compared to 6.5% of total revenues in the quarter ended July
31, 1996. Gross profit for the natural products industry
segment in the first quarter of fiscal 1998 was 21.3% of total
revenues as compared to negative 6.6% in the first quarter of
fiscal 1997. The improvement is primarily the result of sales
of paclitaxel to new customers in fiscal 1998. Offsetting this
were gross profits on paclitaxel sales to AHP which are
currently low in anticipation of future royalties. In
addition, the Company recognized modest gross profits from the
increased sale of nutraceutical products during the first
quarter of fiscal 1998. These modest gross profit margins are
the result of high overhead costs in relation to current sales
levels in anticipation of growth in these product lines.
Management believes that gross profits could improve if sales
volumes increase in the future.
Gross profit for technical services increased in the first
quarter of fiscal 1998, to 27% of revenues compared to 22% in
the same period last year. This is the result of efforts to
improve productivity as well as an increase in projects that
allow for more value-added pricing, thereby improving gross
margins.
OPERATING EXPENSES. Research and development expenses were
$457,312 in the quarter ended July 31, 1997, compared to
$495,915 in the quarter ended July 31, 1996, a decrease of
almost 8%. The decrease in research and development costs is
related to the absence of research on the development of
natural beta carotene in the first quarter of fiscal 1998;
such research was performed in the first quarter of fiscal
1997. The Company intends to actively continue research and
development efforts.
Sales and marketing expenses in the quarter ended July 31,
1997 were $526,483, an increase of $113,283, or 28% over the
same three month period last year. The increase represents the
Company's accelerated efforts to market new products,
particularly in the areas of pharmaceuticals, nutraceuticals
and natural food ingredients. In addition, sales and marketing
expenses in the first quarter of fiscal 1998 include higher
payments of commissions to external distributors due to
increased revenues.
General and administrative expenses were $1,335,553 in first
quarter of fiscal 1998, a 5% increase compared to general and
administrative expenses in the same quarter of fiscal 1997.
This increase is the result of hiring an executive manager and
the associated relocation costs incurred during the first
quarter of fiscal 1998.
INTEREST INCOME. Interest income was $110,120 in the first
quarter of fiscal 1998, compared to $188,249 in the first
quarter of fiscal 1997. The decrease is because of less
capital available for investment.
OTHER INCOME. The Company sold stock of a public company
during the first quarter of fiscal 1998 for $239,189, and
recognized a gain of $187,639. The Company holds additional
shares of stock from this company as an investment and
management may decide to sell those shares at some future
date. The shares are accounted for as available for sale and
recorded at market value with any changes (net of tax) charged
or credited to stockholders' equity.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL. Total cash and cash equivalents and short-term
investments were $6,875,008 at July 31, 1997, compared to
$8,576,302 at April 30, 1997. The decrease is primarily the
result of an increase in accounts receivable of $1,480,075.
This growth in accounts receivable results from higher
billings at the end of the first quarter.
The Company has a revolving line of credit totaling $8,000,000
which expires on June 30, 2000. As of July 31, 1997,
$8,000,000 was available for use under this line of credit.
Under the terms of the loan agreement, all assets of the
Company, with the exception of intangibles, are secured by the
bank. In addition, the Company has a lease credit line with a
bank of $564,000; as of July 31, 1997, $435,460 was available
for use under this line. Management believes that current cash
reserves and the revolving line of credit are sufficient to
meet the Company's short-term liquidity needs. Further,
management believes that funds generated from business
opportunities discussed earlier, including the new contracts
secured by the Company, will be sufficient to meet the
liquidity needs of the Company on a long-term basis.
WORKING CAPITAL. Working capital as of July 31, 1997 was
$20,911,960 compared to $21,162,501 as of April 30, 1997. This
decrease is primarily attributable to the use of cash and cash
equivalents plus short-term investments for the purchase of
capital equipment, and raw materials which has been classified
as non-current inventory. Non-current inventories reflect the
portion of total inventories which are not expected to be sold
in the next twelve months.
PROPERTY AND EQUIPMENT. Purchases of property and equipment
in the first quarter of fiscal 1998 totaled $526,153. This was
primarily the result of new construction and improvements to
manufacturing equipment for the production of nutraceuticals
and food ingredients products and development and processing
of paclitaxel from cultivated sources.
SEASONALITY
The Company has experienced seasonality in its natural flavor
extracts product line primarily in advance of the demand for
summer beverages, in which most of its products are used.
FORWARD LOOKING STATEMENTS
Certain oral and written statements of management of the
Company included in the Form 10-Q and elsewhere may contain
forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be
covered by the safe harbors created thereby. These statements
include the plans and objectives of management for future
operations. The forward-looking statements included herein and
elsewhere are based on current expectations that involve
judgments which are difficult or impossible to predict
accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any
of the assumptions could be inaccurate and, therefore, there
can be no assurance that the forward-looking statements will
prove to be accurate. In light of the significant
uncertainties inherent in the forward-looking statements, the
inclusion of such information should not be regarded as a
representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
<PAGE>
Part 2.
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None
<PAGE>
FORM 10 Q
SIGNATURES
Pursuant to the requirements of the Securities and Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
HAUSER, INC.
Date: September 8, 1997
/s/Dean P. Stull
Chairman of the Board, Chief Executive Officer, and President
Date: September 8, 1997
/s/David I. Rosenthal
Chief Financial Officer and Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE COMPANY'S 1ST QUARTER 10-Q FOR FISCAL 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1998
<PERIOD-END> JUL-31-1998
<CASH> 3,184,356
<SECURITIES> 3,690,652
<RECEIVABLES> 6,800,839
<ALLOWANCES> 387,753
<INVENTORY> 6,806,243<F1>
<CURRENT-ASSETS> 24,229,461
<PP&E> 41,916,696
<DEPRECIATION> 19,012,116
<TOTAL-ASSETS> 66,766,115
<CURRENT-LIABILITIES> 3,317,501
<BONDS> 0
<COMMON> 10,620
0
0
<OTHER-SE> 63,351,745
<TOTAL-LIABILITY-AND-EQUITY> 66,766,115
<SALES> 4,782,298
<TOTAL-REVENUES> 7,545,517
<CGS> 3,765,077
<TOTAL-COSTS> 5,777,522
<OTHER-EXPENSES> 2,319,348
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,382
<INCOME-PRETAX> (255,970)
<INCOME-TAX> 74,233
<INCOME-CONTINUING> (181,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (181,737)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>EXCLUDES $14,967,684 OF NON-CURRENT INVENTORY
</FN>
</TABLE>
