SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______ TO ______
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Commission file number 0-18160
OMNI NUTRACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
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UTAH 87-0468225
(State of incorporation) (I.R.S. Employer Identification No.)
5310 Beethoven Street
Los Angeles, California 90066
(Address of principal executive offices)
Registrant's telephone number: (310) 306-3636
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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:
--- ---
The number of shares of the registrant's Common Stock, par value $.01 per share,
outstanding as of May 17, 2000 was 31,207,565.
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Omni Nutraceuticals, Inc.
Index to Form 10-Q
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements: 4
Condensed Consolidated Balance Sheets as of March 31, 2000
(unaudited) and December 31, 1999 4
Condensed Consolidated Statements of Operations for Three
Months Ended March 31, 2000 and 1999 (unaudited) 5
Condensed Consolidated Statements of Cash Flows for Three
Months Ended March 31, 2000 and 1999 (unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Matters 18
Item 6. Exhibits and Reports on Form 8-K 18
SIGNATURES 19
2
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THIS QUARTERLY REPORT ON FORM 10-Q INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL
FACTS INCLUDED IN THIS QUARTERLY REPORT, INCLUDING, WITHOUT LIMITATION, THOSE
REGARDING THE COMPANY'S FINANCIAL POSITION, BUSINESS, MARKETING AND PRODUCT
INTRODUCTION AND DEVELOPMENT PLANS AND OBJECTIVES OF MANAGEMENT FOR FUTURE
OPERATIONS, ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT
THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED UNDER "RISKS
RELATED TO THE BUSINESS OF 4HEALTH" AND ELSEWHERE IN THE COMPANY'S ANNUAL REPORT
ON FORM 10-K AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS" AND ELSEWHERE IN THE ANNUAL REPORT. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON BEHALF OF THE COMPANY, ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OMNI NUTRACEUTICALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C> <C>
March 31 December 31
2000 1999
(unaudited)
------------ ------------
CURRENT ASSETS
Cash and Cash Equivalents 1,330,000
Accounts Receivable, net 5,308,000 6,776,000
Inventories 5,814,000 5,972,000
Prepaid Expenses and Other 415,000 539,000
Current Portion of Notes Receivable 11,000 11,000
------------ ------------
Total Current Assets 12,878,000 13,298,000
Property and Equipment, net 1,440,000 1,516,000
Trademarks 12,573,000 12,798,000
Intangibles 2,280,000 2,422,000
Other Assets 1,140,000 1,254,000
Notes Receivable, net of Current Portion 436,000 439,000
------------ ------------
Total Assets 30,747,000 31,727,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Cash Overdraft - 165,000
Accounts Payable 9,010,000 7,176,000
Accrued Liabilities 1,512,000 2,875,000
Line of Credit 5,400,000 6,436,000
Current Portion of Term Loan 2,333,000 2,332,000
Current Portion of Notes Payable 99,000 176,000
Income Taxes Payable - 52,000
Customer Deposits 450,000 450,000
------------ ------------
Total Current Liabilities 18,804,000 19,662,000
Term Loan, net of Current Portion 9,500,000 10,085,000
Notes Payable, net of Current Portion 98,000 102,000
Minority Interest - -
Stockholders' Equity
Shares issueable under legal settlement 1,200,000 1,200,000
Common Stock 310,000 274,000
Additional Paid in Capital 27,150,000 18,008,000
Treasury Stock (50,000) (50,000)
Deficit (26,265,000) (17,554,000)
------------ ------------
Total Stockholders' Equity 2,345,000 1,878,000
------------ ------------
Total Liabilities and Stockholders equity 30,747,000 31,727,000
============ ============
</TABLE>
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OMNI NUTRACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Three months Ended
March 31,
2000 1999
Net sales 7,789,000 6,991,000
Cost of sales 4,556,000 3,407,000
------------------- ----------
Gross Profit 3,233,000 3,584,000
Costs and Expenses
Distribution expenses 586,000 587,000
Sales and marketing 4,563,000 1,755,000
General and administrative 3,739,000 2,045,000
Depreciation and amortization 655,000 262,000
------------------- ----------
Total costs and expenses 9,543,000 4,649,000
(Loss) from operations (6,310,000) (1,065,000)
Other income (expense)
Interest Income 13,000 15,000
Interest Expense (465,000) (75,000)
Other income (expense) 1,000 471,000
------------------- ----------
Total other income (expense) (451,000) 411,000
------------------- ----------
Minority Interest - -
Net (loss) before income taxes (6,761,000) (654,000)
Income tax (benefit)
------------------- ----------
Net (Loss) (6,761,000) (654,000)
Preferred stock dividends 1,950,000
------------------- ----------
Net (Loss) available to common (8,711,000) (654,000)
shareholders =================== ==========
Net (Loss) available to common (0.30) (0.02)
shareholders per share, basic and
diluted
</TABLE>
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OMNI NUTRACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
2000 1999
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) (6,761,000) (654,000)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities;
Depreciation and amortization 655,000 262,000
(Gain) loss on disposal of assets - (481,000)
Issuance of warrants and options 97,000 97,000
Issuance for shares for services 1,770,000
Amortization of notes from Officers - 36,000
(Increase) Decrease in;
Accounts receivable 1,468,000 215,000
Inventory 158,000 (64,000)
Prepaid and other 124,000 (629,000)
Increase (Decrease) in:
Bank Overdraft (165,000)
Accounts payable 1,834,000 699,000
Accrued Liabilities (1,363,000) 119,000
Income Taxes (52,000) 7,000
------------ -----------
Cash provided by (used in) operating activities (2,235,000) (393,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed assets (35,000) (206,000)
Purchase of Inholtra and HVE (3,250,000)
Net proceeds from asset dispositions 479,000
Decrease in other assets 22,000
Collections on notes receivable 3,000
------------- -----------
Cash used in investing activities (10,000) (2,977,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 2,376,000 85,000
Proceeds from issuance of preferred stock 1,900,000
Proceeds from issuance of warrants 100,000
Proceeds fom sale of minority interest 1,000,000
Repayments of old line of credit (1,000,000)
Borrowings (repayments) under existing line of credit (1,036,000) 4,088,000
Borrowings on long term borrowings
Repayments on long term borrowings (665,000) (173,000)
Costs incurred with financing (100,000)
------------ -----------
Cash provided by (used in) financing activities 3,575,000 3,000,000
Net increase (decrease) in cash 1,330,000 (370,000)
------------ -----------
Cash and cash equivalents, beginning of period - 426,000
Cash and cash equivalents, end of period 1,330,000 56,000
============ ===========
</TABLE>
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SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
1999
In connection with the sale of the Company's facility in Boulder, Colorado, (i)
a note receivable of $458,000 was received from the buyer, and (ii)
$1,300,000 of debt was assumed by the buyer.
In connection with the acquisition of Health and Vitamin Express Inc., the
Company (i) issued 363,636 shares of the Company's common stock valued at
$2,273,000, and (ii) assumed $571,000 of debt.
In connection with the acquisition of certain assets and liabilities of
Inholtra, Ltd., short term debt of $10,000,000 was incurred by the Company.
2000
The Company recorded a preferred dividend of $1,950,000 related to the issuance
of preferred stock with a conversion rate below the market price of the
Company's common stock.
The Company issued 25,000 shares to two directors and recorded a non-cash charge
of $50,000.
The Company recorded a compensation charge of $1,720,000 related to the transfer
of personal shares from an officer and major shareholder to a departing board
member.
The Company issued 800,000 shares of common stock to a financial consulting firm
for services provided in connection with a private placement of 700,000 shares
of common stock for $2,100,000.
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Omni Nutraceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
Three Months Ended March 31, 2000
(Unaudited)
Note 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements reflect the results of
operations for Omni Nutraceuticals, Inc., and have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended March 31, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Form 10-K. Certain 1999 amounts
have been reclassified to conform to 2000 presentation. For the three-month
period ended March 31, 2000 and March 31, 1999, no common stock equivalents were
included because they would have been anti-dilutive.
NOTE 2. GOING CONCERN ISSUES
In connection with the audit for the year ended December 31, 1999, the Company
received a report from its independent auditors that includes an explanatory
paragraph describing the Company's uncertainty to continue as a going concern.
These condensed consolidated financial statements contemplate the ability to
continue as such and do not include any adjustments that might result from this
uncertainty.
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NOTE 3. NEW AUTHORITATIVE PRONOUNCEMENTS
In December 1999, the SEC staff released Staff Accounting Bulletin (SAB) No.
101, Revenue Recognition, to provide guidance on the recognition, presentation
and disclosure of revenue in financial statements. Changes in accounting to
apply the guidance in SAB No. 101 may be accounted for as a change in accounting
principle effective January 1, 2000. Management has not yet determined the
complete impact of SAB No. 101 on the Company; however, management does expect
that application of SAB No. 101 will have a material effect on the Company's
revenue recognition and results of operations.
NOTE 4. CREDIT FACILITY
The current credit facility consists of a $13 million (original amount) term
loan ("Term Loan") and up to a $7 million revolving loan ("Revolving Loan). The
$13,000,000 Term Loan is payable in quarterly installments of $583,333 that
began October 15, 1999, and which will increase to $750,000 on October 15, 2002,
until the Loan is paid in full on April 15, 2004. The credit facility agreement
contains certain financial and other covenants or restrictions, including the
maintenance of certain financial ratios, limitations on capital expenditures,
restrictions on acquisitions, limitations on the incurrence of indebtedness and
restrictions on dividends paid by the Company.
As of December 31, 1999, the Company was in violation of several covenants. The
Company agreed to certain changes in the agreement and obtained a waiver from
the lender for these covenants. The Term Loan and Revolving Loan commitment, as
revised, now expire on April 30, 2001, when the loans are payable in full.
Further, the term loan amortization payments and interest payments will be made
monthly. Under the proposed amendment the lender will require the Company to
meet certain revised financial ratios. As of March 31, 2000 the maximum
additional credit available under the borrowing limitations was $1,600,000.
9
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NOTE 5. CONTINGENCIES
On December 23, 1999, a lawsuit was filed against the Company and certain
officers by the former shareholders of Health & Vitamin Express alleging various
causes of action. The proposed terms of the settlement provided that the
Company immediately issue the 363,636 shares of common stock which could have
been issueable to the former shareholders of HVE for future earnings. As such,
the Company has estimated and recorded an expense and offsetting contingency of
$1,200,000 in the accompanying balance sheets at March 31, 2000 and December
31, 1999, in connection with this claim. The final settlement was signed in
April and included a warrant expiring in 2005 to buy 100,000 shares of common
stock for $2.25 per share. During the second quarter, the Company will issue the
shares and expects to record the transaction by relieving "Shares issueable
under legal settlement" and increasing "Additional Paid in Capital".
NOTE 6. CAPITAL TRANSACTIONS
On January 5, 2000, as compensation for serving on the Board of Directors, the
Company issued two directors 25,000 shares of common stock. The accompanying
financial statements include a charge of $50,000 to reflect this issue of
shares.
On January 24, 2000, the Company sold 2,000,000 shares of its newly created 5%
$.01 par Convertible Preferred Stock for $1,900,000 and sold seven year warrants
to purchase 500,000 shares of common stock at $2.25 per share for $100,000. The
Company incurred issuance costs of $100,000, which consisted of lawyers' fees
and placement agent fees. On March 24, 2000, the Company converted all of these
preferred shares, plus accrued dividends, for 2,016,438 shares of its common
stock. Since the conversion price of $0.753 per share was significantly below
the trading price of $1.719 per share of the Company's common stock when the
Preferred was issued, the Company recognized a preferred dividend of $1,950,000,
which is reflected as a reduction in net income available to common
stockholders. In connection with the placement of the preferred shares, an
officer of the company transferred 222,000 shares of his personally held common
stock to the investor, as added consideration for the funding. Pursuant to this
agreement, the company has attributed a portion of the proceeds from the
preferred stock to the transfer of the common shares equal to $380,000 which was
the fair market value of common stock at the date of the transaction. After the
allocation of proceeds, the net purchase price for the preferred stock
aggregated to $1,520,000.
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Concurrent with the issuance of the preferred stock, the company sold a 10%
interest in its wholly owned subsidiary, Health Zone, Inc., to the same
investors for $1,000.000. The excess of the investment over the interest in the
subsidiary's net equity that was sold has been recorded as an increase in paid
in capital on the company's financial statements.
On March 12, 2000, the company entered into a two year Consulting Agreement with
Liviakis Financial Communications, Inc. ("LFC") and, in connection therewith,
authorized the issuance of 1,200,000 restricted shares of common stock to LFC in
consideration of, and as a retainer and prepayment for, the consulting services
to be rendered to the company by LFC. Under the terms granted to LFC, the
company issued 800,000 shares during the current quarter. The balance of 400,000
shares will be due and payable in fiscal year 2001 depending on whether the
Company continues to retain LFC. Pursuant to the provision in the Consulting
Agreement, LFC is entitled to receive a finders fee in connection with any debt
or equity financing for the Company from a source introduced to the Company, or
its nominee from LFC, and a finders fee in connection with any acquisition of
the Company by any candidate introduced to the Company or its nominee, by LFC.
As such, the shares have been recorded as an issuance cost on the accompanying
financial statements.
On March 27, 2000 the Company sold 700,000 shares of common stock to individual
investors organized by LFC in a private placement for an aggregate proceed of
$2,100,000.
NOTE 7. SUBSEQUENT EVENTS
On March 31, 2000, the Company signed a binding term sheet with Vitamin Discount
Connection to purchase the company for 120,000 shares of Omni common stock.
Vitamin Discount Connection is an internet and mail order business that sells
nutritional supplements and health related products.
11
<PAGE>
On April 3, 2000, the Company signed a binding term sheet with Smart Basics,
Inc., DBA SmartBasics.com. Under the terms of the agreement, the Company will
pay 170,000 shares of Omni common stock for SmartBasics.com. SmartBasics.com is
an internet and mail order business that sells nutritional supplements and
health related products.
On April 17, 2000, a majority of the shares were voted to approve changing the
name of the company to Healthzone.com, Inc. This name change has not yet taken
effect.
On April 28, 2000, the Company signed a binding letter of intent to purchase the
selected assets of HealthShop.com for $3,500,000 in value of Omni common stock,
(at least 838,951 shares with up to 400,000 additional shares issuable if
certain events transpire or occur). HealthShop.com was an internet business that
sold nutritional supplements and health related products.
On May 8, 2000 the Company's Term Loan and Revolving Loan agreements with its
principal lender were amended. As a condition of the waiver of certain
financial ratios, the amendment changed the expiration dates of both facilities
to April 30, 2001. Further, the term loan amortization payments and interest
payments will be made monthly. Under the amendment the lender will require the
Company to meet certain revised financial ratios.
12
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective March 12, 2000, both the Company's Chairman of the Board, R. Lindsey
Duncan and its President and Chief Executive Officer, Louis Mancini ceased to be
employed. Mr. Mancini was replaced by Mr. Klee Irwin as President and Chief
Executive Officer. The Company believes that these changes in management
will not materially or adversely affect the Company.
On March 12, 2000, the Board also authorized the termination of that certain
Settlement Agreement dated October 8, 1999, by and among the Company and Mr. And
Mrs. Klee Irwin, and the ancillary agreements executed and delivered by the
Company in connection therewith. On October 8, 1999, the Company and Mr. Klee
Irwin had entered into a settlement agreement (the "Settlement Agreement") in
order to resolve certain mutual claims that had arisen between the Company and
Mr. Irwin.
On April 17, 2000, a majority of the shares were voted to approve changing the
name of the company name to Healthzone.com, Inc. This name change has not yet
taken effect.
RESULTS OF OPERATIONS
OPERATING RESULTS
Consolidated net sales for the three months ended March 31, 2000 were $7,789,000
with an operating loss of $6,310,000 and a net loss of $6,761,000, and a net
loss available to common shareholders of $8,711,000 or $.30 per basic and
diluted share. Consolidated net sales for the same period in the prior year
were $6,991,000 with a operating loss of $1,065,000 and a net loss of $654,000
or $.02 per basic and diluted share. Total operating expenses for the three
months were 9,543,000 versus 4,649,000 for the same period in 1999
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SALES
Net sales for the three months ended March 31, 2000, increased by $798,000, or
12%, to $7,789,000 from $6,991,000 for the comparable period in 1999. The
increase in sales relates to the introduction of new products.
GROSS PROFIT
Gross profit for the three months ended March 31, 2000 decreased by $351,000, or
10%, to $3,233,000, from $3,584,000 for the comparable period in 1999. Gross
profits as a percentage of sales for the three months ended March 31, 2000
decreased to 42% from 52% in the comparable period in 1999. The decrease during
the quarter in the gross margin resulted primarily from increased pricing
concessions on new product introductions and shifts in product mix to items
having lower margins.
SALES AND MARKETING
Sales and marketing expenses for the three months ended March 31, 2000 increased
by $2,808,000 or 160% to 4,563,000 from $1,755,000 for the comparable period in
1999. This increases was due primarily to the marketing and media campaign
initiated by former management in an attempt to increase sales for the first
quarter and for the year 2000. The main products promoted were Inholtra,
Cholestaid, and Veromax. The Company also incurred significant cost in continual
repackaging and redesign of its core product lines.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended March 31,
2000,increased by $1,694,000, or 83% to $3,739,000 from $2,045,000 for the
comparable period in 1999. One item accounted for $1,720,000. In connection
with the Withdrawal Agreement between the Company and the former Chairman of the
Board, the current CEO and major shareholder transferred one million shares of
personally owned Company common stock to the former Chairman of the Board.
Although the company did not issue any additional shares, applicable accounting
rules require the Company to take a charge of $1,720,000, the fair market value
of stock as a compensation expense. This charge is a non-cash expense for the
Company, which simultaneously records an increase in Paid in Capital for the
same amount.
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization for the three months ended March 31, 2000,
increased by $393,000 to $655,000 from $262,000 for the comparable period in
1999. The increase specifically relates to amortization costs relating to the
Inholtra and HVE acquisitions and amortization of costs associated with the
credit facility.
OTHER INCOME (EXPENSE)
Interest expense for the three months ending March 31, 2000 increased by
$390,000 to $465,000 from $75,000 for the comparable period in 1999. This
increase is consistent with the increase in the utilization of the Company's
line of credit, and the term loan that the Company entered into on June 10,
1999.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that additional investment capital will be required to
permit the Company to meets its business objectives in the near term. Such
funds may be raised either through debt or equity offerings or some combination
of the two, however, there is no assurance that the Company will be able to
secure such funds on commercially reasonable terms, if at all. If not
successful in securing additional funds, the Company may be forced to dispose of
its assets outside of its normal course of business and/or resort to bankruptcy
protection.
During the three months ended March 31, 2000 the Company experienced a negative
cash flow of $2,235,000. $3,585,000 was provided from investing and financing
activities. There was a net increase in cash and cash equivalents of $1,330,000.
The sale of equities provided $5,376,000 of which $1,801,000 was used for
repayments of an existing line of credit and other long term borrowings, as well
as for costs incurred with the financing.
15
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The current credit facility consists of a $13 million (original amount) term
loan ("Term Loan") and up to a $7 million revolving loan ("Revolving Loan). As
originally structured, the $13,000,000 Term Loan was payable in quarterly
installments of $583,333 that began October 15, 1999, and was to increase to
$750,000 on October 15, 2002, until the Loan was paid in full on April 15, 2004.
The credit facility agreement contains certain financial and other covenants or
restrictions, including the maintenance of certain financial ratios, limitations
on capital expenditures, restrictions on acquisitions, limitations on the
incurrence of indebtedness and restrictions on dividends paid by the Company.
As of December 31, 1999, the Company was in violation of several covenants. The
Company agreed to certain changes in the agreement and obtained a waiver from
the lender for these covenants. The Term Loan and Revolving Loan commitment, as
revised, now expire on April 30, 2001, when the loans are payable in full.
Further, the term loan amortization payments and interest payments will be made
monthly. Under the proposed amendment the lender will require the Company to
meet certain revised financial ratios. As of March 31, 2000 the maximum
additional credit available under the borrowing limitations was $1,600,000.
The Company has primarily funded its operations to date through internally
generated capital or bank financing. The Company's future capital requirements
will depend on many factors, including the nature and timing of orders from
customers, collection of trade accounts receivable, the expansion of sales and
marketing efforts, costs associated with entering into new channels of
distribution, and the status of competitive products.
The Company was notified by the Nasdaq Stock Market in September 1999 that the
Company failed to meet the minimum tangible net asset requirement necessary for
continued listing on the Nasdaq National Market. The Company presented a
specific plan to Nasdaq for achieving compliance with all Nasdaq National Market
listing requirements. On March 15, 2000, the Company was notified by Nasdaq
that it had met one of the alternative maintenance standards and Nasdaq had
closed the file with respect to the possible delisting of the Company's common
stock. There can be no assurance that the Company will continue to meet such
listing requirements in the future.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 23, 1999, a lawsuit was filed against the Company and certain
officers by the former shareholders of Health & Vitamin Express alleging various
causes of action. The proposed terms of the settlement provided that the
Company immediately issue the 363,636 shares of common stock which could have
been issueable to the former shareholders of HVE for future earnings. As such,
the Company has estimated and recorded an expense and offsetting contingency of
$1,200,000 in the accompanying balance sheets at March 31, 2000 and December
31, 1999, in connection with this claim. The final settlement was signed in
April 2000 and included a warrant expiring in 2005 to buy 100,000 shares of
common stock for $2.25 per share. During the second quarter of 2000, the Company
will issue the shares and expects to record the transaction by relieving
"Shares issueable under legal settlement" and increasing "Additional Paid in
Capital".
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 5, 2000, as compensation for serving on the Board of Directors, the
Company issued two directors 25,000 shares of common stock. The accompanying
financial statements include a charge of $50,000 to reflect this issue of
shares.
On January 24, 2000, the Company sold 2,000,000 shares of its newly created 5%
$.01 par Convertible Preferred Stock for $1,900,000 and sold seven year warrants
to purchase 500,000 shares of common stock at $2.25 per share for $100,000. The
Company incurred issuance costs of $100,610, which consisted of lawyers' fees
and placement agent fees. On March 24, 2000, the Company converted all of these
preferred shares, plus accrued dividends, for 2,016,438 shares of its common
stock. Since the conversion was significantly below the trading price of the
Company's common stock when the Preferred was issued, the Company recognized a
preferred dividend of $1,950,000, which is reflected as a reduction in net
income available to common stockholders.
Concurrent with the issuance of the preferred stock, the company sold a 10%
interest in its wholly owned subsidiary, Health Zone, Inc., to the same
investors for $1,000.000. The excess of the investment over the interest in the
subsidiary's net equity that was sold has been recorded as an increase in paid
in capital on the company's financial statements.
On March 12, 2000, the company entered into a two year Consulting Agreement with
Liviakis Financial Communications, Inc. ("LFC") and, in connection therewith,
authorized the issuance of 1,200,000 restricted shares of common stock to LFC in
consideration of, and as a retainer and prepayment for, the consulting services
to be rendered to the company by LFC. Under the terms granted to LFC, the
company issued 800,000 shares during the current quarter. The balance of 400,000
shares will be due and payable in fiscal year 2001 depending on whether the
Company continues to retain LFC. Pursuant to the provision in the Consulting
Agreement, LFC is entitled to receive a finders fee in connection with any debt
or equity financing for the Company from a source introduced to the Company, or
its nominee from LFC, and a finders fee in connection with any acquisition of
the Company by any candidate introduced to the Company or its nominee, by LFC.
As such, the shares have been recorded as an issuance cost on the accompanying
financial statements.
On March 27, 2000 the Company sold 700,000 shares of common stock to individual
investors organized by LFC in a private placement for an aggregate proceed of
$2,100,000.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 17, 2000 the Company's directors approved and a majority of the
Company's shareholders approved an amendment to the Company's Articles of
Incorporation changing the name of the Corporation to Healthzone.com, Inc. The
proposed amendment was submitted for filing with the SEC on Schedule 14C on May
8, 2000. The Company commenced mailing the 14C Information Statement to its
shareholders commencing on May 8, 2000. The Company anticipates that the
amendment will become effective approximately 21 days after such date.
No other matters were submitted to the security holders for a vote during
the period covered by this report.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
27.1 Financial Data Schedule
(B) REPORTS ON FORM 8-K
On January 24, 2000 the Company filed a Report on Form 8 -K under Item 5
disclosing a lawsuit filed against the Company, Klee Irwin and Louis Mancini by
David Mandel, Jeffrey D. Segal and Gordon D. Barker.
On January 31, 2000 the Company filed a Report on Form 8-K under Item 5
disclosing an equity transaction with American Equities, LLC and Corporate
Financial Enterprises, Inc.
On April 14, 2000 the Company filed a Report on Form 8-K under Item 5
disclosing (i) the resignation of Lindsey Duncan from the board of directors
and as an officer of the Company and related agreements between Mr. Duncan
and the Company; and (ii) the election of Martin Sumichrast as a director, and
his subsequent resignation; (iii) the termination of employment as President and
Chief Executive Officer of the Company; (iv) the appointment of Klee Irwin as
President and Chief Executive Officer; (v) the adoption of a Consulting
Agreement with Liviakis Financial Communications, Inc.; (vi) the approval and
execution of a termination agreement with Mr. Louis Mancini; and (vii) the
closing of a transaction with investors for a private placement of 700,000
shares of the Company's common stock at $3.00 per share with total gross
proceeds of $1,200,000.
On April 01, 2000 the Company filed a Report on Form 8-K under Item 4
reflecting a change in the Company's accountants Arthur Andersen LLP to
Singer, Lewak, Greenbaum & Goldstein LLP.
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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.
OMNI NUTRACEUTICALS, INC.
By /s/ Klee Irwin
-----------------------
Klee Irwin
President & CEO
By /s/ Herman Rosenman
-----------------------
Herman Rosenman
Chief Financial Officer
Dated: July 14, 2000
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