<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
Commission File Number 0-26362
NUTRITION FOR LIFE INTERNATIONAL, INC.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 76-0416176
------------------------------------ ------------------------
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9101 Jameel Road, Suite 180
Houston, Texas 77040
(Address of Principal Executive Offices)
(713) 460-1976
(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 preceeding 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
---- ----
As of August 13, 1998 there were 5,883,446 shares of common stock,
$0.01 par value per share, outstanding.
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Index
PART I - FINANCIAL INFORMATION
Page
ITEM 1. FINANCIAL STATEMENTS
Nutrition For Life International, Inc.
Consolidated Balance Sheets
June 30, 1998 and September 30, 1997 3
Consolidated Statements of Operation
for the Three and Nine Months Ended June 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 12
Signatures 13
2
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
1998 September 30,
(Unaudited) 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,253,074 $ 8,903,957
Cash-restricted -- 513,195
Marketable securities - available for sale 1,000,000 --
Receivables 1,175,085 1,547,479
Inventories 8,752,025 7,920,454
Deferred tax asset, net 1,780,000 1,888,442
Refundable federal income taxes 1,047,719 1,029,277
Prepaid expenses and other assets 758,397 496,517
----------- -----------
Total current assets 18,766,300 22,299,321
Property and equipment, net 7,378,587 6,534,042
Intangible assets, net 57,892 199,047
Other assets 311,661 315,026
----------- -----------
$ 26,514,440 $ 29,347,436
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 3,436,761 3,707,930
Accrued bonuses and commissions 1,015,251 1,973,646
Current portion of capital lease obligation 192,477 157,739
Accrued expenses and other liabilities 488,072 1,072,883
Accrued cruise -- 1,195,150
Lawsuit settlement accrual 6,370 1,332,314
Deferred income 4,256,063 3,130,524
Federal and franchise tax payable 527,216 43,216
Dividends payable 117,669 115,798
----------- -----------
Total current liabilities 10,039,879 12,729,200
Deferred tax liability 300,000 282,000
Long-term portion of capital lease obligation 462,378 478,220
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 shares
authorized; none issued and outstanding -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 5,869,395 and 5,775,835 shares, respectively 58,693 57,758
Additional paid-in capital 10,920,124 10,688,951
Retained earnings 4,861,543 5,176,539
Cumulative foreign currency translation adjustment (54,367) 8,578
----------- -----------
15,785,993 15,931,826
Less: Treasury stock - 9,000 shares at cost (73,810) (73,810)
----------- -----------
Total stockholders' equity $ 15,712,183 $ 15,858,016
----------- -----------
$ 26,514,440 $ 29,347,436
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JUNE 30, ENDED JUNE 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 15,414,795 22,600,186 51,377,500 63,069,456
Cost of sales 10,656,483 17,209,303 35,855,748 47,082,346
----------- ----------- ----------- -----------
Gross profit 4,758,312 5,390,883 15,521,752 15,987,110
Operating expenses:
Marketing, distribution and
administrative expenses 5,143,762 5,172,765 15,163,466 15,187,120
Lawsuit settlement -- -- -- 6,425,000
----------- ----------- ----------- -----------
5,143,762 5,172,765 15,163,466 21,612,120
----------- ----------- ----------- -----------
Income (loss) from operations (385,450) 218,118 358,286 (5,625,010)
Other income (expense):
Interest, net 19,467 195,792 112,180 530,464
Other, net 44,667 (54,242) 157,153 (132,834)
----------- ----------- ----------- -----------
64,134 141,550 269,333 397,630
----------- ----------- ----------- -----------
Income (loss) before income tax expense (benefit) (321,316) 359,668 627,619 (5,227,380)
Income tax expense (benefit) -- 179,443 592,000 (1,637,687)
----------- ----------- ----------- -----------
Net income (loss) $ (321,316) 180,225 35,619 (3,589,693)
=========== =========== =========== ===========
Basic income (loss) per common share $ (0.05) 0.03 0.01 (0.64)
=========== =========== =========== ===========
Diluted income (loss) per common share $ (0.05) 0.03 0.01 (0.64)
=========== =========== =========== ===========
Weighted average common shares:
Basic 5,888,525 5,584,613 5,819,922 5,575,952
=========== =========== =========== ===========
Diluted 5,888,525 6,214,668 6,210,712 5,575,952
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended June 30,
----------------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities $(2,677,908) (1,289,886)
Net cash used in investing activities (1,791,523) (1,814,483)
Net cash provided by financing activities (118,507) 210,402
Cumulative foreign currency translation adjustment (62,945) 473
----------- -----------
Net increase (decrease) in cash and cash equivalents (4,650,883) (2,893,494)
Cash and cash equivalents at beginning of period 8,903,957 15,588,504
------------ -----------
Cash and cash equivalents at end of period $ 4,253,074 12,695,010
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Nutrition For Life
International, Inc. (the Company) have been prepared in accordance with the
instructions to quarterly reports on Form 10-Q. In the opinion of Management,
all adjustments (which include only normal recurring adjustments) necessary
to present fairly the financial position, results of operations and changes
in financial position at June 30, 1998, and for all periods presented have
been made. Certain information and footnote data necessary for fair
presentation of financial position and results of operations in conformity
with generally accepted accounting principles have been condensed or omitted.
It is therefore suggested that these financial statements be read in
conjunction with the summary of significant accounting policies and notes to
financial statements included in the Company's Annual Report on Form 10-K.
The results of operations for the period ended June 30, 1998 are not
necessarily an indication of operating results for the full year.
Subsequent to September 30, 1997 the Company adopted Statements of
Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. SFAS
128 provides for the calculation of basic and diluted earnings per share.
Basic earnings per share includes no dilution and is computed by dividing net
income available to stockholders by the weighted number of common shares
outstanding for the period. Dilutive earnings per share reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share.
Earnings per share amounts as required by Statements of Financial
Accounting Standards No. 128 are calculated as follows:
<TABLE>
<CAPTION>
For the Nine Months Ended June 30, 1998
------------------------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net income $ 35,619
========
Basic EPS:
Net income available
to common stockholders $ 35,619 5,819,922 $ 0.01
=======
Effect of dilutive warrants
and options -- 390,790
-------- ---------
Diluted EPS:
Net income available to common
stockholders + assumed
conversions $ 35,619 6,210,712 $ 0.01
======== ========= =======
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
For the Nine Months Ended June 30, 1997
----------------------------------------------------------
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- ------------
<S> <C> <C> <C>
Net income (loss) $ (3,589,693)
============
Basic EPS:
Net income (loss) available
to common stockholders (3,589,693) 5,575,952 $ (0.64)
=======
Effect of dilutive warrants
and options -- --*
------------ -----------
Diluted EPS:
Net income (loss) available to common
stockholders + assumed
conversions $ (3,589,693) 5,575,952 $ (0.64)
============ =========== =======
</TABLE>
* Warrants and options totalling 697,522 are not incorporated in calculating
Diluted EPS as the effect is anti-dilutive.
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1998
----------------------------------------------------------
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- ------------
<S> <C> <C> <C>
Net income (loss) $ (321,316)
============
Basic EPS:
Net income available
to common stockholders $ (321,316) 5,888,525 $ (0.05)
=======
Effect of dilutive warrants
and options -- --*
------------ -----------
Diluted EPS:
Net income available to common
stockholders + assumed
conversions $ (321,316) 5,888,525 $ (0.05)
============ =========== =======
</TABLE>
* Warrants and options totalling 411,518 are not incorporated in calculating
Diluted EPS as the effect is anti-dilutive.
7
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended June 30, 1997
----------------------------------------------------------
Income (loss) Shares Per Share
(Numerator) (Denominator) Amount
-------------- ------------- ------------
<S> <C> <C> <C>
Net income $ 180,225
============
Basic EPS:
Net income available
to common stockholders $ 180,225 5,584,613 $ 0.03
========
Effect of dilutive warrants
and options -- 630,055
------------ -----------
Diluted EPS:
Net income available to common
stockholders + assumed
conversions $ 180,225 6,214,668 $ 0.03
=========== =========== ========
</TABLE>
The Company has not yet adopted Statements of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income", nor No. 131, "Disclosure about
Segments of a Business Enterprise". The Company will be required to adopt
these Statements during the fiscal year ended September 30, 1998. The Company
does not believe either Statement will have a material impact on the
financial statements.
8
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the nine months ended June 30, 1998 decreased by $11,691,956 or
18.5% to $51,377,500 as compared to net sales of $63,069,456 for the nine months
ended June 30, 1997. At June 30, 1998, the Company had approximately 81,200
distributors as compared to approximately 88,000 at March 31, 1998,
approximately 87,400 at December 31, 1997 and approximately 88,500 at September
30, 1997. During the nine months ended June 30, 1998 the number of active
international distributors increased by approximately 500, while active
distributors in North America decreased by approximately 7,800. The Company's
results of operations depend to a significant degree on the motivation of its
existing distributors and the attraction of new distributors to the Company.
Management believes significant efforts will need to be undertaken to stimulate
distributors' interest and to increase distributor recruitment and product
sales.
<TABLE>
<CAPTION>
<S> <C>
Decrease in sales due to decreased average number of distributors $ (6,645,000)
Decrease in distributor average sales (5,047,000)
-----------
$(11,692,000)
===========
</TABLE>
The Company's net sales per average number of distributors per month
decreased from $74 during the nine months ended June 30, 1997 to $67 for the
nine months ended June 30, 1998.
Net sales for three months ended June 30, 1998 decreased by 7,185,391 or
31.8% to $15,414,795 as compared to net sales of $22,600,186 for the three
months ended June 30, 1997. In addition to the overall decline in net sales
explained above, the Company encountered computer hardware problems during
the three months ended June 30, 1998. Because of these problems the Company's
ability to receive, process, and ship domestic orders was significantly
reduced during the last two weeks of the period. Management estimates that
net sales for the three months ended June 30, 1998 were reduced approximately
$1,400,000 as a result of the computer hardware problems.
Cost of sales decreased by $11,226,598 or 23.8% to $35,855,748 for the nine
months ended June 30, 1998 from $47,082,346 for the nine months ended June
30, 1997. Cost of sales as a percentage of net sales decreased from 74.7% in
the nine months ended June 30, 1997 to 69.8% in the nine months ended June
30, 1998. Cost of sales, which includes product costs, commissions and
bonuses paid to distributors, and shipping costs, is recapped below:
<TABLE>
<CAPTION>
Nine months ended
June 30,
----------------------
1998 1997
---------- --------
<S> <C> <C>
Product costs 27.8% 30.7%
Commissions and bonuses paid to distributors 35.6 37.1
costs 6.4 6.9
------ -----
69.8% 74.7%
====== =====
</TABLE>
9
<PAGE>
The percentage of product costs decreased 2.9% and the percentage of commissions
and bonuses paid to distributors decreased 1.5% primarily as a result of price
adjustments initiated during December 1997. The 0.5% decrease in shipping costs
resulted from negotiated carrier rate reductions.
Gross profit decreased 2.9% or $465,358 from $15,987,110 for the nine months
ended June 30, 1997 to $15,521,752 for the nine months ended June 30, 1998.
Gross profit as percentage of net sales increased from 25.3% for the nine
months ended June 30, 1997 to 30.2% for the nine months ended June 30, 1998.
Operating expenses decreased $6,448,654 or 29.8% from $21,612,120 for the
nine months ended June 30, 1997 to $15,163,466 for the nine months ended June
30, 1998. The primary reason for the decrease was that no class action
lawsuit costs were incurred during the nine months ended June 30, 1998. The
$6,425,000 lawsuit settlement charge in the three months ended December 31,
1996 represented the Company's estimate of all costs of the lawsuit. Based
upon subsequent experience, the Company revised the estimate to $5,535,000
during the three months ended September 30, 1997. As a percentage of net
sales, marketing, distribution, and administrative expenses increased to
29.5% for the nine months ended June 30, 1998 from 24.1% for the nine months
ended June 30, 1997 because of the decline in net sales. The Company's future
operating results may be negatively impacted if the Company is not successful
in regaining its growth in sales or decreasing its expenditures below current
levels.
Income (loss) from operations for the nine months ended June 30, 1998
increased $5,983,296 or 106.4% to $358,286 of income from operations from
$5,625,010 of loss from operations for the nine months ended June 30, 1997
principally as a result of the decrease in operating expenses as explained
above. The income (loss) from operations for the nine months ended June 30,
1998 and 1997 includes approximately $720,000 and $360,000, respectively, of
operating loss from the Company's wholly-owned, consolidated subsidiaries
which operate in foreign countries.
Other income decreased to $269,333 for the nine months ended June 30,1998
from $397,630 for the nine months ended June 30, 1997. The decrease was the
result of a decline in net interest income due to a decrease in interest
bearing deposits and to the recognition of interest expenses on capital lease
obligations and non-recurring credits.
Income tax expense for the nine months ended June 30, 1998 is higher than the
amount computed at the statutory rate. As the Company is not currently able
to recognize any tax benefits from foreign operating losses, tax expense is
accrued on the taxable income of domestic operations.
Net income was $35,619 for the nine months ended June 30, 1998, compared to a
net loss of $3,589,693 for the nine months ended June 30, 1997. The increase
was principally the result of having no accrual for the settlement of the
class action lawsuits in the nine months ended June 30, 1998.
10
<PAGE>
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $4,253,074 at June 30, 1998
compared to $8,903,957 at September 30, 1997. During the nine months ended
June 30, 1998, $2,677,908 of cash was used in operating activities as
compared to the nine months ended June 30, 1997 when $1,289,886 of cash was
used in operating activities. This swing was primarily due to the purchase of
marketable securities - available for sale and the payments of lawsuit
settlement accrual, accrued cruise, and accrued expenses and other
liabilities. The Company used approximately $1,775,000 and $1,814,000,
respectively, to purchase property and equipment during the nine month
periods ended June 30, 1998 and 1997. In addition, $352,616 was paid in
dividends to shareholders during the nine months ended June 30, 1998. The
Company had working capital of $8,594,421 at June 30, 1998 compared to
$9,570,121 at September 30, 1997.
11
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
In February 1998, the Company was named as a defendant in an
action commenced in the United States District Court for the
District of Wyoming by a distributor of the Company. Also named
as defendants are Kevin Trudeau, the Trudeau Marketing Group and
Veridien Corp. Veridien Corp. is a manufacturer of Virahol, a
disinfectant which is distributed by the Company. Kevin Trudeau
has been a key distributor of, and consultant to, the Company.
The plaintiff claimed that the defendants misrepresented facts
pertaining to Virahol. The action has been dismissed pursuant to
a settlement arrangement among the parties. The outcome of this
action is not material to the Company's operations.
12
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
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.
NUTRITION FOR LIFE INTERNATIONAL, INC.
(Registrant)
Dated: August 19, 1998 By: /s/ John R. Brown, Jr.
---------------------------------
John R. Brown, Jr.
Vice President - Finance
By: /s/ Julia J. Schreiber
---------------------------------
Julia J. Schreiber
Controller and Chief Accounting Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> JUN-30-1998 JUN-30-1997
<CASH> 4,253,074 8,903,957
<SECURITIES> 1,000,000 0
<RECEIVABLES> 1,175,085 1,547,479
<ALLOWANCES> 0 0
<INVENTORY> 8,752,025 7,920,454
<CURRENT-ASSETS> 18,766,300 22,299,321
<PP&E> 10,103,508 8,328,751
<DEPRECIATION> 2,724,921 1,794,709
<TOTAL-ASSETS> 26,514,440 29,347,436
<CURRENT-LIABILITIES> 10,039,879 12,729,200
<BONDS> 0 0
0 0
0 0
<COMMON> 58,693 57,758
<OTHER-SE> 15,653,490 15,800,258
<TOTAL-LIABILITY-AND-EQUITY> 26,514,440 29,347,436
<SALES> 0 0
<TOTAL-REVENUES> 51,377,500 63,069,456
<CGS> 35,855,748 47,082,346
<TOTAL-COSTS> 15,163,466 21,612,120
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 627,619 (5,227,380)
<INCOME-TAX> 592,000 (1,637,687)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 35,619 (3,589,693)
<EPS-PRIMARY> .01 (.64)
<EPS-DILUTED> .01 (.64)
</TABLE>
