<PAGE>
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 DECEMBER 31, 1997
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 February 13, 1998 there were 5,845,486 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 3
December 31, 1997 and September 30, 1997
Consolidated Statements of Operations 4
for the Three Months Ended December 31, 1997 and 1996
Condensed Consolidated Statements of Cash Flows 5
for the Three Months Ended December 31, 1997 and 1996
Notes to Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 7
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION 10
Signatures 11
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1997 September 30,
(Unaudited) 1997
------------- -------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 6,317,509 8,903,957
Cash-restricted - 513,195
Receivables 1,228,395 1,547,479
Inventories 7,946,054 7,920,454
Deferred tax asset, net 1,443,000 1,888,442
Refundable federal income taxes 1,352,903 1,029,277
Prepaid expenses and other assets 727,703 496,517
------------- -------------
Total current assets 19,015,564 22,299,321
Property and equipment, net 7,373,793 6,534,042
Intangible assets, net 137,116 199,047
Other assets 323,162 315,026
------------- -------------
$ 26,849,635 29,347,436
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 4,565,030 3,707,930
Accrued bonuses and commissions 1,596,571 1,973,646
Current portion of capital lease obligation 157,739 157,739
Accrued expenses and other liabilities 380,232 1,072,883
Accrued cruise 700,074 1,195,150
Lawsuit settlement accrual 25,175 1,332,314
Deferred income 3,063,986 3,130,524
Federal and franchise tax payable 63,816 43,216
Dividends payable 115,798 115,798
------------- -------------
Total current liabilities 10,668,421 12,729,200
Deferred tax liability 300,000 282,000
Long-term portion of capital lease obligation 418,968 478,220
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; 5,775,835 and 5,775,835 shares, respectively 57,758 57,758
Additional paid-in capital 10,688,951 10,688,951
Retained earnings 4,812,257 5,176,539
Cumulative foreign currency translation adjustment (22,910) 8,578
------------- -------------
15,536,056 15,931,826
Less: Treasury stock - 9,000 shares at cost (73,810) (73,810)
------------- -------------
Total stockholders' equity 15,462,246 15,858,016
------------- -------------
$ 26,849,635 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
ENDED DECEMBER 31,
-------------------------
1997 1996
----------- ------------
<S> <C> <C>
Net sales $ 18,383,502 19,269,268
Cost of sales 13,355,355 14,184,630
----------- ----------
Gross profit 5,028,147 5,084,638
----------- ----------
Operating expenses:
Marketing, distribution and administrative
expenses 5,209,637 5,580,599
Lawsuit settlement - 6,425,000
----------- ----------
5,209,637 12,005,599
----------- ----------
Loss from operations (181,490) (6,920,961)
----------- ----------
Other income (expense):
Interest, net 79,152 175,156
Other, net 14,454 (31,714)
----------- ----------
93,606 143,442
----------- ----------
Loss before income tax expense (benefit) (87,884) (6,777,519)
Income tax expense (benefit) 160,600 (2,281,191)
----------- ----------
Net loss $ (248,484) (4,496,328)
=========== ==========
Basic loss per common share $ (0.04) (0.81)
=========== ==========
Diluted loss per common share $ (0.04) (0.71)
=========== ==========
Weighted average common shares:
Basic 5,775,835 5,570,962
=========== ==========
Diluted 6,195,326 6,319,813
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS
ENDED DECEMBER 31,
---------------------------
1997 1996
----------- ----------
Net cash used in operating activities $ (1,236,509 (88,253)
Net cash used in investing activities (1,143,401) (934,328)
Net cash used in financing activities (175,050) (107,363)
----------- ----------
Net decrease in cash and cash equivalents (2,554,960) (1,129,944)
Cash and cash equivalents at beginning of period 8,903,957 15,589,032
Cumulative foreign currency translation adjustment (31,488) 82,224
----------- ----------
Cash and cash equivalents at end of period $ 6,317,509 14,541,312
=========== ==========
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 December 31, 1997, 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 December 31, 1997 are not necessarily an indication of operating
results for the full year.
During the three months ended December 31, 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 Three Months Ended December 31, 1997
--------------------------------------------
Loss Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss $ (248,484)
BASIC EPS
Net loss available
to common stockholders (248,484) 5,775,835 $(.04)
===
EFFECT OF DILUTIVE SECURITIES
Warrants and options 419,491
Diluted EPS
Net loss available to common
Stockholders + assumed
conversions $ (248,484) 6,195,326 $(.04)
=========== ========= =====
</TABLE>
<TABLE>
<CAPTION>
For the Three Months Ended December 31, 1996
--------------------------------------------
Loss Shares Per-Share
<Numerator> <Denominator> Amount
----------- ------------- ---------
<S> <C> <C> <C>
Net loss ($4,476,328)
BASIC EPS
Net loss available
to common stockholders (4,496,328) 5,770,962 $(.81)
=====
EFFECT OF DILUTIVE SECURITIES
Warrants and options 748,851
---------
Diluted EPS
Net loss available to common
Stockholders + assumed
conversions $(4,496,328) 6,319,813 $(.71)
=========== ========= =====
</TABLE>
The Company has not yet adopted Statements of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income", nor No. 131, "Disclosures 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.
6
<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 three months ended December 31, 1997 decreased by $885,766
or 4.6% to $18,383,502 as compared to net sales of $19,269,268 for the three
months ended December 31, 1996. At December 31, 1997, the Company had
approximately 97,400 distributors compared to approximately 87,200 at
December 31, 1996 and 98,500 at September 30, 1997. During the three months
ended December 31, 1997 the number of active international distributors
increased by approximately 1,400, while active distributors in North America
decreased by approximately 2,500. Management believes that the regulatory
scrutiny and legal proceedings filed against the Company in fiscal 1996 and
concluded during fiscal 1997 as well as negative media reports continued to
have a negative impact on distrbutor recruitment and retention and sales
efforts by distributors during the first quarter of fiscal 1998. The ability
of the Company to increase its number of active distributors and its sales
per average number of distributors is material to the future operations and
financial condition of the Company. The decrease in net sales is recapped
below:
Increase in sales due to increased number of distributors $ 2,362,000
Decrease in distributor average sales (3,248,000)
----------
$ (886,000)
==========
The Company's net sales per average number of distributors per month
decreased from $74 during the three months ended December 31, 1996 to $63 for
the three months ended December 31, 1997. No one distributor has directly
accounted for more than 5% of the Company's net sales during either of the
three month periods ended December 31, 1997 and 1996.
Cost of sales decreased by $829,275 or 5.9% to $13,355,355 for the three
months ended December 31, 1997 from $14,184,630 for the three months ended
December 31, 1996. Cost of sales as a percentage of net sales decreased from
73.6% in the three months ended December 31, 1996 to 72.7% in the three
months ended December 31, 1997. Cost of sales, which includes product costs,
commissions and bonuses paid to distributors, and shipping costs, is recapped
below:
Three months ended
December 31,
------------------
1997 1996
---- ----
Product costs 30.6% 29.5%
Commissions and bonuses paid to distributors 35.2 38.2
Shipping costs 6.9 5.9
---- ----
72.7% 73.6%
==== ====
7
<PAGE>
Product costs as a percentage of cost of sales increased 1.1% primarily as a
result of the reduction in the number of new executive initial purchases, which
carried a lower product cost margin than products sold individually. In
addition, there has been an increase in the amount of literature sales which
carry a higher product cost margin. Commissions and bonuses paid to distributors
decreased 3.0% as a result of the increased sales of products with higher cost
margins. The products with higher product cost margins have a reduced base for
the calculation of commissions and bonuses. During the three months ended
December 31, 1997 the Company shipped an increased number of smaller orders
which generally have higher associated shipping costs resulting in a 1.0%
increase in shipping costs as compared to the similar period of 1996. Many of
these smaller shipments were related to back ordered products as of September
30, 1997.
Gross profit as percentage of net sales increased from 26.4% for the three
months ended December 31, 1996 to 27.4% for the three months ended December
31, 1997. Gross profit decreased 1.1% or $56,491 from $5,084,638 for the
three months ended December 31, 1996 to $5,028,147 for the three months ended
December 31, 1997.
Operating expenses decreased $6,795,962 or 56.6% from $12,005,599 for the three
months ended December 31, 1996 to $5,209,637 for the three months ended December
31, 1997. The primary reason for the decrease was that no class action lawsuit
costs were incurred during the three months ended December 31, 1997. 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 declined slightly to 28.3%
for the three months ended December 31, 1997 from 29.0% for the three months
ended December 31, 1996. The Company's future operating results will be
negatively impacted if the Company is not successful in regaining its growth in
sales experienced during the first half of fiscal 1996 or decrease its
expenditures below current level.
Loss from operations for the three months ended December 31, 1997 decreased
$6,739,471 or 97.4% to $181,490 from $6,920,961 for the three months ended
December 31, 1996, principally as a result of the decrease in operating
expenses as explained above. The loss from operations for the three months
ended December 31, 1997 and 1996 includes approximately $349,000 and
$237,000, respectively, of operating loss from the Company's wholly-owned,
consolidated subsidiaries which operate in foreign countries.
Other income decreased to $93,606 for the three months ended December 31,
1997 from $143,442 for the three months ended December 31, 1996. The
decrease was primarily the result of a decline in net interest income due to
a decrease in interest bearing deposits.
Although there was a loss before income tax expense (benefit) for the three
months ended December 31, 1997, income tax expense of $160,000 was accrued
based on the taxable income from domestic operations as the Company is not
currently able to recognize any tax benefits from foreign operating losses.
Net loss was $248,484 for the three months ended December 31, 1997, a
decrease of 94.5% compared to a net loss of $4,496,328 for the three months
ended December 31, 1996. The decrease was principally the result of having
no accrual for the settlement of the class action lawsuits in the three
months ended December 31, 1997.
8
<PAGE>
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $6,317,509 at December 31, 1997
compared to $8,903,957 at September 30, 1997. The cash used in operating
activities of $1,236,509 for the three months ended December 31, 1997 was
significantly greater than the cash used in operating activities of $88,253
for the three months ended December 31, 1996. This increase was primarily due
to the payments of lawsuit settlement accrual, accrued cruise, and accrued
expenses and other liabilities. The Company used approximately $1,125,041 and
$934,000, respectively, to purchase property and equipment during the three
month periods ended December 31, 1997 and 1996. In addition, $115,798
was paid in dividends to shareholders during the three months ended December
31, 1997. The Company had working capital of $8,347,143 at December 31, 1997
compared to $9,570,121 at September 30, 1997.
9
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
PART II OTHER INFORMATION
Not applicable.
10
<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: February 23, 1998 By: /s/ John R. Brown, Jr.
---------------------------
John R. Brown, Jr.
Vice President - Finance
By: /s/ Ronnie D. Meaux
---------------------------
Ronnie D. Meaux
Principal Accounting Officer
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1997 OCT-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 6,317,509 8,903,957
<SECURITIES> 0 0
<RECEIVABLES> 1,228,395 1,547,479
<ALLOWANCES> 0 0
<INVENTORY> 7,946,054 7,920,454
<CURRENT-ASSETS> 19,015,564 22,299,321
<PP&E> 9,452,548 8,328,751
<DEPRECIATION> 2,078,755 1,794,709
<TOTAL-ASSETS> 26,849,635 29,347,436
<CURRENT-LIABILITIES> 10,668,421 12,729,200
<BONDS> 0 0
0 0
0 0
<COMMON> 57,758 57,758
<OTHER-SE> 15,404,488 15,800,258
<TOTAL-LIABILITY-AND-EQUITY> 26,849,635 29,347,436
<SALES> 0 0
<TOTAL-REVENUES> 18,383,502 19,269,268
<CGS> 13,355,355 14,184,630
<TOTAL-COSTS> 5,209,637 12,005,599
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (87,884) (6,777,519)
<INCOME-TAX> 160,600 (2,281,191)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (248,484) (4,496,328)
<EPS-PRIMARY> (.04) (.81)
<EPS-DILUTED> (.04) (.71)
</TABLE>
