<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 MARCH 31, 1999
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 May 14, 1999 there were 5,808,595 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
March 31, 1999 and September 30, 1998 3
Consolidated Statements of Operations and
Comprehensive Income (Loss) for the
Three and Six Months Ended
March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the Six Months Ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - Other Information
ITEM 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
Part I - Financial Information
Item 1
NUTRITION FOR LIFE INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31,
1999 September 30,
(Unaudited) 1998
----------- -------------
Assets
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,710,155 $ 4,404,388
Marketable securities 995,392 968,196
Receivables 241,406 568,931
Inventories 9,210,043 9,697,495
Deferred tax asset, net 1,653,000 1,982,000
Refundable federal income taxes 142,000 200,000
Prepaid expenses and other assets 1,239,747 953,161
----------- -----------
Total current assets 17,191,743 18,774,171
Property and equipment, net 6,730,994 7,306,650
Audio production rights 1,205,556 1,400,000
Other assets 341,639 377,328
----------- -----------
$25,469,932 $27,858,149
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,444,520 $ 3,282,750
Accrued bonuses and commissions 1,511,223 1,646,638
Deferred income 3,027,251 3,252,598
Accrued expenses and other liabilities 957,880 1,420,338
Accrued liability - Nightingale Conant - 1,669,122
Current portion of capital lease obligation 175,400 163,324
Current portion of long-term debt 366,400 320,263
----------- -----------
Total current liabilities 8,482,674 11,755,033
Deferred tax liability 748,000 682,000
Long-term portion of capital lease obligation 240,852 349,520
Long-term debt 440,735 628,737
Stockholders' equity:
Preferred stock, $.001 par value; 1,000,000 authorized;
none issued - -
Common stock, $.01 par value; 20,000,000 shares authorized 58,875 58,875
Additional paid-in capital 11,837,156 11,074,044
Retained earnings 4,377,702 3,958,757
Unrealized loss on investment (45,237) (38,364)
Cumulative foreign currency translation adjustment (138,340) (77,968)
----------- -----------
16,090,156 14,975,344
Less: Treasury stock 79,000 shares, at cost (532,485) (532,485)
----------- -----------
Total stockholders' equity 15,557,671 14,442,859
----------- -----------
$25,469,932 $27,858,149
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Consolidated Statements Of Operations And Comprehensive Income (Loss) (Unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
------------------------------ ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $16,535,613 $17,579,203 $33,527,514 $35,962,705
Cost of sales 10,961,435 11,843,911 21,982,037 25,199,265
----------- ----------- ----------- -----------
Gross profit 5,574,178 5,735,292 11,545,477 10,763,440
Marketing, distribution and
administrative expenses 5,466,967 4,810,066 11,080,516 10,019,704
----------- ----------- ----------- -----------
Income from operations 107,211 925,226 464,961 743,736
----------- ----------- ----------- -----------
Other income (expense):
Interest income (expense), net (23,244) 13,561 (13,244) 92,713
Foreign exchange income (loss) (32,274) 72,660 114,632 (53,975)
Other, net 171,858 25,372 352,596 166,461
----------- ----------- ----------- -----------
116,340 111,593 453,984 205,199
----------- ----------- ----------- -----------
Income before income tax expense 223,551 1,036,819 918,945 948,935
Income tax expense 209,000 431,400 500,000 592,000
----------- ----------- ----------- -----------
Net income 14,551 605,419 418,945 356,935
----------- ----------- ----------- -----------
Other comprehensive income (loss):
Unrealized gain (loss) on investments 1,778 - (6,873) _
Foreign currency translation gain (loss) 6,171 (35,161) (60,372) (66,649)
----------- ----------- ----------- -----------
7,949 (35,161) (67,245) (66,649)
----------- ----------- ----------- -----------
Total comprehensive income $ 22,500 $ 570,258 $ 351,700 $ 290,286
=========== =========== =========== ===========
Basic income per common share $ .00 $ .10 $ .07 $ .06
=========== =========== =========== ===========
Diluted income per common share $ .00 $ .10 $ .07 $ .06
=========== =========== =========== ===========
Weighted average common share
Basic 5,887,595 5,804,528 5,887,595 5,797,120
=========== =========== =========== ===========
Diluted 5,948,949 6,161,530 5,949,875 6,193,810
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended March 31,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
Net cash used in operating activities $ (192,137) $ (1,097,010)
Net cash used in investing activities (203,265) (1,693,456)
Net cash provided by (used in) financing activities (238,459) 2,438
Cumulative foreign currency translation adjustment (60,372) (66,649)
---------- ------------
Net decrease in cash and cash equivalents (694,233) (2,854,677)
Cash and cash equivalents at beginning of period 4,404,388 8,903,957
---------- ------------
Cash and cash equivalents at end of period $3,710,155 $ 6,049,280
========== ============
</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 March 31, 1999, 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 March 31, 1999 are not necessarily an
indication of operating results for the full year.
Information regarding the Company's business segments as required by
Statements of Financial Accounting Standards No. 131, "Disclosure About
Segments of a Business Enterprise", follows:
Six months ended
March 31,
(in thousands)
----------------
1999 1998
---- ----
Sales to unaffiliated customers:
North America (1) $31,042 $33,838
United Kingdom (2) 2,089 1,765
Philippines 396 360
Sales or transfers between geographic areas:
North America - -
United Kingdom 426 129
Philippines (9) 107
Operating profit (loss):
North America 992 1,268
United Kingdom (307) (347)
Philippines (220) (177)
Identifiable assets:
North America 27,075 27,234
United Kingdom 1,535 1,581
Philippines 835 995
(1) Includes the United States, Canada, and Puerto Rico
(2) Includes the United Kingdom, Ireland, and the Netherlands
6
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Notes To Consolidated Financial Statements
The Company has not yet adopted Statements of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments And Hedging Activities". The
Company will be required to adopt this Statement during the fiscal year ended
September 30, 2000. As the Company has historically not entered into
derivative contracts either to hedge existing risks or for speculative
purposes the Company does not expect adoption of the new standard to have a
material effect on the financial statements.
7
<PAGE>
Item 2.
NUTRITION FOR LIFE INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the six months ended March 31, 1999 decreased by $2,435,191 or
6.8% to $33,527,514 as compared to net sales of $35,962,705 for the six months
ended March 31, 1998. At March 31, 1999, the Company had approximately 72,800
distributors compared to approximately 88,000 at March 31, 1998 and 80,000 at
September 30, 1998. During the six months ended March 31, 1999 the number of
active international distributors increased by approximately 100, while active
distributors in North America decreased by approximately 7,300. 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. The
decrease in net sales is recapped below:
Decrease in sales due to decreased number of distributors $(4,946,000)
Increase in distributor average sales 2,511,000
-----------
$(2,435,000)
===========
The Company's net sales per average number of distributors per month increased
from approximately $68 during the six months ended March 31, 1998 to
approximately $73 for the six months ended March 31, 1999.
Cost of sales decreased by $3,217,228 or 12.8% to $21,982,037 for the six
months ended March 31, 1999 from $25,199,265 for the six months ended March
31, 1998. Cost of sales as a percentage of net sales decreased from 70.1% in
the six months ended March 31, 1998 to 65.6% in the six months ended March
31, 1999. Cost of sales, which includes product costs, commissions and
bonuses paid to distributors, and shipping costs, is recapped below:
Six months ended
March 31,
----------------
1999 1998
---- ----
Product costs 25.9% 28.2%
Commissions and bonuses paid to distributors 32.9 35.5
Shipping costs 6.8 6.4
---- ----
65.6% 70.1%
==== ====
Product costs as a percentage of cost of sales decreased 2.3% primarily as a
result of the Company now producing and selling certain recruiting and training
materials which were primarily sold to the Company's distributors by Distributor
Services, L.L.C. during the six months ended March 31, 1998. The gross profit
margin on these materials is generally greater than the gross profit margin on
most of the Company's other products. Since sales of recruiting and training
materials are not eligible for commission, commissions and bonuses paid to
distributors decreased 2.6% as a percentage of cost of sales. Shipping costs
increased .4% during the six months ended March 31, 1999 primarily from a
combination of increased shipping to continental Europe from the United Kingdom
and the contract shipping of success kits.
8
<PAGE>
Gross profit as percentage of net sales increased from 29.9% for the six
months ended March 31, 1998 to 34.4% for the six months ended March 31, 1999.
Gross profit increased 7.3% or $782,037 from $10,763,440 for the six months
ended March 31, 1998 to $11,545,477 for the six months ended March 31, 1999.
Marketing, distribution and administrative expenses increased $1,060,812 or
10.6% from $10,019,704 for the six months ended March 31, 1998 to $11,080,516
for the six months ended March 31, 1999. The increase results primarily from
a combination of reduced personnel expenses and increased consulting fees,
increased depreciation charges on computer hardware and software, and
increased promotion costs for meetings and rallies previously performed by
Distributor Services, L.L.C. As a percentage of net sales, marketing,
distribution, and administrative expenses increased to 33.0% for the six
months ended March 31, 1999 from 27.9% for the six months ended March 31,
1998.
Income from operations for the six months ended March 31, 1999 decreased
$278,775 or 37.5% to $464,961 from $743,736 for the six months ended March
31, 1998, principally as a result of the increase in gross profit being less
than the increase in operating expenses as explained above.
Other income increased to $453,984 for the six months ended March 31, 1999
from $205,199 for the six months ended March 31, 1998. The increase was
primarily the result of a decline in net interest income due to a decrease in
interest bearing deposits, a foreign exchange gain experienced by the
Company's subsidiary in the Philippines, and proceeds from an insured
computer malfunction in June 1998.
As the Company is not currently able to recognize any tax benefit from foreign
operating losses, income tax expense was accrued based on the taxable income
from domestic operations for the six months ended March 31, 1999 and 1998.
Net income was $418,945 for the six months ended March 31, 1999, an increase
of 17.4% compared to $356,935 for the six months ended March 31, 1998. The
increase was the result of the items discussed above.
Changes in Financial Condition
The Company had cash and cash equivalents of $3,710,155 at March 31, 1999
compared to $4,404,388 at September 30, 1998. The cash used in operating
activities of $192,137 for the six months ended March 31, 1999 was $904,873
less than the cash used in operating activities of $1,097,010 for the six
months ended March 31, 1998. Included in the funds used in operating
activities for the six months ended March 31, 1999 were significant
reductions in accounts payable, accrued expenses and other liabilities, and
the payment of $967,000 in partial settlement of the accrued liability -
Nightingale Conant. While not requiring funds the remaining balance of the
accrued liability - Nightingale Conant of $702,000 was credited to additional
paid in capital to recognize the issuance of a warrant to purchase 290,000
shares of the Company's common stock. The Company used approximately $152,000
and $1,661,000, respectively, to purchase property and equipment during the
six month periods ended March 31, 1999 and 1998. The Company had working
capital of $8,709,069 at March 31, 1999 compared to $7,019,138 at September
30, 1998.
Year 2000 Compliance
Year 2000 ("Y2K") issues result from the inability of certain electronic
software and/or hardware to accurately calculate, store or use a date
subsequent to December 31, 1999. These issues could not only affect computer
systems used for accounting and operations but also systems containing
embedded chips. The failure of the Company's or a third party supplier's or
vendor's systems to properly recognize the date could result in a system
failure or miscalculation causing a disruption of the Company's activities.
The Company has completed an assessment of its internal computer systems to
determine whether these systems are Y2K compliant. The Company has determined
that these systems are either compliant or with relatively minor
modifications or upgrades will be compliant. All necessary modifications or
upgrades are anticipated to be completed prior to the end of 1999.
As part of a fiscal 1998 major information system upgrade the Company expended
approximately $4 million for the purchase, installation and associated training
of staff related to the installation of SAP(R), an enterprise wide state-of-the-
market computer information system and a White(R) automated inventory storage
and retrieval system in its Houston warehouse facility. Both of these systems
are believed to be Y2K compliant.
Additionally the Company has completed the assessment of its non-information
systems to determine whether these systems contain embedded chips that will
not properly function subsequent to December 31, 1999. These systems include
various office equipment items and building systems such as heating and air
conditioning and security. Generally the Company has determined or been
assured by the equipment vendors that any embedded chips are Y2K compliant.
The Company has relied upon its internal staff to assess its Y2K compliance.
The Company does not believe that it will require the services of outside
consultants in completing its Year 2000 review. The costs associated with
evaluating the Company's Y2K compliance and related system upgrades and/or
modifications have been minimal.
The Company is in the process of communicating with certain of its
significant suppliers, vendors and financial institutions to determine its
vulnerability to these third parties failure to address Y2K issues. While the
Company has not yet received definitive responses from all third parties
indicating that they are Y2K compliant, the Company has not received any
information that it is vulnerable to potential Y2K failures by these
companies. At this time, the Company has not developed any contingency plans
to address third party non-compliance with Y2K matters. However, should any
communication with any third party indicate significant vulnerability,
development of contingency plans will be considered.
The Company does not anticipate any significant disruptions of its operations
due to Y2K issues. The Company's assessment of its "worst case" vulnerability
to Y2K problems could be loss of electricity and possible delays in receiving
inventory and/or shipping products to its distributors. Such delays could
result in the loss of income for the Company.
Forward-Looking Statements
The Company is including the following cautionary statement in this report to
make applicable and take advantage of the safe harbor provision of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Certain statements contained herein are forward-looking
statements and, accordingly, involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward looking statements. The Company's expectations, beliefs and projections
are expressed in good faith and are believed by the Company to have a reasonable
basis, including without limitation, management's examination of historical
operating trends, data contained in the Company's records and other data
available from third parties, but there can be no assurance that management's
expectation, beliefs or projections will result or be achieved or accomplished.
Actual events or results may differ materially as a result of risks facing the
Company. Such risks include, but are not limited to, changes in business
conditions, changes in distributor composition and the network marketing
industry, the general economy, competition, changes in product offerings,
international operations, as well as regulatory developments that could cause
actual results to vary materially from the future anticipated results indicated,
expressed or implied, in such forward-looking statements.
9
<PAGE>
PART II OTHER INFORMATION
None
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: May 14, 1999 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
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> MAR-31-1999 MAR-31-1998
<CASH> 3,760,155 4,404,388
<SECURITIES> 995,392 968,196
<RECEIVABLES> 241,406 568,931
<ALLOWANCES> 0 0
<INVENTORY> 9,210,043 9,697,495
<CURRENT-ASSETS> 17,191,743 18,774,171
<PP&E> 6,730,994 7,306,650
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 25,469,932 27,858,149
<CURRENT-LIABILITIES> 8,482,674 11,755,033
<BONDS> 440,735 628,737
0 0
0 0
<COMMON> 58,875 58,875
<OTHER-SE> 15,498,796 14,383,984
<TOTAL-LIABILITY-AND-EQUITY> 25,469,932 27,858,149
<SALES> 0 0
<TOTAL-REVENUES> 33,527,514 35,962,705
<CGS> 0 0
<TOTAL-COSTS> 21,982,037 25,199,265
<OTHER-EXPENSES> 11,080,516 10,019,704
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 918,945 948,935
<INCOME-TAX> 500,000 592,000
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 418,945 356,935
<EPS-PRIMARY> 0.07 0.06
<EPS-DILUTED> 0.07 0.06
</TABLE>
