<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, 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 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
------ ------
As of February 12, 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 3
December 31, 1998 and September 30, 1998
Consolidated Statements of Operations and Comprehensive Income (Loss) 4
for the Three Months Ended December 31, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
for the Three Months Ended December 31, 1998 and 1997
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
<PAGE>
Part 1 - Financial Information
Item 1.
NUTRITION FOR LIFE INTERNATIONAL, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
1989 September 30,
(Unaudited) 1998
----------- -----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,804,345 $ 4,404,388
Marketable securities 979,226 968,196
Receivables 929,768 568,931
Inventories 9,032,758 9,697,495
Deferred tax asset, net 1,752,000 1,982,000
Refundable federal income taxes 175,000 200,000
Prepaid expenses and other assets 1,004,396 953,161
----------- -----------
Total current assets 16,677,493 18,774,171
Property and equipment, net 7,047,465 7,306,650
Audio production rights 1,322,222 1,400,000
Other assets 390,502 377,328
----------- -----------
$25,437,682 $27,858,149
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,517,890 $ 3,282,750
Accrued bonuses and commissions 1,492,033 1,646,638
Deferred income 3,020,577 3,252,598
Accrued expenses and other liabilities 812,123 1,420,338
Accrued liability - Nightingale Conant -- 1,669,122
Current portion of capital lease obligation 163,324 163,324
Current portion of long-term debt 320,263 320,263
----------- -----------
Total current liabilities 8,326,210 11,755,033
Deferred tax liability 718,000 682,000
Long-term portion of capital lease obligation 301,564 349,520
Long-term debt 556,737 628,737
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 4,363,151 3,958,757
Accumulated other comprehensive income (loss):
Unrealized loss on investment (47,015) (38,364)
Cumulative foreign currency translation adjustment (144,511) (77,968)
----------- -----------
16,067,656 14,975,344
Less: Treasury stock 79,000 shares, at cost (532,485) (532,485)
----------- -----------
Total Stockholders' Equity 15,535,171 14,442,859
----------- -----------
$25,437,682 $27,858,149
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Consolidated Statements Of Operations And
Comprehensive Income (Loss) (Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net sales $16,991,901 $18,383,502
Cost of sales 11,020,602 13,355,355
---------- ----------
Gross profit 5,971,299 5,028,147
Marketing, distribution and administrative expenses 5,613,549 5,209,637
---------- ----------
Income (loss) from operations 357,750 (181,490)
---------- ----------
Other income (expense):
Interest income, net 10,000 79,152
Foreign exchange income (loss) 146,906 (126,535)
Other, net 180,738 140,989
---------- ----------
337,644 93,606
---------- ----------
Income (loss) before income tax expense 695,394 (87,884)
Income tax expense 291,000 160,600
---------- ----------
Net income (loss) 404,394 (248,484)
---------- ----------
Other comprehensive income (loss):
Unrealized loss on investments (8,651) --
Foreign currency translation loss (66,543) (31,488)
---------- ----------
(75,194 (31,488)
---------- ----------
Total comprehensive income (loss) $ 329,200 $ (279,972)
========== ==========
Basic income (loss) per common share $ 0.07 $ (0.04)
==== ====
Diluted income (loss) per common share $ 0.07 $ (0.04)
==== ====
Weighted average common shares:
Basic 5,887,595 5,775,835
========== ==========
Diluted 5,950,747 6,195,326
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
NUTRITION FOR LIFE INTERNATIONAL, INC.
Condensed Consolidated Statements Of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended December 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Net cash used in operating activities $(1,268,988) $(1,236,509)
Net cash used in investing activities (144,556) (1,143,401)
Net cash used in financing activities (119,956) (175,050)
Cumulative foreign currency translation adjustment (66,543) (31,488)
----------- -----------
Net decrease in cash and cash equivalents (1,600,043) (2,586,448)
Cash and cash equivalents at beginning of period 4,404,388 8,903,957
----------- -----------
Cash and cash equivalents at end of period $ 2,804,345 $ 6,317,509
=========== ===========
</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 December 31, 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 December 31, 1998 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 below:
<TABLE>
<CAPTION>
Three months ended
December 31,
(In thousands)
--------------------
1998 1997
-------- --------
<S> <C> <C>
Sales to unaffiliated customers:
North America (1) $15,707 $17,473
United Kingdom (2) 1,102 758
Philippines 183 153
Sales or transfers between geographic areas:
North America - -
United Kingdom 187 66
Philippines 28 83
Operating profit (loss):
North America 641 196
United Kingdom (167) (275)
Philippines (116) (102)
Identifiable assets:
North America 26,771 27,542
United Kingdom 1,460 1,303
Philippines 907 925
</TABLE>
(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 Derivate 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 three months ended December 31, 1998 decreased by $1,391,601
or 7.6% to $16,991,901 as compared to net sales of $18,383,502 for the three
months ended December 31, 1997. At December 31, 1998, the Company had
approximately 76,500 distributors compared to approximately 87,400 at December
31, 1997 and 80,000 at September 30, 1998. During the three months ended
December 31, 1998 the number of active international distributors increased by
approximately 300, while active distributors in North America decreased by
approximately 3,800. 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. The decrease in net sales is recapped below:
Decrease in sales due to decreased number of distributors $(2,087,000)
Increase in distributor average sales 695,000
-----------
$(1,392,000)
===========
The Company's net sales per average number of distributors per month increased
from $70 during the three months ended December 31, 1997 to $73 for the three
months ended December 31, 1998.
Cost of sales decreased by $2,334,753 or 17.5% to $11,020,602 for the three
months ended December 31, 1998 from $13,355,355 for the three months ended
December 31, 1997. Cost of sales as a percentage of net sales decreased from
72.7% in the three months ended December 31, 1997 to 64.9% in the three months
ended December 31, 1998. Cost of sales, which includes product costs,
commissions and bonuses paid to distributors, and shipping costs, is recapped
below:
Three months ended
December 31,
-------------------
1998 1997
---- ----
Product costs 25.9% 30.6%
Commissions and bonuses paid to distributors 32.5 35.2
Shipping costs 6.5 6.9
---- ----
64.9% 72.7%
==== ====
Product costs as a percentage of cost of sales decreased 4.7% primarily as a
result of the Company now producing and selling certain recruiting and training
materials. During the three months ended December 31, 1997 recruiting and
training materials were primarily sold to the Company's distributors by
Distributor Services, L.L.C. The gross profit margin on these materials is
greater than the gross profit margin on most consumable products. In addition as
sales of recruiting and training materials are not eligible for commission,
commissions and bonuses paid to distributors decreased 2.7%. Shipping costs
declined .4% during the three months ended December 31, 1998 primarily because
amounts for three months ended December 31, 1997 included additional costs for
shipping products that were backordered at September 30, 1997. During the three
months ended December 31, 1998 there were no unusual backorder costs.
8
<PAGE>
Gross profit as percentage of net sales increased from 27.4% for the three
months ended December 31, 1997 to 35.1% for the three months ended December 31,
1998. Gross profit increased 18.8% or $943,152 from $5,028,147 for the three
months ended December 31, 1997 to $5,971,299 for the three months ended December
31, 1998.
Marketing, distribution and administrative expenses increased $403,912 or 7.8%
from $5,209,637 for the three months ended December 31, 1997 to $5,613,549 for
the three months ended December 31, 1998. The increase results primarily from a
combination of reduced personnel expenses and increased computer 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 three
months ended December 31, 1998 from 28.3% for the three months ended December
31, 1997.
Income from operations for the three months ended December 31, 1998 increased
$539,240 or 297.1% to $357,750 from an operating loss of $181,490 for the three
months ended December 31, 1997, principally as a result of the increase in gross
profit being greater than the increase in operating expenses as explained above.
Other income increased to $337,644 for the three months ended December 31, 1998
from $93,606 for the three months ended December 31, 1997. The increase was
primarily the result of a decline in net interest income due to a decrease in
interest bearing deposits and a foreign exchange gain experienced by the
Company's subsidiary in the Philippines.
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 three months ended December 31, 1998 and 1997.
Net income was $404,394 for the three months ended December 31, 1998, an
increase of 262.7% compared to a net loss of $248,484 for the three months ended
December 31, 1997. The increase was the result of the items discussed above.
CHANGES IN FINANCIAL CONDITION
The Company had cash and cash equivalents of $2,804,345 at December 31, 1998
compared to $4,404,388 at September 30, 1998. The cash used in operating
activities of $1,268,988 for the three months ended December 31, 1998 was
$32,479 greater than the cash used in operating activities of $1,236,509 for the
three months ended December 31, 1997. Included in the funds used in operating
activities for the three months ended December 31, 1998 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 $112,000 and $1,125,000,
respectively, to purchase property and equipment during the three month periods
ended December 31, 1998 and 1997. In addition, $115,798 was paid in dividends to
shareholders during the three months ended December 31, 1997. The Company had
working capital of $8,351,283 at December 31, 1998 compared to $7,019,138 at
September 30, 1998.
9
<PAGE>
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
During the quarter ended December 31, 1998 the Company filed a report on
Form 8-K regarding agreements entered into with Distributor Services, L.L.C.
and Nightingale-Conant Corporation. The report was filed on November 13, 1998.
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 15, 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> 3-MOS 3-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> DEC-30-1998 DEC-31-1997
<CASH> 2,804,345 4,404,388
<SECURITIES> 979,226 968,196
<RECEIVABLES> 929,768 568,931
<ALLOWANCES> 0 0
<INVENTORY> 9,032,758 9,697,495
<CURRENT-ASSETS> 16,677,493 18,774,171
<PP&E> 7,047,465 7,306,650
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 25,437,682 27,858,149
<CURRENT-LIABILITIES> 8,362,210 11,755,033
<BONDS> 556,737 628,737
0 0
0 0
<COMMON> 58,875 58,875
<OTHER-SE> 15,476,296 14,383,984
<TOTAL-LIABILITY-AND-EQUITY> 25,437,682 27,858,149
<SALES> 0 0
<TOTAL-REVENUES> 16,991,901 18,383,502
<CGS> 0 0
<TOTAL-COSTS> 11,020,602 13,355,355
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 695,394 (87,884)
<INCOME-TAX> 291,000 160,600
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 404,394 (248,484)
<EPS-PRIMARY> 0.07 (0.04)
<EPS-DILUTED> 0.07 (0.04)
</TABLE>
