<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
X Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange
- --- Act of 1934 (Fee Required) for the Fiscal Year Ended September 30, 1999
Transition Report Pursuant to Section 13 or 15(d) of The Securities
- --- Exchange Act of 1934 for the Transition Period from to
-------- --------
Commission file number 0-26362
-------
NUTRITION FOR LIFE INTERNATIONAL, INC.
--------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 76-0416176
----- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9101 Jameel
Houston, Texas 77040
--------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (713) 460-1976
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of each Class on Which Registered
None None
Securities Registered Pursuant to Section 12(g) of the Act:
$.01 par value common stock
---------------------------
(Title of Class)
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NUTRITION FOR LIFE INTERNATIONAL, INC.
(Registrant)
Date: January 28, 2000 By: /s/ John R. Brown, Jr.
---------------------------------
John R. Brown, Jr.,
Vice President-Finance
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
Directors
- ---------
The following persons serve as members of the Board of Directors of
Nutrition For Life International, Inc. (the "Company"):
F. Wayne Ballenger, age 53, has served as President of First Commercial
Capital since 1995. He has also served as President of Puncture Guard LLC since
December 1994. From March 1992 to December 1994, he served as director of sales
and marketing for Petrolon, Inc., a multi-level marketing organization.
Immediately prior thereto, he served as a vice president of Southwest Bank of
Texas with commercial lending responsibilities. Mr. Ballenger received a B.B.A.
degree from the University of the South in 1968. Mr. Ballenger became a
director of the Company in November 1995.
David P. Bertrand, age 56, has served as President of the Company and its
predecessors since 1984. Mr. Bertrand received a B.S. degree in education in
1966 and a Master of Education degree in administration and supervision in 1969,
both from McNeese State University in Lake Charles, Louisiana. Mr. Bertrand is
the brother-in-law of Jana B. Mitcham.
M. F. Florence, age 62, has served as President of Sherfam Inc. since 1989.
Sherfam Inc. is a holding company, principally of pharmaceutical companies and
is the parent of Shermfin Corp., which is a principal shareholder of the
Company. From 1958 to 1989, Mr. Florence was associated with the firm of Wm.
Eisenberg & Co., a firm of Chartered Accountants in Canada. He served as a
partner of the firm from 1964 to 1989. Mr. Florence received a Bachelor of
Commerce degree from the University of Toronto. He is the recipient of a
Chartered Accountants degree from the Institute of Chartered Accountants of
Ontario. Mr. Florence is President of Citadel Gold Mines, Inc. Mr. Florence is
also a Director of Barr Laboratories, Inc., a publicly held corporation whose
common shares are listed on the New York Stock Exchange. Mr. Florence has
served as a director of the Company since 1994.
Jana B. Mitcham, age 51, has served as Executive Vice President, Secretary
and Director of the Company and its predecessors since 1984. Ms. Mitcham
received a B.A. degree in 1974 in special education from McNeese State
University and undertook graduate work in special education at the Korean
Extension of the University of Maryland. Ms. Mitcham is a Fellow with Boston
Bio-Science Research Foundation and a member of the Board of Directors of the
Multi-Level Marketing International Association. Ms. Mitcham is the sister-in-
law of David P. Bertrand.
Gregory Pusey, age 47, has served as Chairman of the Board of Directors of
the Company since November 1999. Mr. Pusey served as an officer and director of
Advanced Nutraceuticals, Inc. since December 1997. He served both as President
of Livingston Capital, Ltd. and President of the general partner of Graystone
Capital, Ltd., venture capital firms, from 1987 to 1999. From June 1994 to
August 1998, he served as a director and consultant to the
2
<PAGE>
Company. Since 1988, Mr. Pusey has been the President and a director of
Cambridge Holdings, Ltd., a publicly held real estate development firm. Mr.
Pusey graduated summa cum laude from Boston College with a B.S. degree in
finance in 1974.
The Company entered into an agreement in 1995 with Shermfin Corp. wherein
it agreed that, for so long as Shermfin Corp. owns 10% or more of the
outstanding Common Stock of the Company, Shermfin Corp. will be entitled to
designate one person to serve as a member of the Company's Board of Directors.
Shermfin Corp.'s designee is M. F. Florence. See Item 13.
Compliance with Section 16(a) of the Exchange Act
- -------------------------------------------------
Based solely on the Company's review of copies of Section 16(a) reports
filed by officers, directors and greater than 10% shareholders with the
Securities and Exchange Commission, which have been received by the Company and
written representations from these persons that no other reports were required
for those persons, the Company believes that all filing requirements applicable
to those persons were complied with for the fiscal year ended September 30,
1999, except that each person who was an officer or director during the fiscal
year ended September 30, 1999 failed to file on a timely basis a report on Form
5 reporting a stock option grant.
Officers
- --------
The following executive officers have been elected by the Board of
Directors of the Company. It is expected that the Board will elect officers
annually following each Annual Meeting of Shareholders. Information is provided
below regarding the names and ages of all executive officers of the Company who
are not directors of the Company, their position with the Company and the period
they have served as executive officers of the Company.
John R. Brown, Jr., age 62, became Vice President-Finance of the Company in
September, 1996, and had previously served the Company on a part-time basis
commencing in December 1995. From April, 1989 until he joined the Company, Mr.
Brown was a management consultant performing merger and acquisition services,
systems analyses, financial reporting assistance, and other services for both
publicly and privately held companies. From June, 1987 to March, 1989 he was
Vice President-Finance & Administration for Environmental Protective Industries,
Inc., an environmental services organization. Mr. Brown is a Certified Public
Accountant and has over 20 years experience in public accounting with both
national and local firms. Mr. Brown received a B.S. degree in mechanical
engineering from Stanford University and an M.B.A. degree from the University of
Texas at Austin.
Barry C. Loder, age 41, became Vice President of Corporate Development of
the Company in November 1999. Mr. Loder served as an officer and director of
Advanced Nutraceuticals, Inc. from September 1997 to November 1999. Since
January 1998, he has served as President of BCL Partners, Inc., a firm
specializing in mergers and acquisitions. From March 1995 to January 1998, Mr.
Loder served as Chief Financial Officer and later also as Chief Operating
Officer of the Company. From October 1993 through March 1995, Mr. Loder was a
financial consultant, performing corporate finance, merger and acquisition and
other financing activities. Mr. Loder was the Manager of Mergers and
Acquisitions for Allwaste, Inc. from 1992
3
<PAGE>
to 1994. Mr. Loder was co-founder of Republic Waste Industries and served as
Senior Vice President of Finance during 1990 and 1991. Mr. Loder has a Masters
Degree in business administration from Houston Baptist University, a B.A. in
accounting from Walsh University and is a Certified Public Accountant.
David O. Rodrigue, age 51, became Vice President and Chief Financial
Officer of the Company in January, 1998. From 1993 until he joined the Company,
Mr. Rodrigue served as Vice President-Finance and Chief Financial Officer of
Positron Corporation, a publicly-held company engaged in medical imaging. From
1989 to 1993, he functioned as a consultative chief financial officer to several
privately-held companies. Mr. Rodrigue is a Certified Public Accountant and was
previously employed by Coopers & Lybrand. He received B.S. and M.B.A. degrees
from Louisiana State University.
4
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company to the Chief Executive Officer and each of the five other
executive officers of the Company (the "named executive officers") during the
fiscal years ended September 30, 1997, 1998 and 1999.
Summary Compensation Table
- --------------------------
<TABLE>
<CAPTION>
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- ------ -------
Year Salary Bonus Other
($) Annual All other
Name and Principal Compen- Restricted Options LTIP Compen-
Position sation Stock /SARs Payouts sation
Awards
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David P. Bertrand 1997 412,434 0 0 0 40,200 0 6,485
Chief Executive 1998 363,969 0 0 0 20,000 0 6,744
Officer 1999 318,269 0 0 0 25,000 0 6,744
Jana B. Mitcham 1997 387,793 0 0 0 37,800 0 4,985
Executive Vice 1998 342,172 0 0 0 20,000 0 5,184
President 1999 298,378 0 0 0 25,000 0 5,184
Barry C. Loder(2) 1997 161,243 0 0 0 55,000 0 0
Vice President and Chief 1998 64,762 0 0 0 0 0 0
Financial Officer 1999 0 0 0 0 0 0 0
Ronnie D. Meaux(3) 1997 87,101 6,000 0 12,250 0 0 2,619
Vice President, 1998 87,739 0 0 0 0 0 0
Treasurer and 1999 0 0 0 0 0 0 0
Assistant Secretary
John R. Brown, Jr.(4) 1997 76,357 0 0 0 0 0 0
Vice President-Finance 1998 88,628 7,500 0 0 0 0 0
1999 96,067 0 0 0 10,000 0 0
David O. Rodrigue(5) 1997 0 0 0 0 0 0 0
Vice President and 1998 74,431 0 0 0 25,000 0 0
Chief Financial Officer 1999 117,760 0 0 0 15,000 0 0
</TABLE>
________________
(1) The Company has obtained insurance policies on the lives of Mr.
Bertrand and Ms. Mitcham, of which benefit amounts of $1,060,000 and
$660,000 on the lives of Mr. Bertrand and Ms. Mitcham, respectively,
constitute "keyman" insurance and are payable to the Company.
Approximately 51% of the aggregate insurance benefits on the lives of Mr.
Bertrand and Ms. Mitcham are payable to beneficiaries designated by Mr.
Bertrand and Ms.
5
<PAGE>
Mitcham. In addition, part of the cash value may be used as retirement
benefits for the executive officers. The premiums paid by the Company
allocable to these items are included in the table.
(2) Mr. Loder joined the Company as Vice President and Chief Financial
Officer in March 1995, and became Chief Operating Officer in April 1997.
He resigned in January 1998. Mr. Loder rejoined the Company as Vice
President of Corporate Development in November 1999.
(3) Mr. Meaux resigned his position with the Company in February 1998.
(4) Mr. Brown commenced work with the Company on a part-time basis in
December 1995 and became a full-time employee and officer of the Company in
September 1996.
(5) Mr. Rodrigue joined the Company in January 1998.
Employment Agreements
- ---------------------
Effective October 1, 1996, the Company entered into employment agreements
with Mr. Bertrand and Ms. Mitcham. The terms of these agreements are essentially
identical, except that Mr. Bertrand's annual salary is $400,000 and Ms.
Mitcham's annual salary is $376,000. Mr. Bertrand and Ms. Mitcham are each also
entitled to a bonus if the Company has pre-tax annual income between $3 million
and $20 million. Each is entitled to receive 5% of any annual pre-tax income
between $3 million and $5 million; four percent of the annual pre-tax income
between $5 million and $10 million; and three percent of the annual pre-tax
income between $10 million and $20 million. The term of each agreement is three
years. Each of the agreements may be earlier terminated upon mutual agreement,
death, disability or conviction of the officer, or a material breach of the
agreement by the officer. In March 1998 each of Mr. Bertrand and Ms. Mitcham
agreed to a 25% reduction in their annual salaries.
Effective November 1, 1999, the Company entered into new employment
agreements with Mr. Bertrand and Ms. Mitcham. The terms of these agreements are
essentially identical, except that Mr. Bertrand's annual salary is $300,000 and
Ms. Mitcham's annual salary is $282,000. Mr. Bertrand and Ms. Mitcham are each
also entitled to a bonus based on the same formula as in their prior employment
agreements. The term of each agreement is one year and will automatically renew
for two successive periods of one year each unless notice is given by either
party more than 30 days prior to the expiration of the applicable yearly period.
Each of the agreements may be earlier terminated upon mutual agreement, death,
disability or conviction of the officer, or a material breach of the agreement
by the officer.
Option Grants in Fiscal Year Ended September 30, 1999
- -----------------------------------------------------
The following table sets forth information with respect to stock option
grants to the named executive officers during the fiscal year ended September
30, 1999:
6
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation
For Option Term
Number of Percent of
Securities Total Exercise or
Name underlying options/ base price Expiration 5% ($) 10% ($)
Options/SARs SARs granted ($/Sh) date
granted (#) to employees
in fiscal
year
<S> <C> <C> <C> <C> <C> <C>
David P. 25,000 13 3.00 02/08 47,167 119,531
Bertrand
Jana B. 25,000 13 3.00 02/08 47,167 119,531
Mitcham
Barry C. Loder 0 0 0 0 0
Ronnie D. Meaux 0 0 0 0 0 0
John R. Brown, 10,000 5 3.00 02/08 18,867 47,812
Jr.
David O. 15,000 8 3.00 02/08 28,300 71,718
Rodrigue
</TABLE>
Option Exercises and Year-End Values
- ------------------------------------
The following table shows option exercises by the named executive officers
during the fiscal year ended September 30, 1999 and the number and value of
unexercised options at September 30, 1999.
<TABLE>
<CAPTION>
Value of
Number of Number of Unexercised
Shares Under- Value Unexercised Options In-the-Money
Lying Options Realized At Year End (#) Options at
Exercised (#) ($) Exercisable/ Year End ($)
Name ------------- -------- Unexercisable Exercisable/
---- ------------------- Unexercisable(1)
----------------
<S> <C> <C> <C> <C>
David P. Bertrand 0 0 127,200/38,400 43,398/0
Jana B. Mitcham 0 0 120,800/37,600 45,774/0
Barry C. Loder 0 0 0/0 0/0
Ronnie D. Meaux 0 0 0/0 0/0
John R. Brown, Jr. 0 0 10,000/10,000 0/0
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
David O. Rodrigue 0 0 8,334/31,666 0/0
</TABLE>
____________________
(1) Based on the price of the Common Stock of $2.44 on September 30, 1999 as
reported by The Nasdaq Stock Market.
Compensation Committee Report
- -----------------------------
The Compensation Committee (the "Committee") of the Board of Directors has
been established by the Board to periodically review the compensation philosophy
for the Company's executives, and to recommend to the Board compensation
packages for the Company's executives. The Committee also reviews and
recommends to the Board any additions to or revisions of the Company's stock
option plans. The Committee consists exclusively of non-employee directors,
appointed by resolution of the entire Board.
The Committee's objective is to set executive compensation at levels which
(i) are fair and reasonable to the shareholders, (ii) link executive
compensation to long-term and short-term interest of the shareholders, and (iii)
are sufficient to attract, motivate and retain outstanding individuals for
executive positions.
Fairness to the shareholders is balanced with the need to attract, retain
and motivate outstanding individuals by comparing the Company's executive
compensation with the compensation of executives at other companies. The
Committee's overall goal is to achieve strong performance by the Company and its
executives by affording the executives the opportunity to be rewarded for strong
performance. The Committee attempts to provide both short-term and long-term
incentive pay. To accomplish its objectives, the Committee has structured the
executive compensation program with three primary components. These primary
components are base salary, annual incentives, and long-term incentives.
During the fiscal year ended September 30, 1997, the Committee determined
to undertake a review of the Company's executive compensation program, with
particular emphasis on the Company's Chief Executive Officer and Executive Vice
President. The Company had experienced dramatic growth in the fiscal year ended
September 30, 1996, but also was experiencing problems due to regulatory
scrutiny and negative media reports. The Committee determined that it would be
in the best interest of the Company and its shareholders for the Committee to
review the existing compensation arrangements and to provide a compensation
program which recognized, among other factors, the Company's growth, problem
areas which could result in short-term performance difficulties, and appropriate
incentives to provide impetus for the long-term growth of the Company. The
Company retained an independent compensation consultant to assist it in its
review of the executive compensation program. The review included compensation
programs of publicly traded peer companies similar in characteristics to the
Company, as well as compensation paid by other network marketing companies with
different product lines.
8
<PAGE>
Effective in October 1996, the Company entered into employment agreements
with David P. Bertrand, the Company's President and Chief Executive Officer, and
Jana B. Mitcham, the Company's Executive Vice President and Secretary. The
employment agreements are described in "Employment Agreements." The Committee
determined that the base salaries for Mr. Bertrand and Ms. Mitcham should be
increased, based on the progress made by the Company, the tremendous effort and
energy devoted by them to the Company's business, and the recommendations of the
independent compensation consultant based on review of base salaries of other
companies.
In March 1998, after consultation with the Committee, Mr. Bertrand and Ms.
Mitcham agreed to a 25% reduction in their annual salaries. Concurrent with the
salary reductions, the Company granted to each of Mr. Bertrand and Ms. Mitcham
stock options to purchase up to 20,000 shares of the Company's Common Stock at
$5.13 per share, the closing trading price of the Common Stock on the date of
the grant. In December 1998, the Company granted to each of Mr. Bertrand and
Ms. Mitcham options to purchase up to 25,000 shares of the Company's common
stock at $3.00 per share, the closing trading price of the common stock on the
date of the grant. The options become exercisable in one-third annual
installments commencing in December 1999. The Committee recommended these
actions in furtherance of its objectives of linking compensation with Company
performance and providing incentive for key executives.
The Committee also periodically reviews other executive salaries. In
addition to the external competitive compensation market, base salary levels
reflect each officer's performance over time and each individual's role in the
Company. Consequently, employees with higher levels of sustained performance
over time and/or employees assuming greater responsibilities will typically be
paid correspondingly higher salaries. Individual performance criteria used to
assess performance include leadership, professionalism, initiative and
dependability. However, individual performance assessments are made
qualitatively and in total, and no specific weightings are attached to these
performance indicators, nor is a formula utilized in determining appropriate
salary increases or salary levels.
In January 1998, David O. Rodrigue joined the Company as Vice President and
Chief Financial Officer. Mr. Rodrigue's annual salary is $105,000 and he is
entitled to receive bonuses as determined by the Company. Mr. Rodrigue was
granted options at the inception of his employment to purchase up to 25,000
shares of the Common Stock at $5.75 per share, the then closing trading price of
the Common Stock. The options are exercisable in one-third annual installments
commencing January 1999. In December 1998, the Company granted to Mr. Rodrigue
options to purchase up to 15,000 shares of the common stock at $3.00 per share,
the then closing trading price of the common stock. The options are exercisable
in one-third annual installments commencing December 1999. The Committee
believes that the compensation package for Mr. Rodrigue is reasonable in
relation to industry standards and for companies comparable in size and in the
Company's geographic area. The Committee also believes that the compensation
program for Mr. Rodrigue has accomplished the objective of linking shareholder
and financial performance to Mr. Rodrigue's total compensation.
In reviewing the employment agreements of Mr. Bertrand and Ms. Mitcham, the
Committee recommended that their annual compensation relate to and be contingent
upon
9
<PAGE>
the performance of the Company. As a result, much of their compensation package
is subject directly to annual bonus compensation measured by the Company's
achievement of certain specified income criteria. No bonus was paid to either of
these persons in the fiscal year ended September 30, 1998 due to the failure to
achieve these income criteria.
The Committee periodically reviews the performance of other executive
officers to determine whether bonuses should be paid to those persons. The
Committee has not established specific performance measures for determining the
award of bonuses. The Committee believes that bonuses should be provided to
reward key employees based on Company and individual performance and to provide
competitive cash compensation opportunities to the Company's executives.
However, based primarily on the Company's financial results in the fiscal year
ended September 30, 1999, no bonuses were paid to any executive officers.
The Company's stock option plans are designed to focus executive efforts on
long-term goals of the Company and to maximize total return to the Company's
shareholders. The Committee believes that stock options advance the interests of
employees and shareholders by providing value to the executives through stock
price appreciation only. Options terminate if the employee's employment with the
Company is terminated. All options awarded must have an exercise price of at
least 100% of fair market value on the date of grant.
The exact number of shares actually granted to a particular participant
reflects both the participant's performance and role in the Company, as well as
the Company's financial success, and its future business plans. All of these
factors are assessed subjectively and are not weighted. In determining each
grant, the Committee also considers the number of stock options which are
outstanding, and the total number of options to be awarded.
In making grants during the fiscal year ended September 30, 1999, the
Committee also considered the number of outstanding options previously granted
to each officer. Due to the decline in the Company's stock price during the
year, all of the options granted to executive officers of the Company in fiscal
1999 were "out-of-the-money" at the fiscal year end of September 30, 1999. The
Committee believes that its awards were consistent with the Company's
compensation philosophy to increase the emphasis placed on long-term incentives
and to be competitive in its total compensation program.
Under Section 162(m) of the Internal Revenue Code of 1986, as amended,
public companies are precluded from receiving a tax deduction on compensation
paid to executive officers in excess of $1,000,000, unless the compensation is
excluded from the $1,000,000 limit as a result of being classified performance-
based. At this time, the Company's executive officers cash compensation levels
do not exceed the payment limit and will most likely not be affected by the
regulations in the near future. Nonetheless, the Committee intends to review its
executive pay plans over time in light of these regulations.
COMPENSATION COMMITTEE
F. Wayne Ballenger
M. F. Florence
10
<PAGE>
Compensation of Directors
- -------------------------
Directors who are not employees of the Company receive $18,000 per year,
$400 for each Board meeting attended, and $200 for each committee meeting of the
Board attended. Directors who are also employees of the Company receive no
additional compensation for serving as Directors. The Company reimburses its
Directors for travel and out-of-pocket expenses in connection with their
attendance at meetings of the Board of Directors.
In November 1995, the Board of Directors of the Company adopted the 1995
Non-Discretionary Stock Option Plan for directors of the Company who are not
eligible to participate in the other Plans (the "Non-Discretionary Plan.") The
Non-Discretionary Plan provides that the Company grant options to purchase 5,000
shares of the Company's Common Stock to each eligible director on the date of
adoption of the Non-Discretionary Plan (November 28, 1995), to each person who
thereafter becomes a director of the Company and, as of December 1 of each year
(commencing in 1996), options to purchase an additional 5,000 shares of Common
Stock will be granted to each eligible director. The exercise price of the
options is the fair market value of the Common Stock on the date the options are
granted. The options are exercisable in full as of the date of grant. The shares
acquired upon exercise of these options cannot be sold for six months following
the date of grant. During the fiscal year ended September 30, 1999, the Company
granted options to purchase 5,000 shares of Common Stock at a price of $2.38 per
share to each of F. Wayne Ballenger, M.F. Florence and Richard S. Kashenberg.
Mr. Kashenberg resigned as a director of the Company in October 1999 and
currently serves as a consultant to the Company. Each option granted pursuant to
the Non-Discretionary Plan will expire five years from the date of grant, except
that an option will expire, if not exercised, 30 days after the optionee ceases
to be a director of the Company.
Options granted pursuant to the Non-Discretionary Plan will not qualify for
the special tax benefits given to incentive stock options under Section 422 of
the Code. Accordingly, all of the stock options granted pursuant to the Non-
Discretionary Plan may be deemed to be non-statutory stock options. The options
are generally non-transferable. In October 1999 the Board of Directors of the
Company terminated the Non-Discretionary Plan.
11
<PAGE>
Corporate Performance Graph
- ---------------------------
The following graph compares the yearly cumulative return on the Company's
Common Stock since July 10, 1995 (the date the Company's Common Stock began
trading on The Nasdaq Stock Market) with that of the Index for The Nasdaq Stock
Market (U.S. Companies) and a peer group including the following companies:
BeautiControl Cosmetics, Inc., Herbalife International, Inc., Nature's Sunshine
Products, Inc and Reliv' International, Inc.
<TABLE>
<CAPTION>
Total Return Analysis
7/10/95 9/29/95 9/30/96 9/30/97 9/30/98 9/30/99
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Nutrition for Life $ 100 $ 304.29 $ 506.40 $ 277.08 $ 104.93 $ 85.26
- -----------------------------------------------------------------------------------------------------------
Peer Group $ 100 $ 332.96 $ 414.28 $ 404.00 $ 218.69 $ 298.48
- -----------------------------------------------------------------------------------------------------------
Nasdaq Composite (US) $ 100 $ 106.85 $ 125.63 $ 172.60 $ 173.43 $ 282.07
- -----------------------------------------------------------------------------------------------------------
Source: Carl Thompson Associates www.ctasaline.com (800) 959-9677. Data from Bloomberg Financial Markets.
</TABLE>
12
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of January 20, 2000, the ownership of the
Company's Common Stock held by: (i) each person who owns of record or who is
known by the Company to own beneficially more than 5% of such stock, (ii) each
of the directors of the Company, (iii) each of the current executive officers of
the Company and (iv) all of the Company's directors and executive officers as a
group. The number of shares and the percentage of the class beneficially owned
by the persons named in the table and by all directors and executive officers as
a group, includes, in addition to shares actually issued and outstanding,
unissued shares which are subject to issuance upon exercise of options or
warrants.
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares Owned Percentage of Ownership
---------------- ---------------------- -----------------------
<S> <C> <C>
Apotex Foundation 650,000(1) 11.2
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Bernard Sherman 1,215,390(1) 20.9
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Shermfin Corp. 565,390(1) 9.7
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
M.F. Florence 585,390(1)(2) 10.1
150 Signet Dr.
Weston, Ontario, Canada
9ML 1T9
Jana B. Mitcham 421,904(3) 7.1
10618 Great Plains
Houston, TX 77064
David P. Bertrand 333,692(4) 5.6
10622 Great Plains
Houston, TX 77064
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares Owned Percentage of Ownership
---------------- ---------------------- -----------------------
<S> <C> <C>
F. Wayne Ballenger 20,000(5) .3
3134 Meadway Drive
Houston, TX 77082
Gregory Pusey 140,779(6) 2.4
1722 Buffehr Creek Road
Vail, CO 81657
John R. Brown, Jr. 25,000(7) .4
2534 Pomeran
Houston, TX 77080
David O. Rodrigue 40,000(8) .7
17810 Cypress Spring Dr.
Spring, TX 77388
Barry C. Loder ---(9)
9101 Jameel Street
Houston, TX 77040
All Officers and Directors as 1,566,765 25.1
a Group (8 Persons)
</TABLE>
________________________________
(1) Mr. Sherman may be deemed a beneficial owner of the shares held by the
Apotex Foundation due to his affiliations with the Apotex Foundation.
Messrs. Sherman and Florence may be deemed beneficial owners of the shares
held by Shermfin Corp. due to their affiliations with Shermfin Corp. In
July, 1994, Mr. Sherman and Shermfin Corp. consented to the issuance of an
Order of the Securities and Exchange Commission (the "Commission") that
they cease and desist from violations of certain reporting and anti-fraud
provisions of the Securities Exchange Act of 1934. Mr. Sherman and
Shermfin Corp. consented to this Order without admitting or denying the
findings of the Commission that they had failed to file reports of
beneficial ownership of the common stock of Kinesis, Inc. with the
Commission on Form 3 and Schedule 13G. The Company has no relationship
with Kinesis, Inc.
(2) Includes options to acquire (i) options to acquire 5,000 shares of Common
Stock at $19.75 per share, (ii) options to acquire 5,000 shares of Common
Stock at $12.38 per share, (iii) options to acquire 5,000 shares of Common
Stock at $7.00 per share and (iv) options to acquire 5,000 shares of Common
Stock at $2.38 per share. Does not include options to acquire 7,658 shares
at $2.125 per share which become exercisable in one-third annual
installments commencing in October 2000 and options to acquire 15,000
shares at
14
<PAGE>
$2.84 per share which become exercisable in one-third annual installments
commencing in December 2000.
(3) Includes Warrants to purchase 5,000 shares of Common Stock at $3.75 per
share and options to acquire (i) 16,800 shares of Common Stock at $1.875
per share, (ii) 16,800 shares of Common Stock at $2.25 per share, (iii)
37,800 shares of Common Stock at $13.00 per share, (iv) 25,000 shares of
Common Stock at $3.00 per share, of which options to acquire 8,333 shares
become exercisable in each of December 2000 and December 2001 and (v)
20,000 shares of Common Stock at $5.13 per share. Also includes 11,554
shares of Common Stock owned by her daughter, 9,000 shares of Common Stock
owned by her husband, and options held by her husband to acquire 3,600
shares of Common Stock at $13.00 per share, of which options to acquire
1,200 shares become exercisable in each of December 2000 and December 2001.
Does not include options to acquire 53,604 shares at $2.125 per share which
become exercisable in one-third annual installments commencing in October
2000 and options to acquire 50,000 shares at $2.84 per share which become
exercisable in one-third annual installments commencing in December 2000.
Also does not include options held by her husband to acquire 6,126 shares
of Common Stock at $2.125 per share which become exercisable in one-third
annual installments commencing in October 2000 and options to acquire
20,000 shares at $2.84 per share which become exercisable in one-third
annual installments commencing in December 2000.
(4) Includes options to acquire (i) 19,200 shares of Common Stock at $1.875 per
share, (ii) 19,200 shares of Common Stock at $2.25 per share, (iii) 40,200
shares of Common Stock at $13.00 per share, (iv) 25,000 shares of Common
Stock at $3.00 per share, of which options to acquire 8,333 shares become
exercisable in each of December 2000 and December 2001and (v) 20,000 shares
of Common Stock at $5.13 per share. Also includes options held by his wife
to acquire 3,600 shares of Common Stock at $13.00 per share, of which
options to acquire 1,200 shares become exercisable in each of November 2000
and November 2001. Does not include options to acquire 53,604 shares at
$2.125 per share which become exercisable in one-third annual installments
commencing in October 2000 and options to acquire 75,000 shares at $2.84
per share which become exercisable in one-third annual installments
commencing in December 2000. Also does not include options held by his wife
to acquire 6,126 shares of Common Stock at $2.125 per share which become
exercisable in one-third annual installments commencing in October 2000 and
options to acquire 20,000 shares at $2.84 per share which become
exercisable in one-third annual installments commencing in December 2000.
(5) Includes options to acquire (i) 5,000 shares of Common Stock at $19.75 per
share; (ii) 5,000 shares of Common Stock at $12.38 per share, (iii) 5,000
shares of Common Stock at $7.00 per share and (iv) 5,000 shares of Common
Stock at $2.38 per share. Does not include options to acquire 25,000
shares at $2.85 per share which become exercisable in one-third annual
installments commencing in December 2000.
(6) Includes 14,430 shares held by his wife, individually and as custodian for
their minor children, 5,880 shares held by a corporation in which he is a
principal shareholder and warrants to purchase 15,000 shares of Common
Stock at $3.75 per share. Does not include options to acquire 75,000
shares of Common Stock at $2.84 per share which become exercisable in one-
third annual installments commencing in December 2000. Also does not
include 239,171 shares of Common Stock which will be acquired by him
15
<PAGE>
and members of his family if the Company's shareholders approve conversion
of the Company's outstanding Series A Preferred Stock.
(7) Includes options to acquire (i) 10,000 shares of Common Stock at $11.50 per
share and (ii) 10,000 shares of Common Stock at $3.00 per share, of which
options to acquire 3,333 shares become exercisable in each of December 2000
and December 2001. Does not include options to acquire 22,000 shares at
$2.84 per share, which become exercisable in one-third annual installments
commencing in December 2000.
(8) Includes options to acquire (i) 25,000 shares of Common Stock at $5.75 per
share, of which options to acquire 8,333 shares become exercisable in
January 2001 and (ii) options to acquire 15,000 shares at $3.00 per share
of which options to acquire 5,000 shares become exercisable in one-third
annual installments commencing in each of December 2000 and December 2001.
Does not include options to acquire 35,000 shares at $2.84 per share which
become exercisable in one-third annual installments commencing in December
2000.
(9) Does not include 207,547 shares of Common Stock which will be acquired by
him if the Company's shareholders approve conversion of the Company's
outstanding Series A Preferred Stock. Also does not include options to
acquire 50,000 shares of Common Stock at $2.84 per share which become
exercisable in one-third annual installments commencing in December 2000.
ITEM 13. CERTAIN RELATIONSHPS AND RELATED TRANSACTIONS
In March 1995, the Company entered into an agreement with Shermfin Corp.
regarding conversion to Common Stock of debt owed by the Company to Shermfin
Corp. The Company and Shermfin Corp. also agreed that, for so long as Shermfin
Corp. owns 10% or more of the outstanding Common Stock of the Company, Shermfin
Corp. will be entitled to designate one person to serve as a member of the
Company's Board of Directors. Shermfin Corp. designated M.F. Florence to serve
on the Board.
NION Laboratories, which was a subsidiary of Shermfin Corp. until June 1995,
has been a key supplier to the Company of nutritional supplements and other
consumer-related products. The Company purchased from NION approximately
$494,000, $4,190,000 of goods during the fiscal years ended September 30, 1998,
and 1997, respectively. No goods were purchased during the fiscal year ended
September 30, 1999. Richard S. Kashenberg, a director of the Company until
October 1999, served as the chief executive officer of NION until December 31,
1996 and as a consultant to NION through October 31, 1997. The Company believes
that the terms it has obtained from NION are at least as favorable as could have
been obtained from third parties.
During 1998 and 1999, respectively, the Company purchased approximately
41,000 and 32,000 copies of a book entitled Making A Difference While You're
Making A Living, written by the Company's President, David P. Bertrand, and Mr.
Bertrand's son, J. Mark Bertrand, who is also an employee of the Company. The
cost to the Company was $5 per book. New Paradigm Publishing, a company
established by J. Mark Bertrand, published the book. The Company sold
approximately 10,000 and 3,000 copies of the book during 1999 and 1998,
16
<PAGE>
respectively, at an average selling price of approximately $10.95 per copy. The
book has been placed in the Company's product catalog at per copy prices ranging
from $8.95 to $12.95, based upon quantity ordered, and in 1999 approximately
35,000 of the books were part of the materials provided to new distributors in
the Company's starter kits. Additionally, in September 1998, approximately
19,000 copies of the book were shipped to distributors as part of the Company's
Business Training System program for that month. New Paradigm Publishing has
agreed to accept the return of any books ordered, but not sold by the Company,
and to refund to the Company the $5 per book purchase price for any copies
returned to it by the Company.
17
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<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1998
<PERIOD-START> OCT-01-1998 OCT-01-1997
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 1,395,310 4,404,388
<SECURITIES> 996,942 968,196
<RECEIVABLES> 362,315 568,931
<ALLOWANCES> 0 0
<INVENTORY> 8,434,220 9,697,495
<CURRENT-ASSETS> 14,484,166 18,774,171
<PP&E> 9,679,672 10,134,505
<DEPRECIATION> 3,635,486 2,827,855
<TOTAL-ASSETS> 22,240,820 27,858,149
<CURRENT-LIABILITIES> 6,634,899 11,755,033
<BONDS> 479,719 1,278,257
0 0
0 0
<COMMON> 58,875 58,875
<OTHER-SE> 14,947,561 15,032,801
<TOTAL-LIABILITY-AND-EQUITY> 22,240,820 27,858,149
<SALES> 0 0
<TOTAL-REVENUES> 66,569,875 69,658,095
<CGS> 0 0
<TOTAL-COSTS> 44,742,050 47,939,482
<OTHER-EXPENSES> 22,329,914 21,021,056
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 128,860 130,632
<INCOME-PRETAX> (291,352) (77,406)
<INCOME-TAX> 557,000 790,050
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (848,352) (867,456)
<EPS-BASIC> (.15) (.15)
<EPS-DILUTED> (.15) (.15)
</TABLE>
