<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
REPORT ON FORM 10-K/A
|X| Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended November 30, 1998.
|_| Transition Report pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the transition period from to .
------------------- --------------------
Commission File No. 0-24530
FUTUREBIOTICS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 11-3205937
- --------------------------------- --------------------------------------
(State of or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization)
145 Ricefield Lane
Hauppauge, New York 11788
- --------------------- ------
(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: (516) 273-2630
Securities registered pursuant to Section 12(b) of the Act: None.
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.0001 per share
----------------------------------------
(Title of Class)
Units consisting of two (2) shares of common stock, par value $.0001 per share
and two (2) Class A Redeemable Common Stock Purchase Warrants
-------------------------------------------------------------
(Title of Class)
Class A Redeemable Common Stock Purchase Warrants
-------------------------------------------------
(Title of Class)
<PAGE>
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of the Regulation S-K is not contained herein and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Issuer's revenues for its most recent fiscal year were $10,304,000.
The aggregate market value of the voting stock held by non- affiliates
of the Registrant, computed by reference to the closing price of such stock as
of March 5, 1999, was approximately $4,050,000.
Number of shares outstanding of the issuer's common stock, as of March
5, 1999, was 1,350,000.
DOCUMENTS INCORPORATED BY REFERENCE: None.
----
<PAGE>
PART I
------
Item 1. BUSINESS.
--------
General
- -------
Futurebiotics, Inc., a Delaware corporation (the "Company"), was formed on
March 16, 1994. The Company is engaged in the distribution, marketing and sale
of vitamins, minerals, herbal formulations and specialty nutritional
supplements, which it markets principally to health food stores through
regional distributors.
The Company's primary product line consists of more than 150 items,
including multi-vitamin/mineral formulas, green superfood powders,
herbal/mineral tonics and herbal complexes, and specific specialty supplements.
All of the Company's products are supplied by its parent company, PDK Labs Inc.
Sales of the Company's Hair, Skin and Nails products approximated 12%, 11% and
10% of total revenues for the years ended 1998, 1997 and 1996, respectively.
This Form 10-K contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Statements
made that are not historical facts are forward-looking and, accordingly,
involve risks and uncertainties that could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements.
Although such forward-looking statements have been based on reasonable
assumptions, there is no assurance that the expected results will be achieved.
Some of the factors that could cause actual results to differ materially
include, but are not limited to: the effects of regulatory decisions; changes
in law and other governmental actions and initiatives; uncertainties relating
to global economic conditions; market acceptance of competing products; the
availability and cost of raw materials, the Company's ability to successfully
maintain or increase market share in its core business while expanding its
product base into other markets; the strength of its distribution channels; and
the Company's ability to manage fixed and variable expense growth relative to
revenue growth.
Recent Developments
- -------------------
On March 3, 1999, an Asset Purchase Agreement (the "Purchase Agreement")
was executed by and among FB Acquisition Corp., a Delaware corporation ("FB
Acquisition"), Nutraceutical Corporation, a Delaware corporation
("Nutraceutical"), the Company and PDK Labs, Inc., a New York corporation
("PDK"), pursuant to which FB Acquisition agreed to acquire, and the Company
agreed to sell, (the "Transaction") substantially all of the Company's assets
(the "Assets").
As consideration for the Assets, FB Acquisition has agreed to pay in cash
(i) $3,700,000, (ii) the value of purchased inventory up to $1,500,000, and
(iii) the net book value of accounts receivables up to a maximum of $725,000.
The purchase price is subject to adjustment in the event that the proceeds
actually received from collecting the purchased accounts receivable differs
from the amount of purchased accounts receivable.
2
<PAGE>
In connection with the Transaction, the Company anticipates entering into
a Transition Service Agreement at closing which will require the Company to
provide certain services to FB Acquisition on a temporary basis to facilitate a
smooth transition of the transfer of the Assets to FB Acquisition.
The closing ("Closing") of the Transaction is subject to the approval of
the Company's stockholders and the satisfaction of other customary conditions.
PDK, the majority stockholder of the Company has agreed to vote the shares of
the Company's capital stock held by it in favor of the Transaction. The Company
anticipates Closing the Transaction during the second calendar quarter of 1999.
Following the Closing, the Company shall be restricted from engaging in
merchandising, distribution or sale of (i) a broad line of branded nutritional
supplements, other than to mass merchandisers, or (ii) any of the Company's
proprietary products and/or formulations. As a result, the Company intends to
commence a new business.
The following is a summary of the Company's business (the "Business") as
of the date hereof and in the event that the Transaction is consummated, the
Company will no longer be engaged in the Business.
Products and Product Development
- --------------------------------
The Company develops products for its own Futurebiotics line. Its products
include vitamins, minerals, herbs and specialty combinations. Each product
category contains numerous different dosage sizes and various and unique
combinations of ingredients. These product groups include nutrition products
for men, advanced women's formulas, super green foods, weight loss/management
products and vegetarian multiple vitamins.
The Company introduces new products in response to anticipated consumer
trends. Product concepts are generally developed by the Company's management,
key employees and consultants.
Government Regulation
- ---------------------
The processing, formulation, packaging, labeling and advertising of the
Company's products are subject to regulation by one or more federal agencies,
including the United States Food and Drug Administration ("FDA"), the Federal
Trade Commission ("FTC"), the Consumer Product Safety Commission, the United
States Department of Agriculture and the Environmental Protection Agency
("EPA"). These activities may also be regulated by various agencies of the
states and localities in which the Company's products are sold.
In October 1994, the Dietary Supplement Health and Education Law was
signed into law. This new law, which amends the Federal Food, Drug and Cosmetic
Act, defines dietary supplements as a separate and distinct entity, and not as
food additives. Vitamins, minerals, amino acids, herbs and other nutritional
substances are included in the definition. It expressly provides for the use of
third party scientific literature which shall not be regulated as labeling by
3
<PAGE>
the FDA, provided it is not false or misleading. The new law also delayed the
FDA's requirements for extensive product label changes which were to be applied
to products manufactured after July 1, 1995. It provides a set of different
label requirements for ingredient content information, and directs the FDA to
publish new label regulations for supplements with a mandatory effective date
of December 31, 1996. It makes no modifications on the requirements and
proscriptions regarding health claims for dietary supplements. The new law also
introduced the concept of good manufacturing practices to the manufacture of
dietary supplements. At this time, it would be premature to predict its overall
impact on the dietary supplement industry.
Competition
- -----------
The market for vitamins, dietary supplements, herbal-based products and
nutritional supplements is highly competitive in each of the Company's existing
and anticipated product lines and methods of distribution. Numerous
manufacturers and distributors compete with the Company for customers
throughout the United States and internationally in the packaged vitamin,
mineral and nutritional supplement industry selling products to retailers, such
as mass merchandisers, drug store chains, independent drug stores and health
food stores. Many of the Company's competitors are substantially larger and
more experienced than the Company, have longer operating histories and have
materially greater financial and other resources than the Company. Many of
these competitors are private companies, and therefore, the Company cannot
compare its revenues with respect to the sales volume of each competitor. The
Company's significant competitors include Nature's Bounty, Twin Labs, and
Solgar. There can be no assurance that the Company will be able to compete
successfully with its more established and better capitalized competitors.
Although certain of the Company's competitors are substantially larger
than the Company and have greater financial resources, the Company believes
that it competes favorably with other vitamin and nutritional supplement
companies because of its access to products, competitive pricing, quality of
products, sales support and diverse product line.
Marketing and Advertising
- -------------------------
The Company markets its products through in-store demonstrations, point of
purchase displays, and promotional literature. Advertising is through consumer
and trade magazines, newspapers, in-store flyers, radio and distributors
catalogs. The Company also mails a five color catalog directly to retail
stores.
Trademarks and Patents
- ----------------------
The Company owns various trademarks which have been registered with the
United States Patent and Trademark Office ("PTO"). To the Company's knowledge,
the Company has the common law right to use such servicemarks on its products
and in the marketing of its services. The Company has retained trademark
counsel and presently intends to make all appropriate filings and registrations
and take all other actions necessary, to protect all of its intellectual
property rights.
4
<PAGE>
Conflicts of Interests
- ----------------------
As of November 30, 1998, PDK owned fifty one and nine tenths (51.9%)
percent of the Company's outstanding shares of Common Stock and one hundred
(100%) percent of its Preferred Stock. At present, PDK supplies all of the
Company's products, as well as certain management and administrative facilities
and personnel. It is anticipated that PDK will continue to supply a significant
percentage of the Company's products, at or near present levels, as well as
administrative and support services, and that the Company will continue to
operate its executive offices, distribution and packaging at facilities leased
and managed by PDK. In addition, four (4) members of PDK's Board of Directors,
Reginald Spinello, Karine Hollander, Thomas Keith and Lawrence Simon, are also
members of the Company's Board of Directors. Reginald Spinello, a Director and
the President and Chief Executive Officer of the Company, is PDK's President
and Chief Executive Officer. Because of PDK's ownership interest in the
Company, the identity of certain management and PDK's role as a significant
supplier to the Company, certain conflicts of interest may occur between the
Company and PDK.
Product Liability Insurance
- ---------------------------
The Company, like other distributors of products that are ingested, faces
inherent risk of exposure to product liability claims if, among other things,
the use of its products results in an injury. With respect to product liability
coverage, the Company currently has a product liability insurance policy. There
is no assurance that any judgment against the Company will not exceed liability
coverage. A judgment significantly in excess of the amount of insurance
coverage would have a material adverse effect on the Company.
Employees
- ---------
As of March 1, 1999, the Company employs a total of 13 employees on a full
time basis. The Company utilizes PDK for a majority of its administrative
functions.
Item 2. PROPERTIES.
----------
The Company's corporate, sales, and advertising offices are located at the
offices of PDK Labs Inc., 145 Ricefield Lane, Hauppauge, New York 11788,
(telephone number (516) 273-6300).
The lease is for 5,000 square feet for an initial one (1) year term with
yearly options to renew with escalations of five (5%) percent annually. The
initial annual rental is $50,000. The lease terminates in October, 2000 as does
the PDK Labs Inc. master lease.
Item 3. LEGAL PROCEEDINGS.
-----------------
Except as set forth below, management is not aware of any material legal
proceedings pending against the Company.
5
<PAGE>
Donald Zinman ("Zinman") served and filed a complaint (the "Zinman
Complaint") against PDK and its majority-owned subsidiary, Futurebiotics, Inc.
("Futurebiotics") dated May 16, 1997 in a litigation entitled Zinman v. PDK
Labs Inc. and Futurebiotics, Inc. in the Eastern District of New York. The
Zinman Complaint alleges breach of contract in that PDK failed to pay amounts
under an Amended Consulting Agreement between Zinman and PDK. On November 24,
1998, the Company settled the lawsuit in its entirety for $450,000.
Although the Company is not a party to the following legal proceedings,
PDK has been named in the following litigations:
On February 4, 1994 PDK was named as a defendant in a litigation entitled
Hillary L. Dufficy v. PDK Labs Inc. in the Superior Court of the State of
Connecticut, alleging a product liability claim pursuant to Section 52-572m of
the Connecticut General Statutes. The action seeks unspecified monetary
damages. The Court granted PDK's motion for summary judgment dismissing the
action and plaintiff has appealed the decision. PDK intends to vigorously
defend the lawsuit and has referred the action to its product liability
insurer.
On July 29, 1996, PDK served a complaint (the "Complaint") against a
former executive in a litigation entitled PDK Labs Inc. v. Perry Krape in the
Supreme Court of the State of New York, County of Suffolk. The Complaint
alleges, in pertinent part, that the former executive breached his employment
agreement with PDK by competing with PDK and soliciting PDK's customers in
violation of the terms of the agreement. The Complaint further alleges that the
executive has defaulted on payments due to PDK pursuant to a promissory note
and that while serving as an officer of PDK made inappropriate investments for
PDK's Profit Sharing Plan and Trusts. By virtue of the foregoing, PDK alleges
that the executive has breached his Employment Agreement and the Amendment,
engaged in unfair competition, breached the terms of the personal guarantee,
defaulted upon the promissory note, converted funds belonging to PDK and
breached his fiduciary duty to PDK.
In his Answer and Counterclaim (the "Counterclaim"), the executive offers
general denials of these allegations and interposes both personal counterclaims
and derivative claims. The executive's personal Counterclaim, asserts in
pertinent part, that the Company and certain officers and directors have
breached their fiduciary duty to him and that the Restrictive Covenant and
agreement is unenforceable and should be deemed a nullity. The derivative
claims were dismissed by the court and the executive has appealed the
dismissal. PDK and the directors deny that they engaged in any improper conduct
which would support the executive's personal Counterclaim. Each intends to
vigorously defend against such claims and PDK intends to proceed with its
action against the executive. In addition, on February 22, 1999, Mr. Krape
served a demand on the PDK's board of directors, pursuant to Section 626 of the
New York Business Corporation Law, to commence a shareholder's derivative
action (the "Demand"). The Demand requests that the board of directors commence
an action for fraud, breach of fiduciary duty and corporate waste against
various individuals and entities including former and present officers and
directors of PDK. The board of directors is reviewing the Demand.
Futurebiotics has not been named as a party in the former executive's
Counterclaim.
6
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
(a) On September 18, 1998, the Company held its annual meeting of
Shareholders.
(b) At said meeting, the following five individuals were elected by the
following vote to serve as directors until the next annual meeting of
stockholders and until their successors are elected and qualified:
FOR AGAINST
--- -------
Reginald Spinello 1,809,254 6,480
Karine Hollander 1,809,254 6,480
Thomas Keith 1,809,254 6,480
Theresa Giove 1,809,254 6,480
Lawrence D. Simon 1,809,254 6,480
(c) At said meeting 1,810,635 votes in favor of and 3,470 votes against a
proposal to ratify the appointment of Holtz Rubenstein & Co., LLP to serve as
the independent certified public accountants for the 1999 fiscal year.
7
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.
--------------------------------------
The Common Stock is regularly quoted and traded on the NASDAQ SmallCap
system under the symbol VITK.
The following table indicates the high and low bid prices for the
Company's Common Stock and Class A Warrants for the period up to November 30,
1998 based upon information supplied by the NASDAQ system. Prices represent
quotations between dealers without adjustments for retail markups, markdowns or
commissions, and may not represent actual transactions.
Common Stock
- ------------
1997 Calendar Year Quoted Bid Price
- ------------------ ----------------
High Low
---- ---
First Quarter 3 3/4
Second Quarter 2 3/8 1 5/8
Third Quarter 3 3/4 21/8
Fourth Quarter 4 1/4 3 3/8
1998 Calendar Year Quoted Bid Price
- ------------------ ----------------
High Low
---- ---
First Quarter 4 1/2 3 1/2
Second Quarter 7 7/8 1 1/4
Third Quarter 3 1/2 1 1/4
Fourth Quarter 16 3/4
8
<PAGE>
Class A Warrants
- ----------------
1997 Calendar Year Quoted Bid Price
- ------------------ ----------------
High Low
---- ---
First Quarter 1/32 1/32
Second Quarter 1/32 1/32
Third Quarter 1/32 1/32
Fourth Quarter 1/32 1/32
1998 Calendar Year Quoted Bid Price
- ------------------ ----------------
High Low
---- ---
First Quarter 1/64 1/64
Second Quarter 1/64 1/64
Third Quarter 1/64 1/64
Fourth Quarter 1/64 1/64
On March 5, 1999, the closing price of the Common Stock as reported on
NASDAQ National was $3.00. On March 5, 1999, there were 156 holders of record
of Common Stock.
Item 6. SELECTED FINANCIAL DATA.
-----------------------
SUMMARY BALANCE SHEET DATA
(in thousands)
November 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Total Assets $7,340 $10,975 $11,764 $10,142 $9,865
Long-Term Obligations 0 3,000 3,000 1,250 0
Stockholders' Equity 7,126 7,798 8,545 8,547 7,890
9
<PAGE>
SUMMARY INCOME STATEMENT DATA
(in thousand, except share and per data)
<TABLE>
<CAPTION>
Year ended November 30,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $10,304 $11,682 $12,713 $10,647 $7,415
Operating (Loss) Income (914) (1,206) (372) 516 895
Net (Loss) Income (980) (1,034) (290) 442 533
Net (Loss) Income Per Common Stock ($0.73) ($0.77) ($0.21) $0.33 $1.15
Average Number of Common Shares
Outstanding 1,350,000 1,350,000 1,350,000 1,327,643 463,472
</TABLE>
10
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
---------------------------------------------
Results of Operations
Fiscal Year 1998 compared to Fiscal Year 1997
Net sales for the fiscal year 1998 were approximately $10,304,000 as
compared to net sales in 1997 of $11,682,000. The decrease in sales is
attributable to (i) an overall reduction in sales volume of products such as
shark cartilage, trace minerals and A to Z vitamins and (ii) a reduction in the
average sales prices on products due to competitive pricing and item close
outs. Gross profit amounted to approximately $3,775,000 (37% of sales) in 1998
as compared with $5,883,000 (50% of sales) in 1997. The decrease in gross
profit percentage is attributable to changes in the Company's price structure
and a change in the mix of sales. In addition, the Company has designed new
bold color coded labels and has changed from plastic to glass bottles for its
products. These changes are intended to enhance and create a more uniform
presence for the product line as compared to the original labels which were
diversified in style throughout the product line. As a result of these changes,
certain product was sold at close out prices which had an impact on the overall
gross profit percentage.
Selling, general and administrative expenses were $4,689,000 (46% of
sales) in 1998, and $7,089,000 (61% of sales) in 1997. The decrease is
primarily attributable to a charge for promotional costs of approximately
$1,507,000 in 1997 related to marketing program; with select retail stores and
distributors in order to obtain premium shelf space. Costs associated with
these distribution rights were charged ratably over the terms of the
agreements. All promotional costs were fully amortized in 1997. In addition,
the Company realized a reduction in sales force salaries and expenses in 1998
due to the Company consolidating sales territories and reaching more customers
through telemarketing efforts. Telemarketing enables the Company to effectively
reach a greater number of customers and also results in fewer expenses related
to salespeople calling on customers in person.
The Company expects a decrease in sales for 1999 as compared to 1998.
However, the Company also expects an increase in gross percentage and a
reduction in selling expenses in 1999 as compared to 1998. The Company's focus
for the fiscal year end 1999 will be to sell more market niche specialty
formula products at better gross margins. The Company plans to introduce
several new specialty products in 1999.
On March 3, 1999, the Company and PDK entered into an Asset Purchase
Agreement with Nutraceutical Corporation ("Nutraceutical") and FB Acquisition
Corp., a wholly-owned subsidiary of Nutraceutical pursuant to which FB
Acquisition Corp. agreed to acquire and the Company agreed to sell, (the
"Transaction") substantially all of the Company's assets (the "Assets").
As consideration for the Assets, FB Acquisitions Corp. has agreed to pay
in cash (i) $3,700,000, (ii) the value of purchased inventory up to $1,500,000,
and (iii) the net book value of accounts receivable up to a maximum of
$725,000. The purchase price is subject to adjustment
11
<PAGE>
in the event that the proceeds actually received from collecting the purchased
accounts receivables differ from the amount of purchased accounts receivable.
The closing ("Closing") of the Transaction is subject to the approval of
the Company's stockholders and the satisfaction of other customary conditions.
PDK, the majority stockholder of the Company has agreed to vote the shares of
the Company's capital stock held thereby in favor of the Transaction. The
Company anticipates Closing the Transaction during the second calendar quarter
of 1999.
Following the Closing, the Company shall be restricted from engaging in
merchandising distribution or sale of (i) a broad line of branded nutritional
supplements, other than to mass merchandisers, or (ii) any of the Company's
proprietary products and/or formulations. As a result, the Company intends to
commence a new business.
The Company recognizes the need to ensure its operations will not be
adversely impacted by the Year 2000 software failures. Software failures due to
processing errors potentially arising from calculations using the Year 2000
date are a known risk. The Company is addressing this risk to the availability
and integrity of financial statements and the reliability of operational
systems. The Company is developing a plan to ensure that its systems are
compliant with the requirements to process transactions in the Year 2000. That
plan consists of four phases: assessment, remediation, testing and
implementation, and encompasses internal information technology (IT) systems
and non-IT systems, as well as third party exposures. The Company has completed
the assessment of its IT systems and non-IT systems and is in the process of
making remedial changes to its existing software. In addition, the Company has
requested from a majority of its principal suppliers and vendors written
statements regarding their plan for meeting Year 2000 requirements. To date,
the Company has not received adequate response to such requests.
Management of the Company believes that it is working on an effective
program to resolve the Year 2000 issue in a timely manner and that the costs of
implementing this program will not materially affect the financial position of
the Company. The Company has not yet completed all necessary phases of the Year
2000 program. In the event that the Company does not complete any additional
phases, the Company could experience business interruptions. In addition,
disruptions in the economy generally resulting from the Year 2000 issues could
also materially adversely affect the Company. The amount of potential liability
and lost revenue cannot be reasonably estimated at this time. Management
believes that inflation did not have a material effect on operations or
financial condition in 1998, 1997, or 1996. Management also believes that its
business is not seasonal; however, significant promotional activities can have
a direct impact on sales volume in any given quarter.
Fiscal Year 1997 compared to Fiscal Year 1996
Net sales for the fiscal year 1997 were approximately $11,682,000 as
compared to net sales in 1996 of $12,713,000. The decrease in sales is
attributable to the Company discontinuing an aggressive marketing program which
was in place in 1996. Gross profit amounted to approximately $5,883,000 (50% of
sales) in 1997 as compared with $7,194,000 (57% of sales) in
12
<PAGE>
1996. The decrease in gross profit percentage is attributable to changes being
implemented to the Company's price structure upon the phase out of a marketing
program targeting select retail stores and distributors, as well as a change in
the mix of sales.
Selling, general and administrative expenses were $7,089,000 (61% of
sales) in 1997 and $7,566,000 (60% of sales) in 1996. Included in selling,
general and administrative expenses is approximately $1,507,000 in 1997 and
$1,238,000 in 1996 of promotional costs associated with a marketing program
with select retail stores and distributors in order to obtain premium shelf
space. Costs associated with these distribution rights were charged to
operations ratably over the lives of the agreements. The Company ceased signing
any new customers under this program as of May 31, 1996. As of fiscal year end
1997 all promotional costs were fully amortized.
The (benefit) provision for income taxes reflects an effective tax rate of
26% in 1997 and 27% in 1996.
Liquidity and Capital Resources
The Company had working capital of approximately $6,954,000 and $9,327,000
at November 30, 1998 and 1997, respectively.
The Company's statement of cash flows reflects cash provided by operations
of approximately $1,313,000 which reflects a net loss of approximately
($980,000), offset by decreases in accounts receivable ($227,000), inventories
($1,109,000), prepaid expenses and other current assets ($305,000), other
assets ($190,000) and an adjustment for depreciation and amortization
($524,000).
The cash flow statement also reflects cash provided by investing
activities of approximately ($1,254,000) principally attributable to the sale
and maturity of securities ($1,288,000), net of purchases of property and
equipment ($39,000).
Net cash used in financing activities of $3,000,000 represents repayments
of long-term debt.
The Company and its parent are party to credit facilities with a bank
which provide for borrowings under a revolving credit agreement (the "Revolving
Agreement") and a term loan (the "Term Agreement").
The Revolving Agreement, as amended, which expires in September 2000
provides for aggregate borrowings of up to $10,000,000 with a sublimit of
$4,000,000 for the Company. Borrowings under the Revolving Agreement bear
interest at the bank's prime rate or Eurodollar rate plus 1.75%, at the
Company's option.
As of November 30, 1997, the Company owed $3,000,000 under its Revolving
Agreement. During fiscal year end 1998, the Company repaid the $3,000,000
obligation with cash flow from operations. The Company has $4,000,000 available
for future borrowings under the Revolving Agreement as of November 30, 1998.
13
<PAGE>
The Term Agreement provides for aggregate borrowings of up to $8,500,000
for the Company and its parent on a combined basis. PDK owes $400,000 under the
Revolving Agreement and $5,728,000 under the Term Agreement at November 30,
1998. The Company and its parent are jointly and severally liable for the
unpaid balance of the credit facilities. Borrowings are secured by the assets
of the Company and its parent.
The prime rate and the Eurodollar rate at November 30, 1998 were 7.75% and
5.89%, respectively.
The credit facilities contain various covenants pertaining to the
maintenance of certain financial ratio restrictions, limitations on dividends,
and restrictions on borrowings. The Company is in compliance with the various
covenants and restrictions at November 30, 1998.
The Company expects to meet its cash requirements from operations, current
cash reserves, and existing financial agreements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
See financial statements following Item 14 of this Annual Report on
Form 10-K.
Item 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
--------------------------------------
None.
14
<PAGE>
PART III
--------
Item 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
------------------------------------------------------------
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT OF THE REGISTRANT.
-------------------------------------------------------------------
The following persons are the current executive officers and
directors.
Name Age Position Held
---- --- -------------
Reginald Spinello 46 President, Chief Executive Officer and Director
Karine Hollander 32 Chief Financial Officer, Director
Thomas Keith 39 Director
Theresa Giove 40 Director
Lawrence D. Simon 32 Director
- ---------
Background of Executive Officers and Directors
Reginald Spinello has been the President and a Director of the Company
since its formation and Chief Executive Officer since December 2, 1997. In
addition, he has been a Director of Superior Supplements, Inc. since May 1,
1996. Superior Supplements, Inc. ("SSI") is a developer, manufacturer and
marketer of dietary supplements in bulk tablet, capsule and powder form. In
addition, he is the Chief Executive Officer, President and Chairman of the
Board of Directors of PDK Labs Inc., a position he has held since August 1998
and a Director of PDK Labs Inc. since August 5, 1997. Mr. Spinello joined PDK
Labs Inc. in September 1991 as Vice President of Operations. Prior to joining
PDK Labs Inc., Mr. Spinello was President and Founder of Internal
Reinforcements from 1985 to 1991, a specialty distributor and marketer of
natural vitamins and supplements. Mr. Spinello graduated from Bryant College
with a B.S. Degree in Business Administration. Additionally, he has studied in
the field of nutrition and is a non-practicing nutrition consultant.
Karine Hollander has been a Director of the Company since September 1998
and has been the Chief Financial Officer of the Company and PDK Labs Inc. since
March 3, 1997. In addition, she has been a Director of PDK Labs Inc. since
March 11, 1998. She had been the Comptroller of PDK Labs Inc. since September
1994. Form 1989 until join the Company, Ms. Hollander was employed by the
accounting firm of Holtz Rubenstein & Co., LLP. Ms. Hollander received a B.A.
degree in Accounting from Dowling College.
15
<PAGE>
Thomas A. Keith has been a Director of the Company since December 2, 1997,
and he has been a Director of PDK Labs Inc. since March 11, 1998. In addition,
he has been a Director of Compare Generiks, Inc. since May 21, 1997 and the
President of Compare Generiks, Inc. since October 31, 1995. Prior to joining
Compare Generiks, Inc., from December 1990 to October 1995, Mr. Keith was Vice
President of Sales & Marketing of PDK Labs Inc. Compare Generiks, Inc. ("CGI")
is a distributor, marketer and vendor of dietary supplements and
over-the-counter non-prescription pharmaceuticals.
Theresa Giove has been a Director of the Company since September 1998. In
addition, she has been a Director of CGI since December 1, 1997 and has been
engaged in the practice of psychotherapy since 1990. From 1989 to 1991, she was
a Director of the Adolescent Wellness Center at North Shore University
Hospital. She was on the faculty at Adelphi University where she was a
professor in the Graduate Social Work Department until May 1998. Ms. Giove has
a B.S. degree from New York Institute of Technology and a M.B.A. degree in
Professional Studies, Clinical Counseling from New York Institute of
Technology. She also received a M.B.A. degree in Social Work from Adelphi
University. She was awarded her Ph.D. in Social Psychology from Union Institute
in 1998.
Lawrence D. Simon has been a Director of the Company since September 1998.
He has been a Director of PDK Labs Inc. since March 11, 1998. In addition, he
has been the President, Chairman, Chief Financial Officer and a Director of SSI
since May 1, 1996. He was the National Sales Director for the Company from
October 1, 1995, until his resignation on April 30, 1996. Prior to joining the
Company, Mr. Simon was Regional Sales Manager for PDK Labs Inc. (from April 10,
1992 to September 30, 1995). Prior to PDK Labs Inc., Mr. Simon was President of
LDS Products Inc. (from March 1990 to March of 1991). LDS Products Inc., is a
brokerage corporation specializing in sales to wholesale companies in Eastern
Europe. Prior to LDS Products Inc., Mr. Simon was an Auditor with Coopers &
Lybrand LLP (from December 1988 to March 1990). He is a graduate of Cleveland
State University with a Bachelors Degree in Business Administration.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
- --------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent (10%) of a registered class of the Company's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of common stock and other equity securities of
the Company. Officers, directors and greater than ten percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file.
To the Company's knowledge, based solely upon its review of the copies of
such reports furnished to the Company during the year ended November 30, 1998,
all Section 16(a) filing requirements applicable to its officers and directors
and greater than ten percent beneficial owners were satisfied.
16
<PAGE>
Item 11. EXECUTIVE COMPENSATION
----------------------
SUMMARY COMPENSATION TABLE
- --------------------------
<TABLE>
<CAPTION>
Long Term Compensation
------------------------------------------------------------
Annual Compensation Awards Payouts
--------------------------------- -------- -----------------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Restricted All
Other Stock LTIP Other
Annual Awards Options/ Payouts Compensation
Name and Principal Position Year Salary($) Bonus($) Compensation($) ($) SARs(#) ($) ($)
- --------------------------- ---- --------- -------- --------------- ---------- -------- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Reginald Spinello, CEO 1998 $50,000 $-0- $ -0- $ -0- $ -0- $ -0- $ -0-
1997 $50,000(1) $-0- $ -0- $ -0- $ -0- $ -0- $ -0-
1996 $50,000 $-0- $ -0- $ -0- $ -0- $ -0- $ -0-
Alan Novich, Chairman 1997 $56,000 $-0- $ -0- -0- $ -0- $ -0- $ -0-
1997 $225,000 $100,000 $ -0- -0- $ -0- $ -0- $ -0-
1996 $225,000 $125,000 $ -0- -0- $ -0- $ -0- $ -0-
</TABLE>
(1) During the year ended November 30, 1997, Mr. Spinello's compensation
was covered under the Sales and Management Agreement with PDK Labs
Inc. Mr. Spinello devotes approximately 15 hours per week to the
Company's business.
Aggregated Option/SAR Exercises -
---------------------------------
and FY-End Option/SAR Values
----------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(a) (b) (c) (d) (e)
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options/SARs at Options/SARs at
FY-End (#) FY-End (#)
Shares Acquired Exercisable/ Exercisable/
Name on Exercise (#) Value Realized($) Unexercisable Unexercisable
- ---- --------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Alan Novich,
Chairman -0- -0- 41,668/-0- -0-
</TABLE>
In April 1996, the Company amended its five year employment agreement with
its former chairman of the board providing for annual compensation of $225,000
plus benefits, commencing on the effective date of the initial public offering.
Additionally, this individual was granted options to purchase 41,668 shares of
the Company's common stock. The options have an exercise price of $15.00 and
are exercisable at any time through March 1999. On February
17
<PAGE>
26, 1998, the Company terminated Mr. Novich's employment agreement and ceased
making payments under the agreement.
Employment Agreements
- ---------------------
The Company had an employment agreement with its former Chairman of the
Board, Alan Novich, pursuant to which Mr. Novich receives an annual salary of
$225,000, a monthly automobile allowance, and was granted options to purchase
41,668 shares of the Company's common stock at a price of $15.00 per share. On
February 26, 1998, the Company ceased making payments under Mr. Novich's
employment agreement.
Stock Option Plans
- ------------------
Incentive Option and Stock Appreciation Rights Plan -- The Directors of
the Company have adopted and the stockholders of the Company have approved the
adoption of the Company's 1994 Incentive Stock Option and Stock Appreciation
Rights Plan ("Incentive Option Plan"). The purpose of the Incentive Option Plan
is to enable the Company to encourage key employees and Directors to contribute
to the success of the Company by granting such employees and Directors
incentive stock options ("ISOs"), as well as non-qualified options and stock
appreciation rights ("SARs").
The Incentive Option Plan will be administered by the Board of Directors
or a committee appointed by the Board of Directors (the "Committee") which will
determine, in its discretion, among other things, the recipients of grants,
whether a grant will consist of ISOs, non-qualified options or SARs (in tandem
with an option or freestanding) or a combination thereof, and the number of
shares to be subject to such options and SARs.
The Incentive Option Plan provides for the granting of ISOs to purchase
Common Stock at an exercise price to be determined by the Board of Directors or
the Committee not less than the fair market value of the Common Stock on the
date the option is granted. Non-qualified options and freestanding SARs may be
granted with any exercise price. SARs granted in tandem with an option have the
same exercise price as the related option.
The total number of shares with respect to which options and SARs may be
granted under the Incentive Option Plan is 41,668. ISO's may not be granted to
an individual to the extent that in the calendar year in which such ISO's first
become exercisable the shares subject to such ISOs have a fair market value on
the date of grant in excess of $100,000. No option or SAR may be granted under
the Incentive Option Plan after March 14, 2004 and no option or SAR may be
outstanding for more than ten years after its grant. Additionally, no option or
SAR can be granted for more than five (5) years to a shareholder owning 10% or
more of the Company's outstanding Common Stock.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock,
or in a combination of both. The Company may lend to the holder of an option
funds sufficient to pay the exercise price, subject to certain limitations.
SARs may be settled, in the Board of Directors' discretion, in cash, Common
Stock, or in a combination of cash and Common Stock. The exercise of SARs
cancels
18
<PAGE>
the corresponding number of shares subject to the related option, if
any, and the exercise of an option cancels any associated SARs. Subject to
certain exceptions, options and SARs may be exercised any time up to three
months after termination of the holder's employment.
The Incentive Option Plan may be terminated or amended at any time by the
Board of Directors, except that, without stockholder approval, the Incentive
Option Plan may not be amended to increase the number of shares subject to the
Incentive Option Plan, change the class of persons eligible to receive options
or SARs under the Incentive Option Plan or materially increase the benefits of
participants.
To date no options or SARs have been granted under the Incentive Option
Plan. No determinations have been made regarding the persons to whom options or
SARs will be granted in the future, the number of shares which will be subject
to such options or SARs or the exercise prices to be fixed with respect to any
option or SAR.
Non-Qualified Option Plan -- The Directors and stockholders of the Company
adopted the 1994 Non-Qualified Stock Option Plan (the "Non-Qualified Option
Plan"). The purpose of the Non-Qualified Option Plan is to enable the Company
to encourage key employees, Directors, consultants, distributors, professionals
and independent contractors to contribute to the success of the Company by
granting such employees, Directors, consultants, distributors, professionals
and independent contractors non-qualified options. The Non-Qualified Option
Plan will be administered by the Board of Directors or the Committee in the
same manner as the Incentive Option Plan.
The Non-Qualified Option Plan provides for the granting of non-qualified
options at such exercise price as may be determined by the Board of Directors,
in its discretion. The total number of shares with respect to which options may
be granted under the Non-Qualified Option Plan is 333,333.
Upon the exercise of an option, the holder must make payment of the full
exercise price. Such payment may be made in cash or in shares of Common Stock
(based on the fair market value of the Common Stock on the date prior to
exercise), or in a combination of both. The Company may lend to the holder of
an option funds sufficient to pay the exercise price, subject to certain
limitations. Subject to certain exceptions, options may be exercised any time
up to three months after termination of the holder's employment.
The Non-Qualified Option Plan may be terminated or amended at any time by
the Board of Directors, except that, without stockholder approval, the
Non-Qualified Option Plan may not be amended to increase the number of shares
subject to the Non-Qualified Option Plan, change the class of persons eligible
to receive options under the Non-Qualified Option Plan or materially increase
the benefits of participants.
19
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------
The following table sets forth certain information, as of February 19,
1999 with respect to the beneficial ownership of the outstanding Common Stock
by (i) any holder of more than five (5%) percent; (ii) each of the Company's
officers and directors; and (iii) the directors and officers of the Company as
a group:
Amount
and Nature Approximate
Name and Address Beneficial Percent of
of Beneficial Owner Ownership Class
- ------------------- ---------- -----------
PDK Labs, Inc.(2) 700,000 51.9%
Reginald Spinello (3) 0 0
Thomas Keith (3) 0 0
Lawrence Simon (3) 0 0
Karine Hollander (3) 0 0
Theresa Giove (3) 0 0
Directors and Officers 0 0
as a Group (5 persons)
(1) Beneficial ownership as reported in the table above has been determined in
accordance with Instruction (4) to Item 403 of Regulation S-B of the Securities
Exchange Act.
(2) Does not include 8,335,000 shares of Preferred Stock held by PDK Labs Inc.
Each share of Preferred Stock has one-tenth of a vote.
(3) The address for all listed beneficial owners is 145 Ricefield Lane,
Hauppauge, New York 11788.
20
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
PDK provides the Company with certain management services, including
bookkeeping, order processing, computer services and shipping and further
provides all of the products marketed by the Company pursuant to a Sales and
Management Agreement between the Company and PDK, as amended. In 1998, the
Company paid $143,000 to PDK for management and administrative services. The
Company pays PDK its costs for the Products, which is defined as actual
material costs, plus an amount representing PDK's actual direct labor costs
plus factory overhead, as determined in accordance with generally accepted
accounting principles. During fiscal year 1998, the Company paid $7,540,000 to
PDK for these products.
In August 1997, as amended on August 13, 1998, the Company and its parent
entered into credit facilities with a bank which provide for borrowings under a
revolving credit agreement (the "Revolving Agreement") and a term loan (the
"Term Agreement"). The Revolving Agreement, as amended, which expires in
September 2000, provides for aggregate borrowings of up to $10,000,000 with a
sublimit of $4,000,000 for the Company. Borrowings under the Revolving
Agreement bear interest at the bank's prime rate or Eurodollar rate plus 1.75%,
at the Company's option. The Term Agreement provides for aggregate borrowings
of up to $8,500,000 for the Company and its parent on a combined basis.
The Company and its parent are jointly and severally liable for the unpaid
balance of the credit facilities. Borrowings are secured by the assets of the
Company and its parent. The credit facilities contain various covenants
pertaining to the maintenance of certain financial ratio restrictions,
limitations on dividends, and restrictions on borrowings. During fiscal year
1998, the Company did not make any debt payments on behalf of PDK.
General
- -------
The Company believes that material affiliated transactions between the
Company and its directors, officers, principal shareholders or any affiliates
thereof have been and will be in the future on terms no less favorable than
could be obtained from unaffiliated third parties.
21
<PAGE>
PART IV
-------
Item 14. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a)(1) Financial Statements.
The following financial statements are included in Part II, Item 8:
Report of Independent Certified Public Accountants F-1
Balance sheets as of November 30, 1998 and 1997 F-2
Statements of operations for the three years ended
November 30, 1998 F-3
Statement of stockholders' equity for the three years ended
November 30, 1998 F-4
Statements of cash flows for the three years ended
November 30, 1998 F-5
Notes to financial statements F-6 - F-13
(a)(2) Financial Statement Schedules.
22
<PAGE>
Schedules not listed above are omitted because of the absence of the conditions
under which they are required or because the required information is included
in the financial statements or notes thereto.
(a)(3) Exhibits.
3.01* Certificate of Incorporation of the Company.
3.02* By-Laws of the Company.
3.03* Amendment to Certificate of Incorporation.
4.01* Specimen Certificate for shares of Common Stock.
4.02* Specimen Certificate for Class A Redeemable Common Stock
Purchase Warrant.
4.03* Form of Warrant Agreement by and among the Company, the
Underwriter and Continental Stock Transfer & Trust Company.
4.04* Form of Underwriter's Unit Purchase Option.
10.01* Employment Agreement between the Company and Alan Novich.
10.02* Form of Sales and Management Agreement between PDK Labs Inc.
and the Company
10.03* 1994 Incentive Stock Option and Stock Appreciation Rights
Plan.
10.04* 1994 Non-Qualified Stock Option Plan.
10.05* Sales and Management Agreement by and between PDK Labs Inc.
and the Company.
10.06* Form of Consulting Agreement with Underwriter.
10.07* Revolving Credit Agreement between PDK Labs Inc. and
Manufacturers Hanover Trust Company, dated February 25, 1992
10.08* Security Agreement between PDK Labs Inc. and Manufacturers
Hanover Trust Company, dated February 25, 1992
23
<PAGE>
10.09* Short Form Term Loan Agreement among PDK Labs Inc. and
Chemical Bank, dated November 30, 1992
10.10** Amendment of Sales and Management between PDK Labs Inc. and
the Company dated December 8, 1994
10.11** Consulting Agreement by and between the Company and Lidco,
Ltd. dated January 3, 1995
10.12** Consulting Agreement by and between the Company and K.A.M.
Group dated January 3, 1995
10.13*** Amendment No. 1 to Employment Agreement between Alan Novich
and the Company dated as of December 1, 1995.
10.14*** Revolving Credit Agreement between PDK Labs Inc.,
Futurebiotics, Inc., PDI Labs Inc., and The Chase Manhattan
Bank dated September 25, 1996.
10.15*** First Amendment and Waiver to Revolving Credit Agreement
between PDK Labs Inc., Futurebiotics, Inc., PDI Labs Inc.,
and The Chase Manhattan Bank dated February 26, 1997.
10.16++++ Credit Agreement by and among PDK Labs Inc., Futurebiotics,
Inc. and European American Bank dated as of August 20, 1997
and certain material exhibits thereto.
10.17++++ Assignment and Assumption Agreement by and among PDK Labs
Inc., Futurebiotics, Inc. and Bank Leumi USA dated January
16, 1998.
10.18++++ Assignment and Assumption Agreement by and among PDK Labs
Inc., Futurebiotics, Inc. and National Bank of Canada dated
January 16, 1998.
10.19++++ First Amendment and Waiver to Credit Agreement by and among
PDK Labs Inc., Futurebiotics, Inc., European American Bank,
Bank Leumi USA and National Bank of Canada dated as of
February 18, 1998.
10.20**** Asset Purchase Agreement dated as of March 3, 1999 by and
among FB Acquisition Corp., Nutraceutical International
Corporation, Futurebiotics, Inc and PDK Labs Inc.
10.21 Second Amendment to Credit Agreement by and among PDK Labs
Inc., Futurebiotics, Inc. and European American Bank dated as
of August 13, 1998.
10.22 Asset Purchase Agreement by and among Futurebiotics, Inc. and
Superior Supplements, Inc. dated November 19, 1998.
21.7 Financial Data Schedule
24
<PAGE>
* Incorporated by Reference to the Company's Registration Statement on
Form SB-2, No. 33-78022
** Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1994.
*** Incorporated by Reference to the Company's Form 10-KSB for the year
ended November 30, 1996.
++++ Incorporated by Reference to the Company's Form 10-K for the year
ended November 30, 1998.
**** Incorporated by Reference to the Company's Form 8-K dated March 10,
1999.
(B) Reports on Form 8-K.
None.
25
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 of 15(d) 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.
Dated: New York, New York
June 4, 1999
FUTUREBIOTICS, INC.
By: /s/ Reginald Spinello
-----------------------------------------
President and Chief Executive Officer
By: /s/ Karine Hollander
-----------------------------------------
Chief Financial Officer and Prinipal
Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Registration Statement or Amendments thereto has been signed below by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Reginald Spinello President, Chief June 4, 1999
- -------------------------------- Executive Officer
Reginald Spinello and Director
/s/ Theresa Giove Director June 4, 1999
- -------------------------------
Theresa Giove
/s/ Thomas Keith Director June 4, 1999
- --------------------------------
Thomas Keith
/s/ Lawrence D. Simon Director June 4, 1999
- --------------------------------
Lawrence De. Simon
/s/ Karine Hollander Director June 4, 1999
- --------------------------------
Karine Hollander
</TABLE>
26
