<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
COMMISSION FILE NUMBER 000-24693
NUTRACEUTIX, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 91-1689591
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
8340 - 154TH AVENUE NORTHEAST
REDMOND, WASHINGTON 98052
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
(425) 883-9518
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Number of shares of issuer's common stock outstanding as of August 1, 2000:
17,649,777
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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NUTRACEUTIX, INC.
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements 1
Balance Sheets at June 30, 2000 (unaudited) and
December 31, 1999 1
Statements of Operations for the three and six month periods
ended June 30, 2000 and June 30, 1999 (unaudited) 2
Statements of Cash Flows for the six month period ended
June 30, 2000 and June 30, 1999 (unaudited) 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
or Plan of Operation 5
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
</TABLE>
i
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Nutraceutix, Inc.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 30, 2000 December 31,
(unaudited) 1999
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 126,440 $ 149,321
Accounts receivable - net 1,053,541 936,627
Inventories 1,582,035 1,746,474
Prepaid expenses 202,881 112,021
------------ ------------
Total current assets 2,964,897 2,944,443
EQUIPMENT AND FURNITURE - net 1,776,348 1,461,324
OTHER ASSETS - net 759,687 795,019
------------ ------------
$ 5,500,932 $ 5,200,786
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit $ 999,500 $ 839,500
Current maturities of long-term obligations 271,390 203,998
Current maturities of capital lease obligations 217,938 217,394
Accounts payable - trade 694,111 550,900
Accounts payable - MET-Rx 606,768 662,841
Accrued liabilities 88,753 84,952
Deferred revenue 2,500 15,461
------------ ------------
Total current liabilities 2,880,960 2,575,046
LONG-TERM OBLIGATIONS, less current maturities 561,255 533,730
CAPITAL LEASE OBLIGATIONS, less current maturities 550,495 248,148
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Preferred stock authorized, 5,000,000 shares
$.01 par value $ -- $ --
Common stock authorized, 30,000,000 shares
$.001 par value 17,520 17,489
Additional contributed capital 11,733,224 11,725,754
Accumulated deficit (10,242,522) (9,899,381)
------------ ------------
Total stockholders' equity 1,508,222 1,843,862
------------ ------------
$ 5,500,932 $ 5,200,786
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
1
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Nutraceutix, Inc.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------------------ ------------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 1,934,864 $ 2,732,508 $ 4,003,471 $ 4,322,441
Cost of revenues 1,473,855 2,017,510 3,004,385 3,161,212
----------- ----------- ----------- -----------
Gross profit 461,009 714,998 999,086 1,161,229
Operating Expenses
Selling and marketing 126,530 217,434 272,898 422,242
Research and development 69,459 82,024 149,595 167,892
General and administrative 490,772 331,559 835,250 707,950
----------- ----------- ----------- -----------
686,761 631,017 1,257,743 1,298,084
----------- ----------- ----------- -----------
Operating profit (loss) (225,752) 83,981 (258,657) (136,855)
Other income (expense)
Interest expense (80,832) (54,945) (146,060) (105,615)
Other 3,151 15,132 61,576 (36,021)
----------- ----------- ----------- -----------
(77,681) (39,813) (84,484) (141,636)
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) $ (303,433) $ 44,168 $ (343,141) $ (278,491)
=========== =========== =========== ===========
Net earnings (loss) per share $ (0.017) $ 0.003 $ (0.020) $ (0.016)
=========== =========== =========== ===========
Net earnings (loss) per share
assuming dilution $ (0.017) $ 0.002 $ (0.020) $ (0.016)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
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Nutraceutix, Inc.
STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30
--------------------------
Increase (Decrease) in Cash 2000 1999
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(343,141) $ (278,491)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Depreciation and amortization 204,665 184,072
Write-off of start-up costs -- 50,266
Changes in assets and liabilities
Accounts receivable (116,914) (340,256)
Inventories 164,439 (1,312,810)
Prepaid expenses (90,860) 9,754
Accounts payable 87,138 1,398,676
Accrued liabilities and deferred revenue (9,159) (28,719)
--------- -----------
Net cash used in operating activities (103,832) (260,070)
--------- -----------
Cash flows from investing activities:
Purchase of equipment and furniture (28,993) (66,348)
Patent and technology rights expenditures (36,840) (35,649)
--------- -----------
Net cash used in investing activities (65,833) (101,997)
--------- -----------
Cash flows from financing activities:
Payments on long-term obligations and
capital lease obligations (247,452) (163,600)
Proceeds from long-term obligations 226,736 89,700
Net proceeds on line of credit 160,000 473,000
Net proceeds from issuance of common stock 7,500 62,500
--------- -----------
Net cash provided by financing activities 146,784 461,600
--------- -----------
Net increase (decrease) in cash (22,881) 99,533
--------- -----------
Cash at beginning of period 149,321 93,440
--------- -----------
Cash at end of period $ 126,440 $ 192,973
--------- -----------
Cash paid during the year for interest: $ 146,060 $ 105,615
--------- -----------
Noncash investing and financing activities:
Purchase of equipment under capital lease obligations $ 418,524 $ 50,680
--------- -----------
Issuance of common stock for subscription receivable $ -- $ 156,250
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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NUTRACEUTIX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. FINANCIAL STATEMENTS
The unaudited financial statements of Nutraceutix, Inc. (the Company) have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the entire fiscal year ending
December 31, 2000. The accompanying unaudited financial statements and related
notes should be read in conjunction with the audited financial statements and
the Form 10-KSB of the Company, for its fiscal year ended December 31, 1999.
NOTE 2. INVENTORIES
Inventories are stated at the lower of cost or market; cost is determined by the
first-in, first-out method. Inventories consist of the following:
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(unaudited) 1999
----------- ------------
<S> <C> <C>
Raw materials $1,121,811 $1,122,128
Work in progress 387,491 589,720
Finished goods 72,733 34,626
---------- ----------
$1,582,035 $1,746,474
========== ==========
</TABLE>
NOTE 3. NET EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share are based on the weighted average number of
shares outstanding during each quarter. The weighted average shares for
computing the Company's basic earnings (loss) per share were 17,498,933 and
17,489,812 for the three months ended June 30, 2000 and 1999, respectively, and
17,494,423 and 17,201,618 for the six months ended June 30, 2000 and 1999,
respectively. Common stock equivalent shares for the three months ended June 30,
2000 and six months ended June 30, 2000 and 1999 were not included in the
calculation of diluted earnings (loss) per share as their inclusion would be
anti-dilutive.
4
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
OPERATION
The following discussion and analysis should be read in conjunction with
the financial statements, including the notes thereto, appearing in this Form
10-QSB and in the Company's 1999 annual report on Form 10-KSB.
Except for the historical information contained herein, the matters
discussed in this quarterly report contain forward-looking statements that are
based on Management's beliefs and assumptions, current expectations, estimates,
and projections. Statements that are not historical facts, including without
limitation, statements which are preceded by, followed by or include the words
"believes", "anticipates," "plans," "expects," "may," "should," or similar
expressions, are forward-looking statements. Many of the factors that will
determine the Company's future results are beyond the ability of the Company to
control or predict. These statements are subject to risks and uncertainties and,
therefore, actual results may differ materially.
The Company disclaims any obligation to update any forward-looking
statements whether as a result of the new information, future events or
otherwise.
Important factors that may affect future results include, but are not
limited to: the impact of competitive products and pricing, product development,
changes in law and regulations, customer demand, litigation, availability of
future financing and uncertainty of market acceptance of new products.
A more detailed discussion of these factors is presented in the Company's
1999 annual report on Form 10-KSB under the heading "Outlook - Issues and
Uncertainties."
NET REVENUES
Net revenues decreased 29% or $797,644 to $1,934,864 for the quarter ended
June 30, 2000 from net revenues of $2,732,508 for the quarter ended June 30,
1999 and decreased 7% or $318,970 to $4,003,471 for the six months ended June
30, 2000 from net revenues of $4,322,441 for the six months ended June 30, 1999.
These decreases in revenue resulted from lower sales of Private Label
Manufacturing of non-proprietary Met-Rx USA products and diminishing sales of
COBACTIN microbial feed additive products. The decreases were offset by
increased sales of proprietary technology products and MICRO-CELL fermentation
products. An analysis of the profit centers is outlined below.
RESULTS OF REVENUE GENERATING PROFIT CENTERS
The Company operates four primary revenue-generating profit centers:
1. Proprietary Technology -- The Company's proprietary technologies
include Calcium d-glucarate, LIVEBAC caplets, Controlled Delivery Technology
(CDT) and Molecular Dispersion Technology (MDT). Revenues are realized from the
sales of glucarate as a raw material to other manufacturers for incorporation
into sublicensed customer's private label products, manufacturing by the Company
for sublicensed customer's private label products containing Calcium
d-glucarate, sales of LIVEBAC caplets and manufacture of health
5
<PAGE> 8
supplements incorporating CDT control delivery technology and MDT molecular
dispersion technology.
2. Private Label Manufacturing of Health Supplements -- In Lafayette,
Colorado, the Company manufactures health supplements for private label
customers. Revenues are realized from bottling, labeling and manufacture of
tablets, capsules, herbal pre-blends and health supplement pre-blends for
inclusion into food products and bulk-packaged products.
3. Fermentation -- The Company manufactures and realizes revenues from
the sale of viable (live) freeze dried bacteria for companies on a private label
and OEM basis at its fermentation plant located in Redmond, WA.
COBACTIN microbial feed additive -- COBACTIN for feedlot cattle, dairy
cows and poultry is a viable (live) Lactobacillus acidophilus that provides a
stable blend of lactic acid bacteria on a daily basis. Revenues are realized
from the sale of COBACTIN brand proprietary products and royalties resulting
from the microbial feed additive alliance with Biotal, Inc.
PROPRIETARY TECHNOLOGY
Revenues from proprietary technology increased 2% or $14,798 to $986,065
for the quarter ended June 30, 2000 from revenues of $971,267 for the quarter
ended June 30, 1999 and increased 75% or $999,983 to $2,328,484 for the six
months ended June 30, 2000 from revenues of $1,328,501 for the six months ended
June 30, 1999.
Calcium d-glucarate sales increased 14% or $33,370 to $273,531 for the
quarter ended June 30, 2000 compared to $240,161 for the quarter ended June 30,
1999 and increased 57% or $188,832 to $517,664 for the six months ended June 30,
2000 compared to $328,832 for the six months ended June 30, 1999. Both increases
were attributed to the addition of 14 new licensees all of whom purchased
product since December 31, 1999.
LIVEBAC sales increased 42% or $149,546 to $509,515 for the quarter ended
June 30, 2000 compared to $359,969 for the quarter ended June 30, 1999 and
increased 78% or $490,055 to $1,116,422 for the six months ended June 30, 2000
compared to $626,367 for the six months ended June 30, 1999. The continued
upsurge in sales of the LIVEBAC technology reflects the addition of new
customers and added sales to Rexall Sundown.
CDT/MDT technology sales declined 45% or $168,118 to $203,019 for the
quarter ended June 30, 2000 compared to $371,137 for the quarter ended June 30,
1999. CDT/MDT technology sales increased 86% or $321,096 to $694,398 for the six
months ended June 30, 2000 compared to $373,302 for the six months ended June
30, 1999. In the fourth quarter, 1999, Met-Rx USA was acquired by Rexall Sundown
and in turn, Rexall Sundown was itself acquired by Royal Numico during the first
quarter, 2000. During the quarter ending June 30, 2000, Rexall Sundown cancelled
in-house orders for products containing androstiene in response to the current
Food and Drug Administration review of the regulations surrounding the sale of
these products. Cancellation of the androstiene orders brought about the lowest
quarterly sales of CDT/MDT technology products since the first quarter of 1999.
Management does not expect significant future sales of these androstiene
products to Met-Rx USA/Rexall Sundown.
6
<PAGE> 9
PRIVATE LABEL MANUFACTURING OF HEALTH SUPPLEMENTS
Sales of private label manufacturing of health supplements decreased 74%
or $761,050 to $266,748 for the quarter ended June 30, 2000 compared to
$1,027,798 for the quarter ended June 30, 1999 and decreased 75% or $1,263,678
to $423,523 for the six months ended June 30, 2000 compared to $1,687,201 for
the six months ended June 30, 1999. The decreases were primarily due to the
sales of non-proprietary products to MET-Rx USA totaling $767,822 for the
quarter ended June 30, 1999 and $1,180,176 for the six months ended June 30,
1999 of which $739,847 and $1,036,639, respectively, were powder fill products
produced as an interim service for MET-Rx USA. There have been no sales in the
powder fill business during the current six months ended and the Company does
not expect further sales for the remainder of the year.
FERMENTATION
Sales of fermentation products increased 66% or $231,773 to $582,025 for
the quarter ended June 30, 2000 compared to $350,252 for the quarter ended June
30, 1999 and increased 62% or $376,889 to $987,490 for the six months ended June
30, 2000 compared to $610,601 for the six months ended June 30, 1999. The
increase in sales is credited to the addition of new customers, increased sales
to existing customers and the alliance with Biotal, Inc. for the manufacture of
their MICRO-CELL feed additive product. Per the agreement with Biotal, Inc.,
Nutraceutix expects to realize an increase in fermentation sales and a
corresponding decrease in COBACTIN feed additive sales. The Company also
realized reduced marketing and sales costs for COBACTIN products.
COBACTIN
The Company's sales of COBACTIN microbial feed additives decreased 74% or
$283,165 to $100,026 for the quarter ended June 30, 2000 compared to $383,191
for the quarter ended June 30, 1999 and decreased 62% or $432,164 to $263,974
for the six months ended June 30, 2000 compared to $696,138 for the six months
ended June 30, 1999. These diminishing results reflect the September 1, 1999
agreement with Biotal, Inc. that reduced the sales price of COBACTIN feed
additive, and correspondingly decreased sales and marketing expenses, and
increased sales of fermentation products through the manufacture of MICRO-CELL
feed additive product for Biotal, Inc. Sales are also lower due to the fact that
Biotal, Inc. is converting the COBACTIN customers to the MICRO-CELL two-phase
feeding program, which Nutraceutix will manufacture. The Company does not expect
any significant impact as a result of the conversion.
GROSS PROFIT
Gross profit decreased 36% or $253,989 to $461,009 for the quarter ended
June 30, 2000 compared to $714,998 for the quarter ended June 30, 1999. Gross
profit decreased 14% or $162,143 to $999,086 for the six months ended June 30,
2000 compared to $1,161,229 for six months ended June 30, 1999. The decline in
gross profit was predominately the effect of lower sales and the winding down of
the MET-Rx USA business.
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SELLING AND MARKETING EXPENSES
Selling and marketing expenses decreased 42% or $90,904 to $126,530 for
the quarter ended June 30, 2000 from $217,434 for the quarter ended June 30,
1999 and decreased 35% or $149,344 to $272,898 for the six months ended June 30,
2000 from $422,242 for the six months ended June 30, 1999. The lower levels of
expenses reflect the September 1, 1999 agreement with Biotal, Inc. which reduced
sales and marketing expenses, decreased the sales price of COBACTIN feed
additive and increased sales of fermentation products through the manufacture of
MICRO-CELL feed additive product for Biotal, Inc.
RESEARCH AND DEVELOPMENT EXPENSES
Research and Development expenses decreased 15% or $12,565 to $69,459 for
the quarter ended June 30, 2000 from $82,024 for the quarter ended June 30, 1999
and decreased 11% or $18,297 to $149,595 for the six months ended June 30, 2000
from $167,892 for the six months ended June 30, 1999. The decrease in expenses
during the six months ended June 30, 2000 reflects the decision of Met-Rx USA
not to proceed with new products originally scheduled for development.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased 48% or $159,213 to $490,772
for the quarter ended June 30, 2000 compared to $331,559 for the quarter ended
June 30, 1999 and increased 18% or $127,300 to $835,250 for the six months ended
June 30, 2000 compared to $707,950 for the six months ended June 30, 1999. The
elevated expenses were principally due to the one time recruitment of the new
CEO/President, David T. Howard and the added payroll expense.
INTEREST EXPENSE
Interest expense increased 47% or $25,887 to $80,832 for the quarter ended
June 30, 2000 compared to $54,945 for the quarter ended June 30, 1999 and
increased 38% or $40,445 to $146,060 for the six months ended June 30, 2000
compared to $105,615 for the six months ended June 30, 1999. The increase was
due to the addition of equipment leases in 1999 and during the first quarter of
2000, as well as an increase in borrowing under the line of credit.
OTHER INCOME
Other income was $3,151 for the quarter ended June 30, 2000 compared to
$15,132 for the quarter ended June 30, 1999 and $61,576 for the six months ended
June 30, 2000 compared to other expense of $36,021 for the six months ended June
30, 1999. The increase for the recent six months ended was due to the
recognition of income from non-operating events and the write-off of certain
liabilities.
NET EARNINGS
The net loss for the quarter ended June 30, 2000 was $303,433 compared to
net earnings of $44,168 for the quarter ended June 30, 1999 and the net loss for
the six months ended June 30,
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2000 was $343,141 compared to the net loss of $278,491 for the six months ended
June 30, 1999. Losses during the first half of 2000 reflect the negative impact
of the diminished Met-Rx USA CDT/MDT androstiene business and their cancellation
of scheduled new product development. The action taken by Met-Rx USA was the
result of possible, future reclassification of products containing androstiene
by the Food and Drug Administration and the decision of Met-Rx USA to
discontinue this business due to regulatory issues.
Management believes that the depressing effects of this decision by Met-Rx
USA/Rexall Sundown have been almost entirely realized by the Company during the
first half of 2000 and; furthermore, management does not expect to do any future
CDT/MDT androstiene business with Met-Rx USA/Rexall Sundown due to regulatory
issues.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital requirements primarily
through borrowing and operations. As of June 30, 2000 the Company had working
capital of $83,936 as compared to working capital of $369,397 at December 31,
1999. The recognized reduction in working capital at June 30, 2000 was the
outcome of the net loss for the six months ended.
The Company's conventional bank line of credit for $1,200,000 was renewed
on May 1, 2000 for a term of twelve months subject to compliance with financial
covenants. As of June 30, 2000, the Company had an available balance of $200,500
for borrowing. The bank line of credit continues to be collateralized by
accounts receivable, inventory and equipment. The Company anticipates that its
working capital needs for the remainder of the year will be met from operations
and available borrowing capacity.
PART II: OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the May 24, 2000 Annual Meeting of Stockholders, the following
proposals were voted on by stockholders:
1. Election of Director
Herbert L. Lucas was elected as a Class 2 director of the Company to a
three-year term, which expires in the year 2003. David Howard, Arthur S.
Pearson, Carl W. Schafer, William D. St. John and Daniel B. Ward continue as
directors of the Company.
Votes for election of Herbert L. Lucas as director:
<TABLE>
<CAPTION>
<S> <C>
For: 13,849,183
Withheld: 154,266
</TABLE>
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2. Amendment to the 1995 Amended Stock Option Plan
The 1995 Amended Stock Option Plan was amended at the Annual Meeting of
Stockholders to increase the aggregate number of shares of the Company's Common
Stock that may be issued thereunder from three million (3,000,000) to four
million (4,000,000) shares.
Votes for amendment to the 1995 Amended Stock Option Plan:
<TABLE>
<CAPTION>
<S> <C>
For: 6,899,649
Against: 524,619
Abstain 126,500
Broker Non-Votes: -0-
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
11.1 Computation of Earnings (Loss) Per Share
27 Financial Data Schedule for the Quarter Ended
June 30, 2000
</TABLE>
(b) Reports on Form 8-K
None.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NUTRACEUTIX, INC.
Date: August 11, 2000. By: /s/ David T. Howard
-------------------------------------
DAVID T. HOWARD
Chief Executive Officer, President,
(Principal Executive Officer)
Date: August 11, 2000. By: /s/ Steven H. Moger
-------------------------------------
STEVEN H. MOGER
Vice President, Operations
(Principal Financial Officer)
11
