SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended December 31, 2002
or
[] 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
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ADVANCED NUTRACEUTICALS, INC.
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 76-0642336
------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
106 South University Blvd., Unit 14
Denver, CO 80209
----------------------------------------
(Address of Principal Executive Offices)
(303) 722-4008
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No []
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.). Yes[] No[X]
As of February 10, 2003 there were 4,992,789 shares of common stock,
$0.01 par value per share, outstanding.
ADVANCED NUTRACEUTICALS, INC.
Index
PART 1 - Financial Information
Page
----
Item 1. Financial Statements
Advanced Nutraceuticals, Inc.
Consolidated Balance Sheets
December 31, 2002 and September 30, 2002 3
Consolidated Statements of Operations and Comprehensive Income
(Loss) For the Three Months Ended December 31, 2002 and 2001 4
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended December 31, 2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Item 4. Controls and Procedures 11
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Certification 11
ADVANCED NUTRACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
2002
------------ September 30,
(Unaudited) 2002
------------ ------------
ASSETS
------
Current Assets:
Cash and cash equivalents $ 1,206,252 $ 793,023
Receivables 4,363,356 4,099,852
Inventories 2,053,759 2,053,268
Notes receivable -- 184,282
Prepaid expenses and other assets 147,836 329,362
------------ ------------
Total Current Assets 7,771,203 7,459,787
Property and equipment, net 9,103,634 9,280,558
Goodwill 7,563,913 7,563,913
Other assets 227,753 230,982
------------ ------------
$ 24,666,503 $ 24,535,240
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Accounts payable $ 2,507,154 $ 2,027,039
Deferred revenue 160,000 --
Accrued expenses and other liabilities 461,369 675,714
Credit facility 2,440,155 2,889,811
Notes payable - related parties 500,000 500,000
Current portion of long-term debt 63,353 113,384
------------ ------------
Total Current Liabilities 6,132,031 6,205,948
Long-term debt 2,391,541 2,403,695
------------ ------------
Total Liabilities 8,523,572 8,609,643
------------ ------------
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock, $.001 par value; 1,000,000 authorized; none outstanding -- --
Common stock; $.01 par value; 20,000,000 shares authorized 49,928 49,928
Additional paid-in capital 20,322,048 20,322,048
Retained deficit (4,229,045) (4,446,379)
------------ ------------
Total Stockholders' Equity 16,142,931 15,925,597
------------ ------------
$ 24,666,503 $ 24,535,240
============ ============
See accompanying notes to condensed consolidated financial statements.
3
ADVANCED NUTRACEUTICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(Unaudited)
Three Months
Ended December 31,
2002 2001
----------- -----------
Net sales $ 6,637,736 $ 5,147,150
Cost of sales 4,364,756 3,461,740
----------- -----------
Gross profit 2,272,980 1,685,410
General and administrative expenses 1,894,703 1,591,112
----------- -----------
Operating income 378,277 94,298
----------- -----------
Other income (expense):
Interest expense, net (167,701) (168,035)
Other, net 6,758 478
----------- -----------
(160,943) (167,556)
----------- -----------
Income (loss) from operations before income tax
expense 217,334 (73,259)
Income tax expense 0 0
----------- -----------
Net income (loss) 217,334 (73,259)
Other comprehensive income 0 0
----------- -----------
Total comprehensive income (loss) $ 217,334 $ (73,259)
=========== ===========
Basic and Diluted income (loss) per common share:
Net income (loss) $ 0.04 $ (0.04)
=========== ===========
Weighted average common shares outstanding-
Basic 4,992,789 2,068,646
=========== ===========
Diluted 5,178,086 2,068,646
=========== ===========
See accompanying notes to condensed consolidated financial statements.
4
ADVANCED NUTRACEUTICALS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months
Ended December 31,
2002 2001
----------- -----------
Net cash provided by (used in) operating activities $ 748,629 $ (520,427)
Net cash provided by (used in) investing activities 170,034 (78,422)
Net cash provided by (used in) financing activities (505,434) 210,869
----------- -----------
Net increase (decrease) in cash and cash equivalents 413,229 (387,980)
Cash and cash equivalents at beginning of period 793,023 781,847
----------- -----------
Cash and cash equivalents at end of period $ 1,206,252 $ 393,867
----------- -----------
See accompanying notes to condensed consolidated financial statements
5
ADVANCED NUTRACEUTICALS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements of
Advanced Nutraceuticals, Inc., and subsidiaries (the "Company" or "ANI") have
been prepared in accordance with the instructions to quarterly reports on Form
10-Q. In the opinion of Management, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and changes in financial position at December 31, 2002,
and for all periods presented have been made. Certain information and footnote
data necessary for fair presentation of financial position and results of
operations in conformity with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is therefore
suggested that these financial statements be read in conjunction with the
summary of significant accounting policies and notes to financial statements
included in the Company's Annual Report on Form 10-K. The results of operations
for the period ended December 31, 2002 are not necessarily an indication of
operating results for the full year.
NOTE 1--INDUSTRY SEGMENTS AND MAJOR CUSTOMERS
Segments
The Company's business segments are divided into distinct manufacturing areas in
two geographic locations. Bactolac Pharmaceutical Inc. ("Bactolac"), is a
private label contract manufacturer of vitamins and supplements located in
Hauppauge, New York. ANI Pharmaceuticals, Inc. ("ANIP") is a contract and
private label manufacturer of over-the-counter liquid and powder pharmaceutical
products, primarily liquid stomach remedies, located in Gulfport, Mississippi.
The Company determines its segment results consistent with its management
reporting and consolidated accounting policies. Selected financial information
from the Company's business segments is as follows (ooo's):
Vitamins and Pharmaceutical Corporate \
Supplements Products Overhead Totals
------------ -------------- ----------- --------
Three months ended December 31, 2002:
Net sales $ 3,081 $ 3,557 $ -- $ 6,638
Gross profit 1,219 1,054 -- 2,273
General and administrative
expenses 534 1,166 195 1,895
Operating income (loss) from
continuing operations 685 (112) (195) 378
Other expense, primarily interest 29 128 4 161
Income (loss) from
operations before taxes 656 (240) (199) 217
Capital expenditures 12 2 -- 14
Depreciation and amortization 53 138 1 192
Identifiable assets 11,540 11,588 1,539 24,667
Three months ended December 31, 2001:
Net sales $ 3,073 $ 2,074 $ -- $ 5,147
Gross profit 1,028 657 -- 1,685
General and administrative
expenses 431 944 216 1,591
Operating income (loss) from
operations 597 (287) (216) (94)
Other expense, primarily interest 24 123 20 167
Income (loss) from
operations before taxes 573 (410) (236) (73)
Capital expenditures 56 23 -- 79
Depreciation and amortization 50 135 -- 185
Identifiable assets 11,427 12,659 2,296 26,382
6
Major Customers
Other than as detailed under export sales, the Company's revenues are
generated from customers located in the United States. The following represents
customers comprising more than 10% of the Company's net sales from continuing
operations for the three-month period ending December 31:
Customer 2002 2001
-------- ---- ----
A 5.1% 13.0%
B 19.5% 11.8%
Export Sales
Export sales were approximately $510,000 and $355,000 for the three months
ended December 31, 2002 and 2001. The Company has no foreign assets.
NOTE 2 - DEBT AGREEMENTS
The Company has received extensions to April 1, 2003, of its Loan and
Security Agreement (the "Agreement" or "Credit Facility") with General Electric
Capital Corporation ("GECC"). GECC previously notified the Company that it was
closing the office that services the Company and decided, due to the smaller
size of the Company's average outstanding loan balances, not to pursue a
continuing loan arrangement with ANI. The Company is currently under-going due
diligence by a prospective lender to replace GECC, and management of the Company
currently anticipates that a new lending agreement will be finalized prior to
April 1, 2003. If the Company is not successful in refinancing this obligation,
the financial position and liquidity of the Company could be adversely affected.
NOTE 3 - INCOME TAXES
No income tax expense was recorded on the income for the three months ended
December 31, 2002, due to the net operating loss carry forwards available to the
Company that have been previously reserved. No income tax benefit was recorded
on the loss for the three months ended December 31, 2001, as management of the
Company was unable to determine that it was more likely than not that such
benefit would be realized.
NOTE 4 - STOCK BASED COMPENSATION AND EARNINGS PER SHARE
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related Interpretations in accounting for its stock-based
employee compensation plans. The following table illustrates the effect on net
income (loss) and income (loss) per share if the Company had applied the fair
value recognition provisions of FASB Statement No. 123, Accounting for
Stock-Based Compensation to its stock-based employee plans.
Period ended December 31,
2002 2001
--------- ---------
Net income (loss), as reported $ 217,334 $ (73,259)
Deduct: Total stock-based employee compen-
sation expense determined under fair value
based method for awards granted, modified
or settled, net of related tax effects (49,000) (103,000)
--------- ---------
Pro forma net income (loss) $ 168,334 $(176,259)
========= =========
Earnings (loss) per share:
Basic and diluted - as reported $ 0.04 $ (0.04)
========= =========
Basic and diluted - pro forma $ 0.03 $ (0.09)
========= =========
7
Diluted earnings per share for the period ended December 31, 2002, includes the
dilutive effect of the outstanding options and warrants for the period.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's operations are conducted through two operating subsidiaries;
Bactolac Pharmaceutical Inc. ("Bactolac"), a contract manufacturer of
nutritional supplements, and ANI Pharmaceuticals, Inc. ("ANIP"), a contract
manufacturer of pharmaceutical products.
Net sales for the 2002 period increased $1,491,000 or 29% over the 2001
period. The increase was primarily attributable to a $1,480,000 increase in the
sales at ANIP. The ANIP increase consisted of an increase in sales to expanded
private label customers such as Rite Aid, K-Mart, Dollar General, Winn Dixie and
Big Lots stores combined with an expansion in sales to continuing contract
customers.
Gross profit for the 2002 period increased to $2,273,000, a $588,000
increase over the 2001 amount. Gross profit as a percentage of net sales
increased to 34.2% in 2002, as compared to 32.7% in the 2001 period. Gross
profit at Bactolac improved to 39.6% from 33.5% in the 2001 period. The majority
of the improvement resulted from recent additions of customers who are buying
larger quantities of higher priced products. Gross profits at the ANIP operation
decreased to 29.6% from 31.7% in the 2001 period primarily due to a change in
the product mix.
Total operating expenses increased to $1,895,000 in 2002, from $1,591,000,
in 2001. This represents an increase of $304,000, or 16%. The majority of the
increase relates to additional personnel costs, in addition to higher
administrative costs being incurred for insurance and sales and marketing
expenses and freight expenses incurred primarily in connection with the private
label customers at ANIP.
No income tax expense was recorded on the income for the three months ended
December 31, 2002, due to the net operating loss carry forwards available to the
Company that have been previously reserved. No income tax benefit was recorded
on the loss for the three months ended December 31, 2001, as management of the
Company was unable to determine that it was more likely than not that such
benefit would be realized.
Liquidity and Capital Resources
ANI meets its working capital and capital expenditure requirements,
including funding for debt repayments, mainly through operations and net cash
provided under the Company's revolving line of credit provided through its
secured lender. Based upon recent revenue increases, primarily from new
customers of ANIP, management believes that a more significant portion of its
working capital needs can be met out of cash generated from operating
activities.
At December 31, 2002, the Company had working capital of $1,639,000.
Borrowings under the revolving portion of the secured credit facility totaled
$2,068,000, with additional borrowings available of approximately $662,000, at
that point, based upon accounts receivable and inventory levels. The Company
received a $5.0 million note ("Note") from NFLI, in connection with the June
2001 sale of NFLI. The Company had been receiving quarterly payments on the Note
of $125,000, plus interest. These collections were used by the Company as
collected as working capital. NFLI has not made the December 31, 2002 quarterly
payment and the Company has notified NFLI that NFLI is in default under the
Note. The eventual resolution of the Note is currently unknown. As of September
30, 2002, the Company has provided a reserve of 100% of the remaining
uncollected balance on the Note.
The Company has received extensions to April 1, 2003, of its Loan and
Security Agreement (the "Agreement" or "Credit Facility") with General Electric
Capital Corporation ("GECC"). GECC previously notified the Company that it was
closing the office that services the Company and decided, due to the smaller
size of the Company's average outstanding loan balances, not to pursue a
continuing loan arrangement with ANI. The Company is currently under-going due
diligence by a prospective lender to replace GECC, and management of the Company
currently anticipates that a new lending agreement will be finalized prior to
April 1, 2003. If the Company is not successful in refinancing this obligation,
the financial position and liquidity of the Company could be adversely affected.
In connection with the purchase of Bactolac in 1999, the Company incurred
obligations to Dr. Reddy, the President of Bactolac, of which $500,000 was due
in November 2002. Dr. Reddy has agreed verbally to an extension, and the Company
anticipates paying this obligation with the funds received in the new lending
agreement.
8
Operating Activities
Net cash flows from operating activities generated approximately $749,000
in 2002 and consumed approximately $520,000 in 2001. The net cash flow generated
in 2002, consisted primarily of approximately $480,000 increase in accounts
payable, relating primarily to higher production in the period ended December
31, 2002, and an $180,000 increase in deferred revenue. This was offset by
approximately $278,000 in increases to accounts receivable. In addition, net
earnings of $217,000 combined with depreciation expense of $191,000 contributed
to cash generated.
The net cash flow consumed in 2001, consisted primarily of approximately
$995,000 increase in accounts receivable, relating primarily to higher sales in
the first quarter ended December 31, 2001 offset by approximately $514,000 in
increases to accounts payable and other accrued expenses.
Investing Activities
Investing activities generated approximately $170,000 in 2002. This
consisted of $184,000 collected on the NFLI Note receivable net of $14,000 in
additions to equipment.
Investing activities consumed approximately $78,000 in 2001. The entire
amount was used for additions to equipment.
Financing Activities
Financing activities consumed approximately $505,000 in 2002, primarily in
net repayments under the Company's debt obligations.
Financing activities generated approximately $211,000 in 2001. This
consisted of $243,000 in net borrowings under the Company's credit facility,
less $33,000 in principal payments made on long term debt.
The Company's revolving credit facility provides for borrowings, based upon
outstanding amounts of eligible accounts receivable and allowable inventories.
Additionally, there is a term loan facility with the secured lender that
requires principal payments of $44,000 monthly. Interest on amounts outstanding
under the Agreement is payable monthly based upon the lender's index rate plus
two and one-half percent. The credit facility is secured by substantially all of
the Company's assets. The Agreement contains a number of covenants, which
include among other items; maintenance of specified minimum net worth and fixed
charge ratios, as well as limitations on capital expenditures. As of December
31, 2002, the total balance outstanding under the facility amounted to
$2,068,000. The Company has not been in compliance with certain covenants under
the credit facility and while the lender previously granted the Company waivers
of those defaults on December 26, 2001, ANI has not requested any additional
waivers from its lender. Due to the due date of the loan and the existing
defaults, the entire loan amount has been classified as a current liability on
the Company's balance sheet.
Capital expenditures, primarily for manufacturing and facility improvement
costs for the fiscal year ending September 30, 2003, are anticipated to be
approximately $400,000 to $600,000. It is expected that funding for the capital
additions will be provided out of a new credit facility with a portion funded
out of working capital.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION AND STATEMENTS
Certain statements in Management's Discussion and Analysis of Results of
Operations and Financial Condition and other portions of this report are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, and are subject to the safe harbor created
thereby. These statements relate to future events or the Company's future
financial performance and involve known and unknown risks, uncertainties and
other factors that may cause the actual results, levels of activity, performance
or achievements of the Company or its industry to be materially different from
those expressed or implied by any forward-looking statements. In some cases,
forward-looking statements can be identified by terminology such as "may,"
"will," "could," "would," "should," "expect," "plan," "anticipate," "intend,"
"believe," "estimate," "predict," "potential" or other comparable terminology.
Please see the "Cautionary Note Regarding Forward-Looking Statements" on page 2
of the Company's Form 10-K for the year ended September 30, 2002 for a
discussion of certain important factors that relate to forward-looking
statements contained in this report. Although the Company believes that the
expectations reflected in these forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to be correct. Unless
otherwise required by applicable securities laws, the Company disclaims any
intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
9
Recent Accounting Pronouncements
Accounting for Asset Retirement Obligations - In August 2001, the FASB issued
Statement 143, Accounting for Asset Retirement Obligations (SFAS 143). This
statement requires entities to record a liability for the estimated retirement
and removal costs of assets used in their business. The liability is recorded at
its fair value, with a corresponding asset which is depreciated over the
remaining useful life of the long-lived asset to which the liability relates.
Period expenses will also be recognized for changes in the original value of the
liability as a result of the passage of time and revisions in the undiscounted
cash flows required to satisfy the obligation. The provisions of Statement 143
are effective for fiscal years beginning after June 15, 2002. Adoption of the
new standard did not have a material impact on the Company's consolidated
financial statements.
Accounting for Costs Associated with Exit or Disposal Activities - In July 2002,
the FASB issued Statement 146, Accounting for Costs Associated with Exit or
Disposal Activities. This statement requires entities to recognize costs
associated with exit or disposal activities when liabilities are incurred rather
than when the entity commits to an exit or disposal plan, as currently required.
Examples of costs covered by this guidance include one-time employee termination
benefits, costs to terminate contracts other than capital leases, costs to
consolidate facilities or relocate employees and certain other exit or disposal
activities. This statement is effective for fiscal years beginning after
December 31, 2002, and will impact any exit or disposal activities the Company
initiates after that date.
Accounting for Debt Extinguishments - In April 2002, the FASB issued Statement
145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections (SFAS 145). Among other provisions,
SFAS 145 rescinds FASB Statement 4, Reporting Gains and Losses from
Extinguishment of Debt. Accordingly, gains or losses from extinguishment of debt
should not be reported as extraordinary items unless the extinguishment
qualifies as an extraordinary item under the criteria of Accounting Principles
Board Opinion No. 30, Reporting the Results of Operations--Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions (APB 30). Gains or losses from
extinguishment of debt that do not meet the criteria of APB 30 should be
reclassified to income from continuing operations in all prior periods
presented. Adoption of the new standard did not have a material impact on the
Company's consolidated financial statements.
Stock-Based Employee Compensation - In December 2002, the FASB issued Statement
148 (SFAS 148), Accounting for Stock-Based Compensation -- Transition and
Disclosure -- an Amendment of FASB Statement No. 123, to provide alternative
transition methods for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS 148 amends
the disclosure requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the pro-forma effect on reported results
of applying the fair value based method for entities which use the intrinsic
value method of accounting.. This statement is effective for financial
statements for fiscal years ending after December 15, 2002 and is effective for
financial reports containing condensed financial statements for interim periods
beginning after December 15, 2002 with earlier application permitted. The
Company does not plan a change to the fair-value based method of accounting for
stock-based employee compensation and has included the disclosure requirements
of SFAS 148 in the accompanying financial statements.
Accounting for Guarantees - In December 2002, FASB Interpretation 45,Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others (FIN 45) was issued. FIN 45 requires a
guarantor entity, at the inception of a guarantee covered by the measurement
provisions of the interpretation, to record a liability for the fair value of
the obligation undertaken in issuing the guarantee. The Company previously did
not record a liability when guaranteeing obligations. Interpretation 45 applies
prospectively to guarantees the Company issues or modifies subsequent to
December 31, 2002. The Company has historically not issued guarantees and does
not anticipate FIN 45 will have a material effect on its 2003 financial
statements.
Variable Interest Entities - In January 2003, the FASB issued FASB
Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities. FIN
46 clarifies the application of Accounting Research Bulletin No. 51,
Consolidated Financial Statements, for certain entities which do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties or in which equity
investors do not have the characteristics of a controlling financial interest
("variable interest entities"). Variable interest entities will be required to
be consolidated by their primary beneficiary. The primary beneficiary of a
variable interest entity is determined to be the party that absorbs a majority
of the entity's expected losses, receives a majority of its expected returns, or
both, as a result of holding variable interests, which are ownership,
contractual, or other pecuniary interests in an entity. FIN 46 applies
immediately to variable interest entities created after January 31, 2003, and to
variable interest entities in which an enterprise obtains an interest after that
date. It applies in the first fiscal year or interim period beginning after June
15, 2003, to variable interest entities in which an enterprise holds a variable
interest that it acquired before February 1, 2003. FIN 46 applies to public
enterprises as of the beginning of the applicable interim or annual period. The
Company is in the process of determining what impact, if any, the adoption of
the provisions of FIN 46 will have upon its financial condition or results of
operations.
10
Revenue Recognition - In November 2002, the Emerging Issues Task Force reached a
consensus opinion on EITF 00-21, Revenue Arrangements with Multiple
Deliverables. The consensus provides that revenue arrangements with multiple
deliverables should be divided into separate units of accounting if certain
criteria are met. The consideration for the arrangement should be allocated to
the separate units of accounting based on their relative fair values, with
different provisions if the fair value of all deliverables are not known or if
the fair value is contingent on delivery of specified items or performance
conditions. Applicable revenue recognition criteria should be considered
separately for each separate unit of accounting. EITF 00-21 is effective for
revenue arrangements entered into in fiscal periods beginning after June 15,
2003. Entities may elect to report the change as a cumulative effect adjustment
in accordance with APB Opinion 20, Accounting Changes. The Company has not
determined the effect of adoption of EITF on its financial statements or the
method of adoption it will use.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The Company is exposed to market risks, primarily from changes in interest
rates. The Company is exposed to interest rate changes primarily as a result of
interest expense related to its variable rate line of credit used to finance
working capital. Management believes that a fluctuation in interest rates in the
near future will not have a material impact on the Company's consolidated
financial statements.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer have
reviewed and evaluated the effectiveness of the Company's disclosure controls
and procedures (as defined in the Securities Exchange Act of 1934 Rules
13a-14(c) and 15d-14(c)) as of a date within 90 days of the filing date of this
quarterly report on Form 10-Q (the "Evaluation Date"). Based on their review and
evaluation, the Chief Executive Officer and Chief Financial Officer have
concluded that, as of the Evaluation Date, the Company's disclosure controls and
procedures were adequate and effective to ensure that material information
relating to the Company and its consolidated subsidiaries would be made known to
them by others within those entities in a timely manner, particularly during the
period in which this quarterly report on Form 10-Q was being prepared, and that
no changes are required at this time.
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect the Company's internal controls
subsequent to the Evaluation Date, or any significant deficiencies or material
weaknesses in such internal controls requiring corrective actions. As a result,
no corrective actions were taken.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
On November 6, 2002, the Company filed an 8-K for a news release covering
corporate overview and highlights.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED NUTRACEUTICALS, INC.
(Registrant)
By: /s/ JEFFREY G. MCGONEGAL
---------------------------------------
Jeffrey G. McGonegal
Senior Vice President--Finance and
Chief Financial Officer
Dated: February 14, 2003
11
CERTIFICATION
Each of the undersigned certifies that:
1. I have reviewed this quarterly report on Form 10-Q of Advanced
Nutraceuticals, Inc. (the "Company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of circumstances under which such statements were
made, not misleading with respect to the period covered by this quarterly
report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
Company as of, and for, the periods presented in this quarterly report.
4. The Company's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Company and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the Company, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the Company's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The Company's other certifying officers and I have disclosed, based on
our most recent evaluation, to the Company's auditors and the audit committee of
Company's board of directors (or persons performing the equivalent functions);
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for the
Company's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Company's internal
controls; and
6. The Company's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003 By: /s/ Gregory Pusey
----------------------------
Gregory Pusey
President and Chief Executive Officer
Date: February 14, 2003 By: /s/ Jeffrey G. McGonegal
---------------------------
Jeffrey G. McGonegal
Senior Vice President-Chief Financial Officer
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