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 March 31, 2003
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. [X] Yes [ ]No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.). [ ] Yes [X]No
As of May 9, 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
March 31, 2003 and September 30, 2002 3
Consolidated Statements of Operations For the
Three and Six Months Ended March 31, 2003 and 2002 4
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 10
Item 4. Controls and Procedures 10
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
Certification 12
ADVANCED NUTRACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
March 31,
2003 September 30,
(Unaudited) 2002
------------ ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 714,806 $ 793,023
Receivables 4,501,340 4,099,852
Inventories 2,339,388 2,053,268
Notes receivable -- 184,282
Prepaid expenses and other assets 369,945 329,362
------------ ------------
Total Current Assets 7,925,479 7,459,787
Property and equipment, net 8,518,328 9,280,558
Goodwill 7,563,913 7,563,913
Other assets 445,269 230,982
------------ ------------
$ 24,452,989 $ 24,535,240
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,517,639 $ 2,027,039
Accrued expenses and other liabilities 253,071 675,714
Credit facility -- 2,889,811
Notes payable - related parties -- 500,000
Current portion of long-term debt 63,952 113,384
------------ ------------
Total Current Liabilities 2,834,662 6,205,948
Long-term debt 5,645,363 2,403,695
------------ ------------
Total Liabilities 8,480,025 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; 4,992,789 outstanding 49,928 49,928
Additional paid-in capital 20,322,048 20,322,048
Retained deficit (4,399,012) (4,446,379)
------------ ------------
Total Stockholders' Equity 15,972,964 15,925,597
------------ ------------
$ 24,452,989 $ 24,535,240
============ ============
See accompanying notes to condensed consolidated financial statements.
3
ADVANCED NUTRACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended March 31, Ended March 31,
---------------------------- ----------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 6,181,810 $ 5,915,265 $ 12,819,546 $ 11,062,415
Cost of sales 4,284,455 3,917,431 8,649,211 7,379,171
------------ ------------ ------------ ------------
Gross profit 1,897,355 1,997,834 4,170,335 3,683,244
General and administrative expenses 1,712,791 1,861,579 3,607,494 3,452,691
------------ ------------ ------------ ------------
Operating income 184,564 136,255 562,841 230,553
------------ ------------ ------------ ------------
Other income (expense):
Interest expense (178,276) (213,696) (345,977) (381,731)
Loss on sale of equipment (180,127) -- (180,127) --
Other, net 3,872 28,529 10,630 29,007
------------ ------------ ------------ ------------
(354,531) (185,167) (515,474) (352,724)
------------ ------------ ------------ ------------
Income (loss) from operations before income tax
expense and cumulative effect of
accounting change (169,967) (48,912) 47,367 (122,171)
Income tax expense -- -- -- --
------------ ------------ ------------ ------------
Income (loss) from operations before cumulative
effect of accounting change (169,967) (48,912) 47,367 (122,171)
Cumulative effect of accounting change -- -- -- (1,184,553)
------------ ------------ ------------ ------------
Net income (loss) $ (169,967) $ (48,912) $ 47,367 $ (1,306,724)
============ ============ ============ ============
Basic and Diluted income (loss) per common share:
Net income (loss) $ (0.03) $ (0.02) $ 0.01 $ (0.62)
============ ============ ============ ============
Weighted average common shares outstanding-
Basic 4,992,789 2,151,989 4,992,789 2,110,318
============ ============ ============ ============
Diluted 4,992,789 2,151,989 5,155,872 2,110,318
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
4
ADVANCED NUTRACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Months
Ended March 31,
----------------------
2003 2002
--------- ---------
Net cash provided by (used in) operating activities $ 186,039 $(953,591)
Net cash provided by (used in) investing activities 175,172 222,585
Net cash provided by (used in) financing activities (439,428) 770,225
--------- ---------
Net increase (decrease) in cash and cash equivalents (78,217) 39,219
Cash and cash equivalents at beginning of period 793,023 781,847
--------- ---------
Cash and cash equivalents at end of period $ 714,806 $ 821,066
========= =========
See accompanying notes to condensed consolidated financial statements
5
ADVANCED NUTRACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of Advanced Nutraceuticals, Inc. (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 March 31, 2003, 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 March 31, 2003 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
----------- -------- -------- ------
Six months ended March 31, 2003:
Net sales $ 6,230 $ 6,590 $ -- $ 12,820
Gross profit 2,372 1,798 -- 4,170
General and administrative
expenses 1,065 2,194 348 3,607
Operating income (loss) from
continuing operations 1,307 (396) (348) 563
Interest expense (90) (239) (17) (346)
Loss on sale of equipment -- (180) -- (180)
Income (loss) from
operations before taxes 1,225 (808) (370) 47
Capital expenditures 40 5 -- 45
Depreciation and amortization 106 270 1 377
Identifiable assets 13,454 10,521 478 24,453
Six months ended March 31, 2002:
Net sales $ 6,431 $ 4,631 $ -- $ 11,062
Gross profit 2,170 1,513 -- 3,683
General and administrative
expenses 917 2,122 414 3,453
Operating income (loss) from
operations 1,253 (609) (414) 230
Interest expense (37) (273) (72) (382)
Income (loss) from
operations before taxes 1,244 (880) (486) (122)
Capital expenditures 127 29 -- 156
Depreciation and amortization 101 270 1 372
Identifiable assets 13,727 12,109 161 25,997
Major Customers
6
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 for the six-month
periods ending March 31:
Customer. 2003 2002
-------- ---- ----
A 6.8% 16.9%
B 20.3% 10.0%
Foreign Sales
Export sales were approximately $657,000 and $510,000 for the six months
ended March 31, 2003 and 2002. The Company has no foreign assets.
NOTE 2 - DEBT AGREEMENTS
As of March 21, 2003, the Company completed the refinancing of its Senior
Debt Facility with a new lender. The new debt agreement provides the Company
with a $5.5 million facility, consisting of a $4.0 million revolver, a $1.0
million equipment term loan and a $500,000 equipment acquisition line. The
three-year agreement is collateralized by substantially all of the Company's
assets, and bears interest at rates that fluctuate with the Prime Rate, with the
revolver at 2% over prime (not to be less than a total rate of 6.5%) and the
equipment lines at 4.75% over prime (not to be less than a total rate of 9.25%).
Due to the fact that the agreement extends for a three-year term, the obligation
is classified as a long-term liability on the accompanying consolidated balance
sheet as of March 31, 2003. 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 March 31,
2003, the total balance outstanding under the facility, including $1,000,000
outstanding under the term loan portion, amounted to $3,097,000.
Initial proceeds under the new agreement were used to payoff the debt
obligations to the then existing Senior Lender, which totaled approximately
$1,339,000 at closing, and to repay the remaining $500,000, plus accrued
interest, due under a note with Dr. Pailla Reddy, a director of the Company,
that arose from the Bactolac acquisition.
NOTE 3 - INCOME TAXES
No income tax expense was recorded on the income for the six months ended
March 31, 2003, due to the fully reserved net operating loss carry forwards
available to the Company. No income tax benefit was recorded on the loss for the
six months ended March 31, 2002, as management of the Company was unable to
determine that it was more likely than not that such benefit would be realized.
NOTE 4 - CUMULATIVE EFFECT OF ACCOUNTING CHANGE
The Company adopted and applied Statement of Financial Accounting Standards
("SFAS") No. 142, "Goodwill and Other Intangible Assets" as of October 1, 2001,
the beginning of the Company's fiscal year 2002. SFAS No. 142 changed the
accounting for goodwill from an amortization method to an impairment-only
approach. Under SFAS 142, goodwill and other indefinite lived intangible assets
are tested annually and whenever events or circumstances occur indicating that
goodwill might be impaired. As a result of the adoption of SFAS 142 and the
required comparison of fair value to the carrying amount of goodwill, the
Company recorded a one-time non-cash charge of approximately $1.2 million to
reduce the carrying amount of its goodwill associated with the operations
located in Gulfport, Mississippi. Such charge is non-operational and is
reflected as a cumulative effect of an accounting change in the accompanying
consolidated statement of operations.
NOTE 5 - 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.
7
Three Months Six Months
Ended March 31, Ended March 31,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income (loss), as reported $ (170,000) $ (49,000) $ 47,000 $(1,307,000)
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) (98,000) (206,000)
----------- ----------- ----------- -----------
Pro forma net income (loss) $ (219,000) $ (152,000) $ (51,000) $(1,513,000)
=========== =========== =========== ===========
Earnings (loss) per share:
Basic and diluted - as reported $ (0.03) $ (0.02) $ 0.01 $ (0.62)
=========== =========== =========== ===========
Basic and diluted - pro forma $ (0.04) $ (0.07) $ (0.01) $ (0.72)
=========== =========== =========== ===========
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.
ADVANCED NUTRACEUTICALS, INC.
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 2003 period increased $1,758,000 or 15.9% over the 2002
period. The increase was attributable to a $1,959,000 increase in the sales at
ANIP. The ANIP increase consisted of an increase in sales to expanding private
label customers such as Walgreens, 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 2003 period increased to $4,170,000, a $487,000
increase over the 2002 amount. Gross profit as a percentage of net sales
decreased to 32.5% in 2003, as compared to 33.3% in the 2002 period. Gross
profit at Bactolac improved to 38.1% from 33.7% in the 2002 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 27.3% from 32.7% in the 2002 period primarily due to changes in the
product mix.
Total operating expenses increased to $3,607,000 in 2003, from $3,453,000,
in 2002. This represents an increase of $154,000, or 4.5%. The majority of the
increase relates to additional personnel costs, combined with higher sales and
marketing expenses incurred, primarily commissions and freight expenses incurred
in connection with the private label customers at ANIP.
No income tax expense was recorded on the income for the six months ended
March 31, 2003, due to the net operating loss carry forwards available.
Liquidity and Capital Resources
ANI meets its working capital and capital expenditure requirements 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, combined with cost reductions that have
been implemented, management believes that a more significant portion of its
working capital needs can be met out of cash generated from operating
activities. Management plans to continue to strive to restore profitability
while continuing to rely on its recently completed debt agreement to meet
currently anticipated funding requirements.
At March 31, 2003, the Company had working capital of $5,091,000.
Borrowings under the revolving portion of the secured credit facility totaled
$2,097,000, with additional borrowings available of approximately $1,400,000, at
that point, based upon accounts receivable and inventory levels. The Company's
line of credit includes a $500,000 available capital expenditure line that can
be used for equipment additions in loan amounts exceeding $100,000 per advance.
8
As of March 21, 2003, the Company completed the refinancing of its Senior
Debt Facility with a new lender, CapitalSource Finance LLC. The new debt
agreement provides the Company with a $5.5 million facility, consisting of a
$4.0 million revolver, a $1.0 million equipment term loan and a $500,000
equipment acquisition line. The three-year agreement is collateralized by
substantially all of the Company's assets, and bears interest at rates that
fluctuate with the Prime Rate, with the revolver at 2% over prime (not to be
less than a total rate of 6.5%) and the equipment lines at 4.75% over prime (not
to be less than a total rate of 9.25%). Due to the fact that the agreement
extends for a three-year term, the obligation is classified as a long-term
liability on the accompanying consolidated balance sheet as of March 31, 2003.
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 March 31, 2003, the total balance
outstanding under the facility, including $1,000,000 outstanding under the term
loan portion, amounted to $3,097,000.
Initial proceeds under the new agreement were used to payoff the debt
obligations to the then existing Senior Lender, which totaled approximately
$1,339,000 at closing, and to repay the remaining $500,000, plus accrued
interest, due under a note with Dr. Pailla Reddy, a director of the Company,
that arose from the Bactolac acquisition.
Operating Activities
Net cash flows from operating activities generated approximately $186,000
in 2003 and consumed approximately $954,000 in 2002. The net cash flow generated
in 2003 consisted primarily of approximately a $491,000 increase in accounts
payable, relating primarily to higher production in the period ended March 31,
2003, combined with $377,000 in non-cash depreciation expense plus the non-cash
$180,000 loss on the sale of equipment. This was offset by approximately
$446,000 in increases to accounts receivable and a $286,000 increase in
inventories.
The net cash flow consumed in 2002, consisted primarily of approximately
$1,548,000 increase in accounts receivable, relating primarily to higher sales
in the period ended March 31, 2002 as compared to the comparable period ended
September 30, 2001. This was offset by approximately $803,000 in increases to
accounts payable and accrued expenses.
Investing Activities
Investing activities generated approximately $175,000 in 2003. This
consisted of $184,000 collected on a note received in connection with the June
2001, sale of a former subsidiary, Nutrition for Life International, Inc., (the
"NFLI Note") and proceeds of $250,050 on the sale of equipment. In addition,
$45,000 of cash was used for additions to equipment and $214,000 was used for
loan closing costs.
Investing activities generated approximately $223,000 in 2002. This
consisted of $377,000 collected on the NFLI Note receivable net of $154,000 in
additions to equipment.
Financing Activities
Financing activities consumed approximately $439,000 in 2003, and $770,000
in 2002, primarily in net repayments under the Company's debt obligations.
Capital expenditures, primarily for manufacturing and facility improvement
costs for the fiscal year ending September 30, 2003, are anticipated to total
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.
Recent Accounting Pronouncements
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
therefore FIN 45 will not have a material effect on its 2003 financial
statements.
9
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.
Derivative Instruments and Hedging Activities - In April 2003, the FASB issued
Statement of Financial Accounting Standards No. 149 ("SFAS 149"), "Amendment of
Statement 133 on Derivative Instruments and Hedging Activities," which amends
and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts. SFAS 149
will be effective for contracts entered into or modified after June 30, 2003 and
for hedging relationships designated after June 30, 2003. The provisions of SFAS
149 are to be applied prospectively. The Company does not anticipate the
adoption of SFAS No. 149 will have an appreciable impact of the Company's
financial statements.
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.
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.
10
(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 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on February 24, 2003.
Proxies for the Annual Meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934. There was no solicitation in opposition to
management's nominees for directors, and all of management's nominees were
elected at the Annual Meeting. The persons elected as directors at the Annual
Meeting were F. Wayne Ballenger, Randall D. Humphreys, Gregory Pusey, Pailla M.
Reddy and David F. Welch, with votes as follows:
For Withheld
--------- --------
F. Wayne Ballenger 4,265,179 52,251
Randall D. Humphreys 4,265,297 51,851
Gregory Pusey 4,264,847 52,583
Pailla M. Reddy 4,265,297 52,133
David F. Welch 4,270,193 47,237
The only other matter voted on at the Annual Meeting was approval of the
1995 Stock Option Plan, as amended. The Plan was approved with 3,662,275 shares
voted in favor, 71,599 shares voted against and 3,526 shares voted to abstain.
Item 5. Other Information
The Company has been notified by Nasdaq that the Company's common shares
had failed to maintain a minimum market value of public float of $1,000,000 and
a minimum bid price of $1.00 over a thirty consecutive trading day period. The
Company has until June 11, 2003, to regain compliance with the market value
minimum and until August 4, 2003, for the minimum bid price, under Nasdaq's
requirements. The Company is optimistic that with the recent improvements in its
operations, combined with the recently closed long-term Credit Facility, the
market will react favorably and increase ANII's share value to a level above
Nasdaq's minimums. Should ANII's shares not achieve the Nasdaq minimums, the
common shares would be quoted on either the "bulletin board," or the "pink
sheet" system.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 99.1 is furnished.
(b) On March 26, 2003, the Company filed an 8-K Report including as an
exhibit a news release covering closing of the CapitalSource senior debt
financing.
ADVANCED NUTRACEUTICALS, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADVANCED NUTRACEUTICALS, INC.
(Registrant)
By: /s/ JEFFREY G. MCGONEGAL
----------------------------------
Jeffrey G. McGonegal
Senior Vice President--Finance and
Chief Financial Officer
Dated: May 15, 2003
11
CERTIFICATION
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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
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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: May 15, 2003 By: /s/ Gregory Pusey
------------------------------------
Gregory Pusey
President and Chief Executive Officer
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CERTIFICATION
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 quarterly 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
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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
14
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: May 15, 2003 By: /s/ Jeffrey G. McGonegal
--------------------------
Jeffrey G. McGonegal
Senior Vice President-Chief Financial Officer
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