Back to GetFilings.com
UNITED STATES
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, 2003
[ ] 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 0-14983
NUTRITION 21, INC.
(Exact Name of Registrant as Specified in its Charter)
New York 11-2653613
- --------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
4 Manhattanville Road
Purchase, New York 10577-2197
- --------------------------------------------- --------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code: (914) 701-4500
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (par value $.005 per share)
Title of Class
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 twelve (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 ninety (90) days.
Yes X No
--------- -------
The number of shares outstanding of Registrant's Common Stock as of February 12,
2004: 37,991,988
NUTRITION 21, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
---------------------------- ----
ITEM 1 Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at December 31, 2003 and June 30, 2003 3
Condensed Consolidated Statements of Operations for the three months and six months
ended December 31, 2003 and 2002 5
Condensed Consolidated Statement of Stockholders' Equity for the six months ended December 31, 2003 6
Condensed Consolidated Statements of Cash Flows for the six months ended December 31, 2003 and 2002 7
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 12
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk 14
ITEM 4 Controls and Procedures 14
PART IIOTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 6 Exhibits and Reports on Form 8-K 15
2
NUTRITION 21, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
2003 2003
------- -------
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 3,327 $ 4,059
Short-term investments 2,350 --
Accounts receivable (less allowance for doubtful accounts and returns of $16
at December 31, 2003 and $430 at June 30, 2003) 1,122 1,140
Other receivables 939 1,100
Inventories 1,224 1,135
Prepaid expense and other current assets 314 196
------- -------
Total current assets 9,276 7,630
Property and equipment, net 396 479
Patents, trademarks and other intangibles (net of accumulated amortization of
$14,323 at December 31, 2003 and $13,334 at June 30, 2003)
9,829 10,612
Other assets 188 199
------- -------
TOTAL ASSETS $19,689 $18,920
======= =======
See accompanying notes to condensed consolidated financial statements.
3
NUTRITION 21, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, June 30,
2003 2003
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) (Note 1)
Current liabilities:
Accounts payable and accrued expenses $ 3,417 $ 3,456
Contingent payments payable for acquisitions 36 26
Preferred dividends payable -- 2
-------- --------
TOTAL LIABILITIES 3,453 3,484
-------- --------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, authorized 5,000,000 shares Series G
convertible preferred, 1,769 shares issued; 188 shares outstanding
at June 30, 2003 -- 188
Common stock, $0.005 par value, authorized 65,000,000 shares;
37,991,988 shares issued and outstanding at December 31, 2003 and 33,602,990
shares issued at June 30, 2003 189 168
Additional paid-in capital 67,331 64,103
Accumulated deficit (51,284) (49,023)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 16,236 15,436
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 19,689 $ 18,920
======== ========
See accompanying notes to condensed consolidated financial statements.
4
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------- -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales $ 2,345 $ 2,284 $ 4,653 $ 5,523
Other revenues 50 50 100 125
------------ ------------ ------------ ------------
TOTAL REVENUES 2,395 2,334 4,753 5,648
Cost of goods sold 582 982 1,145 1,790
------------ ------------ ------------ ------------
GROSS PROFIT 1,813 1,352 3,608 3,858
Research & development expenses 613 556 1,041 840
Selling, general & administrative expenses 1,912 2,309 3,753 4,022
Depreciation and amortization 540 767 1,079 1,397
------------ ------------ ------------ ------------
OPERATING (LOSS) (1,252) (2,280) (2,265) (2,401)
Interest income 11 20 17 41
Interest expense 7 10 13 22
------------ ------------ ------------ ------------
NET (LOSS) $ (1,248) $ (2,270) $ (2,261) $ (2,382)
============ ============ ============ ============
Basic (loss) per common share $ (0.03) $ (0.07) $ (0.06) $ (0.07)
============ ============ ============ ============
Diluted (loss) per common share $ (0.03) $ (0.07) $ (0.06) $ (0.07)
============ ============ ============ ============
Weighted average number of common shares - basic
37,414,189 33,041,115 35,556,970 33,020,538
============ ============ ============ ============
Weighted average number of common shares -
diluted 37,414,189 33,041,115 35,556,970 33,020,538
============ ============ ============ ============
See accompanying notes to condensed consolidated financial statements.
5
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(unaudited)
Additional
Preferred Stock Paid-In Accumulated
Series G Common Stock Capital Deficit Total
------------------------ ----------------------- ----------- ----------- -----------
Shares $ Shares $ $ $ $
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2003 188 $ 188 33,602,990 $ 168 $ 64,103 $ (49,023) $ 15,436
Charge for stock appreciation rights -- -- -- -- 35 -- 35
Exercise of stock options -- -- 10,000 -- 6 -- 6
Issuance of warrants to purchase
20,000 shares of common stock for
services -- -- -- -- 16 -- 16
Conversion of Series G preferred
stock to common stock (188) (188) 316,498 1 187 -- --
Private placement of shares of the
Company's common stock -- -- 4,062,500 20 2,984 -- 3,004
Net loss for the period -- -- -- -- -- (2,261) (2,261)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2003 -- $ -- 37,991,988 $ 189 $ 67,331 $ (51,284) $ 16,236
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to condensed consolidated financial statements.
6
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six Months Ended
December 31,
---------------------
2003 2002
------- -------
Cash flows from operating activities:
Net (loss) $(2,261) $(2,382)
Adjustments to reconcile net (loss) to net cash (used in)/ provided by
operating activities:
Depreciation and amortization 1,079 1,397
Issuance of warrants for services 16 24
Other non-cash items 35 --
Changes in operating assets and liabilities:
Accounts receivable 18 603
Other receivables 161 798
Inventories (89) 283
Prepaid expense and other current assets (118) (320)
Other assets 11 2
Accounts payable and accrued expenses (39) 293
------- -------
Net cash (used in)/provided by operating activities (1,187) 698
------- -------
Cash flows from investing activities:
Contingent payments for acquisitions (59) (79)
Purchases of property and equipment (8) (46)
Payments for patents and trademarks (136) (157)
Proceeds from maturities of investments -- 800
Purchase of investments available for sale (2,350) --
------- -------
Net cash (used in)/provided by investing activities (2,553) 518
------- -------
Cash flows from financing activities:
Preferred stock dividends paid (2) (12)
Purchase of common stock for treasury -- (38)
Proceeds from stock option exercises 6 --
Net proceeds from private placement 3,004 --
------- -------
Net cash provided by/(used in) financing activities 3,008 (50)
------- -------
Net (decrease) increase in cash and cash equivalents (732) 1,166
Cash and cash equivalents at beginning of period 4,059 3,974
------- -------
Cash and cash equivalents at end of period $ 3,327 $ 5,140
======= =======
See accompanying notes to condensed consolidated financial statements.
7
NUTRITION 21, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except share data)
(unaudited)
Note 1 BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all
of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for
the three and six month periods ended December 31, 2003 are not
necessarily indicative of the results that may be expected for the
year ending June 30, 2004. Beginning in fiscal year 2004, the
Company's reporting segments were combined into one- Nutritional
Products.
The balance sheet at June 30, 2003 has been derived from the
audited financial statements at that date, but does not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Annual
Report on Form 10-K/A for the year ended June 30, 2003.
Note 2 SIGNIFICANT ACCOUNTING PRONOUNCEMENTS
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of
FASB Statement No. 123." SFAS No 148 amends SFAS No. 123,
"Accounting for Stock-Based Compensation," to provide alternative
methods of transition for a voluntary change from the intrinsic
value method to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148
amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported
results. The Company adopted the disclosure provisions of SFAS No.
148 effective December 31, 2002.
Note 3 SHORT-TERM INVESTMENTS
Short-term securities consist of investments acquired with
maturities exceeding three months but less than three years. The
Company, in compliance with SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," has classified all
debt securities that have readily determinable fair values as
available-for-sale, as the sale of such securities may be required
prior to maturity. Such securities are reported at fair value,
with unrealized gains or losses excluded from earnings and
included in other comprehensive income, net of applicable taxes.
The cost of securities sold is based on the specific
identification method.
Available-for-sale securities consist of:
December 31, 2003
Gross Estimated
Amortized Unrealized Fair
Cost Gain (loss) Value
--------- ---------- ----
US government and agency securities $2,350 -- $2,350
Note 4 STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation using
the intrinsic value method prescribed in Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Compensation cost for stock options, if any, is measured as the
excess of the quoted market price of the Company's stock at the
date of grant over the amount an employee must pay to acquire the
stock.
8
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," established accounting
and disclosure requirements using a fair-value method of
accounting for stock-based employee compensation plans. The
Company has elected to remain on its current method of accounting
as described above, and has adopted the disclosure requirements of
SFAS No. 123.
The Company applies the intrinsic value method pursuant to APB
Opinion No. 25 in accounting for its plans and, accordingly, no
compensation cost has been recognized in the condensed
consolidated financial statements for its employee stock options,
which have an exercise price equal to the fair value of the stock
on the date of the grant. Had the Company determined compensation
cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss and net loss
per common share would have been increased to the pro forma
amounts indicated below :
Three months ended Six months ended
December 31, December 31,
2003 2002 2003 2002
--------- --------- --------- ---------
Net (loss) as reported $(1,248) $(2,270) $(2,261) $(2,382)
Deduct: Total stock-based employee
compensation expense determined under fair
value based method for all awards (25) (29) (192) (176)
--------- --------- --------- ---------
Pro forma net (loss) $(1,273) $(2,299) $(2,453) $(2,558)
========= ========= ========= =========
(Loss) per common share:
Basic - as reported $(0.03) $(0.07) $(0.06) $(0.07)
Basic - pro forma $(0.03) $(0.07) $(0.07) $(0.08)
Diluted - as reported $(0.03) $(0.07) $(0.06) $(0.07)
Diluted - pro forma $(0.03) $(0.07) $(0.07) $(0.08)
Note 5 INVENTORIES
Inventories at December 31, 2003 and June 30, 2003 consisted of
finished goods.
Note 6 ACCOUNTS PAYABLE AND ACCRUED EXPENSES
On December 23, 2003, the Company received $0.3 million for granting a
three-year renewable license to market certain dietary supplements
previously marketed by the Company under the Lite Bites trademarks. In
addition, the Company granted an option to purchase the Lite Bites
trademark. License fee income will be recognized over the initial three
year license period.
Note 7 CONVERTIBLE PREFERRED STOCK
During the six month period ended December 31, 2003, the remaining 188
shares of the Company's Series G Preferred Stock were converted into
316,498 shares of the Company's common stock.
Note 8 STOCKHOLDERS' EQUITY
On October 9, 2003, the Company completed a private placement of
4,062,500 shares of the Company's common stock for aggregate gross
proceeds of $3.25 million. The net proceeds of approximately $3.0
million from the sale of these securities are intended for general
corporate purposes, including the continued clinical and market
development of Diachrome(TM), a nutritional therapy product for people
with diabetes. In connection with the private placement, C. E.
Unterberg, Towbin, in accordance with a Financial Advisory and
Investment Banking Services Agreement entered into on October 8, 2003,
was granted a warrant to purchase 121,950 shares of the Company's
common stock at an exercise price of $1.05 per share.
9
NUTRITION 21, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except share data)
(unaudited)
Note 9 (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted
(loss) per common share for the periods indicated.
Three months ended Six months ended
December 31, December 31,
2002 2003 2002 2003
------------ ------------ ------------ ------------
Basic (loss) per common share:
Net (loss) $(1,248) $(2,270) $(2,261) $(2,382)
Less: Dividends on preferred shares -- (5) -- (11)
------------ ------------ ------------ ------------
(Loss) applicable to common stockholders
$(1,248) $(2,275) $(2,261) $(2,393)
============ ============ ============ ============
Weighted average shares: 37,414,189 33,041,115 35,556,970 33,020,538
Basic (loss) per share $(0.03) $(0.07) $(0.06) $(0.07)
============ ============ ============ ============
Diluted (loss) per share:
(Loss) applicable to common stockholders $(1,248) $(2,275) $(2,261) $(2,393)
============ ============ ============ ============
Weighted average shares 37,414,189 33,041,115 35,556,970 33,020,538
Diluted (loss) earnings per share $(0.03) $(0.07) $(0.06) $(0.07)
============ ============ ============ ============
Diluted (loss) per share for the three and six month periods ended
December 31, 2003 and 2002, does not reflect the incremental shares
from the assumed conversion of stock options, warrants and preferred
stock (2,179,611 and 1,931,863 shares, respectively) as the effect of
such inclusion would be antidilutive.
Note 10 RESEARCH AND DEVELOPMENT AGREEMENTS
The Company's therapeutic strategy for fiscal year 2004 includes a
larger commitment, relative to the prior year's comparable period, to
spending on research and development targeted at validating earlier
findings of efficacy focused on disease specific conditions in the
areas of diabetes and depression. The Company entered into an agreement
with Comprehensive NeuroSciences, Inc., a contract research
organization in the neurosciences field, to perform studies related to
the Company's anti-depressant technology. The Company expects that the
first phase of the study will be completed during fiscal year 2004. In
addition, the Company entered into an agreement with Diabetex, Inc., a
disease management company, and is funding a large-scale trial in
managed patient populations to evaluate Diachrome's effect as a
nutritional adjunct to standard care for people with diabetes. The
Diabetex clinical trial is expected to be completed by the end of
calendar year 2004. The Company expects to launch these products under
the Dietary Supplement Health and Education Act (DSHEA) regulatory
pathway, which is less costly and less time consuming than that
required for drug development. These large-scale studies are being
conducted to secure medical acceptance and adoption as treatment
protocols. The Company's spending in these areas of new technology,
however, is discretionary and is subject to the availability of funds.
There can be no assurances that the Company's disease specific product
development efforts will be successfully completed or that the products
will be successfully manufactured or marketed.
10
NUTRITION 21, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands, except share data)
(unaudited)
Note 11 SUPPLEMENTAL CASH FLOW INFORMATION
Six months ended
December 31,
2003 2002
---- ----
Supplemental disclosure of cash flow information:
Cash paid for interest $ -- $12
Cash paid for income taxes $ -- $41
Supplemental schedule of non-cash investing activities:
Obligation for N21 acquisition contingent payments $36 $18
11
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
condensed consolidated financial statements and related notes thereto
of the Company included elsewhere herein.
Forward-Looking Statements and Risk Factors
This quarterly report and the documents incorporated by reference
contain forward-looking statements which are intended to fall within
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995. Words such as "anticipates", "expects",
"intends", "plans", "believes", "seeks", and "estimates" and similar
expressions identify forward-looking statements. Statements that are
"forward-looking statements" are based on current expectations and
assumptions that are subject to risks and uncertainties. Actual
performance and results could differ materially because of factors
such as those set forth under "Risk Factors" in Form S-3/A filed with
the Securities and Exchange Commission on January 27, 2004.
General
The Company's revenues are primarily derived from the sale of
proprietary ingredients and the grant of patent licenses related to
those ingredients to manufacturers of vitamin and mineral
supplements. The fees for the licenses are bundled on an
undifferentiated basis with the price that the Company charges for
its ingredients.
Cost of goods sold includes both direct and indirect manufacturing
costs. Research and development expenses include internal
expenditures as well as expenses associated with third party
providers. Selling, general and administrative expenses include
salaries and overhead, third party fees and expenses, royalty
expenses for licenses and trademarks, and costs associated with the
selling of the Company's products. The Company capitalizes patent
costs and intangible assets, and amortizes them over periods of one
to seventeen years.
Results of Operations
Revenues
Net sales for the three month period ended December 31, 2003 of $2.3
million increased $61 thousand when compared to the same period a
year ago. Net sales for the six month period ended December 31, 2003
of $4.7 million decreased $0.8 million when compared to $5.5 million
for the same period a year ago. For the six month period ended
December 31, 2003, net sales from the Lite Bites product line
declined $0.6 million, due primarily to the Company's phasing out of
Lite Bites product sales after its decision to discontinue its
investment in the Lite Bites product line in fiscal year 2003. In
addition, nutritional product sales for the six months ended December
31, 2003 declined $0.2 million compared to the same period a year
ago, due primarily to lower weight loss and sports nutrition
supplement sales.
Other revenues were $50 thousand and $100 thousand for the three and
six month periods ended December 31, 2003 compared to $50 thousand
for the three month period a year ago and $125 thousand for the six
month period a year ago.
Cost of goods sold
Cost of goods sold for the three and six month periods ended December
31, 2003 was $0.6 million and $1.1 million, respectively, compared to
$1.0 million and $1.8 million, respectively, for the same periods a
year ago. Cost of goods sold for the three and six month periods of
fiscal year 2003 was higher due to the cost of goods associated with
the sale of Lite Bites products versus the cost of goods of
ingredients and the costs associated with the phasing out of Lite
Bites product sales after the Company's decision to discontinue its
investment in the Lite Bites product line in fiscal year 2003. Gross
margin on product sales of 75.2% and 75.4% for the three and six
month periods ended December 31, 2003 increased 18.2 and 7.8
percentage points, respectively, when compared to the same periods a
year earlier, as gross margin on nutritional products sales are
greater than gross margins on Lite Bites products.
Research and development expenses
Research and development expenses were $0.6 million and $1.0 million
for the three and six month periods ended December 31, 2003 compared
to $0.6 million and $0.8 million for the same periods a year ago. The
increase for the six month period ended December 31, 2003 is due
primarily to incremental spending to validate new chromium
applications.
12
Selling, general and administrative expenses (SG&A)
SG&A expenses for the three and six month periods ended December 31,
2003 of $1.9 million and $3.8 million, respectively, decreased when
compared to $2.3 million and $4.0 million, respectively, for the same
periods a year ago. The primary reason for the decline of $0.2
million and $0.3 million, respectively, for the three and six month
periods ended December 31, 2003 was the phasing out of Lite Bites
product lines.
Depreciation and amortization
Depreciation and amortization for the three and six month periods
ended December 31, 2003 was $0.5 million and $1.1 million,
respectively, compared to $0.8 and $1.4 million, respectively, for
the same periods a year ago. Amortization declined, due primarily to
the effects of an impairment charge of $4.4 million incurred in
fiscal year 2003.
Operating Loss
Operating loss for the three and six month periods ended December 31,
2003 was $1.2 million and $2.3 million, compared to an operating loss
of $2.3 million and $2.4 million, respectively, for the same periods
a year ago. The primary reasons for lower operating loss this fiscal
year when compared to the same period a year ago were the improvement
in gross profit due primarily to sales of higher margin nutritional
ingredients combined with the reductions in selling expense due to
the phasing out of the Lite Bites product line.
Interest income and interest expense
Interest income, net of interest expense for the three and six month
periods ended December 31, 2003 was $4 thousand compared to interest
income, net of interest expense of $10 thousand and $19 thousand,
respectively, for the same periods a year ago. Levels of cash
available for investment in fiscal year 2004 were lower than the
comparable periods in fiscal year 2003.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at December 31,
2003 were $5.7 million compared to $4.1 million at June 30, 2003. As
of December 31, 2003, the Company had working capital of $5.8 million
compared to $4.1 million as of June 30, 2003. Net proceeds of $3.0
million from a private placement, of which $2.4 million was invested
in marketable short-term debt instruments, was the primary reason for
the improvement.
During the six months ended December 31, 2003, net cash of $1.2
million was used in operating activities compared to net cash
provided of $0.7 million for the comparable period a year ago. The
primary reasons for the change were a decline in the cash collections
of trade and other receivables of $1.2 million, an increase in
payments to trade vendors for inventory and operating expenses of
$0.7 million and receipt of $0.3 million for granting a three-year
renewable license.
During the six month period ended December 31, 2003, net cash used in
investing activities was $2.6 million compared to net cash provided
of $0.5 million for the same period a year ago. Investment of $2.4
million of the net proceeds from a private placement in marketable
securities was the primary reason for the change.
During the six month period ended December 31, 2003, net cash
provided by financing activities was $3.0 million, compared to net
cash used of $50 thousand in the comparable period a year ago.
Proceeds of $3.0 million from a private placement was the primary
reason for the change.
The Company's primary source of financing is cash generated from
operations. The Company believes that cash on hand and cash generated
from operations will provide sufficient liquidity to fund operations
at least through the next twelve months.
Future increases in marketing and research and development expenses
over the present levels may require additional funds. The Company
intends to seek any necessary additional funding through arrangements
with corporate collaborators through public or private sales of its
securities, including equity securities, or through bank financing.
13
Significant Accounting Pronouncements
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure-an amendment of
FASB Statement No. 123." SFAS No 148 amends SFAS No. 123, "Accounting
for Stock-Based Compensation," to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The Company
adopted the disclosure provisions of SFAS No. 148 effective December
31, 2002.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in
interest rates, foreign exchange rates and equity prices. The Company
has no financial instruments that give it exposure to foreign
exchange rates or equity prices. Although the Company has temporarily
invested a portion of the proceeds of its private placement in
interest-bearing marketable debt securities, those instruments have
relatively short-term maturities and risk related to interest rate
fluctuations is not expected to be significant.
Item 4 - Controls and Procedures
Nutrition 21, Inc. under the direction of the Chief Executive Officer
and Chief Financial Officer, has reviewed and evaluated its
disclosure controls and procedures and believes as of the date of
management's evaluation, that Nutrition 21, Inc.'s disclosure
controls and procedures are reasonably designed to be effective for
the purposes for which they are intended. The review and evaluation
was performed as of the balance sheet date.
During the quarter ended December 31, 2003, there have been no
significant changes in our internal controls over financial reporting
or in other factors, which have significantly affected, or are
reasonably likely to significantly affect, our internal controls over
financial reporting subsequent to such evaluation.
14
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company in the ordinary course of its business has brought patent
infringement actions against companies that it believes have sold
chromium picolinate in violation of the Company's patent rights. As of
this date, no action is pending. The Company is evaluating bringing
other patent infringement actions.
On April 24, 2003, the Company filed an action against a competitor for
false and misleading advertising.
A former executive of the Company has submitted an employment dispute
for arbitration.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certifications of President and Chief Executive Officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certifications of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certifications of the President and Chief Executive Officer
and the Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
The Company filed two Reports on Form 8-K during the fiscal quarter
ended December 31, 2003.
1. Report dated October 9, 2003, furnishing a Press Release and
Common Stock Purchase Agreement related to the issuance of
4,062,500 shares of registrant's common stock in a private
placement at $0.80 per share for aggregate gross proceeds of
$3.25 million.
2. Report dated November 12, 2003, furnishing a copy of a press
release of financial results for the fiscal quarter ended
September 30, 2003.
15
NUTRITION 21, 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.
NUTRITION 21, INC.
Registrant
Date: February 12, 2004 By: /s/ Gail Montgomery
--------------------------------
Gail Montgomery
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Paul Intlekofer
--------------------------------
Paul Intlekofer
Chief Financial Officer and
Senior Vice President, Corporate
Development
(Principal Financial Officer)
16