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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 March 31, 2004
[ ] 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 (I.R.S. Employer
incorporation 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 $.005 per share)
----------------------------------------
Title of Class
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past ninety (90) days.
Yes X No
--------- -------
The number of shares outstanding of Registrant's Common Stock as of May 7, 2004:
37,991,988
NUTRITION 21, INC.
INDEX
PART I FINANCIAL INFORMATION PAGE
- ------ --------------------- ----
ITEM 1 Condensed Consolidated Financial Statements (unaudited)
Condensed Consolidated Balance Sheets at March 31, 2004
and June 30, 2003 3
Condensed Consolidated Statements of Operations for the three
months and nine months ended March 31, 2004 and 2003 5
Condensed Consolidated Statement of Stockholders' Equity for
the nine months ended March 31, 2004 6
Condensed Consolidated Statements of Cash Flows for the nine
months ended March 31, 2004 and 2003 7
Notes to Condensed Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
ITEM 3 Quantitative and Qualitative Disclosures
About Market Risk 14
ITEM 4 Controls and Procedures 14
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 15
ITEM 6 Exhibits and Reports on Form 8-K 15
2
NUTRITION 21, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31, June 30,
2004 2003
---- ----
(unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $3,426 $4,059
Short-term investments 1,000 --
Accounts receivable (less allowance for doubtful
accounts and returns of $10 at March 31, 2004 and
$430 at June 30, 2003) 1,360 1,140
Other receivables 984 1,100
Inventories 1,010 1,135
Prepaid expense and other current assets 280 196
---------- --------
Total current assets 8,060 7,630
Property and equipment, net 357 479
Patents, trademarks and other intangibles (net of
accumulated amortization of $14,821 at March 31, 2004
and $13,334 at June 30, 2003) 9,434 10,612
Other assets 188 199
---------- --------
TOTAL ASSETS $18,039 $18,920
========== ========
See accompanying notes to condensed consolidated financial statements.
3
NUTRITION 21, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
($ in thousands, except share data)
March 31, June 30,
2004 2003
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY (unaudited) (Note 1)
Current liabilities:
Accounts payable and accrued expenses $2,784 $3,456
Contingent payments payable for acquisitions 44 26
Preferred dividends payable -- 2
---------- --------
TOTAL LIABILITIES 2,828 3,484
---------- --------
Commitments and contingencies
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 March
31, 2004 and 33,602,990 shares issued and
outstanding at June 30, 2003 190 168
Additional paid-in capital 67,325 64,103
Accumulated deficit (52,304) (49,023)
---------- --------
TOTAL STOCKHOLDERS' EQUITY 15,211 15,436
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,039 $18,920
========== ========
See accompanying notes to condensed consolidated financial statements.
4
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
($ in thousands, except share and per share data)
(unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2004 2003 2004 2003
-------- -------- -------- --------
Net sales $2,577 $3,082 $7,230 $8,605
Other revenues 71 50 171 175
-------- -------- -------- --------
TOTAL REVENUES 2,648 3,132 7,401 8,780
Cost of goods sold 451 1,021 1,596 2,811
-------- -------- -------- --------
GROSS PROFIT 2,197 2,111 5,805 5,969
Research & development expenses 682 1,155 1,723 1,995
Selling, general & administrative expenses 2,009 1,764 5,762 5,786
Depreciation & amortization 540 649 1,619 2,046
-------- -------- -------- --------
OPERATING (LOSS) (1,034) (1,457) (3,299) (3,858)
Interest income 19 13 36 54
Interest expense 5 5 18 27
-------- -------- -------- --------
(LOSS) BEFORE INCOME TAXES (1,020) (1,449) (3,281) (3,831)
Income tax (benefit) -- (306) -- (306)
-------- -------- -------- --------
NET (LOSS) $(1,020) $(1,143) $(3,281) $(3,525)
======== ======== ======== ========
Basic and diluted (loss) per common share $(0.03) $(0.03) $(0.09) $(0.11)
======== ======== ======== ========
Weighted average number of common shares
- - basic and diluted 37,991,988 33,602,990 36,362,739 33,211,855
========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
5
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
($ in thousands, except share data)
(unaudited)
Additional
Paid-In Accumulated
Preferred Stock Common Stock Capital Deficit Total
Series G
Shares $ Shares $ $ $ $
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at June 30, 2003 188 $188 33,602,990 $168 $64,103 $(49,023) $15,436
Charge for stock
appreciation rights -- -- -- -- 29 -- 29
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 2 186 -- --
Private placement of
common stock -- -- 4,062,500 20 2,985 -- 3,005
Net loss for the period -- -- -- -- -- (3,281) (3,281)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2004 -- $ -- 37,991,988 $190 $67,325 $(52,304) $15,211
========== ========== ========== ========== ========== ========== ==========
See accompanying notes to condensed consolidated financial statements.
6
NUTRITION 21, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
(unaudited)
Nine Months Ended
March 31,
2004 2003
------- -------
Cash flows from operating activities:
Net (loss) $(3,281) $(3,525)
Adjustments to reconcile net (loss) to net cash (used in)/
provided by operating activities:
Depreciation and amortization 1,619 2,046
Issuance of warrants for services 16 24
Other non-cash items 29 --
Changes in operating assets and liabilities:
Accounts receivable (220) 759
Other receivables 116 793
Inventories 125 135
Prepaid expense and other current assets (84) 481
Other assets 11 --
Accounts payable and accrued expenses (672) (403)
------- -------
Net cash (used in)/provided by operating activities (2,341) 310
------- -------
Cash flows from investing activities:
Contingent payments for acquisitions (99) (106)
Purchases of property and equipment (10) (88)
Payments for patents and trademarks (192) (248)
Redemption of investments available for sale 1,350 1,000
Purchase of investments available for sale (2,350) --
------- -------
Net cash (used in)/provided by investing activities (1,301) 558
------- -------
Cash flows from financing activities:
Preferred stock dividends paid (2) (17)
Purchase of common stock for treasury -- (38)
Proceeds from stock option exercises 6 --
Net proceeds from private placement 3,005 --
------- -------
Net cash provided by/(used in) financing activities 3,009 (55)
------- -------
Net (decrease) increase in cash and cash equivalents (633) 813
Cash and cash equivalents at beginning of period 4,059 3,974
------- -------
Cash and cash equivalents at end of period $3,426 $4,787
======= =======
See accompanying notes to condensed consolidated financial statements.
7
NUTRITION 21, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 nine month periods ended March 31, 2004 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 SHORT-TERM INVESTMENTS
Short-term investments consist of securities 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. The cost of securities sold is based on the
specific identification method.
Available-for-sale securities consist of ($ in thousands):
March 31, 2004
--------------
Gross Estimated
Amortized Unrealized Fair
Cost Gain (loss) Value
--------- ---------- ---------
U.S. government and agency securities $1,000 -- $1,000
Note 3 STOCK-BASED COMPENSATION
The Company accounts for employee stock-based compensation using the
intrinsic value method prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". Compensation cost for
stock options, if any, is measured as the excess of the quoted market
price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock.
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation," established accounting and disclosure
requirements using a fair-value method of accounting for stock-based
employee compensation plans. The Company has elected to remain on its
current method of accounting as described above, and has adopted the
disclosure requirements of SFAS No. 123.
The Company applies the intrinsic value method pursuant to APB Opinion No.
25 in accounting for its plans and, accordingly, no compensation cost has
been recognized in the condensed consolidated financial statements for its
employee stock options, which have an exercise price equal to the fair
value of the stock on the date of the grant. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's net loss and net loss per common
share would have been increased to the pro forma amounts indicated below
($ in thousands, except per share amounts):
8
Three months ended Nine months ended
March 31, March 31,
2004 2003 2004 2003
------- ------- ------- -------
Net (loss) as reported $(1,020) $(1,143) $(3,281) $(3,525)
Deduct: Total stock-based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects (25) (25) (95) (83)
------- ------- ------- -------
Pro forma net (loss) $(1,045) $(1,168) $(3,376) $(3,608)
======= ======= ======= =======
(Loss) per common share:
Basic and diluted -
as reported $(0.03) $(0.03) $(0.09) $(0.11)
Basic and diluted -
pro forma $(0.03) $(0.03) $(0.09) $(0.11)
Note 4 INVENTORIES
Inventories at March 31, 2004 and June 30, 2003 consisted of finished
goods.
Note 5 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 6 CONVERTIBLE PREFERRED STOCK
During the nine month period ended March 31, 2004, 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 7 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 $1.05 per share.
9
NUTRITION 21, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 8 (LOSS) PER SHARE
The following table sets forth the computation of basic and diluted (loss)
per common share for the periods indicated ($ in thousands, except share
data):
Three months ended Nine months ended
March 31, March 31,
2004 2003 2004 2003
------------ ------------ ------------ ------------
Basic and diluted (loss) per common
share:
Net (loss) $(1,020) $(1,143) $(3,281) $(3,525)
Less: Dividends on
preferred shares -- (2) -- (13)
------------ ------------ ------------ ------------
(Loss) applicable to common
stockholders $(1,020) $(1,145) $(3,281) $(3,538)
============ ============ ============ ============
Weighted average shares: 37,991,988 33,602,990 36,362,739 33,211,855
Basic and diluted (loss) per share $(0.03) $(0.03) $(0.09) $(0.11)
============ ============ ============ ============
Diluted (loss) per share for the three and nine month periods ended March
31, 2004 and 2003, does not reflect the incremental shares from the
assumed conversion of stock options, warrants and preferred stock
(1,868,166 and 303,471 and 1,912,168 and 782,253 shares, respectively) as
the effect of such inclusion would be antidilutive.
Note 9 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 XLHealth (formerly 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 XLHealth 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
(unaudited)
Note 10 SUPPLEMENTAL CASH FLOW INFORMATION
Nine months ended
March 31,
2004 2003
------ -----
Supplemental disclosure of cash flow information
($ in thousands):
Cash paid for interest $-- $17
Cash paid for income taxes $-- $41
Supplemental schedule of non-cash investing activities:
Obligation for N21 acquisition
contingent payments $44 $29
Issuance of common stock for Series G
conversion $188 $283
Note 11 CONTINGENCIES
A former executive of the Company has submitted an employment dispute for
arbitration.
The Federal Trade Commission ("FTC") and the Company are discussing
whether the Company should have any liability for weight loss advertising
claims that were made on QVC, Inc. ("QVC") for the Company's Lite Bites
products. The FTC has sued QVC for these claims and for claims made on QVC
for other products, and QVC has, in the same lawsuit, filed a Complaint
for damages against six parties, including the Company. The Company is
evaluating the Complaint filed by QVC.
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 and nine month periods ended March 31, 2004 of
$2.6 million and $7.2 million decreased $0.5 million and $1.4 million,
respectively, when compared to $3.1 million and $8.6 million for the same
periods a year ago. Net sales declined $0.7 million and $1.3 million,
respectively, stemming from the Company's decision to discontinue its
investment in the Lite Bites product line in fiscal year 2003. For the
three months ended March 31, 2004, sales of nutritional products improved
$0.2 million, when compared to the same period a year ago. For the nine
month period ended March 31, 2004, net sales from the Lite Bites product
line declined $1.2 million, due primarily to the Company's decision to
discontinue its investment in the Lite Bites product line in fiscal year
2003.
Other revenues were $71 thousand and $171 thousand for the three and nine
month periods ended March 31, 2004, compared to $50 thousand and $175
thousand for the same periods a year ago.
Cost of goods sold
Cost of goods sold for the three and nine-month period ended March 31,
2004 was $0.5 million and $1.6 million, respectively, compared to $1.0
million and $2.8 million, respectively, for the same periods a year ago.
Cost of goods sold for the three and nine 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 associated with the sale of
ingredients, as well as costs associated with the phasing out of the Lite
Bites product line 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 82.5% and 77.9% for the three and nine month
periods ended March 31, 2004 increased 15.6 and 10.6 percentage points,
respectively, when compared to the same periods a year earlier, as gross
margins on nutritional products sales are greater than gross margins on
Lite Bites products.
Research and development expenses
Research and development expenses were $0.7 million and $1.7 million for
the three and nine month periods ended March 31, 2004 compared to $1.2
million and $2.0 million for the same periods a year ago. Significant
start-up costs for research of new chromium applications in fiscal year
2003 did not recur in the three month period ended March 31, 2004.
12
Selling, general and administrative expenses (SG&A)
SG&A expenses for the three and nine month periods ended March 31, 2004
were $2.0 million and $5.8 million, respectively, compared to $1.8 million
and $5.8 million, respectively, for the same periods a year ago. The
primary reasons for the increase of $0.2 million for the three-month
period ended March 31, 2004 were increases in personnel related costs as
well as legal fees.
Depreciation and amortization
Depreciation and amortization for the three and nine month periods ended
March 31, 2004 was $0.5 million and $1.6 million, respectively, compared
to $0.6 and $2.0 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 nine month periods ended March 31, 2004
was $1.0 million and $3.3 million, respectively, compared to an operating
loss of $1.5 million and $3.9 million, respectively, for the same periods
a year ago. The primary reasons for the lower operating loss were
reductions of $0.5 million and $0.3 million, respectively, for research
and development expenses, combined with lower depreciation and
amortization expense of $0.1 million and $0.4 million, respectively, due
to the effects of an impairment charge of $4.4 million incurred in fiscal
year 2003.
Interest income and interest expense
Interest income, net of interest expense for the three and nine month
periods ended March 31, 2004 was $14 thousand and $18 thousand,
respectively, compared to interest income, net of interest expense of $8
thousand and $27 thousand, respectively, for the same periods a year ago.
Levels of cash available for investment in fiscal year 2004 were greater
than the comparable periods in fiscal year 2003.
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments at March 31, 2004 were
$4.4 million compared to $4.1 million at June 30, 2003. As of March 31,
2004, the Company had working capital of $5.2 million compared to $4.1
million as of June 30, 2003. Net proceeds of $3.0 million from a private
placement, of which $1.0 million remains invested in marketable short-term
debt instruments, was the primary reason for the improvement.
During the nine months ended March 31, 2004, net cash used in operating
activities was $2.3 million, compared to net cash provided by operations
of $0.3 million for the comparable period a year ago. The primary reasons
for the change were a decline in cash collections of accounts and other
receivables of $2.0 million, an increase in payments to trade vendors for
inventory and operating expenses of $0.3 million, and the receipt of $0.3
million for granting a three-year renewable license.
During the nine month period ended March 31, 2004, net cash used in
investing activities was $1.3 million compared to net cash provided by
investing activities of $0.6 million for the comparable period a year ago.
The purchase of investments, net of redemptions, of $1.0 million from the
net proceeds of a private placement in marketable securities was the
primary reason for the change.
During the nine month period ended March 31, 2004, net cash provided by
financing activities was $3.0 million, compared to net cash used in
financing activities of $55 thousand for the comparable period a year ago.
Proceeds of $3.0 million from a private placement was the primary reason
for the change.
For the nine month period ended March 31, 2004, the Company's primary
source of cash was proceeds from a private placement. The Company believes
that cash on hand will provide sufficient liquidity in the short term.
Long term liquidity is dependent upon achieving future profitability or
raising additional financing.
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
The Company has considered all recent accounting pronouncements and has
determined that the pronouncements have no material effect on the
Company's results of operations and financial condition.
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, these instruments have relatively short-terms maturities
and risk related to interest rate fluctuations is not expected to be
significant.
ITEM 4 - CONTROLS AND PROCEDURES
The Company's management, with the participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures as of
March 31, 2004. Based on this evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures are effective for gathering, analyzing
and disclosing the information the Company is required to disclose in the
reports it files under the Securities Exchange Act of 1934, within the
time periods specified in the SEC's rules and forms.
During the quarter ended March 31, 2004, 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
A former executive of the Company has submitted an employment dispute for
arbitration.
In March 2004, in the U.S. District Court for the Eastern District of
Pennsylvania, the FTC sued QVC for advertising claims made on QVC for
various products, including weight loss claims for the Company's Lite
Bites products. QVC has, in the same lawsuit, filed a Complaint for
damages against six parties, including the Company.
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 one Report on Form 8-K during the fiscal quarter
ended March 31, 2004.
1. Report dated February 12, 2004, furnishing a copy of a press
release of financial results for the fiscal quarter ended
December 31, 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: May 7, 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