=============================================================================UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON,
Washington, D.C. 20549---------------------- FORMForm 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED: JANUARY 31, 2002 ---------------------------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-18349 ------- GENDER SCIENCES, INC. (F/K/A The MNI Group, Inc.) --------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) NEW JERSEY 22-2383025 ----------------------------------- -------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 10 WEST FOREST AVENUE, ENGLEWOOD, NEW JERSEY 07631 --------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 569-1188 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED - ------------------- ----------------------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK - -------------------------------------------------------------------------------- (TITLE OF CLASS)
x | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year endedJanuary 31, 2009 | |
OR | |
o | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________ | |
Commission file number001-33411 |
Medical Nutrition USA, Inc. |
(Exact name of registrant as specified in its charter) |
Delaware | 11-3686984 | |
(State or other jurisdiction of incorporation or | (I.R.S. Employer Identification No.) | |
organization) | ||
10 West Forest Avenue, Englewood, New Jersey | 07631 | |
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code:(201) 569-1188 | ||
Securities registered under Section 12(b) of the Exchange Act: | ||
None | ||
Securities registered under Section 12(g) of the Exchange Act: | ||
Common Stock, $0.001 par value | ||
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yeso Nox
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yeso Nox
Check whether the Registrantissuer (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 12preceding12 months (or for such shorter period that the Registrantregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]x No [ ]
o
Indicate by check mark if disclosure of delinquent filers in pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant'sthe registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K/A. [ ]
The number10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of shares outstanding“large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Registrant's common stockExchange Act.
Large accelerated filero | Accelerated filero | |
Non-accelerated filero | Smaller Reporting Companyx |
Indicate by check mark whether the registrant is 36,609,680a shell company (as defined in Rule 12B-2 of 05/10/02). the Exchange Act):
Yeso Nox
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant is $5,491,452.00 (asregistrant as of 05/10/02)July 31, 2008 was approximately $30,837,858 (based on the average of the closing bid price and closing ask price for shares of the registrant’s common stock as reported on the NASDAQ Stock Market for the last trading date prior to that date).
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Indicate
As of April 24, 2009 there were 14,130,682 shares of the registrant’s common stock outstanding.
Documents Incorporated by check mark whetherReference
Portions of the Registrant has filed all documents and
reports requiredregistrant’s Proxy Statement for the 2009 Annual Meeting of Shareholders scheduled to be filedheld June 3, 2009 are incorporated by Sections 12, 13 or 15(d)reference in Part III hereof, which the registrant intends to file with the Securities and Exchange Commission no later that 120 days after the end of the fiscal year covered by this report.
TABLE OF CONTENTS
1 |
FORWARD-LOOKING STATEMENTS
This document contains “forward-looking statements” within the meaning of the Private Securities ExchangeLitigation Reform Act of 1934 subsequent1995. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the distributionplans, strategies and objectives of securities under a plan
confirmed by a court. Yes [ ] No [ ]
----------------------
Tablemanagement for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of Contents
10-K
- -------------------------------------------------------------------------------
PART I 3
- -------------------------------------------------------------------------------
Item 1 3
- -------------------------------------------------------------------------------
Item 2 8
- -------------------------------------------------------------------------------
Item 3 9
- -------------------------------------------------------------------------------
Item 4 9
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART II 9
- -------------------------------------------------------------------------------
Item 5 9
- -------------------------------------------------------------------------------
Item 6 9
- -------------------------------------------------------------------------------
Item 7 11
- -------------------------------------------------------------------------------
Item 8 (after signature page on F1-F18) 23
- -------------------------------------------------------------------------------
Item 9 17
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART III 17
- -------------------------------------------------------------------------------
Item 10 17
- -------------------------------------------------------------------------------
Item 11 18
- -------------------------------------------------------------------------------
Item 12 20
- -------------------------------------------------------------------------------
Item 13 21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PART IV 21
- -------------------------------------------------------------------------------
Item 14 21
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
EXHIBITS None
- -------------------------------------------------------------------------------
2
Item 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS / INTRODUCTION
Gender Sciences, Inc. ("The Company"), (F/K/A as The MNI Group, Inc.),
has primarily been engaged inbelief; and any statements of assumptions underlying any of the developmentforegoing.
Forward-looking statements may include the words “may,” “could,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect” or “anticipate” or other similar words. These forward-looking statements present our estimates and distribution of nutritional
and health products. The Company develops and distributes targeted, uniquely
engineered, Nutrition-Medicine products for the Anti-Aging, Weight Loss, and
Elder Care markets within the medical, institutional, and mass-market
communities. The products are sold under the Company's label or alternatively
under private label for various distribution channels.
In December 2001, the Company engaged Gene Terry as a consultant to
reorganize and restructure the Company's focus emphasizing high margin,
recurring revenue products. Mr. Terry was a pioneer in the IV Nutrition Industry
and was a founder of Home Nutritional Support (HNS). The company with sales in
excess of $100,000,000 was ultimately sold to W.R. Grace. In December 2001, the
Company entered into a three month arrangement with Mr. Terry, which arrangement
remains in effectassumptions only as of the date hereof. The Company anticipates Mr. Terry
continuingof this annual report. Except for our ongoing obligation to disclose material information as required by the federal securities laws, we do not intend, and undertake no obligation, to update forward-looking statements.
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
For a role with the Company.
INDUSTRY TRENDS AND STRATEGYdetailed description of factors that could cause actual results to differ materially from those expressed in any forward-looking statement please see “Risk Factors” below.
BUSINESS |
INTRODUCTION
Medical Nutrition USA, Inc. (a Delaware Corporation) (the “Company”), incorporated in 2003, develops and distributes nutritional supplements for use in long-term care facilities, hospitals and dialysis clinics. Some of the most important developmentsCompany’s products are also sold through health food stores under private label or licensing agreements. Unless the context otherwise requires, references to the Company in this report refer to Medical Nutrition USA, Inc.
INDUSTRY OVERVIEW
Annual sales of nutrition products, including supplements, fortified foods and beverages and nutraceuticals in the United States were estimated to be approximately $100 billion. Annual sales of nutritional supplements to health care todayinstitutions, the industry segment in which the Company primarily competes, are the
rise of Nutrition-Medicine as an integral part of prevention and treatment, the
focus on Anti-Aging Medicine as an extension of preventive healthcare, and the
rapid increase of the elder population. The Company believes that the markets
for nutritional products in the Anti-Aging, Weight Loss, and Elder Care areas
are expanding and it wantsestimated to be approximately $5.0 billion annually and growing at a leader in providing these products. By
responding to these trends, the Company believes that it can become a premier
marketerrate of health and nutritional products. The Company will increase
penetration of retail, wholesale and institutional market segments by utilizing
unique and proven marketing strategies. The Company plans to generate high
margin, recurring revenues by offering niche, proprietary products that have a
demonstrable effect and produce repeat sales.
The industry trends are fed by:
o Rapid growth of the health-care industry fueled by the link between
diet, nutrition, and health;
o Medical research tailored to a better understanding of the role
nutrition plays in healthcare and anti-aging;
o Enhanced use of preventive and alternative treatments, including
natural and nutrition-based remedies;
o Demand for comprehensive health information;
o The graying of America at an unprecedented rate.
INDUSTRY OVERVIEW / NUTRITIONAL SUPPLEMENTSapproximately 12% per year. The nutritional supplements industry is highly fragmented and intensely
competitive. Ithighly competitive and includes companies that manufacture and distribute products that
are generally intended to enhance the body's performance and well-being.
Nutritional supplements include vitamins, minerals, dietary supplements, herbs, botanicals and compounds derived therefrom.there from. With certain limited exceptions, the sale of nutritional supplements is not subject to FDA approval prior to sale. See “Government Regulation” below. Opportunities in the nutritional supplements industry were enhanced by the enactment of the Dietary Supplement Health and Education Act of 1994 ("DSHEA"(“DSHEA”). Under DSHEA, vendors of dietary supplements are now able to educate consumers regarding the effects of certain component ingredients. With certain limited exceptions, the sale of nutritional
supplements is not subject to FDA approval prior to sale. See "Government
Regulation" below.
Sales in the vitamin/supplement
LONG-TERM CARE
The long-term care market in which the Company's products
compete totaled approximately $17.2 billion in 2001, (Nutrition Business
Journal),includes nursing home, convalescent and have been experiencing a double-digit annual growth rate,
(N/Sight, The Hartman Group; Winter 1998-9.). The Company believes the growth in
the nutritional supplement market is driven by several factors, including (i)
the general public's heightened awareness and understanding of the connection
3
between diet and health, (ii) the aging population, particularly the baby-boomer
generation, which is more likely to consume nutritional supplements, (iii)
product introduction in response to new scientific research and (iv) the
nationwide trend toward preventive medicine.
The Company, in developing its products, elected to concentrate on
those markets because the next important model of healthcare will focus on
health promotion and Anti-Aging Medicine that encourages early detection,
prevention, and reversal of aging-related diseases. Nutrient protocols will be
an essential part of treatment and improved health outcomes will substantially
increase.
The Anti-Aging Market
There are 77 million baby boomers in the United States who have created
an anti-aging marketing boom that appeals to the insecurities of a graying
population. This boom together with a corresponding focus on preventive health
measures will result in increased demand for targeted health information,
vitamins and nutritional supplements. This market is estimated at over $4
billion in 2001 and growing at an annual rate of 13%. (Anti-Aging Medical News;
American Academy of Anti-Aging Medicine).
The Weight Loss Market
According to the U.S. Center for Disease Control and Prevention more
than half--97 million--of all adults are overweight... 51% of women and 59% of
men. A Natural Marketing Institute survey found that 38% of all American
households had a member trying to achieve weight loss goals with the use of
certain over-the-counter (OTC) weight loss dietary supplements and certain types
of foods and beverages. Sales in this market already exceed $46 billion (The
July/August 2001 Issue of Functional Foods & Nutraceuticals).
The Elder Market
The Elder Market includes Nursing, Convalescent and Assisted-Livingassisted-living facilities. There are over 3000approximately 17,000 nursing homeshome facilities in the United States. The number of Americans ageaged 65 and above willover is projected to increase from 3435 million to over 70 million in the next 30 years, (U. S. Bureau of the Census Data, March 1996). By 2020 it
is estimated that 15 million Americans will be disabled in some form, (Nursing
Homes, October 1997).by 2030. An important component of the OAA (OlderOlder Americans Act)Act (the “OAA” enacted in 1965) includes programs and services to specifically address nutrition among older persons. NursingUnder the OAA, nursing home facilities are required by law to assure that each resident maintain "acceptable“acceptable parameters of nutritional status, such as body weight and protein levels, unless the clinical condition demonstrates that this is not possible."” Within the nursing home patientresident population, Protein Energy
Malnutritionprotein energy malnutrition (PEM), which is a deficiency of protein and energy (calories), is the most difficult to treata common condition resulting in loss of lean body mass, development of pressure ulcers, and impaired immune response and organ function. EMF,In observational studies, Pro-Stat®, the Company's patented,Company’s modular protein supplement provideshas been shown to be effective nutritional support in the treatment of pressure ulcers, unintended weight stabilization, weight gain,loss and energymalnutrition. In March 2006, a randomized, controlled clinical trial was published in the peer-reviewed journal “Advances in Skin and Wound Care”, reporting a 96% greater improvement in pressure ulcer healing among nursing home residents receiving standard care plus Pro-Stat®, compared to correct PEM.
MARKETING AND DISTRIBUTION STRATEGYa control group receiving standard care plus a placebo.
Another common condition within the nursing home resident population is urinary tract infections. Urinary tract infections affect up to 50% of all nursing home residents at an estimated treatment cost of greater than $1 billion annually. In orderfiscal year 2009, the Company introduced its UTI-Stat™ product, a urinary tract cleansing formula containing Proantinox, designed to take advantageaid in the prevention of urinary tract infections and promote urinary tract health. The Company is cooperating in a study being conducted in conjunction with Columbia University Medical Center, on the role of UTI-Stat™ with Proantinox in preventing urinary tract infections; the results of which will be published in fiscal year 2010.
2 |
RENAL CARE
There are more than 400,000 end stage renal disease patients undergoing dialysis treatments in the United States. Dialysis patients need to maintain high protein and calorie intake to avoid becoming malnourished. Dialysis causes a higher need for protein intake because some protein loss occurs with each treatment. Additionally, dialysis patients may suffer from poor appetite and are typically restricted in the volume of liquids they can consume. Pro-Stat® has been shown to have important benefits for dialysis patients: high protein to volume ratio; small serving size; enhanced absorption; ease of administration; and low sodium, potassium and phosphorous. The Company participated in a study in cooperation with Renal Care Group and Vanderbilt University to measure the efficacy of Pro-Stat® supplementation in improving and maintaining serum albumin levels among dialysis patients, which was completed in the fiscal year ended 2009. The results of this study are currently being reviewed and should be published in the second quarter of fiscal year 2010.
INDUSTRY TRENDS
The Company believes that the market for its institutional nutritional supplements will continue to expand as a result of the burgeoning interest in Nutrition
Medicine,following:
• | The aging of the United States population and the resulting increase in the number of assisted living/nursing home residents; | |
• | The growth in understanding of the link between diet, nutrition, and health, especially among the geriatric population; and | |
• | Increased research into the beneficial effects of targeted nutritional intervention in reducing the severity of age-related disease and the incidence of nutritional deficiencies among institutionalized patients. |
SALES, PRODUCTS AND STRATEGY
The Company generates revenue principally through the sale of its branded products directly to distributors who resell the products to end users, most of whom are nursing homes and dialysis clinics, and through the sale of private label products to others who sell these products to customers.
During the past year, the Company has developedcontinued to implement its strategy to increase the proportion of its sales generated by its own branded products, primarily to nursing homes, nursing home distributors, and dialysis clinics. These products include primarily the Pro-Stat® line of enzyme-hydrolyzed liquid protein used to treat unintended weight loss, protein energy malnutrition and pressure ulcers, UTI-Stat™, a urinary tract cleansing complex used to reduce the incidence of urinary tract infection and promote urinary tract health., and Fiber-Stat® liquid soluble fiber with FOS used to maintain bowel regularity and probiotic intestinal health.
The Company’s strategy focusing on alliances with key
marketers as described below.includes increasing the number of nursing homes, long-term care facilities and dialysis clinics employing Pro-Stat®, UTI-Stat™ and Fiber-Stat® in therapies. The Company recognizesuses consultant dietitians to supplement its sales force also uses advertising and exhibitions at trade shows that focus on the long-term care and dialysis markets. As a result of this strategy, unit sales of the Company’s branded products increased over 29% for the fiscal year ended January 31, 2009 when compared to the prior fiscal year.
For the fiscal year ended January 31, 2009, 76% of total sales were made to distributors who resell products to end users. Two distributors accounted for approximately 28% of total sales, as compared to 32% in the prior fiscal year. The Company has no contractual arrangements with these distributors, and if they were to discontinue purchasing from the Company, it could have a material impact on the Company’s sales unless end users were able to purchase the Company’s products from alternative distributors.
3 |
As mentioned previously, in the past year, the Company introduced a new product UTI-Stat™ with Proantinox, which we expect to be a material contributor to revenues in the fiscal year ended 2010. Additionally, the Company has enhanced its ProStat Advanced Wound Care formula with the addition of Citrulline to help increase bloodflow and improve the effectiveness in treating pressure ulcers.
The market for nutritional supplements is extremely competitive. There are many companies with substantially greater resources than the Company and with established brands presently being marketed, including Novartis Medical Nutrition and Abbott Laboratories The Company believes that the success of its strategy will be dependentdepend upon the quality and effectiveness of its products; its ability to establish brand name recognition for its products; its ability to continue to develop new products;products, as well as the ability of its management and the people associated
with the Companysales force to implement and execute its strategy; andstrategy.
During the ability to
attract successful marketing organizations. There is no certainty that the
Company will be successful in implementing its strategy. In addition, the market
for Nutrition-Medicine supplements is extremely competitive. There are a
significant number of companies with substantially greater resources than the
Company and with established brands presently being marketed.
The Company plans to create public awareness of its products through
the use of targeted advertising; exhibiting at professional trade shows;
partnering with distribution networks; replicating sales through geographic
expansion based upon success of beta site projects on the west coast; and using
the credentials of its esteemed Health Advisory Board to build the company's
4
reputation as the leading resource for Nutrition-Medicine, Anti-Aging, Weight
Loss, and Elder Care products and programs.
The Company produces one of its collagen products for its largest
customer, a direct marketing company located on the West Coast. Direct Marketing
is a method of communicating a message to consumers in order to obtain a
measurable, cost effective response. For thefiscal year ended January 31, 2002, this
customer accounted for approximately 32%2009, the Company recorded expenses, not including salaries and wages, of total sales.$51,500 on research and development. For the fiscal year ended January 31, 2008, the Company incurred $108,000 in research and development costs.
MANUFACTURING
The Company has no
contractual arrangement with this customer and if the customer were to
discontinue purchasing collagen from the Company, it would have a material
impact on its business operations.
The Company also supplies a collagen product sold under a Spanish label
to a multi-level company that focuses on the Hispanic market. The Company's
management believes that the Hispanic market (with approximately 34 million
population) offers very significant growth opportunities. The Company sells this
product in bulk quantities directly to the account's distribution warehouse.
In pursuing this strategy of selling custom collagen formulations to
marketing partners, the Company believes that these arrangements afford it the
best opportunity to sell its nutritional supplements without incurring the
substantial marketing and other related costs associated with either attempting
to sell its products at retail or to certain other end users (i.e. clinical
practices). This would require either a dedicated sales force or establishing
distributor relationships. By eliminating its selling and marketing expenses,
the Company believes it will achieve gross margins in excess of 50%.
The Company during the past ten years has sold in limited amounts its
EMF, a collagen hydrolysate used as nutritional support for wasting disease, to
nursing homes and hospitals. The Company received a series of patents for EMF
covering oral administration, preventing nutritional deficiency, treating
nutritional deficiency during wasting disease and certain other conditions, and
as a method of treating obesity, (see "PATENTS"). Studies with EMF have
demonstrated weight stabilization and weight gain in wasting disease patients
resulting in an improved quality of life and enhanced energy. The Company
believes there is a significant market for this product in nursing homes,
dialysis units, and hospitals. EMF also appeals to the anti-aging market, the
most rapidly growing field in the nutrition market, because of its energy
delivering qualities. The body can quickly absorb and utilize the benefits
without interference from the normal digestive process because the amino acids
in EMF have been hydrolyzed, (predigested). EMF has received approval in New
York State for Medicaid reimbursement and is under review for Medicaid
reimbursement in Virginia and Connecticut. Other state applications will also be
filed. Application has been made for Medicare Coding Review (HCPCS code) for EMF
after which the Company will apply for enrollment as a Supplier so that EMF can
qualify for Medicare Part B reimbursement. The Company believes that obtaining
Medicaid reimbursement as well as being eligible as a supplier under Medicare
will enhance its ability to market its products. However there is no assurance
that Medicaid reimbursement status will be achieved in all states or that the
Company will qualify as a supplier under Medicare or that even if the Company is
successful in achieving these objectives that it will be able to successfully
sell its collagen products.
The Company has successfully completed a beta test in a chain of 30
weight loss clinics for its Healthy Nuts and Calcium Wafers. The Healthy Nuts
have 60% less fat than peanuts, no cholesterol, and come in three flavors,
salted, unsalted and honey roasted. The Company has sold approximately 36,000
units of Healthy Nuts to this account in the past 12 months. The Company will
seek other small and medium weight loss chains in which to market these
products.
NEW PRODUCT DEVELOPMENTS
The Company believes that to remain competitive, it is necessary to
continually introduce new products. The Company is preparing prototypes for
several new products and plans over the next twelve months to introduce several
high margin, recurring revenue items. Examples are: an appetite reducing mouth
spray and an enhanced collagen supplement.
5
There is no assurance that the Company will be able to successfully
develop new products and if developed successfully, market these new products or
that the sale of these products will be profitable for the Company.
MANUFACTURING
The Company does not have a manufacturing facility, but relies on third
parties to manufacture its products. Theuses contracted third party manufacturers areto produce its products. In August 2003, the Company entered into a cross-ownership agreement with Organics Corporation of America (“Organics”), its principal manufacturer, whereby mutual protections were established regarding intellectual property and pricing. Organics is responsible for receipt and storage of raw material,materials, production and packaging, and labeling of finished goods. Organics, a related party owns approximately 1% of the Company’s outstanding stock. At present, the Company is dependent upon manufacturersOrganics and another contract manufacturer for the production of all of its products. ToIf the extentcontract manufacturers were unwilling or unable to manufacture and deliver the manufacturers should discontinue their relationship withCompany’s products, the Company, the
Company'sCompany’s sales couldwould be adversely impacted. The Company believes at the present time it will be able to obtain from its manufacturers the quantity of products it will need to meet orders.
COMPETITION
The market for Nutritional-Medicine supplementsnutritional supplement industry is highly competitive
with few barriers to entry. The Company will be competing with many nutritional
supplement manufacturers as well as specialty health retailers, drug stores,
supermarkets, and mass merchandisers.competitive. Many of the Company's potentialCompany’s competitors are large, well-known companies, such as Novartis Medical Nutrition and Abbott Laboratories, that have considerably greater financial, sales, marketing and technical resources than the Company. Additionally, these competitors have significantlyresearch and development capabilities that may allow them to develop new or improved products that may compete with product lines the Company markets and distributes. In addition, competitors may elect to devote substantial resources to marketing their products to similar outlets and may choose to develop educational and information programs like those developed by the Company to support their marketing efforts. In May, 2008, Abbott Laboratories introduced its ProMod® liquid protein which is positioned similarly to the Company’s Pro-Stat® product. The Company’s business, financial condition and results of operations could be materially and adversely affected by any one or more of such developments.
Competition for the institutional nutritional supplement products the Company offers is significant. These products compete against a number of well-known brands of alternative or similar products with substantially greater marketingmarket share than the Company’s products. As the Company’s sales have grown, competitors have attempted to introduce products that compete directly against the Company’s liquid protein supplement, such as Abbott Laboratories’ liquid ProMod®. The Company’s failure to adequately respond to the competitive challenges faced by the products it offers could have a material adverse effect on its business, financial condition and financial resources. The
Company for manyresults of the foregoing reasons has decided to focus on becoming the
supplier for niche marketing organizations under exclusive supply arrangements
where its financial resources can be focused on product procurement and product
development instead of marketing against larger companies.
operations.
INTELLECTUAL PROPERTY
The Company regards the protection of copyrights, trademarks and other proprietary rights that it may own or license as material to its future success and competitive position. The Company intends to rely on a combination of laws and contractual restrictions, such as confidentiality agreements, to establish and protect its proprietary rights. Laws and contractual restrictions, however, may not be sufficient to prevent misappropriation of proprietary rights or deter others from independently developing products that are substantially equivalent or superior.
PATENTS
The
4 |
Patents
In January 2008, the Company ownswas issued a patent for “Method for Treating Wounds to Promote Healing.” This patent expires in 2023. In 1977, the Company was issued four issued patents for its collagen Hydrolysatehydrolysate product. These are for (1) METHOD OF PROVIDING HIGH-PROTEIN NUTRITION BY THE
ORAL ADMINISTRATION OFMethod Of Providing High-Protein Nutrition By The Oral Administration Of A PREDIGESTED PROTEIN COMPOSITION,Predigested Protein Composition, (2) METHOD OF
COMPOSITION FOR PREVENTING NUTRITIONAL DEFICIENCY,Method Of Composition For Preventing Nutritional Deficiency, (3) METHOD OF TREATING
NUTRITIONAL DEFICIENCY DURING CARDIAC CACHEXIA, DIABETES, HYPOGLYCEMIA,
GASTROENTEROLOGY, LIPID, CELL GLYCOGEN AND KERATIN RELATED SKIN CONDITIONS AND
ALCOHOLISM,Method Of Treating Nutritional Deficiency During Cardiac Cachexia, Diabetes, Hypoglycemia, Gastro-enterology, Lipid, Cell Glycogen And Keratin Related Skin Conditions And Alcoholism, and (4) METHOD OF TREATING OBESITY BY THE ORAL ADMINISTRATION OFMethod Of Treating Obesity By The Oral Administration Of A PREDIGESTED PROTEIN COMPOSITION. SomePredigested Protein Composition. In addition, a composition patent is pending for Prevention or Treatment of the products that the Company offers
incorporate patented technology owned by others, but patents do not protect most
of the Company's products.
COPYRIGHTS
None.
LICENSES
The Company in connection with focusing on certain market niches
acquired the "Carver-Curtis" license to sell certain products principally to the
African-American market. To date, the Company has had very limited sales of
"Carver-Curtis" products.
6
TRADEMARKSUrinary Tract Infection.
Trademarks
The Company has been using the EMFPro-Stat® mark for over twenty yearssince August 2002, the Fiber-Stat® mark since August 2005 and the Healthy NutUTI-Stat™ mark for three years. While thesince 2009. The Company intends to take the actions that it believes are necessary to protect its proprietary rights with respect to these marks, but it may not have the capital necessarybe able to protect the trademarks or be successful in doing
so.
do so on commercially reasonable terms, if at all.
GOVERNMENT REGULATION
The formulation, manufacture and labeling of the Company'sCompany’s products are subject to regulation by one or more federal agencies, including, principally, the Food and Drug Administration ("FDA"(“FDA”). These activities are also regulated by various agencies of the states and localities in which the Company'sCompany’s products are sold.
Principally through the efforts of the dietary supplement industry, on
October 25, 1994, the
The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) was signed into law. The law amendsenacted in 1994. DSHEA amended the Federal Food, Drug, and Cosmetic Act and, in the judgment of the Company, is favorable to the dietary supplement industry. First and foremost, theThe legislation createscreated a new statutory class of "dietary
supplements".“dietary supplements.” This new class includes vitamins, minerals, herbs, amino acids and other dietary substances for human use to supplement the diet. A dietary supplement which contains a new dietary ingredient, one not on the market as of October 15, 1994, will requirerequires evidence of a history of use or other evidence of safety establishing that it will reasonably be expected to be safe, such evidence to be provided by the manufacturer or distributor to the FDA before it may be marketed. The legislationDSHEA also recognizes the need for the dissemination of information about the link between nutrition and health and provides that publications, which are not false and misleading and present a balanced view of available scientific information on a dietary supplement, may be used in connection with the sale of dietary supplements to consumers. Among other changes, the lawDSHEA prevents the further regulation of dietary ingredients as "food
additives"“food additives” and allows the use of statements of nutritional support on product labels and in other labeling.
On
In September 23, 1997, the FDA issued final new regulations to implement the 1994 legislation.DSHEA. Among other things, these new regulations establishestablished a procedure for dietary supplement companies to notify the FDA about the intended marketing of a new dietary ingredient or about the use in labeling of statements of nutritional support. The regulations also establishestablished a new format for nutrition labeling on dietary supplements. The new format became mandatory on March 23, 1999, and the Company revised all of its dietary supplements labels to be in compliance by that date.
The FDA and other federal authorities are reviewing alternative approaches to assure the safety of vitamins, minerals, herbals and other products sold as dietary supplements. Increased regulatory oversight could subject the Company and other manufacturers and distributors of dietary supplements to increased production and compliance costs and possibly require capital expenditures. Future regulation affecting dietary supplements could result in a recall or discontinuance of certain products.
HEALTH ADVISORY BOARD
As part of the Company's strategy to enhance its reputation for quality
healthcare products and information, it has formed a Health Advisory Board
consisting of:
George L. Blackburn, M.D., Ph.D. Harvard Medical School
S. Daniel Abraham Chair of Nutrition Medicine
Associate Professor of Surgery, and Associate Director of Nutrition,
Division of Nutrition.
Director of Nutrition Support Services, Chief of the Nutritional/
Metabolism Laboratory.
Director of the Center for the Study of Nutrition and Medicine at the
Beth Israel Deaconess Medical Center.
7
Peter D. Vash, M.D., M.P.H.
Assistant Clinical Professor of Medicine, UCLA Medical Center, CA
Board Certified Internist
Specialist in eating Disorders and Endocrinology
Isaac Greenberg, PH.D.
Instructor, Dept. of Psychiatry (Psychologist), Harvard Medical School
Department of Psychiatry, Beth Israel Deaconess Medical Center,
Boston, MA
Leonard Haimes, M.D.
Past President of the American Society of Bariatric Physicians
Board Certified Internist
Specialist in Anti-Aging Medicine in Boca Raton, FL.
EMPLOYEES
The Company presently has 3 full time employees.
RECENT DEVELOPMENTS
The Company has received loans36 full time and 2 part time employees as of April 24, 2009.
5 |
RISK FACTORS |
RISK FACTORS
The Company generates a significant amount of revenues from Unity Venture Capital Associates
Ltd. totaling $245,000 through January 31, 2002. Mr. Burstein, Chairmantwo customers.
76% of the Company is a principal shareholder, officer,company’s sales are made to distributors who resell the products to end users, typically nursing homes and director of Unity Venture
Capital Associates Ltd. Between February 2001 and August 2001, Arnold Gans, the
Company's president, guaranteed the Company's bank credit lines of approximately
$100,000. Included in Notes Payable at January 31, 2002 is approximately $90,800
resulting from these credit lines. These amounts accrue interest at rates
varying from 19% to 27%. In November 2001, Arnold and Myra Gans borrowed
$150,000 and loaned the proceeds to the Company. The Company recorded a $150,000
liability to Arnold and Myra Gans and agreed to a repayment schedule equal to
the repayment schedule of the loan. The balance at January 31, 2002, is $150,000
and is included in "Loans Payable - officer and stockholder". In April through
May 10, 2002, the Company raised $145,000 in connection with the sale of
7,250,000 shares Of Common Stock at $0.02 per share. The Company intends to seek
additional capital, which is essential to permitting the company to execute its
new strategy. There can be no assurance the Company will be successful in
raising new funds or that the terms under which the funds are raised are
favorable to the Company.
PREVIOUS BUSINESS OPERATIONS
Duringhospitals. For the fiscal year ending January 31, 2002, the revenues generated
by the Company resulted from the sale of existing products, including
nutritional supplements and collagen including EMF, pet products, home remedy
products.
Commencing in the first quarter ended April 30, 2002, the Company
intends to focus on the sale of its collagen products to niche marketing
companies and to the institutional market, as well as EMF for the elderly
market.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
Inapplicable.
Item 2. PROPERTIES
The principal executive offices of the Company are located at 10 West
Forest Avenue, Englewood, New Jersey 07631, where it occupies approximately
7,500 square feet. The lease is for a period of five years commencing January 1,
2000. The annual rent for the initial three years is $65,625 and for the fourth
and fifth year of the lease is $67,500.
Approximately 2,500 square feet of this facility house the Company's
administrative offices with the balance utilized for shipping and warehousing.
8
The Company presently subleases a portion of its space to non-affiliated
persons. The Company also has arrangements with co-packers pursuant to which
such suppliers manufacture, package and ship the Company's products to major
customers. The Company believes its present facility is adequate for its present
and reasonably foreseeable future operational needs.
Item 3. LEGAL PROCEEDINGS
None. (See Note 8 to the Financial Statements).
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) The Company's Common Stock is currently traded over NASDAQ's
Electronic Bulletin Board. Information as to the range of high
and low bid quotations for the Company's Common Stock, for the
periods indicated, as furnished by National Quotation Bureau
Incorporated, is set forth below:
BID
----------------------------------
THREE MONTHS ENDED HIGH LOW
April 30, 2000 .75 .625
July 31, 2000 .50 .375
October 31, 2000 .50 .50
January 31, 2001 .312 .187
April 30, 2001 .50 .19
July 31, 2001 .25 .08
October 31, 2001 .08 .03
January 31, 2002 .04 .03
The above bid quotations represent prices between dealers and do not
include actual retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
(b) As of May 10,2002, there were approximately 107 record holders of
the Company's Common Stock.
(c) The Company has not declared any cash dividends on its Common
Stock and it has no intention to pay cash dividends in the
foreseeable future.
Item 6. SELECTED FINANCIAL DATA
The following table presents selected historical consolidated financial data for
the Company and its wholly owned subsidiaries. This data is qualified in its
entirety by the more detailed consolidated financial statements of the Company
included elsewhere herein. The following selected consolidated financial data
were derived from audited consolidated financial statements of the Company and
should be read in conjunction with the statements included elsewhere herein.
9
STATEMENTS OF OPERATIONS DATA:
YEAR ENDED JANUARY 31,
----------- ----------- ----------- ----------- -----------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Sales $ 488,200 $ 627,500 $ 443,200 $ 939,700 $ 932,900
Cost of sales 303,700 311,800 267,600 527,700 555,900
Operating (loss) (678,800) (1,056,100) (643,600) (42,300) (158,500)
(Loss) from continuing operations (743,600) (1,184,300) (729,300) (82,400) (181,100)
Income (loss) from discontinued operations -- -- -- 15,700 (25,500)
Extraordinary items -- 13,800 485,100 -- --
Net (loss) (743,600) (1,170,500) (244,200) (66,700) (206,600)
Basic Diluted Earnings Per share data
(Loss) from operations ($0.03) ($0.12) ($0.18) ($0.02) ($0.05)
(Loss) from discontinued operations -- -- -- -- (0.01)
Extraordinary items -- $0.12 -- --
Net (Loss) ($0.03) ($0.12) ($0.06) (0.01) (0.05)
BALANCE SHEET DATA:
YEAR ENDED JANUARY 31,
----------- ----------- ----------- ----------- -----------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
Working capital(deficiency) ($719,300) ($87,000) ($1,038,300) ($585,300) ($564,100)
Total assets 175,900 425,600 795,100 148,200 667,000
Long-term debt -- -- -- 75,000 75,000
Stockholders' equity (deficit) (678,500) 65,100 (1,013,300) (796,200) (429,500)
10
Item 7: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the related Notes included elsewhere in the report.
This discussion contains certain forward-looking statements that involve risks
and uncertainties. Actual results may differ materially from those anticipated
in these forward-looking statements as a result of various factors.
2002 - 2001
Sales for the year ended January 31, 2002 were $488,200 as compared
with sales of $627,500 for the year ended January 31, 2001, a decrease of 22.2%.
This decrease in sales was primarily due to the loss of a major customer2009 and the
significant reduction in sales from another major customer. Cost of sales
decreased from $311,800 for the year ended January 31, 2001, or 49.7% of sales,
to $303,700, or 62.2% of sales, for the year ended January 31, 2002. The
percentage increase was mainly attributable to the writing off of approximately
$35,000 of obsolete inventory. Selling, general and administrative expenses
decreased 23.8% to $746,600 from $980,100 due to the reduction in employees and
the cessation of its website. The $746,600 consisted of personnel costs of
$488,000, $50,000 in rent and other costs of $208,000. The Company also expended
$379,600 towards the development of its website for the year ended January 31,
2001 as compared to $116,700 in the current year. During the year ended January
31, 2002, the Company determined that its gender specific website and its
e-commerce initiative would not be successful in the foreseeable future and it
elected to close its website and focus its efforts on its traditional business.
See "Liquidity and Capital Resources". All capitalized costs were charged to
current operating expenses. The Company had no advertising expense in the year
ended January 31, 2002 as compared to $12,100 in the prior year in its efforts
to control costs. For the year ended January 31, 2002, the Company incurred an
operating loss of $678,800 as compared to an operating loss of $1,056,100 for
the comparable period in 2001. This decrease in loss was primarily due to the
reduction in website, personnel and advertising costs. The Company had a loss
from operations of $743,600 or ($.03) per share, as compared to a loss of
$1,184,300 or ($.12) per share for the comparable period in 2001. The net loss
for the year ended January 31, 2002 was $743,600 and the net loss for the year
ended January 31, 2001 was $1,170,500 and reflects the forgiveness of debt in
the aggregate amount of $13,800. (See Note 10 - to notes to CONSOLIDATED
FINANCIAL STATEMENTS).
Interest expense was $64,800 for the year ended January 31, 2002, as
compared to interest expense of $140,300 and interest income of $12,100 during
the comparable period of 2001. The decrease in both interest expense and
interest income was primarily due to the conversion of the Company's 10%
Convertible Subordinated Debentures and the expenditure of those funds. However,
the Company has incurred additional short-term debt of approximately $313,000 at
interest rates varying between 10%-27%. Forgiveness of debt was $13,800, as a
result of a settlement of an outstanding loan obligation for the three months
ended October 31, 2000.
2001 - 2000
Sales for the year ended January 31, 2001 were $627,500 as compared
with sales of $443,200 for the year ended January 31, 2000, an increase of
41.6%. The increase in sales was primarily due to collagen-based products and
The Healthy Nut (soybean) program. Cost of sales increased from $267,600 for the
year ended January 31, 2000, or 60.4% of sales, to $311,800, or 49.7% of sales,
for the year ended January 31, 2001. Selling, general and administrative
expenses increased 51.8% to $980,100 from $645,600. This represents an increase
of approximately $334,500, which consists of increased professional fees of
$69,000; the hiring of additional personnel and salary increases of
11
approximately $150,000; the cost of obtaining additional insurance of $27,000
and consulting fees of $80,000. The Company also expended $379,600 towards the
development of its website as compared to an expenditure of $167,200 in the
prior year. The preponderance of these expenses was incurred during the first
nine months of the fiscal year. The Company increased advertising expense by
$5,700 in the year ended January 31, 2001. For the year ended January 31, 2001,
the Company incurred an operating loss of $1,056,100 as compared to an operating
loss of $643,600 for the comparable period in 2000. The Company had a loss from
operations of $1,184,300 or ($.12) per share, as compared to a loss of $729,300
or ($.18) per share for the comparable period in 2000. The net loss for the year
ended January 31, 2001 was $1,170,500, which includes forgiveness of debt in the
aggregate amount of $13,800. The net loss for the year ended January 31, 2000
reflects the forgiveness of debt in the aggregate amount of $337,500 and the
extinguishment of the minority interest of $147,600. (See Note 10 - to notes to
CONSOLIDATED FINANCIAL STATEMENTS). Because of the decline in the interest in
the Internet and, in particular the determination by the Company that its
Women's Health Website and its e-commerce initiative would not be successful in
the foreseeable future the Company elected to significantly reduce its Internet
initiative and has focused its efforts on its off-line businesses. See
"Liquidity and Capital Resources".
Interest expense was $140,300 and interest income was $12,100 for the
year ended January 31, 2001, as compared to interest expense of $94,700 and
interest income of $9,000 during the comparable period of 2000. The increase in
both interest expense and interest income was primarily due to the $2,021,250
principal amount of 10% Convertible Subordinated Debentures.
Liquidity and Capital Resources
-------------------------------
At January 31, 2002, the Company had cash of $4,500 as compared to cash
of $32,700 on January 31, 2001.
In 1999, the Company determined that in order to sustain its existing
business operations and to successfully implement its plan of developing a line
of women's products and an Internet web site devoted to women's health that
additional capital would be required. Thereafter the Company completed the
private placement of $2,021,250 principal amount of 10% Convertible Subordinated
Debentures. The Convertible Subordinated Debentures became convertible into
shares of common stock at rates ranging between $.075 and $.25 per share. In
addition, accrued interest on these debentures was also converted into common
stock thus resulting in the issuance of 24,725,997 shares. See Note 6 - Notes to
CONSOLIDATED FINANCIAL STATEMENTS filed on Form 10-K for year ended January 31,
2002. However as noted above due to the significant decline in the commercial
potential of its Internet site, the Company has ceased the operation of its
website and reduced the number of employees while focusing its efforts on its
traditional business. An officer of the Company guaranteed the Company's bank
credit lines of approximately $100,000. Included in Short Term Debt at January
31, 2002 is approximately $90,800 resulting from these credit lines. These
amounts accrue interest at rates varying from 19% to 27%. An officer of the
Company borrowed $150,000 and loaned the proceeds to the Company. The Company
recorded a $150,000 liability to the officer and agreed to a repayment schedule
equal to the repayment schedule of the officer's loan. The balance at January
31, 2002, is $150,000 and is included in "Loans Payable - officer and
stockholder". A company affiliated with a Director advanced an additional
$115,000 during the year ending January 31, 2002. The Company will require
additional working capital until such time as profitability from these ventures
and sales of existing products are achieved and the Company reaches break-even
levels. The Company is actively seeking to raise an additional $200,000 in
financing of which it has raised $145,000 from April 2002 through May 10, 2002.
There can be no assurance that funds raised to date ($145,000) will result in
the Company achieving profitability or that the additional funds if raised will
enable the Company to achieve profitability. The Company will also require
additional funding to achieve its objectives (in addition to the $200,000
referred to herein). The inability to raise additional funds will materially
effect the future business operations of the Company and raises a substantial
probability that the Company will have to discontinue operations.
THIS FORM 10-K AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
COMPANY OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995. THOSE STATEMENTS INCLUDE STATEMENTS
REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY AND MEMBERS
OF ITS MANAGEMENT, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE
BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY
KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS SET FORTH BELOW. THE COMPANY UNDERTAKES
12
NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), Congress encouraged public companies to make "forward-looking
statements" by creating a safe harbor to protect companies from securities law
liability in connection with forward-looking statements. The Company intends to
qualify both its written and oral forward-looking statements for protection
under the Reform Act and any other similar safe harbor provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, prospective investors are urged not to place undue
reliance on written or oral forward-looking statements of the Company. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, the Company undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.
The Company provides the following risk factor disclosure in connection
with its continuing effort to qualify its written and oral forward-looking
statements for the safe harbor protection of the Reform Act and any other
similar safe harbor provisions. Important factors currently known to management
that could cause actual results to differ materially from those in
forward-looking statements include the following:
SIGNIFICANT AMOUNT OF REVENUES GENERATED FROM SINGLE CUSTOMER.
For The fiscal year ended January 31, 2002, one customer2008, two distributors accounted for approximately 28% and 32% of total revenues.revenues respectively. The Company does not have a contractcontracts with this customerthese distributors and, as a result, there is no assurance that this customerthese distributors will continue to order products from the Company or will continue to order the products in the same amount. The loss of this customer wouldthese distibutors could have a material adverse effect upon the operationsales and operating results of the Company.
THE COMPANY HAS RECENTLY INSTITUTED ITS NEW BUSINESS STRATEGY. ITS
BUSINESS MUST EXPAND FOR IT TO ATTAIN PROFITABILITY.
The Company has only recently commencedunless end users were able to buy the implementation of its new
business strategy. company’s products from alternative distributors.
The Company may not successfully complete the transition to
successful operations or profitability pursuant toencounter problems implementing its newbusiness strategy.
The Company may encounter problems, delays and expenses in implementing its new business strategy. These may include, but are not be limited to, unanticipated problems and 13
acquisitions and development. These problems may be beyond the Company'sCompany’s control, and in any event, could adversely affect the Company'sCompany’s results of operations. See "Selected
Consolidated Financial Information" and "Management's“Management’s Discussion and Analysis or Plan of Financial ConditionOperation.”
The Company faces increasing competitive pressure.
Competition for the institutional nutritional supplement products the Company offers is significant. These products compete against a number of well-known brands of alternative or similar products with substantially greater market share than the Company’s products. As the Company’s sales have grown, competitors have attempted to introduce products that compete directly against the Company’s liquid protein supplement, such as Abbott Laboratories’ liquid ProMod®, which was introduced in May 2008. The Company’s failure to adequately respond to the competitive challenges faced by the products it offers could have a material adverse effect on its business, financial condition and Resultsresults of Operations."
IF THE COMPANY DOES NOT SUCCESSFULLY MANAGE ANY GROWTH IT EXPERIENCES,
IT MAY EXPERIENCE INCREASED EXPENSES WITHOUT CORRESPONDING REVENUE INCREASES.
operations.
The Company's business plan will, if implemented,Company’s manufacturing is subject to government regulations.
The formulation, manufacture and labeling of the Company’s products are subject to regulation by one or more federal agencies, including, principally, the Food and Drug Administration (“FDA”). These activities are also regulated by various agencies of the states and localities in which the Company’s products are sold.
The FDA and other federal authorities are reviewing alternative approaches to assure the safety of vitamins, minerals, herbals and other products sold as dietary supplements. Increased regulatory oversight could subject the Company and other manufacturers and distributors of dietary supplements to increased production and compliance costs and possibly require capital expenditures. Future regulation affecting dietary supplements could result in expansiona recall or discontinuance of its operations.certain products.
If the Company does not successfully manage any growth it experiences, it may experience increased expenses without corresponding revenue increases.
The Company’s business is growing at a rapid rate. This expansiongrowth may place a significant strain on management, financial and other resources. It also willmay require the Company to increase expenditures before it generates corresponding revenues. The Company'sCompany’s ability to manage future growth, should it occur, will depend upon its ability to identify, attract, motivate, train and retain highly skilled managerial, financial, business development, sales and marketing and other personnel. Competition for these employees is intense. Moreover, the addition of products
orgrowth in the Company’s businesses will require the Company'sCompany’s management to integrate and manage new
operations and an increasing number of employees. The Company may not be able to implement successfully and maintain its operational and financial systems or otherwise adapt to growth. Any failure to manage growth, if attained, wouldcould have a material adverse effect on the Company'sCompany’s business.
6 |
The Company duehas announced intentions to begin selling certain of its products through retail stores.
The Company has announced in fiscal 2009 that it intends to begin selling certain of its products through retail stores. During fiscal 2009, the Company began developing strategic plans and initiated discussions with several retailers in preparation for the retail launch, but current economic conditions have delayed the launch until fiscal 2010. The Company has limited capital presently has only three full time employees which creates an
additional riskexperience in the retail market. There are many existing products in the retail market that the Company maywill have to compete against. Most of the competition is from companies larger than us who have more financial resources to support their products with marketing, advertising and rebates. The Company will need to make initial expenditures in marketing and advertising to launch its retail products. There is no certainty that the Company will realize profits from retail sales that will exceed the expenses incurred. Management will need to carefully manage this retail venture. If the Company is not be successful in implementingmanaging this, it could have a material adverse effect on the Company’s business.
The Company is dependent on one primary manufacturer, Organics Corporation of America (“Organics”), a related party, and a secondary manufacturer for the production of most of its strategy.
THE COMPANY IS DEPENDENT ON A LIMITED NUMBER OF SOURCES OF SUPPLY FOR
MANY OF THE PRODUCTS IT OFFERS. IF ONE OF ITS SUPPLIERS FAILS TO SUPPLY ADEQUATE
AMOUNTS OF A PRODUCT THE COMPANY OFFERS, THE COMPANY'S SALES MAY SUFFER AND IT
COULD BE REQUIRED TO ABANDON A PRODUCT LINE.
products.
The Company is dependent on Organics and a secondary manufacturer for the production of most of its products. Organics has one factory for its production facilities. If this manufacturer sustains damage to its facility, has labor or financial problems, or materially changes the price of manufacturing, and the secondary manufacturer is unable to manufacture on a timely basis the quantity of products the Company purchases from Organics, this could interrupt the supply of product which could cause the Company to lose product sales, which could have a material adverse effect on the Company’s business.
The Company is dependent on a limited number of sources of supply for the raw materials for many of the products it offers. If there were an interruption of supply of products, the Company’s sales may suffer and the Company could be required to abandon a product line.
The Company is dependent on a limited number of sources of supply for the raw materials for many of the products it offers. With respect to these products, the Company cannot guarantee that these third parties will be able to provide adequate supplies of productsraw materials in a timely fashion. The Company also faces the risk that
one of its suppliers could become insolvent, declare bankruptcy, lose its
production facilities in a disaster, be unable to comply with applicable
government regulations or lose the governmental permits necessary to manufacture
the products it supplies to the Company. If the Company is unable to renew or extend an agreement with a third-party supplier, if an existing agreement is terminated or if a third-party supplier otherwise cannot meet the Company'sCompany’s need for a product,raw materials, the Company may not be able to obtain an alternative source of supply in a timely manner or at all. In these circumstances, the Company may be unable to continue to market products as planned and could be required to abandon or divest itself of a product line on terms which would materially affect it.
THE COMPANY MAY BE EXPOSED TO PRODUCT LIABILITY CLAIMS NOT COVERED BY
INSURANCE THAT WOULD HARM ITS BUSINESS.the Company’s business.
The Company may be exposed to product liability claims not covered by insurance.
The Company may be exposed to product liability claims. Although the Company believes that it currently carries and intends to maintain a comprehensive multi - peril liability insurance package, the Company cannot guarantee that this insurance will be sufficient to cover all possible liabilities. A successful suit against the Company could have an adverse effect on its business and financial condition if the amounts involvednot covered by insurance are material.
THE COMPANY IS UNCERTAIN OF ITS ABILITY TO OBTAIN ADDITIONAL FINANCING
FOR ITS FUTURE CAPITAL NEEDS. IF THE COMPANY IS UNABLE TO OBTAIN ADDITIONAL
FINANCING, IT MAY NOT BE ABLE TO CONTINUE TO OPERATE ITS BUSINESS.
The Company’s future capital requirements will depend on many factors. If the Company will require significant amounts ofneeds to obtain additional capitalfinancing and is unable to achievedo so, it might not be able to continue to operate at its stated goals.current level.
The Company believes that the net proceeds from the
Company's recent private offering of common stock will not beit has sufficient cash on hand to completelyfully implement its business strategy in calendar year 2002.for. See "Management's“Management’s Discussion and Analysis or Plan of Financial Conditions and results of Operations-Operation - Liquidity and Capital Resources".Resources.” The Company'sCompany’s future capital requirements will depend on many factors including:
o the costs of its sales and marketing activities and its education programs for its markets, o competing product and market developments, o the costs of acquiring or developing new products,
o the costs of expanding its operations, and
o its ability to generate positive cash flow from its sales.
14
Additional
If needed, additional funding may not be available on acceptable terms, ifor at all. If adequateadditional funds arewere needed but were not available, the Company maymight be required to significantly curtail
significantly or defer one or more of its marketing programs or to limit or postpone obtaining or developing new products through license, acquisition or other
agreements.products. If the Company raises additional funds through the issuance of equity securities, the percentage ownership of its then-current stockholders may be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of its common stock. If the Company raises additional funds through the issuance of additional debt securities, these new securities would have certain rights, preferences and privileges senior to those of the holders of its common stock, and the terms of these debt securities could impose restrictions on its operations. For a further discussion of expenditures and other factors that could affect the Company'sCompany’s need for future capital, see "Management's“Management’s Discussion and Analysis or Plan of Financial Condition and Results of
Operations --Operation - Liquidity and Capital Resources."
GOING CONCERN QUALIFICATION CONTAINED IN REPORT OF INDEPENDENT
AUDITORS.
”
7 |
The Company has received fromCompany’s inability to obtain new proprietary rights or to protect and retain its auditors a report that raises
substantial doubt aboutexisting rights could impair its ability to continue as a going concern. If the
Company fails to raise additional funds orcompetitive position and adversely affect its new operating plan is not
successful, an investor in the Company could lose his entire investment.
THE COMPANY'S INABILITY TO OBTAIN NEW PROPRIETARY RIGHTS OR TO PROTECT
AND RETAIN ITS EXISTING RIGHTS COULD IMPAIR ITS COMPETITIVE POSITION AND
ADVERSELY AFFECT ITS SALES.sales.
The Company believes that the trademarks, copyrights and other proprietary rights that it owns, or licenses, or that it will own or license in
the future, will continue to be important to its success and competitive position. If the Company fails to maintain its existing rights or cannot acquire additional rights in the future, its competitive position may be harmed. While some products we offerthe Company offers incorporate patented technology,uses, most of the products we
sellthe Company sells are not protected by patents.
The Company intends to take the actions that it believes are necessary to protect its proprietary rights, but it may not be successful in doing so on commercially reasonable terms, if at all. In addition, parties that license their proprietary rights to the Company may face challenges to their patents and other proprietary rights and may not prevail in any litigation regarding those rights. Moreover, the Company'sCompany’s trademarks and the products it offers may conflict with or infringe upon the proprietary rights of third parties. If any such conflicts or infringements should arise, the Company would have to defend itself against such challenges. The Company also may have to obtain a license to use those proprietary rights or possibly cease using those rights altogether. Any of these events could harm the Company'sCompany’s business.
IF THE MARKETING COMPANIES DO NOT SUCCESSFULLY SELL THE PRODUCTS THE
COMPANY OFFERS, THE COMPANY MAY EXPERIENCE SIGNIFICANT LOSSES.
The products the Company offers may not achievepublic market acceptance. The
market acceptance of these products will depend on, among other factors, their
advantages over existing competing products, and their perceived efficacy and
safety.
The Company's business model assumes that the marketing programs
instituted by the marketing companies with which it has alliances will result in
increased demand for the products it offers. IfCompany’s common stock may be volatile, and the marketing programs do not
succeed in generating a substantial increase in demand for its products, the
Company will be unable to realize its operating objectives. In addition, the
Company's business model seeks to build on the expanding roles of marketing
partners, and its marketing efforts are concentrated on these groups. If these
distribution companies do not successfully sell the products the Company offers
or if their customers do not regularly use these products, the Company may
experience significant losses and its business will be adversely affected.
THE HEALTH CARE INDUSTRY AND THE MARKETS FOR THE PRODUCTS THE COMPANY
OFFERS ARE VERY COMPETITIVE. THE COMPANY MAY NOT BE ABLE TO COMPETE EFFECTIVELY,
ESPECIALLY AGAINST ESTABLISHED INDUSTRY COMPETITORS WITH SIGNIFICANTLY GREATER
FINANCIAL RESOURCES.
15
The health care industry is highly competitive. Manyprice of the Company's
competitors are large well-known health care companies that have considerably
greater financial, sales, marketing and technical resources than the Company.
Additionally, these competitors have research and development capabilities thatcommon stock may allow them to develop new or improved products that may compete with product
lines the Company markets and distributes. In addition, competitors may elect to
devote substantial resources to marketing their products to similar outlets and
may choose to develop educational and information programs like those developed
by the Company to support their marketing efforts. The Company's business,
financial condition and results of operations could be materially and adversely
affected by any one or more of such developments.
Competitionfluctuate for the self-care products the Company offers is
significant. These products compete against a number of well-known brands of
similar products. The Company's failure to adequately respondreasons unrelated to the competitive
challenges faced by the products it offers could have a material adverse effect
on its business, financial condition and results of operations.
THE COMPANY'S QUARTERLY FINANCIAL RESULTS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND MAY FAIL TO MEET OR EXCEED THE EXPECTATIONS OF SECURITIES
ANALYSTS OR INVESTORS, WHICH COULD CAUSE THE PRICE OF THE COMPANY'S STOCK TO
DECLINE SIGNIFICANTLY.
The Company's quarterlyCompany’s operating results may fluctuate significantly
based on factors such as:
o changes in the acceptance or availability of the products it
offers,
o the timing of new product offerings, acquisitions or other
significant events by the Company or its competitors,
o regulatory approvals and legislative changes affecting the
products it offers or those of its competitors,
o the timing of expenditures for the expansion of its operations,
and
o general economic and market conditions and conditions specific to
the health care industry.
Due to the Company's short operating history pursuant to its new
business strategy and the difficulty of predicting demand for the products it
offers, the Company is unable to accurately forecast its revenues. Accordingly,
the Company's operating results in one or more future quarters may fail to meet
the expectations of securities analysts or investors, which could have a
material adverse effect on the Company's stock price.
THE PUBLIC MARKET FOR THE COMPANY'S COMMON STOCK MAY BE VOLATILE, AND
THE PRICE OF THE COMMON STOCK MAY FLUCTUATE FOR REASONS UNRELATED TO THE
COMPANY'S OPERATING PERFORMANCE. A SIGNIFICANT DECLINE IN THE PRICE OF THE
COMMON STOCK COULD LEAD TO A CLASS ACTION LAWSUIT AGAINST THE COMPANY.performance.
There has historically been a very limited public market for the Company'sCompany’s common stock, and the Company does not know whether investor interest in the Company will lead to the development of a more active trading market. The market prices and trading volumes for securities of emerging companies, such as the Company, historically have been highly volatile and have experienced significant fluctuations both related and unrelated to the operating performance of those companies. The price of the Company'sCompany’s common stock may fluctuate widely, depending on many factors, including factors that may cause the Company'sCompany’s quarterly operating results to fluctuate as well as market expectations and other factors beyond the Company'sCompany’s control. 16
Item 8: Financial StatementsThis could restrict the Company’s ability to access the capital markets for necessary funding.
Failure to achieve and Supplemental Data
See Financial Data Section appearing on pages F1-F18 following the
signature page.
Item 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages, and the position and offices held by each
of the directors and executive officers of the Company.
Name Age Position and Office
- ----------------- ---- ----------------------------------
Lawrence Burstein 59 Chairman / Director
Arnold Gans 68 President / Director
Myra Gans 64 Executive Vice President/Director
LAWRENCE BURSTEIN, Chairman, is and since March 1996 has been
President, a Director and principal shareholder of Unity Venture Capital
Associates, a private investment banking firm. Mr. Burstein is a director of
four other public companies, being respectively, CAS Medical Systems, Inc.
engaged in the manufacture and marketing of specially formulated medical foods,
and T-HQ, Inc., a developer of electronic game cartridges, Traffix, Inc., an
Internet marketing company, and ID Systems, Inc., a manufacturer and marketer of
systems to monitor physical assets.
ARNOLD GANS has been President and a director of the Company since its
formation in 1981. Prior thereto, Mr. Gans had been involved in the weight
control market for over 25 years during which time he, among other things,
developed certain appetite suppressants and anti-obesity programs. Prior to
founding the Company in 1981, Mr. Gans was President of Control Drug, Inc. a
private company engaged in the manufacture of nutritional protein supplements.
Mr. Gans was granted patents in 1977 for method-use manufacturing for certain
nutritional formula processes relating to the use of certain foods (EMF) to
treat nutritional deficiency, which he has assigned to the Company.
MYRA GANS, wife of Arnold Gans, the Company's president, has been
Executive Vice President of and a director of the Company since 1982. Mrs. Gans
has been an executive at MNI since 1981 and was employed at Control Drug, Inc.
as Vice President-Sales for five years prior thereto. She has worked extensively
with medical professionals and hospitals to integrate company products and
programs. Currently, her responsibilities include securing Medicare and Medicaid
approvals from each state for the EMF product sold to nursing and convalescent
homes, hospitals, dialysis units and pharmacies.
Directors of the Company hold office until the next annual meeting of
the Company's shareholders and until their successors have been duly elected and
qualified. None of the Company's Directors receives compensation for his
services as such.
17
Officers of the Company serve at the pleasure of the Board of Directors
and until the first meeting of the Board of Directors following the next annual
meeting of the Company's shareholders and until their successors have been
elected and qualified.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 (the
"Exchange Act") and the rules issued thereunder, the Company's executive
officers and directors are required to file with the Securities and Exchange
Commission and the National Association of Securities Dealers, Inc. reports of
ownership and changes in ownership of Common Stock. Copies of such reports are
required to be furnished to the Company. Arnold Gans did not timely file a Form
4 with respect to the grant to him of 750,000 options in August, 1999 and the
purchase of 133,340 shares of Common Stock and Myra Gans did not timely file a
Form 4 with respect to the same 750,000 options granted to her in August 1999
and the same purchase of 133,340 shares of Common Stock. A Form 5 was filed by
both on February 16, 2000. The Company believes that during the year ended 2002,
one of its directors did not timely file documentsmaintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
Section 404 of the Sarbanes-Oxley Act requires annual management assessments of the effectiveness of our internal controls over financial reporting and disclosure controls and procedures. The Company may not be able to identify and or establish proper procedures to maintain an effective internal control environment. Failure to achieve and maintain an effective internal control environment could have a material adverse effect on our stock price or our ability to access the capital markets for necessary funding.
The effect of general economic conditions and the current financial crisis
Recent distress in the financial markets has resulted in declines in institutional spending, which can affect demand for the Company’s products. Healthcare institutions are exhibiting more stringent cost concerns and implementing aggressive cost reductions. If the national economy or credit markets in general were to deteriorate further, it is possible that such changes could put negative pressure on our customers, affecting our cash flows. There can be no assurance that our liquidity will not be affected by changes in the financial markets and the global economy.
While we do not anticipate that we will need additional financing or equity during the next fiscal year, tightening of the credit markets could make it more difficult for us to enter into agreements for new indebtedness or obtain funding through the issuance of our securities. The effects of these changes could also require us to make additional changes to our current plans and strategy.
In addition, the current credit crisis is having a significant negative impact on businesses around the world, and the impact of this crisis on our major raw material suppliers cannot be predicted. The inability of key suppliers to access liquidity, or the insolvency of key suppliers, could lead to their failure to deliver products or services. If we are unable to procure products and services when needed, or if we experience deterioration in demand for our products over an extended period of time, our sales and cash flows could be negatively impacted in future periods.
Liquidity and Capital Resources
If the Company raises additional funds through the issuance of common stock or convertible preferred stock, the percentage ownership of its then-current stockholders will be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of its common stock. If the Company raises additional funds through the issuance of additional debt securities, these new securities could have certain rights, preferences and privileges senior to those of the holders of its common stock, and the terms of these debt securities could impose restrictions on its operations. Management believes that cash generated from operations, along with its current cash balances, will be sufficient to finance working capital and capital expenditure requirements for at least the next twelve months.
8 |
Concentration of Section 16(a) with respectCredit Risk
The Company typically invests its excess cash in treasury backed money market funds, corporate bonds and commercial paper. The diversification of the cash investments is intended to the granting of 500,000 options at
an exercise price of $0.03 per share.secure safety and liquidity. As of January 31, 2002, none2009 the majority of cash and cash equivalents were invested in money market accounts. The Company maintains the options were exercised.
Item 11. EXECUTIVE COMPENSATION
(a) CASH COMPENSATIONmajority of its cash and cash equivalents in bank accounts at two financial institutions. The following table summarizes the compensation paid in the
fiscal years endedbalances, at times, may exceed federally insured limits. At January 31, 2002, 2001, & 2000 respectively,2009, the Company had approximately $9.2 million in excess of FDIC insured limits. The Company’s operations are not subject to the Company's Chief Executive Officer and Executive Vice
President.
SUMMARY COMPENSATION TABLE
LONG TERM
NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION COMPENSATION AWARDS(b)
-------------------
YEAR SALARY STOCK OPTIONS
---- --------- --------------
Arnold Gans
President (CEO) 2002 $129,230 2,050,000 (a)
2001 $156,923
2000 $140,000 750,000 (a)
Myra Gans
Executive Vice President 2002 $ 84,615 2,050,000 (a)
& Secretary 2001 $ 98,961
2000 $ 85,000 750,000 (a)
(a) Owned jointly by Mr. and Mrs. Gans.
(b)risks of material foreign currency fluctuations, nor does it use derivative financial instruments in its investment practices. The Company places its marketable investments in instruments that meet high credit quality standards. The Company does not offer any restricted stock awards, stock appreciation
rights,expect material losses with respect to its investment portfolio or other long-term incentive programs.
18
AGGREGATED OPTION EXERCISE IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR END (#) AT FISCAL YEAR END ($)(a)
---------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Arnold Gans(a) 4,100,000 -- $41,000 $ --
Myra Gans (a) 4,100,000 -- $41,000 $ --
- --------------
(a) Owned jointly by Mr. And Mrs. Gans.
OPTIONS GRANT IN LAST FISCAL YEAR
OPTIONS GRANT IN LAST FISCAL YEAR
- ----------------------------------------------------------------------------------------- ------------------------------
February 1, 2001 - January 31, 2002 Potential realizable value
at assumed annual rates of
stock price appreciation for
option term(1)
Individual Grants
- --------------------- ------------------- ------------------- ------------ -------------- --------------- --------------
Percent
of total
Number options/SARs
of securities granted
underlying to Exercise
option/SARs employees or base 5% 10%
granted in fiscal price Expiration ($)$ (2) ($)$(2)
Name (#) year ($/Sh) date
- --------------------- ------------------- ------------------- ------------ -------------- --------------- --------------
Arnold Gans 2,050,000(a) 80% $0.03 10/16/06 $16,991 $37,546
- --------------------- ------------------- ------------------- ------------ -------------- --------------- --------------
Myra Gans 2,050,000(a) 80% $0.03 10/16/06 $16,991 $37,456
- --------------------- ------------------- ------------------- ------------ -------------- --------------- --------------
1. In accordanceexposure to market risks associated with Securities and Exchange Commission rules, these
columns show gains that might exist forinterest rates. The impact on the respective options,
assuming thatCompany’s results of one percentage point change in short-term interest rates would not have a material impact on the market price of Gender Sciences, Inc. common stock
appreciates from the date of grant over a period of 10 years at the
annualized rates of 5% and 10%, respectively. If the stock price does
not increase above the exercise price at the time of exercise, realizedCompany’s future earnings, fair value, or cash flows related to the named executives from these options will be zero.
2. Only reflects a five year periodinvestments in accordance with the expiration datecash equivalents or interest-earning marketable securities.
PROPERTIES |
The principal executive offices of the options.
(a) Owned jointly by Mr. And Mrs. Gans.
EMPLOYMENT AGREEMENTS
None of the Company's executive officers is presently a party to an
employment agreement with the Company.
19
(a) COMPENSATION PURSUANT TO PLANS
None.
(b) OTHER COMPENSATION
None.
(d) COMPENSATION OF DIRECTORS
Directors receive no compensation for their services as such.
(e) TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
None.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
outstanding common stock beneficially owned on January 31, 2002 by (i) each
person who is known by the Company to beneficially own or exercise voting or
dispositive control overare located at least 5% of the Company's common stock, (ii) each of
the Company's directors and (iii) all of the Company's executive officers and
directors as a group:
NAMES AND ADDRESSES NUMBER OF SHARES
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENTAGE OF CLASS(1)
- ------------------- --------------------- ----------------------
Arnold Gans 4,449,830 (2) 10.4%
10-West Forest Avenue,
Englewood, NJ 07631
Myra Gans 4,449,830 (2) 10.4% 10 West Forest Avenue, Englewood, New Jersey 07631, Lawrence Burstein 1,692,750 (3) 3.5%
245 Fifth Avenue,
where it leases approximately 7,500 square feet. The lease is for a period of five years commencing January 1, 2005. The annual rent for the fiscal year ending January 31, 2009 was approximately $121,900, for the fiscal year ending January 31, 2010 it will be $80,100.
Approximately 3,500 square feet of this facility house the Company’s administrative offices with the balance utilized for shipping and warehousing. Some of the Company’s products are shipped by its third party manufacturer directly to major customers. The Company believes its present facility is adequate for its present and reasonably foreseeable future operational needs.
LEGAL PROCEEDINGS |
None.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
None.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Since April 18, 2007, the Company’s common stock has been quoted on the NASDAQ Capital Market under the symbol “MDNU”. Prior to that, the Company’s common stock was quoted on the OTC Bulletin Board under the symbol “MDNU.OB.” Information for periods ending prior to April 18, 2007 as to the range of high and low bid quotations for the Company’s common stock was obtained from the National Quotation Bureau Incorporated. Information for periods ending after April 18, 2007 as to the high and low sales prices for the periods indicated was obtained from the NASDAQ Stock Market:
|
|
|
|
|
|
|
|
THREE MONTHS ENDED |
| HIGH |
| LOW |
| ||
|
|
| |||||
April 30, 2007 |
| $ | 5.50 |
| $ | 4.00 |
|
July 31, 2007 |
| $ | 7.10 |
| $ | 4.95 |
|
October 31, 2007 |
| $ | 6.00 |
| $ | 3.80 |
|
January 31, 2008 |
| $ | 5.49 |
| $ | 2.59 |
|
April 30, 2008 |
| $ | 3.65 |
| $ | 2.72 |
|
July 31, 2008 |
| $ | 3.34 |
| $ | 1.77 |
|
October 31, 2008 |
| $ | 2.45 |
| $ | 1.65 |
|
January 31, 2009 |
| $ | 1.90 |
| $ | 1.12 |
|
The above bid quotations for the periods ending prior to April 18, 2007 represent prices between dealers and do not include actual retail mark-ups, mark-downs or commissions and may not represent actual transactions.
As of April 24, 2009, there were approximately 567 holders of record of the Company’s common stock.
The Company has not declared any cash dividends on its common stock and it has no intention to pay cash dividends in the foreseeable future.
9 |
As of January 31, 2009, the following information is provided with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance, aggregated as follows:
|
|
|
|
|
|
|
|
|
|
Plan category |
| Number of |
| Weighted average |
| Number of |
| ||
| |||||||||
|
| (a) |
|
| (b) |
|
| (c) |
|
| |||||||||
Equity compensation plans approved by security holders |
| 2,609,284 |
| $ | 2.52 |
|
|
| (1) |
|
|
|
|
|
|
|
|
|
|
Equity compensation plans not approved by security holders |
| 200,000 |
| $ | 0.68 |
|
| — |
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
Total |
| 2,809,284 |
| $ | 2.39 |
|
| — |
|
|
|
|
|
|
|
| |||
(1) | The 2003 Omnibus Equity Incentive Plan was amended to provide that as of January 31 of each year, the aggregate number of Common Shares reserved for issuance under the 2003 Plan is automatically increased in an amount equal to the number of Common Shares issued by reason of awards being exercised or settled, as applicable, during the immediately preceding fiscal year. |
Company Stock Repurchase Plan
In December 2007, the Company’s Board of Directors approved the Medical Nutrition USA, Inc. Stock Repurchase Plan (the “Plan”). The Company did not obtain stockholder approval. The Plan allowed for the purchase of up to 500,000 shares of Company stock on the open market and from employees. The Plan allows for a maximum weekly market purchase of 25,000 shares with no more than 50,000 shares in any calendar month. Private transactions with employees can not exceed 50% of the total shares to be purchased with no one individual employee exceeding 25% of the total. The Plan commenced on January 15, 2008. As of January 31, 2009, the Company had purchased 184,000 shares from employees and 264,000 shares on the open market. The Company purchased these shares for an aggregate total of $1,409,600. These purchased shares are deemed authorized and unissued shares available for issuance. The Plan expired on July 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
Period |
| Total Number of |
| Average Price |
| Total Number of |
| Maximum |
| |
|
| |||||||||
|
|
|
|
|
|
|
|
|
|
|
January 15, 2008 – January 31, 2008 |
| 186,000 |
| $ | 3.20 |
| 186,000 |
| 314,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1, 2009-January 31, 2009 |
| 262,000 |
| $ | 3.11 |
| 262,000 |
| — |
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
Total |
| 448,000 |
| $ | 3.15 |
| 448,000 |
| — |
|
|
|
|
|
|
|
|
|
| ||
10 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Executive Summary
Overview - During fiscal 2009, we were successful in implementing our strategy to expand the distribution of our own branded products. As a result, the Company’s branded products are now being carried by approximately 113 distributors as compared to 91 in the prior fiscal year, who supply products to long-term care facilities and dialysis clinics.
Fiscal 2009 Highlights
Sales – Our sales increased approximately 7%, to $13,747,200, during the fiscal year. The sales increase was primarily the result of expanded distribution of our Pro-Stat® line of hydrolyzed, liquid, modular protein and the introduction of our UTI-Stat™ product. Sales of the Company’s branded products increased approximately 13%, from the prior fiscal year to $12,438.000.
New York, New York 10016
Alan Gaines 3,320,913 (4) 7.7%
7 Wakeman Road
Westport, CT 06880
AllProduct Development – During fiscal 2009, we completed the development of, and began marketing UTI-Stat™, a natural urinary tract cleansing complex, containing Proantinox®- a proprietary blend that aids in urinary tract health and protects against recurrent urinary tract infections. In addition, an enhanced formulation of Pro-Stat® Advanced Wound Care, a concentrated protein formula clinically proven to aid in the healing of pressure ulcers, was developed and will be introduced to the market in fiscal 2010. (See section on sales, product and strategy)
Cash Balance and Cash Flow – Our cash, and cash equivalents balance at January 31, 2009 was $9,654,300. The Company’s total cash, and cash equivalents, which included short term investments in fiscal 2008, increased by $109,500. For the year, cash provided by operating activities totaled $1,217,900 on a reported net loss of $492,100. Cash provided by investing activities during the fiscal year ended January 31, 2009 was $4,035,500 as compared to $4,487,000 cash used in the comparable prior fiscal year. The increase in cash provided by investing activities was primarily attributed to redemption of the Company’s short term investments. Cash used in financing activities during the fiscal year ended January 31, 2009 was $807,100 as compared to $381,100 cash used in the comparable prior fiscal year. The increase in cash used in financing activities was primarily attributed to purchase of stock related to the Company’s stock repurchase plan.
Fiscal 2010 Expectations
We expect our revenues to continue to grow as a result of our ongoing efforts to expand distribution of our branded products. During fiscal 2009, the Company expanded its field sales force by approximately 45%, which helped contribute to a 29% growth in unit volume. As the sales force matures, we expect an increase in both effectiveness and productivity, stimulating further growth in fiscal 2010.
UTI-Stat™, our urinary tract cleansing complex which was introduced in fiscal 2009 has shown strong initial growth which we expect to continue into fiscal 2010. In addition, in the second quarter of 2010, the Company plans to introduce an enhanced formula of Pro-Stat® Advanced Wound Care, which improves blood flow to promote the healing of pressure ulcers. The Company expects both products to contribute to the growth during fiscal 2010.
The Company expects to begin selling certain of its products through retail stores. The Company believes that the retail sales opportunities for certain of its products are significantly greater than in its traditional institutional markets and that retail marketing will create greater awareness and be complementary to its continuing efforts in nursing homes and dialysis clinics. The Company’s representatives have had discussions with several major retailers regarding timing and product placement,. Because of the recessionary pressures affecting many retailers, the Company believes that retail sales will not contribute materially to results during fiscal 2010.
11 |
Results of Operations
The following discussion of the financial condition and results of operation of the Company should be read in conjunction with the Financial Statements and the related Notes included elsewhere in this report.
Fiscal Year Ended January 31, 2009 Compared to Fiscal Year Ended January 31, 2008
Sales for the fiscal year ended January 31, 2009 were $13,747,200 as compared with $12,800,600 for the fiscal year ended January 31, 2008, an increase of approximately 7%. This increase was primarily attributable to an increase in branded product sales to approximately $12,438,000 from $10,978,900. Effective March 1, 2008, the Company reduced the price of certain Pro-Stat® formulas by approximately 12% on a weighted average basis. This decrease was implemented to allow the Company to more aggressively increase its market share and to strengthen its competitive position. The increase in branded sales can be attributed to growing awareness of our products and the increase in the size of the Company’s sales force. Almost all of the Company’s branded product sales were from formulations of hydrolyzed collagen. Private label sales decreased to approximately $1,309,200 from $1,822,700 for the comparable prior year period, as the Company has focused on increasing its institutional branded sales.
Cost of sales for the fiscal year ended January 31, 2009 was $6,474,200 or 47.1 % of sales, as compared with $5,994,900 for the fiscal year ended January 31, 2008, or 46.8% of sales. Gross profit percentage was approximately 53% for the periods ended January 31, 2009 and 2008.
Selling, general and administrative expenses (“SG&A”) for the fiscal year ended January 31, 2009, increased by $2,158,000 to $7,921,700, from $5,763,700 for the fiscal year ended January 31, 2008. This increase was primarily attributable to an increase in selling and marketing expenses of $1,443,100 and an increase in general and administrative expenses of $715,000. This increase in selling and marketing is primarily due to an increase in the size of the Company’s sales force, increased trade show and travel expenses and retail markeeting development. The increase in general and administrative expenses is primarily attributable to severance and recruitment costs of approximately $225,000, higher bonus accruals of $107,000 and an increase in legal fees of approximately $63,000.
Research and development expenses for the fiscal year ended January 31, 2009 was $51,500 in comparison to $108,000 for the prior fiscal year. This decrease of $55,500 is primarily attributable to timing of the clinical trials.
For the fiscal year ended January 31, 2009, the Company had an operating loss of $700,200 as compared to an operating income of $934,000 for the fiscal year ended January 31, 2008.
Interest income for the fiscal year ended January 31, 2009 decreased to $237,800 in comparison to $416,000 for the year ended January 31, 2008. This decrease is due mainly to reduced interest rates and lower cash balances resulting from cash used by the Company in repurchasing its own common stock under the stock repurchase plan.
The Company recorded a tax provision of $29,700 for the year ended January 31, 2009 at an effective rate of 6.4%. For tax purposes, certain expenses for stock based compensation are not deductible. In fiscal year ended January 31, 2008, the Company recorded a tax provision in the amount of $480,900, at an effective tax rate of 35.6 %. For tax purposes, the Company’s income is calculated prior to certain GAAP charges for stock-based compensation, which is non tax deductible.
The Company’s net loss for the fiscal year ended January 31, 2009 of $492,100 or $ (0.04) per share, compared to a net income for the fiscal year ended January 31, 2008 of $869,100 or $0.06 per share.
Liquidity and Capital Resources
At January 31, 2009, the Company had cash and cash equivalents and short-term investments of $9,654,300 as compared to $9,554,800 at January 31, 2008. At January 31, 2009, approximately 95% of accounts receivable were less than 30 days past due. Cash provided by operations during the fiscal year ended January 31, 2009 was $1,217,900 as compared to $1,972,800 in the comparable prior fiscal year. Cash provided by investing activities during the fiscal year ended January 31, 2009 was $4,035,500 as compared to $4,487,000 cash used in the comparable prior fiscal year. The increase in cash provided by investing activities was primarily attributed to redemption of the Company’s short term investments. Cash used in financing activities during the fiscal year ended January 31, 2009 was $807,100 as compared to $381,100 cash used in the comparable prior fiscal year. The increase in cash used in financing activities was primarily attributed to purchase of stock related to the Company’s stock repurchase plan.
12 |
The Company’s future capital requirements will depend on many factors including: costs of its sales and marketing activities and its education programs for its markets, competing product and market developments, the costs of developing or acquiring new products, the costs of expanding its operations, and its ability to continue to generate positive cash flow from its sales.
If the Company raises additional funds through the issuance of common stock or convertible preferred stock, the percentage ownership of its then-current stockholders will be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of its common stock. If the Company raises additional funds through the issuance of additional debt securities, these new securities could have certain rights, preferences and privileges senior to those of the holders of its common stock, and the terms of these debt securities could impose restrictions on its operations. Management believes that cash generated from operations, along with its current cash balances, will be sufficient to finance working capital and capital expenditure requirements for at least the next twelve months.
Off -Balance Sheet Arrangements
As of January 31, 2009, we did not have any off-balance sheet financing arrangements or any equity ownership interests in any variable entity or other minority owned ventures.
Critical Accounting Policies:
Accounts Receivable - The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts in trade accounts receivable. The Company’s estimate is based on a review of the current status of these accounts and historical trends. It is reasonably possible that the Company’s estimate of the allowance for doubtful accounts may in the future change should historical trends of current account status require.
Share Based Compensation - We account for our stock based employee compensation plans under the Statement of Financial Accounting Standard (“SFAS”) No. 123 (revised 2004), “Shared-Based Payment” (“SFAS No. 123R”). SFAS No. 123R addresses the accounting for shared based payment transactions in which an enterprise receives employee services for equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R requires that such transactions be accounted for using a fair value based method.
Deferred Tax Valuation Allowance - Deferred taxes arise due to temporary differences in the bases of assets and liabilities and from net operating losses and credit carry forwards. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the Company’s statement of operations become deductible expenses under applicable income tax laws or loss or credit carry forwards are utilized. Accordingly, realization of deferred tax assets is dependent on future taxable income against which these deductions, losses and credits can be utilized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Management considers historical operating losses, scheduled reversals of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.
Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings. The adoption of this pronouncement did not have a material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. FAS 159 is effective as of the beginning of the entity’s fiscal year that begins after November 15, 2007, which was our fiscal year beginning February 1, 2008. The adoption of this pronouncement did not have a material impact on our financial statements.
In February 2008, FASB Staff Position (“FSP”) FAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”) was issued. FSP No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). Examples of items within the scope of FSP No. 157-2 are non-financial assets and non-financial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144. We are currently evaluating the potential impact, if any, of the adoption of FSP No. 157-2 on our financial statements.
13 |
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” (“FAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of FAS 160 on our financial statements.
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.” EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are in the process of evaluating the impact, if any, of adopting EITF 07 -1 on our financial statements.
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, which will be our fiscal year beginning February 1, 2009. The measurement provisions of this standard will apply only to intangible assets of the Company acquired after the effective date. We are in the process of evaluating the impact, if any, of adopting FSP 142-3 on our financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles.” The implementation of this standard will not have a material impact on the Company’s financial position or results of operations.
In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are in the process of evaluating the impact, if any, of adopting EITF 03-6-1 on our financial statements.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
See the Company’s Financial Statements, including the related notes thereto, beginning on page F-1.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None
14 |
CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by Medical Nutrition USA, Inc. in the reports it files or submits under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified by the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by Medical Nutrition USA, Inc. in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, Medical Nutrition USA, Inc. has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of January 31, 2009, and, based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, Medical Nutrition USA, Inc. has evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended January 31, 2009 and have concluded that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Management’s Annual Report On Internal Control Over Financial Reporting
Medical Nutrition USA, Inc.’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a -15(f) and 15d-15(f). Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with accounting principles generally accepted in the United States of America. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
Medical Nutrition USA, Inc.’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of its internal control over financial reporting as of January 31, 2009 based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, management concluded that our internal control over financial reporting was effective as of January 31, 2009.
This annual report does not include an attestation report of Amper, Politziner & Mattia, LLP., Medical Nutrition USA, Inc.’s independent registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by Amper, Politziner & Mattia, LLP pursuant to temporary rules of the SEC that permit Medical Nutrition USA, Inc. to provide only management’s report in this annual report.
15 |
Limitations on the Effectiveness of Controls.
Our management does not expect that our Disclosure Controls will prevent all error and all fraud. A control system, no matter how well developed and operated, can provide only reasonable, but not absolute assurance that the objectives of the control system are met. Further, the design of the control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their design and monitoring costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of a system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Over time, control may become inadequate because of changes in conditions, or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
OTHER INFORMATION |
None
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE |
Information regarding the Company’s directors, officers and corporate governance is set forth in “Proposal 1 - Election of Directors” in the Company’s proxy statement for its 2009 Annual Meeting of Shareholders to be held June 3, 2009. Such information is incorporated herein by reference. Information regarding compliance by the Company’s directors and executive officers as a group
(4 persons) (3) (4) 6,463,493 22.1%
(1) Includes all shares issuable pursuant to presently exercisable options
as well as all such options that will become exercisable within 60 daysand owners of more than ten percent of common stock with the reporting requirements of Section 16(a) of the date hereof. Except as otherwise indicated, all shares are
beneficially owned,Exchange Act is set forth in the proxy statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.” Such information is incorporated herein by reference.
EXECUTIVE COMPENSATION |
Information regarding the compensation of the Company’s executive officers and directors is set forth in under the caption “ Executive Compensation” and “Director Compensation” in the proxy statement. Such information is incorporated herein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Information regarding ownership of the Company’s common stock by certain persons namedis set forth under the caption “Security Ownership of Certain Beneficial Owners and Management” in the proxy statement. Such information is incorporated herein hold their sole
investment and voting power.
(2) Includes 349,830 shares that are owned by Arnold and Myra Gans; also,
these include 4,100,000 stock options that are owned jointly by Mr. And
Mrs. Gans of which 2,050,000 options are exercisable at $.03 per share
through November 1, 2004, and 2,050,000 options are exercisable at $.03
per share through October 16, 2006. Does not include a total of
4,970,068 options granted on April 1, 2002 at an exercise price of
$0.02 per share.
20
(3) Includes options to acquire an aggregate of 300,000 shares exercisable
at $.10 per share through November 1, 2004, and options to acquire an
aggregate of 500,000 shares exercisable at $.03 per share through
October 16, 2006. Excludes 8,863 shares owned by Trinity Pension Trust,
of which Mr. Burstein is a trustee and beneficiary and 1,333,331 shares
owned by Unity Venture Capital Associates Ltd. and options for Unity
Venture Capital Associates Ltd. to acquire an aggregate of 900,000
shares exercisable at $.03 per share through October 16, 2006. Mr.
Burstein is a Director, President and principal shareholder of Unity
Capital. Unity Venture Capital Associates Ltd. also has loanedreference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
Information regarding relationships or transactions between the Company a totaland its affiliates is set forth under the caption “Transactions with Related Persons, Promoters and Certain Control Persons” in the proxy statement. Such information is incorporated herein by reference
PRINCIPAL ACCOUNTANT FEES AND SEVICES |
Information regarding the Company’s principal accountant fees and services is set forth in “Proposal 2-Ratification of $245,000 bearing interest at 10% per annum.
(4) Includes options to acquire an aggregate of 300,000 shares exercisable
at $.10 per share through November 1, 2004.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Between February 2001 and August 2001, Arnold Gans guaranteed the
Company's bank credit lines of approximately $100,000. Included in Notes Payable
at January 31, 2002 is approximately $90,800 resulting from these credit lines.
These amounts accrue interest at rates varying from 19% to 27%. In November
2001, Arnold and Myra Gans borrowed $150,000 and loaned the proceeds to the
Company. The Company recorded a $150,000 liability to Arnold and Myra Gans and
agreed to a repayment schedule equal to the repayment schedule of the loan. The
balance at January 31, 2002, is $150,000 and is included in "Loans Payable -
officer and shareholder". In addition, to the advances by Arnold and Myra Gans,
Unity Venture Capital Associates Ltd., an affiliate of Mr. Lawrence Burstein,
advanced the Company a total of $245,000. Subsequent to January 31, 2002 in
recognition of the loans to the Company by Arnold and Myra Gans and certain
salary deferments (totaling $56,153.87), Arnold and Myra Gans were awarded a
total of 4, 970, 068 options exercisable at $0.02 per share. In addition, a
consultant to the Company was awarded on April 2, 2002, a total of 5,029,932
options exercisable at $0.02 per share.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
(i) FINANCIAL STATEMENTS
ReportSelection of Independent Auditors
Consolidated Balance Sheets - January 31, 2002 and
2001.
Consolidated StatementsAuditors” in the proxy statement. Such information is incorporated herein by reference.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
See the Exhibit Index at the end of Operations for the years
ended January 31, 2002, 2001, and 2000.
Consolidated Statements of Stockholders' Equity for
the years ended January 31, 2002, 2001, and 2000.
Consolidated Statements of Cash Flows for the years
ended January 31, 2002, 2001, and 2000.
Notes to Consolidated Financial Statements.
21
this report
16 |
Pursuant to the requirements of Section 13 or 15 (d) 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.
Dated: May 15, 2001 GENDER SCIENCES INC.
By: /s/ ARNOLD GANS
-------------------------------------
Arnold Gans, President
Dated: April 24, 2009 | MEDICAL NUTRITION USA, INC. |
By: /s/ FRANCIS A. NEWMAN | |
Francis A. Newman, Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ LAWRENCE BURSTEIN Chairman and Director
- ------------------------- (Principal Executive Officer) May 15, 2002
Lawrence Burstein
/s/ ARNOLD GANS President (Principal
- ------------------------- Operating Officer and
Arnold Gans Principal Accounting
and Financial Officer
and Director) May 15, 2002
/s/ MYRA GANS Vice President,
- ------------------------- Secretary, and Director May 15, 2002
Myra Gans
22
Signature | Title | Date | |||||
/s/ FRANCIS A. NEWMAN | Chairman, Chief Executive Officer | April 24, 2009 | |||||
Francis A. Newman | and Director (Principal Executive Officer) | ||||||
/s/ FRANK J. KIMMERLING | Chief Financial Officer | April 24, 2009 | |||||
Frank J. Kimmerling | (Principal Accounting and Financial Officer) | ||||||
/s/ BERNARD KORMAN | Director | April 24, 2009 | |||||
Bernard Korman | |||||||
/s/ ANDREW HOROWITZ | Director | April 24, 2009 | |||||
Andrew Horowitz | |||||||
/s/ MARK H. ROSENBERG | Director | April 24, 2009 | |||||
Mark H. Rosenberg | |||||||
17 | |||||||
MEDICAL NUTRITION USA, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors F-2
Consolidated Balance Sheets at January 31, 2002 and 2001 F-3
Consolidated Statements of Operations for the Years Ended
January 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Stockholders' Equity for the Years Ended
January 31, 2002, 2001 and 2000 F-5
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2002, 2001 and 2000 F-6
Notes to Consolidated Financial Statements F-7 - F-18
F-1
REPORT OF INDEPENDENT AUDITORS
To the REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors of
Gender Sciences,and Stockholders
Medical Nutrition USA, Inc., F/K/A The MNI Group Inc.
We have audited the accompanying consolidated balance sheets of Gender
Sciences, Inc. F/K/A The MNI Group,Medical Nutrition USA, Inc. as of January 31, 20022009 and January 31,
20012008, and the related consolidated statements of operations, stockholders'
equity, and cash flows, and stockholders’ equity for the years ending January 31, 2002, 2001 and 2000.then ended. These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards.the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. Our audits include consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gender Sciences,
Inc. F/K/A The MNI Group,the Medical Nutrition USA, Inc. as of January 31, 20022009 and January 31, 2001,2008, and the results of its operations and its cash flows for the years ending January 31,
2002, 2001 and 2000then ended, in conformity with accounting principles generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming thatin the Company will continue as a going concern. United States of America.
As discussed in Note 810 to the financial statements, effective February 1, 2007, the Company has suffered recurring losses from
operations, a declineadopted the provisions of Financial Interpretation (FIN) No. 48 “Accounting for Uncertainty in revenue and net capital deficiencies that raises
substantial doubt about its ability to continue as a going concern. Management's
plans in regard to these matters are also described in Note 8. The consolidated
financial statements do not include any adjustments relating to the
recoverability or reclassificationIncome Taxes - an interpretation of any asset or liability that might result
from the outcomeStatement of this uncertainty.
Goldstein & Ganz, CPA's, PC
Great Neck, NY
May 2, 2002
F-2
Financial Accounting Standards No. 109.
/s/ AMPER, POLITZINER & MATTIA, LLP |
April 24, 2009 |
Hackensack, New Jersey |
F-2 |
MEDICAL NUTRITION USA, INC.
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets: |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 9,654,300 |
| $ | 5,208,000 |
|
Short-term investments |
|
| — |
|
| 4,336,800 |
|
Accounts receivable, net of allowance of $65,600 and $45,000, respectively |
|
| 1,377,400 |
|
| 1,054,500 |
|
Inventories |
|
| 510,600 |
|
| 401,800 |
|
Deferred income taxes |
|
| 406,500 |
|
| 877,700 |
|
Prepaid income taxes |
|
| 8,300 |
|
| 232,000 |
|
Other current assets |
|
| 191,900 |
|
| 179,800 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total current assets |
|
| 12,149,000 |
|
| 12,290,600 |
|
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation and amortization of $345,400 and $248,500, respectively |
|
| 318,800 |
|
| 199,000 |
|
|
|
|
|
|
|
|
|
Other assets: |
|
|
|
|
|
|
|
Deferred income taxes |
|
| 969,000 |
|
| 480,000 |
|
Security deposits |
|
| 15,300 |
|
| 15,300 |
|
Investment in Organics Corporation of America |
|
| 125,000 |
|
| 125,000 |
|
Intangible assets, net of amortization |
|
| 276,800 |
|
| 252,700 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| $ | 13,853,900 |
| $ | 13,362,600 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 530,700 |
| $ | 364,800 |
|
Accrued expenses |
|
| 967,600 |
|
| 466,000 |
|
Accrued rebates |
|
| 73,700 |
|
| 61,700 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total current liabilities |
|
| 1,572,000 |
|
| 892,500 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Stockholders’ Equity: |
|
|
|
|
|
|
|
Preferred stock $0.001 par value, 5,000,000 shares authorized; no shares issued and outstanding at January 31, 2009 and 2008 |
|
| — |
|
| — |
|
Common stock, $0.001 par value; 20,000,000 shares authorized, 14,128,614 shares issued as of January 31, 2009 and 14,045,483 shares issued as of January 31, 2008 |
|
| 14,100 |
|
| 14,000 |
|
Additional paid-in-capital |
|
| 25,067,600 |
|
| 24,687,900 |
|
Accumulated deficit |
|
| (12,497,900 | ) |
| (12,005,800 | ) |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| 12,583,800 |
|
| 12,696,100 |
|
Less: treasury stock, at cost; 98,080 and 52,562 shares, respectively |
|
| (301,900 | ) |
| (226,000 | ) |
|
|
|
| ||||
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
| 12,281,900 |
|
| 12,470,100 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| $ | 13,853,900 |
| $ | 13,362,600 |
|
|
|
|
| ||||
See notes to the financial statements. |
F-3 |
MEDICAL NUTRITION USA, INC.
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Sales |
| $ | 13,747,200 |
| $ | 12,800,600 |
|
Cost of sales |
|
| 6,474,200 |
|
| 5,994,900 |
|
|
|
|
| ||||
Gross profit |
|
| 7,273,000 |
|
| 6,805,700 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Selling, general and administrative expenses |
|
| 7,921,700 |
|
| 5,763,700 |
|
|
|
|
|
|
|
|
|
Research and development expenses |
|
| 51,500 |
|
| 108,000 |
|
|
|
|
| ||||
Operating (loss) income |
|
| (700,200 | ) |
| 934,000 |
|
|
|
|
| ||||
Interest income |
|
| 237,800 |
|
| 416,000 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
(Loss) income before income tax expense |
|
| (462,400 | ) |
| 1,350,000 |
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| 29,700 |
|
| 480,900 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Net (loss) income |
| $ | (492,100 | ) | $ | 869,100 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
(Loss) earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | (0.04 | ) | $ | 0.06 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Diluted |
| $ | (0.04 | ) | $ | 0.06 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 13,893,787 |
|
| 14,128,601 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Diluted |
|
| 13,893,787 |
|
| 15,553,755 |
|
|
|
|
| ||||
See notes to the financial statements. |
F-4 |
MEDICAL NUTRITION USA, INC.
|
|
|
|
|
|
|
|
|
| Years Ended January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Operating Activities: |
|
|
|
|
|
|
|
Net (loss) income |
| $ | (492,100 | ) | $ | 869,100 |
|
Adjustments to reconcile (loss) income to net cash provided by operating activities: |
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
| 157,100 |
|
| 101,900 |
|
Provision for losses on accounts receivable |
|
| 20,600 |
|
| 800 |
|
Deferred income taxes |
|
| (17,700 | ) |
| 334,900 |
|
Stock based compensation |
|
| 1,111,300 |
|
| 1,062,000 |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable |
|
| (343,600 | ) |
| (5,000 | ) |
Inventories |
|
| (108,800 | ) |
| 94,400 |
|
Prepaid income taxes |
|
| 223,700 |
|
| (232,000 | ) |
Other current assets |
|
| (12,100 | ) |
| (122,000 | ) |
Accounts payable |
|
| 165,900 |
|
| (288,400 | ) |
Accrued expenses |
|
| 501,600 |
|
| 189,400 |
|
Accrued rebates |
|
| 12,000 |
|
| (32,300 | ) |
|
|
|
| ||||
Net cash provided by operating activities |
|
| 1,217,900 |
|
| 1,972,800 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
Acquisition of fixed assets |
|
| (216,800 | ) |
| (95,600 | ) |
Website development costs |
|
| (700 | ) |
| (1,700 | ) |
Trademark costs |
|
| (51,300 | ) |
| (13,300 | ) |
Capitalized patent costs |
|
| (32,500 | ) |
| (39,600 | ) |
Purchase of short term investments |
|
| — |
|
| (4,336,800 | ) |
Redemption of short term investments |
|
| 4,336,800 |
|
| — |
|
|
|
|
| ||||
Net cash provided by (used in) investing activities |
|
| 4,035,500 |
|
| (4,487,000 | ) |
|
|
|
| ||||
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
| �� |
|
Proceeds from exercise of options |
|
| 42,200 |
|
| 203,200 |
|
Income tax benefit from exercise of stock options |
|
| 40,800 |
|
| 133,700 |
|
Stock repurchase plan |
|
| (814,200 | ) |
| (595,400 | ) |
Purchase of treasury stock |
|
| (75,900 | ) |
| (122,600 | ) |
|
|
|
| ||||
Net cash (used in) financing activities |
|
| (807,100 | ) |
| (381,100 | ) |
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase(decrease) in cash and cash equivalents |
|
| 4,446,300 |
|
| (2,895,300 | ) |
Cash and cash equivalents - beginning of year |
|
| 5,208,000 |
|
| 8,103,300 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Cash and cash equivalents - end of year |
| $ | 9,654,300 |
| $ | 5,208,000 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Supplemental information: |
|
|
|
|
|
|
|
Taxes paid during the year |
| $ | 4,000 |
| $ | 258,800 |
|
|
|
|
| ||||
See notes to the financial statements. |
F-5 |
MEDICAL NUTRITION USA, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
YEARS ENDED JANUARY 31, 2009 AND 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
| Additional |
| Accumulated |
| Treasury Stock |
| Total Stockholders’ |
| |||||||||
|
|
|
|
|
|
| ||||||||||||||
|
| Shares |
| Amount |
| Paid-in-capital |
| Deficit |
| Shares |
| Stock |
| Equity |
| |||||
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at January 31, 2007 |
| 14,027,294 |
| $ | 14,000 |
| $ | 23,884,400 |
| $ | (12,874,900 | ) | (22,851 | ) | $ | (103,400 | ) | $ | 10,920,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
| 125,266 |
|
| 200 |
|
| 203,000 |
|
| — |
| — |
|
| — |
|
| 203,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
| 56,955 |
|
| — |
|
| 1,062,000 |
|
| — |
| — |
|
| — |
|
| 1,062,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from exercise of stock options |
| — |
|
| — |
|
| 133,700 |
|
| — |
| — |
|
| — |
|
| 133,700 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchase plan |
| (186,000 | ) |
| (200 | ) |
| (595,200 | ) |
| — |
| — |
|
| — |
|
| (595,400 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
| (30,594 | ) |
| — |
|
| — |
|
| — |
| (29,711 | ) |
| (122,600 | ) |
| (122,600 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
| — |
|
| — |
|
| — |
|
| 869,100 |
| — |
|
| — |
|
| 869,100 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at January 31, 2008 |
| 13,992,921 |
| $ | 14,000 |
| $ | 24,687,900 |
| $ | (12,005,800 | ) | (52,562 | ) | $ | (226,000 | ) | $ | 12,470,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercise of options |
| 69,297 |
|
| — |
|
| 42,200 |
|
| — |
| — |
|
| — |
|
| 42,200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock |
| 276,407 |
|
| 200 |
|
| — |
|
| — |
| — |
|
| — |
|
| 200 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
| — |
|
| — |
|
| 1,111,300 |
|
| — |
| — |
|
| — |
|
| 1,111,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement of treasury stock |
| — |
|
| — |
|
| (500 | ) |
| — |
| — |
|
| — |
|
| (500 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit from exercise of stock options |
| — |
|
| — |
|
| 40,800 |
|
| — |
| — |
|
| — |
|
| 40,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock repurchase plan |
| (262,000 | ) |
| (100 | ) |
| (814,100 | ) |
| — |
| — |
|
| — |
|
| (814,200 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of treasury stock |
| (46,091 | ) |
| — |
|
| — |
|
| — |
| (45,518 | ) |
| (75,900 | ) |
| (75,900 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| — |
|
| — |
|
| — |
|
| (492,100 | ) | — |
|
| — |
|
| (492,100 | ) |
|
|
|
|
|
|
|
|
| ||||||||||||
Balance at January 31, 2009 |
| 14,030,534 |
| $ | 14,100 |
| $ | 25,067,600 |
| $ | (12,497,900 | ) | (98,080 | ) | $ | (301,900 | ) | $ | 12,281,900 |
|
|
|
|
|
|
|
|
|
| ||||||||||||
See notes to consolidatedthe financial statements.
F-3
statements
MEDICAL NUTRITION USA, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
2009
Note 1.Organization and Business:
-------------------------
Gender Sciences,
Medical Nutrition USA, Inc. (a Delaware Corporation) (referred to herein as Medical Nutrition or the Company), (F/K/A The MNI Group, Inc.), a New Jersey
corporation organizedincorporated in 1981 and its subsidiaries has2003, is primarily been engaged in the development and distribution of nutritional and health products. The Company develops nutritional supplements for sale to physicians, dispensing medical clinics, nursing homes and distributes targeted, uniquely engineered, Nutrition-Medicine
products for the Anti-Aging, Weight Loss, and Elder Care markets within the
medical, institutional, and mass-market communities.network marketing companies. The Company’s products are sold under the Company's label its own brands and/or alternatively under private label for various
distribution channels.
In May 1993,labels in the United States.
Note 2.Significant Accounting Policies:
Concentration of credit risk – We are subject to concentration of credit risk primarily from out cash investments. The Company invests its excess cash in treasury backed money market funds, corporate bonds and commercial paper. The diversification of the cash investments is intended to secure safety and liquidity. The Company maintains the majority of its cash and cash equivalents in bank accounts at two financial institutions. The balances, at times, may exceed federally insured limits. At January 31, 2009, the Company organized NutraPet Labs, Inc. (NutraPet) for
the purposehad approximately $9.2 million in excess of developing and marketing pet products.FDIC insured limits. The Company’s operations are not subject to risks of material foreign currency fluctuations, nor does it use derivative financial instruments in its investment practices. The Company subsequently
issued 313,000 sharesplaces its marketable investments in instruments that meet high credit quality standards. The Company does not expect material losses with respect to its investment portfolio or exposure to market risks associated with interest rates. The impact on the Company’s results of NutraPet common stockone percentage point change in short-term interest rates would not have a material impact on the Company’s future earnings, fair value, or cash flows related to investments in cash equivalents or interest-earning marketable securities.
The other financial component, which principally subjects the Company to significant concentrations of credit risk, is trade accounts receivable. For the fiscal years ended January 31, 2009 and 2008, two distributors accounted for $313,000approximately 28% and 32% of total revenues respectively. The Company has no contractual arrangements with these distributors, and if they were to discontinue purchasing from the Company, it could have a material impact on the Company’s sales unless end users were able to purchase the company’s products from alternative distributors.
Cash and Cash Equivalents – The Company invests its excess cash in highly liquid short-term investments. The Company considers short-term investments that are purchased with an original maturity of three months or less to be cash equivalents. Cash and cash equivalents consisted of cash and money market accounts at January 31, 2009 and 2008.
Short-term investments – As of January 31, 2008 the Company’s investments consist of U.S Government backed securities, corporate commercial paper and certificates of deposit. The Company’s short-term investment policy requires investments to be rated AAA with a private
placement.
On October 19, 2000,maturity of six months or less.
The Company accounts for short-term investments as held to maturity investments pursuant to SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” Under this Statement, securities that the Company has the positive intent and ability to hold to maturity are classified as held to maturity securities and are carried at cost.
Accounts Receivable – The Company provides an allowance for doubtful accounts equal to the Company's annual meeting, the stockholders
voted to change the Company's name to Gender Sciences, Inc.
Note 2. Significant Accounting Policies:
-------------------------------
Principles of consolidation -estimated uncollectible amounts in trade accounts receivable. The consolidated financial statements
include the accountsCompany’s estimate is based on a review of the Company and its wholly-owned and majority-owned
subsidiaries after eliminationcurrent status of intercompanythese accounts and transactionshistorical trends. It is reasonably possible that the Company’s estimate of the allowance for ongoing activities.
doubtful accounts may in the future change should historical trends of current account status require.
Inventories - – Inventories, which consist primarily of purchased finished foods, are stated at the lower of cost or market, using the "first-in, first-out"“first-in, first-out” (FIFO) cost method.
Fixed Assets - – Furniture, fixtures and equipment, and leasehold improvements are stated at cost and depreciated and amortized over their estimated useful lives, which range from 3 to 7 years. Leasehold improvements are amortized over the lesser of the useful lives or lease terms. Depreciation and amortization are calculated using the straight-line method for financial reporting purposes. Expenditures for repairs and maintenance, which do not extend the useful life of the property, are expensed as incurred.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 2.Significant Accounting Policies (continued):
Intangible Assets – Patent application costs relate to the Company’s U.S. patent applications and consist primarily of legal fees and other direct fees. The estimatedrecoverability of the patent application costs is dependent upon, among other factors, the success of the underlying clinical studies used to support the patent and ultimately the resulting revenue. The Company is amortizing the costs over the shorter of their useful lives or five years. Trademarks costs are stated at cost and are amortized over the shorter of the assetstheir useful lives or seventeen years. Website costs are as follows:
Furniture, fixturesstated at cost and equipment 5-10 years
Leasehold improvements 3-7 years
are amortized over five years.
Research and development -Development – The Company and its subsidiaries utilizeutilizes independent third parties to design and test certain products and to conduct clinical trials and studies on its products. These expenditures are accounted for as research and development costs and are expensed as incurred.
Web Site Development Costs - Costs to develop the Company's web site,
including the cost of developing services offered to visitors of the web
site, are accounted for under Statement of Position No. 98-1 "Accounting
for Costs of Computer Software Developed or Obtained for Internal Use".
Through the third quarter of the year ended January 31, 2001, such costs
were incurred during the preliminary project stage and, accordingly, were
expensed. Since that time, such costs were capitalized and were amortized
over a five year period. During the year ended January 31, 2002, the
Company closed its website and all capitalized costs related to the
development of the website were written off.
F-7
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 2. Significant Accounting Policies (continued):
-------------------------------------------
Income taxes -Taxes – The Company provides for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, (SFAS 109)"Accounting“Accounting for Income Taxes".Taxes.” SFAS 109 requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities. Additionally, the Company adopted Financial Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties, and other matters.
Fair Value of Financial Instruments – The estimated fair values for financial instruments under SFAS No. 107, “Disclosures about Fair Value of Financial Instruments,” are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. Additionally, the carrying value of all other monetary assets and liabilities is estimated to be equal to their fair value due to the short-term nature of these instruments.
Revenue recognition -Recognition – Revenue is recognized when all four of the following conditions exist: persuasive evidence of an arrangement exists; services have been rendered or delivery occurred; the price is fixed or determinable; and collectibility is reasonably assured. Revenue from product sales is recognized upon shipment of products to customers.
Share Based Compensation – The Company accounts for stock based employee compensation plans under SFAS No. 123 (revised 2004), “Shared-Based Payment” (“SFAS No. 123R”). SFAS No. 123R addresses the accounting for shared based payment transactions in which an enterprise receives employee services for equity instruments of the enterprise or liabilities that are based on the fair value of the enterprise’s equity instruments or that may be settled by the issuance of such equity instruments. SFAS No. 123R requires that such transactions be accounted for using a fair value based method.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 2.Significant Accounting Policies (continued):
Earnings per share -Per Share – The consolidated financial statementsstatement are presented in accordance with Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings per Share".“Earnings Per Share.” Basic (loss) earnings per common share are computed using the weighted average number of common shares outstanding during the period.
Diluted (loss) earnings per common share incorporateutilizes the incremental shares issuable upontreasury stock method for calculating the assumed exercisedilutive effect of employee stock options, and warrants.nonvested shares. These instruments will have a dilutive effect under the treasury stock method only when the respective period’s average market value of the underlying Company common stock exceeds the actual proceeds. In applying the treasury stock method, assumed proceeds include the amount, if any, the employee must pay upon exercise, the amount of compensation cost for future services that the Company has not yet recognized, and the amount of tax benefits, if any, that would be credited to additional paid-in capital assuming exercise of the options and the vesting of nonvested shares. In accordance with SFAS 128, diluted earnings per share are not presented in yearsperiods during which the Company incurred a loss from operations. ImpactFor the year ended January 31, 2009 the potentially dilutive commons stock equivalents, consisting of New Accounting Standards - In July 2001,stock options and restricted stock, which were excluded from the Financial
Accounting Standards Board ("FASB") issued SFAS 141, "Business
Combinations",net (loss) per share calculations due to their anti-dilutive effect amounted to 3,182,617. For the year ended January 31, 2008, the potentially dilutive common stock equivalents, consisting of stock options, which were excluded from the net income per share calculations due to their anti-dilutive effect amounted to was 60,563.
Basic EPS is computed by dividing net (loss) income by the weighted average number of shares outstanding during the period. Diluted EPS is computed considering the potentially dilutive effect of outstanding stock options and SFAS 142, "Goodwill and Other Intangible Assets". SFAS
141 did not have a material effect on the Company's resultsnonvested shares of operations
or financial position. SFAS 142 requires that good will be tested for
impairment under certain circumstances, and written off when impaired,
rather than being amortized as previous standards required. The Company
adopted the provisions of SFAS 142 in the third quarter of fiscal 2001 for
new acquisitions. SFAS 142 will be applied to previously acquired
intangibles in the first quarter of fiscal 2003. The adoption of SFAS 142
did not have a material effect on the Company's results of operations or
financial position.
Goodwill - Goodwill represents the amount paid in consideration for an
acquisition in excessrestricted stock. A reconciliation of the net tangible assets acquired. For acquisitions
prior to June 30, 2001, the Company continued to amortize goodwill through
Januarynumerators and denominators of basic and diluted per share computations follows:
|
|
|
|
|
|
|
|
|
| Year ended |
| ||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
Numerator: |
|
|
|
|
|
|
|
Net (loss) income |
| $ | (492,100 | ) |
| 869,100 |
|
Denominator: |
|
|
|
|
|
|
|
Weighted average common shares (Basic) |
|
| 13,893,787 |
|
| 14,128,601 |
|
Dilutive effect of outstanding options and nonvested shares of restricted stock |
|
| — |
|
| 1,425,154 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Weighted average common shares including assumed conversions (Diluted) |
|
| 13,893,787 |
|
| 15,553,755 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Basic net (loss) income per share |
| $ | (0.04 | ) | $ | 0.06 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Diluted net (loss) income per share |
| $ | (0.04 | ) | $ | 0.06 |
|
|
|
|
| ||||
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2002. The Company conducts tests for impairment and goodwill
that is determined to have become impaired is written off.
2009
Note 2.Significant Accounting Policies (continued):
Carrying Values of Long-LivedLong-lived Assets - The Company evaluates the carrying values of its long-lived assets to be held and used in the business by reviewing undiscounted cash flows by operating unit.flows. Such evaluations are performed whenever events and circumstances indicate that the carrying amount of an asset may not be recoverable. If the sum of the projected undiscounted cash flows over the remaining lives of the related assets does not exceed the carrying values of the assets, the carrying values are adjusted for the differences between the fair values and the carrying values.
Intangible Assets - The capitalized cost of intangible assets are
amortized over their expected period of benefit on a straight-line basis,
generally 20 years for trademarks and 15 to 40 years for goodwill. However,
SFAS 142 will be applied to intangibles acquired prior to the third quarter
of fiscal 2002.
F-8
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 2. Significant Accounting Policies (continued):
-------------------------------------------
Use of estimatesEstimates - In preparing financial statements in conformity with accounting principles generally accepted accounting principles,in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosures of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reportingreported period. The Company uses estimates in several accounts including accrued rebates and allowances for doubtful accounts related to accounts receivable. Actual results could differ from those estimates.
Reclassification - Certain amounts
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings. The adoption of this pronouncement did not have a material impact on our financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“FAS 159”). FAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. FAS 159 is effective as of the beginning of the entity’s fiscal year that begins after November 15, 2007, which was our fiscal year beginning February 1, 2008. The adoption of this pronouncement did not have a material impact on our financial statements.
In February 2008, FASB Staff Position (“FSP”) FAS No. 157-2, “Effective Date of FASB Statement No. 157” (“FSP No. 157-2”) was issued. FSP No. 157-2 defers the effective date of SFAS No. 157 to fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, for all non- financial assets and liabilities, except those that are recognized or disclosed at fair value in the January 31, 2001 financial statements were reclassifiedon a recurring basis (at least annually). Examples of items within the scope of FSP No. 157-2 are non-financial assets and non-financial liabilities initially measured at fair value in a business combination (but not measured at fair value in subsequent periods), and long-lived assets, such as property, plant and equipment and intangible assets measured at fair value for an impairment assessment under SFAS No. 144. We are currently evaluating the potential impact, if any, of the adoption of FSP No. 157-2 on our financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to conformevaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51” (“FAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the Januaryparent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. FAS 160 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are currently evaluating the potential impact, if any, of the adoption of FAS 160 on our financial statements.
In December 2007, the Emerging Issues Task Force (EITF) issued EITF Issue No. 07-1, “Accounting for Collaborative Arrangements.” EITF 07-1 provides guidance concerning: determining whether an arrangement constitutes a collaborative arrangement within the scope of the Issue; how costs incurred and revenue generated on sales to third parties should be reported in the income statement; how an entity should characterize payments on the income statement; and what participants should disclose in the notes to the financial statements about a collaborative arrangement. EITF 07-1 is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are in the process of evaluating the impact, if any, of adopting EITF 07 -1 on our financial statements.
In April 2008, the FASB issued FASB Staff Position No. 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing assumptions about renewal or extension used in estimating the useful life of a recognized intangible asset under FAS No. 142, Goodwill and Other Intangible Assets. This standard is intended to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141R and other GAAP. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, which will be our fiscal year beginning February 1, 2009. The measurement provisions of this standard will apply only to intangible assets of the Company acquired after the effective date. We are in the process of evaluating the impact, if any, of adopting FSP 142-3 on our financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles”. The implementation of this standard will not have a material impact on the Company’s financial position or results of operations.
In June 2008, the FASB issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” Under the FSP, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are participating securities, and should be included in the two-class method of computing EPS. The FSP is effective for fiscal years beginning after December 15, 2008, which will be our fiscal year beginning February 1, 2009. We are in the process of evaluating the impact, if any, of adopting EITF 03-6-1 on our financial statements.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2002
presentation.
2009
Note 3.Fixed Assets:
------------Assets:
Fixed assets consisted of the following at January 31, 20022009 and 2001,2008, respectively:
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
Furniture, fixtures and equipment |
| $ | 613,800 |
| $ | 397,100 |
|
Leasehold improvements |
|
| 50,400 |
|
| 50,400 |
|
|
|
|
| ||||
|
|
| 664,200 |
|
| 447,500 |
|
Less: Accumulated depreciation and amortization |
|
| 345,400 |
|
| 248,500 |
|
|
|
|
| ||||
|
| $ | 318,800 |
| $ | 199,000 |
|
|
|
|
| ||||
Depreciation and amortization expense was $96,900 and $59,300 for the fiscal years ended January 31, ---------------------
2002 2001
-------- --------
Furniture, fixtures2009 and equipment $103,000 $103,000
Leasehold improvements 25,200 25,200
Web site development costs - 107,400
-------- --------
128,200 235,600
Less: accumulated depreciation
and amortization 102,600 102,400
-------- --------
$ 25,600 $133,200
-------- --------
2008, respectively.
Note 4. Notes Payable:
-------------
In November 1991, Family Weight Loss Centers, Inc. (FWLC), (a former
subsidiary of Gender Sciences), filed a petition for bankruptcy proceedings
pursuant to Chapter 7Intangible Assets:
Intangible assets consisted of the federal bankruptcy statutes. This petition
providedfollowing at January 31, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
| January 31, |
| ||||
|
|
| |||||
|
| 2009 |
| 2008 |
| ||
|
|
|
| ||||
|
|
|
|
|
|
|
|
Patent application costs |
| $ | 292,500 |
| $ | 260,000 |
|
Trademarks |
|
| 113,300 |
|
| 62,000 |
|
Website development costs |
|
| 20,900 |
|
| 20,200 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| 426,700 |
|
| 342,200 |
|
|
|
|
|
|
|
|
|
Less: Accumulated amortization |
|
| 149,900 |
|
| 89,500 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
| $ | 276,800 |
| $ | 252,700 |
|
|
|
|
| ||||
Intangible amortization expense was $60,200 and $42,600 for complete liquidationthe fiscal years ended January 31, 2009 and 2008, respectively.
The future estimated amortization charges are as follows:
|
|
|
|
|
Years Ended January 31, |
|
|
|
|
|
|
|
|
|
2010 |
| $ | 62,400 |
|
2011 |
|
| 62,400 |
|
2012 |
|
| 60,700 |
|
2013 |
|
| 22,760 |
|
2014 |
|
| 6,600 |
|
Thereafter |
|
| 61,900 |
|
|
|
| ||
|
|
|
|
|
|
| $ | 276,800 |
|
|
|
|
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 5.Investment in Organics Corporation of all of the corporate assets and
liabilities. FWLC was an affiliate of a stockholder of the Company.
Subsequent to the bankruptcy filing,America:
On July 31, 2003, the Company entered into an agreement with Organics Corporation of America (“Organics”) to purchase 5% of their issued and outstanding capital stock for aggregate consideration of $125,000. In turn Organics agreed to satisfy an
outstanding $4,000,000 obligation, which it had guaranteed as part of the
FWLC acquisition. The guarantee was in the form of a term note to Fleet
Bank, NA. The Company agreed to satisfy the obligation by the payment of
$125,000, issuance of a three year note in the amount of $125,000, with
interest at the bank's prime rate, and the issuance of warrants to purchase 750,000166,666 shares of the Company'sCompany’s common stock at a purchase price of $.01$0.75 per share expiring in February 2002.for aggregate consideration of $125,000. As of January 31, 2009, Organics owned approximately 1% of the Company’s common stock. In February 1995,addition, Organics agreed to assist the Company agreed to liquidate(a) continue to develop and improve products of the three-year noteCompany that have been developed or were in the amountprocess of $125,000 bybeing developed and improved as of July 31, 2003; (b) design, develop, implement, and provide merchantable and marketable products; and (c) maintain the paymentconfidentiality of 42 monthly payments in the amount of $2,976 each plus interestall proprietary product technology (see Note 10 - “Commitments and Contingencies”). The Company is carrying this investment at the prime
rate commencing in August 1995. At January 31, 2000, the balance
outstanding was $23,800. During the year ended January 31, 2001 the Company
negotiated a payoff settlement with Fleet Bank, which resulted in
forgiveness of debt of $13,800. Interest charged to expense on this debt
was $600 and $3,800, forcost. For the years ended January 31, 20012009 and 2000,2008, purchases made from Organics totaled $4,579,000 and $4,837,500, respectively. F-9
As of January 31, 2009 and 2008, the Company owed Organics $332,200 and $246,100, respectively. Such amounts are included in the accounts payable of the accompanying Balance Sheets.
MEDICAL NUTRITION USA, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
2009
Note 4. Notes Payable (continued):
-------------------------
The Company borrowed $50,000 from PNC Bank on January 29, 1998. The
maturity date of6. Major Customers and Major Vendor-Related Party:
Major Customers
For the loan was January 29, 1999, with interest accruing at
the rate of 10.25% per annum. During thefiscal year ended January 31, 1999, this
loan was converted2009, two distributors accounted for approximately 28% of total revenues, representing $4,038,098 of sales as compared to 32% or $4,040,700 of sales in the prior year for the same distributors. The Company has no contractual arrangements with these distributors, and if they were to discontinue purchasing from the Company, it could have a demand note. Principal and interest payments are
being madematerial impact on a monthly basis. Interest paid during the year endingCompany’s sales unless end users were able to purchase the company’s products from alternative distributors.
As of January 31, 2002, was approximately $2,500. At2009, these distributors had an open accounts receivable balance of $538,400 which represented 37% of the Company’s total accounts receivable as compared to $377,300 which represented 36% of the Company’s total accounts receivable as of January 31, 20022008.
Major Vendor-Related Party
During the years ended January 31, 2009 and 2001,2008, the Company purchased $4,579,000 and $4,837,500, respectively, of finished goods from Organics Corporation of America (“Organics”), an approximate 1% shareholder of the Company. As of January 31, 2009 and 2008, the Company had an accounts payable balance with Organics of $332,200 and $246,100, respectively. The Company owns approximately 5% of the outstanding balance was approximately $21,500 and $30,000, respectively.
An officerstock of the Company guaranteed the Company's bank credit lines of
approximately $100,000. Included in Short Term Debt at January 31, 2002 is
approximately $90,800 resulting from these credit lines. These amounts
accrue interest at rates varying from 19% to 27%.
Loans Payable - officer and stockholder
From time to time the Company's chief operating officer has made
advances to the Company for working capital purposes. Interest on these
advances was charged at rates varying from 11% to 18%. The balance due at
January 31, 1999, was $196,300 and the highest balance due during the 2000
fiscal year was $230,800. The total of all repayments during the year,
including interest, amounted to $278,200. At January 31, 2000, all advances
were repaid and, accordingly, no balance remained outstanding. No advances
were made during fiscal 2001.
During the fourth quarter of fiscal 2001, the Company received an
advance of $130,000 from an affiliate of the Chairman of the Board which
company is also a stockholder. During fiscal 2002, additional advances were
received from this entity and the balance at January 31, 2002 owed to this
entity is $245,000. Interest is being accrued at 10% per year and amounts
to approximately $19,300, which is included in accrued expense at January
31, 2002. No documentation has been prepared for this loan.
An officer of the Company borrowed $150,000 and loaned the proceeds to
the Company. The Company recorded a $150,000 liability to the officer and
agreed to a repayment schedule equal to the repayment schedule of the
officer's loan. The balance at January 31, 2002, is $150,000 and is
included in "Loans Payable - officer and stockholder".
Organics.
Note 5.7. Lease Commitments:
-----------------Commitments:
The Company leases an office and warehouse facility in New Jersey under a lease, which expires in December 2004.2009. Total gross rental expense for the year ended January 31, 2002, 20012009 and 20002008 was approximately $85,000,
$85,000$121,900 and $65,600,$95,700, respectively.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 7. Lease Commitments (continued):
The Company sub-lets (on a month to
month basis) a portion of its facility toleases vehicles and equipment under various entities at an annual
rental income of approximately $34,600, $33,800, and $34,600 foroperating leases expiring through 2012. During the years ended January 31, 2002, 20012009 and 2000, respectively. The future minimum
annual rental payments are as follows:
Year ended January 31,
2003 65,800
2004 67,500
2005 61,900
---------
Total future minimum annual rent payments $ 195,200
=========
F-10
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 5. Lease Commitments (continued):
-----------------------------
The Company leases equipment under various operating leases. During the
year ended January 31, 2002,2008, the total payments under such leases were $21,000.$14,500 and $16,500, respectively.
The future minimum annual lease payments are as follows:
Year ended
|
|
|
|
|
Years Ended |
|
|
| |
|
|
|
| |
2010 |
| $ | 16,500 |
|
2011 |
|
| 8,700 |
|
2012 |
|
| 1,800 |
|
| ||||
|
| |||
| ||||
|
| $ | 27,000 |
|
|
| |||
Note 8. Stockholders’ Equity:
MNI Stock Repurchase Plan
In December 2007, the Company’s Board of Directors approved the Medical Nutrition USA, Inc. Stock Repurchase Plan (the “Plan”). The Plan allows for the purchase of up to 500,000 shares of Company stock on the open market and from employees. The Plan allows for a maximum weekly market purchase of 25,000 shares with no more than 50,000 shares in any calendar month. Private transactions with employees can not exceed 50% of the total shares to be purchased with no one individual employee exceeding 25% of the total. As of January 31, 2003 $ 18,600
2004 10,300
2005 3,700
---------
Total future minimum annual lease payments $ 32,600
=========
Note 6. Stockholders' Equity:
--------------------
In February 1992, in connection with the bankruptcy of FWLC (see Note
4)2009, the Company issued to Fleet Bank warrants to purchase 750,000had purchased 184,000 shares of
the Company's common stock. The warrants are exercisable at $.01 per share
and expired in February 2002. At January 31, 2002, none of the options were
exercised.
In March 1992, three officers and directorsfrom employees of the Company were each
granted options to purchase 125,000and 264,000 shares on the open market. The Company purchased these shares for an aggregate total of the Company's common stock
plus 150,000 additional options, which vested over 60 months.$1,409,600. These repurchased shares are deemed authorized and unissued shares available for issuance. The options
are exercisable at $.10 per share. Upon the resignation of one of the
officers, 150,000 options were cancelled. The original 125,000 options
issued to this officerPlan expired in 1999. In 1999, the options issued to the
remaining two officers (275,000 each), were extended to November 2004 and
in October 2001 in consideration for their efforts on behalf of the Company
the exercise price was reduced to $0.03. At JanuaryJuly 31, 2002, none of the
options were exercised.
In January 1996, as consideration to forego payment of past due salary,
two officers of the Company were issued 375,000 options each exercisable at
$.10 per share and in October 2001 in consideration for their efforts on
behalf of the Company the exercise price was reduced to $0.03. The options
expire in November 2004. At January 31, 2002, none of the options were
exercised.
In February 1997, as consideration for his efforts on behalf of the
Company, an officer was issued options to purchase 100,000 shares of the
Company's common stock at $.10 per share. The options expire in November
2004. At January 31, 2002, none of the options were exercised.
During 1999, the Company issued options to a consultant to purchase
175,000 shares of the Company's common stock as additional consideration on
behalf of his efforts in building the Company's web site. The options are
exercisable 100,000 at $.10 per share and 75,000 at $.25 per share. All of
these options expire November 2004. At January 31, 2002, none of the
options were exercised.
In July 1999, as consideration for his efforts on behalf of the
Company, an officer was issued options to purchase 100,000 shares of the
Company's common stock at $.10 per share. The options expire in November
2004. At January 31, 2002, none of the options were exercised.
F-11
2008.
MEDICAL NUTRITION USA, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
2009
Note 6. Stockholders'8. Stockholders’ Equity (continued):
--------------------------------
In August, 1999, options to purchase 750,000 shares of the Company's
common stock which were previously issued to Lepercq Capital Management,
were transferred to Arnold and Myra Gans, President and Vice President of
the Company, respectively. These options were transferred as consideration
for their efforts in developing Womens Health Network and in October 2001
in further consideration for their efforts on behalf of the Company the
exercise price was reduced to $0.03. Such options expire on November 1,
2004. At January 31, 2002, none of the options were exercised.
In October 1999, the Chairman and one director of the Company were each
contingently awarded options to purchase a total of 300,000 shares of the
Company's common stock at a price of $0.10 per share. The grant of these
options was contingent upon the adoption of a stock option plan by the
stockholders of the Company. On October 19, 2000, at the Company's annual
meeting, the stockholders adopted the 2000 Long-Term Incentive Stock Option
Plan and the options vested. At January 31, 2002, none of the options were
exercised. The options will expire on November 1, 2004.
In November 1999, options to purchase 335,000 shares of the Company's
common stock were issued to various medical consultants and options to
purchase 20,000 shares were issued to various other consultants. Such
options expire on November 1, 2009. At January 31, 2002, none of the
options were exercised.
In December 1999, the Company issued options to purchase 5,250 shares
and 500 shares of the Company's common stock as bonuses to employees and
consultants, respectively. The options are exercisable at $.10 per share
and expire November 2004. At January 31, 2002, none of the options were
exercised.
In February 2000, as consideration for accepting the terms of her
employment agreement, an employee was issued 25,000 options exercisable at
$.875 per share. The options expire in November 2004. At January 31, 2002,
none of the options were exercised.
In March 2000, the Company granted options to a member of its medical
review board to purchase 100,000 shares of its common stock. Additionally,
in March 2000, the Company granted options to a consultant to purchase
1,000 shares of its common stock. Both options are exercisable at $.875 per
share and expire on November 1, 2009 and November 1, 2004, respectively. At
January 31, 2002, none of the options were exercised.
In March 2000, the Company entered into an agreement with a consultant,
which provided, in addition to cash consideration, options to purchase
3,985,000 shares of common stock of the Company at an exercise price of
$.875 per share. The options have a five year term and vest 20% upon grant
and 20% on each six month anniversary of the date of grant. Further, the
agreement provided, on substantially the same terms, options to purchase 1)
- 500,000 shares for the Department of Medicine at Columbia University
College of Physicians and Surgeons and, 2) - 413,500 shares for two
individuals associated with the consultant. At January 31, 2002, none of
the options were exercised.
F-12
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 6. Stockholders' Equity (continued):
--------------------------------
Throughout the year ended January 31, 2001, as consideration for their
efforts on behalf of the Company, two employees were issued options to
purchase a total of 35,000 shares of the Company's common stock at prices
between $0.25 and $0.375 per share. As consideration for accepting
positions on the Company's Advisory Board, four individuals were issued a
total of 85,000 options exercisable at prices ranging from $.10 to $.875
per share. In addition, four consultants were issued options to purchase a
total of 22,500 shares of the Company's common stock at prices ranging from
$0.675 to $0.875. The options expire in November 2004. At January 31, 2002,
none of the options were exercised.
In May 2001, as consideration for efforts on behalf of the Company, an
employee was issued options to purchase 5,000 shares of the Company's
common stock at a price of $0.75 per share. The options expire in November
2004. At January 31, 2002, none of the options were exercised.
In September 2001, the Company entered into an agreement with a sales
organization for the distribution of its products. The agreement allows for
granting a total of up to 4,500,000 options to purchase the Company's stock
upon meeting certain revenue and new client objectives. Through January 31,
2002, 700,000 of the 4,500,000 options were granted and exercisable
immediately at $0.03 per share. The options expire in November 2006. At
January 31, 2002, none of the options were exercised.
In October 2001, the Company's Board of Directors authorized the
issuance of an additional 3,450,000 options to a shareholder and two
officers of the Company. These options are exercisable at $.03 per share.
In addition, an employee of the Company was granted 500,000 options
exercisable at $.03 per share. At January 31, 2002, none of the options
were exercised.
Subordinated Debentures
In November 1999, the Company completed a private placement for the
principal amount $1,521,250 of 10% Convertible Debentures due October 1,
2000. This private placement included the conversion of $390,000 of
unsecured advances received earlier in that year. Under the terms of the
Debentures, the principal dollar amount was convertible by the holders into
the Company's common stock at $.075 per share. The Debentures were to be
converted automatically upon the Company amending its Certificate of
Incorporation to increase its authorized capitalization to not less than
35,000,000 shares of common stock.
During the year ended January 31, 2001, the Company sold $500,000 of
additional debentures with terms similar to those sold in the prior fiscal
year. However, these debentures were convertible at $0.25 per share.
On October 19, 2000, at the Company's annual meeting, the stockholders
voted to increase the authorized number of shares of the Company's common
stock to 70,000,000. This resulted in the automatic conversion of the
debenture sold during the current fiscal year plus the related accrued
F-13
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 6. Stockholders' Equity (continued):
--------------------------------
interest to 2,388,826 shares. The original debentures matured on October 1,
2000, and, therefore, did not automatically convert. Each original
debenture holder elected to convert their debentures plus the accrued
interest into the Company's common stock. Accordingly, during the fourth
quarter of the Company's fiscal year, 2001 23,007,151 shares were issued
for this conversion.
2000 Long-Term Incentive Stock Plan
On October 19, 2000, the stockholders approved the 2000 Long-Term Incentive Stock Plan (the Plan)“2000 Plan”). Under the 2000 Plan, the Company may grant stock options, stock appreciation rights (SAR's)(SAR’s) or stock awards. All employees of the Company are eligible to participate in the 2000 Plan. The 2000 Plan authorizes the issuance, in the aggregate, of up to 6,000,000 share240,000 shares of common stock. No stock option, SAR or other award, may be granted under the 2000 Plan after October 27, 2009. The maximum number of shares for which awards may be granted to any person in any fiscal year is 300,000.12,000. The purchase price per share for each stock option may not be less than 100% of the fair market value on the date of grant and may not be for more than ten years. In the case of incentive stock options granted to an optionee who, at the time of grant, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company, the exercise price per share may not be less than 110% of the fair market value on the date of grant and the option may not be exercisable for more than five years. AtAs of January 31, 2002,2009, no optionsstock option grants were granted fromoutstanding under the 2000 Plan.
Note 7. Income Taxes:
------------
The Company has
2003 Omnibus Equity Incentive Plan
Effective as of April 22, 2003, the Board of Directors (the “Board”) board adopted the liability method of accounting for income
taxes pursuant to SFAS 109. No recognition has been made2003 Omnibus Equity Incentive Plan (the 2003 Plan). The purpose of the possible
benefits2003 Plan is to promote the long-term success of available net operating loss carryforwards duethe Company and the creation of stockholder value by (a) encouraging employees, outside directors and consultants to focus on critical long-range objectives, (b) encouraging the uncertaintyattraction and retention of employees, outside directors and consultants with exceptional qualifications and (c) linking employees, outside directors and consultants directly to stockholder interests through increased stock ownership. The 2003 Plan seeks to achieve this purpose by providing for awards in the form of restricted shares, stock units, options (which may constitute incentive stock options or non-statutory stock options) or stock appreciation rights.
Initially, the 2003 Plan authorized the issuance, in the aggregate, of up to 1,000,000 shares of common stock, increased by 250,000 additional shares of common stock as of January 1, 2004. At the 2004 Annual Meeting, the 2003 Plan was amended to provide that future years' will provide income to be offset by such
available benefits. Gender Sciences and its subsidiaries have net operating
loss carryforwards of approximately $6,699,700, which could be available to
reduce income otherwise subject to income tax. The possible deferred income
tax benefits of such available net operating losses are estimated to be
approximately $3,580,000 as of January 31 2002,of each year, commencing with January 31, 2005, the aggregate number of Common Shares reserved for issuance under the 2003 Plan would automatically increase in an amount equal to the number of Common Shares issued by reason of awards being granted, exercised or settled, as applicable, during the immediately preceding fiscal year. At January 31, 2009, 2,609,284 options were issued and outstanding under the 2003 Plan.
On June 7, 2006, the Board approved amendments to the Company’s 2003 Plan to increase the number of shares of common stock subject to the automatic non-qualified stock option granted to each outside director on the date they first join the Board pursuant to the Plan to 15,000 common shares, to increase the number of shares of common stock subject to the automatic non-qualified stock option granted annually to continuing outside directors pursuant to the Plan to 15,000 common shares, and to increase the number of shares of common stock subject to the automatic non-qualified stock option granted annually to each chairman of a Board committee pursuant to the Plan to 5,000 common shares. The Board also approved the restatement of the Plan to effect these changes. On July 6, 2006 the Company executed the Amended and Restated 2003 Omnibus Equity Incentive Plan, which includes the revisions set forth above (the “Amended and Restated 2003 Plan”). No other provision of the Plan was changed.
In addition to the options issued in connection with the plans described above, options exercisable for an additional 200,000 shares remained outstanding as of January 31, 2009, which were issued prior to January 31, 2003 and not pursuant to any formal plan.
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8. Stockholders’ Equity (continued):
Stock Options
During the year ended January 31, 2009, the Company granted options to purchase shares of its common stock with a valuation allowancethree year vesting schedule at exercise price of $2.87 to employees as consideration for their efforts. Three of our Outside Directors received annual option grants as per our Amended and Restated 2003 Omnibus Equity Incentive Plan of 20,000 shares each for serving on our Board of Directors and for being Chairman of a Board committee. These Director options become fully exercisable in one year from their grant date at an equal amount as follows:
Year Endedexercise price of $1.98. All of these grants were priced at the fair market value of the common stock on the date of grant.
The following table summarizes the outstanding and exercisable options at January 31, 2002 2001 2000
----------- ----------- -----------
Deferred2009 (contractual life in years):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options Outstanding |
| Options Exercisable |
| |||||||||||||||||
|
|
|
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of prices |
| Number |
| Weighted |
| Weighted |
| Average |
| Number |
| Weighted |
| Average |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.50-$3.00 |
|
| 2,456,800 |
| 5 |
|
| $ | 2.15 |
|
|
|
|
| 2,376,800 |
| $ | 2.14 |
|
|
|
|
$3.01-$5.96 |
|
| 352,484 |
| 8 |
|
|
| 4.14 |
|
|
|
|
| 281,934 |
|
| 4.05 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
|
| 2,809,284 |
| 7 |
|
| $ | 2.39 |
| $ | 1.21 |
|
| 2,658,734 |
| $ | 2.35 |
| $ | 0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8. Stockholders’ Equity (continued):
A summary of option transactions for the two years ended January 31, 2009, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Options |
| Weighted |
| Options |
| Weighted |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2007 |
| 2,884,697 |
| $ | 2.26 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
| 107,500 |
|
| 4.83 |
|
|
|
|
|
|
Exercised |
| (125,266 | ) |
| 1.62 |
|
|
|
|
|
|
Expired or Surrendered |
| (66,450 | ) |
| 3.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2008 |
| 2,800,481 |
|
| 2.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
| 83,100 |
|
| 2.23 |
|
|
|
|
|
|
Exercised |
| (69,297 | ) |
| 0.61 |
|
|
|
|
|
|
Expired or Surrendered |
| (5,000 | ) |
| 3.98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 31, 2009 |
| 2,809,284 |
| $ | 2.39 |
| 2,658,734 |
| $ | 2.35 |
|
|
|
|
|
|
|
|
|
|
| ||
The future expense related to unvested stock options will be as follows:
|
|
|
|
|
Years Ended January 31, |
|
|
|
|
|
|
|
|
|
2010 |
| $ | 154,600 |
|
2011 |
|
| 26,000 |
|
2012 |
|
| 3,500 |
|
|
|
| ||
|
|
|
|
|
|
| $ | 184,100 |
|
|
|
|
SFAS No. 123(R) requires the benefits of tax asset $ 2,345,000 $ 2,085,000 $ 1,676,000
Allowance fordeductions in excess of those recognized in conjunction with compensation expense, to be reported as a financing cash flow, rather than as an operating cash flow. This requirement has the effect of reducing net operating cash flows and increasing net financing cash flows in periods in and after adoption.
The income tax benefits derived from the exercise of non-qualified stock options and disqualifying dispositions of incentive stock options in excess of any amounts previously classified as a deferred tax asset, (2,345,000) (2,085,000) (1,676,000)
----------- ----------- -----------
Net deferred tax asset $ - $ - $ -
=========== =========== ===========
Net operating losses carryovers of approximately $6,699,700 will expire
through 2020 as follows:
F-14
Years ending January 31, 2006 $ 518,100
Year ending January 31, 2007 2,932,000
Year ending January 31, 2008 486,300
Year endingwhen realized, are credited to additional paid -in capital. For the year ended January 31, 2009 31,600
Year endingthe tax benefit realized on the tax deductions from option exercises under stock-based compensation arrangements was approximately $40,800 and is recorded as additional paid in capital.
For the years ended January 31, 2010 310,500
Year ending2009 and 2008, the Company has estimated the fair value of each option award on the date of grant using the Black-Scholes model. For the years ended January 31, 2011 16,200
Year ending2009 and 2008, respectively, the expected volatility was based on both historical volatility and implied volatility of the Company’s stock. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Company used historical data to estimate expected option exercise and post-vesting employment termination behavior. The Company utilized the risk-free interest rate for periods equal to the expected term of the option based upon the U.S. treasury yield curve in effect at the time of the grant. The Company has no intention of declaring any dividends.
F-18 |
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8. Stockholders’ Equity (continued):
The fair value of stock-based awards was estimated using the Black-Scholes model with the following weighted-average assumptions for stock options granted in the years ended January 31, 2012 16,200
Year ending2009 and 2008:
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| ||
|
|
|
| ||||
|
|
|
|
|
| ||
Expected term until exercised, years |
|
| 6 |
|
| 6 |
|
Expected stock price volatility, average |
|
| 66 | % |
| 77 | % |
Risk-free interest rate |
|
| 3.5 | % |
| 4 | % |
Expected Dividend yield |
|
| 0 |
|
| 0 |
|
Weighted-average fair value per option |
| $ | 1.33 |
| $ | 3.05 |
|
Restricted Stock Awards
During the years ended January 31, 2017 232,000
Year ending2009 and 2008, the Company granted restricted stock awards totaling 185,000 and 142,500 shares of its common stock with a three year vesting schedule to 10 and 9 employees, respectively, as consideration for their services. The shares become vested yearly based upon continued employment. The shares have been valued at $1.50 and $4.40 per share, respectively, which was the fair market value at the date of the approval of the grant. The Company is amortizing the expense over the vesting period.
The following table summarizes the status of Restricted stock as of January 31, 2018 244,200
Year ending2009, and changes during the year then ended:
|
|
|
|
|
|
|
|
| Shares |
| Weighted |
| |
|
|
|
|
|
| |
Nonvested at January 31, 2008 |
| 325,833 |
| $ | 4.26 |
|
Granted |
| 185,000 |
|
| 1.50 |
|
Vested |
| (137,500 | ) |
| 4.24 |
|
Forfeited |
| — |
|
| — |
|
|
|
|
|
|
|
|
Nonvested at January 31, 2009 |
| 373,333 |
| $ | 2.90 |
|
The future expense related to unvested restricted stock awards will be as follows:
|
|
|
|
|
Years Ended January 31, |
|
|
|
|
|
|
|
|
|
2010 |
| $ | 561,600 |
|
2011 |
|
| 254,100 |
|
2012 |
|
| 77,600 |
|
|
|
| ||
|
|
|
|
|
|
| $ | 893,300 |
|
|
|
|
For the year ended January 31, 2019 1,169,000
Year ending2009 and 2008, the Company recognized share -based compensation cost of $1,111,300 and $1,062,000, respectively. These costs are included in selling, general and administrative expense.
F-19 |
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 9. Income Taxes:
The components of the provision for income taxes consist of the following:
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| ||
|
|
|
| ||||
|
|
|
|
|
| ||
Current – Federal |
| $ | — |
| $ | — |
|
Current – State |
|
| 6,300 |
|
| 12,300 |
|
Deferred – Federal |
|
| 10,700 |
|
| 386,900 |
|
Deferred – State |
|
| 12,700 |
|
| 81,700 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
Income tax expense |
| $ | 29,700 |
| $ | 480,900 |
|
|
|
|
| ||||
Income tax expense was calculated using the statutory tax rate. The difference between the effective tax rate and the statutory tax rate is mainly due to nondeductible stock based compensation expense.
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| ||
|
|
|
| ||||
|
|
|
|
|
| ||
Statutory Federal income tax rate |
|
| (34 | )% |
| 34 | % |
State taxes, net of Federal benefit |
|
| 1.8 | % |
| 8.3 | % |
Other |
|
| 2.1 | % |
| (12.5 | )% |
Stock based compensation |
|
| 36.5 | % |
| 5.8 | % |
|
|
|
| ||||
|
|
|
|
|
|
|
|
Effective income tax rate |
|
| 6.4 | % |
| 35.6 | % |
|
|
|
| ||||
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. The Company utilizes the asset and liability approach which requires the recognition of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than enactments of changes in the tax law or rates.
F-20 |
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 9. Income Taxes (continued):
The Company’s deferred taxes are comprised of the following:
|
|
|
|
|
|
|
|
|
| Year Ended |
| Year Ended |
| ||
|
|
|
| ||||
Current Deferred Taxes |
|
|
|
|
|
|
|
Provision for losses on accounts receivable |
| $ | 13,500 |
| $ | 5,800 |
|
Non deductible accruals |
|
| 37,800 |
|
| — |
|
Inventory |
|
| 8,700 |
|
| — |
|
Net operating losses |
|
| 346,500 |
|
| 871,900 |
|
|
|
|
| ||||
Total Current Deferred |
|
| 406,500 |
|
| 877,700 |
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
NonCurrent Deferred Taxes |
|
|
|
|
|
|
|
Depreciable assets |
|
| (99,700 | ) |
| (46,500 | ) |
Amortizable assets |
|
| 34,300 |
|
| 18,600 |
|
Stock based compensation |
|
| 477,200 |
|
| 286,600 |
|
Net operating losses |
|
| 557,200 |
|
| 221,300 |
|
|
|
|
| ||||
Total Non-Current Deferred |
|
| 969,000 |
|
| 480,000 |
|
|
|
|
| ||||
Total Deferred Taxes |
| $ | 1,375,500 |
| $ | 1,357,700 |
|
|
|
|
| ||||
The Company has Federal income tax loss carryforwards as of January 31, 2009 of approximately $2,635,900. The Federal Net Operating Loss (“NOL”) carryforwards expire beginning in 2020 743,600
-----------
$ 6,699,700
===========
and will be fully expired during 2025. The Company has various state NOL’S of approximately $185,500 which expire during 2012.
Effective February 1, 2007, the Company adopted Financial Interpretation (“FIN”) No. 48, Accounting for Uncertainty in Income Taxes-An Interpretation of FASB Statement No. 109. This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that has a greater than 50% likelihood of being realized upon effective settlement. The interpretation also provides guidance on derecognition, classification, interest and penalties, and other matters. The adoption did not have an effect on the financial statements.
The tax years 2004-2008 remain open to examination by the major taxing jurisdictions to which the Company is subject.
F-21 |
MEDICAL NUTRITION USA, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 2009
Note 8. 10.Commitments and Contingencies:
-----------------------------
Contingencies:
Government Regulations
The Company's foodCompany’s nutritional and pethealth products are produced by third parties in various plants under applicable government regulations. The Company depends upon its vendors to comply with such regulations. Failure by such vendors to comply with the applicable regulations could result in fines and/or seizure of the food products. Presently, the Company is not a party to any such lawsuits. In addition, it
Product Development and Supply Agreement
On July 31, 2003, the Company entered into a ten-year product development and supply agreement with Organics Corporation of America (“Organics”). Organics, a related party, has no commitmentsagreed to assist the Company to continue to develop and improve products that have been developed or are in the process of being developed and improved; design, develop, implement, and provide merchantable and marketable products; and maintain the confidentiality of all proprietary product technology. The Company currently uses Organics as its vendorsprimary manufacturer of its products. Under the agreement, in consideration for Organics performance, the Company shall make payment to them for all invoices submitted for products and services performed, at costs to which both parties have agreed upon and that Organics has the opportunity to manufacturer other products for the purchaseCompany in the future. In connection with this transaction, the Company and Organics purchased shares of either raw materials or finished product.
Consulting Agreements
In March 2000,each other’s common stock. (See Note 5 – “Investment in Organics Corporation of America” and Note 6-“Major Customers and Major Vendor- Related Party”)
Employment Contract
Effective April 17, 2006, the Company entered into an employment agreement with Mr. Francis A. Newman, Chief Executive Officer. This agreement renews automatically on April 17 of each succeeding year unless terminated as provided within the terms of the agreement. Under the agreement, Mr. Newman is entitled to a consultant,minimum base salary of $185,500 with annual salary increases at the discretion of the Board of Directors, and an annual incentive bonus in an amount up to 100% of base salary if the Company achieves agreed-upon targets. Additionally, Mr. Newman is entitled to various other benefits (such as travel allowance and participation in employee benefit plans).
Bonus Plan
On June 7, 2005, the Company approved a bonus plan for officers based on a formula which providedtakes into account sales and EBITDA, with annual targets to be set at the level of the annual operating plan approved by the Board of Directors. The plan allows for payment up to 100% of the officers base salary. The percentage combination of cash consideration and options to purchase shares of common stock of the Company (see Note 6). The options have a five-year term and
vest over two years. Upon executionused to pay the bonuses will be at the discretion of the agreement,Board of Directors, but in no case will the Company paid the
consultant $100,000 and became obligated to make an additional payment of
$150,000 on the first anniversarycash portion be less than 25% of the agreement. The Company and the
consultant have since amended the terms of the agreement, making subsequent
payments contingent on the Company obtaining additional financing by June
1, 2001. Such financing did not occur and the Company has not recorded a
liability for the remaining $150,000 payment.
Going Concern
As shown in the accompanying financial statements, the Company's sales
have decreased from $627,500 to $488,200. Losses from operations have
decreased from ($1,184,300) to ($743,600) due to significant cost cutting
measures. Additionally, the Company has negative working capital at January
31, 2002, of ($719,300). The fact that the Company has continued to sustain
losses and requires additional sources of cash to fund its operations,
continues to create uncertainty about the Company's ability to continue as
a going concern.
Management of the Company has developed a plan to improve cash flow
through expanding operations and raising additional funds either through
the issuance of debt or equity. During fiscal years 2000 and 2001,
management had directed its efforts toward the development of its
non-biased gender based womens' healthcare Internet web site. In fiscal
2002, because of the decline in interest in the Internet and, in particular
the determination by the Company that its women's health website and its
F-15
GENDER SCIENCES, INC. F/K/A THE MNI GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 2002
Note 8. Commitments and Contingencies (continued):
-----------------------------------------
e-commerce initiative would not be successful, the Company elected to cease
its Internet initiative and has focused its efforts on its off-line
businesses. Presently, managements' efforts and the Company's resources are
being directed toward new product development and direct sales and
marketing to existing and new customers.
During fiscal 2002 various officers and stockholders of the Company
have made additional interest-bearing loans to the Company of approximately
$265,000. The Company will require additional working capital until such
time as profitability from various ventures and sales of existing products
are achieved and the Company reaches break-even levels. The Company is
actively seeking to raise additional capital. There can be no assurance
that the Company will be successful in raising such funds and that if
additional funds are raised, that the Company's decision to focus on
off-line activities will result in achieving profitability.
The ability of the Company to continue as a going concern is dependent
upon its ability to raise additional funds and the success of managements'
plan to expand operations. The Company anticipates that the additional
financing, if successful as discussed above, will provide the necessary
funds it requires for the balance of the year ending January 31, 2003. The
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
Note 9. Major Customers:
---------------bonuses awarded. For the yearyears ended January 31, 2002, two customers were responsible2009 and 2008, the Company expensed $248,000 and $147,800 in bonuses based on this plan, respectively.
401(k) Plan
In March 2007, the Company established a 401(k) retirement plan (“plan”) for approximately $214,300 in sales; representing approximately 44%all eligible employees. In January 2008, the Company amended the plan to include a maximum Company contribution of sales.4 percent of base salary for the first 5 percent of elected base salary deferrals. Employees are eligible to contribute the maximum as allowed by law. For the yearyears ended January 31, 2001, three customers were responsible for
approximately $244,4002009 and 2008, the 401(k) expense was $89,000 and $5,700, respectively, and is included in sales; representing approximately 39% of sales.
Forselling, general and administrative expenses.
Exhibit | Description | |
3.1 | Certificate of Incorporation of Medical Nutrition USA, Inc., dated March 23, 2003 (1) | |
3.2 | Bylaws of Medical Nutrition USA, Inc., as adopted March 7, 2003 (2) | |
4.1 | Form of convertible 8% Notes dated July 31, 2003 between Medical Nutrition USA, Inc. and certain investors (3) | |
4.2 | Form of Convertible Promissory Note dated December 5, 2003 between Medical Nutrition USA, Inc. and certain investors (4) | |
4.3 | Form of Class A Warrant Agreement and related Warrant Certificate* | |
4.4 | Form of Class B Warrant Agreement and related Warrant Certificate* | |
4.5 | Warrant to Purchase Shares of Common Stock dated as of April 1, 2003 between Medical Nutrition USA, Inc. (f/k/a Gender Sciences, Inc.) and Kirlin Securities, Inc.* | |
4.6 | Common Stock Purchase Warrant dated as of April 22, 2003 between Medical Nutrition USA, Inc. and Unity Venture Capital Associates, Ltd.* | |
10.1 | 2000 Long term Incentive Plan (5) # | |
10.2 | 2003 Omnibus Equity Incentive Plan (6) # | |
10.3 | Employment Agreement dated March 1, 2003 by and between Medical Nutrition USA, Inc. and Francis A. Newman (7) # | |
10.4 | Form of Subscription Agreement dated July 31, 2003 between Medical Nutrition USA, Inc. and Organics Corporation of America (8) | |
10.5 | Form of Subscription Agreement dated July 31, 2003 between Organics Corporation of America and Medical Nutrition USA, Inc. (9) | |
10.6 | Office Lease dated October 4, 1984 by and between Medical Nutrition, Inc., a predecessor of Medical Nutrition USA, Inc. and Van Brunt Associates, L.P. (10) | |
10.7 | First Amendment to Office Lease dated October 24, 1994 by and between Medical Nutrition, Inc., a predecessor of Medical Nutrition USA, Inc. and Van Brunt Associates, LP (11) | |
10.8 | Lease Extension Letter Agreement dated November 17, 1999 by and between Medical Nutrition, Inc., a predecessor of Medical Nutrition USA, Inc. and First Industrial Realty | |
Trust, Inc. (12) | ||
10.9 | Second Amendment to Office Lease dated September 9, 2004 by and between Medical Nutrition USA, Inc. and The Realty Associates Fund VI, L.P. (13) | |
10.10 | Executive Bonus Program effective January 1, 2005 (14) # | |
21.1 | Subsidiaries of Medical Nutrition USA, Inc. (15) | |
23.1 | Consent of Amper, Politziner & Mattia, LLP, Independent Registered Public Accounting Firm |
31.1 | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. ** | |
31.2 | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. ** | |
32.1 | Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350. ** | |
* Previously filed.
** Filed herewith.
# Indicates management contract or compensatory plan or arrangement.
(1) | Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended (2) Incorporated by reference from (3) Incorporated by reference from the Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended July 31, 2003. (4) Incorporated by reference from the Company’s Quarterly Report on Form 10-QSB for the fiscal quarter ended October 31, 2003 (5) Incorporated by reference from the Company’s definitive proxy statement for its 2000 Annual Meeting of Shareholders to be held October 19, 2000. (6) Incorporated by reference from the Company’s definitive proxy statement for its 2004 Annual Meeting of Shareholders to be held June 8, 2004. (7) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, (8) Incorporated by reference from (9) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, 2004. (10) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, 2003. (11) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, 2003. (12) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, 2003. (13) Incorporated by reference from the Company’s Annual Report on Form 10-KSB for the fiscal year ended January 31, 2005. (14) Incorporated by reference from the Company’s Quarterly (15) Incorporated by reference from the Company’s annual Report on Form 10-KSB for |