UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
COMMISSION FILE NO. 000-29245
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
----------------------------------------------
(Exact name of small business issuer as specified in its charter)
FLORIDA
-------
(State or other jurisdiction of incorporation or organization)
65-0452156
----------
(I.R.S. Employer Identification Number)
3750 INVESTMENT LANE, SUITE 5, WEST PALM BEACH, FLORIDA 33407
-------------------------------------------------------------
(Address of principal executive offices)
(561) 863-8446
--------------
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,632,813 shares of Common Stock as
of August 10, 2003.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
HEALTH AND NUTRITION SYSTEMS INTERNATIONAL, INC.
INDEX
Page
----------
Facing Sheet...................................................................... Cover Page
Index............................................................................. i
Part I - Financial Information
Item 1. Financial Statements 1
Condensed Balance Sheet as of June 30, 2003 (Unaudited).................. 1
Condensed Statements of Operations for the three and
six months ended June 30, 2003 and 2002 (Unaudited)...................... 2
Condensed Statements of Cash Flows for the six months ended June 30,
2003 and 2002 (Unaudited)................................................ 3
Notes to Condensed Financial Statements.................................. 4-6
Item 2. Management's Discussion and Analysis of Financial Conditions and
Results of Operations........................................... 7-12
Item 3 Controls and Procedures............................................ 12
Part II - Other Information
Item 1. Legal Proceedings.................................................. 12
Item 2. Changes in Securities.............................................. 13
Item 3. Defaults Upon Senior Securities.................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................ 13
Item 5. Other Information.................................................. 13
Item 6. Exhibits and Reports on Form 8-K................................... 13
Signature......................................................................... 14
i
Part I - Financial Information
Item 1. Financial Statements
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
CONDENSED BALANCE SHEET
JUNE 30, 2003
(UNAUDITED)
================================================================================
ASSETS
------
Current assets:
Cash $ 11,383
Accounts receivable, net 361,184
Inventory 581,778
-----------
Total current assets 954,345
-----------
Property and equipment, net 29,197
-----------
Other assets, net 29,106
Prepaids 12,633
-----------
Total assets $ 1,025,281
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
Current liabilities:
Accounts payable $ 1,220,626
Accrued expenses 134,780
Notes payable, current portion 283,649
-----------
Total current liabilities 1,639,055
-----------
Notes payable, less current portion --
-----------
Total liabilities 1,639,055
-----------
Commitments and contingencies --
Stockholders' deficit:
Common stock, $ 0.001 par value, authorized 30,000,000
shares; 3,632,813 shares issued and outstanding 3,630
Additional paid-in capital 834,812
Accumulated deficit (1,452,216)
-----------
Total stockholders' deficit (613,774)
-----------
Total liabilities and stockholders' deficit $ 1,025,281
===========
See accompanying notes to condensed financial statements.
1
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
======================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
----------- ----------- ----------- -----------
Revenue $ 1,436,549 $ 1,027,386 $ 2,502,096 $ 1,867,480
Cost of sales 553,284 326,683 1,004,702 639,074
----------- ----------- ----------- -----------
Gross profit 883,265 700,703 1,497,394 1,228,406
----------- ----------- ----------- -----------
Operating expense:
General and administrative expense 467,351 434,274 808,544 769,508
Advertising and promotion 333,901 108,251 496,312 251,053
Depreciation and amortization 4,883 7,617 12,326 15,233
----------- ----------- ----------- -----------
Total operating expense 806,135 550,142 1,317,182 1,035,794
----------- ----------- ----------- -----------
Income from operations 77,130 150,561 180,212 192,612
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (8,740) (11,775) (19,568) (13,379)
----------- ----------- ----------- -----------
Income before income taxes 68,390 138,786 160,644 179,233
----------- ----------- ----------- -----------
Benefit (provision) for income taxes -- -- -- --
----------- ----------- ----------- -----------
Net income $ 68,390 $ 138,786 $ 160,644 $ 179,233
=========== =========== =========== ===========
Net income per share - basic $ 0.02 $ 0.04 $ 0.04 $ 0.05
=========== =========== =========== ===========
Net income per share - diluted $ 0.02 $ 0.04 $ 0.04 $ 0.05
=========== =========== =========== ===========
Weighted average number of shares - basic 3,632,813 3,632,813 3,632,813 3,632,813
=========== =========== =========== ===========
Weighted average number of shares - diluted 3,632,813 3,632,813 3,632,813 3,632,813
=========== =========== =========== ===========
See accompanying notes to condensed financial statements.
2
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)
================================================================================
2003 2002
--------- ---------
Net cash provided by operating activities $ 194,319 $ 11,905
--------- ---------
Cash flows from financing activities:
Repayments on notes payable (197,000) (68,834)
Repayments on capital leases (714) (14,480)
--------- ---------
Net cash used in financing activities (197,714) (83,314)
--------- ---------
Net decrease in cash (3,395) (71,409)
Cash, beginning of period 14,778 81,932
--------- ---------
Cash, end of period $ 11,383 $ 10,523
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
- -----------------------------------
Conversion of accounts payable to notes payable $ -- $ 700,000
========= =========
See accompanying notes to condensed financial statements.
3
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited condensed financial statements of Health & Nutrition
Systems International, Inc. (the "Company") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Regulation S-B. Accordingly, they do not include all of the information and
footnotes required for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results for the
interim periods presented have been included.
These results have been determined on the basis of generally accepted accounting
principles and practices applied consistently with those used in the preparation
of the Company's Annual Financial Statements for the year ended December 31,
2002. Operating results for the six months ended June 30, 2003 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 2003.
It is recommended that the accompanying condensed financial statements be read
in conjunction with the financial statements and notes for the year ended
December 31, 2002, found in the Company's Form 10-KSB.
NOTE 2 - LEGAL MATTERS
- ----------------------
The Company from time to time is a party to various legal proceedings. In the
opinion of management, none of the proceedings are expected to have a material
impact on the Company's financial position or results of operations.
NOTE 3 - MANAGEMENT'S PLANS AND ISSUES AFFECTING LIQUIDITY
- ----------------------------------------------------------
The Company's condensed financial statements have been prepared assuming that
the Company will continue as a going concern. During the six months ended June
30, 2003, the Company has successfully controlled costs and attained
profitability, including net income of $160,644 and cash flow from operations of
$194,319. However, at June 30, 2003, the Company has a working capital deficit
of $684,710 and adverse liquidity ratios.
Management intends to continue controlling costs and monitoring financial
capabilities. Management believes these factors will contribute toward achieving
sustained profitability.
There remains substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.
4
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
NOTE 4 - STOCK OPTIONS
- ----------------------
The non-qualified stock option plan adopted by the Company in May 1998
authorized the Company to grant 1,250,000 of its common shares.
The Company has elected to account for the stock options under the Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations. Accordingly, no compensation expense has been
recognized on the employee stock options. The Company accounts for stock options
granted to consultants under Financial Accounting Standards Board Statement No.
123, "Accounting for Stock-Based Compensation."
During the six months ended June 30, 2003, no new options were granted to
officers, directors and employees of the Company.
Had the compensation expense for the stock option plan been determined based on
the fair value of the options at the grant date consistent with the methodology
prescribed under Statement of Financial Standards No. 123, "Accounting for
Stock-Based Compensation," at June 30, the Company's net income and earnings per
share would have been reduced to the proforma amounts indicated below:
June 30, 2003
-------------
Net income
As reported $ 160,644
=========
Pro forma $ 158,075
=========
Earnings per share
As reported 0.04
=========
Pro forma 0.04
=========
The fair value of each option is estimated on the date of grant using the fair
market value option-pricing model with the following assumptions:
Risk-free interest rate 4.5% - 6.5%
Expected life (years) Various
Expected volatility 1.23
Expected dividends None
NOTE 5 - RECLASSIFICATION AND CORRECTION OF AN ERROR
- ----------------------------------------------------
Certain reclassifications have been made to the 2002 financial statements to
conform to the 2003 financial statement presentation. These reclassifications
have the effect of reducing revenue and reducing expense. Slotting fees expense
and new store discounts, charged back by customers were previously recorded as
marketing expense. In order to correct the accounting principle, the Company has
reclassified these costs as a reduction of gross sales. These reclassifications
have no effect on reported net income.
5
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
================================================================================
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
In July 2003, the Company amended its manufacturing agreement with Garden State
Nutritionals to provide for a line of credit of $450,000 on both finished goods
and work in process. The terms of the amended agreement expire July 17, 2005.
In July 2003, the Company issued an amended promissory note to Garden State
Nutritionals in the principal amount of $1,300,000. The note provides for
$300,000 to be paid before December 31, 2003, with the balance due in quarterly
installments of $131,410 commencing November 1, 2003 at 4.5% per annum.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Quarterly Report on Form 10-QSB contains forward-looking statements. Any
statements that are not statements of historical fact should be regarded as
forward-looking statements. For example, the words "intends," "believes,"
"anticipates," "plans," and "expects" are intended to identify forward-looking
statements. There are a number of important factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements. These factors include without limitation those factors contained in
our Form 10-KSB filed with the Securities and Exchange Commission. We do not
undertake any obligation to update any such factors or to publicly announce the
result of any revision to any of the forward looking statements contained herein
to reflect future events or developments.
The following discussion of our results of operations and financial condition
should be read together with our unaudited Financial Statements contained in
Part I, Item 1 and the related Notes in this Form 10-QSB, and our audited
Financial Statements and the related Notes contained in our Form 10-KSB filed
with the Securities and Exchange Commission.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the U.S. Securities
and Exchange Commission, encourages all companies to include a discussion of
critical accounting policies or methods used in the preparation of financial
statements. Our financial statements include a summary of the significant
accounting policies and methods used in the preparation of our financial
statements.
Management believes the following critical accounting policies affect the
significant judgments and estimates used in the preparation of the financial
statements.
REVENUE RECOGNITION
Revenues are recognized at the time of shipment of the respective merchandise.
Included in the net sales in the accompanying financial statements for the six
months and the three months ended June 31, 2003 and 2002 are returns and
allowances, sales discounts, new store opening discounts and coop advertising
and promotions in the amounts of $984,983 and $666,347 and $433,744 and $285,897
respectively. The increase in year 2003 was primarily due to the sales returns
and allowances associated with the return of discontinued ephedra products.
Freight expenses are included in cost of sales.
USE OF ESTIMATES
Management's discussion and analysis of financial condition and results of
operations is based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these financial statements requires management to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management evaluates these estimates,
including those related to valuation allowance for the deferred tax asset,
estimated useful life of fixed assets and the carrying value of long-lived
7
assets, intangible assets and allowances for sales returns, doubtful accounts,
and obsolete and slow moving inventory and reserve for customer liabilities.
Management bases these estimates on historical experience and on various other
assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
CUSTOMER LIABILITY ESTIMATES
The company estimates and accrues expenses and liabilities for co-op advertising
and promotions and expenses for discontinued products as a reduction of sales.
The liability is maintained until the customer takes the deduction. This
liability is netted against the accounts receivable account on the balance
sheet. The amount at June 30, 2003 was $1,000,529 and June 20, 2002 was
$481,131.
OVERVIEW
We continued to implement the Company's strategic plan to diversify our product
line by developing and promoting new products. This strategy is aimed at
minimizing the impact of a shift in consumer preferences with regard to any one
of our products, a change in retailer attitude with respect to any of our
products, or any other cause of reduced sales either for a particular product or
in a particular geographical area.
NET SALES
Gross revenues (sales before co-op advertising and slotting fees) for the six
months ended June 30, 2003 and three months ended June 30, 2003 were $3,487,079
an increase of $953,252 or a 38% and $1,870,294 and increase of $557,011 or 42%
respectively, as compared to gross revenue for the six months ended June 30,
2002 of $2,533,827 and for the three months ended June 30, 2002 of $1,313,283.
Net sales for the three months ended June 30, 2003 were $1,436,549, an increase
of $409,163 or 40%, as compared to net sales of $1,027,386 for the three months
ended June 30, 2002. The increase was primarily due to an increase in sales to
several of our customers. For the three months ended June 30, 2003, the revenues
with respect to our largest customers were as follows: (i) Eckerd accounted for
$129,150 or 9% of sales: (ii) GNC accounted for $466,976 or 33% of sales; (iii)
Rite Aid accounted for $118,881 or 9% of sales; (iv) Walgreen accounted for
$42,768 or 3% of sales; (v) CVS accounted for $152,280 or 11% of sales; (vi)
Albertsons accounted for $106,375 or 7% of sales and Wal-Mart accounted for
$535,296 or 37% of sales. No other account represented more than 5% of sales
during the quarter.
Net sales for the six months ended June 30, 2003 were $2,502,096, an increase of
$634,616 or 34%, as compared to net sales of $1,867,480 for the six months ended
June 30, 2002. The increase was primarily due to the increase in advertising
expenditures during the first six months ended June 30, 2003. For the six months
8
ended June 30, 2003, the revenues with respect to our largest customers were as
follows: (i) Eckerd accounted for $133,745 or 5% of sales: (ii) GNC accounted
for $722,790 or 29% of sales; (iii) Rite Aid accounted for $182,536 or 7% of
sales; (iv) Walgreen accounted for $236,952 or 9% of sales; (v) CVS accounted
for $364,705 or 15% of sales and Wal-Mart accounted for $964,002 or 39% of
sales. No other account represented more than 5% of sales during the six months.
COST OF SALES
Cost of sales for the three months ended June 30, 2003 was $553,284 or 39% of
net sales as compared to $326,683 or 32% of net sales for the three months ended
June 30, 2002. Cost of sales for the six months ended June 30, 2003 was
$1,004,702 or 40% of net sales as compared to $639,074 or 34% of net sales for
the three months ended June 30, 2002. The cost of sales as a percentage of gross
revenues was 29% and 25% for the three months ended June 30, 2003 and six months
ended June 30, 2003, respectively. The dollar amount is higher due to the
increased sales and the percentage increase is due to the new products having a
higher cost of goods.
GROSS PROFIT
Gross profit for the three months ended June 30, 2003 was $883,264 an increase
of $182,561 or 26% compared to gross profit of $700,703 for the three months
ended June 30, 2002. As a percent of net sales, gross profit was 61% for the
three months ended June 30, 2003, compared to 68% for the three months ended
June 30, 2002. The increase in gross profit was primarily due to the sales
increases in the Carb Cutter, Eat Less and Phase2 in the aggregate amount of
$1,012,420. Gross profit for the six months ended June 30, 2003 was $1,497,394
an increase of $268,988 or 22% compared to gross profit of $1,228,406 for the
six months ended June 30, 2002. As a percent of net sales, gross profit was 60%
for the six months ended June 30, 2003, compared to 66% for the six months ended
June 30, 2002. The increase in gross profit was primarily due to the sales
increases in the Carb Cutter, Eat Less and Phase2 in the aggregate amount of
$1,778,644.
OPERATING EXPENSES
Operating expenses were $806,135 for the three months ended June 30, 2003,
representing an increase of $255,993, compared to $550,142 for the three months
ended June 30, 2002. As a percent of net sales, operating expenses were 56% for
the three months ended June 30, 2003, compared to 54% for the three months ended
June 30, 2002. Advertising and promotion expenses for the three months ended
June 30, 2003, were $333,901 representing an increase of $225,650, compared to
$108,251 for the three months ended June 30, 2002. The general and
administrative expenses were $467,351 for the three months ended June 30, 2003
compared to $434,274 for the three months ended June 30, 2002 or an increase of
$33,077. Operating expenses were $1,317,182 for the six months ended June 30,
2003, representing an increase of $281,388, compared to $1,035,794 for the six
months ended June 30, 2002. As a percent of net sales, operating expenses were
53% for the six months ended June 30, 2003, compared to 55% for the six months
ended June 30, 2002. Advertising and promotion expenses for the six months ended
June 30, 2003, were $496,312 representing an increase of $245,259, compared to
$251,053 for the six months ended June 30, 2002. The general and administrative
expenses were $808,544 for the six months ended June 30, 2003 compared to
$769,508 for the six months ended June 30, 2002 or an increase of $39,036.
9
INCOME FROM OPERATIONS
Income from operations was $77,130 for the three months ended June 30, 2003,
compared to an income from operations of $150,561 for the three months ended
June 30, 2002. Net profit from operations was $180,212 for the six months ended
June 30, 2003, compared to a income from operations of $192,613 for the six
months ended June 30, 2003. Income was $68,390 or $0.02 per share for the three
months ended June 30, 2003, as compared to a net income of $138,786 or $0.04 per
share for the three months ended June 30, 2002. Income was $160,644 or $0.04 per
share for the six months ended June 30, 2003, as compared to a net income of
$179,233 or $0.05 per share for the six months ended June 30, 2002.
LIQUIDITY & CAPITAL RESOURCES
At June 30, 2003, the Company had a working capital deficit of $684,710 compared
to a $376,678 working capital deficit at June 30, 2002.
Net cash provided by operating activities for the six months ended June 30, 2003
was $194,319 compared to $11,905 provided by operating activities for the six
months ended June 30, 2002. The resulting increase in cash is primarily due to a
net profit realized during the six months ended June 30, 2003, due to higher
sales.
Cash used in investing activities was $0 for both the six months ended June 30,
2003 and 2002.
Net cash used in financing activities for the six months ended June 30, 2003 was
$197,714 compared to net cash used by financing activities of $83,314 for the
six months ended June 30, 2002.
On April 11, 2002, the Company entered into an agreement with Garden State
Nutritionals (GSN), sole manufacturer, to repay $700,000 owed to GSN as of the
date of the agreement. The repayment schedule requires equal quarterly payments,
without interest, over the next eight quarters, starting June 1, 2002. In
connection with this agreement, the Company granted to GSN a blanket second
priority in lien on the Company's assets under a Security Agreement, which may
only be foreclosed upon the event the Company fails to make (3) consecutive
quarterly principle payments in accordance with the terms of the promissory
note. The occurrence of any of the following events shall constitute a default
under this promissory note: (i) the failure of Company to pay when due any
payment of principal and such failure continues for fifteen (15) days after
Lender notifies the Company in writing; (ii) the Company files for or is granted
certain relief pursuant to or within the meaning of the United States Bankruptcy
Code or any other federal or state law relating to insolvency or relief of
debtors (a "Bankruptcy Law") and (iii) Christopher Tisi ceases to be the
President and Chief Executive Officer of the Company (unless a replacement
reasonably acceptable to Lender is obtained within thirty days).
10
Also, on April 11, 2002, we entered into an exclusive manufacturing agreement
with GSN pursuant to which GSN has provided us with a $450,000 line of credit,
on current invoices, with 60-day terms. GSN informally allowed the Company to
purchase up to $1,000,000 on the line of credit. At June 30, 2003, the balance
owed to GSN under this line of credit is $1,088,276.
In July 2003, the Company amended its manufacturing agreement with Garden State
Nutritionals to provide for a line of credit of $450,000 on both finished goods
and work in process. The terms of the amended agreement expire July 17, 2005.
In July 2003, the Company issued an amended promissory note to Garden State
Nutritionals in the principal amount of $1,300,000. The note provides for
$300,000 to be paid before December 31, 2003, with the balance due in quarterly
installments of $131,410 commencing November 1, 2003 at 4.5% per annum.
COMMITMENTS AND CONTINGENCIES
REGULATORY MATTERS
Our discontinued products Fat Cutter Plus(TM), ThinTab(R) and our formally owned
Carbolizer(TM) product, contain ephedra, also known as "Ma Huang," an herb that
contains naturally occurring ephedrine. These products represented approximately
19% of our gross revenue for the twelve months ended December 31, 2002. Ephedra
containing products have been the subjects of adverse publicity in the United
States and other countries relating to alleged harmful effects. The company has
discontinued all sales of products containing ephedra.
OTHER
In July 2003, the Company amended its manufacturing agreement with Garden State
Nutritionals to provide for a line of credit of $450,000 on both finished goods
and work in process. The terms of the amended agreement expire July 17, 2005.
In July 2003, the Company amended its promissory note with Garden State
Nutritionals to $1,300,000. Only $300,000 remains unpaid at June 30, 2003 of the
original note. The original remaining amount of $300,000 is due before December
31, 2003, reducing the amount of the new note to $1,000,000 due in quarterly
installments of $131,410 commencing November 1, 2003 at 4.5% per annum.
PRODUCT LIABILITY
The Company, like other marketers of products that are intended to be ingested,
faces the inherent risk of exposure to product liability claims in the event
that the use of our products results in injury. The Company maintains product
liability insurance coverage of $6,000,000. It may become increasingly difficult
to obtain and maintain product liability insurance coverage for products
containing ephedra at premiums that the Company can afford.
11
Although no material product liability claims have been asserted against us, if
they are in the future, our product liability insurance coverage could prove to
be inadequate and these claims could result in material losses.
GOING CONCERN QUALIFICATION
The Company's condensed financial statements have been prepared assuming that
the Company will continue as a going concern. During the six months ended June
30, 2003, the Company has successfully controlled costs and attained
profitability, including net income of $160,644 and cash flow from operations of
$194,319. However, at June 30, 2003, the Company has a working capital deficit
of $684,710 and adverse liquidity ratios.
The Company's continuation is dependent upon its ability to control costs and
attain a satisfactory level of profitability with sufficient financing
capabilities or equity investment.
There is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or the
amounts and classification of liabilities that may result form the outcome of
this uncertainty.
ITEM 3. CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
- ------------------------------------------------
As of the end of the period, the Company carried out an evaluation of the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-14. This evaluation was done under
the supervision and with the participation of the Company's President and its
Controller. Based upon that evaluation, they concluded that the Company's
disclosure controls and procedures are effective in gathering, analyzing and
disclosing information needed to satisfy the Company's disclosure obligations
under the Exchange Act.
Change in internal controls
- ---------------------------
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
J.C. Herbert Bryant, III and KMS-Thin Tab 100, Inc.
In 2000, the Company sued a former officer and director of the Company and KMS
Thin-Tab 100, Inc., a corporation controlled by the former director, for
trademark infringement, unfair competition and cyberpiracy. The former director
and KMS counterclaimed alleging a breach of distribution agreement with the
Company. On September 19, 2002, the Company announced the settlement of all
litigation between HNS and J.C. Herbert Bryant and KMS-Thin Tab 100, Inc.
12
The settlement agreement generally requires Bryant and KMS to transfer the
registration and ownership of the domain names Thintab.com, Thintab.cc and
Carbcutter.cc to HNS and to take other action to eliminate confusion over the
ownership of the Thin Tab@ name. Additionally, it provides for each of the
adverse parties to generally release the others.
As part of the settlement, HNS entered into a distribution agreement with
Bryant, beginning on September 26, 2002 and ending on September 25, 2007,
permitting Bryant to purchase certain of its products from HNS and to
exclusively distribute those products in Florida from Orlando south. HNS also
has agreed not to sell its products directly to certain KMS customers. HNS
booked a legal settlement expense of $58,836 associated with this settlement.
The Company, from time to time, is a party to various legal proceedings. In the
opinion of management, none of the proceedings are expected to have a material
impact on its financial position of results of operations.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Exhibit 31.1 Certification of Chief Executive Officer, pursuant
to Exchange Act Rule 13a-14(a).
Exhibit 31.2 Certification of Principal Accounting Officer,
pursuant to Exchange Act Rule 13a-14(a).
Exhibit 32.1 Certification pursuant to 18 U.S.C. Section 1350
and Exchange Act Rule 13a-14(b).
Exhibit 32.2 Certification pursuant to 18 U.S.C. Section 1350
and Exchange Act Rule 13a-14(b).
(b) Reports on Form 8-K during the fiscal quarter ended June 30, 2003.
None
13
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: August 14, 2003 Health & Nutrition Systems International, Inc.
(The "Registrant")
By: /s/ Chris Tisi
--------------------------
Chris Tisi
Chief Executive Officer and President
(Principal executive officer and duly
authorized officer)
14
Exhibit Index
Exhibit Description
Number
31.1 Certification of Chief Executive Officer pursuant to Exchange Act
Rule 13a-14(a).
31.2 Certification of Principal Accounting Officer pursuant to Exchange
Act Rule 13a-14(a).
32.1 Certification pursuant to 18 U.S.C. Section 1350 and Exchange Act
Rule 13a-14(b).
32.2 Certification pursuant to 18 U.S.C. Section 1350 and Exchange Act
Rule 13a-14(b).
15
Exhibit 31.1
CERTIFICATIONS
I, Chris Tisi, certify that:
1. I have reviewed this report on Form 10-QSB of Health & Nutrition
Systems International, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's, other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures or costs,
or costs such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluations; and
d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officers and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the small
business issuer's internal control or financial reporting.
August 14, 2003
/s/Chris Tisi
-----------------------
Chris Tisi
Chief Executive Officer
Exhibit 31.2
CERTIFICATIONS
I, Al Dugan, certify that:
1. I have reviewed this report on Form 10-QSB of Health & Nutrition
Systems International, Inc.;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the small business
issuer as of, and for, the periods presented in this report;
4. The small business issuer's other certifying officer(s) and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the small business issuer and have:
a) Designed such disclosure controls and procedures or costs,
or costs such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating to the
small business issuer, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during the
period in which this report is being prepared;
b) Designed such internal control over financial reporting, or
caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the small business issuer's
disclosure controls and procedures presented in this report our
conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on
such evaluations; and
d) Disclosed in this report any change in the small business
issuer's internal control over financial reporting that occurred during
the small business issuer's most recent fiscal quarter (the small
business issuer's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to
materially affect, the small business issuer's internal control over
financial reporting; and
5. The small business issuer's other certifying officer(s) and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the small business issuer's auditors and the audit
committee of the small business issuer's board of directors (or persons
performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the small business issuer's
ability to record, process, summarize and report financial information;
and
b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the small
business issuer's internal control or financial reporting.
August 14, 2003
/s/Al Dugan
-------------------
Al Dugan
Controller (Principal Accounting Officer)
Exhibit 32.1
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Health & Nutrition Systems
International, Inc. (the "Company") on Form 10-QSB for the period ending June
30, 2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Chris Tisi, Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
/s/Chris Tisi
- -----------------------
Chris Tisi
Chief Executive Officer
August 14, 2003
Exhibit 32.2
HEALTH & NUTRITION SYSTEMS INTERNATIONAL, INC.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Health & Nutrition Systems
International, Inc. (the "Company") on Form 10-QSB for the period ending June
30, 2003 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Al Dugan, Controller (Principal Accounting Officer) of the
Company, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.
/s/Al Dugan
- -------------------
Al Dugan
Controller (Principal Accounting Officer)
August 14, 2003