Yes
|
X
|
No
|
Yes
|
No
|
X
|
Yes
|
No
|
X
|
Part
I Financial Information
|
3
|
Item
1. Financial Statements
|
3
|
Consolidated
Balance
Sheets
|
3
|
Consolidated
Statements of
Operations
|
4
|
Consolidated
Statements of Cash
Flows
|
5
|
Notes
to Consolidated Financial
Statements
|
6
|
Report
of Independent Registered
Public Accounting Firm
|
20
|
Item
2. Management’s Discussion and Analysis or Plan of
Operation
|
21
|
Item
3. Controls and Procedures
|
30
|
Part
II –Other Information
|
31
|
Item
1. Legal Proceedings
|
31
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
31
|
Item
3. Defaults Upon Senior Securities
|
31
|
Item
4. Submission of Matters to a Vote of Security Holders
|
31
|
Item
5. Other Information
|
31
|
Item
6. Exhibits
|
32
|
June
30,
|
December
31,
|
|||||||
ASSETS
|
2007
|
2006
|
||||||
(Unaudited)
|
||||||||
CURRENT
ASSETS:
|
||||||||
Cash
|
$ |
285,977
|
$ |
269,726
|
||||
Marketable
securities, available for sale, at fair value
|
-
|
793,183
|
||||||
Receivables
|
14,577
|
44,576
|
||||||
Inventory,
net
|
655,470
|
700,664
|
||||||
Other
assets
|
76,083
|
77,319
|
||||||
Current
assets of discontinued operations
|
2,139
|
110,521
|
||||||
Total
current assets
|
1,034,246
|
1,995,989
|
||||||
RESTRICTED
SECURITIES
|
80,565
|
78,723
|
||||||
RECEIVABLES
|
26,134
|
28,374
|
||||||
PROPERTY
AND EQUIPMENT, net
|
2,556,231
|
2,794,393
|
||||||
COVENANTS
NOT TO COMPETE and other intangibles, net
|
285,645
|
324,553
|
||||||
OTHER
ASSETS
|
370,985
|
457,344
|
||||||
NONCURRENT
ASSETS OF DISCONTINUED OPERATIONS
|
1,176,841
|
1,253,480
|
||||||
TOTAL
|
$ |
5,530,647
|
$ |
6,932,856
|
||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
CURRENT
LIABILITIES:
|
||||||||
Accounts
payable
|
$ |
80,652
|
$ |
559,920
|
||||
Accrued
commissions and bonuses
|
261,426
|
268,717
|
||||||
Accrued
other expenses
|
272,983
|
400,204
|
||||||
Accrued
sales tax liability
|
224,418
|
200,481
|
||||||
Deferred
compensation
|
97,889
|
96,378
|
||||||
Notes
payable
|
757,542
|
257,542
|
||||||
Capital
lease obligations
|
95,404
|
104,591
|
||||||
Current
liabilities of discontinued operations
|
313,116
|
360,582
|
||||||
Total
current liabilities
|
2,103,430
|
2,248,415
|
||||||
LONG-TERM
LIABILITIES:
|
||||||||
Notes
payable
|
355,012
|
625,220
|
||||||
Capital
lease obligations
|
45,514
|
95,527
|
||||||
Deferred
compensation
|
236,566
|
281,101
|
||||||
Lease
abandonment liability
|
4,059
|
55,123
|
||||||
Liabilities
of discontinued operations
|
1,416,519
|
1,570,359
|
||||||
Total
liabilities
|
4,161,100
|
4,875,745
|
||||||
COMMITMENT
AND CONTINGENCIES (Note 8)
|
||||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Common
stock - $.0001 par value; authorized 495,000,000 shares; issued 9,107,419
and 9,107,419 shares; outstanding 8,515,824 and 8,515,824 shares,
respectively
|
905
|
905
|
||||||
Paid-in
capital
|
23,653,311
|
23,609,734
|
||||||
Notes
receivable for exercise of options
|
(31,000 | ) | (31,000 | ) | ||||
Accumulated
deficit
|
(19,620,890 | ) | (18,889,749 | ) | ||||
Total
capital and accumulated deficit
|
4,002,326
|
4,689,890
|
||||||
Less
cost of treasury stock (591,595 shares)
|
(2,632,779 | ) | (2,632,779 | ) | ||||
Total
stockholders' equity
|
1,369,547
|
2,057,111
|
||||||
TOTAL
|
$ |
5,530,647
|
$ |
6,932,856
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Net
sales
|
$ |
1,979,288
|
$ |
2,480,875
|
$ |
4,414,630
|
$ |
4,906,349
|
||||||||
Cost
of sales:
|
||||||||||||||||
Cost
of product
|
509,646
|
754,902
|
1,261,406
|
1,492,241
|
||||||||||||
Associate
commissions
|
590,627
|
732,583
|
1,395,572
|
1,560,398
|
||||||||||||
Total
cost of sales
|
1,100,273
|
1,487,485
|
2,656,978
|
3,052,639
|
||||||||||||
Gross
profit
|
879,015
|
993,390
|
1,757,652
|
1,853,710
|
||||||||||||
Marketing
and administrative expenses:
|
||||||||||||||||
Marketing
|
99,531
|
101,851
|
382,527
|
242,995
|
||||||||||||
Administrative
|
916,440
|
765,564
|
1,813,905
|
1,455,084
|
||||||||||||
Total
marketing and administrative expenses
|
1,015,971
|
867,415
|
2,196,432
|
1,698,079
|
||||||||||||
Income
(loss) from operations
|
(136,956 | ) |
125,975
|
(438,780 | ) |
155,631
|
||||||||||
Other
income (expense):
|
||||||||||||||||
Interest
and dividends, net
|
(175,814 | ) |
5,246
|
(318,988 | ) |
9,088
|
||||||||||
Other
, net
|
12,187
|
(15,704 | ) |
39,192
|
43,959
|
|||||||||||
Total
other income (expense)
|
(163,627 | ) | (10,458 | ) | (279,796 | ) |
53,047
|
|||||||||
Income
(loss) from continuing operations before taxes
|
(300,583 | ) |
115,517
|
(718,576 | ) |
208,678
|
||||||||||
Income
tax expense (benefit)
|
-
|
-
|
-
|
-
|
||||||||||||
Income
(loss) from continuing operations
|
(300,583 | ) |
115,517
|
(718,576 | ) |
208,678
|
||||||||||
Discontinued
operations (Note 13)
|
||||||||||||||||
Loss
from discontinued operations, net of tax
|
(20,091 | ) | (185,517 | ) | (12,437 | ) | (521,232 | ) | ||||||||
Net
loss
|
$ | (320,674 | ) | $ | (70,000 | ) | $ | (731,013 | ) | $ | (312,554 | ) | ||||
Net
loss per share:
|
||||||||||||||||
Basic:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | (0.04 | ) | $ |
0.01
|
$ | (0.08 | ) | $ |
0.03
|
||||||
Loss
from discontinued operations net of tax
|
-
|
(0.02 | ) |
-
|
(0.07 | ) | ||||||||||
Net
loss per share
|
$ | (0.04 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||
Diluted:
|
||||||||||||||||
Income
(loss) from continuing operations
|
$ | (0.04 | ) | $ |
0.01
|
$ | (0.08 | ) | $ |
0.03
|
||||||
Loss
from discontinued operations net of tax
|
-
|
(0.02 | ) |
-
|
(0.07 | ) | ||||||||||
Net
loss per share
|
$ | (0.04 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | (0.04 | ) | ||||
Shares
used in computing net loss per share:
|
||||||||||||||||
Basic
|
8,562,113
|
7,545,708
|
8,515,824
|
7,545,708
|
||||||||||||
Diluted
|
8,562,113
|
7,547,324
|
8,515,824
|
7,555,868
|
Six
Months Ended
|
||||||||
June
30,
|
||||||||
2007
|
2006
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
Loss
|
$ | (731,013 | ) | $ | (312,554 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities
|
||||||||
Net
loss from discontinued operations
|
12,437
|
521,232
|
||||||
Depreciation
and amortization
|
287,929
|
333,466
|
||||||
Amortization
of note valuation discount
|
229,793
|
-
|
||||||
Bad
debt recovery
|
(7,572 | ) | (15,590 | ) | ||||
Stock
option compensation expense
|
43,577
|
4,794
|
||||||
Gain
on sale of assets
|
(2,492 | ) | (42,530 | ) | ||||
Gain
on sale of lease cancellation
|
(120,755 | ) |
-
|
|||||
Realized
gain on sale of marketable securities
|
-
|
14,126
|
||||||
Changes
in operating assets and liabilities:
|
||||||||
Receivables
|
31,598
|
(30,094 | ) | |||||
Inventory
|
45,194
|
231,154
|
||||||
Other
assets
|
6,782
|
(34,059 | ) | |||||
Accounts
payable and accrued expenses
|
(482,029 | ) | (271,897 | ) | ||||
Lease
abandonment liability
|
(38,252 | ) | (36,585 | ) | ||||
Deferred
compensation
|
(43,023 | ) | (14,570 | ) | ||||
Net
operating activities of discontinued operations
|
113,305
|
(394,828 | ) | |||||
Net
cash used in operating activities
|
(654,521 | ) | (47,935 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Purchase
of property and equipment
|
(27,432 | ) | (133,435 | ) | ||||
Sales
of property and equipment
|
13,000
|
72,235
|
||||||
Receipts
on notes receivable
|
8,213
|
19,078
|
||||||
Purchase
of marketable securities, available for sale
|
-
|
(283,766 | ) | |||||
Sales
of marketable securities, available for sale
|
791,342
|
404,452
|
||||||
Net
investing activities of discontinued operations
|
73,326
|
12,970
|
||||||
Net
cash provided by investing activities
|
858,449
|
91,534
|
||||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Bank
overdrafts
|
-
|
(203,500 | ) | |||||
Net
proceeds from issuance of notes
|
-
|
1,897,000
|
||||||
Principal
payment on capital lease obligations
|
(59,200 | ) | (46,190 | ) | ||||
Deferred
financing fees paid
|
-
|
(160,000 | ) | |||||
Net
financing activities of discontinued operations
|
(128,477 | ) | (94,193 | ) | ||||
Net
cash provided by (used in) financing activities
|
(187,677 | ) |
1,393,117
|
|||||
NET
INCREASE IN CASH AND CASH EQUIVALENTS
|
16,251
|
1,436,716
|
||||||
CASH
AND CASH EQUIVALENTS, BEGINNING
|
269,726
|
118,805
|
||||||
CASH
AND CASH EQUIVALENTS, ENDING
|
$ |
285,977
|
$ |
1,555,521
|
|
1.
|
UNAUDITED
INTERIM FINANCIAL
STATEMENTS
|
|
2.
|
SHARE-BASED
COMPENSATION
|
Three
Months Ended
|
Six
Months Ended
|
||||||
June
30,
|
June
30,
|
||||||
2007
|
2006
|
2007
|
2006
|
||||
Expected
volatility
|
80.51%
|
76.10%
|
80.51%
|
76.10%
|
|||
Expected
term (in years)
|
5
|
5
|
5
|
5
|
|||
Risk-free
interest rate
|
4.79%
|
4.64%
|
4.79%
|
4.35%
|
|||
Expected
dividend yield
|
0%
|
0%
|
0%
|
0%
|
Shares
|
Weighted
Average Exercise Price
|
Weighted
Average Remaining Contractual Term (Years)
|
Aggregate
Intrinsic Value
|
|||||
Options
outstanding at December 31, 2006
|
2,715,009
|
$ 2.42
|
||||||
Granted
|
300,000
|
$ 0.65
|
$ 1,000
|
|||||
Exercised
|
-
|
-
|
-
|
|||||
Expired
|
(104,250)
|
$ 0.65
|
-
|
|||||
Canceled
|
(50,000)
|
$ 1.78
|
-
|
|||||
Options
outstanding at June 30, 2007
|
2,860,759
|
$ 2.28
|
4.63
|
$ 13,000
|
||||
Option
exercisable at June 30, 2007
|
2,090,759
|
$ 2.53
|
4.47
|
$
-
|
||||
Options
vested and options expected to vest at June 30, 2007
|
2,860,759
|
$ 2.28
|
4.63
|
$ -
|
|
3.
|
MARKETABLE
SECURITIES
|
|
4.
|
RESTRICTED
INVESTMENTS
|
|
5.
|
DEBT
|
|
The
secured financing consists of the following at June 30, 2007 and
December
31, 2006:
|
June
30,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
Laurus
term note
|
$ |
2,000,000
|
$ |
2,000,000
|
||||
Partial
conversion, issuance of 350,000 shares
|
(159,125 | ) | (159,125 | ) | ||||
Valuation
discount
|
(1,176,904 | ) | (1,176,904 | ) | ||||
Accretion
of discount to interest expense
|
448,583
|
218,791
|
||||||
Total
secured financing
|
$ |
1,112,554
|
$ |
882,762
|
||||
Current
|
$ |
757,542
|
$ |
257,542
|
||||
Long-term
|
$ |
355,012
|
$ |
625,220
|
|
6.
|
LOSS
PER SHARE
|
Income
(Loss)
|
Shares
|
Per
Share
|
||||||||||
(Numerator)
|
(Denominator)
|
Amount
|
||||||||||
Weighted
average common shares outstanding:
|
||||||||||||
For
the three months ended June 30, 2007:
|
||||||||||||
Loss per
common share:
|
||||||||||||
Loss
available to common stockholders
|
$ | (320,674 | ) |
8,562,113
|
$ | (0.04 | ) | |||||
Loss
per common share – assuming dilution:
|
||||||||||||
Options
|
-
|
-
|
||||||||||
Loss
available to common stockholders plus assumed conversions
|
$ | (320,674 | ) |
8,562,113
|
$ | (0.04 | ) | |||||
For
the three months ended June 30, 2006:
|
||||||||||||
Loss per
common share:
|
||||||||||||
Loss
available to common stockholders
|
$ | (70,000 | ) |
7,545,708
|
$ | (0.01 | ) | |||||
Loss
per common share – assuming dilution:
|
||||||||||||
Options
|
-
|
1,616
|
||||||||||
Loss
available to common stockholders plus assumed conversions
|
$ | (70,000 | ) |
7,547,324
|
$ | (0.01 | ) | |||||
For
the six months ended June 30, 2007:
|
||||||||||||
Loss per
common share:
|
||||||||||||
Loss
available to common stockholders
|
$ | (731,013 | ) |
8,515,824
|
$ | (0.08 | ) | |||||
Loss
per common share – assuming dilution:
|
||||||||||||
Options
|
-
|
-
|
||||||||||
Loss
available to common stockholders plus assumed conversions
|
$ | (731,013 | ) |
8,515,824
|
$ | (0.08 | ) | |||||
For
the six months ended June 30, 2006:
|
||||||||||||
Loss per
common share:
|
||||||||||||
Loss
available to common stockholders
|
$ | (312,554 | ) |
7,545,708
|
$ | (0.04 | ) | |||||
Loss
per common share – assuming dilution:
|
||||||||||||
Options
|
-
|
10,160
|
||||||||||
Loss
available to common stockholders plus assumed conversions
|
$ | (312,554 | ) |
7,555,868
|
$ | (0.04 | ) |
|
7.
|
DEFERRED
TAXES
|
|
8.
|
COMMITMENTS,
CONTINGENCIES AND
GUARANTEES
|
|
9.
|
DEFERRED
COMPENSATION
|
|
10.
|
LEASE
ABANDONMENT
|
|
11.
|
DISCONTINUED
OPERATIONS
|
Three
Months Ended
|
Six
Months Ended
|
|||||||||||||||
June
30
|
June
30
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
Revenues
|
$ |
0
|
$ |
207,771
|
$ |
1,931
|
$ |
721,217
|
||||||||
Loss
from operations of discontinued operations
|
$ | (20,091 | ) | $ | (185,517 | ) | $ | (12,437 | ) | $ | (501,232 | ) | ||||
Estimated
cost to sell
|
-
|
-
|
-
|
(20,000 | ) | |||||||||||
Income
tax effect
|
-
|
-
|
-
|
-
|
||||||||||||
Loss
from operations of discontinued operations, net of tax
|
$ | (20,091 | ) | $ | (185,517 | ) | $ | (12,437 | ) | $ | (521,232 | ) |
June
30,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
Current
assets of discontinued operations:
|
||||||||
Cash
|
$ |
0
|
$ |
1,252
|
||||
Accounts
Receivable
|
0
|
70,245
|
||||||
Inventory
|
2,139
|
39,024
|
||||||
Total
|
$ |
2,139
|
$ |
110,521
|
||||
Noncurrent
assets of discontinued operations:
|
||||||||
Other
assets
|
$ |
0
|
$ |
15,431
|
||||
Property
and equipment, net
|
1,176,841
|
1,238,049
|
||||||
Total
|
$ |
1,176,841
|
$ |
1,253,480
|
||||
Current
liabilities of discontinued operations:
|
||||||||
Accounts
payable
|
$ |
0
|
$ |
41,105
|
||||
Current
portion of long-term debt
|
293,116
|
296,477
|
||||||
Other
current liabilities
|
20,000
|
23,000
|
||||||
Total
|
$ |
313,116
|
$ |
360,582
|
||||
Long-term
liabilities of discontinued operations:
|
||||||||
Long-term
debt
|
$ |
1,416,519
|
$ |
1,570,359
|
|
12.
|
RECENT
ACCOUNTING PRONOUNCEMENTS
|
|
13.
|
CURRENT
FINANCIAL CONDITION
|
|
·
|
The
impact of several material non-recurring events, including the one-time
impairment of goodwill, the accrual of deferred compensation related
to
the employment contract of the Company’s founder and then CEO, the
implementation of a free trial program, the write off of the Company’s
deferred tax asset, and a lease abandonment charge related to the
abandonment of the executive
offices;
|
|
·
|
Excessive
expenses incurred in the Heartland operations;
and
|
|
·
|
Recurring
loses due to the FDA’s ban on ephedra
products.
|
|
·
|
Reductions
in force, encompassing all departments within the
Company;
|
|
·
|
The
termination of a discount sales program, designed to give customers
a cash
discount after purchasing a certain dollar amount of product;
and
|
|
·
|
The
termination of several extra employee benefits, including vehicle
allowances and social and country-club
privileges.
|
14.
|
CORRECTION
OF ERROR IN REPORTING NET
SALES
|
2006
Quarters Ended,
|
||||||||||||
March
31,
|
June
30,
|
September
30,
|
||||||||||
Net
Sales
|
$ |
2,351,713
|
$ |
2,397,975
|
$ |
2,323,583
|
||||||
Adjustment
|
73,761
|
82,900
|
86,668
|
|||||||||
Adjusted
net sales
|
$ |
2,425,474
|
$ |
2,480,875
|
$ |
2,410,251
|
||||||
Net
loss from operations as previously reported
|
$ | (316,314 | ) | $ | (152,900 | ) | $ | (635,774 | ) | |||
Adjusted
net loss from operations
|
$ | (242,553 | ) | $ | (70,000 | ) | $ | (549,106 | ) |
16.
|
SUBSEQUENT
EVENT
|
|
·
|
Commissions
and bonuses, consisting of commission payments to associates based
on
their current associate level within their organization, and other
one-time incentive cash bonuses to qualifying
associates;
|
|
·
|
Cost
of products, consisting of the prices we pay to our manufacturers
for
products, and royalty overrides earned by qualifying associates on
sales
within their associate organizations;
and
|
|
·
|
Cost
of shipping, consisting of costs related to shipments, duties and
tariffs,
freight expenses relating to shipment of products to associates and
similar expenses.
|
For
the Three Months Ended
|
For
the Six Months Ended
|
|||||||||||||||||||||||||||||||
June
30,
|
June
30,
|
|||||||||||||||||||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||||||||||||||||||
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
Amount
|
Percent
|
|||||||||||||||||||||||||
Net
sales
|
$ |
1,979,288
|
100.0 | % | $ |
2,480,875
|
100.0 | % | $ |
4,414,630
|
100.0 | % | $ |
4,906,349
|
100.0 | % | ||||||||||||||||
Cost
of Sales:
|
||||||||||||||||||||||||||||||||
Commissions
and bonuses
|
590,627
|
29.8
|
732,583
|
29.5
|
1,395,572
|
31.6
|
1,560,398
|
31.8
|
||||||||||||||||||||||||
Cost
of products
|
310,049
|
15.7
|
462,935
|
18.7
|
792,351
|
17.9
|
920,725
|
18.8
|
||||||||||||||||||||||||
Cost
of shipping
|
199,597
|
10.1
|
291,967
|
11.8
|
469,055
|
10.6
|
571,516
|
11.6
|
||||||||||||||||||||||||
Total
cost of sales
|
1,100,273
|
55.6
|
1,487,485
|
60.0
|
2,656,978
|
60.2
|
3,052,639
|
62.2
|
||||||||||||||||||||||||
Gross
profit
|
879,015
|
44.4
|
993,390
|
40.0
|
1,757,652
|
39.8
|
1,853,710
|
37.8
|
||||||||||||||||||||||||
Marketing
and administrative expenses:
|
||||||||||||||||||||||||||||||||
Marketing
|
99,531
|
5.0
|
101,851
|
4.1
|
382,527
|
8.7
|
242,995
|
5.0
|
||||||||||||||||||||||||
Administrative
|
916,440
|
46.3
|
765,564
|
30.9
|
1,813,905
|
41.1
|
1,455,084
|
29.7
|
||||||||||||||||||||||||
Total
marketing and administrative expenses
|
1,015,971
|
51.3
|
867,415
|
35.0
|
2,196,432
|
49.8
|
1,698,079
|
34.7
|
||||||||||||||||||||||||
Loss
from operations
|
(136,956 | ) | (6.9 | ) |
125,975
|
5.0
|
(438,780 | ) | (9.9 | ) |
155,631
|
3.1
|
||||||||||||||||||||
Other
income (expense):
|
||||||||||||||||||||||||||||||||
Interest
and dividends, net
|
(175,814 | ) | (8.9 | ) |
5,246
|
0.2
|
(318,988 | ) | (7.2 | ) |
9,088
|
0.2
|
||||||||||||||||||||
Other
income (expense)
|
12,187
|
0.6
|
(15,704 | ) | (0.7 | ) |
39,192
|
0.9
|
43,959
|
0.9
|
||||||||||||||||||||||
Total
other income (expense)
|
(163,627 | ) | (8.3 | ) | (10,458 | ) | (0.5 | ) | (279,796 | ) | (6.3 | ) |
53,047
|
1.1
|
||||||||||||||||||
Loss
from continuing operations before taxes
|
(300,583 | ) | (15.2 | ) |
115,517
|
4.5
|
(718,576 | ) | (16.3 | ) |
208,678
|
4.2
|
||||||||||||||||||||
Income
tax
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
Loss
from continuing operations
|
(300,583 | ) | (15.2 | ) |
115,517
|
4.5
|
(718,576 | ) | (16.3 | ) |
208,678
|
4.2
|
||||||||||||||||||||
Discontinued
operations:
|
||||||||||||||||||||||||||||||||
Loss
from operations of Heartland Cup
|
(20,091 | ) | (1.0 | ) | (185,517 | ) | (7.5 | ) | (12,437 | ) | (0.3 | ) | (521,232 | ) | (10.6 | ) | ||||||||||||||||
Income
tax benefit
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
||||||||||||||||||||||||
Total
loss from discontinued operations
|
(20,091 | ) | (1.0 | ) | (185,517 | ) | (7.5 | ) | (12,437 | ) | (0.3 | ) | (521,232 | ) | (10.6 | ) | ||||||||||||||||
Net
loss
|
$ | (320,674 | ) | (16.2 | )% | $ | (70,000 | ) | (3.0 | )% | $ | (731,013 | ) | (16.6 | )% | $ | (312,554 | ) | (6.4 | )% |
|
·
|
A
decrease of approximately $142,000 in associate commissions and
bonuses;
|
·
|
A
decrease of approximately $153,000 in cost of products;
and
|
|
·
|
A
decrease of approximately $92,000 in the shipping
costs.
|
|
·
|
A
decrease in employee costs of approximately $28,000 related to reductions
in staff.
|
·
|
The
decrease in
marketing expense was partially offset
by:
|
|
·
|
An
increase in professional services of approximately $12,000 related
to
consulting fees ;
|
·
|
An
increase in travel expense of approximately $3,400 due to more outside
travel;
|
|
·
|
An
increase in promotional cost of approximately $1,300;
and
|
·
|
An
increase in general and administrative expense of approximately $9,000
related to postage, supplies, telephone,
etc.
|
|
·
|
An
increase in employee costs of approximately $35,000 related primarily
to
option expense under FAS 123R;
|
·
|
An
increase in shareholder relations expense of approximately $50,000
related
to the annual shareholder’s
meeting;
|
|
·
|
An
increase in rent and insurance expense of approximately $51,000 related
to
a correction in 2006 related to the lease abandonment accrual and
the
addition of director and officer liability insurance;
and
|
|
·
|
An
increase in general and administrative expense of approximately $43,000
related to postage, supplies, telephone,
etc.
|
·
|
The
increase in
administrative expense was partially offset
by:
|
·
|
A
decrease in professional services of approximately $22,000 related
primarily to consulting services;
|
·
|
A
decrease in promotional expenses of approximately $16,000;
and
|
·
|
A
decrease in travel expense of approximately
$4,300.
|
|
·
|
An
increase in interest expense of approximately $181,000 related to
the
Laurus debt executed in 2006.
|
·
|
The
increase in interest expense was partially offset
by:
|
|
·
|
An
increase in gain on sale of assets of approximately $6,000 related
to the
sale of an excess vehicle;
|
|
·
|
A
increase in gain on sale of marketable securities of approximately
$14,000; and
|
|
·
|
An
increase in other income of approximately $9,000 related to the collection
of notes receivable previously written
off.
|
|
·
|
The
decrease in gross profit to $879,015 during 2007 from $993,390 during
2006;
|
·
|
The
increase in marketing and administrative expenses to $1,015,971 during
2007 from $867,415 during 2006; and
|
|
·
|
The
increase in other expense to $163,627 during 2007 from $10,458 during
2006.
|
|
·
|
A
decrease of approximately $165,000 in associate commissions and
bonuses;
|
·
|
A
decrease of approximately $128,000 in cost of products;
and
|
|
·
|
A
decrease of approximately $102,000 in shipping
costs.
|
|
The
factors discussed above resulted in a decrease in gross profit of
$96,058,
or 5.2%, to $1,757,652 for the six months ended June 30, 2007 from
$1,853,710 for the same period in
2006.
|
|
·
|
An
increase in promotional cost of approximately $80,000, related primarily
to the 2007 national convention;
|
|
·
|
An
increase in professional services of approximately $137,000 related
to
consulting fees for the branding of the new SABA division;
and
|
·
|
An
increase in general and administrative expense of approximately $6,000
related to postage, supplies, telephone,
etc.
|
·
|
The
increase in
marketing expense was partially offset
by:
|
|
·
|
A
decrease in employee costs of approximately $66,000 related to reductions
in staff; and
|
|
·
|
A
decrease in travel costs of approximately $19,000 related to outside
travel of marketing.
|
|
·
|
An
increase in employee costs of approximately $139,000 related primarily
option expense under FAS 123R and employee vacation liability
adjustment;
|
·
|
An
increase in shareholder relations expense of approximately $56,000
related
the annual shareholder meeting;
|
|
·
|
An
increase in rent and insurance expenses of approximately $48,000
related
to a correction in 2006 related to the lease abandonment accrual
and the
addition of director and officer liability
insurance;
|
|
·
|
An
increase in amortization expense of approximately $41,000 due to
deferred
financing costs related to the
debt;
|
|
·
|
An
increase in promotional expenses of approximately $21,000 related
to
website expenses; and
|
|
·
|
An
increase in general and administrative expense of approximately $56,000
related to postage, supplies, telephone,
etc.
|
|
·
|
A
decrease in gain on sale of assets of approximately $40,000 related
to the
sale of motorcoach and an excess vehicle in 2006;
and
|
|
·
|
An
increase in interest expense of approximately $342,000 related to
the
Laurus debt executed in 2006.
|
·
|
The
increase in net other expense was partially offset
by:
|
|
·
|
An
increase in gain on sale of marketable securities of approximately
$14,000; and
|
|
·
|
An
increase in interest income of approximately $10,000 related to the
notes
receivables; and
|
|
·
|
An
increase in other income of approximately $24,000 related to the
collection of notes receivable previously written
off.
|
|
·
|
The
decrease in gross profit to $1,757,652 during 2007 from $1,853,710
during
2006;
|
|
·
|
The
increase in marketing and administrative expense to $2,196,432 during
2007
from $1,698,079 during 2006; and
|
|
·
|
The
change in other income (expense) to expense of ($279,796) during
2007 from
income of $53,047 during 2006.
|
|
·
|
Excessive
expenses incurred in the Heartland operations;
and
|
|
·
|
Recurring
losses due to the FDA’s ban on ephedra
products.
|
|
·
|
Reductions
in force, encompassing all departments within the
Company;
|
|
·
|
The
termination of a discount sales program, designed to give customers
a cash
discount after purchasing a certain dollar amount of product;
and
|
|
·
|
The
termination of several extra employee benefits, including vehicle
allowances and social and country-club
privileges.
|
Votes
For
|
Votes
Against
|
Withheld
|
Broker
Non-Votes
|
|
Director:
|
||||
Jerry
W. Grizzle
|
7,031,901
|
21,544
|
30,952
|
-
|
James
M. Lee
|
7,030,630
|
15,340
|
38,427
|
-
|
Ronald
L. Smith
|
7,030,454
|
15,026
|
38,917
|
-
|
Votes
For
|
Votes
Against
|
Abstentions
|
Broker
Non-Votes
|
7,031,093
|
6,765
|
46,539
|
-
|
•
|
|
AMS
had stockholders’ equity of less than $2 million and losses from
continuing operations and/or net losses in two of its three most
recent
fiscal years, as a result of which AMS is not in compliance with
Sections
1003(a)(i) of the Amex Company Guide;
|
|
•
|
AMS
had stockholders’ equity of less than $4 million and losses from
continuing operations and/or net losses in three of its four most
recent
fiscal years, as a result of which AMS is not in compliance with
Sections
1003(a)(ii) of the Amex Company Guide; and
|
||
•
|
AMS
had stockholders’ equity of less than $6 million and losses from
continuing operations and/or net losses in its five most recent fiscal
years, as a result of which AMS is not in compliance with Sections
1003(a)(iii) of the Amex Company
Guide;
|
|
(a)
|
Exhibits
|
|
3.1
|
The
Registrant's Certificate of Incorporation, incorporated by reference
to
the Registration Statement on Form SB-2 (Registration No. 333-47801)
filed
with the Commission on March 11,
1998.
|
3.2
|
The
Registrant's Bylaws, incorporated by reference to the Registration
Statement on Form SB-2 (Registration No. 333-47801) filed with
the Commission on March 11, 1998.
|
10.1
|
Stock
Option Agreement of Advantage Marketing Systems dated January 3,
2001,
incorporated by reference to Form 8-K filed with the Commission on
January
8, 2001.
|
10.2*
|
The
Advantage Marketing Systems, Inc. 1995 Stock Option Plan, incorporated
by
reference to Form SB-2 Registration Statement (No. 33-80629), filed
with
the Commission on November 20,
1996.
|
10.3*
|
Employment
Agreement by and between Steven G. Kochen and Registrant dated effective
as of
|
|
August
9, 2005, incorporated by reference to Form 8-K filed with the Commission
on August 12,
|
10.4*
|
Employment
Agreement by and between Jerry W. Grizzle and Registrant dated effective
as of
|
10.5*
|
Employment
Agreement by and between Robin L. Jacob and Registrant dated effective
as
of February 12, 2006, incorporated by reference to Form 8-K filed
with the
Commission on April 12, 2006.
|
10.6
|
Consulting
Agreement by and between TVC Consulting and Registrant dated effective
as
of March 1, 2006, incorporated by reference to Form 10-QSB filed
with the
Commission on May 15, 2006
|
10.7
|
Securities
Purchase Agreement dated June 28, 2006 by and between the Company
and
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.8
|
Secured
Convertible Term Note dated June 28, 2006 by the Company in favor
of
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.9
|
Common
Stock Purchase Warrant dated June 29, 2006 by the Company in favor
of
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.10
|
Registration
Rights Agreement dated June 28, 2006 by and between the Company and
Laurus
Master Fund, Ltd., incorporated by reference to the Form 10-QSB filed
with
the Commission on August 14, 2006.
|
10.11
|
Stock
Pledge Agreement dated June 28, 2006 by and among the Company, AMS
Manufacturing, Inc. and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.12
|
Master
Security Agreement dated June 28, 2006 by and among the Company,
AMS
Manufacturing, Inc. and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.13
|
Mortgage
dated June 28, 2006 by and between the Company and Laurus Master
Fund,
Ltd., incorporated by reference to the Form 10-QSB filed with the
Commission on August 14, 2006.
|
10.14
|
Grant
of Security Interest in Patents and Trademarks dated June 28, 2006
by and
between the Company and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.15
|
Common
Stock Purchase Warrant dated June 28, 2006 by the Company in favor
of
Ascendiant Securities, LLC, incorporated by reference to the Form
10-QSB
filed with the Commission on August 14,
2006.
|
10.16
|
Engagement
Letter between the Company and Ascendiant Securities, LLC, incorporated
by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.17*
|
Employment
Agreement by and between Dennis P. Loney and Registrant dated effective
as
of September 19, 2006, incorporated by reference to Form 8-K
filed with the Commission on September 25,
2006.
|
15
|
Letter
of independent accountants as to unaudited interim financial information,
filed herewith.
|
31.1
|
Chief
Executive Officer Certification, filed
herewith.
|
31.2
|
Chief
Financial Officer Certification, filed
herewith.
|
32.1
|
Section
1350 Certification of our Chief Executive Officer, filed
herewith.
|
32.2
|
Section
1350 Certification of our Chief Financial Officer, filed
herewith.
|
REGISTRANT:
|
|
AMS
HEALTH SCIENCES, INC.
|
|
By:
/S/ ROBIN L. JACOB
|
|
Dated: August
14, 2007
|
Robin
L. Jacob, Vice President and Chief
Financial
Officer
|
(Duly
Authorized Officer of Registrant and
Principal
Financial Officer)
|
|
3.1
|
The
Registrant's Certificate of Incorporation, incorporated by reference
to
the Registration Statement on Form SB-2 (Registration No. 333-47801)
filed
with the Commission on March 11,
1998.
|
3.2
|
The
Registrant's Bylaws, incorporated by reference to the Registration
Statement on Form SB-2 (Registration No. 333-47801) filed with
the Commission on March 11, 1998.
|
10.1
|
Stock
Option Agreement of Advantage Marketing Systems dated January 3,
2001,
incorporated by reference to Form 8-K filed with the Commission on
January
8, 2001.
|
10.2*
|
The
Advantage Marketing Systems, Inc. 1995 Stock Option Plan, incorporated
by
reference to Form SB-2 Registration Statement (No. 33-80629), filed
with
the Commission on November 20,
1996.
|
|
August
9, 2005, incorporated by reference to Form 8-K filed with the Commission
on August 12,
|
10.4*
|
Employment
Agreement by and between Jerry W. Grizzle and Registrant dated effective
as of
|
10.5*
|
Employment
Agreement by and between Robin L. Jacob and Registrant dated effective
as
of February 12, 2006, incorporated by reference to Form 8-K filed
with the
Commission on April 12, 2006.
|
10.6
|
Consulting
Agreement by and between TVC Consulting and Registrant dated effective
as
of March 1, 2006, incorporated by reference to Form 10-QSB filed
with the
Commission on May 15, 2006.
|
10.7
|
Securities
Purchase Agreement dated June 28, 2006 by and between the Company
and
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.8
|
Secured
Convertible Term Note dated June 28, 2006 by the Company in favor
of
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.9
|
Common
Stock Purchase Warrant dated June 29, 2006 by the Company in favor
of
Laurus Master Fund, Ltd., incorporated by reference to the Form 10-QSB
filed with the Commission on August 14,
2006.
|
10.10
|
Registration
Rights Agreement dated June 28, 2006 by and between the Company and
Laurus
Master Fund, Ltd., incorporated by reference to the Form 10-QSB filed
with
the Commission on August 14, 2006.
|
10.11
|
Stock
Pledge Agreement dated June 28, 2006 by and among the Company, AMS
Manufacturing, Inc. and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.12
|
Master
Security Agreement dated June 28, 2006 by and among the Company,
AMS
Manufacturing, Inc. and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.13
|
Mortgage
dated June 28, 2006 by and between the Company and Laurus Master
Fund,
Ltd., incorporated by reference to the Form 10-QSB filed with the
Commission on August 14, 2006.
|
10.14
|
Grant
of Security Interest in Patents and Trademarks dated June 28, 2006
by and
between the Company and Laurus Master Fund, Ltd., incorporated by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.15
|
Common
Stock Purchase Warrant dated June 28, 2006 by the Company in favor
of
Ascendiant Securities, LLC, incorporated by reference to the Form
10-QSB
filed with the Commission on August 14,
2006.
|
10.16
|
Engagement
Letter between the Company and Ascendiant Securities, LLC, incorporated
by
reference to the Form 10-QSB filed with the Commission on August
14,
2006.
|
10.17*
|
Employment
Agreement by and between Dennis P. Loney and Registrant dated effective
as
of September 19, 2006, incorporated by reference to Form 8-K filed
with
the Commission on September 25,
2006.
|
15
|
Letter
of independent accountants as to unaudited interim financial information,
filed herewith.
|
31.1
|
Chief
Executive Officer Certification, filed
herewith.
|
31.2
|
Chief
Financial Officer Certification, filed
herewith.
|
32.1
|
Section
1350 Certification of our Chief Executive Officer, filed
herewith.
|
32.2
|
Section
1350 Certification of our Chief Financial Officer, filed
herewith.
|