Nutrition 21 Breaches Financial Covenant after Revenue Decline, Nasdaq Delisting Common Stock


Nutrition 21 saw its revenues decline 22% during the full fiscal year ended June 30, 2009, causing the company to breach a financial covenant with its senior lender. Nutrition 21 cited the severe economic downturn as the primary driver of the company’s falling sales. The company’s revenues totaled $39.6 million for the 2009 fiscal year, compared with $47.1 million for the same period ended in 2008.

As a result of its financial struggles, trading of Nutrition 21 stock will be suspended on October 20, 2009, and the common stock will be delisted. Nasdaq staff notified the company on December 26, 2007, that it had fallen out of compliance with listing rules because the stock traded at less than $1 per share for more than 30 consecutive days. Nasdaq gave Nutrition 21 an opportunity to come into compliance and appeal its decision to delist the stock, but the company declined.

Nutrition 21 also announced that it has signed a non-binding letter of intent for the sale of its retail and direct response businesses to a privately owned company. The company initially made the decision in 2004 to expand from its primary role as a raw material and ingredient supply company to also include the production of finished consumer goods. At the time, Nutrition 21 was finalizing clinical trials to support its branded ingredient Diachrome and NBJ asked whether the company could succeed in producing a blockbuster chromium brand in an otherwise barren category. “The calcium market was created because of brand leaders like Caltrate, Os-Cal and Citrical, which supported the macro advertising for generic suppliers and natural retail brands,” said former President and CEO Gail Montgomery in 2004. “Without a [major] brand to point to, where do you focus the chromium message?”

Given the announced sale of its direct response and retail businesses, it appears as though the company is now pulling the plug on its attempts to garner market share in the finished consumer goods space. Nutrition 21 will now refocus its efforts on the company’s profitable ingredient supply business. While the current management team led by CEO Michael Zeher appears poised to right the ship, the company’s debt management strategy is worth keeping an eye on moving forward. Its primary lender waived the company’s covenant breach upon agreement by Nutrition 21 to repay all of its outstanding debt by November 15, 2009. Nutrition 21 is also negotiating to restructure $2.5 million principal amount of notes plus interest that are past due and are secured by the company's Iceland Health trademark. As always, NBJ will keep an eye on further developments from Nutrition 21 and keep you abreast.

Related NBJ Links:
Nutrition 21 Appoints Michael A. Zeher President & CEO
Nutrition 21 Teams With Walgreens to Launch New Chromium Products
Nutrition 21 Targets Consumer Brand at the Professional Market

Related Functional Ingredients magazine links:
Managing Blood Sugar Emerges as a Top Concern

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