Weekly News Update

October 4, 2001

Royal Numico Reports Supplements-Sales Slowdown in Wake of U.S. Tragedy

Dutch food group Royal Numico NV has released preliminary information for its 3Q01 results earlier than anticipated because of the Sept. 11 terrorist attacks on the U.S. In the release, Numico noted that because of the attacks the U.S. supplements business is facing a slowdown. In the weeks prior to Sept. 11, General Nutrition Centers (GNC), a subsidiary of Numico, was posting domestic same store sales 3.4 percent higher than in 3Q00, but in the weeks following the tragedy, same store sales have been down 8 to 9 percent, dropping approximately 1.8 percent for 3Q01.

Another subsidiary, Boca Raton, Fla.-based Rexall Sundown, experienced a 50 percent drop in orders in the weeks after the attacks, and preliminary sales of $125 million for 3Q01 are 18 percent below sales posted in 3Q00. The company noted that ""in light of the circumstances it has become uncertain whether Numico will achieve its sales and cash earnings growth forecast of 15 percent for the full year 2001."" Prior to Sept. 11 U.S. sales were showing low single-digit growth, but quarter sales in the U.S. are now expected to decline to $563 million, a 3 percent drop.

Finally, Numico announced it has accepted the resignation of Damon DeSantis, executive board member of Royal Numico and former CEO of Rexall Sundown, effective Oct. 10. Reuters reported that following the announcement of Numico's preliminary numbers, shares of the company slid approximately 14 percent in early trading on Oct. 1.

NFL Bans Ephedra Supplements

In action taken last week, the National Football League (NFL) has officially banned supplements containing what it refers to as ""high-risk"" stimulants, including ephedra and all ephedrine-based products. The NFL says there is substantial evidence linking the supplements to cardiovascular difficulties, strokes and other health conditions. Testing regulations and disciplinary actions taken against players found using the supplements will be discussed and implemented by the NFL Players Association in coming weeks.

Acirca Buys Mountain Sun

Acirca Inc., located in New Rochelle, N.Y., and parent company of Walnut Acres, Milliner's Finest and Fruiti Di Bosco, has acquired Dolores, Colo.-based organic juice producer Mountain Sun. Terms of the deal were not disclosed. Acirca says the purchase gives it entry into what it says is the $4 billion shelf-stable juice category--one of the highest growth segments in the organic foods category. Mountain Sun founder Bill Russell will continue with the company as a consultant.

Controversy Surrounds Farm Bill; Sustainable Farmers Fight For Change

A bill focusing on the regulation and practices of farming in the U.S. was scheduled for testimony on Wednesday, Oct. 3 in the U.S. House of Representatives, and members of the sustainable agriculture community are concerned that the farm bill is severely flawed. The Farm Security Act of 2001 outlines federal policy and will guide the agriculture system and food supply for the next 10 years.

According to a group called the National Campaign for Sustainable Agriculture (NCSA), which includes groups such as the Washington-based Sustainable Agriculture Coalition, the Maine Organic Farmers & Gardeners Association, the Oregon Tilth in Junction City, Ore. and others, the bill does not encourage conservation practices, does not promote rural development that strengthens agricultural communities and fails to improve competition and fairness in domestic agriculture. The group asserts that the current version of the bill would ""do substantial harm to family farms, to our communities and the environment. NCSA adds, ""For years, family farmers and ranchers and concerned citizens have been developing solutions to agricultural problems and putting them into practice on their farms and in their communities. In our view, the bill reported out by the Committee not only ignores these solutions, but in fact would make them more difficult to achieve.""

The campaign is asking for a ""NO"" vote on H.R. 2646, the Combest-Stenholm Farm Bill and requesting that interested parties contact their representatives in Congress to consider discussion on issues such as the removal of biases against small- and moderate-scale agriculture, the restoration of direct lending for all family-size farms, and commodity programs that enable family farms to earn a fair price. For more information on the campaign and a sample letter that can be sent to Representatives visit www.sustainableagriculture.net. To view the bill in its entirety visit www.agriculture.house.gov/farmbill.htm.

H-E-B Enters Dallas Market

According to the Dallas Business Journal, San Antonio, Texas-based H-E-B Grocery Co. is preparing to open a 78,000 sq.-ft. Central Market store in what is referred to as the Metroplex in the Dallas-Fort Worth, market. Additional stores are scheduled to open in Plano and Dallas by next summer. Three more Central Market stores are on the drawing board, in addition to an unspecified number of H-E-B-branded supermarkets.

HealthSouth and GNC Enter Partnership

Pittsburgh-based General Nutrition Centers (GNC) has entered into an exclusive agreement with healthcare provider HealthSouth Corp. (HRC) to provide a specialized brand of healthcare supplements and nutritional products to HRC's network of more than 1,900 healthcare facilities and to GNC's 4,500 retail locations. HRC CEO and Chairman Richard Scrushy noted, ""There is a critical need to provide both physicians, patients and consumers with important information about the role that specific dietary supplements can play in maintaining one's health."" The agreement specifies that both companies will develop new proprietary formulations appropriate for patients in rehabilitation in HRC's network of rehabilitation facilities. The science-based supplements will be distributed by GNC.

Additionally, GNC has given ""Franchise of the Year"" awards to the following stores: the Port Authority store in New York City, operated by Steven Coven; the Cascade Crossings store in Atlanta, operated by Nelson Fleming; the Arbor Fair store in Fresno, Calif., operated by Sue Means; and a store owned by Kevin Smith in Hoffman Estates, Ill.

More Stocks, M&A & Financial News:

Natural Alternatives International (NAII) reported annual revenues of $42.2 million for FY01, down from $47.8 million in FY00. Net loss was $4.9 million vs. a loss of $4.5 million the previous year. The company notes that the loss includes several non-cash charges, including a $2.4 million net deferred tax asset reserve, $1.5 million for impairment of tangible assets, and $2.5 million in depreciation.The John Hancock Small Cap Value Fund has purchased 522,648 shares of common stock in Galaxy Nutritional Foods (GLXY). The cost of the transaction was $5.74/share or about $3 million.

Select Nutrition Distributors Inc., formerly known as Super-Nutrition, located in East Meadow, N.Y., has emerged from Chapter 11 bankruptcy. The company has been approved for reorganization by the Federal Bankruptcy Court and will be receiving a sizable investment from Dime Capital Partners. Additionally, it has secured a new credit facility from CIT Business Credit

Carson, Calif.-based Leiner Health Products Inc. has extended its forbearance period from Sept. 28 until Nov. 2. The extension will allow the company extra time to devise its financial restructuring.

St. Louis-based Panera Bread Co. has said that, despite the economic impact of the Sept. 11 attacks, it expects 3Q01 and FY01 earnings to be in line with analysts' expectations. It anticipates EPS of $.19 for 3Q01 and $.86 for FY01.

Vermont Pure Holdings Inc. (VPS) has announced it has signed a purchase and sale agreement to acquire the assets of Norwalk, Conn.-based Iceberg Springs Water Co. Inc., a home and office water distributor. Additionally, the company has begun supplying its spring water to the northeastern stores of the Great Atlantic & Pacific Tea Company Inc. of Montvale, N.J.

Nutraceutix Inc. (NUTX) has sold its D-Glucarate business to Austin, Texas-based BioChemix Inc. The company received $480,570 as a result of the sale and BioChemix has taken over marketing the product.

Hauser Inc. (HAUS) has purchased the patented technology and property rights to policosanol, a beeswax-derived substance that has been shown to be effective in lowering cholesterol. Terms of the deal were not disclosed.

Analysts' Ratings:

Adams, Harkness & Hill (AH&H) reiterated a Buy rating on NBTY Inc. (NBTY) and based on information from Numico regarding GNC sales, says it believes that Vitamin World, a subsidiary of NBTY, will also see a retail sales drop. AHH lowered its comparable store sales estimate from 7 percent to 5 percent. Additionally, AHH lowered its wholesale sales estimate on NBTY by $1 million to $44.6 million. Separately, AHH upgraded its rating on Martek Biosciences (MATK) to Strong Buy and reiterated its $28 price target. It is forecasting 100 percent revenue growth in 2001 and 150 percent in 2002 based on new licensees in the U.S. market for the company's EFA products for use in baby formulas.

Briefs:

The U.S. Pharmacopeia (USP) is expected to announce at a media briefing at Natural Products Expo East next week that it will launch a testing program for dietary supplements that will include ingredients verification and label accuracy.

White Plains, N.Y.-based ConsumerLab.com has released the results of its iron supplements testing. Seventeen of 19 supplements passed, but one failed due to low iron content and the other failed due to lead contamination. For more information visit www.consumerlab.com.

Advanced Plant Pharmaceuticals Inc. (APPI) has entered into an exclusive license agreement with Global Trend Unlimited Inc., which calls for Global to oversee the distribution of APPI's patented products by way of multi-level marketing and electronic retail distribution.

Rep. Frank Pallone, D-N.J., the Healthy Foundation of Murrieta, Calif., and the Long Branch, N.J., school district have launched ""Vitamin Relief USA-Children First,"" a program by which the Healthy Foundation will provide a children's chewable multivitamin for every child in the district on every day of the school year.

Londonderry, N.H.-based Stonyfield Farm recently donated 35,000 cups of yogurt to Red Cross blood donor stations and other rescue efforts associated with the tragedy of Sept. 11.

Whitewing Labs (WWLI) will be contributing $1.00 to the United Way's September 11 Fund for every bottle of product it sells.

Following an initial trial at select Starbucks (SBUX) stores, Horizon Organic Holding Corp. (HCOW) has announced that its yogurt will soon be available at approximately 1,000 Starbuck's stores nationwide.

Nu Skin Enterprises Inc. (NUS) has received a government license allowing the company to conduct business in Malaysia. The company anticipates beginning operations in 4Q01.

The Quigley Corp. (QGLY) has announced a new marketing initiative for its Cold-Eeze medication. Details of the initiative include the launching of a promotional campaign in drugstores and supermarkets nationwide and the introduction of a national consumer-media public relations effort. QGLY will also be providing samples of the product to healthcare professionals.

Walnut Acres has announced it has rescheduled its ""Growth of a Green Industry"" panel discussion and luncheon, originally planned for Sept. 12, to Oct. 26. For more information contact: 212.229.0500, ext. 379.

USDA has announced it is seeking 400 additional food safety inspectors in order to protect the nation's food supply from terrorist attack. Sen. Herb Kohl, D-Wisc., has said that FDA would be increasing inspectors by 60 percent.

Healthnotes Inc. (HNI), which provides information sources on healthy living, announced it has licensed its content to U.K.-based pharmacy chain Numark Ltd. for use on Numark's website www.numarkpharmacists.com. The site is accessed by an estimated 200,000 people each month and will feature the ""Healthnotes Healthy Living Product Suite.""

The Iowa Agriculture Finance Corp. (IAFC) has invested $3.3 million in soy foods company Wildwood Harvest Inc. through IAFC's tecTERRAİ Food Capital Fund. Proceeds of the investment will be used to build and equip a 20,000-sq.-ft. soy food manufacturing facility in Grinnell, Iowa, and to remodel another 20,000-sq.-ft. facility in Watsonville, Calif. After completion of the expansion the company plans to employ approximately 100 people, 75 in California and 25 in Iowa.

A plan to end child slave labor in the production of chocolate was announced on Sept. 30 by Democratic members of Congress, the Chocolate Manufacturers Association and the World Cocoa Foundation. The four-year plan includes independent monitoring to identify abusive practices by growers, as well as the development of a certification program for cocoa harvested without slave labor.

Burger King has announced a plan to introduce a new veggie burger in the U.S. in an attempt to earn back loyalty from customers, according to Dow Jones Newswires.

Research Briefs:

The ""Consumer Health Tracking Study"" found that 39 percent of consumers are aware of specific health benefits of soy, such as lowering cholesterol and reducing heart disease. This number is up compared to 1999, when only 24 percent of those surveyed expressed an understanding about such benefits. Additionally, the study found that 69 percent of those surveyed considered soy products to be healthy. According to Greg Anderson, vice-chair of sponsor USB Communications, the most popular products are soy burgers, tofu and soy beverages.

A study conducted by the University of Miami found that usage of herbal remedies and alternative medicines has as much to do with cultural differences as it does with dissatisfaction with conventional medicines. For example, Hispanic patients are more likely to use home remedies than other patients. Full findings of the study will be presented at the 2002 Caribbean Medical Cruise for Complementary/Alternative Therapies, taking place Feb. 3-10.

Stamford, Conn.-based market research firm InsightExpress has conducted a survey that polled 800 homes and found that 34 percent used cookbooks when seeking a recipe, while 23 percent used the Internet. Only 21 percent preferred magazines, suggesting consumers prefer the Internet to magazines while looking for cooking tips, according to the firm.

International Briefs:

The International Federation of Organic Agriculture Movements has released its annual report, which can be downloaded at www.organicTS.com/downloads/ifoam_2001_01.pdf.

According to Robert Duxbury, technical manager for organic products for the U.K.-based J Sainsbury PLC, a downturn in the economy will most likely not hurt the organic market in the U.K. Duxbury told Dow Jones Newswires that people will most likely dine out less and buy more food at home, which could cause them to be more aware of what they are eating.

The Mexican government has reported it has found genetically engineered (GE) DNA in its native corn. GE corn has not yet been approved for commercial planting in the country, according to The New York Times.

The Indian government has announced that effective Oct. 4, all food products used for human consumption that contain non-vegetarian ingredients must be labeled with a brown circle inside a rectangle to assist the approximately 40 percent of the population that are completely vegetarian.

The British Food Standards Agency recently conducted a survey that suggests that consumers place price before quality or health when buying food. Forty-six percent of those surveyed said cost was the primary factor in making food-purchasing decisions, while only 17 percent noted that quality is a defining consideration. Only 12 percent noted that health was important when deciding what to buy to eat.

A veterinary lab in Denmark has concluded that organic chickens are three times as likely to be infected with campylobacter, a bacteria that causes food poisoning, than non-organic broiler-house chickens. Researchers said that organic chickens roam freely outside, making them more likely to come in contact with contaminated food and water, and they live twice as long as their conventional counterparts, increasing the risk of contamination.