Preliminary Q4 & Full Year 2005 Results

NUTRI PHARMA REACHES PROFITABILITY IN Q4

Nutri Pharma (OSE: NUT) today reports profits of MNOK 0.7 in Q4-2005 with the inclusion of distribution company Meridian International Group (MIG) as from 1 October. Total sales of MNOK 21.8 were achieved in the fourth quarter, of which MNOK 20.8 million were recorded in MIG. The established business within Nutri Pharma ASA also shows a positive result with revenues of MNOK 1.0 in Q4-2005.  This compares to a loss of MNOK 1.5 in Q4-2004.

Profits in MIG have been achieved through an improved cost structure with substantial reductions in both selling and administrative costs compared to the initial phase of the company. MIGs accounts for Q4 are also positively affected by a reversal of provisions for obsolete stocks of MNOK 1.0, and reductions in delivery costs to its customers.

Nutri Pharma ASA achieved a positive result of MNOK 0.5 in Q4-2005. Included in this is compensation of MNOK 1.0 received from the soy protein supplier, as a settlement for the quality problems experienced when NutriPro was introduced into MIGs network in 1H-2005. Total costs net of the compensation were MNOK 1.7 in Q4-2005 in Nutri Pharma ASA. Net financial income is MNOK 0.3, compared to MNOK 0.1 in last quarter of 2004.

The transaction Date for the acquisition of Meridian International Group has been determined to be 15. September, and first time consolidation has been made from Q4-2005. In the Q3 report the acquisition date was provisionally set at 1 July 2005 and MIG was consolidated from this date. The Q3 figures of MIG are not part of this report. A further description is given below.

As from 1 October 2005 Nutri Pharma operates with two business segments; Nordic, with the existing royalty revenues, and Russia + CIS countries through the direct sales organisation of MIG. The revenues and results this quarter are distributed as follows (In NOK);

Note: The increase in non-current assets and liabilities mostly reflects acquisition of MIG.

TRANSITION TO IFRS
Nutri Pharma is reporting its financial results and financial position in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union from 1 January 2005. As an attachment to this report, Nutri Pharma presents and explains the transition from Norwegian Generally Accepted Accounting Practice (N GAAP) to IFRS. Nutri Pharma has prepared an opening balance sheet at the date of the transition, which is 1 January 2004. The interim reports and the annual accounts for 2005 are prepared in accordance with IFRS and include comparative information for 2004. The financial impact of the transition is limited and the only adjustment with impact on result for financial year 2004 is a de-recognition of an accrual of MNOK 0.5.

FOURTH QUARTER 2005 RESULTS
The consolidated operating profit is MNOK 0.7 in Q4 2005. In the same quarter previous year the loss was MNOK -1.5, which was then based on the Nordic business only.

Nutri Pharma had royalty revenues from the Nordic area of MNOK 0.9 in Q4 2005, compared to MNOK 1.2 in Q4 the previous year. MIG achieved revenues of MNOK 20.8 through its direct sales organization in Russia and the former CIS countries. As the former cosmetics line was discontinued during Q3 2005 (see outlook session for info about new cosmetics line), sales of Nutri Pro accounted for 83% of the revenues in the last quarter.

Operating expenses increased from MNOK 2.7 in Q4 2004 to MNOK 22.2 in the fourth quarter of 2005, with MNOK 1.7 of this total in Nutri Pharma ASA and MNOK 18.4 in MIG respectively. Amortization of the Software platform in MIG has been expensed with MNOK 1.1 in Q4-2005. See further description below under section “Acquisition of MIG”.

Net financial income is MNOK 0.3, compared to MNOK 0.1 in last quarter of 2004.

FULL YEAR 2005 RESULTS
The consolidated operating loss for FY2005 is MNOK 9.6 as compared to a loss of MNOK 11.3 in 2004. MIG has been included in the group accounts for the period 1 October to 31 December 2005. There has been no activity in Nutri Pharma Holding Danmark AS or in its subsidiary Nutri Pharma Danmark AS during 2005. Both companies are in the process of being closed down and have no liabilities at year end. Nutri Pharma ASA has made a provision of MNOK 1.2 million in the 2005 accounts for costs that are probable to occur as a result of the liquidation process. Nutri Pharma Gmbh which also has been an in-operational company was conclusively dissolved in October 2005. A remaining balance deriving from past exchange differences has generated a financial revenue of MNOK 0.5 in the 2005 accounts.

The consolidated revenues for FY2005 came in with MNOK 25.3 compared to MNOK 4.6 for the full year of 2004. Nutri Pharma achieved royalty revenues of MNOK 4.5 in FY2005, compared to MNOK 4.6 the previous year. Total sales revenues from MIG consolidated into the 2005 accounts were MNOK20.8 derived in the last quarter of 2005.

Operating expenses increased from MNOK 16.3 in 2004 to MNOK 36.1 in 2005, out of which MNOK 19.4 is incurred in MIG and MNOK 15.5 in Nutri Pharma ASA respectively. In addition amortization of the Software platform in MIG has been expensed with MNOK 1.1.

Amortization of Patent and royalty assets has been expensed with a total MNOK 1.4 million in 2005, compared to MNOK 3.2 last year. The Company has from 1 January 2005 reassessed the estimated economic life of the Royalty Right with Collett Pharma and adopted a depreciation period of 18 years (linear depreciation profile).

Cash and other liquid assets were MNOK 6.0 as of December 31 2005, compared to MNOK 5.9 as of September 30 2005.

The largest shareholder in Nutri Pharma, Lars Høie has given short term loans to MIG at 31.12.05 amounting to MNOK 12.9 incl. accrued interest of 3% p.a to finance the company’s initial phase.

ACQUISITION OF MIG
Nutri Pharma ASA acquired all shares in Meridian International Group Ltd as per 1 July 2005 for a consideration to consist of a maximum of 24 million Nutri Pharma ASA shares. MIG is a direct marketing company active in Russia and other CIS-countries since Mid 2003. The company is a combination of an established business model, proprietary internet solution, outsourcing agreements with some core strategic partners, a direct sales distribution network and a product portfolio within art, cosmetics and since Mid 2005 also Nutri Pro. Meridian International Group Ltd was legally incorporated in Malta in March 2005.

The MIG shares were transferred to Nutri Pharma ASA on 1 July 2005.According to the initial agreement the purchase consideration should be transferred to the sellers within 30 September 2005. However on 15 September 2005 the original agreement was amended and the parties agreed that the consideration should be transferred in installments at the latest by 31 March 2007. The new agreement makes the transfer of MIGs shares and as such of control over the company irrevocable, making the date of this new agreement in effect the acquisition date.

A first installment of the consideration shares consisting of 6 million treasury shares in Nutri Pharma ASA was made at 15 February 2006, having completed a satisfactory due diligence of MIG. The balance of the purchase consideration, consisting of a maximum of 18 million new issued Nutri Pharma ASA shares, shall be made in one or more instalments at the latest by 31 March 2007, provided that an independent auditor confirms the agreed valuation of MIG.

Nutri Pharma ASA acquired 100% of the voting shares in the company. At the date of acquisition the quoted price of Nutri Pharma’s shares on the Oslo Stock Exchange was NOK 3.45 and hence the cost of the acquisition was determined to be approx. NOK 82.8 mill (24 million shares times NOK 3.45 per share) which is considered to represent a fair value. This includes the value of 18 million shares issuable at later dates. There have been no material direct transaction costs attributable to this acquisition.

At 31 December 2005 the liability in the balance sheet towards the sellers of MIG is amounting to MNOK 82.8, resulting from the outstanding balance of 24 million NUT shares.

In the Q3 report the acquisition date was provisionally set at 1 July 2005 and MIG was consolidated from this date. However, based on further analysis of the requirements of IFRS 3 the date of acquisition was determined to be 15 September 2005 when the uncertainty regarding the consideration was solved. As a result the consolidation date for MIG is now changed to 1 October 2005 and the Q3 results of MIG (loss of MNOK 8.1 million) are not included in this preliminary 2005 report.

MIGs equity as of the date of acquisition according to the balance sheet as of 30 September 2005 was negative MNOK -15.6. The quarter-end balance sheet is used as a practical expedient. The equity recognized is specified as following:

Current assets: MNOK 7.3
Current liabilities: MNOK 12.9
Short-term loan: MNOK 10.0

The total excess value was measured at NOK 98.4 mill. We have performed a provisional identification of all material assets acquired and liabilities assumed. The allocation will be finalized as soon as we have obtained all necessary information and within the 12 months period from the transaction. Apart from the items recognized on MIG’s balance sheet, we have allocated the purchase price at the date of acquisition to the following identified material intangible assets and asset groups:

Total purchase price: NOK 82.8 mill
Book equity: NOK-15.6 mill
Excess value: NOK 98.4 mill

Software platform: NOK 22.0 mill remaining useful life: 5 years
Distributors’ list: NOK 15.0 mill remaining useful life: indefinite
Goodwill: NOK 61.4 mill

Fair value of the Software platform was estimated by applying the Depreciated Replacement Cost method within the Cost-based approach. There are reasonably determinable and reliable prices on distributors’ lists in the reference market so the fair value of MIG’s list of distributors was determined by the Market approach.

Apart from the assets recognized separately from GW as listed above, the main value elements of MIG’s business is (a) agreements and relationships with the strategic partners, and (b) agreements and relationships with the members of the network as well as rights to MIG’s sales and marketing materials. While these relationships are imperative to the success of the business and therefore probably represent the main part of the business’s value, it is our opinion that the respective benefits cannot be separated from one another and from that of GW and as a result their fair values cannot be established reliably. Other material elements of GW are synergies between MIG’s network and business solution, and Nutri Pharma’s patented product rights as well as future growth opportunities in products and geographical markets.

COMMERCIAL UPDATE
Nordic
Nutrilett, which is distributed through Collett Pharma as one of their core product lines, is generating a royalty revenue of approximately MNOK 1.0. The royalty revenue is expected to be at the same level moving forward.

MIG – Russia and CIS countries
Nutri Pharma’s acquisition of 100% of the shareholding in Meridian International Group (MIG) has resulted in a strong sales growth this quarter adding around MNOK 20 revenues to the existing business. Nutri Pro accounts for more than 80% of the MIG revenues in Q4 2005, as Cosmetics products were not offered in Q4. The new product line from the Norwegian company Kilda will be launched in Q1-2006. All sales are prepaid leaving MIG without any debtors’ risk. For a further report of MIG we refer to http://www.nutripharma.com disclosed on 14 October 2005.

OUTLOOK
Nutri Pharma has on 16 November 2005 entered into a long term agreement with the Norwegian company Kilda to market and distribute Kilda’s patented, well documented skin care products through Nutri Pharma’s subsidiary, the distribution company MIG. The Sales focus for MIG will be on the launch of four new cosmetics products from Kilda, with three upcoming marketing events along with other marketing efforts. The cosmetics line is expected to contribute positively to MIG’s sales and profitability going forward.

The company is on track with its development and the sales network is well prepared to continue the positive development. The revenues for the upcoming quarter are expected to be in line with the Q4.

Oslo, 23 February 2006
The Board of Directors of Nutri Pharma ASA

DOWNLOADS: The complete Preliminary Q4 and Full Year Report 2005 Word document can be downloaded from the INVESTOR page.

For more information about Meridian International Group (MIG).