<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Pure World, Inc. for the quarter ended March 31, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000356446
<NAME> PURE WORLD, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,875
<SECURITIES> 64
<RECEIVABLES> 3,803
<ALLOWANCES> 140
<INVENTORY> 9,168
<CURRENT-ASSETS> 19,252
<PP&E> 11,730
<DEPRECIATION> 1,750
<TOTAL-ASSETS> 34,087
<CURRENT-LIABILITIES> 6,252
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 24,434
<TOTAL-LIABILITY-AND-EQUITY> 34,087
<SALES> 3,747
<TOTAL-REVENUES> 3,821
<CGS> 2,430
<TOTAL-COSTS> 3,545
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 124
<INCOME-PRETAX> 152
<INCOME-TAX> 8
<INCOME-CONTINUING> 144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended: March 31, 1999
--------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File No.: 0-10566
-------
Pure World, Inc.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 95-3419191
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, Bedminster, New Jersey 07921
----------------------------------------------
(Address of principal executive offices)
(908) 234-9220
---------------------------
(Issuer's telephone number)
N/A
--------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No _____
State the number of shares outstanding of each of the issuer's classes
of common equity: As of April 30, 1999, the issuer had 8,268,883 shares of its
common stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1. - Financial Statements
- ------ ---------------------
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31,1999
(UNAUDITED)
(in $000's)
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 5,875
Marketable securities 64
Accounts receivable, net of allowance for
uncollectible accounts and returns and
allowances of $140 3,663
Inventories 9,168
Other 482
-------
Total current assets 19,252
Securities available-for-sale 896
Investment in unaffiliated natural products company 1,510
Plant and equipment, net 9,980
Notes receivable from affiliates 269
Goodwill, net of accumulated amortization of $453 1,538
Other assets 642
-------
Total assets $34,087
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Accounts payable $ 1,768
Short-term borrowings 3,550
Accrued expenses and other 934
-------
Total current liabilities 6,252
Long-term debt 3,318
-------
Total liabilities 9,570
-------
Stockholders' equity:
Common stock, par value $.01;
30,000,000 shares authorized;
8,268,909 shares issued and outstanding 83
Additional paid-in capital 43,321
Accumulated deficit ( 18,382)
Accumulated other comprehensive loss ( 505)
-------
Total stockholders' equity 24,517
-------
Total liabilities and stockholders' equity $34,087
=======
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
March 31,
------------------
1999 1998
------ ------
Revenues:
Sales $ 3,747 $ 5,095
Net gains on marketable securities 8 76
Interest, dividends and other income 66 104
------- -------
Total revenues 3,821 5,275
------- -------
Expenses:
Cost of goods sold 2,430 2,520
Selling, general and administrative 1,239 1,198
------- -------
Total expenses 3,669 3,718
------- -------
Income before income taxes 152 1,557
Provision for income taxes 8 127
------- -------
Net income 144 1,430
Other comprehensive income:
Unrealized holding losses on
securities available-for-sale ( 261) ( 239)
------- -------
Comprehensive income (loss) ($ 117) $ 1,191
======= =======
Basic net income per share $ .02 $ .17
======= =======
Diluted net income per share $ .02 $ .16
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Three Months Ended
March 31,
---------------------
1999 1998
------ ------
Cash flows from operating activities:
Net income $ 144 $ 1,430
Adjustments:
Depreciation and amortization 336 137
Net marketable securities
transactions 11 247
Gain on sale of securities
available-for-sale ( 13) ( 58)
Change in inventories ( 2,296) ( 1,199)
Change in receivables 193 ( 2,036)
Change in accounts payable and
other accruals 856 2,049
Other, net ( 82) ( 87)
-------- --------
Net cash provided by (used in)
operating activities ( 851) 483
-------- --------
Cash flows from investing activities:
Plant and equipment ( 1,018) ( 3,305)
Proceeds from sale of securities
available-for-sale 59 155
Purchase of securities
available-for-sale - ( 16)
Loans to affiliates and others - ( 60)
Repayment of loans to affiliates
and others 4 246
Other, net - ( 156)
-------- --------
Net cash used in investing
activities ( 955) ( 3,136)
-------- --------
Cash flows from financing activities:
Issuance of common stock - 17
Term loan borrowings 350 2,051
Term loan repayments ( 184) ( 58)
Net revolving line of credit borrowings 1,393 -
-------- --------
Net cash provided by financing
activities 1,559 2,010
-------- --------
Net decrease in cash and cash equivalents ( 247) ( 643)
Cash and cash equivalents at beginning of period 6,122 8,100
-------- --------
Cash and cash equivalents at end of period $ 5,875 $ 7,457
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 124 $ 6
======== ========
Taxes $ 13 $ 12
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
1. General
-------
The accompanying unaudited consolidated financial statements of Pure World,
Inc. and subsidiaries ("Pure World" or the "Company") as of March 31, 1999
and for the quarters ended March 31, 1999 and 1998 reflect all material
adjustments consisting of only normal recurring adjustments which, in the
opinion of management, are necessary for a fair presentation of results for
the interim periods. Certain information and footnote disclosures required
under generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission, although the Company believes that the disclosures are
adequate to make the information presented not misleading. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998
as filed with the Securities and Exchange Commission. Prior years'
financial statements have been reclassified to conform to the current
year's presentation.
The results of operations for the quarters ended March 31, 1999 and 1998
are not necessarily indicative of the results to be expected for the entire
year or any other period.
2. Marketable Securities
---------------------
At March 31, 1999, marketable securities consisted of the following (in
$000's):
Gross
Amortized Holding Fair
Cost Losses Value
--------- ------- -----
Trading securities $ 115 $ 51 $ 64
Available-for-sale 1,401 505 896
------ ----- -----
Total marketable
securities $1,516 $ 556 $ 960
====== ===== =====
All marketable securities were investments in common stock.
<PAGE>
3. Inventories
-----------
Inventories are comprised of the following (in $000's):
Raw materials $ 3,818
Work-in-progress 604
Finished goods 4,746
-------
Total inventories, net $ 9,168
=======
4. Investment in Unaffiliated Natural Products Company
---------------------------------------------------
In May 1996, the Company purchased 500 shares of common stock representing
a 25% interest in Gaia Herbs, Inc. ("Gaia") for approximately $1 million.
In June 1997, the Company purchased an additional 200 shares of common
stock for $500,000, increasing its equity ownership to 35% of Gaia's
outstanding shares of common stock ("Pure World's Gaia Stock"). Pure
World's Gaia Stock is non-voting. The Company loaned Gaia $200,000 in July
1997 payable interest only on a quarterly basis for the first three years
and 36 monthly payments of principal and interest thereafter (the "Pure
World Loan"). The Pure World Loan bears interest at 6.49% which was the
imputed rate required under the Internal Revenue Code and is classified as
an other asset in the consolidated balance sheet. The parties also agreed
that if any other party acquired voting shares, Pure World's Gaia Stock
would become voting stock.
Additionally, the parties agreed that Gaia and the principal stockholder of
Gaia (the "Principal Stockholder") would have a right of first refusal to
acquire any Gaia stock sold by Pure World and that Pure World would have a
right of first refusal to acquire any Gaia stock sold by Gaia or the
Principal Stockholder.
In June 1998, Gaia requested that Pure World guarantee an unsecured bank
line of $500,000 (the "Gaia Bank Loan"). Because of expansion plans for
Pure World's wholly-owned subsidiary, Pure World Botanicals Inc., Pure
World declined to issue the guarantee. An individual unaffiliated with Gaia
or Pure World agreed to guarantee the Gaia Bank Loan in consideration of a
cash fee and the issuance to the individual of 100 shares of Gaia's common
stock, representing 5 percent of Gaia's common stock outstanding (the
"Guarantee"). The Guarantee is also secured by Gaia stock held by Gaia's
Principal Stockholder. Pure World notified Gaia that it wished to exercise
its right of first refusal in connection with the Guarantee. Pure World and
Gaia reached an understanding that Pure World would decline the right of
first refusal if by November 30, 1998 thirty percent of Pure World's
interest was purchased for $1,500,000 (leaving five percent of the current
Gaia common stock outstanding) and the Pure World Loan was repaid,
including any accrued interest (the "Repurchase"). If the Repurchase was
not closed by November 30, 1998 ("the Closing Date"), Pure World then would
have the right to assume the Guarantee pursuant to the same terms granted
the original guarantor, except for the cash fee. If the Repurchase did not
<PAGE>
close prior to the Closing date, and either before or after the Closing
Date, the Guarantee is called by the bank, Pure World would then own, or
have the right to own a majority of Gaia's voting stock. The repurchase did
not close as of November 30, 1998 and the Company is in discussions with
Gaia about its investment.
Gaia manufactures and distributes fluid botanical extracts for the high-end
consumer market. Gaia is a privately held company and does not publish
financial results. The Company is accounting for this investment by the
cost method.
5. Borrowings
---------
Borrowings consisted of the following at March 31, 1999 (in $000's):
Loans payable to a bank,
collateralized by certain
property and equipment, bearing
annual interest at 7.75% in
March 1999 maturing in December 2003 $2,893
Loans payable to a bank, pursuant
to a $3 million unsecured line
of credit bearing annual interest
at the prime rate, currently
7.75% maturing in June 1999 2,798
Loan payable to a bank, pursuant to
a $2 million convertible line of
credit collateralized by certain
equipment bearing interest the LIBOR
rate plus 2.5% (the "Initial Rate")
until October 6, 1999 when it is
convertible to either the Initial Rate
or variable rate equal to the yield on
five-year U.S. Treasury Obligations plus
2.5%, maturing in October 2004, interest
only payments until October 1999 350
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75%
maturing in April 2003 254
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75% maturing in
August 2003 59
<PAGE>
Leases payable for equipment 406
All other 108
------
Total borrowings 6,868
Less: Short-term borrowings 3,550
------
Long-term debt $3,318
======
Interest expense was $124,000 and $6,000 for the three months ended March
31, 1999 and 1998, respectively.
6. Net Income Per Share
--------------------
Basic earnings per common share are computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted earnings per
share are computed by dividing net income by the sum of the
weighted-average number of common shares outstanding plus the dilutive
effect of shares issuable through the exercise of stock options.
The shares used for basic earnings per common share and diluted earnings
per common share are reconciled below. All share and per share information
has been restated to reflect a 10% stock dividend declared on November 17,
1998, to stockholders of record on January 7, 1999, distributed on January
15, 1999.
(Shares in Thousands)
1999 1998
---- ----
Basic earnings per common share:
Average shares outstanding for
basic earnings per share 8,269 8,258
===== =====
Diluted earnings per common share:
Average shares outstanding for
basic earnings per share 8,269 8,258
Dilutive effect of stock options 742 704
----- -----
Average shares outstanding for
diluted earnings per share 9,011 8,962
===== =====
<PAGE>
ITEM 2. Management's Discussion and Analysis of
- ------ Financial Condition and Results of Operations
----------------------------------------------
This Form 10-QSB contains forward-looking statements which may involve
known and unknown risks, uncertainties and other factors that may cause the
Company's actual results and performance in future periods to be materially
different from any future periods or performance suggested by these statements.
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had cash and cash equivalents of
approximately $5.9 million. Cash equivalents of $5.5 million consisted of U.S.
Treasury bills with an original maturity of less than three months and yields
ranging between 4.45% and 4.64%. The Company had net working capital of $13
million at March 31, 1999. The management of the Company believes that the
Company's financial resources and anticipated cash flows will be sufficient for
future operations and possible acquisitions of other operating businesses.
Net cash of $851,000 was used by operations for the three months ended
March 31, 1999, compared to net cash provided by operations of $483,000 for the
same period in 1998. In 1999, the net use of cash was primarily attributable to
an increase in inventories, partially offset by an increase in accounts payable
and other accruals and depreciation and amortization. In 1998, net income and
the increase in accounts payable and other accruals partially offset by the
increase in inventories and receivables accounted for the cash provided by
operations.
Net cash of $955,000 and $3,136,000 was used in investing activities in the
three months ended March 31, 1999 and 1998, respectively. In 1999, $1,018,000
was used in connection with plant and equipment purchases as follows: $376,000
was used for the replacement of underground storage tanks with greater capacity
tanks, $350,000 was used in connection with production expansion, and $292,000
in connection with various purchases of machinery and equipment. In 1998, $3.3
million was used in connection with an expansion program that began in 1997 to
upgrade and expand productive capacity and to build a new warehouse facility.
Cash flows provided by financing activities in the first quarter of 1999
were $1,559,000 compared to net cash of $2,010,000 provided in the same period
in 1998. Increases in notes payable were the primary reason for the cash
provided in both periods. For more information, see Note 5 of Notes to
Consolidated Financial Statements.
Results of Operations
- ---------------------
The Company's operations resulted in net income of $144,000, or $.02 basic
earnings per share, for the three months ended March 31, 1999 compared to net
income of $1,430,000, or $.17 basic earnings per share, for the comparable
period in 1998. Diluted earnings per share was $.02 and $.16 for the three
months ended March 31, 1999 and 1998, respectively.
<PAGE>
The Company, through its wholly-owned subsidiary, Pure World Botanicals,
Inc. had sales of $3.7 million for the quarter ended March 31, 1999, compared to
sales of $5.1 million for the comparable quarter of 1998, a decrease of $1.4
million, or 27%. The Company believes that the decrease in sales was due
primarily to inventory buildups by manufacturers and distributors of dietary
supplements. Although sales increased toward the end of the first quarter, the
Company believes it is too early to tell whether the improvement was a trend.
For the three month periods ended March 31, 1999 and 1998, the gross margin
(sales less cost of goods sold) was $1.3 million, or 35.2% of sales and $2.6
million, or 50.5% of sales, respectively. The decrease in gross margin was due
to the change in the product sales mix and pricing pressures.
For the three month period ended March 31, 1999, the Company recorded net
gains on marketable securities of $8,000 compared to $76,000 for the same period
in 1998. In 1999, $28,000 were unrealized gains and $20,000 were realized
losses. In 1998, substantially all of the gains recorded were realized.
Interest, dividend and other income was $66,000 for the three month period
ended March 31, 1999, compared to $104,000 for the three month period ended
March 31, 1998. Interest income was $66,000 during the three month period ended
March 31, 1999, a decrease of $34,000 from the $100,000 recorded in the
comparable period of 1998. This decrease was due primarily to lower invested
balances and lower yields on investments.
Selling, general and administrative expenses were $1,239,000 for the three
months ended March 31, 1999 compared to $1,198,000 for the comparable period in
1998, an increase of $41,000 or 3.4%. Increased selling and interest expense
were the primary reasons for the increase.
Year 2000 Issue
- ---------------
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions or engage in similar
normal business activities.
Management has determined that the Year 2000 Issue will not pose
significant operational problems for its computer systems. There can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted and would not have an adverse effect on the
Company's systems. The Company will utilize external resources to reprogram, or
replace, and test the software for Year 2000 modifications. The Company
anticipates completing the Year 2000 project not later than October 31, 1999,
which is prior to any anticipated impact on its operating systems. The Company
anticipates incurring costs of $250,000 to upgrade its management information
systems ("MIS") in 1999 which is required due to the increase in sales volume
and the need for enhanced systems to more effectively manage ongoing business.
<PAGE>
The costs of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's best estimate,
which were derived utilizing numerous assumptions of future events, including
the continued availability of certain resources, third party modifications plans
and other factors. However, there can be no guarantee that these estimates will
be achieved and actual results could differ materially from those anticipated.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, and similar
uncertainties.
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 6. - Exhibits and Reports on Form 8-K
- ------ ---------------------------------
(a) Exhibits
--------
27. Financial Data Schedule for the three months ended March 31, 1999.
(b) Reports on Form 8-K
-------------------
None
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PURE WORLD, INC.
Dated: May 12, 1999 By: /s/ Mark Koscinski
------------------------------
Mark Koscinski
Senior Vice President and
Principal Accounting Officer
