<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Pure World, Inc. for the six months ended June 30, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,441
<SECURITIES> 53
<RECEIVABLES> 3,403
<ALLOWANCES> 141
<INVENTORY> 10,167
<CURRENT-ASSETS> 19,416
<PP&E> 12,514
<DEPRECIATION> 2,058
<TOTAL-ASSETS> 34,628
<CURRENT-LIABILITIES> 5,649
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 24,548
<TOTAL-LIABILITY-AND-EQUITY> 34,628
<SALES> 8,548
<TOTAL-REVENUES> 8,675
<CGS> 5,560
<TOTAL-COSTS> 7,915
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> 489
<INCOME-TAX> 43
<INCOME-CONTINUING> 446
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 446
<EPS-BASIC> .05
<EPS-DILUTED> .05
</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: June 30, 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 July 31, 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
JUNE 30, 1999
(UNAUDITED)
(in $000's)
ASSETS
Current assets:
Cash and cash equivalents $ 5,441
Marketable securities 53
Accounts receivable, net of allowance for
uncollectible accounts and returns and
allowances of $141 3,262
Inventories 10,167
Other 493
-------
Total current assets 19,416
Securities available-for-sale 708
Investment in unaffiliated natural products company 1,510
Plant and equipment, net 10,456
Notes receivable from affiliates 336
Goodwill, net of accumulated amortization of $489 1,502
Other assets 700
-------
Total assets $34,628
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,091
Short-term borrowings 3,598
Accrued expenses and other 960
-------
Total current liabilities 5,649
Long-term debt 4,348
-------
Total liabilities 9,997
-------
Stockholders' equity:
Common stock, par value $.01
30,000,000 shares authorized;
8,268,883 shares issued and outstanding 83
Additional paid-in capital 43,321
Accumulated deficit ( 18,080)
Accumulated other comprehensive loss ( 693)
-------
Total stockholders' equity 24,631
-------
Total liabilities and stockholders' equity $34,628
=======
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
June 30,
-------------------
1999 1998
------ ------
Revenues:
Sales $ 4,801 $ 6,162
Net gains (losses) on marketable securities ( 9) 525
Interest, dividend and other income 62 91
------- -------
Total revenues 4,854 6,778
------- -------
Expenses:
Cost of goods sold 3,130 3,066
Selling, general and administrative and other 1,387 1,542
------- -------
Total expenses 4,517 4,608
------- -------
Income before income taxes 337 2,170
Provision for income taxes 35 123
------- -------
Net income 302 2,047
Other comprehensive income:
Unrealized holding losses on
securities available-for-sale ( 189) ( 444)
------- -------
Comprehensive income $ 113 $ 1,603
======= =======
Basic net income per share $ .04 $ .25
======= =======
Diluted net income per share $ .03 $ .23
======= =======
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)
Six Months Ended
June 30,
-----------------
1999 1998
------ ------
Revenues:
Sales $ 8,548 $ 11,257
Net gains (losses) on marketable securities ( 1) 601
Interest, dividend and other income 128 195
-------- --------
Total revenues 8,675 12,053
-------- --------
Expenses:
Cost of goods sold 5,560 5,586
Selling, general and administrative and other 2,626 2,740
-------- --------
Total expenses 8,186 8,326
-------- --------
Income before income taxes 489 3,727
Provision for income taxes 43 250
-------- --------
Net income 446 3,477
Other comprehensive income:
Unrealized holding losses on
securities available-for-sale ( 449) ( 683)
-------- --------
Comprehensive income (loss) ($ 3) $ 2,794
======== ========
Basic net income per share $ .05 $ .42
======== ========
Diluted net income per share $ .05 $ .38
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Six Months Ended
June 30,
-----------------
1999 1998
------ ------
Cash flows from operating activities:
Net income $ 446 $ 3,477
Adjustments:
Depreciation and amortization 680 261
Net marketable securities
transactions 21 396
Gain on sale of securities
available-for-sale ( 13) ( 573)
Change in inventories ( 3,295) ( 1,505)
Change in receivables 595 ( 2,451)
Change in accounts payable and
other accruals 207 1,994
Other, net ( 155) ( 20)
-------- --------
Net cash provided by (used in)
operating activities ( 1,514) 1,579
-------- --------
Cash flows from investing activities:
Plant and equipment ( 1,801) ( 6,891)
Proceeds from sale of securities
available-for-sale 59 1,401
Purchase of securities
available-for-sale - ( 922)
Loans to affiliates and others ( 70) ( 60)
Repayment of loans to affiliates
and others 7 275
Other, net - ( 177)
-------- --------
Net cash used in investing
activities ( 1,805) ( 6,374)
-------- --------
Cash flows from financing activities:
Issuance of common stock - 43
Term loan borrowings 1,857 3,760
Term loan repayments ( 389) ( 85)
Net revolving line of credit borrowings 1,170 300
-------- --------
Net cash provided by financing
activities 2,638 4,018
-------- --------
Net decrease in cash and cash equivalents ( 681) ( 777)
Cash and cash equivalents at beginning of period 6,122 8,100
-------- --------
Cash and cash equivalents at end of period $ 5,441 $ 7,323
======== ========
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 271 $ 73
======== ========
Taxes $ 52 $ 292
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 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 June
30, 1999 and for the three and six month periods ended June 30, 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 three and six month periods ended
June 30, 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 June 30, 1999, marketable securities consisted of the following (in
$000's):
Gross
Historical Holding Fair
Cost Losses Value
---------- ------- -----
Trading securities $ 112 $ 59 $ 53
Available-for-sale 1,401 693 708
------ ----- -----
Total marketable
securities $1,513 $ 752 $ 761
====== ===== =====
All marketable securities were investments in common stock.
<PAGE>
3. Inventories
-----------
Inventories are comprised of the following (in $000's):
Raw materials $ 3,538
Work-in-progress 514
Finished goods 6,115
-------
Total inventories $10,167
=======
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 close prior to the Closing date, and either before
<PAGE>
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. The Company continues to monitor 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 June 30, 1999 (in $000's):
Loans payable to a bank,
collateralized by certain
property and equipment, bearing
annual interest at 8% in
June 1999 maturing in December 2003 $2,786
Loans payable to a bank, pursuant
to a $3 million unsecured line
of credit bearing annual interest
at the prime rate, currently 8%,
maturing in June 2000 2,575
Loan payable to a bank, pursuant to a
$2 million 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 1,395
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75%
maturing in April 2003 241
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75% maturing in
August 2003 56
<PAGE>
Loan payable to a bank, collateralized by
by certain equipment bearing annual
interest at 8.75% maturing in
June 2004 213
Leases payable for equipment 366
All other 314
------
Total borrowings 7,946
Less: Short-term borrowings 3,598
------
Long-term debt $4,348
======
Interest expense was $147,000 and $271,000 for the three and six months
ended June 30, 1999, respectively and $66,000 and $73,000 for the same
periods in 1998, respectively.
6. Net Income Per Share
--------------------
Basic earnings per common share is computed by dividing net income by
the weighted-average number of common shares outstanding. Diluted
earnings per share is 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.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
(Shares in 000's) (Shares in 000's)
1999 1998 1999 1998
----- ----- ------ ------
<S> <C> <C> <C> <C>
Basic earnings per common share:
Average shares outstanding for
basic earnings per share 8,269 8,269 8,269 8,263
===== ===== ===== =====
Diluted earnings per common share:
Average shares outstanding for
basic earnings per share 8,269 8,269 8,269 8,263
Dilutive effect of stock options 538 937 640 848
----- ----- ----- -----
Average shares outstanding for
diluted earnings per share 8,807 9,206 8,909 9,111
===== ===== ===== =====
</TABLE>
<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 June 30, 1999, the Company had cash and cash equivalents of
approximately $5.4 million. Cash equivalents of $5.1 million consisted of U.S.
Treasury Bills with an original maturity of less than three months and yields
ranging between 4.29% and 4.66%. The Company had net working capital of $13.8
million at June 30, 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 $1.5 million was used by operations for the six months ended
June 30, 1999, compared to net cash provided by operations of $1.6 million for
the same period in 1998. In 1999, the net use of cash was primarily attributable
to an increase in inventories, partially offset by a decrease in receivables, 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 $1.8 million and $6.4 million was used in investing activities
in the six months ended June 30, 1999 and 1998, respectively. In 1999,
$1,801,000 was used in connection with plant and equipment purchases which
include: $376,000 used for the replacement of underground storage tanks with
greater capacity tanks; $350,000 for production expansion; and $1.1 million for
various purchases of machinery, furniture and fixtures and computer equipment.
In 1998, $6.9 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 six months ended June
30, 1999 were $2.6 million compared to net cash of $4.0 million 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 $302,000, or $.04 basic
earnings per share, for the three months ended June 30, 1999 compared to net
income of $2,047,000, or $.25 basic earnings per share, for the comparable
period in 1998. Diluted earnings per share was $.03 and $.23 for the three
months ended June 30, 1999 and 1998, respectively.
<PAGE>
Net income was $446,000 or $.05 basic earnings per share for the six months
ended June 30, 1999 compared to the net income of $3,477,000 or $.42 basic
earnings per share for the comparable period in 1998. Diluted earnings per share
was $.05 and $.38 for the six months ended June 30, 1999 and 1998, respectively.
The Company, through its wholly-owned subsidiary, Pure World Botanicals,
Inc. had sales of $4.8 million for the quarter ended June 30, 1999, compared to
sales of $6.2 million for the comparable quarter of 1998, a decrease of $1.4
million, or 22%. For the six months ended June 30, 1999, sales were $8.5 million
compared to sales of $11.3 million for the comparable period in 1998, a decrease
of $2.8 million or 24%. The Company believes that excess inventories at all
levels of distribution in the dietary supplements industry continue to decrease
sales of botanical extracts.
For the quarters ended June 30, 1999 and 1998, the gross margin (sales less
cost of goods sold) was $1.7 million, or 34.8% of sales and $3.1 million, or 50%
of sales, respectively. For the six months ended June 30, 1999 and 1998, the
gross margin was $3.0 million or 35% of sales and $5.7 million or 50.4% of
sales, respectively. The decrease in gross margin was due to the change in the
product sales mix and competitive pricing pressures.
For the three months ended June 30, 1999, net losses on marketable
securities were $9,000 compared to net gains of $525,000 for the same period in
1998. For the six month period ended June 30, 1999, the Company recorded net
losses on marketable securities of $1,000 compared to net gains of $601,000 for
the same period in 1998. In the six months ended June 30, 1999, unrealized
losses were $21,000 and realized gains were $20,000. In 1998, substantially all
of the gains recorded were realized.
Interest, dividend and other income was $62,000 and $91,000 for the three
months ended June 30, 1999 and 1998, respectively. Interest, dividend and other
income was $128,000 for the six month period ended June 30, 1999, compared to
$195,000 for the six month period ended June 30, 1998. Interest income was
$128,000 during the six month period ended June 30, 1999, a decrease of $62,000
from the $190,000 recorded in the comparable period of 1998. This decrease was
due primarily to lower invested balances and lower yields on cash equivalents.
Selling, general and administrative expenses were $1,387,000 for the three
months ended June 30, 1999, a decrease of $155,000 or 10.1% from $1,542,000 for
the comparable period in 1998. Selling, general and administrative expenses were
$2,626,000 for the six months ended June 30, 1999 compared to $2,740,000 for the
comparable period in 1998, a decrease of $114,000 or 4.2%. This decrease was due
principally to the following: personnel expenses $221,000; professional fees,
consisting of legal, accounting and consulting fees, $41,000; selling expenses
of $124,000, partially offset by increased interest expense of $198,000;
depreciation expense of $37,000, and all other expenses of $37,000.
<PAGE>
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.
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 six months ended June 30, 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: August 12, 1999 By: /s/ Mark Koscinski
------------------------------
Mark Koscinski
Senior Vice President and
Principal Accounting Officer
