<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-QSB of Pure World, Inc. for the period ended September 30, 1999 and is
qualified in its entirety by reference to such financial statemens.
</LEGEND>
<CIK> 0000356446
<NAME> PURE WORLD, INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,609
<SECURITIES> 209
<RECEIVABLES> 2,849
<ALLOWANCES> 145
<INVENTORY> 9,924
<CURRENT-ASSETS> 18,985
<PP&E> 12,720
<DEPRECIATION> 2,383
<TOTAL-ASSETS> 33,329
<CURRENT-LIABILITIES> 5,133
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 23,463
<TOTAL-LIABILITY-AND-EQUITY> 33,329
<SALES> 12,019
<TOTAL-REVENUES> 11,025
<CGS> 8,488
<TOTAL-COSTS> 11,976
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 381
<INCOME-PRETAX> (1,332)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,332)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,332)
<EPS-BASIC> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1999
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO 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 stock: As of October 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
(UNAUDITED)
($000 Omitted)
September 30,
1999
-------------
ASSETS
Current assets:
Cash and cash equivalents $ 5,609
Marketable securities 209
Accounts receivable, net of
allowance for uncollectible
accounts and returns and
allowances of $145 2,704
Inventories, net 9,924
Other 539
-------
Total current assets 18,985
Investment in unaffiliated
natural products company 1,510
Plant and equipment, net 10,337
Notes receivable from affiliates 332
Goodwill, net of accumulated
amortization of $525 1,467
Other assets 698
-------
Total assets $33,329
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 804
Short-term borrowings 3,274
Accrued expenses and other 1,055
-------
Total current liabilities 5,133
Long-term debt 4,650
-------
Total liabilities 9,783
-------
Stockholders' equity:
Common stock, par value $.01;
30,000,000 shares authorized;
8,268,883 shares outstanding 83
Additional paid-in capital 43,321
Accumulated deficit ( 19,858)
-------
Total stockholders' equity 23,546
-------
Total liabilities and
stockholders' equity $33,329
=======
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
September 30,
------------------
1999 1998
---- ----
Revenues:
Sales $ 3,471 $ 6,405
Net gains (losses) on marketable
securities ( 1,190) 79
Interest, dividend and other income 69 107
------- -------
Total revenues 2,350 6,591
------- -------
Expenses:
Cost of goods sold 2,928 3,442
Selling, general and administrative 1,243 1,555
------- -------
Total expenses 4,171 4,997
------- -------
Income (loss) before income taxes ( 1,821) 1,594
Provision (benefit) for income taxes ( 43) 66
------- -------
Net income (loss) ( 1,778) 1,528
Other comprehensive income:
Unrealized holding gains (losses)
on securities available for sale 693 ( 258)
------- -------
Comprehensive income (loss) ($ 1,085) $ 1,270
======= =======
Basic net income (loss) per share ($ .22) $ .18
======= =======
Diluted net income (loss) per share ($ .22) $ .16
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
($000 Omitted, except per share data)
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
Revenues:
Sales $ 12,019 $ 17,662
Net gains (losses) on marketable
securities ( 1,191) 680
Interest, dividend and other income 197 302
-------- --------
Total revenues 11,025 18,644
-------- --------
Expenses:
Cost of goods sold 8,488 9,028
Selling, general and administrative 3,869 4,295
-------- --------
Total expenses 12,357 13,323
-------- --------
Income (loss) before income taxes ( 1,332) 5,321
Provision for income taxes - 316
-------- --------
Net income (loss) ( 1,332) 5,005
Other comprehensive income:
Unrealized holding gains (losses)
on securities available for sale 244 ( 941)
-------- --------
Comprehensive income (loss) ($ 1,088) $ 4,064
======== ========
Basic net income (loss) per share ($ .16) $ .61
======== ========
Diluted net income (loss) per share ($ .16) $ .55
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Nine Months Ended
September 30,
-----------------
1999 1998
---- ----
Cash flows from operating activities:
Net income (loss) ($ 1,332) $ 5,005
Adjustments:
Depreciation and amortization 1,040 555
Unrealized losses on marketable
securities 1,066 18
Net marketable securities
transactions 188 ( 375)
Change in inventories ( 3,052) ( 2,280)
Change in receivables 1,152 ( 3,315)
Change in accounts payable and
other accruals 12 1,002
Other, net ( 195) ( 123)
------- -------
Net cash provided by (used in)
operating activities ( 1,121) 487
------- -------
Cash flows from investing activities:
Purchases of plant and equipment ( 2,007) ( 6,912)
Proceeds from sale of securities
available-for-sale 59 1,743
Purchase of securities
available-for-sale - ( 1,600)
Loans to affiliates and others ( 70) ( 60)
Repayment of loans to affiliates 10 278
Other, net - ( 181)
------- -------
Net cash used in investing
activities ( 2,008) ( 6,732)
------- -------
Cash flows from financing activities:
Issuance of common stock - 43
Term loan borrowings 2,462 3,975
Term loan repayments ( 598) ( 319)
Net revolving line of credit
borrowings 752 1,018
------- -------
Net cash provided by
financing activities 2,616 4,717
------- -------
Net decrease in cash and cash
equivalents ( 513) ( 1,528)
Cash and cash equivalents at beginning
of period 6,122 8,100
------- -------
Cash and cash equivalents at end of
period $ 5,609 $ 6,572
======= =======
Supplemental disclosure for cash
flow information:
Cash paid for:
Interest expense $ 381 $ 173
======= =======
Taxes $ 51 $ 396
======= =======
See accompanying notes to consolidated financial statements.
<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
1. General
-------
The accompanying unaudited consolidated financial statements of Pure World,
Inc. and subsidiaries (the "Company" or "Pure World") as of September 30, 1999
and for the three and nine month periods ended September 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 year-end 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Prior years' financial statements have been reclassified to conform to the
current year's presentation.
The results of operations for the three and nine month periods ended
September 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the entire year or any other period.
<PAGE>
2. Marketable Securities
---------------------
At September 30, 1999, investment securities consisted of the following (in
$000's):
Gross
Holding Fair
Cost Losses Value
---- ------- -----
Marketable
securities $ 1,354 $ 1,145 $ 209
======= ======= ======
All marketable securities are investments in common stock.
In the quarter ended September 30, 1999, securities previously classified
as available-for-sale were reclassified as trading securities. In accordance
with Statement of Financial Accounting Standards No. 115 "Accounting for Certain
Investments in Debt and Equity Securities", approximately $1,136,000 of
unrealized holding losses, previously recorded as a separate component of
stockholders' equity, were recognized in earnings.
3. Inventories
-----------
At September 30, 1999 inventories were comprised of the following (in
$000's):
Raw materials $ 2,380
Work-in-progress 441
Finished goods 7,103
-------
Total inventories, net $ 9,924
=======
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 $1.0 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
<PAGE>
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 is 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 does
not 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
on November 30, 1998. The Company continues to monitor its investment.
<PAGE>
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. Plant and Equipment
-------------------
At September 30, 1999, plant and equipment consisted of the following (in
$000's):
Machinery and equipment $ 9,184
Leasehold improvements 1,983
Office equipment, furniture
and fixtures 1,553
Accumulated depreciation ( 2,383)
-------
Total $10,337
=======
6. Long-term Debt
--------------
Long-term debt consisted of the following at September 30, 1999 (in 000's):
Loans payable to a bank,
collateralized by certain
property and equipment, bearing
annual interest at 6.88%,
maturing in December 2003 $2,678
Loans payable to a bank, pursuant
to a $3 million unsecured line of
credit bearing annual interest
at the prime rate, currently at 8.25%
maturing in June 2000 2,157
Loan payable to a bank, collateralized
by certain equipment bearing interest
at 7.94%, maturing in October 2004 2,000
<PAGE>
Loan payable to a bank, collateralized
by certain equipment bearing annual
interest at 8.75% maturing in
April 2003 227
Loan payable to a bank, collateralized
by certain equipment bearing annual
interest at 8.75% maturing in
August 2003 53
Loan payable to a bank, collateralized
by certain equipment bearing annual
interest at 8.25% maturing in June 2004 205
Leases payable for equipment 373
All other 231
------
Total borrowings 7,924
Less: Short-term borrowings 3,274
------
Long-term debt $4,650
======
Interest expense was $110,000 and $381,000 for the three and nine months
ended September 30, 1999, respectively and $100,000 and $173,000 for the same
periods in 1998, respectively.
7. Net Income Per Share
--------------------
Basic net income per share is computed by dividing net income by the
weighted-average number of common shares outstanding. Diluted net income 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 share and diluted earnings per share
are reconciled below (in 000's). All share and per share information has been
<PAGE>
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.
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1999 1998 1999 1998
---- ---- ---- ----
Average shares
outstanding for
basic earnings
per share 8,269 8,269 8,269 8,265
Dilutive effect of
stock options - 890 - 893
----- ----- ----- -----
Average shares
outstanding for
diluted earnings
per share 8,269 9,159 8,269 9,158
===== ===== ===== =====
<PAGE>
Item 2. Management's Discussion and Analysis of
- ------ Financial Condition and Results of Operations
---------------------------------------------
Liquidity and Capital Resources
- -------------------------------
The following discussion and analysis should be read in conjunction with
Pure World, Inc.'s ("Pure World" or the "Company") 1998 Annual Report on Form
10-KSB as well as the Company's financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-QSB. When used in this discussion,
the word "expects" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. The forward-looking statements contained herein speak only as of the
date hereof. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or revisions to any forward-looking statements
contained herein to reflect any changes in the Company's expectations with
regard thereto or any changes in events, conditions or circumstances on which
any such statements is based.
At September 30, 1999, the Company had cash and cash equivalents of
approximately $5.6 million. Cash equivalents of $4.9 million consisted of U.S.
Treasury bills with an original maturity of less than three months and yields
ranging between 4.49% and 4.93%. The Company had net working capital of $13.9
million at September 30, 1999. The Company has an unsecured line of credit of $3
million bearing a rate of 8.25%. At September 30, 1999, $843,000 was available
in connection with this line of credit. Management 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 $1.1 million was used by operations and net cash of $487,000
was provided by operations for the nine months ended September 30, 1999 and
1998, respectively. In 1999, the net use of cash was primarily attributable to
the net loss of $1.3 million and an increase in inventories, partially offset by
a decrease in receivables, unrealized losses on marketable securities, net
marketable securities transactions and depreciation and amortization. In 1998,
net income and the increase in accounts payable and other accrued expenses
partially offset by the increase in inventories and receivables accounted for
the cash provided by operations.
<PAGE>
Net cash of $2 million and $6.7 million was used in investing activities
for the nine months ended September 30, 1999 and 1998, respectively. In 1999,
$2,007,000 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 $1,281,000 for
various purchases of machinery, furniture and fixtures, computer equipment and
other capital items. In 1998, $6.9 million was used principally 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 nine months ended
September 30, 1999 and 1998 were $2.6 million and $4.7 million, respectively.
Increases in notes payable were the primary reason for the cash provided in both
periods. For more information, see Note 6 of Notes to Consolidated Financial
Statements.
Results of Operations
- ---------------------
The Company's operations resulted in a net loss of $1,778,000, or $.22
basic loss per share, for the three months ended September 30, 1999 compared to
net income of $1,528,000, or $.18 basic earnings per share, for the comparable
period in 1998. The net loss was $1,332,000, or $.16 basic loss per share for
the nine months ended September 30, 1999, compared to net income of $5,005,000,
or $.61 basic earnings per share, for the comparable period in 1998. Diluted
earnings (loss) per share were ($.22) and $.16 for the quarters ended September
30, 1999 and 1998, respectively and ($.16) and $.55 for the nine months ended
September 30, 1999 and 1998, respectively.
The Company, through its wholly-owned subsidiary, Pure World Botanicals,
Inc. had sales of $3.5 million for the quarter ended September 30, 1999,
compared to sales of $6.4 million for the comparable quarter of 1998, a decrease
of $2.9 million, or 45%. For the nine months ended September 30, 1999, sales
were $12 million compared to $17.7 million for the comparable period in 1998, a
decrease of $5.7 million, or 32%. The Company believes that excess inventories
at all levels of distribution in the dietary supplements industry continue to
decrease the sales of botanical extracts.
For the quarters ended September 30, 1999 and 1998, the gross margin (sales
less cost of goods sold) was $543,000, or 16% of sales and $3 million, or 46% of
sales, respectively. For the nine months ended September 30, 1999 and 1998, the
gross margin was $3.5 million or 29% of sales and $8.6 million or 49% of sales,
<PAGE>
respectively. The gross profit was negatively affected due to the change in the
product sales mix, competitive pricing pressures, and inventory write-downs.
For the three and nine months ended September 30, 1999, the Company
recorded net losses on marketable securities of $1,190,000 and $1,191,000,
respectively, compared to net gains on marketable securities of $79,000 and
$680,000 for the same periods in 1998. Substantially all of the losses recorded
in 1999 were unrealized and substantially all of the gains recorded in 1998 were
realized. The decrease in net gains on marketable securities from 1999 to 1998
was primarily due to the reclassification of securities available-for-sale to
trading securities, and marking them to current value. In the quarter ended
September 30, 1999, securities previously classified as available-for-sale were
reclassified as trading securities. In accordance with Statement of Financial
Accounting Standards No. 115 "Accounting for Certain Investments in Debt and
Equity Securities", $1.1 million of unrealized holding losses, previously
recorded as a separate component of stockholders equity, were recognized in
earnings. (For more information on Marketable Securities, see Note 2 of Notes to
Consolidated Financial Statements.)
Interest, dividend and other income was $69,000 and $197,000 for the three
and nine months ended September 30, 1999, respectively, compared to $107,000 and
$302,000 for the three and nine months ended September 30, 1998. Interest income
was $193,000 during the nine month period ended September 30, 1999, a decrease
of $83,000 from the $276,000 recorded in the comparable period of 1998. This
decrease was due primarily to lower invested balances as working capital was
used for the plant expansion project previously discussed combined with lower
yields on cash equivalents.
Selling, general and administrative expenses were $1,243,000 for the three
months ended September 30, 1999, a decrease of $312,000 or 20% from $1,555,000
for the comparable period in 1998. Selling, general and administrative expenses
were $3,869,000 for the nine months ended September 30, 1999 compared to
$4,295,000 for the comparable period in 1998, a decrease of $426,000 or 10%.
This decrease was due principally to the following: lower personnel expenses of
$326,000 and lower selling expenses of $354,000, partially offset by increased
interest expense of $208,000 and an increase in depreciation expense of $50,000.
<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 system rely
will be timely converted and would not have an adverse effect on the Company's
systems. The Company utilized external resources to replace and test its
software for Year 2000 modifications. The Company completed the Year 2000
project, incurring costs of approximately $250,000 to upgrade its management
information system.
<PAGE>
PART II - OTHER INFORMATION
- ------- -----------------
Item 4. - Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
The Company held its Annual Meeting of Stockholders on September 28, 1999.
All nominees to the Company's Board of Directors were elected.
The following is a vote tabulation for all nominees:
For Withheld
--------- ---------
Paul O. Koether 7,678,986 101,060
Mark W. Jaindl 7,679,012 101,034
William Mahomes, Jr. 7,679,452 100,594
Alfredo Mena 7,679,012 101,034
Item 6. - Exhibits and Reports on Form 8-K
- ------- --------------------------------
(a) Exhibits
--------
27. Financial Data Schedule for the nine months ended September 30,
1999.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter for which this
report is being filed.
<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: November 12, 1999 By: /s/ Mark Koscinski
----------------------------
Mark Koscinski
Senior Vice President and
Principal Accounting Officer
