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, 2000
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OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission File No.: 0-10566
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Pure World, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 95-3419191
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
376 Main Street, Bedminster, New Jersey 07921
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(Address of principal executive offices)
(908) 234-9220
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(Issuer's telephone number)
N/A
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(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
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State the number of shares outstanding of each of the issuer's classes of
common equity: As of July 31, 2000, the issuer had 8,282,079 shares of its
common stock, par value $.01 per share, outstanding.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
PART I - FINANCIAL INFORMATION
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ITEM 1. - Financial Statements
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PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30,2000
(UNAUDITED)
(in $000's)
ASSETS
Current assets:
Cash and cash equivalents $ 3,877
Marketable securities 126
Accounts receivable, net of allowance for
uncollectible accounts and returns and
allowances of $161 2,825
Inventories 12,026
Other 456
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Total current assets 19,310
Plant and equipment, net 10,747
Investment in unaffiliated natural products company 1,510
Notes receivable from affiliates 327
Goodwill, net of accumulated amortization of $632 1,359
Other assets 643
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Total assets $33,896
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,473
Short-term borrowings 3,828
Accrued expenses and other 904
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Total current liabilities 6,205
Long-term debt 4,752
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Total liabilities 10,957
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Stockholders' equity:
Common stock, par value $.01;
30,000,000 shares authorized;
8,282,079 shares issued and outstanding 83
Additional paid-in capital 43,349
Accumulated deficit ( 20,493)
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Total stockholders' equity 22,939
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Total liabilities and stockholders' equity $33,896
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See accompanying notes to consolidated financial statements.
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PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
($000 Omitted, except per share data)
Three months ended
June 30,
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2000 1999
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Revenues:
Sales $ 4,709 $ 4,801
Net losses on marketable securities ( 26) ( 9)
Interest income 59 62
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Total revenues 4,742 4,854
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Expenses:
Cost of goods sold 3,493 3,130
Selling, general and administrative 1,469 1,387
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Total expenses 4,962 4,517
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Income (loss) before income taxes ( 220) 337
Provision for income taxes 19 35
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Net income (loss) ( 239) 302
Other comprehensive income:
Unrealized holding losses on
securities available-for-sale - ( 189)
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Comprehensive income (loss) ($ 239) $ 113
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Basic net income (loss) per share ($ .03) $ .04
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Diluted net income (loss) per share ($ .03) $ .03
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See accompanying notes to consolidated financial statements.
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PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
($000 Omitted, except per share data)
Six months ended
June 30,
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2000 1999
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Revenues:
Sales $10,439 $ 8,548
Net gains (losses) on marketable
securities 67 ( 1)
Interest income 128 128
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Total revenues 10,634 8,675
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Expenses:
Cost of goods sold 7,553 5,560
Selling, general and administrative 2,853 2,626
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Total expenses 10,406 8,186
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Income before income taxes 228 489
Provision for income taxes 54 43
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Net income 174 446
Other comprehensive income:
Unrealized holding losses on
securities available-for-sale - ( 449)
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Comprehensive income (loss) $ 174 ($ 3)
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Basic and diluted net income per share $ .02 $ .05
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See accompanying notes to consolidated financial statements.
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PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Six months ended
June 30,
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2000 1999
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Cash flows from operating activities:
Net income $ 174 $ 446
Adjustments:
Depreciation and amortization 853 680
Net marketable securities
transactions 27 21
Gain on sale of securities
available-for-sale - ( 13)
Change in inventories ( 1,246) ( 3,295)
Change in receivables ( 373) 595
Change in accounts payable and
other accruals ( 76) 207
Other, net 70 ( 155)
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Net cash used in operating activities ( 571) ( 1,514)
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Cash flows from investing activities:
Purchase of plant and equipment ( 1,185) ( 1,801)
Proceeds from sale of securities
available-for-sale - 59
Loans to affiliates and others ( 20) ( 70)
Repayment of loans to affiliates
and others 24 7
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Net cash used in investing
activities ( 1,181) ( 1,805)
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Cash flows from financing activities:
Term loan borrowings 1,101 1,857
Term loan repayments ( 632) ( 389)
Net revolving line of credit borrowings
(repayments) ( 466) 1,170
Issuance of common stock 28 -
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Net cash provided by financing
activities 31 2,638
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Net decrease in cash and cash equivalents ( 1,721) ( 681)
Cash and cash equivalents at beginning of period 5,598 6,122
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Cash and cash equivalents at end of period $ 3,877 $ 5,441
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Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 353 $ 271
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Taxes $ 14 $ 52
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See accompanying notes to consolidated financial statements.
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PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 AND 1999
(UNAUDITED)
1. General
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The accompanying unaudited consolidated financial statements of
Pure World, Inc. and subsidiaries ("Pure World" or the "Company") as of
June 30, 2000 and for the quarters ended June 30, 2000 and 1999 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, 1999 as filed
with the Securities and Exchange Commission.
The results of operations for the quarters ended June 30, 2000
and 1999 are not necessarily indicative of the results to be expected
for the entire year or any other period.
2. Marketable Securities
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At June 30, 2000, marketable securities consisted of the
following (in $000's):
Gross
Holding Fair
Cost Losses Value
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Trading securities $ 557 $ 431 $ 126
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All marketable securities were investments in common stock.
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3. Inventories
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Inventories are comprised of the following (in $000's):
Raw materials $ 2,449
Work-in-progress 105
Finished goods 9,472
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Total inventories $12,026
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4. Investment in Unaffiliated Natural Products Company
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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"). In July
2000, Gaia notified the Company that they were deferring the repayment
of the principal for one year as allowed in the promissory note. The
Pure World Loan bears interest at 6.48% which is 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
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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. 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
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Borrowings consisted of the following at June 30, 2000 (in $000's):
<TABLE>
<S> <C>
Loans payable to a bank,
collateralized by certain
property and equipment, bearing
annual interest at 6.878% in
June 2000 maturing in December 2003 $ 2,357
Loans payable to a bank, pursuant
to a $3 million unsecured line of
credit bearing annual interest at
the prime rate, currently 9.5%,
maturing in June 2001 2,448
Loan payable to a bank, collateralized
by certain equipment bearing annual
interest at 7.94%, maturing in October 2004 1,733
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75%
maturing in April 2003 185
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75% maturing in
August 2003 44
Loan payable to a bank, collateralized
by certain equipment, bearing annual
interest at 8.25% maturing in June 2004 177
Loanpayable to a bank, pursuant to a credit
agreement, collateralized by certain
equipment, bearing annual interest
at LIBOR plus 2.5% maturing in June 2004 799
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Loan payable to a bank, bearing annual
interest at LIBOR plus 2.5% maturing
in May 2005. 393
Lease payable to IBM Credit Corporation
for gross assets of $150,000 with
inputed interest of 6.5% maturing
in January 2002. 106
Leases payable for equipment 318
All other 20
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Total borrowings 8,580
Less: Current portion of long-term debt 3,828
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Long-term debt $ 4,752
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</TABLE>
Interest expense was $183,000 and $353,000 for the three and
six months ended June 30, 2000, respectively and $147,000 and $271,000
for the same periods in 1999.
6. Net Income Per Share
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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 reflects a 10% stock dividend declared on
November 17, 1998, to stockholders of record on January 7, 1999,
distributed on January 15, 1999.
<TABLE>
Three Months Ended Six Months Ended
June 30, June 30,
(Shares in Thousands) (Shares in Thousands)
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Basic earnings per common share:
Average shares outstanding for
basic earnings per share 8,280 8,269 8,275 8,269
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Diluted earnings per common share:
Average shares outstanding for
basic earnings per share 8,280 8,269 8,275 8,269
Dilutive effect of stock options 315 538 377 640
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Average shares outstanding for
diluted earnings per share 8,595 8,807 8,652 8,909
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</TABLE>
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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
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At June 30, 2000, the Company had cash and cash equivalents of
approximately $3.9 million. Cash equivalents of $3.5 million consisted of U.S.
Treasury bills with an original maturity of less than three months and yields
ranging between 5.8% and 6.1%. The Company had working capital of $13.1 million
at June 30, 2000. 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 $571,000 was used in operations for the six months ended June
30, 2000, compared to net cash used in operations of $1,514,000 for the same
period in 1999. In 2000, the net use of cash was primarily attributable to an
increase in inventories and receivables, partially offset by depreciation and
amortization. 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, a decrease in receivables and depreciation and amortization.
Net cash of $1.2 million and $1.8 million was used in investing activities
in the six months ended June 30, 2000 and 1999, respectively. In 2000, $1
million was used in connection with the construction of a new powdering
facility, and $200,000 was used for purchases of machinery and computer
equipment. In 1999, $1,801,000 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 $1.1 million for purchases of machinery, furniture and
fixtures and computer equipment.
Cash flows provided by financing activities for the six months ended June
30, 2000 and 1999 were $31,000 and $2,638,000, respectively. Changes in notes
payable were the primary reason for these cash flows. For more information on
borrowings, see Note 5 of Notes to Consolidated Financial Statements.
Results of Operations
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The Company's operations resulted in a net loss of $239,000, or $.03 basic
loss per share, for the three months ended June 30, 2000 compared to net income
of $302,000, or $.04 basic earnings per share, for the comparable period in
1999. Diluted earnings (loss) per share was ($.03) and $.03 for the three months
ended June 30, 2000 and 1999, respectively.
Net income was $174,000 or $.02 basic earnings per share for the six months
ended June 30, 2000 compared to the net income of $446,000 or $.05 basic
earnings per share for the comparable period in 1999. Diluted earnings per share
was $.02 and $.05 for the six months ended June 30, 2000 and 1999, respectively.
10
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The Company, through its wholly-owned subsidiary, Pure World Botanicals,
Inc., had sales of $4.7 million for the quarter ended June 30, 2000, compared to
sales of $4.8 million for the comparable quarter in 1999, a decrease of $.1
million, or 2%. For the six months ended June 30, 2000, sales were $10.4 million
compared to sales of $8.5 million for the comparable period in 1999, an increase
of $1.9 million or 22%.
For the quarters ended June 30, 2000 and 1999, the gross margin (sales less
cost of goods sold) was $1.2 million, or 25.8% of sales and $1.7 million, or
34.8% of sales, respectively. For the six months ended June 30, 2000 and 1999,
the gross margin was $2.9 million or 27.6% of sales and $3.0 million or 35% 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, 2000, net losses on marketable
securities were $26,000 compared to net losses of $9,000 for the same period in
1999. For the six month period ended June 30, 2000, the net gains on marketable
securities were $67,000 compared to net losses of $1,000 for the same period in
1999. In the six months ended June 30, 2000, unrealized gains were $460,000 and
realized losses were $393,000. In 1999, unrealized gains were $20,000 and
realized losses were $21,000.
Interest income was $59,000 and $62,000 for the three months ended June 30,
2000 and 1999, respectively. Interest income was $128,000 for the six month
periods ended June 30, 2000 and June 30, 1999.
Selling, general and administrative expenses were $1,469,000 for the three
months ended June 30, 2000, an increase of $82,000 or 5.9% from $1,387,000 for
the comparable period in 1999. Selling, general and administrative expenses were
$2,853,000 for the six months ended June 30, 2000 compared to $2,626,000 for the
comparable period in 1999, an increase of $227,000 or 8.6%. This increase was
due principally to increases in the following: personnel expenses $25,000;
professional fees, consisting of legal, accounting and consulting fees, $89,000;
interest expense, $82,000;and all other expenses, $31,000.
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PART II - OTHER INFORMATION
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Item 6. - Exhibits and Reports on Form 8-K
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(a) Exhibits
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27. Financial Data Schedule for the six months ended June 30, 2000.
(b) Reports on Form 8-K
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None
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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 11, 2000 By: /s/ Sue Ann Itzel
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Sue Ann Itzel
Assistant Secretary
(Principal Accounting Officer)
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