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, 2000
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OR
[ ] TRANSITION REPORT PURSUANT TO 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 stock: As of October 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
(UNAUDITED)
(in $000's)
September 30,
2000
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ASSETS
Current assets:
Cash and cash equivalents $ 3,402
Marketable securities 91
Accounts receivable, net of
allowance for uncollectible
accounts and returns and
allowances of $167 4,834
Inventories 13,220
Other 766
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Total current assets 22,313
Plant and equipment, net 10,390
Investment in unaffiliated natural products company 1,510
Notes receivable from affiliates 326
Goodwill, net of accumulated amortization of $668 1,323
Other assets 651
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Total assets $36,513
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LIABILITIES AND STOCKHOLDERS' EQUITY
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Current liabilities:
Accounts payable $ 4,031
Short-term borrowings 3,805
Accrued expenses and other 1,170
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Total current liabilities 9,006
Long-term debt 4,467
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Total liabilities 13,473
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Stockholders' equity:
Common stock, par value $.01;
30,000,000 shares authorized;
8,282,079 shares outstanding 83
Additional paid-in capital 43,349
Accumulated deficit ( 20,392)
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Total stockholders' equity 23,040
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Total liabilities and stockholders' equity $36,513
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See accompanying notes to consolidated financial statements.
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<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
($000 Omitted, except per share data)
Three Months Ended
September 30,
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2000 1999
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Revenues:
Sales $ 8,696 $ 3,471
Net losses on marketable
securities ( 36) ( 1,190)
Interest income 57 69
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Total revenues 8,717 2,350
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Expenses:
Cost of goods sold 7,250 2,928
Selling, general and administrative 1,378 1,243
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Total expenses 8,628 4,171
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Income (loss) before income taxes 89 ( 1,821)
Benefit for income taxes ( 12) ( 43)
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Net income (loss) 101 ( 1,778)
Other comprehensive income:
Unrealized holding gains
on securities available-for-sale - 693
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Comprehensive income (loss) $ 101 ($ 1,085)
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Basic net income (loss) per share $ .01 ($ .22)
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Diluted net income (loss) per share $ .01 ($ .22)
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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)
Nine Months Ended
September 30,
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2000 1999
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Revenues:
Sales $ 19,135 $12,019
Net gains (losses) on marketable
securities 31 ( 1,191)
Interest income 185 197
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Total revenues 19,351 11,025
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Expenses:
Cost of goods sold 14,803 8,488
Selling, general and administrative 4,231 3,869
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Total expenses 19,034 12,357
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Income (loss) before income taxes 317 ( 1,332)
Provision for income taxes 42 -
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Net income (loss) 275 ( 1,332)
Other comprehensive income:
Unrealized holding gains
on securities available-for-sale - 244
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Comprehensive income (loss) $ 275 ($ 1,088)
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Basic net income (loss) per share $ .03 ($ .16)
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Diluted net income (loss) per share $ .03 ($ .16)
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See accompanying notes to consolidated financial statements.
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<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
($000 Omitted)
Nine Months Ended
September 30,
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2000 1999
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Cash flows from operating activities:
Net income (loss) $ 275 ($ 1,332)
Adjustments:
Depreciation and amortization 1,263 1,040
Unrealized (gains) losses on marketable
securities ( 424) 1,066
Net marketable securities
transactions 486 188
Change in inventories ( 2,440) ( 3,052)
Change in receivables ( 2,381) 1,152
Change in accounts payable and
other accruals 2,747 12
Other, net ( 248) ( 195)
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Net cash used in
operating activities ( 722) ( 1,121)
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Cash flows from investing activities:
Purchases of plant and equipment ( 1,202) ( 2,007)
Proceeds from sale of securities
available-for-sale - 59
Loans to affiliates and others ( 20) ( 70)
Repayment of loans to affiliates 26 10
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Net cash used in investing
activities ( 1,196) ( 2,008)
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Cash flows from financing activities:
Issuance of common stock 28 -
Term loan borrowings 1,154 2,462
Term loan repayments ( 976) ( 598)
Net revolving line of credit
borrowings (repayments) ( 484) 752
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Net cash provided by (used in) financing
activities ( 278) 2,616
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Net decrease in cash and cash equivalents ( 2,196) ( 513)
Cash and cash equivalents at beginning of period 5,598 6,122
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Cash and cash equivalents at end of period $ 3,402 $ 5,609
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Supplemental disclosure of cash
flow information:
Cash paid for:
Interest $ 536 $ 381
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Taxes $ 14 $ 51
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See accompanying notes to consolidated financial statements.
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<PAGE>
PURE WORLD, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000 AND 1999
(UNAUDITED)
1. General
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The accompanying unaudited consolidated financial statements of Pure World,
Inc. and subsidiaries (the "Company" or "Pure World") as of September 30, 2000
and for the three and nine month periods ended September 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 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, 1999 as filed with the Securities
and Exchange Commission.
The results of operations for the three and nine month periods ended
September 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 September 30, 2000, marketable securities consisted of the following (in
$000's):
Gross
Holding Fair
Cost Losses Value
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Trading
securities $ 557 $ 466 $ 91
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All marketable securities were investments in common stock.
3. Inventories
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Inventories are comprised of the following (in $000's):
Raw materials $ 2,789
Work-in-progress 115
Finished goods 10,316
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Total inventories $13,220
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<PAGE>
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 $1.0 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
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 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.
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.
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<PAGE>
5. Borrowings
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Borrowings consisted of the following at September 30, 2000 (in $000's):
<TABLE>
<S> <C>
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 $ 2,430
Loans payable to a bank,
collateralized by certain
property and equipment, bearing
annual interest of 6.878%
maturing in December 2003 2,250
Loan payable to a bank, collateralized
by certain equipment bearing annual
interest at 9.09% maturing in October 2004 1,633
Loan payable to a bank, pursuant to a
credit agreement, collateralized
by certain equipment, bearing annual interest
at LIBOR plus 2.5% currently 9.11%
maturing in June 2004 771
Loan payable to a bank, bearing annual
interest at LIBOR plus 2.5% currently
9.11% maturing in May 2005 373
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75%
maturing in April 2003 171
Loan payable to a bank, collateralized
by certain equipment, bearing annual
interest at 8.25% maturing in June 2004 168
Loan payable to a bank, collateralized
by certain equipment bearing
annual interest at 8.75% maturing in
August 2003 41
Lease payable to IBM Credit Corporation
for gross assets of $150,000
with imputed interest of 6.5% maturing
in January 2002 90
Leases payable for equipment 328
All other 17
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Total borrowings 8,272
Less: Current portion of long-term debt 3,805
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Long-term debt $ 4,467
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</TABLE>
Interest expense was $183,000 and $536,000 for the three and nine months
ended September 30, 2000, respectively and $110,000 and $381,000 for the same
periods in 1999.
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6. Net Income Per Share
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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. 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.
Three Months Ended Nine Months Ended
September 30, September 30,
(Shares in Thousands) (Shares in Thousands)
2000 1999 2000 1999
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Average shares outstanding for
basic earnings per shares 8,282 8,269 8,277 8,269
Dilutive effect of stock options 203 - 318 -
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Average shares outstanding for
diluted earnings per share 8,485 8,269 8,595 8,269
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7. Litigation
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The Turnkey litigaion was settled in September 2000. In connection with the
settlement, Pure World received net proceeds of $345,000 and was relieved of any
potential liability to Turnkey.
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<PAGE>
Item 2. Management's Discussion and Analysis of
------ Financial Condition and Results of Operations
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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 September 30, 2000, the Company had cash and cash equivalents of
approximately $3.4 million. Cash equivalents of $3.3 million consisted of U.S.
Treasury bills with an original maturity of less than three months and yields
ranging between 5.99% and 6.25%. The Company had working capital of $13.3
million at September 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 $722,000 and $1.1 million was used in operations for the nine
months ended September 30, 2000 and 1999, respectively. In 2000, the net use of
cash was primarily attributable to an increase in inventories and receivables,
partially offset by an increase in accounts payable and other accruals, and
depreciation and amortization. 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
Net cash of $1.2 million and $2 million was used in investing activities
for the nine months ended September 30, 2000 and 1999, respectively. In 2000,
$1.1 was used in connection with the construction of a new powdering facility
and $100,000, net of proceeds received as a result of the settlement of the
Turnkey litigation, for various purchases of machinery and computer equipment.
(See Note 7 of Notes to Consolidated Financial Statements.)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.
Cash used in financing activities was $278,000 for the nine months ended
September 30, 2000, compared to cash provided by financing activities in the
nine months ended September 30, 1999 of $2.6 million. (See Note 5 of Notes to
Consolidated Financial Statements.)
Results of Operations
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The Company's operations resulted in net income of $101,000, or $.01 basic
earnings per share, for the three months ended September 30, 2000 compared to a
net loss of $1,778,000, or $.22 basic loss per share, for the comparable period
in 1999. Diluted earnings (loss) per share were $.01 and ($.22) for the quarters
ended September 30, 2000 and 1999, respectively.
Net income was $275,000, or $.03 basic earnings per share for the nine
months ended September 30, 2000, compared to a net loss of $1,332,000, or $.16
basic loss per share, for the comparable period in 1999. Diluted earnings (loss)
per share were $.03 and ($.16) for the nine months ended September 30, 2000 and
1999, respectively.
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<PAGE>
The Company, through its wholly-owned subsidiary, Pure World Botanicals,
Inc. had sales of $8.7 million for the quarter ended September 30, 2000,
compared to sales of $3.5 million for the comparable quarter of 1999, an
increase of $5.2 million, or 150%. For the nine months ended September 30, 2000,
sales were $19.1 million compared to $12 million for the comparable period in
1999, an increase of $7.1 million, or 59%.
For the quarters ended September 30, 2000 and 1999, the gross margin (sales
less cost of goods sold) was $1.5 million, or 17% of sales and $543,000, or 16%
of sales, respectively. For the nine months ended September 30, 2000 and 1999,
the gross margin was $4.3 million or 23% of sales and $3.5 million or 29% of
sales, respectively.
Results for the three and nine months ended September 30, 2000 were
significantly affected by the delivery of a large contract to one customer to
process a natural but not botanical product. That contract ended in October 2000
and will not be a material factor in the fourth quarter.
For the three months ended September 30, 2000, net losses on marketable
securities were $36,000 compared to net losses of $1,190,000 for the same period
in 1999. For the nine month period ended September 30, 2000, the net gains on
marketable securities were $31,000 compared to net losses of $1,191,000 for the
same period in 1999. In 1999, the net losses on marketable securities 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 income was $57,000 and $69,000 for the three months ended
September 30, 2000 and 1999, respectively. Interest income was $185,000 and
$197,000 for the nine month periods ended September 30, 2000 and September 30,
1999, respectively.
Selling, general and administrative expenses were $1,378,000 for the three
months ended September 30, 2000, an increase of $135,000 or 11% from $1,243,000
for the comparable period in 1999. Selling, general and administrative expenses
were $4,231,000 for the nine months ended September 30, 2000 compared to
$3,869,000 for the comparable period in 1999, an increase of $362,000 or 9%.
This increase was due principally to the following: increases in professional
fees of $101,000 consisting of legal, accounting and consulting fees; an
increase in interest expense of $155,000; selling expenses of $75,000 and all
other expenses of $31,000.
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<PAGE>
PART II - OTHER INFORMATION
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Item 4. - Submission of Matters to a Vote of Security Holders
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The Company held its Annual Meeting of Stockholders on October 31, 2000.
All nominees to the Company's Board of Directors were elected.
The following is a vote tabulation for all nominees:
For Withheld
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Paul O. Koether 7,473,871 227,356
Mark W. Jaindl 7,471,388 229,839
William Mahomes, Jr. 7,473,871 227,356
Alfredo Mena 7,473,886 227,341
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 nine months ended September 30,
2000.
(b) Reports on Form 8-K
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No reports on Form 8-K were filed during the quarter for which this
report is being filed.
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<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 14, 2000 By:/s/ Sue Ann Itzel
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Sue Ann Itzel
Vice President
(Principal Accounting Officer)
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