HAUSER CHEMICAL RESEARCH INC
10-Q, 1995-09-12
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES
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FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934


For Quarter Ended
July 31, 1995              Commission File No. 0-17174


HAUSER CHEMICAL RESEARCH, INC.



Delaware                                       84-0926801         
(State or other jurisdiction                   (I.R.S. Identification
Number)
of incorporation or organization)

5555 Airport Boulevard, Boulder, Colorado                   80301              
(Address of principal executive offices)                    (Zip Code)

Registrant's telephone number,
including area code:                                        (303) 443-4662

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes   X      No      

Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.

Common Stock, $ .001 par value                  10,539,668
Class                                           Outstanding at July 31, 1995

HAUSER CHEMICAL RESEARCH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Unaudited

<TABLE>
                                               Three months ended July 31,

                                               1995                1994

REVENUES:
  <S>                                          <C>                 <C>
  Natural product processing                   $2,444,352          $4,530,067 
  Technical services                            1,589,822           650,170 
        Total revenues                          4,034,174           5,180,237 

COST OF REVENUES                                4,746,407           3,321,785 

GROSS MARGIN                                    (712,233)           1,858,452 

OPERATING EXPENSES:
  Research and development                      466,895             532,157 
  Sales and marketing                           319,982             154,352 
  General and administrative                    1,559,545           1,391,555 
        Total operating expenses                2,346,422           2,078,064 

LOSS FROM OPERATIONS                            (3,058,655)         (219,612)

OTHER INCOME (EXPENSE):
  Interest income                               350,581             352,130 
  Interest expense                              (6,411)             (23,071)
        Other income - net                      344,170             329,059 

INCOME (LOSS) BEFORE INCOME TAXES               (2,714,485)         109,447 

INCOME TAX PROVISION (BENEFIT)                  (950,150)           39,405 

NET INCOME (LOSS)                               $(1,764,335)        $70,042 

NET INCOME (LOSS) PER SHARE:
  Primary                                       $(0.17)             $0.01 

  Fully diluted                                 $(0.17)             $0.01 

WEIGHTED AVERAGE NUMBER OF SHARES
  OUTSTANDING:
  Primary                                       10,338,295          10,493,628 

  Fully diluted                                 10,338,295          10,493,628 

See notes to consolidated financial statements.
</TABLE>

HAUSER CHEMICAL RESEARCH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
                                                                                        July 31,            April 30,
ASSETS                                                                                  1995                1995
                                                                                        (unaudited)
CURRENT ASSETS:
  <S>                                                                                   <C>                 <C>
  Cash and cash equivalents                                                             $3,812,177          $4,244,874 
  Held-to-maturity investments                                                          16,944,663          20,442,944
  Accounts receivable, less allowance for doubtful accounts:
      July 31, 1995, $299,850; April 30, 1995, $217,130                                 5,355,843           5,507,482 
  Income taxes receivable                                                               3,181,030           2,230,880
  Inventories and inventoried costs, current                                            6,330,217           6,094,525
  Prepaid expenses and other                                                            694,634             522,470
  Deferred income tax assets                                                            395,492             395,492
        Total current assets                                                            36,714,056          39,438,667

PROPERTY AND EQUIPMENT
  Land and buildings                                                                    7,045,596           7,040,283
  Lab and processing equipment                                                          26,791,755          25,135,330
  Furniture and fixtures                                                                5,274,965           5,426,698
        Total property and equipment                                                    39,112,316          37,602,311
  Accumulated depreciation and amortization                                             (12,487,293)        (11,890,357)
        Net property and equipment                                                      26,625,023          25,711,954

OTHER ASSETS:
  Held-to-maturity investments                                                          3,991,875           6,991,875
  Goodwill, less accumulated amortization: 
       July 31, 1995, $342,707; April 30, 1995, $281,784                                3,561,228           1,464,821
  Inventories, non-current                                                              9,521,717           7,697,917
  Deposits and other                                                                    364,216             169,933
  Other investments                                                                     1,100,000           1,100,000
        Total other assets                                                              18,539,036          17,424,546

TOTAL                                                                                   $81,878,115         $82,575,167


LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                                      $767,117            $1,268,006
  Notes payable                                                                         649,684
  Accrued salaries and wages                                                            768,592             302,014
  Accrued vacation pay                                                                  523,321             213,955
  Other current liabilities                                                             621,833             498,202
        Total current liabilities                                                       3,330,547           2,282,177

LONG TERM LIABILITIES                                                                   204,490             111,078

DEFERRED INCOME TAXES                                                                   2,790,453           2,790,453


STOCKHOLDERS' EQUITY:
  Common stock, $.001 par value; 50,000,000 shares
     authorized; shares issued: 
    July 31, 1995, 10,539,668; April 30, 1995, 10,526,079                               10,540              10,526
  Additional paid-in capital                                                            59,280,411          59,266,173
  Treasury stock, at cost
    July 31, 1995, 201,100 shares; 
    April 30, 1995, 181,100 shares                                                      (1,054,813)         (966,062)
  Retained earnings                                                                     17,316,487          19,080,822
        Net stockholders' equity                                                        75,552,625          77,391,459

TOTAL                                                                                   $81,878,115         $82,575,167

See notes to consolidated financial statements.
</TABLE>

HAUSER CHEMICAL RESEARCH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Unaudited

<TABLE>
                                                                                        Three months ended July 31,

                                                                                        1995                1994
CASH FLOWS FROM OPERATING ACTIVITIES:
  <S>                                                                                   <C>                 <C>
  Net income (loss)                                                                     $(1,764,335)        $70,042 
  Adjustments to reconcile net income (loss) to net cash
    provided by (used in) operating activities:
  Depreciation and amortization                                                         795,333             850,645 
  Loss on disposal of assets                                                            176,004 
  Amortization of investment premium (discount)                                         77,610              (122,398)
  Deferred income tax benefit                                                                               (171,545)
  Change in assets and liabilities, net of effects from
    the purchase of Shuster and Ironwood:
       Accounts receivable                                                              1,163,835           4,225,037 
       Income taxes receivable                                                          (950,150)           210,650 
       Inventories and inventoried costs                                                (2,059,492)         (4,172,204)
       Prepaid expenses and other                                                       (94,370)            79,442 
       Accounts payable                                                                 (657,865)           (364,739)
       Other accrued liabilities                                                        596,023             1,063,975 
Net cash provided by (used in) operating activities                                     (2,717,407)         1,668,905 

CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                                                   (1,225,174)         (2,157,878)
  Deposits and other                                                                    (6,351)             (984)
  Purchase of Shuster's common stock, net of cash acquired                              (2,827,153)
  Purchase of Ironwood net assets                                                                           (1,045,053)
  Purchase of investments                                                                                   (5,257,139)
  Maturity of investments                                                               6,420,671           3,000,000 
Net cash provided by (used in) investing activities                                     2,361,993           (5,461,054)

CASH FLOWS FROM FINANCING ACTIVITIES:
  Proceeds from notes payable                                                                               165,000 
  Repayments of notes payable                                                           (2,784)             (1,307,778)
  Proceeds from issuance of common stock                                                14,252              78,169 
  Purchase of treasury stock                                                            (88,751)
Net cash used in financing activities                                                   (77,283)            (1,064,609)

Net decrease in cash and cash equivalents                                               (432,697)           (4,856,758)

Cash and cash equivalents, beginning of period                                          4,244,874           9,401,404 

Cash and cash equivalents, end of period                                                $3,812,177          $4,544,646 

See notes to consolidated financial statements.
</TABLE>


HAUSER CHEMICAL RESEARCH, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
AS OF JULY 31, 1995 AND APRIL 30, 1995 AND FOR THE THREE MONTH
PERIODS ENDED JULY 31, 1995 AND 1994

1.    BASIS OF PRESENTATION
      In the opinion of management, the accompanying unaudited
      financial statements contain all adjustments (consisting
      only of normal recurring adjustments) necessary to
      present fairly the Company's financial  position as of
      July 31, 1995 and results of its operations and cash
      flows for the periods ended July 31, 1995 and 1994.  The
      year end balance sheet data was derived from audited
      financial statements, but does not include all
      disclosures required by generally accepted accounting
      principles.  Certain fiscal 1995 amounts have been
      reclassified to conform to the fiscal 1996 presentation.

      Effective July 21, 1995, the Company acquired all of the
      stock of Herbert V. Shuster, Inc. (Shuster) for
      approximately $4,200,000 in cash and notes plus a
      performance based earnout for meeting certain milestones
      over the next five years.  Shuster is a consumer research
      and development firm and contract laboratory with
      headquarters in the Boston area and another facility in
      the Atlanta area.  The following pro forma unaudited
      consolidated results of operations for the three months
      ended July 31, 1995 and July 31, 1994 have been prepared
      assuming the Shuster acquisition occurred as of the
      beginning of each quarter.  The pro-forma unaudited
      revenues for Shuster used for this comparison were
      $1,459,268 for the three months ended July 31, 1995 and
      $1,695,107 for the three months ended July 31, 1994. 
      These pro forma results have been prepared for
      comparative purposes and do not purport to be indicative
      of results of operations which actually would have
      resulted had the combination been in effect on the dates
      indicated, or which may result in the future.
<TABLE>
                                               Three months ended July 31,
                                               1995                1994

      <S>                                      <C>                 <C>
      Revenues                                 $5,023,760          $6,875,344
      Net income (loss)                        (1,789,693)         116,227
      Net income (loss) per share              $(0.17)             $0.01
</TABLE>
2.    ACCOUNTING POLICIES
      The accounting policies followed by the Company are set
      forth in Note 1 to the Company's financial statements in
      the Company's form 10-K filed for the year ended April
      30, 1995.

3.    INVESTMENTS
      The Company accounts for investments in accordance with
      Statement of Financial Accounting Standards No. 115,
      "Accounting for Certain Investments in Debt and Equity
      Securities" (SFAS 115).  SFAS 115 generally expands the
      use of fair value accounting for those securities but
      retains the use of the amortized cost method for
      investments in debt securities that the reporting
      enterprise has the positive intent and ability to hold to
      maturity.  Below is a table of held-to-maturity
      investments as of July 31, 1995:
<TABLE>
                                         Amortized           Unrealized          Unrealized           Market
Issues                                   Cost                Gains               Losses               Value
Maturities less than 1 year:
<S>                                      <C>                 <C>                 <C>                  <C>
U.S. Treasury Securities                 $9,976,350          $42,090             $75,860              $9,942,580
Mortgage Backed Securities               6,968,313           37,077              7,200                6,998,190
Total                                    16,944,663          79,167              83,060               16,940,770

Maturities 1-2 Years:                                                                   
Mortgage Backed Securities               1,993,750           28,750              650                  2,021,850
Municipal Securities                     1,998,125           13,440              18,125               1,993,440
Total                                    3,991,875           42,190              18,775               4,015,290

Total Investments                        $20,936,538         $121,357            $101,835             $20,956,060
</TABLE>

Below is a table of held-to-maturity investments as of April 30, 1995:
<TABLE>
                                         Amortized           Unrealized          Unrealized           Market
                                         Cost                Gains               Losses               Value
Issues
Maturities less than 1 year:
<S>                                      <C>                 <C>                 <C>                  <C>
U.S. Treasury Securities                 $ 8,974,779         $ 15,210            $(123,439)           $8,866,550
Mortgage Backed Securities               9,502,379           10,908              (55,513)             9,457,774
Municipal Securities                     1,965,786           0                   0                    1,965,786
Total                                    20,442,944          26,118              (178,952)            20,290,110

Maturities 1-3 Years:
U.S. Treasury Securities                 2,000,000           16,880              (21,250)             1,995,630
Mortgage Backed Securities               2,993,750           37,190              (12,050)             3,018,890
Municipal Securities                     1,998,125           6,880               (35,625)             1,969,380
Total                                    6,991,875           60,950              (68,925)             6,983,900
Total Investments                        $27,434,819         $87,068             $(247,877)           $27,274,010
</TABLE>

4.     INVENTORIES
       Inventories and inventoried costs are classified as follows:
<TABLE>
                                                             July 31,            April 30,
                                                             1995                1995    

       <S>                                                   <C>                 <C>
       Raw material and supplies                             $9,265,162          $7,662,412
       Work in process                                       5,407,802           5,618,219
       Finished goods                                        1,178,969           511,811

       Total inventories and inventoried costs               15,851,933          13,792,442

       Less non-current inventories and                                                               
       inventoried costs                                     9,521,717           7,697,917

       Current portion of inventories and
       inventoried costs                                     $6,330,216          $6,094,525
</TABLE>
      Inventories and inventoried costs as of April 30, 1995
      under the amended Bristol contract consist of bark
      awaiting processing in the amount of $2,633,209 for which
      the Company had received progress payments totalling
      $2,633,209.  In the quarter ended July 31, 1995, the
      Company returned to Bristol all such bark inventory, and,
      as of July 31, 1995, the Company held no Bristol
      inventories.

5.    LONG TERM LIABILITIES
      Long term liabilities consists of the following:
<TABLE>
                                                                          July 31,     April 30,
                                                                          1995         1995
      Note payable to former stockholders 
      of Shuster, with interest of 5.5%, 
      due and payable on July 19, 1996, 
      collateralized by a certificate of 
      <S>                                                                 <C>          <C>
      deposit for $582,349.                                               $544,697
      
      Note payable to bank with interest at 
      10.0% per annum, payable in monthly 
      installments including interest of $605 
      and due January 2025, collateralized by land.                       68,825       68,825

      Capital lease obligations for vehicles 
      and equipment with monthly payments ranging 
      from $199 to $3,061 and interest rates ranging 
      from 7.9% to 15.4%.                                                 163,396      73,172

      Other                                                               77,256

                                                                          854,174      141,997
      Less current portion, included in other 
      current liabilities                                                 649,684      30,919
      
      Long term liabilities                                               $204,490     $111,078
</TABLE>
6.    MAJOR CUSTOMER
      The Company recognized revenues of $566,348 or 14.0% of
      total revenues and $687,500 or 13.3% of total revenues
      from a major customer during the three months ended July
      31, 1995 and 1994, respectively.  In connection with a
      contract with another major customer, the Company
      recognized revenues of approximately $2,182,000 during
      the three months ended July 31, 1994, or 42% total
      revenues.

7.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
      Supplemental Cash Flow Information - The amounts paid by
      the Company for interest are as follows:
<TABLE>
                                        Three months ended
                                        July 31,
                                        1995          1994
      <S>                               <C>           <C>
      Interest                          $6,411        $23,071
</TABLE>

      Effective July 21, 1995, the Company acquired all of the
      stock of Shuster for $3,593,117 in cash and $621,953
      notes.

      The net assets purchased were as follows:
<TABLE>
      <S>                                             <C>
      Current assets                                  $1,855,954
      Property and equipment                          684,840
      Long-term assets and goodwill                   2,258,729
      Current liabilities                             (486,322)
      Long-term liabilities                           (98,131)
      Net assets                                      $4,215,070
</TABLE>
      Effective May 1, 1994, the company acquired substantially
      all the net assets of Ironwood Evergreens for $1,045,053. 
      The net assets purchased were as follows:
<TABLE>
      <S>                                             <C>
      Current assets                                  $1,381,660
      Property & equipment                            210,687
      Current liabilities                             (1,515,632)
      Long-term liabilities                           (178,645)
      Net assets (liabilities)                        $(101,930)
</TABLE>


Part 1, Item 2.  
Management's Discussion and Analysis of Financial Condition
and Results of Operations

OVERVIEW

The Company continued its transition to become a multi-
product, multi-customer manufacturer of special products from
natural sources in the first quarter of fiscal 1996 and began
to achieve a distribution of its revenue over broader product
areas.  For the three years prior to fiscal 1995,
substantially all of the revenue, profitability and cash flow
of the Company had come from the production and sale of
paclitaxel to Bristol-Myers Squibb Company (Bristol).  In
fiscal 1995, sales to Bristol amounted to only 27% of total
revenues as the Company made final shipments of paclitaxel to
Bristol under the terms of an amended contract which Bristol
chose not to renew.  The Company was not profitable in the
first quarter of fiscal 1996 and management does not expect
the Company to be profitable for the fiscal year ending April
30, 1996.

Management has implemented plans which are designed to return
the Company to profitability late in fiscal 1996 or early in
fiscal 1997.  These plans, particularly in the new product
areas, anticipate, among other factors, the attainment of
certain revenue levels, and minimal problems with early
production runs.  There can be no assurance of when
profitability will be attained.

Given the financial strength of the Company and its strong
liquidity position, the Company continues to evaluate
opportunities for acquisitions and investments to broaden its
market base. 

During the first quarter of fiscal 1996, the Company continued
to invest its time, energy and finances to develop its four
major product and service areas:  health care products, food
ingredients products, technical services, and secondary forest
products.  During fiscal 1995, management analyzed its cost
structure and reduced costs to minimize operating losses by
restricting salaries, benefits, and travel and controlling
other specific expenses as appropriate.  These cost controls
are still in place.

As part of its dedicated effort to find new sources of revenue
through business development activities with new customers or
by acquisition, the Company acquired all of the stock of
Herbert V. Shuster, Inc. (Shuster) effective July 21, 1995 for
approximately $4,200,000 in cash and notes plus a performance
based earnout for meeting certain milestones over the next
five years.  Shuster is a consumer research and development
firm and contract laboratory with headquarters in the Boston
area and another facility in the Atlanta area.  See further
discussion under Technical Services section. 

The following is a discussion of the Company's activities in
its four product and service areas.

HEALTH CARE PRODUCTS

Pharmaceuticals - On May 12, 1994, the Company entered into a
multi-year, world-wide and mutually exclusive Supply Agreement
(Supply Agreement) with American Home Products Company
(American Home Products), formerly American Cyanamid Company
(Cyanamid), whereby the Company will supply bulk paclitaxel to
American Home Products.  On that same day, the Company and
American Home Products also entered into a Research and
Development Collaboration Agreement (R&D Agreement) which
calls for the two companies to cooperate in the research and
development of new products derived from naturally or
synthetically produced taxanes.  The research and development
program, which has an initial two year term, is to be funded
by American Home Products.  The R&D Agreement provides that
American Home Products is granted an option to sell
exclusively throughout the world any product which arises from
the research and development program and which is to be used
in the field of drug therapy for human disease.   The R&D
Agreement contemplates that the Company will supply American
Home Products with any such bulk products and will receive
milestone and royalty payments as American Home Products
further develops and sells the finished products.

The R&D Agreement calls for the two companies to cooperate in
a mutually exclusive manner in a research and development
program funded by American Home Products which is designed to
develop new products derived from naturally or synthetically
produced taxanes.  This program has an initial two (2) year
term which can be extended for up to five (5) additional years
by American Home Products.  Intellectual property resulting
from the research and development program will be jointly
owned.  The Company has the exclusive right to sell products
from the research and development program for use in other
fields, paying a royalty to American Home Products.  Either
party many terminate the agreement upon the occurrence of
uncured breaches of contract or the insolvency of the other
party.

The Company will supply the bulk paclitaxel to American Home
Products on a two-part formula price basis which includes an
initial Transfer Payment upon transfer of the bulk paclitaxel
and a subsequent Final Payment when American Home Products
sells Finished Products which contain the bulk paclitaxel. 
The contract calls for certain minimum purchase requirements
(which are subject to variation based upon the Company's
production costs) which are expected to result in aggregate
Transfer Payments of approximately $8,000,000 during the first
three years.

The contract also called for a $1,000,000 payment upon
execution of the agreements (which payment was received by the
Company in May 1994) and advance purchase payments aggregating
up to $3,400,000 contingent upon the following milestones
being met:  the first filing of a product registration for a
Finished Product anywhere in the world, first approval of such
product registration, the first filing of such a product
registration in the United Kingdom, Germany or France, upon
approval of such foreign product registration, upon filing of
such product registration with the FDA and upon approval of
such FDA registration.  Amounts otherwise payable to the
Company by American Home Products as Final Payments when
Finished Products are sold will be reduced by as much as 30%
in any calendar year until such reductions aggregate advance
purchase payments previously made.

The Company believes that activities under its agreement with
American Home Products are proceeding favorably and that
American Home Products is actively pursuing approvals to sell
paclitaxel in countries other than the United States.  While
difficult to predict the exact timing, management expects that
approval to sell paclitaxel in some countries will be obtained
by American Home Products in the latter part of fiscal 1997.

During the first quarter of fiscal 1996, the minimum shipments
of paclitaxel provided for in the Supply Agreement were made
to American Home Products totalling $378,848 and at least
continued minimal requirements for sales are expected to be
fulfilled in fiscal 1996.

The Company produced sanguinaria extract during the first
quarter of fiscal 1996.  Sanguinaria extract, a natural
antimicrobial, is the key ingredient in Colgate's Viadent(registered trademark)
toothpaste and oral rinse products.  No shipments were made in
the quarter ended July 31, 1995 due to technical difficulties
in the manufacturing process, but management expects shipments
to commence in the second quarter of fiscal 1996.  Production
will continue into fiscal 1996 as the Company will ship
sanguinaria extract to complete a fifteen month purchase
order.

During the third quarter of fiscal 1995, the Company entered
into a research agreement with Dovetail Technologies, Inc.
(Dovetail) to work on a novel class of compounds which
demonstrate potent anticancer activity in animal studies.  The
Company will provide chemistry and manufacturing services for
Dovetail's proprietary compounds.  These compounds, called
Vitalethenes(trademark), appear to reinforce the body's inherent ability
to fight cancer by enhancing the body's immune system.  They
may also amplify vaccine response to increase protection from
future infections.  Even at high doses of these compounds,
toxicity has not yet been identified.  They have produced a
dramatic anticancer response in early laboratory studies. 
During the first quarter of fiscal 1996, the Company did
perform research work on these compounds.  The Company does
not expect to recognize revenues on this research project in
the foreseeable future.

Nutraceuticals - The Company initiated the technical and
business plans necessary to enter the nutraceuticals market
during fiscal 1995 and made initial minimal sales in the first
quarter of fiscal 1996.  The term nutraceuticals is used to
identify the broad range of natural, healthful products that
are used to supplement the diet by increasing the total
dietary intake of important phyto-nutrients (nutrients derived
from plants).  The Company's current products include liquid
and dry herbal extracts of echinacea, valerian, ginseng,
goldenseal, chamomile, and ginkgo.  Management believes that
the Company's expertise in the production of special products
from natural sources and extensive regulatory experience
position it well in this market area.  However, management is
unable to predict the amount of future revenues from these
nutraceutical products.

FOOD INGREDIENT PRODUCTS

Natural Flavor Extracts - In July 1994, the Company and
Tastemaker, the fifth largest flavor producer in the world,
renewed a strategic alliance for the joint development and
manufacture of natural flavor extracts.  The Company is
primarily responsible for the development and manufacture of
the products.  Tastemaker will assist in the development
through its marketing knowledge and expertise and is primarily
responsible for selling the products to final customers. 
Sales and profits were below expectations in the quarter ended
July 31, 1995 due to lower than expected requirements from the
final customers.  Management intends to continue to invest in
natural flavor extracts with the belief that these products
can become significant to overall revenues.

Natural Food Additives - During the first quarter of fiscal
1996, the Company continued to develop natural food additive
products.  Food additives are products which perform a
function in foods, such as preservatives, stabilizers,
colorants, antioxidants, and nutritional additives.  The
Company's objective is to rapidly build a quality line of
products generating revenues and profits as a world leader in
the development and manufacture of natural food additives. 
Beta carotene is sold into the healthcare products and food
ingredients markets as a colorant, antioxidant and a
nutritional supplement.  The beta carotene market represents
$100 million in annual worldwide sales according to industry
sources.  In fiscal 1995, the Company established a joint
venture relationship with Cyanotech which will manufacture,
market and sell natural beta carotene.  In addition, the
Company developed rosemary extract products in fiscal 1995.
Rosemary extracts have been used for centuries to inhibit
oxidative deterioration of fats and oils, however, widespread
use has been limited by excessive flavor and odor of rosemary
extracts.  The Company's patent pending extraction process
minimizes rosemary's flavor and odor components while
preserving its natural oxidative stabilization
characteristics.

No revenue from natural food additive products was recognized
in the first quarter of fiscal 1996.  Because of increased
interest expressed by potential customers, shipments are
expected to commence later in fiscal 1996.  However,
management is unable to predict the timing and amount of
future revenues from natural food additive products.

SECONDARY FOREST PRODUCTS

The Company acquired substantially all of the net assets of
Ironwood Evergreens, Inc. (Ironwood) in May 1994 through its
wholly-owned subsidiary Hauser Northwest.  During the first
quarter of fiscal 1996, the Company was successful in
expanding its purchasing operations into Canada and Oregon,
thereby providing a consistent supply of raw materials for
customer demands at a reduced cost.  The Company also saw an
expansion of its domestic western and Christmas greens market. 
The Company continues to negotiate with potential vendors to
expand its product base to include dried and preserved
tropical products.  With emphasis in these strategic areas,
management believes that Ironwood can generate revenues and
profits in excess of its historical levels.  However, because
of uncertainty in the market place, volatility in weather
conditions and availability of raw materials, management is
unable to quantify the timing and amount of future revenues
and profitability, if any, of Ironwood. 

The acquisition of Ironwood enabled the Company to retain its
bark harvesting capabilities in the Northwest and incorporate
that seasonal activity into Ironwood's year-around operation,
thereby significantly reducing the cost of bark collection. 
During the first quarter of fiscal 1996, the Company completed
its annual harvest of Pacific Yew bark for the manufacture of
bulk paclitaxel.  Management believes that there is now enough
quality bark in inventory to meet the production requirements
of the American Home Products agreement for the next two
years.  

TECHNICAL SERVICES

The Technical Services Division, which provides applied
problem solving and contract laboratory services in the fields
of chemistry, engineering and material science, experienced
revenue growth in the first quarter of fiscal 1996 of 145
percent over the same period last year.  Approximately 50% of
this growth results from the acquisition of Shuster; the
remainder results from increased customer demand and the
Company's expansion of laboratory services into the natural
products market.  Management believes that demand for
technical services provided by the Company will continue and
expects this service group to continue to grow.

As part of its dedicated effort to find new sources of revenue
through business development activities with new customers or
by acquisition, the Company acquired all of the stock of
Shuster effective July 21, 1995.  Shuster is a consumer
research and development firm and contract laboratory with
headquarters in the Boston area and another facility in the
Atlanta area.  Shuster has developed a reputation over a forty
period for delivering high quality services and has been a
profitable operation with unaudited revenues in excess of
$6,000,000 and net income of $192,000 for its fiscal year
ended December 31, 1994.

Shuster has a clientele of nationally known companies and
operates in areas that are complementary to the services
provided by the Company's own laboratories.  Areas of
expertise for Shuster include food product development,
household chemical formulation, nutritional supplement and
pharmaceutical assay and formulation, microbiological assay,
FDA labeling and a significant number of related areas focused
around consumer products.  The acquisition increases the
Company's presence in East Coast markets and in markets
related to current manufacturing activities in Health Care
products and Food Ingredients.  Management expects this area
to continue growing and provide significant revenues and
earnings over the next few years.  Combining Shuster with the
Company's laboratories has created an expanded Technical
Service profit center which also enhances the Company's direct
contact with the marketplace, and continues the Company's
tradition of using Technical Services as an important method
for generating new business opportunities in the markets the
Company serves.


Shuster will operate as a wholly-owned subsidiary under its
own name and key Shuster executives will continue to manage
the new subsidiary under the direction of Company management.

RESULTS OF OPERATIONS:
<TABLE>
Statement of Operations
                                                      Three months ended
                                                      July 31,
                                                      1995                1994
<S>                                                   <C>                 <C>
Total revenues                                        $4,034,174          $5,180,237
Gross margin                                          (712,233)           1,858,452
Research and development                              466,895             532,157
Sales and marketing                                   319,982             154,352
General and administrative                            1,559,545           1,391,555
Loss from operations                                  (3,058,655)         (219,612)
Net income (loss)                                     (1,764,335)         70,042
Earnings (loss) per share-fully diluted               $     (.17)         $       .01
Number of shares - fully diluted                      10,338,295          10,493,628
</TABLE>
<TABLE>
Percentage Relationship to Total Revenues
                                                      Three months ended  
                                                      July 31,
                                                      1995                1994
<S>                                                   <C>                 <C>
Total revenues                                        100.0%              100.0%
Gross margin                                          (17.7%)             35.9%
Research and development                              11.6%               10.3%
Sales and marketing                                   7.9%                3.0%
General and administrative                            38.7%               26.9%
Loss from operations                                  (75.8%)             (4.2%)
Income (loss) before taxes                            (67.3%)             2.1%
Net income (loss)                                     (43.7%)             1.4%
</TABLE>
<TABLE>
Balance Sheet
                                                      July 31,            April 30,
                                                      1995                1995
<S>                                                   <C>                 <C>
Working capital                                       $33,383,509         $37,156,490
Property and equipment, net                           26,625,023          25,711,954
Total assets                                          81,878,115          82,575,167
Net stockholder's equity                              75,552,625          77,391,459
</TABLE>

REVENUES.  Total revenues decreased 22.1% to $4,034,174 in the
first quarter of fiscal 1996 from $5,180,237 in the first
quarter of fiscal 1995 primarily due to decreased revenues of
bulk paclitaxel to Bristol, offset by increases in technical
services and secondary forest products revenues.

                              

A breakout of the Company's revenues by product and service groupings is 
as follows:
<TABLE>
                                                                           Three months ended  
                                                                           July 31,
Revenues                                                                   1995                1994
Healthcare products (includes pharmaceuticals 
<S>                                                                        <C>                 <C>
   and nutraceuticals)                                                     $643,993            $2,946,003
Food ingredients products (includes flavors 
   and food additives)                                                     345,644             641,128
Technical services (includes chemistry, engineering
   R&D third party services, and Shuster)                                  1,589,822           650,168
Secondary forest products (includes Ironwood)                              1,454,695           942,938
                                                                           $4,034,174          $5,180,237
</TABLE>

Healthcare products:
Revenues from paclitaxel for the first quarter of fiscal 1996
decreased 78.4% compared to the first quarter of fiscal 1995. 
This decrease was due to the cessation of sales of paclitaxel
to Bristol.  Revenues from Bristol in the first quarter of
fiscal 1995 were $2,181,851 or 42% of total revenues.  The
shipments of paclitaxel in the first quarter of fiscal 1996
were to American Home Products under the Supply Agreement. 
Revenues from American Home Products were $566,348 in the
first quarter of fiscal 1996 or 14.0% of total revenues and
$687,500 or 13.3% of total revenues in the first quarter of
fiscal 1995.

Food ingredients products:
Flavors revenues in the first quarter of fiscal 1996 decreased
46.1% compared to the first quarter of fiscal 1995.  The
decline is primarily related to slower than expected
requirements for products by final customers.  The Company's
flavor extracts are used primarily in new product
introductions and as a result will experience volatility
related to the progress of these new products in the market. 
Management still believes there is a market for natural flavor
extracts and plans to work closely with Tastemaker to increase
revenues.  The extent to which these efforts will be
successful is unknown at this time.

Technical services:
Technical services revenues increased to $1,589,822 in the
first quarter of fiscal 1996 compared to $650,168 in the same
quarter of fiscal 1995, an increase of 145%.  This reflects a
decreasing use of technical services personnel in paclitaxel
activities and a redirection and emphasis of their efforts to
revenue producing activities for outside clients including the
expansion of laboratory services into the natural products
market.  Also included in the first quarter of fiscal 1996 is
revenue from Shuster of $469,682.  For comparative purposes,
Shuster's unaudited revenues in the same period last year were
$527,762.

Secondary forest products:
Revenues from secondary forest products in the first quarter
of fiscal 1996 were $1,454,695, an increase of 54.3% over the
first quarter of fiscal 1995.  This increase reflects the
Company's success in expanding its purchasing operations in
Canada and Oregon, thereby providing a consistent supply of
raw materials for customer demands, and an expansion of the
domestic western and Christmas greens market.

GROSS MARGIN.  Gross margin in the first quarter of fiscal
1996 was negative 17.7% of total revenues as compared to 35.9%
in the same quarter of fiscal 1995.  The reduction is the
result of the significantly reduced revenues of paclitaxel
from Bristol.  Revenue generating products in the first
quarter of fiscal 1996, including paclitaxel to American Home
Products, food flavorings, secondary forest products and
technical services all yield significantly lower margins than
the sale of paclitaxel to Bristol.  Also fixed manufacturing
costs contributed to the negative gross margin because of
excess capacity.  During the first quarter of fiscal 1996, the
Company redeployed certain production facility assets in
connection with the Company's transition to a multi-product,
multi-customer manufacturer of special products from natural
sources.  As a result, certain remaining costs for assets
being redeployed totalling $176,004 were expensed.  Management
expects gross margins to remain lower than historical levels
for the foreseeable future, due primarily to the end of
revenues from the amended Bristol contract which carried a
significantly higher gross margin.

OPERATING EXPENSES.  Research and development expenses were
$466,895 in the first quarter of fiscal 1996 compared to
$532,157 in the first quarter of fiscal 1995.  The slight
decrease in research and development costs in the first
quarter of fiscal 1996 was related to the cessation of the
Bristol contract.  The Company intends to actively pursue
research and development efforts and these costs are likely to
increase in future periods.

Sales and marketing expenses increased $165,600 in the quarter
ended July 31, 1995 compared to the same period in the
previous year.  Sales and marketing expenses from Shuster
accounted for $116,425 of the increase.  The remaining
increase of $49,175 represents the Company's increased efforts
to market new products, particularly in the areas of
nutraceuticals and food additives.

General and administrative expenses were $1,559,540 in the
first quarter of fiscal 1996 compared to $1,391,555 in the
first quarter of fiscal 1995.  Included in the quarter ended
July 31, 1995 is $145,741 from Shuster and $132,599 of certain
departmental expenses previously classified as cost of sales. 
Excluding Shuster and the reclassification of these expenses,
general and administrative expenses in the first quarter of
fiscal 1996 were $1,281,205, a decrease of 7.9% as compared to
the same period last year.  This decrease of $110,350 was
offset by an increase in general and administrative expenses
at Ironwood of $45,753 due to required support costs for
anticipated growth.  General and administrative expenses as a
percent of revenues increased to 38.7% in the first quarter of
fiscal 1996 from 26.9% in the first quarter of fiscal 1995 due
to decreased revenues.  The Company continues to evaluate
opportunities to reduce general and administrative costs where
appropriate.

INTEREST INCOME.  Interest income was $350,581 in the first
quarter of fiscal 1996 compared to $352,130 in the same
quarter of fiscal 1995, because of lower funds available for
investment offset by higher interest rates.

                                      


LIQUIDITY AND CAPITAL RESOURCES

GENERAL.  Total cash and cash equivalents plus short-term and
long-term investments were $24,748,715 at July 31, 1995
compared to $31,679,693 at April 30, 1995. The decrease is due
primarily to expenditures for the harvesting of Company
Pacific Yew bark, the acquisition of Shuster, capital
expenditures, raw material purchases for new product areas,
and other general working capital requirements.  During the
first quarter of fiscal 1996, the seasonal nature of bark
harvesting operations required a higher use of cash than is
expected in the remaining quarters of fiscal 1996.  The
Company had a line of credit totalling $1,500,000 which
expired in September 1994.  The Company had made limited use
of that line of credit since the public offerings in fiscal
years 1992 and 1993.  In connection with the acquisition of
Ironwood in May 1994, the Company assumed obligations under
two existing bank revolving lines of credit totaling
approximately $1,300,000.  Amounts outstanding under these
lines of credit were repaid by the Company in October 1994. 
The Company believes that cash reserves and funds generated
from operations will be sufficient to fund the Company's
operations through at least the next twelve months. 

The Company believes that its long-term liquidity position is
strong.  The maturities of the Company's investments, which
generally do not extend beyond two years, are staggered such
as to allow the Company to access the funds upon their
maturation in a manner to allow the Company to meet its
obligations as they are expected to become due.

WORKING CAPITAL.  Working capital as of July 31, 1995 was
$33,383,509 compared to $37,156,490 as of April 30, 1995. 
Accounts receivable decreased to $5,355,843 as of July 31,
1995 compared to $5,507,482 as of April 30, 1995 primarily due
to collections on prior receivables related to final
paclitaxel revenues as the Bristol contract was completed. 
Inventories have increased as the Company has harvested yew
bark for future use and input some of the bark to the
production of paclitaxel for future sale.  In addition, the
Company has a substantial inventory of taxanes available for
sale in the future.  Non-current inventories reflect the
portion of each of these inventories which is not expected to
be sold in the next twelve months.

PROPERTY AND EQUIPMENT.  Purchases of property and equipment
the first quarter of fiscal 1996 totalled $1,225,174.  This
was principally comprised of equipment purchased for the
production of rosemary.

SEASONALITY.  The Company's operations have previously been
subject to seasonality due to the concentration of bark
collection revenues for Bristol in the summer months when the
bark is easiest to collect.  Because of this concentration,
total revenues had historically been higher in the first and
second quarter of each fiscal year but, because of the lower
gross margin associated with bark collection compared to
processing of natural products, the gross margins in the first
and second quarters had historically been lower than those
normally experienced in the other two quarters of the fiscal
year.  Beginning in fiscal 1995, and in the future, although
the Company may be collecting bark for its own use, bark
revenue will no longer be recognized.  Thus the effect of this
seasonal activity on the results of operations will be
significantly diminished.

Ironwood's results from operations are expected to be
strongest in the third and fourth quarters because of the
nature of the decorative forest products business.

Additionally, the Company has experienced seasonality in its
flavors product line primarily in advance of the demand for
summer beverages, in which most of its products are used.



                                      


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