<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 1996.
Commission File Number 33-7106-A
---------
NATURADE, INC.
--------------
(Exact name of registrant as specified in its charter)
DELAWARE 23-23442709
------------ -----------------
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
7110 East Jackson Street, Paramount, California 90723
-----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(310) 531-8120
--------------
(Registrant's telephone number, including area code)
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
------ ------
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by court.
Yes X No
------ ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate by number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. 2,593,005 shares as of
June 30, 1996.
1
<PAGE>
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 1996
TABLE OF CONTENTS
-----------------
PAGE NO.
-------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position at 3
June 30, 1996 (unaudited) and September
30, 1995 (audited).
Statements of Operations for the three and nine 4
month periods ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited).
Statements of Cash Flows for the nine month 5
periods ended June 30, 1996 (unaudited)
and June 30, 1995 (unaudited).
Notes to Financial Statements. 6
Item 2. Management's Discussion and Analysis of 7
Financial Condition and Results of Operation.
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Statements of Financial Position
ASSETS
--------------
June 30, 1996 September 30, 1995
(Unaudited) (Audited)
Current assets:
Cash $112,804 $116,444
Accounts receivable 901,309 664,816
Inventories 1,566,481 1,095,975
Prepaid expenses and other 112,282 189,826
Available for sale security 176,312 149,188
Deferred income taxes 73,150 84,000
---------- ----------
Total current assets 2,942,338 2,300,249
Property and equipment 2,225,496 2,182,535
Intangible assets 151,629 162,965
Investment in joint venture 55,000 71,000
Other assets 104,213 104,026
---------- ----------
Total assets $5,478,676 $4,820,775
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
--------------------------------------
Current liabilities:
Notes payable $847,974 $415,111
Current installments of
long-term debt 168,750 304,599
Accounts payable 716,765 300,230
Accrued expenses 291,651 326,140
Income tax payable 21,718 21,432
---------- ----------
Total curent liabilities 2,046,858 1,367,512
---------- ----------
Long-term debt, excluding current
installments 2,437,714 2,555,675
---------- ----------
Stockholders' equity:
Common stock; .0001 par value; 50,000,000 shares
authorized, 2,593,005 issued and
outstanding (2,538,461 at
September 30, 1995) 259 254
Common stock to be issued - 100,000
Additional paid-in capital 229,363 107,420
Retained earnings 705,495 647,201
Unrealized gain on security available
for sale, net 58,987 42,713
---------- ----------
Total stockholders' equity 994,104 897,588
---------- ----------
Total liablitities and
stockholders' equity $5,478,676 $4,820,775
---------- ----------
---------- ----------
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
NATURADE, INC.
Statements of Operations
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1996 June 30, 1995 June 30, 1996 June 30, 1995
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $3,064,949 $2,500,666 $7,053,884 $7,615,580
Cost of sales 1,584,958 1,239,718 3,582,206 3,937,240
-------------- -------------- -------------- -------------
Gross profit 1,479,991 1,260,948 3,471,678 3,678,340
Selling, general and
administrative expenses 1,081,668 913,889 3,105,667 2,808,911
-------------- -------------- -------------- -------------
Operating income 398,323 347,059 366,011 869,429
Other (expenses):
Miscellaneous, net 5,278 (26,405) (31) (12,522)
Interest expense (88,718) (93,099) (268,685) (150,787)
-------------- -------------- -------------- -------------
Earnings before income tax
expense 314,883 227,555 97,295 706,120
Income tax expense 126,000 50,000 39,000 160,000
-------------- -------------- -------------- -------------
Net Income $188,883 $177,555 $58,295 $546,120
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
Net Income per common
share $0.07 $0.06 $0.02 $0.19
-------------- -------------- -------------- -------------
Shares used in computing net
earnings per common share 2,710,061 2,810,070 2,690,171 2,810,070
-------------- -------------- -------------- -------------
-------------- -------------- -------------- -------------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
NATURADE, INC.
Statements of Cash Flows
Nine Months Ended Nine Months Ended
June 30, 1996 June 30, 1995
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash used in operating activities ($52,991) ($53,570)
-------- --------
Cash flows used in investing activities:
Capital expenditures-Property and equipment (138,650) (729,931)
-------- --------
Cash flows used in financing activities:
Net borrowings under line of
credit agreements 432,863 170,258
Borrowings on long-term debt - 1,938,333
Principal payments under long-term debt (253,810) (1,240,770)
Proceeds from exercise of warrants 8,948 4,572
Purchase of common stock for retirement - (233,374)
-------- --------
Net cash provided by financing activities 188,001 639,019
-------- --------
Net (decrease) in cash (3,640) (144,482)
Cash at beginning of period 116,444 201,929
-------- --------
Cash at end of period $112,804 $57,447
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
NATURADE, INC.
Notes to Financial Statements
1. The results of operations for the interim periods shown in this report are
not necessarily indicative of results to be expected for the fiscal year.
In the opinion of management, the information contained herein includes all
adjustments necessary for fair presentation of the financial statements.
All such adjustments are of a normal recurring nature. These financial
statements do not include all disclosures associated with the Company's
annual financial statements and accordingly, should be read in conjunction
with such statements.
2. Inventories are stated at the lower of cost (weighted average) or market
(net realizable value); and consist of the following:
June 30, 1996 September 30, 1995
(Unaudited) (Audited)
Finished Goods $597,480 $382,908
Components 969,001 713,067
----------- -----------
TOTAL $ 1,566,481 $ 1,095,975
3. Depreciation of property and equipment is provided over the estimated
useful lives of the respective assets on the straight-line basis.
4. Research and development costs are included in expense when incurred.
5. Trademarks and copyrights are being amortized using the straight-line
method over a 17 year and 25 year period respectively.
6. Earnings per common and common equivalent share are computed by dividing
earnings by the weighted average number of common and common equivalent
shares outstanding during the periods presented. Primary and fully diluted
income per share are the same.
7. Income tax expense is recorded at the Company's estimated effective tax
rate after taking into account the available net operating loss
carryforward.
6
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
LIQUIDITY AND CAPITAL RESOURCES
The Company used cash of $52,991 in operating activities in the nine months
ended June 30, 1996. This decrease was mainly a result of an increase in
inventory of $470,506 and a corresponding increase in accounts payable and
accrued expenses of $382,046. This inventory increase was due to the Company's
new line of herbal products and initial purchases of its revised Aloe Vera 80
skin and hair care line.
The Company's working capital decreased from $932,737 at September 30, 1995
to $895,480 at June 30, 1996.
Cash used for capital expenditures during the nine months ended June 30,
1996 totaled $138,650, of which the majority was for a new roof on the Company's
facility and an upgrade to its computer system. Management anticipates capital
expenditures for the remainder of its September 30, 1996 fiscal year of less
than $25,000.
The Company's cash provided by financing activities of $188,001 for the
nine months ended June 30, 1996 was primarily the result of an increase in
borrowings under its open line of credit.
Management is of the opinion that the Company has sufficient business,
liquidity and capital resources to finance its operations.
RESULTS OF OPERATIONS
Total net sales for the third quarter ended June 30, 1996 increased
$563,848 or 22.5% compared to the same quarter last year. Total net sales for
the nine month period ended June 30, 1996 decreased $561,697 or 7.4% compared to
the same period last year. Of this amount, domestic sales of the Company's
brand products increased $828,104 or 50.1% and $1,093,940 or 23.6% for the third
quarter and first nine months, respectively. Sales to private label customers
increased $99,881 or 57.0% but decreased $750,874 or 48.7% for the third quarter
and first nine months respectively. Additionally, sales to international
customers decreased $364,136 or 54.0% and $904,763 or 62.5% for the third
quarter and first nine months respectively.
The decrease in private label sales was primarily due to a decision by one
of the Company's largest private label customers to discontinue the line of
products it was purchasing from the Company. The Company is continuing its
efforts to obtain new private label customers. However, due to the nature of
this business, there is no assurance that this can be attained.
For the last several years international sales were largely dependent upon
two significant customers; one in South Korea and one in Saudi Arabia. The
Company believes that the current decrease in sales was due to the customer in
South Korea adding additional competitive products from suppliers in other
countries, and the decrease in Saudi Arabia sales was due to that customer's
ongoing reorganization and delays in registering and repackaging new and
existing products.
In response to these decreases in international sales, the Company has
reorganized its international department and plans have been formulated to
aggressively seek new business in a number of countries, with the intention of
lessening reliance on its significant international customers.
Gross profit as a percentage of sales decreased 2.1% to 48.3% of sales for
the quarter ended June 30, 1996 from 50.4% for the same period last year and
increased 0.9% to 49.2% of sales for the nine months ended June 30, 1996 from
48.3% of sales for the same period last year. The decrease in the quarter was
primarily due to a large shipment of displays, which generally carry lower gross
margins.
7
<PAGE>
Operating expenses decreased 1.2% to 35.3% of sales for the quarter ended
June 30, 1996 from 36.5% for the same period last year, but increased 7.1% to
44.0% of sales for the nine months ended June 30, 1996 from 36.9% of sales for
the same period last year. The year to date increase is directly related to the
reduction in sales of private label and international business in addition to
increases in selling and marketing expenses as the Company increased its
advertising and promotion expenditures and added several key managers in the
sales department. The improvement in the third quarter is a result of the
increase in sales over the same quarter last year.
Interest expense for the nine months ended June 30, 1996 increased to
$268,685 from $150,787 for the same period last year. This was due primarily to
the Company's purchase on June 30, 1995 of the two-thirds interest in its
production, warehouse and office facilities from a deceased former major
shareholder of the Company.
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
Exhibit 27
No reports on Form 8-K have been filed during the quarter for which this
report is filed.
8
<PAGE>
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NATURADE, INC.
DATE: August 1, 1996 By /s/ Allan Schulman
-----------------------------
Allan Schulman
Chief Executive Officer
DATE: August 1, 1996 By /s/ Paul D. Shapnick
-----------------------------
Paul D. Shapnick
Chief Financial Officer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 112,804
<SECURITIES> 0
<RECEIVABLES> 901,309
<ALLOWANCES> 0
<INVENTORY> 1,566,481
<CURRENT-ASSETS> 2,942,338
<PP&E> 2,961,946
<DEPRECIATION> 736,450
<TOTAL-ASSETS> 5,478,676
<CURRENT-LIABILITIES> 2,046,858
<BONDS> 0
0
0
<COMMON> 259
<OTHER-SE> 993,845
<TOTAL-LIABILITY-AND-EQUITY> 5,478,676
<SALES> 7,053,884
<TOTAL-REVENUES> 7,053,884
<CGS> 3,582,206
<TOTAL-COSTS> 3,105,667
<OTHER-EXPENSES> 31
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268,685
<INCOME-PRETAX> 97,295
<INCOME-TAX> 39,000
<INCOME-CONTINUING> 58,295
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 58,295
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
