UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from -------------------- to ------------------
Commission File Number 33-7106-A
NATURADE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 23-2442709
(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)
(562) 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 CORPORATE ISSUERS:
Indicate by number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 2,797,223 shares as of March
31, 1997.
Page 1 of 14
<PAGE>
FORM 10-Q
QUARTERLY REPORT
Quarter Ended March 31, 1997
TABLE OF CONTENTS
PAGE NO.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position at March 31, 1997 3
(unaudited) and September 30, 1996 (audited)
Statements of Operations for the three and six month 5
periods ended March 31, 1997 (unaudited) and March 31,
1996 (unaudited)
Statements of Cash Flows for the six month periods ended
March 31, 1997 (unaudited) and March 31, 1996 (unaudited) 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 9
and Results of Operations
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
Page 2 of 14
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Statements of Financial Position
[CAPTION]
Assets
------
March 31, 1997 September 30, 1996
(Unaudited) (Audited)
Current assets:
[S] [C] [C]
Cash $119,533 $120,143
Accounts receivable 1,452,853 921,361
Inventories 2,097,173 1,333,535
Prepaid expenses 72,875 28,289
Deferred income taxea 138,000 138,000
----------- ------------
Total current assets 3,880,434 2,541,328
Available for sale security 149,188 128,573
Property and equipment 2,153,226 2,201,102
Intangible assets 140,295 147,851
Investment in joint venture 68,113 62,891
Other assets 69,136 78,490
----------- -----------
Total assets $6,460,392 $5,160,235
=========== ===========
Liabilities and Stockholders' Equity
----------------------------------------
Current liabilities:
Notes payable $931,445 $720,938
Current installments of
long-term debt 192,724 181,783
Accounts payable 792,865 460,764
Accrued expenses 237,945 265,850
Income tax payable 260,542 32,342
----------- -----------
Total current liabilities 2,415,521 1,661,677
----------- -----------
Long-term debt, excluding current
installments 2,331,972 2,418,334
----------- -----------
Page 3 of 14
<PAGE>
Stockholders' equity:
Common stock; .0001 par value; 50,000,000 shares
authorized, 2,797,223 issued and
outstanding (2,593,005 at
September 30, 1996) 280 259
Additional paid-in capital 454,046 236,263
Retained earnings 1,215,860 813,359
Unrealized gain on security available
for sale, net 42,713 30,343
----------- -----------
Total stockholders' equity 1,712,899 1,080,224
----------- -----------
Total liabilities and
stockholders' equity $6,460,392 $5,160,235
=========== ============
See accompanying notes to financial statements.
Page 4 of 14
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<TABLE>
NATURADE, INC.
Statements of Operations
<CAPTION>
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
March 31, 1997 March 31, 1996 March 31, 1997 March 31, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $3,035,180 $2,145,088 $6,230,123 $3,988,935
Cost of sales 1,502,635 1,107,938 3,099,321 1,997,248
-------------- -------------- ------------- ------------
Gross profit 1,532,545 1,037,150 3,130,802 1,991,687
Selling, general and
administrative expenses 1,242,574 1,127,270 2,312,767 2,023,999
-------------- -------------- -------------- ------------
Operating income (loss) 289,971 (90,120) 818,035 (32,312)
Other Income(expenses):
Miscellaneous, net 7,116 321 22,911 (5,309)
Interest expense (90,462) (95,365) (171,446) (179,967)
-------------- -------------- -------------- --------------
Earnings before income tax
expense (benefit) 206,625 (185,164) 669,500 (217,588)
Income tax expense (benefit) 82,000 (74,000) 267,000 (87,000)
-------------- -------------- -------------- --------------
Net Income (Loss) $124,625 ($111,164) $402,500 ($130,588)
============== ============== ============== ==============
Net Income (Loss) per common and
common equivalent share $0.04 ($0.04) $0.14 ($0.05)
-------------- -------------- -------------- -------------
Shares used in computing net
earnings per common and
common equivalent share 2,973,811 2,823,968 2,934,106 2,835,673
============== ============== ============== =============
</TABLE>
See accompanying notes to financial statements.
Page 5 of 14
<PAGE>
NATURADE, INC.
Statements of Cash Flows
Six Months Ended Six Months Ended
March 31, 1997 March 31, 1996
(Unaudited) (Unaudited)
Net cash used in operating
activities ($323,011) ($108,847)
------------ -----------
Cash flows used in investing
activities:
Capital expenditures-
Property and equipment (16,903) (78,559)
------------ ------------
Cash flows used in financing activities:
Net borrowings under
line of credit agreements 210,507 314,889
Principal payments under
long-term debt (75,421) (180,577)
Proceeds from exercise
of warrants 204,218 8,948
------------ ------------
Net cash provided by
financing activities 339,304 143,260
------------ ------------
Net (decrease) in cash (610) (44,146)
Cash at beginning of period 120,143 116,444
------------- ------------
Cash at end of period $119,533 $72,298
============= ============
See accompanying notes to financial statements
Page 6 of 14
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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:
March 31, 1997 September 30, 1996
(Unaudited) (Audited)
Finished Goods $ 684,738 $ 431,471
Components 1,412,435 902,064
---------- -----------
TOTAL $2,097,173 $ 1,333,535
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 expenses 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. The FASB has issued statement No. 128 "Earnings Per Share (EPS)" which
becomes effective for periods ending after December 15, 1997. This
statement requires restatement of all prior period EPS data presented. This
statement simplifies the standards for computing earnings per share
previously found in APB Opinion No. 15 and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS
with the presentation of basic EPS and requires dual presentation of
diluted EPS on the face of the income statement for all entities with
complex capital structures.
Page 7 of 14
<PAGE>
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares
outstanding for the period. Diluted EPS is computed similarly to fully
diluted EPS pursuant to Opinion 15. The Company's proforma basic and diluted
EPS for periods ending March 31, 1997 is as follows:
Three Months Ended Six Months Ended
March 31, 1997 March 31, 1997
Proforma (Unaudited) (Unaudited)
--------- ----------------- ---------------
Basic EPS $0.04 $0.15
Diluted EPS $0.04 $0.14
Page 8 of 14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
The Company used cash of $323,011 in operating activities in the six
months ended March 31, 1997. The cash from operations was primarily used to
finance an increase in inventory of $763,638 which was partially offset by an
increase in accounts payable of $332,101. This inventory increase was required
to support the overall increase in the sales of the Company's products during
the first half of fiscal 1997 and the anticipation of increased future sales.
Additionally, accounts receivable increased $531,492 during this period due to
the sales increase and income taxes payable also increased $228,200 as a result
of increased earnings.
The Company's working capital increased from $879,651 at September 30,
1996 to $1,464,913 at March 31, 1997.
Cash used for capital expenditures during the first six months totaled
$16,903. Management anticipates capital expenditures for the remainder of its
September 30, 1997 fiscal year of less than $100,000.
The Company's cash provided by financing activities of $339,304 for the
six months ended March 31, 1997 was primarily the result of proceeds received
from the exercise of 204,218 Class A warrants and an increase in borrowings of
$200,000 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 second quarter ended March 31, 1997 increased
$890,092 or 41.5% and $2,241,188 or 56.2% for the six month period ended March
31, 1997 compared to the same periods last year. Of this amount, domestic sales
of the Company's brand products increased $548,786 or 30.1% and $1,576,434 or
48.7% for the second quarter and first six months respectively. Additionally,
sales to private label customers increased $248,197 or 117.2% and $369,783 or
71.5% for the second quarter and first six months respectively. International
sales also increased $93,109 or 78.4% and $294,971 or 126.5% for the second
quarter and first six months respectively.
The increases in domestic brand products was directly related to the
effective reorganization of the Company's sales force, as well as the positive
acceptance of its new product introductions. The Company is continuing to focus
on its sales efforts including promotions, marketing and key personnel.
Page 9 of 14
<PAGE>
The increases in private label sales was primarily due to the expanded
distribution of several key private label customers. The Company was also
successful in obtaining a number of new private label accounts, and is further
continuing its efforts to attract additional customers. However, due to the
nature of the private label business, there is no assurance that this can be
attained.
The increase in international sales was largely due to a significant
customer in Saudi Arabia completing its reorganization and product registrations
and repackaging which resulted in the resumption of its normal purchasing
patterns. Additionally, several other international customers also increased
their purchases.
Gross profit as a percentage of sales increased 2.2% to 50.5% of sales for
the quarter ended March 31, 1997 from 48.3% for the same period last year and
increased 0.4% to 50.3% of sales for the six months ended March 31, 1997 from
49.9% of sales for the same period last year. The 2.2% increase for the quarter
ended March 31, 1997 was primarily due to improved gross profits for private
label sales which normally carry lower gross margins.
Operating expenses decreased 11.7% to 40.9% of sales for the quarter ended
March 31, 1997 from 52.6% for the same period last year and also decreased 13.6%
to 37.1% of sales for the six months ended March 31, 1997 from 50.7% of sales
for the same period last year. These decreases were the result of increases in
sales of $890,092 and $2,241,188 for the second quarter and six month periods
ended March 31, 1997, respectively, compared to the same periods in the prior
fiscal year with corresponding increases of $115,304 and $288,768 in selling,
general and administrative expenses, for these same periods.
Interest expense for the quarter ended March 31, 1997 decreased $4,903 and
$8,521 for the six months ended March 31, 1997 compared to the same periods last
year.
Page 10 of 14
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
- ---------------------------------------
(a) Exhibits
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for which
this report is filed.
Page 11 of 14
<PAGE>
SIGNATURES
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.
(Registrant)
DATE: May 12, 1997 By /s/ Allan Schulman
---------------------------
Allan Schulman
Chief Executive Officer
DATE: May 12, 1997 By /s/ Paul D. Shapnick
----------------------------
Paul D. Shapnick
Chief Financial Officer
Page 12 of 14
<PAGE>
EXHIBIT INDEX
--------------
EXHIBIT NO. DESCRIPTION PAGE
- --------------------------------------------------------------------------
27 Financial Data Schedule 14
Page 13 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 119,533
<SECURITIES> 0
<RECEIVABLES> 1,452,853
<ALLOWANCES> 0
<INVENTORY> 2,097,173
<CURRENT-ASSETS> 3,880,434
<PP&E> 2,816,675
<DEPRECIATION> 663,449
<TOTAL-ASSETS> 6,460,392
<CURRENT-LIABILITIES> 2,415,521
<BONDS> 0
0
0
<COMMON> 280
<OTHER-SE> 1,712,619
<TOTAL-LIABILITY-AND-EQUITY> 6,460,392
<SALES> 6,230,123
<TOTAL-REVENUES> 6,230,123
<CGS> 3,099,321
<TOTAL-COSTS> 2,312,767
<OTHER-EXPENSES> (22,911)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,446
<INCOME-PRETAX> 669,500
<INCOME-TAX> 267,000
<INCOME-CONTINUING> 402,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,500
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
