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 June 30, 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.
3,297,223 shares as of June 30, 1997.
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<PAGE>
FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 1997
TABLE OF CONTENTS
PAGE NO.
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position at June 30, 1997 3
(unaudited) and September 30, 1996 (audited)
Statements of Operations for the three and nine month
periods ended June 30, 1997 (unaudited) and
June 30, 1996 (unaudited) 4
Statements of Cash Flows for the nine month periods ended
June 30, 1997 (unaudited) and June 30, 1996 (unaudited) 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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<PAGE>
PART 1: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Statements of Financial Position
Assets
------
June 30, 1997 September 30, 1996
(Unaudited) (Audited)
Current assets:
Cash $ 302,008 $ 120,143
Accounts receivables 1,260,488 921,361
Inventories 2,730,968 1,333,535
Prepaid expenses 76,258 28,289
Deferred income taxes 138,000 138,000
---------- ----------
Total current assets 4,507,722 2,541,328
Available for sale security 203,438 128,573
Property and equipment 2,131,285 2,201,102
Intangible assets 1,177,669 147,851
Investment in joint venture 73,403 62,891
Other assets 47,892 78,490
---------- ----------
Total assets $8,141,409 $5,160,235
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Notes payable $1,104,613 $ 720,938
Current installments of long-term debt 193,605 181,783
Accounts payable 1,228,073 460,764
Accrued expenses 237,982 265,850
Income tax payable 272,321 32,342
---------- ----------
Total current liabilities 3,036,594 1,661,677
---------- ----------
Long-term debt, excluding current
installments 2,284,673 2,418,334
---------- ----------
Stockholders' equity:
Common stock; 0001 par value; 50,000,000
shares authorized, 3,297,223 issued
and outstanding (2,593,005 at
September 30, 1996) 330 259
Additional paid-in capital 1,494,329 236,263
Retained earnings 1,250,220 813,359
Unrealized gain on security available
for sale, net 75,263 30,343
---------- ----------
Total stockholders' equity 2,820,142 1,080,224
---------- ----------
Total liabilities and
stockholders' equity $8,141,409 $5,160,235
========== ==========
See accompanying notes to financial statements
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NATURADE, INC.
Statements of Operations
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $3,038,213 $3,064,949 $9,268,336 $7,053,884
Cost of sales 1,517,562 1,584,958 4,616,883 3,582,206
---------- ---------- ---------- ----------
Gross profit 1,520,651 1,479,991 4,651,453 3,471,678
Selling, general and
administrative expenses 1,386,422 1,081,668 3,699,189 3,105,667
---------- ---------- --------- ---------
Operating income 134,229 398,323 952,264 366,011
Other Income (expenses):
Miscellaneous, net 9,266 5,278 32,177 (31)
Interest expense (86,133) (88,718) (257,579) (268,685)
---------- ---------- --------- ---------
Earnings before income tax expense 57,362 314,883 726,862 97,295
Income tax expense 23,000 126,000 290,000 39,000
---------- ---------- --------- ---------
Net income $ 34,362 $ 188,883 $ 436,862 $ 58,295
========== ========== ========= =========
Net income per common and
common equivalent share $ 0.01 $ 0.07 $ 0.15 $ 0.02
---------- ---------- --------- ---------
Shares used in computing net
earnings per common and
common equivalent share $3,182,018 $2,710,061 $3,011,687 $2,690,171
========== ========== ========== ==========
See accompanying notes to financial statements.
</TABLE>
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NATURADE, INC.
Statements of Cash Flows
Nine Months Nine Months
Ended Ended
June 30, 1997 June 30, 1996
(Unaudited) (Unaudited)
Net cash used in operating activities: ($ 229,328) ($ 52,991)
----------- ----------
Cash flows used in investing activities:
Capital expenditures-Property,
equipment and intangibles (54,861) (138,650)
----------- ----------
Cash flows used in financing activities:
Net borrowings under line of credit
agreements 383,675 432,863
Principal payments under long-term debt (121,839) (253,810)
Proceeds from exercise of warrants 204,218 8,948
----------- -----------
Net cash provided by financing activities 466,054 188,001
----------- -----------
Net increase (decrease) in cash 181,865 (3,640)
Cash at beginning of period 120,143 116,444
----------- -----------
Cash at end of period $302,008 $112,804
=========== ===========
See accompanying notes to financial statements
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<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, except
for the acquisition of certain Performance Nutrition, Inc. assets
recorded during June, 1997. See Item 6(b). 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, 1997 September 30, 1996
(Unaudited) (Audited)
----------- ---------
Finished Goods $ 1,058,916 $ 431,471
Raw Materials 1,672,052 902,064
------------ ---------
TOTAL $ 2,730,968 $ 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.
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.
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<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 June 30, 1997 are as follows:
Three Months Ended Nine Months Ended
June 30, 1997 June 30, 1997
Proforma (Unaudited) (Unaudited)
--------- ----------- ------------
Basic EPS $0.01 $0.16
Diluted EPS $0.01 $0.15
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This discussion contains "forward looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Although the
Company believes that the expectations reflected in such forward looking
statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Such forward looking
statements involve risks and uncertainties and actual results could
differ from those described herein and future results may be subject to
numerous factors, many of which are beyond the control of the Company.
Liquidity and Capital Resources
- -------------------------------
The Company used cash of $229,328 in operating activities in the nine
months ended June 30, 1997. The cash from operations was primarily used to
finance an increase in inventory of $1,397,434 which was partially offset by an
increase in accounts payable of $767,309. This inventory increase was required
to support the overall increase in the sales of the Company's products during
the first nine months of fiscal 1997 and the anticipation of increased future
sales. Additionally, accounts receivable increased $339,127 during this period
due to the sales increase and income taxes payable also increased $239,973 as a
result of increased earnings.
The Company's working capital increased from $879,651 at September 30,
1996 to $1,471,128 at June 30, 1997.
Cash used for capital expenditures during the first nine months totaled
$54,861. Management anticipates capital expenditures for the remainder of its
September 30, 1997 fiscal year of less than $50,000.
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<PAGE>
The Company's cash provided by financing activities of $466,054 for the
nine months ended June 30, 1997 was primarily the result of proceeds received
from the exercise of 204,218 Class A warrants and an increase in borrowings of
$400,000 under its open line of credit, reduced by principal payments of
long-term debt of $121,839.
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, 1997 decreased
$26,736 or less than 1% but increased $2,214,452 or 31.4% for the nine month
period ended June 30, 1997 compared to the same periods last year. Of this
amount, domestic sales of the Company's brand products increased $287,086 or
11.6% and $1,863,520 or 32.6% for the third quarter and first nine months
respectively. Additionally, sales to private label customers decreased $160,609
or 58.6% but increased $209,174 or 26.4% for the third quarter and first nine
months respectively. International sales decreased $153,213 or 49.4% but
increased $141,758 or 26.1% for the third quarter and first nine months
respectively.
The three and nine month increases in domestic brand products were
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.
The nine month increase 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 sales decrease of $160,609 during the current third quarter was
directly related to the conversion of Performance Nutrition products from a
private label category to domestic branded product sales.
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<PAGE>
The nine month 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. However, the sales decrease of $153,213 during the
current third quarter was primarily due to delays in complying with foreign
government regulations for orders received from new customers. The Company
anticipates the shipment of these orders in the fourth quarter.
Gross profit as a percentage of sales increased 1.7% to 50.0% of sales for
the quarter ended June 30, 1997 from 48.3% for the same period last year and
increased 1.0% to 50.2% of sales for the nine months ended June 30, 1997 from
49.2% of sales for the same period last year. The 1.7% increase for the quarter
ended June 30, 1997 was primarily due to the increase in domestic branded
product sales and the decrease in both private label and international sales,
which normally carry lower gross margins than branded products.
Operating expenses increased 10.3% to 45.6% of sales for the quarter ended
June 30, 1997 from 35.3% for the same period last year but decreased 4.1% to
39.9% of sales for the nine months ended June 30, 1997 from 44.0% of sales for
the same period last year. The increase for the quarter was primarily the result
of the decrease in sales of $26,736 and a corresponding increase of $304,753 in
selling, general and administrative expenses, which included $90,111 of expenses
attributable to the operation of the new Performance Nutrition division.
Conversely, the decrease in operating expenses for the comparable nine month
periods was primarily the result of the $2,214,452 increase in sales with a
corresponding increase of $593,522 in selling, general and administrative
expenses for these same periods.
Interest expense for the quarter ended June 30, 1997 decreased $2,586 and
$11,107 for the nine months ended June 30, 1997 compared to the same periods
last year.
Recent Development
- ------------------
On June 18, 1997, the Company filed Form 8-K reporting that on June 3,
1997, the Company consummated the acquisition (the "Acquisition") of certain
intangible assets, including trademarks, software and formulas (collectively,
the "Assets"), previously held by the Chapter 7 bankruptcy estate of
Performance Nutrition, Inc. The Company anticipates that in the short-term the
Acquisition will not have a material effect on its liquidity, capital resources
or results of operations. The Company will amortize the Assets over a 25-year
period.
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<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
- ---------------------------------------
(a) Exhibits
Exhibit 10.1-Employment Extension letter dated July 1, 1997 with
Allan Schulman, President
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
On June 18, 1997, the Company filed Form 8-K reporting the
acquisition of certain trademarks, software and formulas previously held by the
Chapter 7 Bankruptcy Estate of Performance Nutrition, Inc.
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<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.
--------------
(Registrant)
DATE: August 13, 1997 By /s/ Allan Schulman
--------------- ---------------------
Allan Schulman
Chief Executive Officer
DATE: August 13, 1997 By /s/ Paul D. Shapnick
--------------- -----------------------
Paul D. Shapnick
Chief Financial Officer
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<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE
----------- ------------------ -----
10.1 Employment Extension letter dated
July 1, 1997, with Alan Schulman,
President 13
27 Financial Data Schedule 14
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<PAGE>
EXHIBIT 10.1
(NATURADE LOGO)
INTERNAL MEMO
Date: July 1, 1997
To: Alan Schulman From: Mike Fernicola
Subject: Employment Contract
---------------------------------------------------------------------------
Dear Allan,
This is to confirm that the employment contract currently in
place between you and Naturade Inc. will be extended with all terms
and conditions until replaced with a new employment contract
acceptable to you.
/s/ Mike Fernicola
Mike Fernicola
Secretary
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 302,008
<SECURITIES> 0
<RECEIVABLES> 1,260,488
<ALLOWANCES> 0
<INVENTORY> 2,730,968
<CURRENT-ASSETS> 4,507,722
<PP&E> 2,827,481
<DEPRECIATION> 696,196
<TOTAL-ASSETS> 8,141,409
<CURRENT-LIABILITIES> 3,036,594
<BONDS> 0
0
0
<COMMON> 330
<OTHER-SE> 2,819,812
<TOTAL-LIABILITY-AND-EQUITY> 8,141,409
<SALES> 9,268,336
<TOTAL-REVENUES> 9,268,336
<CGS> 4,616,883
<TOTAL-COSTS> 3,699,189
<OTHER-EXPENSES> (32,177)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 257,579
<INCOME-PRETAX> 726,862
<INCOME-TAX> 290,000
<INCOME-CONTINUING> 436,862
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436,862
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
