<PAGE>
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, 1998
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
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(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. 5,303,516 shares as
of June 30, 1998.
1
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FORM 10-Q
QUARTERLY REPORT
Quarter Ended June 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART 1: FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at June 30, 1998 3
(unaudited) and September 30, 1997 (audited)
Statements of Operations for the three and nine month 5
periods ended June 30, 1998 (unaudited) and June 30,
1997 (unaudited)
Statements of Cash Flows for the nine month periods ended 6
June 30, 1998 (unaudited) and June 30, 1997 (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition 8
and Results of Operations
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
2
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Balance Sheets
Assets
--------
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,911,110 $ 157,585
Accounts receivable 1,386,390 1,404,660
Notes receivable 21,458 --
Related party advance 600,000 --
Income tax refund 100,000 --
Inventories 2,312,058 2,413,621
Prepaid expenses 132,446 42,149
Deferred income taxes 210,852 158,514
----------- -----------
Total current assets 7,674,314 4,176,529
Available for sale security -- 217,000
Property and equipment, net 2,039,122 2,111,806
Intangible assets, net 1,134,818 1,177,507
Notes receivable 81,057 --
Investment in joint venture 69,628 62,128
Other assets 11,041 8,604
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Total assets $11,009,980 $ 7,753,574
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</TABLE>
See accompanying notes to financial statements.
3
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PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Liabilities and Stockholders' Equity
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Notes payable $ 1,450,000 $ 1,150,000
Current installments of
long-term debt 209,259 194,857
Accounts payable 1,030,721 1,027,288
Accrued expenses 311,104 341,251
Income tax payable -- 106,998
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Total current liabilities 3,001,084 2,820,394
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Long-term debt, excluding current installments 2,059,454 2,235,908
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Deferred income taxes 11,986 11,986
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Stockholders' equity:
Preferred stock, .0001 par value; 1,500,000 shares
authorized, issued and outstanding Series A
convertible 1,250,024 shares at
June 30, 1998(-0- at September 30, 1997) 125 --
Common stock; .0001 par value; 50,000,000 shares
authorized, 5,303,516 issued and
outstanding (3,297,223 at September 30, 1997) 530 330
Additional paid-in capital 7,185,216 1,539,902
Retained earnings (deficit) (1,248,415) 1,061,654
Unrealized gain on security available
for sale, net -- 83,400
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Total stockholders' equity 5,937,456 2,685,286
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Total liablitities and
stockholders' equity $ 11,009,980 $ 7,753,574
-------------------- ------------ ------------
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</TABLE>
See accompanying notes to financial statements.
4
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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, 1998 June 30, 1997 June 30, 1998 June 30, 1997
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 3,945,620 $ 3,038,213 $ 9,813,776 $ 9,268,336
Cost of sales 1,992,893 1,517,562 4,880,548 4,616,883
----------- ----------- ----------- -----------
Gross profit 1,952,727 1,520,651 4,933,228 4,651,453
Selling, general and
administrative expenses 2,606,274 1,386,422 6,511,251 3,699,189
----------- ----------- ----------- -----------
Operating income (loss) (653,547) 134,229 (1,578,023) 952,264
Other income (expenses):
Miscellaneous, net 46,777 9,266 296,616 32,177
Interest expense (94,696) (86,133) (305,172) (257,579)
Non-recurring charges 0 -- (823,490) --
----------- ----------- ----------- -----------
Earnings before income tax
expense (benefit) (701,466) 57,362 (2,410,069) 726,862
Income tax expense (benefit) 0 23,000 (100,000) 290,000
----------- ----------- ----------- -----------
Net Income (Loss) ($ 701,466) $ 34,362 ($2,310,069) $ 436,862
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Income (loss) per common share
Basic earnings per share ($ 0.13) $ 0.01 ($ 0.49) $ 0.16
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares used in computation of
basic earnings per share 5,301,697 2,947,223 4,743,060 2,797,945
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted earnings per share ($ 0.13) $ 0.01 ($ 0.49) $ 0.13
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average number of
shares used in computation of
diluted earnings per share: 5,301,697 3,799,859 4,743,060 3,405,041
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
5
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NATURADE, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
June 30, 1998 June 30, 1997
(Unaudited) (Unaudited)
<S> <C> <C>
Net cash used in operating activities ($3,003,779) ($ 229,328)
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Cash flows used in investing activities:
Capital expenditures-Property and equipment (26,284) (54,861)
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Cash flows provided by financing activities:
Net borrowings under line of
credit agreements 300,000 383,675
Principal payments under long-term debt (162,051) (121,839)
Net proceeds from exercise of warrants 36,213 204,218
Proceeds from issuance of common and
preferred stock 5,609,426 --
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Net cash provided by financing activities 5,783,588 466,054
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Net increase in cash 2,753,525 181,865
Cash at beginning of period 157,585 120,143
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Cash at end of period $ 2,911,110 $ 302,008
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</TABLE>
See accompanying notes to financial statements
6
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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. The related party advance of $600,000 represents a temporary loan to
the Company's CEO as per employment contract dated March 2, 1998 and
filed as exhibit 10.20 in the Company's Form 10-Q for the period ended
March 31, 1998.
3. Inventories are stated at the lower of cost (weighted average) or
market (net realizable value); and consist of the following:
<TABLE>
<CAPTION>
June 30, 1998 September 30, 1997
(Unaudited) (Audited)
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<S> <C> <C>
Finished Goods $ 769,508 $ 796,500
Raw Materials 1,542,550 1,617,121
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Total $2,312,058 $2,413,621
</TABLE>
4. The FASB has issued statement No. 128 "Earnings Per Share (EPS)" which
became 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.
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.
7
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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 Naturade, Inc.
(the "Company" or the "Registrant") believes that the expectations reflected in
such forward looking statements are reasonable, such statements are inherently
subject to risk and the Company can give no assurance that such expectations
will prove to be 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. Such risk factors include, without limitation, the risk
of changes or developments in the regulatory framework or product liability
principles applicable to the Company and its products, and the risk of
consolidation in the distribution channels expected to be used by the Company to
distribute its products. The Company undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect events or circumstances after the date hereof or to reflect
the occurrence of unexpected events.
Liquidity and Capital Resources
- -------------------------------
The Company used cash of $3,003,779 in operating activities in the nine
months ended June 30, 1998.
The Company's working capital increased from $1,356,135 at September
30, 1997 to $4,673,230 at June 30, 1998. This increase was largely due to the
closing of a transaction with, among others, Doyle & Boissiere LLC on December
15, 1997, (which transaction was reported by the Company on two Current Reports
on Form 8-K filed on October 17, 1997, and December 23, 1997, respectively), in
which the Company issued shares of its common and preferred stock in return for
$6,000,000 cash.
Cash used for capital expenditures during the nine month period totaled
$26,284. Management anticipates capital expenditures for the remainder of its
September 30, 1998 fiscal year of less than $100,000.
The Company's cash provided by financing activities of $5,783,588 for
the nine month period was the result of proceeds received from the
above-referenced transaction with Doyle & Boissiere LLC.
Management is of the opinion that the Company has sufficient business,
liquidity and capital resources to finance its operations.
8
<PAGE>
Results of Operations
Total net sales for the third quarter ended June 30, 1998 increased
$907,408 or 29.9% and $545,440 or 5.9% for the nine month period ended June 30,
1998 compared to the same periods last year. Of this amount, domestic sales
increased $372,342 or 14.8% and $73,175 or 0.1% for the third quarter and first
nine months respectively while international sales also increased $535,065 or
341.5% and $472,265 or 69.0% for these same periods.
Gross profit as a percentage of sales decreased 0.6% to 49.5% of sales
for the quarter ended June 30, 1998 from 50.1% for the same period last year but
increased slightly to 50.3% of sales for the nine months ended June 30, 1998
from 50.2% of sales for the same period last year.
Selling, general and administrative expenses increased $1,219,853 to
$2,606,274 or 66.1% of sales for the quarter ended June 30, 1998 from $1,386,422
or 45.6% for the same period last year, and also increased $2,812,062 to
$6,511,251 or 66.4% of sales for the nine months ended June 30, 1998 from
$3,699,189 or 39.9% of sales for the same period last year. These increases were
primarily the result of selling and marketing expenses for the Company's
Performance Nutrition Division in the amount of $321,471 and $1,100,363 for the
third quarter ended June 30, 1998 and the nine months ended June 30, 1998,
respectively. There were minor expenses in the same periods last year as
operations in this division began in May 1997. Additionally, general and
administrative expenses increased $351,649 and $739,963 for the same periods.
Increases in consulting and legal fees accounted for the majority of these
differences.
Other expenses includes $823,490 of non-recurring charges recorded in
the three month period ended March 31, 1998. Following the Doyle & Boissiere
transaction on December 15, 1997, a comprehensive assessment of the business and
corporate assets was presented to the Board of Directors on February 18, 1998,
resulting in the establishment of a new strategic direction. Specifically,
corporate resources and management attention are to be focused on achieving
corporate growth in sales and earnings commensurate with growth in the dietary
supplement industry. Analysis of the company's product line, including sales
history, margin contribution, inventory turns and competitive position resulted
in the decision to write-off and physically dispose of inventory totaling
$466,000 (which is included in the non-recurring charges mentioned above). An
additional $200,000 reserve (also included in such non-recurring charges) was
recorded to reduce the value of discontinued inventory in process of being sold.
Interest expense for the quarter ended June 30, 1998 increased $8,563
and $47,594 for the nine months ended June 30, 1998 compared to the same periods
last year.
Income tax expense decreased by $23,000 and $390,000 for the three
month and nine month periods ended June 30, 1998, respectively, compared to the
same periods last year, due to losses for the periods and the carryback benefits
of such losses.
9
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
------------------------------
Exhibits
<TABLE>
<CAPTION>
Number Description Page
<S> <C> <C>
27 Financial Data Schedule 13
</TABLE>
Reports on Form 8-K
On June 16, 1998, the Registrant filed Form 8-K reporting changes in
registrant's certifying accountant.
10
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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 12 , 1998 By /s/ Bill D.Stewart
--------------------- ---------------------
Bill D. Stewart
Chief Executive Officer
DATE: August 12 , 1998 By /s/ Paul D.Shapnick
--------------------- ----------------------
Paul D. Shapnick
Chief Financial Officer
11
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
----------- ----------- --------
<S> <C> <C>
27 Financial Data Schedule 13
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000797167
<NAME> NATURADE, INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 2,911,110
<SECURITIES> 0
<RECEIVABLES> 1,407,848
<ALLOWANCES> 0
<INVENTORY> 2,312,058
<CURRENT-ASSETS> 7,674,314
<PP&E> 2,807,387
<DEPRECIATION> 768,265
<TOTAL-ASSETS> 11,009,980
<CURRENT-LIABILITIES> 3,001,084
<BONDS> 0
0
125
<COMMON> 530
<OTHER-SE> 5,936,801
<TOTAL-LIABILITY-AND-EQUITY> 11,009,980
<SALES> 9,813,776
<TOTAL-REVENUES> 9,813,776
<CGS> 4,880,548
<TOTAL-COSTS> 6,511,251
<OTHER-EXPENSES> 526,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 305,172
<INCOME-PRETAX> (2,410,069)
<INCOME-TAX> (100,000)
<INCOME-CONTINUING> (2,310,069)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,310,069)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
