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 December 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. 5,291,445 shares as of
December 31, 1997.
Exhibit Index on Page 15
Page 1 of 16
<PAGE>
FORM 10-Q
QUARTERLY REPORT
Quarter Ended December 31, 1997
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Financial Position at December 31, 1997 3
(unaudited) and September 30, 1997 (audited)
Statements of Operations for the three month 5
periods ended December 31, 1997 (unaudited) and
December 31, 1996 (unaudited)
Statements of Cash Flows for the three month periods 6
ended December 31, 1997 (unaudited) and
December 31, 1996 (unaudited)
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 14
Page 2 of 16
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATURADE, INC.
Statements of Financial Position
ASSETS
December 31, 1997 September 30, 1997
(Unaudited) (Audited)
Current assets:
Cash and cash equivalents $ 5,744,067 $ 157,585
Accounts receivable 1,389,858 1,404,660
Inventories 2,419,154 2,413,621
Prepaid expenses 154,235 42,149
Deferred income taxes 253,398 158,514
----------- -----------
Total current assets 9,960,712 4,176,529
Available for sale security -- 217,000
Property and equipment, net 2,094,411 2,111,806
Intangible assets, net 1,163,277 1,177,507
Investment in joint venture 64,628 62,128
Other assets 8,604 8,604
----------- -----------
Total assets $13,291,632 $ 7,753,574
=========== ===========
See accompanying notes to financial statements.
Page 3 of 16
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, 1997 September 30, 1997
(Unaudited) (Audited)
Current liabilities:
Notes payable $ 1,499,809 $ 1,150,000
Current installments of
long-term debt 219,286 194,857
Accounts payable 984,887 1,027,288
Accrued expenses 245,301 341,251
Income tax payable 103,736 106,998
----------- -----------
Total current liabilities 3,053,019 2,820,394
----------- -----------
Long-term debt, excluding current
installments 2,158,851 2,235,908
----------- -----------
Deferred income taxes 11,986 11,986
----------- -----------
Stockholders' equity:
Preferred stock, .0001 par value;
1,500,000 shares authorized, issued
and outstanding Series A convertible
1,250,024 shares at December 31,
1997 (-0- at September 30, 1997) 125 --
Common stock; .0001 par value;
50,000,000 shares authorized, 5,291,445
issued and outstanding (3,297,223 at
September 30, 1997) 529 330
Additional paid-in capital 7,069,285 1,539,902
Retained earnings 997,837 1,061,654
Unrealized gain on security available
for sale, net -- 83,400
----------- -----------
Total stockholders' equity 8,067,776 2,685,286
----------- -----------
Total liabilities and
stockholders' equity $13,291,632 $ 7,753,574
=========== ===========
See accompanying notes to financial statements.
Page 4 of 16
<PAGE>
NATURADE, INC.
Statements of Operations
Three Months Three Months
Ended Ended
December 31, 1997 December 31, 1996
(Unaudited) (Unaudited)
Net sales $ 2,729,058 $ 3,194,943
Cost of sales 1,354,705 1,596,686
----------- -----------
Gross profit 1,374,353 1,598,257
Selling, general and
administrative expenses 1,567,931 1,070,193
----------- -----------
Operating income (loss) (193,578) 528,064
Other income (expenses):
Miscellaneous, net 188,361 15,795
Interest expense (101,147) (80,984)
----------- -----------
Earnings before income tax
expense (benefit) (106,364) 462,875
Income tax expense (benefit) (42,546) 185,000
----------- -----------
Net Income (Loss) ($ 63,818) $ 277,875
=========== ===========
Net Income (loss) per common share
Basic earnings per share ($ 0.02) $ 0.11
=========== ===========
Weighted average number of
shares used in computing
basic earnings per share 3,666,340 2,593,005
=========== ===========
Diluted earnings per share ($ 0.02) $ 0.10
=========== ===========
Weighted average number of
shares used in computation of
diluted earnings per share: 3,666,340 2,811,457
=========== ===========
See accompanying notes to financial statements.
Page 5 of 16
<PAGE>
NATURADE, INC.
Statements of Cash Flows
Three Months Ended Three Months Ended
December 31, 1997 December 31, 1996
(Unaudited) (Unaudited)
Net cash used in operating activities ($ 223,865) ($ 219,989)
----------- -----------
Cash flows used in investing activities:
Capital expenditures-Property
and equipment (16,541) (12,454)
----------- -----------
Cash flows provided by financing
activities:
Net borrowings under line of
credit agreements 349,809 23,537
Principal payments under long-term
debt (52,628) (29,999)
Net proceeds from issuance of common
and preferred stock 5,529,707 203,850
----------- -----------
Net cash provided by financing
activities 5,826,888 197,388
----------- -----------
Net increase (decrease) in cash 5,586,482 (35,055)
Cash at beginning of period 157,585 120,143
----------- -----------
Cash at end of period $ 5,744,067 $ 85,088
=========== ===========
See accompanying notes to financial statements.
Page 6 of 16
<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:
December 31, 1997 September 30, 1997
(Unaudited) (Audited)
Finished Goods $ 980,428 $ 796,500
Raw Materials 1,438,726 1,617,121
---------- ----------
Total $2,419,154 $2,413,621
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. 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.
Page 7 of 16
<PAGE>
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. 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 $223,865 in operating activities in the first
quarter ended December 31, 1997. The amount used was mainly a result of an
increase in accounts payable and accrued expenses of $141,613.
The Company's working capital increased from $1,356,135 at September 30,
1997 to $6,907,693 at December 31, 1997. Such 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 first quarter totaled
$16,541. 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 $5,826,482 for the
first quarter 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.
Results of Operations
- ---------------------
Total net sales for the first quarter ended December 31, 1997 decreased
$465,885 or 14.6% compared to the same quarter last year. Of this amount,
domestic sales of the of the Company's brand products decreased $182,476 or
7.4%. Additionally, sales to private label customers decreased $344,550 or 81.0%
and international sales decreased $100,143 or 31.7% compared to the same quarter
last year.
Page 8 of 16
<PAGE>
The 7.4% decrease in domestic brand products was related to a decrease in
promotional activity and loss of sales related to the United States Drug
Enforcement Agency's recent ban on pseudophedrine, an ingredient present in
four of the Company's "Cold & Flu" category products. The Company is now
reformulating these products to meet current United States Drug Enforcement
Agency requirements.
The decrease in private label sales was directly related to the Company's
acquisition of the intangible assets of Performance Nutrition, the Company's
largest private label customer. The Company was also focusing on developing
new branded products rather than on lower margin private label items.
The decrease in international sales is related to the general volatility
of the international marketplace. This was especially apparent in sales in the
Far East due to the financial crisis in that area. The Company is continuing
to work with international customers to find solutions to maintain and increase
sales internationally.
Gross profit as a percentage of sales increased slightly to 50.4% of sales
for the quarter ended December 31, 1997 from 50.0% for the same period last
year. Operating expenses increased 23.9% to 57.4% of sales for the quarter ended
December 31, 1997 from 33.5% for the same period last year. This was the result
of the $465,885 decrease in sales for the quarter ended December 31, 1997
compared to the same period last year and an increase in selling and general and
administrative expenses of $497,738 for the same periods. The majority of this
increase was for selling and marketing expenses in the amount of $260,924 in
connection with the start-up of the Company's Performance Nutrition Division.
Miscellaneous income includes a gain on the sale of the available for sale
security of $166,125.
Interest expense for the quarter ended December 31, 1997 increased to
$101,147 from $80,984 for the same period last year.
Page 9 of 16
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits & Reports on Form 8-K
Exhibits
Exhibit
Number Description Page
- ---------------------------------------------------------------------------
2 Stock Purchase Agreement, dated as of December 15, N/A
1997 (the "Stock Purchase Agreement"), by and among
the Company, Allan Schulman, L.S. Smith, Dallas
Gold & Silver Exchange, Inc. ("DGSE"), Barry M. Zwick
and Health Holdings and Botanicals, Inc. ("HHB"),
incorporated by reference to the Company's Current
Report on Form 8-K filed on December 23, 1997.
3.1 Certificate of Incorporation of Naturade, Inc., N/A
together with Amendments and Certificate of
Designations relating thereto, incorporated by
reference to the Company's Form 10-K Annual Report
filed for Fiscal 1997 and the Exhibits and
Attachments thereto.
3.2 Bylaws of Naturade, Inc., as Amended, incorporated N/A
by reference to the Company's Form 10-K Annual
Report filed for Fiscal 1997 and the Exhibits and
Attachments thereto.
4.1 Registration Rights Agreement, dated as of December N/A
15, 1997, by and between the Company and HHB,
incorporated by reference to the Company's Current
Report on Form 8-K as filed on December 23, 1997.
4.2 Form of Series A Convertible Preferred Stock N/A
Certificate, incorporated by reference to the
Company's Form 10-K Annual Report filed for
Fiscal 1997 and the Exhibits and Attachments thereto.
4.3 Form of Class B Warrant Certificate, incorporated by N/A
reference to the Company's Form 10-K Annual Report
filed for Fiscal 1991 and the Exhibits and
Attachments thereto.
10.1 Consulting Agreement, dated as of December 12, 1997, N/A
by and between the Company and Doyle & Boissiere LLC,
incorporated by reference to the Company's Current
Report on Form 8-K filed December 23, 1997.
10.2 Mutual Option Agreement, dated as of December 15, N/A
1997, by and between the Company and Allan Schulman,
incorporated by reference to the Company's Current
Report on Form 8-K as filed December 23, 1997.
Page 10 of 16
<PAGE>
10.3 Employment, Consulting and Non-Competition Agreement, N/A
dated as of December 12, 1997, by and between the
Company and Allan Schulman, incorporated by reference
to the Company's Current Report on Form 8-K as filed
December 23, 1997.
10.4 Form of Option Agreement for Purchase of Naturade, N/A
Inc. Common Stock for Directors, incorporated by
reference to the Company's Form 10-K Annual Report
filed for Fiscal 1995 and the Exhibits and
Attachments thereto.
10.5 Form of Broker Agreement between NPI and Domestic N/A
Brokers, incorporated by reference to the Company's
Form 10-K Annual Report filed for Fiscal 1991
and the Exhibits and Attachments thereto.
10.6 Consulting Agreement with Dr. L.S. Smith, N/A
incorporated by reference to the Company's Form 10-Q
Report filed for the quarterly period ended
March 31, 1994 and the Exhibits and Attachments
thereto.
10.7 Addendum to Consulting Agreement with L.S. Smith N/A
dated as of November 13, 1996, incorporated by
reference to the Company's Form 10-K Annual Report
filed for Fiscal 1997 and the Exhibits and
Attachments thereto.
10.8 Amendment to Employment Contract with Paul Shapnick, N/A
Chief Financial Officer, incorporated by reference
to the Company's Form 10-K Annual Report filed for
Fiscal 1993 and the Exhibits and Attachments thereto.
10.9 DermaRay International L.L.C. Limited Liability N/A
Company Agreement, incorporated by reference to
the Company's Form 10-K Annual Report filed for
Fiscal 1994 and the Exhibits and Attachments thereto.
Page 11 of 16
<PAGE>
10.10 Amendment dated May 2, 1995 to Agreement For N/A
Purchase of Stock and Real Property dated
January 1, 1995, incorporated by reference to
the Company's Form 10-Q Report filed for quarterly
period ended December 31, 1994 and Exhibits and
Attachments thereto.
10.11 Open Line of Credit with South Bay Bank dated N/A
as of September 24, 1997, in the principal amount
of $1,500,000, incorporated by reference to the
Company's Form 10-K Annual Report filed for Fiscal
1997 and the Exhibits and Attachments thereto.
10.12 Exclusive License and Distributorship Agreement N/A
dated August 14, 1995 with Group Michel Iderne,
incorporated by reference to the Company's
Form 10-K Annual Report filed for Fiscal 1995
and the Exhibits and Attachments thereto.
10.13 Product Development and Promotion Agreement dated N/A
August 23, 1995 with Health-Tech Institute Corp.,
incorporated by reference to the Company's Form
10-K Annual Report filed for Fiscal 1995 and the
Exhibits and Attachments thereto.
10.14 Settlement Agreement with Neal D'Agostino dated N/A
November 30, 1995, incorporated by reference to
the Company's Form 10-K Annual Report filed for
Fiscal 1995 and the Exhibits and Attachments thereto.
10.15 Lease Agreement between NPI and Messrs. Schulman N/A
and Becker, incorporated by reference to the
Company's Form 10-K Annual Report filed for Fiscal
1991 and the Exhibits and Attachments thereto, and
the First Amendment to Lease, dated as of December
15, 1997, by and among Allan Schulman and the
Registrant (collectively as landlord) and the
Company (as tenant), incorporated by reference
to the Company's Current Report on Form 8-K as
filed December 23, 1997.
10.16 Asset Transfer Agreement and Plan of Liquidation N/A
and Dissolution, dated as of June 30, 1997, by
and among Harrier, Inc., a Delaware corporation,
the Company and DermaRay International, L.L.C.,
a California limited liability company, incorporated by
reference to the Company's Form 10-K Annual Report
filed for Fiscal 1997 and the Exhibits and
Attachments thereto.
27 Financial Data Schedule 13
Page 12 of 16
<PAGE>
Reports on Form 8-K
On October 17, 1997, the Registrant filed Form 8-K reporting the
signing of a term sheet with Doyle & Boissiere LLC and four shareholders of
the Company in which a newly formed California corporation, Health Holdings and
Botanicals, Inc., would acquire control of the Registrant.
On December 23, 1997, the Company filed Form 8-K reporting the
consummation of the above-referenced transaction.
Page 13 of 16
<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: February 13, 1998 By /s/ Allan Schulman
----------------- --------------------------
Allan Schulman
Chief Executive Officer
DATE: February 13, 1998 By /s/ Paul D. Shapnick
----------------- --------------------------
Paul D. Shapnick
Chief Financial Officer
Page 14 of 16
<PAGE>
EXHIBIT INDEX
Exhibit No. Description Page No.
- --------------------------------------------------------------------------------
27 Financial Data Schedule 16
Page 15 of 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 5,744,066
<SECURITIES> 0
<RECEIVABLES> 1,389,858
<ALLOWANCES> 0
<INVENTORY> 2,419,154
<CURRENT-ASSETS> 9,960,711
<PP&E> 2,856,427
<DEPRECIATION> 762,016
<TOTAL-ASSETS> 13,291,631
<CURRENT-LIABILITIES> 3,053,019
<BONDS> 0
0
125
<COMMON> 529
<OTHER-SE> 8,067,121
<TOTAL-LIABILITY-AND-EQUITY> 13,291,630
<SALES> 2,729,058
<TOTAL-REVENUES> 2,729,058
<CGS> 1,354,704
<TOTAL-COSTS> 1,567,931
<OTHER-EXPENSES> (188,361)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,147
<INCOME-PRETAX> (106,364)
<INCOME-TAX> (42,546)
<INCOME-CONTINUING> (63,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,818)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
