<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C., 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTER ENDED COMMISSION FILE NUMBER
March 31, 1996 33-10236
BAYWOOD INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 77-0125664
(state of other jurisdiction of (I.R.S. Employer's
incorporation or organization) Identification Number)
14950 North 83rd Place, Suite 1
Scottsdale, Arizona 85260
(Address of principal office) (Zip code)
Registrant's telephone number, including area code: (602)951-3956
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
$.001 par value common stock
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 and Exchange Act of 1934
during the preceding 12 months (or for such shorter periods 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
--- ---
As of March, 31 1996, there were 14,661,468 shares of Baywood International,
Inc. common stock, $.001 par value outstanding.
<PAGE> 2
BAYWOOD INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet as of March 31, 1996 3
Statements of Operations for the three months ended March 31, 1996
and 1995 4
Statements of Cash Flows for the three months ended March 31, 1996
and 1995 5
Statement of Information Furnished 6
Item 2 - Management's Discussion and Analysis or Plan of Operation 7-8
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 9
Item 2 - Changes in Securities 9
Item 3 - Defaults Upon Senior Securities 9
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and Reports on Form 8-K 9
SIGNATURES 9
</TABLE>
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<PAGE> 3
BAYWOOD INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
March 31, 1996
--------------
UNAUDITED
<S> <C>
CURRENT ASSETS
Cash $ 46,791
Accounts receivable (net of allowance) 186,748
Inventories (net of reserve) 237,962
Current portion of related party receivable 18,259
Interest receivable 12,386
Prepaid expenses and other current assets 5,518
-----------
TOTAL CURRENT ASSETS 507,664
-----------
PROPERTY & EQUIPMENT
Furniture, fixtures, computers and equipment
(net of accumulated depreciation of $72,592) 55,176
-----------
OTHER ASSETS
Long-term related party receivable 146,891
Contracts & marketing rights
(net of accumulated amortization of $45,699) 109,201
Formulas & product lines
(net of accumulated amortization of $45,699) 109,201
-----------
TOTAL OTHER ASSETS 365,293
-----------
TOTAL ASSETS $ 928,133
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 581,207
Notes payable 482,000
Accrued interest 139,391
-----------
TOTAL CURRENT LIABILITIES 1,202,598
-----------
STOCKHOLDERS' DEFICIT
Preferred Stock, $1 par value,
10,000,000 shares authorized, 1,210,500
shares issued and outstanding 1,210,500
Common stock, $.001 par value, 50,000,000
shares authorized, 14,661,468 shares
issued and outstanding 14,662
Additional paid-in capital 5,021,394
Treasury stock at cost (62,500)
Accumulated deficit (6,458,521)
-----------
TOTAL STOCKHOLDERS' DEFICIT (274,465)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 928,133
===========
</TABLE>
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<PAGE> 4
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
3 months ended March 31,
1996 1995
------------ ------------
(as restated)
<S> <C> <C>
NET SALES $ 784,527 $ 162,922
COST OF SALES 472,232 112,529
------------ ------------
Gross profit 312,295 50,393
------------ ------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Marketing expenses 134,293 158,582
General and administrative expenses 104,739 384,129
Depreciation and amortization 12,909 13,631
------------ ------------
Total selling, general and administrative expenses 251,941 556,342
------------ ------------
Operating profit (loss) 60,354 (505,949)
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 4,140 4,340
Miscellaneous expense (75) -
Miscellaneous income 17,038 -
Interest expense (21,717) (105,563)
------------ ------------
Total other (expense) (614) (101,223)
------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM 59,740 (607,172)
PROVISION FOR INCOME TAXES - -
------------ ------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 59,740 (607,172)
EXTRAORDINARY GAIN: EXTINGUISHMENT OF DEBT - 15,116
------------ ------------
NET INCOME (LOSS) $ 59,740 $ (592,056)
============ ============
INCOME (LOSS) PER COMMON SHARE:
Before extraordinary item $ 0.004 $ (0.046)
Extraordinary item - 0.001
------------ ------------
NET INCOME (LOSS) PER COMMON SHARE $ 0.004 $ (0.045)
============ ============
WEIGHTED AVERAGE OF COMMON SHARES OUTSTANDING 14,661,468 13,088,163
============ ============
</TABLE>
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<PAGE> 5
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
3 months ended March 31,
1996 1995
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES: (as restated)
Net incom(loss) $59,740 $(592,056)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization 12,909 13,631
Issuance of common stock as payment for services performed - 597,362
Extraordinary gain on extinguishment of debt - (15,116)
Common stock issued as payment for interest on notes payable - 14,351
Changes in assets and liabilities:
(Increase) in accounts receivable (151,961) (17,299)
(Increase) in interest receivable (4,128) (13,653)
(Increase) in inventory (7,309) (93,339)
(Increase) in prepaid expenses (2,396) (1,822)
(Decrease) in interest payable (2,283) (4,191)
(Decrease) in customer deposits (16,140) -
Increase (decrease) in accounts payable and
accrued liabilities 1,661 (41,418)
--------- ---------
Net cash used in operating activities (109,907) (153,550)
--------- ---------
INVESTING ACTIVITIES:
Purchase of furniture, computers and equipment (1,011) -
--------- ---------
Net cash used by investing activities (1,011) -
--------- ---------
FINANCING ACTIVITIES:
Purchase of treasury stock - (62,500)
Proceeds from notes payable 50,000 -
Principal payments on notes payable - (25,000)
--------- ---------
Net cash provided (used) by financing activities 50,000 (87,500)
--------- ---------
CASH (USED) PROVIDED DURING PERIOD (60,918) (241,050)
CASH, BEGINNING OF PERIOD 107,709 254,868
========= =========
CASH, END OF PERIOD $ 46,791 $ 13,818
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 24,000 $ 15,000
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable with common stock $ - $ 100,000
</TABLE>
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<PAGE> 6
BAYWOOD INTERNATIONAL, INC.
STATEMENT OF INFORMATION FURNISHED
The accompanying financial statements have been prepared in accordance
with Form 10-QSB instructions and in the opinion of management contain all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly the financial position as of March 31, 1996 and the results of
operations for the three months ended March 31, 1996 and 1995 and the cash flows
for the three months ended March 31, 1996 and 1995. These results have been
determined on the basis of generally accepted accounting principles and
practices applied consistently with those used in the preparation of the
Company's 1995 Annual Report on Form 10-KSB.
Certain information and footnote disclosures normally included in
financial statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that the accompanying
financial statements be read in conjunction with the financial statements and
notes thereto incorporated by reference in the Company's 1995 Annual Report on
Form 10-KSB.
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<PAGE> 7
BAYWOOD INTERNATIONAL, INC.
Item 2 - Management's Discussion and Analysis or Plan of Operation
GENERAL
Since inception, the Company has directed most of its efforts on
international business and has established distribution or registration of its
products into network marketing, retail or wholesale companies in the Pacific
Rim, Europe and South America. Products that are not necessarily new to the
market such as aloe based products, bee pollen, royal jelly and propolis are the
types that have generated particular interest mostly in the Pacific Rim.
Establishing distribution domestically into chain drug stores, grocery chains,
network marketing companies and warehouse distributors in the United States is a
major part of the Company's marketing strategy. The Company feels that the
domestic market is potentially very lucrative and although the Company views
this market as very challenging due to its competitive nature, it feels
confident it can open distribution with new, natural products for different
applications.
The Company concentrates on increasing profits by expanding sales
volume while containing or reducing costs since growth opportunities in the
Company's markets are driven by volume increases rather than price increases.
The Company's cost reduction efforts will be driven by economies of scale and
out-sourcing of components of the production items supplied to the manufacturer,
such as packaging, labels and labor. The Company is continually focusing on new
and innovative products to establish widespread distribution domestically and to
consistently provide overseas customers with leading products.
RESULTS OF OPERATIONS
Net sales for the three months ended March 31, 1996 were $784,527
compared to net sales of $162,922 for the same period last year, an increase of
382%. The increase in net sales is mainly attributable to higher volumes of aloe
based product sold to one major customer in the Pacific Rim. International sales
for the three months ended March 31, 1996 represented 98.2% of the Company's
sales compared to 60.2% for the same period last year. Distribution of the
nutrition and dietary line remains as the main source of revenue for first three
months of 1996. Due to high demand for nutrition and dietary products both
domestically and internationally for health and well being, the Company
anticipates this line to be the primary foundation for revenue growth and
profitability in the future.
The Company's gross profit margin for the three months ended March 31,
1996 was 39.8% compared to 30.9% for the same period last year, an increase of
8.9%. More volume of aloe based product sold in the Pacific Rim in the three
months ended March 31, 1996 compared to lower volumes of a mix of products with
lower margins during the same period last year was the factor in the increase.
Marketing, general and administrative expenses for the three months
ended March 31, 1996 were $239,032 or 30.5% of net sales, compared to $542,711
or 333% of net sales for the same period last year, a decrease of 56%. The
decrease is primarily due to significant expenses incurred in the first quarter
of 1995 for consultants for which the Company incurred no expense in the first
three months of 1996. Sales commissions of $81,053 were the largest portion of
marketing expenses. In addition to higher volumes, the Company initiated certain
cost reduction programs which have been instrumental in the profitability for
the first quarter of 1996.
Net income before income taxes and extraordinary item for the three
months ended March 31, 1996 was $59,740 compared to $(607,172) for the same
period in 1995. An extraordinary gain of $15,116 was recorded in the first three
months of 1995 for extinguishment of debt through the issuance of common stock.
-7-
<PAGE> 8
BAYWOOD INTERNATIONAL, INC.
Net income tax for March 31, 1996 was zero. Current income tax
provision of $28,000 was offset by an equal deferred income tax benefit
representing utilization of operating loss carryforwards.
OTHER INFORMATION
Interest Expense on notes payable for the three months ended March 31,
1996 was $21,717 compared to $105,563 for the same period last year, a decrease
of $83,846 due the value of common stock issued or to be issued as inducements
to third parties to lend to the Company. The overall reduction in these notes
which involve equity inducements has decreased interest expense for the first
quarter of 1996. The balance of notes payable at March 31, 1996 was $482,000.
The majority of the Company's interest revenue was generated by the
interest due from contracts with the sale of the right to distribute and use the
products in the Aurore-B Line to Royal Products, Inc.
CAPITAL EXPENDITURES
During the three months ended March 31, 1996, the Company had not
incurred any material expenditures for property and equipment.
LIQUIDITY AND CAPITAL RESOURCES
As of the three months ended March 31, 1996, the Company had $507,664
in current assets of which $46,791 was cash. Total current liabilities for the
same period totalled $1,202,598 of which $482,000 consisted of notes payable
with current maturities. Trade accounts payable remained in good standing due to
good relations, credit terms and payment histories with major suppliers and
vendors. The Company believes that as it increases its sales volume, liquidity
will improve greatly. Sales terms generally include a 50% deposit at the time of
the order and the balance prior to shipment. Current notes payable are due
within the first six months of 1996. The Company has negotiated an $800,000 cash
infusion in exchange for common and preferred stock in April 1996. Funds will be
used to pay off notes payable and reduce accounts payable. The Company believes
this funding will be adequate to provide for growth in 1996 in addition to
expected higher sales volume and reduced expenses. The Company was required to
extend due dates on notes payable and considers itself in good standing with its
noteholders.
The Company neither anticipates any significant capital expenditures
nor are material capital expenditures required to meet expected growth.
The Company may require additional capital and may attempt to raise
capital through the sale of preferred and common stock and through private
placements in the short and long term. The Company may continue to obtain
financing through loans.
Subsequent to March 31, 1996 on April 11, 1996, the Company agreed to
issue 1,466,147 common shares, representing 10% of the outstanding shares of the
Company as of December 31, 1995, and 800,000 preferred shares for $800,000, in a
private placement to Linda Lee, an independent investor and citizen of Hong
Kong. The funds under this private placement were received by the Company on May
2, 1996. The rights and limitations of the preferred shares held by Lee include
the right to convert the preferred shares to common stock or redeem the shares
for cash on April 11, 1997, provided that certain conditions are met regarding
the average share price of the Company's common shares.
-8-
<PAGE> 9
BAYWOOD INTERNATIONAL, INC.
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None, other than the matters previously reported under Item 3 of the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1995.
Item 2 - Changes in Securities
None
Item 3 - Defaults upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
On April 18, 1996, the Board of Directors approved the following
changes in the Company's management and, pursuant to Article II, section 2 of
the Bylaws, filled two vacancies in the Board of Directors:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME PRIOR POSITION(S) HELD CURRENT POSITION(S)
Harvey Turner None Chairman of the Board,
President & C.E.O. (1)
John A. Shannon Chairman of the Board of Directors Vice-Chairman
Karl H. Rullich Director, President, C.E.O. and Director
Treasurer
Georgia Aadland Director and Corporate Secretary Director, Vice-President
Operations, Secretary and
Treasurer
Linda Lee None Director
</TABLE>
(1) Mr. Harvey J. Turner was elected as a director and Chairman of the Board
of Directors of the Company on April 19, 1996. He was also appointed President
and Chief Executive Officer on the same date. Prior to his election and
appointment, Mr. Turner acted as a consultant to the prior Chairman of the
Board, John A. Shannon, from January to April 1996. Since 1985, he has also been
the President of Turner Realty and Investments, a consulting and commercial real
estate firm. From November 1993 to April 1996 he served as Executive Vice
President of Action Performance Companies, Inc. a Tempe, Arizona automobile die
casting company. He served as Executive Vice of Carefree Leisure Products, a
Tempe, Arizona spa manufacturing company, from November 1980 to November 1985.
Mr. Turner also has over 25 years of retail industry experience serving
companies such as May Department Stores, Yankee Department Stores and Paddock
Pool & Casual World with responsibilities ranging from merchandising, purchasing
and operations to executive management. He holds a Bachelors degree in business
from Washington University at St. Louis, Missouri. Mr. Turner resides in
Scottsdale, Arizona.
Item 6 - Exhibits and Reports on Form 8-K
None
-9-
<PAGE> 10
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BAYWOOD INTERNATIONAL, INC.
(Registrant)
/s/ Harvey Turner Date: May 10, 1996
- - ----------------------------
Harvey Turner
Chairman, President & C.E.O.
/s/ Georgia Aadland Date: May 10, 1996
- - ----------------------------
Georgia Aadland
Secretary, Vice-President of Operations,
Treasurer Principal Accounting Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806175
<NAME> BAYWOOD INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 46,791
<SECURITIES> 0
<RECEIVABLES> 351,898
<ALLOWANCES> 0
<INVENTORY> 237,962
<CURRENT-ASSETS> 507,664
<PP&E> 55,176
<DEPRECIATION> 72,592
<TOTAL-ASSETS> 928,133
<CURRENT-LIABILITIES> 1,202,598
<BONDS> 0
0
1,210,500
<COMMON> 14,662
<OTHER-SE> (62,500)
<TOTAL-LIABILITY-AND-EQUITY> 928,133
<SALES> 784,527
<TOTAL-REVENUES> 784,527
<CGS> 472,232
<TOTAL-COSTS> 251,941
<OTHER-EXPENSES> 614
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,717
<INCOME-PRETAX> 59,740
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59,740
<EPS-PRIMARY> .004
<EPS-DILUTED> 0
</TABLE>
