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
--------------------- ----------------------
June 30, 1996 33-10236
BAYWOOD INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 77-0125664
(state or other jurisdiction of incorporation or (I.R.S. Employer
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 June 30 1996, there were 17,220,615 shares of Baywood International,
Inc. common stock, $.001 par value outstanding.
<PAGE>
BAYWOOD INTERNATIONAL, INC.
INDEX
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<TABLE>
<CAPTION>
Page
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet as of June 30, 1996 3
Statements of Operations for the three and six months ended June 30, 1996
and 1995 4
Statements of Cash Flows for the three and six months ended June 30, 1996
and 1995 5
Statement of Information Furnished 6
Item 2 - Management's Discussion and Analysis or Plan of Operation 7-9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 10
Item 2 - Changes in Securities 10
Item 3 - Defaults Upon Senior Securities 10
Item 4 - Submission of Matters to a Vote of Security Holders 10
Item 5 - Other Information 10
Item 6 - Exhibits and Reports on Form 8-K 10
SIGNATURES 11
</TABLE>
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEET
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<TABLE>
<CAPTION>
ASSETS
------
June 30, 1996
-------------
CURRENT ASSETS UNAUDITED
<S> <C>
Cash $ 384,364
Accounts receivable (net of allowance) 301,727
Inventories (net of reserve) 177,982
Current portion of related party receivable 18,260
Interest receivable 16,515
Prepaid expenses and other current assets 11,957
-------------
Total current assets 910,805
-------------
PROPERTY & EQUIPMENT
Furniture, fixtures, computers and equipment
(net of accumulated depreciation of $74,049) 47,671
-------------
OTHER ASSETS
Long-term related party receivable 146,891
Contracts & marketing rights
(net of accumulated amortization of $49,572) 105,328
Formulas & product lines
(net of accumulated amortization of $49,572) 105,328
-------------
Total other assets 357,547
-------------
Total assets $ 1,316,023
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 503,715
Accrued interest 126,780
-------------
Total current liabilities 630,495
-------------
REDEEMABLE PREFERRED STOCK 800,000
STOCKHOLDERS' EQUITY
Preferred Stock, $1 par value,
10,000,000 shares authorized, 1,017,500
shares issued and outstanding 217,500
Common stock, $.001 par value, 50,000,000
shares authorized, 17,220,615 shares
issued and outstanding 17,221
Additional paid-in capital 5,929,205
Treasury stock at cost (62,500)
Accumulated deficit (6,215,898)
-------------
Total stockholders' equity 685,528
-------------
Total liabilities and stockholders' equity $ 1,316,023
=============
</TABLE>
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
------------------------
UNAUDITED
<TABLE>
<CAPTION>
3 months ended June 30, 6 months ended June 30,
1996 1995 1996 1995
-------------- --------------- -------------- --------------
(as restated) (as restated)
<S> <C> <C> <C> <C>
NET SALES $ 1,229,343 $ 575,722 $ 2,013,870 $ 738,644
COST OF SALES 746,312 348,906 1,218,544 461,435
-------------- --------------- -------------- --------------
Gross profit 483,031 226,816 795,326 277,209
-------------- --------------- -------------- --------------
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Marketing expenses 144,521 288,445 278,813 447,028
General and administrative expenses 152,041 292,514 256,780 676,642
Depreciation and amortization 12,909 13,631 25,819 27,262
-------------- --------------- -------------- --------------
Total selling, general and administrative expenses 309,471 594,590 561,412 1,150,932
-------------- --------------- -------------- --------------
Operating profit (loss) 173,560 (367,774) 233,914 (873,723)
-------------- --------------- -------------- --------------
OTHER INCOME (EXPENSE)
Interest income 5,710 4,340 9,850 8,680
Miscellaneous expense (1,011) - (1,086) -
Miscellaneous income 71,083 264 88,121 264
Interest expense (6,720) (113,790) (28,438) (219,353)
-------------- --------------- -------------- --------------
Total other income (expense) 69,062 (109,186) 68,447 (210,409)
-------------- --------------- -------------- --------------
INCOME (LOSS) BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM 242,622 (476,960) 302,361 (1,084,132)
PROVISION FOR INCOME TAXES - - - -
-------------- --------------- -------------- --------------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 242,622 (476,960) 302,361 (1,084,132)
EXTRAORDINARY GAIN:
EXTINGUISHMENT OF DEBT - 61,626 - 76,742
-------------- --------------- -------------- --------------
NET INCOME (LOSS) $ 242,622 $ (415,334) $ 302,361 $ (1,007,390)
============== =============== ============== ==============
INCOME (LOSS) PER COMMON AND COMMON
EQUIVALENT SHARE:
Before extraordinary item $ 0.015 $ (0.038) $ 0.020 $ (0.085)
Extraordinary item - 0.005 - 0.006
-------------- --------------- -------------- --------------
NET INCOME (LOSS) $ 0.015 $ (0.033) $ 0.020 $ (0.079)
============== =============== ============== ==============
INCOME (LOSS) PER COMMON SHARE -
ASSUMING FULL DILUTION:
Before extraordinary item $ 0.014 $ (0.032) $ 0.017 $ (0.070)
Extraordinary item - 0.004 - 0.005
-------------- --------------- -------------- --------------
NET INCOME (LOSS) $ 0.014 $ (0.028) $ 0.017 $ (0.065)
============== =============== ============== ==============
WEIGHTED AVERAGE OF COMMON SHARES
OUTSTANDING 16,315,642 12,439,482 15,488,555 12,739,130
============== =============== ============== ==============
</TABLE>
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
------------------------
UNAUDITED
<TABLE>
<CAPTION>
3 months ended June 30, 6 months ended June 30,
1996 1995 1996 1995
------------- ------------- -------------- -------------
OPERATING ACTIVITIES: (as restated) (as restated)
<S> <C> <C> <C> <C>
Net income (loss) $ 242,622 $ (415,334) $ 302,361 $(1,007,390)
Adjustments to reconcile net income (loss) to cash used in
operating activities:
Depreciation and amortization 12,909 13,631 25,819 27,262
Issuance of common stock as payment for services performed - 41,966 - 330,328
Extraordinary gain on extinguishment of debt - (61,626) - (76,742)
Loss on sale of computers and equipment 1,062 - 1,062 -
Inventory writedown for samples and shrinkage 19,711 - 19,711 -
Common stock accrued for interest on notes payable 686 108,870 8,603 211,953
Common stock issued as payment on notes payable - - - 100,000
Changes in assets and liabilities:
(Increase) in accounts receivable (114,979) (103,198) (266,940) (129,596)
(Increase) in interest receivable (4,129) (4,551) (8,257) (9,103)
(Increase) decrease in inventory 40,268 (95,347) 32,959 (188,686)
(Increase) decrease in prepaid expenses (6,439) 700 (8,835) (1,122)
Increase (decrease) in interest payable (13,297) 27,900 (23,496) 39,633
(Decrease) in customer deposits - - (16,140) -
Increase (decrease) in accounts payable and accrued liabilities (77,492) 311,835 (75,832) 274,760
------------- ------------- -------------- -------------
Net cash (used) provided in operating activities 100,922 (175,154) (8,985) (428,703)
------------- ------------- -------------- -------------
INVESTING ACTIVITIES:
Sale of computers and equipment 1,280 - 1,280 -
Purchase of furniture, computers and equipment - (2,000) (1,011) (2,000)
------------- ------------- -------------- -------------
Net cash (used) provided by investing activities 1,280 (2,000) 269 (2,000)
------------- ------------- -------------- -------------
FINANCING ACTIVITIES:
Issuance of common and preferred stock for cash 800,000 222,222 800,000 222,222
Fees paid in connection with offering of common and preferred stock (82,629) - (82,629) -
Purchase of treasury stock - - - (62,500)
Proceeds from notes payable - 180,000 50,000 480,000
Principal payments on notes payable (482,000) (175,000) (482,000) (400,000)
------------- ------------- -------------- -------------
Net cash provided by financing activities 235,371 227,222 285,371 239,722
------------- ------------- -------------- -------------
CASH (USED) PROVIDED DURING PERIOD 337,573 50,068 276,655 (190,981)
CASH, BEGINNING OF PERIOD 46,791 13,818 107,709 254,867
============= ============= ============== =============
CASH, END OF PERIOD $ 384,364 $ 63,886 $ 384,364 $ 63,886
============= ============= ============== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 14,126 $ 46,200 $ 38,126 $ 61,200
NONCASH INVESTING AND FINANCING ACTIVITIES:
Conversion of notes payable with common stock $ - $ - $ - $ 100,000
</TABLE>
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<PAGE>
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 June 30, 1996 and the results of
operations for the three and six months ended June 30, 1996 and 1995 and the
cash flows for the three and six months ended June 30, 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>
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. Most of
the Company's sales are generated from 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. Given the nature of the Company as a sales
and marketing organization, recent cost reduction efforts during 1996 have
focused on eliminating any unproductive overhead and bringing fixed operating
expenses to minimum necessary levels. 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 and six months ended June 30, 1996 were
$1,229,343 and $2,013,870, respectively, compared to net sales of $575,722 and
$738,644 for the same period last year, an increase of 113.5% and 172.6%,
respectively. 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 six months ended June 30, 1996 represented 97.6% of
the Company's sales compared to 84.1% for the same period last year.
Distribution of the nutrition and dietary line remains as the main source of
revenue for the first six months of 1996, amounting to 94% of net sales. 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 six months ended June 30,
1996 was 39.5% compared to 37.5% for the same period last year, an increase of
2%. More volume and consistent distribution of aloe based product sold in the
Pacific Rim in the six months ended June 30, 1996 compared to lower volumes of a
mix of products with lower margins during the same period last year were the
factors in the increase.
Selling, general and administrative expenses for the three and six
months ended June 30, 1996 were $309,471 or 25.2% of net sales and $561,412 or
27.9% of net sales, respectively, compared to
-7-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
$594,590 or 103.3% of net sales and $1,150,932 or 155.8% of net sales,
respectively, for the same periods last year. This represents an overall
decrease of 51.2%. This decrease is primarily due to significant expenses
incurred in the first quarter of 1995 for consultants for which the Company
incurred no recurring expense for the first six months of 1996. Sales
commissions of $171,960 were the largest portion of selling, general and
administrative expenses, representing 8.5% of net sales. Sales commissions as a
percentage of net sales remained comparable to the same period last year,
ranging from 7% to 9%. In addition to higher volumes, the Company initiated
certain cost reduction programs which have been instrumental in the
profitability for the first and second quarters of 1996.
Net income before income taxes and extraordinary item for the three and
six months ended June 30, 1996 was $242,622 and $302,361, respectively, compared
to a net loss of $(476,960) and $(1,084,132), respectively for the same periods
in 1995. An extraordinary gain of $76,742 was recorded in the first six months
of 1995 for extinguishment of debt through the issuance of common stock. There
were no extraordinary gains or losses for the six months ended June 30, 1996.
Net income tax for the three and six months ended June 30, 1996 was
zero. Current income tax provisions of $93,000 and $113,000 for the three and
six months ended June 30, 1996, respectively, were offset by equal deferred
income tax benefits representing utilization of operating loss carryforwards.
Other Information
Interest Expense on notes payable for the six months ended June 30,
1996 was $28,438 compared to $219,353, a decrease of $190,915 due to the value
of common stock issued or to be issued as inducements to third parties to lend
to the Company. The overall reduction during the six months ended June 30, 1996
in these notes which involve equity inducements, has decreased interest expense
for 1996. The balance of notes payable at June 30, 1996 was zero.
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 June 30, 1996, the Company had not
incurred material expenditures for property and equipment.
Liquidity and Capital Resources
As of the six months ended June 30, 1996, the Company had $910,805 in
current assets of which $384,364 was cash. Total current liabilities for the
same period totalled $630,495. 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. This has been demonstrated as of June 30, 1996
by good cash flow and zero debt. Sales terms generally include a 50% deposit at
the time of the order and the balance prior to shipment.
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
The balance of notes payable at the beginning of 1996 was $482,000. As
of June 30, 1996, the balance of notes payable was zero.
On April 11, 1996, the Company issued 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. These funds were used to pay off notes payable
and reduce accounts payable.
The Company neither anticipates any significant capital expenditures
nor are material capital expenditures required to meet expected growth in 1996.
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.
Factors That May Affect Future Results
The Company believes that results of operations in any quarterly period
may be impacted by factors such as delays in the shipment of new or existing
products, difficulty in the manufacturer acquiring critical product components
of acceptable quality and in required quantity, timing of product introductions,
increased competitions, the effect of announcements and marketing efforts of new
competitive products, a slower growth rate in the Company's target markets, lack
of market acceptance of new products and adverse changes in economic conditions
in any of the countries in which the company does business. Specifically, the
timing of registration of new or existing products in different countries in
which the Company is doing business or may do business could delay orders. Also,
the significant portion of sales and net income contributed by international
operations, specifically by one customer, could affect the Company's results of
operations and financial condition in a particular quarter. Due to the factors
noted above, the Company's future earnings and stock price may be subject to
significant volatility. Any shortfall in revenues or earnings from levels
expected by the investing public or securities analysts could have an immediate
and significant adverse effect on the trading price of the Company's common
stock.
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<PAGE>
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 June 28, 1996, Linda Lee resigned as a director, citing personal
circumstances. She had no disagreements with the Company at the time of her
resignation.
Item 6 - Exhibits and Reports on Form 8-K
--------------------------------
None
-10-
<PAGE>
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: August 5, 1996
- ----------------------------
Harvey Turner
Chairman, President & C.E.O.
/s/ Georgia Aadland Date: August 5, 1996
- ----------------------------
Georgia Aadland
Secretary, Vice-President of Operations, Treasurer and
Principal Accounting Officer
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 806175
<NAME> BAYWOOD INTERNATIONAL, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 384,364
<SECURITIES> 0
<RECEIVABLES> 301,727
<ALLOWANCES> 0
<INVENTORY> 177,982
<CURRENT-ASSETS> 910,805
<PP&E> 121,720
<DEPRECIATION> 74,049
<TOTAL-ASSETS> 1,316,023
<CURRENT-LIABILITIES> 630,495
<BONDS> 0
0
1,017,500
<COMMON> 17,221
<OTHER-SE> (349,193)
<TOTAL-LIABILITY-AND-EQUITY> 1,316,023
<SALES> 2,013,870
<TOTAL-REVENUES> 2,013,870
<CGS> 1,218,544
<TOTAL-COSTS> 561,412
<OTHER-EXPENSES> (96,885)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,438
<INCOME-PRETAX> 302,361
<INCOME-TAX> 0
<INCOME-CONTINUING> 302,361
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 302,361
<EPS-PRIMARY> 0.020
<EPS-DILUTED> 0.017
</TABLE>
