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, 1999 0-22024
BAYWOOD INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Nevada 77-0125664
(state or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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, 1999, there were 25,791,259 shares of Baywood International, Inc.
common stock, $.001 par value outstanding.
<PAGE>
BAYWOOD INTERNATIONAL, INC.
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Balance Sheet as of June 30, 1999 3
Statements of Operations for the three and six months
ended June 30, 1999 and 1998 4
Statements of Cash Flows for the three and six months
ended June 30, 1999 and 1998 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 11
Item 2 - Changes in Securities 11
Item 3 - Defaults Upon Senior Securities 11
Item 4 - Submission of Matters to a Vote of Security Holders 11
Item 5 - Other Information 11
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 13
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSETS
Cash and equivalents $ 41,498
Accounts receivable 14,192
Inventories 52,333
Prepaid expenses and other current assets 39,742
-----------
Total current assets 147,765
-----------
OTHER ASSETS
Investment in Baywood Nutritionals, S.A 20,378
Investment in BII Acquisition Company 75,000
Note receivable - related party 5,000
-----------
Total other assets 100,378
-----------
Total assets $ 248,143
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable $ 173,823
Interest payable 23,711
Accrued liabilities 65,140
-----------
Total current liabilities 262,674
-----------
NOTES PAYABLE 532,261
-----------
STOCKHOLDERS' DEFICIT
Preferred Stock, $1 par value,
10,000,000 shares authorized,
35,000 Class A shares issued and outstanding 35,000
20,000 Class D shares issued and outstanding 20,000
Common stock, $.001 par value, 50,000,000
shares authorized, 25,791,259 shares
issued and outstanding 25,791
Additional paid-in capital 6,401,824
Accumulated deficit (7,029,407)
-----------
Total stockholders' deficit (546,792)
===========
Total liabilities and stockholders' deficit $ 248,143
===========
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $ 12,682 $ 7,466 $ 50,653 $ 762,328
COST OF SALES 7,160 3,522 29,350 449,522
----------- ----------- ----------- -----------
Gross profit 5,522 3,944 21,303 312,806
----------- ----------- ----------- -----------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Marketing expenses 99,224 86,000 222,731 192,991
General and administrative
expenses 95,211 133,751 188,056 212,133
Depreciation and amortization -- 11,730 -- 23,459
----------- ----------- ----------- -----------
Total selling, general and
administrative expenses 194,435 231,481 410,787 428,583
----------- ----------- ----------- -----------
Operating loss (188,913) (227,537) (389,484) (115,777)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 126 7,553 188 12,648
Miscellaneous expense (345) -- (345) --
Miscellaneous income 8,200 1,253 8,537 1,379
Interest expense (18,439) -- (25,937) --
Equity in net loss of investee (13,138) -- (19,650) --
----------- ----------- ----------- -----------
Total other income (expense) (23,596) 8,806 (37,207) 14,027
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (212,509) (218,731) (426,691) (101,750)
PROVISION FOR INCOME TAXES -- -- -- --
----------- ----------- ----------- -----------
NET LOSS $ (212,509) $ (218,731) $ (426,691) $ (101,750)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE $ (0.01) $ 0.01 $ (0.02) $ *
=========== =========== =========== ===========
DILUTED NET LOSS PER COMMON
SHARE $ ** $ * $ ** $ *
=========== =========== =========== ===========
WEIGHTED AVERAGE OF COMMON
SHARES OUTSTANDING 25,791,259 20,143,728 25,374,183 18,828,230
=========== =========== =========== ===========
</TABLE>
* less than $.01 per share
** antidilutive
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<PAGE>
BAYWOOD INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------- -------------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(212,509) $ (218,731) $(413,553) $ (101,750)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation and amortization -- 11,730 -- 23,459
Issuance of common stock for services
performed -- -- 75,000 --
Equity in net loss of investee 13,138 -- 6,512 --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 1,481 507,092 (12,021) 273,353
(Increase) in notes receivable (5,000) -- (5,000) --
Increase in interest payable 17,623 853 23,711 --
(Increase) decrease in inventory 9,401 5,500 13,770 (141)
(Increase) decrease in prepaid expenses 19,625 -- (18,626) 8,450
Increase in customer deposits -- 4,195 -- 4,195
(Decrease) in accounts payable and
accrued liabilities (8,435) (25,249) (33,168) (322,233)
--------- ---------- --------- ----------
Net cash provided (used) by operating
activities (164,676) 285,390 (363,375) (114,667)
--------- ---------- --------- ----------
FINANCING ACTIVITIES:
Issuance of common and preferred stock
for cash 10,000 -- 20,000 --
Fees paid in connection with offering of
preferred stock (2,000) -- (12,022) --
Proceeds from exercise of stock options -- -- 13,000 --
Proceeds from notes payable 207,500 -- 440,800 --
Principal payments on notes payable (24,184) -- (97,774) --
--------- ---------- --------- ----------
Net cash provided by financing
activities 191,316 -- 364,004 --
--------- ---------- --------- ----------
CASH AND EQUIVALENTS
PROVIDED BY (USED) DURING PERIOD 26,640 285,390 629 (114,667)
CASH AND EQUIVALENTS, BEGINNING OF PERIOD 14,858 268,849 40,869 668,906
========= ========== ========= ==========
CASH AND EQUIVALENTS, END OF PERIOD $ 41,498 $ 554,239 $ 41,498 $ 554,239
========= ========== ========= ==========
SUPPLEMENTAL DISCLOSURES AND
CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 2,226 $ -- $ 816 $ --
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of preferred stock to
common stock $ -- $1,020,000 $ -- $1,020,000
</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, 1999 and the results of
operations for the three and six months ended June 30, 1999 and 1998 and the
cash flows for the three and six months ended June 30, 1999 and 1998. 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 1998 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 1998 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 its inception, the Company had directed most of its sales efforts
toward international markets and had established either distribution or
registration of its products into certain Pacific Rim and European Countries.
Prior to 1998, the Company's product line had not been expanded in order to
capture the domestic market. As a result, the Company relied on the continued
distribution of one main product, Aloe Minerals Plus(TM), to one major customer
in China. In March of 1998, due to governmental restrictions in China, this
customer discontinued its purchases of Aloe Minerals Plus(TM) which caused a
dramatic decrease in the Company's sales for all of 1998 and the first quarter
of 1999.
The Company had not developed any market for its products prior to 1998 in
the United States. Throughout 1998 and through the first quarter of 1999, the
Company developed a new line of nutritional supplements and implemented
strategies to establish marketing and distribution into health food stores. At
this time, the Company is continually exploring the international market, but
has focused on strengthening the domestic marketing and sales of its new branded
product line in the United States.
The Company's principal executive offices are located at 14950 North 83rd
Place, Suite 1, Scottsdale, Arizona 85260 and its telephone number is (602)
951-3956.
The Company's primary objective is to become a recognized leader in the
provision of natural products that are based on natural compounds. The Company's
potential for growth at this time involves developing niche product lines that
can be marketed and sold into niche distribution channels. Niche product lines
include but are not limited to vitamins, minerals, herbs, nutraceuticals and
herbal teas. Niche distribution channels include retail in health food,
pharmacy, grocery, drug chains and mail order. The Company's current product
lines include nutraceutical products with current distribution into health food
retail in the United States. Through consistent active involvement in the trends
that affect the natural products industry, the Company creates or improves
products to fit market needs.
RESULTS OF OPERATIONS
Net sales for the three and six months ended June 30, 1999 were $12,682 and
$50,653 compared to net sales of $7,466 and $762,328 for the same period last
year, an increase of $5,216 or 69.9% and a decrease of $711,675 or 93.4% and for
the three and six months, respectively. The decrease in net sales for the six
months ended June 30, 1999 is entirely due to the ban on network marketing
companies in China where the Company's freeze dried aloe vera and mineral drink,
Aloe-Minerals Plus(TM), was supplied to one major customer. This major customer
is a direct marketing company and accounted for $754,790 of net sales for the
six months ended June 30, 1998. Without this customer, the Company's net sales
for the three and six months ended June 30, 1999 increased $5,216 and $43,187,
respectively compared to the same period last year. This increase is due to
sales of the Company's new product lines where the Company is realizing more
distribution of smaller orders into the domestic retail market rather than the
smaller distribution of larger orders into the international market. In
addition, the net sales of the Company in the domestic retail market are more
diversified and a result of the sales of several different products rather than
one main product which the Company had previously relied on for sales in the
international market.
-7-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
The Company is continually focused on building a broader customer base so
that its historical reliance on a few major customers is lessened and so that
the volatility of sales from quarter to quarter is decreased. This focus on
broadening the customer base is accomplished through the introduction of other
new products into current distribution channels, the continued support through
advertising and promotion of existing products and the acquisition of other
companies in the industry that have established lines of complementary products
and new areas of distribution. Due to high demand in the industry for
nutritional supplements for health and well being both domestically and
internationally, the Company anticipates this line to be the primary foundation
for revenue growth and profitability in the future. At this time, management
believes that the Company has and is continuing to successfully position the
Company's new products into the domestic retail market.
The Company's gross profit margin for the three and six months ended June
30, 1999 was 43.5% and 42.1% compared to 52.8% and 41%, respectively, for the
same period last year. The variation in gross profit margin is due mainly to
various discounts offered on the Company's products into the domestic retail
market.
Selling, general and administrative expenses for the three and six months
ended June 30, 1999 were $194,435 and $410,787, respectively, compared to
$231,481 and $428,583, respectively, for the same period last year. Overall
corporate expenditures have decreased compared to the same period last year
inclusive of legal fees, bad debt expense and rent while marketing expenditures
have increased including advertising and new product development expenses.
Advertising, promotions and expenses related to new products and program
development were the largest portion of selling, general and administrative
expenses for the six month period totalling $138,931.
Net loss for the three and six months ended June 30, 1999 was $(212,509) or
$(.01) per share and $(426,691) or $(.02) per share compared to a net loss of
$(218,731) or $.01 per share and $(101,750) or less than $(.01) per share for
the same period last year.
The Company's reliance on computer information systems is such that it does
not anticipate that the "year 2000 problem" will have any material, adverse
effect on its financial condition, operation or financial statements. The
Company is not aware of any significant problems being encountered by its
customers and vendors.
OTHER INFORMATION
The Company's interest expense was incurred from interest on notes payable
to officers of the Company.
The Company's investment in Baywood Nutritionals, S.A. incurred costs which
contributed to a net loss in the equity of the investment in the amount of
$13,138 and $19,650 in the three and six months ended June 30, 1999,
respectively.
CAPITAL EXPENDITURES
During the three and six months ended June 30, 1999, the Company had not
incurred material expenditures for property and equipment.
-8-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had $147,765 in current assets of which
$55,690 or 37.7% was cash and receivables. Total current liabilities for the
same period totalled $262,674. This represents a ratio of current assets to
current liabilities of .56 at June 30, 1999.
Management is currently exploring alternatives for raising debt or equity
financing in order to properly fund the Company's working capital needs and to
significantly increase the Company's sales growth of new products into new
distribution channels. Certain officers have funded operations within the first
and second quarter of 1999 through loans to the Company. In addition, certain
officers have elected to defer the payment of their salaries to conserve cash.
These deferred salaries have been accrued and are properly reflected in the
financial statements of the Company. Management intends to pay these deferred
salaries in the future when the Company is able to maintain a higher cash
balance. It is expected that the Company will require $500,000 to $750,000 in
debt or equity financing within the next six to nine months to support its
operations.
-9-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
"CAUTION REGARDING FORWARD-LOOKING STATEMENTS"
CERTAIN STATEMENTS CONTAINED IN THIS REPORT THAT ARE NOT RELATED TO
HISTORICAL RESULTS, INCLUDING, WITHOUT LIMITATIONS, STATEMENTS REGARDING THE
COMPANY'S BUSINESS STRATEGY AND OBJECTIVES AND FUTURE FINANCIAL POSITION, ARE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT AND SECTION 21E OF THE EXCHANGE ACT AND INVOLVE RISKS AND UNCERTAINTIES.
ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS ON WHICH THESE
FORWARD-LOOKING STATEMENTS ARE BASED ARE REASONABLE, THERE CAN BE NO ASSURANCE
THAT SUCH ASSUMPTIONS WILL PROVE TO BE ACCURATE AND ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE SET FORTH IN THE FOLLOWING SECTION, AS WELL AS THOSE DISCUSSED ELSEWHERE
IN THIS REPORT. ALL FORWARD-LOOKING STATEMENTS CONTAINED IN THIS REPORT ARE
QUALIFIED IN THEIR ENTIRETY BY THIS CAUTIONARY STATEMENT.
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. 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.
-10-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None
ITEM 2 - CHANGES IN SECURITIES
(c) Sale of Unregistered Securities
During the second quarter of 1999, the Company sold 10,000 shares of Class
D Redeemable Convertible Preferred Stock to Janet Strong for $10,000 in a
private transaction under Section 4(2) and 4(6) of the Securities Act.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Number Exhibit Name Method of Filing
- ------ ------------ ----------------
3.1 Articles of Incorporation, as amended *
3.2 By-Laws **
4.1 Specimen Common Stock Certificate ***
4.2 Description of Common Stock ****
4.3 Certificates of Designation for Preferred
Shares *****
4.4 Certificates of Designation for Class D
Redeemable Convertible Preferred Stock ******
27.1 Financial Data Schedule Exhibit filed herewith
-11-
<PAGE>
BAYWOOD INTERNATIONAL, INC.
* Incorporated by reference to Exhibit 3.1 of annual report on Form 10-KSB
(file no. 0- 22024) filed on April 18, 1996.
** Incorporated by reference to Exhibit 3 of Registration Statement on Form
S-1 (file no. 33-10236) filed on January 27, 1987, and declared
effective on February 14, 1988.
*** Incorporated by reference to Exhibit 1 of Registration Statement on Form
8-A (File no. 022024) filed on July 2, 1993, and declared effective on
July 9, 1993.
**** Incorporated by reference to page 31 of Registration Statement on Form
S-1 (file no. 33- 10236) filed on January 27, 1987, and declared
effective on February 14, 1988.
***** Incorporated by reference to Exhibit 4.3 of quarterly report on Form
10-QSB (file no. 0- 22024) filed on August 11, 1997.
****** Incorporated by reference to Exhibit 4.4 of quarterly report on Form
10-QSB (file no. 0- 22024) filed on May 17, 19999.
(b) Reports on Form 8-K
None
-12-
<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)
By: /s/ Neil Reithinger Date: August 11, 1999
------------------------------------
Neil Reithinger
Chairman of the Board, President, C.E.O.
and Principal Accounting Officer
-13-
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 41,498
<SECURITIES> 0
<RECEIVABLES> 29,827
<ALLOWANCES> 15,635
<INVENTORY> 52,333
<CURRENT-ASSETS> 147,765
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 248,143
<CURRENT-LIABILITIES> 262,674
<BONDS> 0
0
55,000
<COMMON> 25,791
<OTHER-SE> (466,001)
<TOTAL-LIABILITY-AND-EQUITY> 248,143
<SALES> 50,653
<TOTAL-REVENUES> 50,653
<CGS> 29,350
<TOTAL-COSTS> 410,787
<OTHER-EXPENSES> 37,207
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (426,691)
<INCOME-TAX> 0
<INCOME-CONTINUING> (426,691)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (426,691)
<EPS-BASIC> (0.02)
<EPS-DILUTED> 0
</TABLE>
