UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1996
Commission File No. 0-23016
HEALTHRITE, INC.
----------------
(Exact name of small business issue in its charter)
Delaware 13-3714405
-------- ----------
(State of Incorporation) (I.R.S. Employer I.D. No.)
- ------------------------ --------------------------
11445 Cronhill Drive, Owings Mills, MD 21117
(Address of principal executive offices & zip code)
(410) 581-8042
Registrant's telephone number, include 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 ___
Number of shares outstanding of Registrant's Common stock, as of November 11,
1996: 4,276,472 shares
<PAGE>
HealthRite, Inc.
INDEX
Part I
Financial Information:
Condensed Consolidated Balance Sheet-
September 30, 1996 (unaudited) and December 31, 1995 ....................3
Condensed Consolidated Statement of Operations-
Three and Nine Months Ended September 30, 1995 and 1996 (unaudited) .....4
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 30, 1995 and 1996 (unaudited) ...............5
Notes to Financial Statements ...........................................6
Management's Discussion and Analysis ....................................7
Part II
Signature Page .........................................................10
<PAGE>
HEALTHRITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 30, 1996 December 31, 1995
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash $592,000 $348,000
Accounts receivable, net of allowance 1,587,000 932,000
Merchandise inventory 3,191,000 3,064,000
Prepaid expenses and other current assets 359,000 238,000
Deferred tax assets 330,000 242,000
------------ ------------
Total Current Assets 6,059,000 4,824,000
Property, plant and equipment - net 3,671,000 3,909,000
Customer lists - net 117,000 129,000
Excess of purchase price over net assets acquired 576,000 522,000
Other assets 720,000 188,000
------------ ------------
TOTAL ASSETS $11,143,000 $9,572,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term obligations $364,000 $399,000
Accounts payable & accrued expenses 2,440,000 1,825,000
------------ ------------
Total Current Liabilities 2,804,000 2,224,000
Long-term obligations and capital leases 2,074,000 2,261,000
Deferred income taxes payable 54,000 46,000
------------ ------------
Total Liabilities $4,932,000 $4,531,000
----------- ------------
Commitments and Contingencies
Redeemable convertible 8% preferred stock
Par value $.001, 2,000,000 authorized
432,500 issued and outstanding 865,000
------------
Stockholders' Equity
Common stock; par value $.001 per share 4,000 4,000
10,000,000 authorized;
4,276,472 issued at September 30, 1996 and
4,176,472 issued at December 31, 1995
Additional paid-in-capital 6,818,000 6,694,000
Accumulated deficit (1,476,000) (1,657,000)
------------ ------------
Total Equity 5,346,000 5,041,000
------------ ------------
TOTAL LIABILITIES & STOCKHOLDER EQUITY $11,143,000 $9,572,000
============ ============
</TABLE>
3
HEALTHRITE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, December 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenue $4,379,000 $3,940,000 $12,684,000 $12,177,000
Cost of sales, including warehousing
distribution, and occupancy 2,369,000 2,439,000 7,080,000 6,872,000
------------ ------------ ------------ ------------
Gross Profit 2,010,000 1,501,000 5,604,000 5,305,000
Selling, general, and administration 1,721,000 1,547,000 4,956,000 4,954,000
Cost of Consolidation Plan 388,000
------------ ------------ ------------ ------------
Income/(loss) from operations 289,000 (46,000) 260,000 351,000
Other income/(expenses)
Interest, net (60,000) (66,000) (179,000) (89,000)
Other income/(expense) 4,000 (227,000) 38,000 (209,000)
------------ ------------ ------------ ------------
Income/(loss) 233,000 (339,000) 119,000 53,000
before provision for income taxes
Provision (Benefit) for income taxes (5,000) 10,000 (62,000) 45,000
------------ ------------ ------------ ------------
NET INCOME/(LOSS) 238,000 (349,000) 181,000 8,000
============ ============ ============ ============
Less: Stock dividend on preferred stock 9,000 9,000
Net income attributable to common shareholders $229,000 $(349,000) $172,000 $8,000
============ ============ ============ ============
Net income/(loss) per share $0.05 ($0.08) $0.04 $0.00
============ ============ ============ ============
Weighted average shares outstanding 4,333,000 4,176,000 4,287,000 4,176,000
============ ============ ============ ============
</TABLE>
4
<PAGE>
HEALTHRITE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1996 1995
Cash Flow from Operating Activities:
<S> <C> <C>
Net income (loss) $181,000 $357,000
Adjustment to reconcile net income to net
cash provided by operating activities:
Depreciation & amortization 495,000 262,000
Non-cash compensation 100,000
Amortization of deferred compensation 34,000
Deferred tax asset (88,000) 5,000
(Gain) loss on asset sale (26,000)
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (654,000) 74,000
(Increase)/decrease in inventory (127,000) (76,000)
(Increase)/decrease in prepaid expenses & other current assets (122,000) 77,000
(Increase)/decrease in A/P and accrued expenses 624,000 (259,000)
------------ ------------
Net cash provided by operating activities 383,000 474,000
------------ ------------
Cash Flow from Investing Activities:
Proceeds from sale of equipment 55,000
Purchase of equipment (239,000) (388,000)
Purchase of subsidiary (90,000) (1,823,000)
Increase/(decrease) in other assets (532,000) (123,000)
------------ ------------
Total Cash Flow from Investing Activities (806,000) (2,334,000)
------------ ------------
Cash Flow from Financing Activities:
Proceeds from debt 300,000 1,260,000
Payment of debt (522,000) (1,106,000)
Proceeds from sale of common /preferred stock 889,000 337,000
------------ ------------
Net cash provided by financing activities: 667,000 491,000
------------ ------------
NET INCREASE/(DECREASE) IN CASH 244,000 (1,369,000)
Cash and cash equivalents at beginning of period 348,000 1,976,000
------------ ------------
Cash and cash equivalents at end of period $592,000 $607,000
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest 179,000 89,000
Income Taxes 22,000
Total $201,000 $89,000
Summary of noncash transactions
Dividends on preferred stock $9,000
5
</TABLE>
<PAGE>
HealthRite, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. General
On July 17, 1995, the Registrant's Certificate of Incorporation was amended to
change its name from Vitamin Specialties Corp. to HealthRite, Inc.
On August 14, 1996, the Registrant launched its Nautilus Nutritionals product
line.
The information contained herein with respect to the nine month period ended
September 30, 1996 and 1995 has not been audited but was prepared in conformity
with the accounting principles and policies described in the company's Annual
Report on Form 10-KSB for the year ended December 31, 1995. Included are the
adjustments, which in the opinion of management are necessary for a fair
presentation of the financial information for the three and nine month periods
ended September 30, 1996 and 1995. The results of interim periods are not
necessarily indicative of results to be expected for the year.
2. Bank Loans
On May 17, 1995, the Registrant and a subsidiary, Jason Pharmaceuticals,
Inc.,(Jason) entered into a loan agreement collateralized by the assets of
Jason and the Company with borrowing availability based on percentages of
accounts receivable and inventory. At September 30, 1996, total borrowing
availability was $1,074,000; total borrowed was $1,022,000 leaving $52,000
available for use.
In April 1996, Montana Naturals Int'l Inc. (Montana Naturals), a subsidiary of
the Company borrowed $250,000 pursuant to another working capital loan
agreement from a bank, guaranteed by the Registrant. In September 1996, this
subsidiary applied for an additional $250,000 loan for working capital.
3. Sale of Convertible Preferred Stock
In August 1996, the Registrant sold 432,500 shares of 8% Convertible Preferred
Stock.
6
HealthRite, Inc.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
In March 1996, the Registrant instituted a Consolidation Plan. The Plan
provided for the employment of Mr. Bradley T. MacDonald as President and Chief
Operating Officer and the consolidation of management and administrative
functions of the Company's three units: the Vitamin Specialties Division, which
conducts retailing and direct mail activities, and the Company's wholly-owned
subsidiaries, Montana Naturals Int'l Inc. and Jason Pharmaceuticals, Inc. which
conduct brand manufacturing, contract manufacturing and distribution
activities.
Three Months Ended September 30, 1996 and September 30, 1995
Revenues increased $439,000 or 11% over the prior period. The increase was
attributable primarily to increased Montana Naturals branded sales.
Cost of sales, including warehousing, distribution, and occupancy decreased by
$70,000 or 3%, and as a percentage of revenues decreased by 8% from 62% in 1995
to 54% in 1996. The decrease in cost of sales resulted in lower cost of
production and increasing in selling prices.
Selling, general and administrative expenses increased by $174,000 or 11% but
as a percentage of revenues, remained at 39% between 1995 and 1996. The dollar
increase was attributable to the increased sales effort in Montana Naturals
branded sales.
Interest expense was $60,000 in 1996 as compared to $66,000 in 1995. The
difference was attributable to a decrease in outstanding borrowings.
Other Income was $4,000 in 1996 as compared to Other Expenses of $227,000 in
1995. The difference is primarily the result of relocation expenses of $227,000
incurred in 1995.
7
Nine Months Ended September 30, 1996 and September 30, 1995
During the first nine months of 1996, non-retail activities earned $892,000.
The retail and catalog operations lost $632,000. However, during this quarter,
the retail losses were $83,000 compared to the first and second quarter losses
of $ 391,000 and $158,000 respectively.
Revenues increased $507,000 or 4% over the prior period. The increase was
attributable primarily to Montana Naturals branded sales.
Cost of sales, including warehousing, distribution, and occupancy increased by
$208,000 or 3%, and as a percentage of revenues remained the same at 56%.
Selling, general, and administrative expenses were about the same.
Interest expense, (net) was $179,000 in 1996 as compared to $89,000 in 1995.
The difference was attributable to an increase in borrowings and a decrease in
surplus funds invested (see Liquidity and Capital Resources below).
Other income was $38,000 in 1996 as compared to other expense of $209,000 in
1995. The difference is primarily the result of relocation expenses of $227,000
incurred in 1995.
The provision for income taxes in 1996 relates to state income taxes payable
and deferred federal income taxes.
Seasonality
The Registrant believes that its business is not subject to significant
seasonality.
8
Liquidity and Capital Resources
On January 3, 1995, the Registrant acquired all of the outstanding common stock
of Jason and a note payable to former stockholders of $450,000 for $2,998,000,
which consisted of $2,660,000 cash and 67,500 shares of the Company's common
stock valued at $388,000. The acquired net assets of Jason included $1,175,000
of cash.
The Registrant had working capital of $ 3,255,000 on September 30, 1996
compared with $2,600,000 at December 31, 1995.
The Company and Jason entered into an agreement with a financial institution on
May 17, 1995 providing for loans totaling $2,000,000 of which $1,800,000 is a
working capital loan and $200,000 is a term loan. Loan advances available from
the working capital loan are based on percentages of accounts receivable and
inventory. As of September 30, 1996, $1,074,000 was available of which $52,000
was unused.
In April 1996, Montana Naturals obtained a $250,000 line of credit from its
existing lender to fund working capital needs. In September 1996, this
subsidiary applied for an additional $250,000 to be used for working capital.
In August 1996, the Company sold 432,500 shares of 8% Convertible Preferred
Stock Due 2001 which generated gross proceeds of $865,000. The shares are
convertible into the Company's common stock on the basis of one share of common
for each share of convertible preferred stock. The proceeds will be used to
develop the Nautilus brand products and for working capital.
The Registrant believes that its working capital and anticipated cash flow from
operations, together with funds available from its credit arrangements and its
recent equity financing, will be sufficient to meet the Registrant's
anticipated working capital requirements for at least twelve months from
September 30, 1996.
Inflation
To date, inflation has not had a material effect on the Company's business
9
<PAGE>
Signatures
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, thereunto duly authorized.
HealthRite Inc.
---------------
(Registrant)
/s/ Bradley T. MacDonald
------------------------
Bradley T. MacDonald
President & CEO
/s/ A. J. Talluto
----------------------------
A. J. Talluto
Chief Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
unaudited consolidated balance sheet as of September 30, 1996 and the unaudited
statement of income for the nine months then ended contained in the report on
Form 10-Q for the nine months September 30, 1996 of HealthRite, Inc. and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 592,000
<SECURITIES> 0
<RECEIVABLES> 1,696,000
<ALLOWANCES> 109,000
<INVENTORY> 3,191,000
<CURRENT-ASSETS> 6,059,000
<PP&E> 4,166,000
<DEPRECIATION> 495,000
<TOTAL-ASSETS> 11,143,000
<CURRENT-LIABILITIES> 2,804,000
<BONDS> 0
0
865,000
<COMMON> 4,000
<OTHER-SE> 6,818,000
<TOTAL-LIABILITY-AND-EQUITY> 11,143,000
<SALES> 12,684,000
<TOTAL-REVENUES> 12,722,000
<CGS> 7,080,000
<TOTAL-COSTS> 12,424,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,000
<INCOME-PRETAX> 119,000
<INCOME-TAX> (62,000)
<INCOME-CONTINUING> 181,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
