<PAGE>
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 March 31, 1997
Commission File No. 0-23016
HEALTHRITE, INC.
----------------
(Exact name of small business issuer in its charter)
Delaware 13-3714405
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(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 May 9,
1997: 4,276,472 shares
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HEALTHRITE, INC.
INDEX
Part I
Financial Information:
Condensed Consolidated Balance Sheet-
March 31, 1997 (unaudited) and December 31, 1996 ........................3
Condensed Consolidated Statement of Operations-
Three Months Ended March 31, 1996 and 1997 (unaudited) ..................4
Condensed Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 and 1997 (unaudited) ..................5
Notes to Condensed Consolidated Financial Statements.....................6
Management Discussion and Analysis of Financial Condition
and Results of Operations................................................7
Part II
Signature Page ..........................................................8
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HEALTHRITE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash $ 378,000 $ 286,000
Accounts receivable, net of allowance 1,778,000 1,573,000
Merchandise inventory 4,053,000 3,894,000
Prepaid expenses and other current assets 451,000 300,000
Deferred tax assets 209,000 176,000
------------ ------------
Total Current Assets 6,869,000 6,229,000
Property, plant and equipment - net 3,524,000 3,589,000
Customer lists - net 108,000 113,000
Excess of purchase price over net assets
acquired 462,000 474,000
Deferred design cost 705,000 718,000
Deferred tax asset 166,000 166,000
Other assets 158,000 162,000
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TOTAL ASSETS $ 11,992,000 $ 11,451,000
============ ============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term obligations $ 2,081,000 $ 2,053,000
Accounts payable & accrued expenses 2,920,000 2,214,000
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Total Current Liabilities 5,001,000 4,267,000
Long-term obligations and capital leases 872,000 861,000
Deferred income taxes payable 0 0
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Total Liabilities $ 5,873,000 $ 5,128,000
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Commitments and Contingencies
Redeemable convertible 8% preferred stock
Par value $.001, 2,000,000 authorized
432,500 issued and outstanding 755,000 749,000
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Stockholders' Equity
Common stock; par value $.001 per share 4,000 4,000
10,000,000 authorized;
4,176,472 issued at March 31, 1997 and
4,176,472 issued at December 31, 1996
Additional paid-in-capital 6,928,000 6,934,000
Accumulated deficit (1,568,000) (1,364,000)
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Deferred compensation, net 0 0
Total Equity 5,364,000 5,574,000
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TOTAL LIABILITIES & STOCKHOLDER EQUITY $ 11,992,000 $ 11,451,000
============ ============
</TABLE>
3
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HEALTHRITE, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
(Unaudited)
<S> <C> <C>
Revenue $4,271,000 $3,824,000
Cost of sales, including warehousing
distribution, and occupancy 2,616,000 2,136,000
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Gross Profit 1,655,000 1,688,000
Selling, general, and administration 1,778,000 1,606,000
Cost of Consolidation Plan 388,000
Loss from operations (123,000) (306,000)
Other income/(expenses)
Interest, net (70,000) (60,000)
Loss from operations before provision
for income taxes (193,000) (366,000)
Provision (Benefit) for income taxes (23,000) (140,000)
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Loss from continuing operations (170,000) (226,000)
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Net Loss (170,000) (226,000)
========== ==========
Less: Stock dividend on preferred stock (17,000)
Accretion of preferred stock (6,000)
Net loss attributable to common
shareholders $ (193,000) $(226,000)
========== ==========
Net loss per share $(0.04) $(0.05)
========== ==========
Weighted average shares outstanding 4,300,000 4,180,000
</TABLE>
4
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HEALTHRITE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1996
(Unaudited)
<S> <C> <C>
Cash Flow from Operating Activities:
Net loss $(193,000) $(226,000)
Depreciation & amortization 184,000 163,000
Non-cash compensation 100,000
Deferred tax asset (32,000) (158,000)
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (205,000) (158,000)
(Increase)/decrease in inventory (158,000) 240,000
(Increase)/decrease in prepaid expenses &
other current assets (152,000) (42,000)
(Increase)/decrease in A/P and accrued
expenses 704,000 108,000
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Net cash provided by operating activities 148,000 27,000
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Cash Flow from Investing Activities:
Purchase of equipment (79,000) (61,000)
Increase/(decrease) in other assets (16,000) (49,000)
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Total Cash Flow from Investing Activities (95,000) (110,000)
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Cash Flow from Financing Activities:
Proceeds from debt 111,000
Payment of debt (72,000) (67,000)
Proceeds from sale of common stock 0 100,000
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Net cash provided by financing activities: 39,000 33,000
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NET INCREASE/(DECREASE) IN CASH 92,000 (50,000)
Cash and cash equivalents at beginning of
period 286,000 348,000
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Cash and cash equivalents at end of period $ 378,000 $ 298,000
========= =========
Supplemental disclosure of cash
flow information
Cash paid during the period for:
Interest 70,000 60,000
Income Taxes 6,000 17,000
Total $ 76,000 $ 77,000
</TABLE>
5
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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.
The information contained herein with respect to the three month periods ended
March 31, 1997 and 1996 has not been audited but was prepared in conformity
with the accounting principles and policies described in the Registrant's
Annual Report on Form 10-KSB for the year ended December 31, 1996. Included are
the adjustments, which in the opinion of management are necessary for a fair
presentation of the financial information for the three month periods ended
March 31, 1997 and 1996. The results are not necessarily indicative of results
to be expected for the year.
2. BANK LOANS
Vitamin Specialties Corp. and Jason Pharmaceuticals, Inc. entered into loan
agreements on May 17, 1995 aggregating $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. Total loan availability at March 31, 1997 was $1,138,000, all of
which was used.
3. SALE OF CONVERTIBLE PREFERRED STOCK
In August 1996, the Registrant 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 were used to
develop the Nautilus(R) brand products and for working capital.
6
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HEALTHRITE, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
Revenues increased $447,000 or 12% over the prior period. The increase was
attributable primarily to increased contract sales and new sales from Nautilus
(started in late January) at Montana Naturals Int'l, Inc. ("Montana Naturals"),
the Registrant's wholly-owned subsidiary. Revenues from other lines of business
remained consistent with last year's trends.
Cost of sales, including warehousing, distribution, and occupancy increased by
$480,000 or 22%, and as a percentage of revenues increased by 5% from 56% in
1996 to 61% in 1997. The increase in the cost of sales as a percentage of
revenues was due to increased lower margin contract sales.
Selling, general and administrative expenses increased by $172,000 or 11% but
as a percentage of revenues, remained at 42% between 1996 and 1997. The dollar
increase was attributable to the increased sales and distribution costs in
Montana Naturals and Nautilus Nutritionals(R) branded sales, as well as costs
associated with the revamping of the Vitamin Specialties line to meet future
FDA labeling requirements.
Interest expense was $70,000 in 1997 as compared to $60,000 in 1996. The
difference was attributable to an increase in outstanding borrowings.
The $23,000 benefit for income taxes in 1997 represents anticipated use of net
operating loss carry-forward in 1997.
SEASONALITY
The Registrant believes that its business is not subject to significant
seasonality.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Registrant was not in compliance with certain
covenants of the loan agreements. The bank has waived the events of default
through January and February and accelerated the due date of both the revolving
and term loans to January 1, 1998. The covenants in the loan agreement become
more restrictive each quarter during 1997 and the Registrant did not meet these
covenants at March 31, 1997. On May 9, 1997, the Registrant executed a
Commitment Letter with First Bank System in which First Bank will provide up to
$4.5 million in financing to Montana Naturals. Proceeds of the financing will
be used for expansion, refinancing all existing loans, and for working capital
for Montana Naturals. This, in addition to the $450,000 block grant loan from
the Lake County Community
7
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Development Corporation (through the Montana Department of Commerce), will be
used to expand Montana manufacturing and distribution capacity, to market the
new Nautilus product line and to promote existing products.
The Registrant believes that its working capital and anticipated cash flow from
operations, together with the newly acquired financing from First Bank, will be
sufficient to meet the Registrant's anticipated working capital requirements
for the foreseeable future.
INFLATION
To date, inflation has not had a material effect on the Registrant's business.
8
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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.
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(Registrant)
/s/ Bradley T. MacDonald
--------------------------------
Bradley T. MacDonald
President & CEO
/s/ A. J. Talluto
--------------------------------
A. J. Talluto
Chief Financial Officer
9
<TABLE> <S> <C>
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<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 378,000
<SECURITIES> 0
<RECEIVABLES> 1,854,000
<ALLOWANCES> 76,000
<INVENTORY> 4,053,000
<CURRENT-ASSETS> 6,869,000
<PP&E> 3,524,000
<DEPRECIATION> 184,000
<TOTAL-ASSETS> 11,992,000
<CURRENT-LIABILITIES> 5,001,000
<BONDS> 0
0
755,000
<COMMON> 4,000
<OTHER-SE> 5,360,000
<TOTAL-LIABILITY-AND-EQUITY> 11,992,000
<SALES> 4,271,000
<TOTAL-REVENUES> 4,271,000
<CGS> 2,616,000
<TOTAL-COSTS> 4,394,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70,000
<INCOME-PRETAX> (193,000)
<INCOME-TAX> (23,000)
<INCOME-CONTINUING> 170,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (170,000)
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
