<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 September 30, 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 or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
711 Fifth Avenue, 14th Floor, New York, NY 10022
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(Address of principal offices) (Zip Code)
Registrant's telephone number, including Area Code: (212) 829-0900
----------------------------
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, 1997: 4,276,472 shares
Transitional Small Business Disclosure Format (check one). Yes [ ] No [X]
<PAGE>
Index
Part I
Financial Information:
Condensed Consolidated Balance Sheet -
September 30, 1997 (unaudited) and December 31, 1996 3
Condensed Consolidated Statement of Operations -
Three and Nine Months Ended September 30, 1997
and 1996 (unaudited) 4
Condensed Consolidated Statement of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 (unaudited) 5
Notes to Condensed Consolidated Financial Statements 6
Management Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II
Other Information 9
Signature Page 10
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CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 293,000 $ 286,000
Accounts receivable, net of allowance 1,807,000 1,573,000
Merchandise inventory 2,588,000 3,894,000
Prepaid expenses and other current assets 614,000 300,000
Deferred tax assets 241,000 176,000
------------ ------------
Total Current Assets 5,543,000 6,229,000
Property, plant and equipment - net 2,778,000 3,589,000
Customer lists - net -0- 113,000
Excess of purchase price over net assets acquired -0- 474,000
Deferred design cost 558,000 718,000
Deferred tax asset 166,000 166,000
Other assets 67,000 162,000
------------ ------------
TOTAL ASSETS $ 9,112,000 $ 11,451,000
--------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 769,000 $ 2,053,000
Accounts payable and accrued expenses 2,124,000 2,214,000
--------------------------------
Total Current Liabilities 2,893,000 4,267,000
Long-term obligations and capital leases 911,000 861,000
Total Liabilities 3,804,000 5,128,000
--------------------------------
Redeemable convertible 8% preferred stock;
par value $.001; 2,000,000 authorized;
432,500 issued and outstanding 768,000 749,000
--------------------------------
Stockholders' Equity
Common stock; par value $.001 per share;
10,000,000 authorized; 4,276,472
issued at September 30, 1997
and 4,276,472 issued at December 31, 1996 4,000 4,000
Additional paid-in capital 6,916,000 6,934,000
Accumulated deficit (2,380,000) (1,364,000)
--------------------------------
Total Equity 4,540,000 5,574,000
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TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $ 9,112,000 $ 11,451,000
--------------------------------
</TABLE>
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CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenue $ 3,308,000 $ 4,379,000 $ 12,037,000 $ 12,684,000
Cost of sales, including warehousing
distribution, and occupancy 2,212,000 2,369,000 7,478.000 7,080,000
---------------------------- ----------------------------
Gross Profit 1,106,000 2,010,000 4,559,000 5,604,000
Selling, general, and administration 1,671,000 1,721,000 5,458,000 4,956,000
Cost of Consolidation Plan 0 0 0 388,000
------------ ---------------------------- ------------
Income/(Loss) from operations (565,000) 289,000 (899,000) 260,000
Other Income/(Expenses)
Interest, net (28,000) (60,000) (179,000) (179,000)
Other income/(expense) (46,000) 4,000 77,000 38,000
---------------------------- ----------------------------
Income (Loss) from operations before
provision for income taxes (639,000) 233,000 (1,001,000) 119,000
Provision (Benefit) for income taxes (50,000) (5,000) (37,000) (62,000)
------------------------------------------------------------
Net Income/(Loss) (589,000) 230,000 (964,000) 181,000
---------------------------- ----------------------------
Less: Preferred stock accretion and dividend (23,000) 9,000 (70,000) 9,000
------------------------------------------------------------
Net Income (loss) attributable to
common shareholders $ (612,000) $ 229,000 $ (1,034,000) $ 172,000
------------ ------------ ------------ ------------
Net Income (loss) per share $ (0.14) $ 0.05 $ (0.24) $ 0.04
---------------------------- ----------------------------
Weighted average shares outstanding 4,276,000 4,333,000 4,276,000 4,287,000
</TABLE>
<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
<S> <C> <C>
Cash Flow from Operating Activities:
Net income/(loss) $(1,034,000) $ 336,000
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation & amortization 585,000 662,000
Non-cash compensation 100,000
Deferred tax asset (109,000) (146,000)
(Gain)/loss on asset sale (70,000) (11,000)
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable (251,000) (641,000)
(Increase)/decrease in inventory 32,000 (836,000)
(Increase)/decrease in prepaid expenses &
other current assets (401,000) (62,000)
(Increase)/decrease in A/P and accrued expenses (122,000) 354,000
------------------------------
Net Cash provided by Operating Activities (1,370,000) (244,000)
----------- -----------
Cash Flow from Investing Activities:
Proceeds from sale of assets 2,692,000 55,000
Purchase of equipment (86,000) (322,000)
Increase/(decrease) in other assets 5,000 (692,000)
------------------------------
Total Cash Flow from Investing Activities 2,611,000 (959,000)
------------------------------
Cash Flow from Financing Activities:
Proceeds from debt 733,000 649,000
Payment of debt (1,967,000) (396,000)
Proceeds from sale of common/preferred stock 0 889,000
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Net Cash provided by Financing Activities: (1,234,000) 1,142,000
------------------------------
NET INCREASE/(DECREASE) IN CASH 7,000 (61,000)
Cash and cash equivalents at beginning of period 286,000 348,000
------------------------------
Cash and cash equivalents at end of period 293,000 286,000
------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 179,000 179,000
Income Taxes 16,000 22,000
------------------------------
Total $ 195,000 $ 201,000
Summary of noncash transactions
Dividends and accretion on preferred stock $ 70,000 $ 9,000
</TABLE>
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
General
The information contained herein with respect to the three and nine month
periods ended September 30, 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 and nine
month periods ended September 30, 1997 and 1996. The results are not
necessarily indicative of results to be expected for the year.
1. Financing
On June 20, 1997, the Registrant repaid outstanding bank debt of $1,275,000
from the proceeds of sale of the assets of the Vitamin Specialties Division
(see "Disposition of Assets").
On October 15, 1997, Montana Naturals Int'l Inc. ("Montana Naturals") a
wholly-owned subsidiary of the Registrant, closed a $4,500,000 bank credit
agreement, comprising a $2,500,000 working capital loan and two fixed asset
loans aggregating $2,000,000. A portion of the proceeds of the working capital
loan, $750,000, was drawn down at closing to repay outstanding debt and to fund
working capital. The loans are collateralized by all the assets of Montana
Naturals and the credit agreement contains covenants restricting working
capital advance rates to percentages of eligible receivables and inventory, and
requires Montana Naturals to meet certain income, liquidity and capitalization
ratios. The maturity date of the working capital loan is June 30, 2005 and on
one of the fixed asset loans is June 30, 2005 and October 1, 2017 on the other.
The loans are repayable in equal monthly installments over their respective
lives commencing July 1998. The interest rate on outstanding loans is initially
prime plus 1.25%, converting on June 30, 1998 to the treasury rate plus 3.5%
corresponding to the loan term. These loans are in addition to the Montana
Naturals loan from the Lake County Community Development Corporation (through
the Montana Department of Commerce) in the principal amount of $450,000 which
has been used to expand the Nautilus product line and to promote existing
products.
During October 1997 the Registrant executed a commitment letter with a
financial group in terms of which that group will provide up to $1,000,000 in
asset-based financing to Jason Pharmaceuticals, Inc. ("Jason"), a wholly-owned
subsidiary of the Registrant. The financing, which is expected to close during
November, will be collateralized by all the assets of Jason and will provide
working capital for Jason, primarily to finance its existing product line.
2. Disposition of Assets
On June 20, 1997, the Registrant sold its Vitamin Specialties line of business
and all tangible and intangible assets associated therewith for approximately
$2,692,000 in cash. The assets included all inventories, furniture, fixtures,
and point of sales/systems in fifteen retail outlets operated by the Vitamin
Specialties Division in the Philadelphia area, including the stores in New
Jersey except the "store within a store" in the WalMart Supercenter in
Lewistown, PA. Also included were the Vitamin Specialties inventories held in
the Owings Mills, Maryland and Arlee, Montana warehouses. The assets sold or
assigned included store cash on the day of closing, certain deposits on leased
property, lease rights in the fifteen stores, goodwill, the name "Vitamin
Specialties", trade secrets, copyrights, customer lists, mailing lists, permits
and licenses in connection with the Vitamin Specialties Division. No
liabilities were assumed by the purchaser.
<PAGE>
Proceeds of $1,275,000 were used to pay outstanding debt by the Registrant and
$105,000 to satisfy liens on the computer hardware and software of the Vitamin
Specialties Division. The balance of the initial proceeds of $1,241,000 will be
used by the Registrant as working capital. A Note Payable to the Registrant
from the purchaser is due December 20, 1997 for $75,000 plus interest.
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 Registrant'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.
<PAGE>
Management Discussion and Analysis of
Financial Condition and Results of Operations
Results of Operation
Nine Months Ended September 30, 1997 and September 30, 1996. Revenues
decreased $647,000 or 5% over the same period in 1996. The decrease was
attributable primarily to exclusion of the revenues of the Vitamin
Specialties Division from the date of its divestiture, June 20, 1997 and
had generated revenues of $1,038,000 in the third quarter of the prior
year. This was partially offset by increased private label sales and
sales of Nautilus(R) Brand products.
Cost of Sales, including warehousing, distribution, and occupancy
increased by $398,000 or 6%, and as a percentage of revenues increased by
6% from 56% in 1996 to 62% in 1997. The increase as a percentage of
revenues was primarily due to an increase of lower margin private label
revenues and the Nautilus(R) Brand sales.
Selling, general and administrative expenses increased by $502,000 or
10%, and as a percentage of revenues increased 39% to 45% or 6% between
1996 and 1997. The increases are attributable to costs associated with
introducing the Nautilus(R) Brand products line, upgrading the Vitamin
Specialties line to meet future FDA labeling requirements and costs
associated with terminating certain employees and reducing the employment
term of the previous CEOand President, who became a consultant on August
13, 1997 and which expires December 31, 1997.
Interest expense was unchanged in 1997.
A benefit of $50,000 for income taxes has been accrued in 1997 compared
to the $62,000 net benefit in 1996.
Arising from the above, a net loss of $1,034,000 was incurred in the
first nine months of 1997 as compared to net income of $172,000 in the
same period in 1996.
The Vitamin Specialties operation recorded cumulative losses of
approximately $2,000,000 over the past three years. In 1997, Vitamin
Specialties' losses amounted to $578,000.
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PART II - OTHER INFORMATION
SEASONALITY
The Registrant believes that its business is not subject to significant
seasonality.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant believes that its working capital and anticipated cash flow from
operations, together with the financing avaliable in the Montana Naturals bank
line 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.
ITEM 5. OTHER INFORMATION
On August 13, 1997 the Registrant revised the employment agreement of Bradley
T. MacDonald to reflect his resignation as CEO/President and a Director of the
Registrant, and his employment as a consultant until December 31, 1997.
<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)
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David P. Illingworth
Co-Chief Operating Officer
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John L. Teeger
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 293,000
<SECURITIES> 0
<RECEIVABLES> 2,013,000
<ALLOWANCES> (206,000)
<INVENTORY> 2,558,000
<CURRENT-ASSETS> 5,543,000
<PP&E> 4,206,000
<DEPRECIATION> 1,428,000
<TOTAL-ASSETS> 9,112,000
<CURRENT-LIABILITIES> 2,893,000
<BONDS> 0
0
768,000
<COMMON> 4,000
<OTHER-SE> 4,536,000
<TOTAL-LIABILITY-AND-EQUITY> 9,112,000
<SALES> 12,037,000
<TOTAL-REVENUES> 12,037,000
<CGS> 7,478,000
<TOTAL-COSTS> 12,936,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,000
<INCOME-PRETAX> (1,001,000)
<INCOME-TAX> (37,000)
<INCOME-CONTINUING> (423,000)
<DISCONTINUED> (648,000)
<EXTRAORDINARY> 70,000
<CHANGES> 0
<NET-INCOME> (1,034,000)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
