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 June 30, 1998 Commission File No. 0-23016
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HealthRite, Inc.
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(Exact name of small business issuer in its charter)
Delaware 13-3714405
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
11445 Cronhill Drive, Owings Mills, MD 21117
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(Address of principal offices & Zip Code)
Registrant's telephone number, including Area Code: (410) 581-8042
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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
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Number of shares outstanding of Registrant's Common Stock, as of August 6, 1998:
5,318,251 shares
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Transitional Small Business Disclosure Format (check one). Yes No X
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<PAGE>
HealthRite, Inc.
Index
Part I
Financial Information:
Condensed Consolidated Balance Sheet -
June 30, 1998 (unaudited) and December 31, 1997 ................... 3
Condensed Consolidated Statement of Operations -
Three and Six Months Ended June 30, 1997 and 1998 (unaudited)...... 4
Condensed Consolidated Statement of Cash Flows -
Six Months Ended June 30, 1997 and 1998 (unaudited)................ 5
Notes to Condensed Consolidated Financial Statements.................. 6
Management Discussion and Analysis of Financial Condition
and Results of Operations.......................................... 7
Part II
Other Information..................................................... 8
Signature Page........................................................ 9
2
<PAGE>
HealthRite, Inc.
Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash ........................................ $ 232,000 $ 255,000
Accounts receivable, net of allowance ....... 1,433,000 1,112,000
Merchandise inventory ....................... 2,359,000 2,397,000
Prepaid expenses and other current assets.... 540,000 266,000
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Total Current Assets .................... 4,564,000 4,030,000
Property, plant and equipment -- net ............. 2,990,000 2,674,000
Other assets ..................................... 186,000 240,000
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TOTAL ASSETS ............................ $ 7,740,000 $ 6,944,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations.. $ 616,000 $ 333,000
Accounts payable and accrued expenses ....... 2,394,000 1,623,000
----------- -----------
Total Current Liabilities ............... 3,010,000 1,956,000
Long-term obligations and capital leases ......... 2,655,000 2,198,000
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Total Liabilities ....................... 5,665,000 4,154,000
Commitments and Contingencies
Redeemable convertible 8% preferred stock;
par value $.001; 2,000,000 authorized;
432,500 issued and outstanding .............. 787,000 774,000
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Stockholders Equity
Common stock; par value $.001 per share;
10,000,000 authorized; 4,438,151 issued at
June 30, 1998 and 4,400,198 issued at
December 31, 1997 ........................... 4,000 4,000
Additional paid-in capital ....................... 7,141,000 7,141,000
Accumulated deficit .............................. (5,857,000) (5,129,000)
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Total Equity ............................ 1,288,000 2,016,000
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TOTAL LIABILITIES & STOCKHOLDERS EQUITY .......... $ 7,740,000 $ 6,944,000
=========== ===========
</TABLE>
3
<PAGE>
HealthRite, Inc.
Condensed Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- -----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Unaudited) (Uaudited)
<S> <C> <C> <C> <C>
Revenue ............................................ $ 3,107,000 $ 4,458,000 $ 6,096,000 $ 8,729,000
Cost of sales ...................................... 1,810,000 2,748,000 3,699,000 5,364,000
----------- ----------- ----------- -----------
Gross Profit ....................................... 1,297,000 1,710,000 2,397,000 3,365,000
Selling, general, and administration ............... 1,366,000 2,008,000 3,089,000 3,786,000
----------- ----------- ----------- -----------
Loss from operations ............................... (69,000) (298,000) (692,000) (421,000)
Other Income/(Expenses)
Gain on sale of assets ........................ 0 80,000 0 80,000
Other income .................................. 143,000 148,000
Interest, net ................................. (74,000) (40,000) (136,000) (109,000)
----------- ----------- ----------- -----------
Income (loss) from operations before
provision for income taxes .................... 0 (258,000) (680,000) (450,000)
Provision (Benefit) for income taxes ............... 0 19,000 0 (4,000)
----------- ----------- ----------- -----------
Net Loss ........................................... 0 (277,000) (680,000) (446,000)
=========== =========== =========== ===========
Less: Stock dividend on preferred stock ............ (18,000) (35,000) (34,000)
Accretion of preferred stock ................. (6,000) (13,000) (13,000)
----------- ----------- -----------
Net Loss attributable to common shareholders - basic (24,000) (728,000) (493,000)
----------- ----------- -----------
Basic and diluted net loss per share ............... $ (0.01) $ (0.06) $ (0.16) $ (0.11)
----------- ----------- ----------- -----------
Weighted average shares outstanding -
Basic & Diluted ............................ 4,400,000 4,300,000 4,438,000 4,300,000
</TABLE>
4
<PAGE>
HealthRite, Inc.
Condensed Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------
1998 1997
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<S> <C> <C>
Cash Flow from Operating Activities:
Net Loss ............................................ $ (680,000) $ (446,000)
Depreciation & amortization ..................... 214,000 409,000
Deferred tax asset .............................. (32,000)
Gain on asset sale .............................. (80,000)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ...... (322,000) (546,000)
(Increase) decrease in inventory ................ 38,000 (257,000)
(Increase) decrease in prepaid expenses and
other current assets ......................... (274,000) (64,000)
(Increase) decrease in other assets ............. 55,000 3,000
(Increase) decrease in A/P and accrued expenses.. 771,000 167,000
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Net Cash provided by and used in Operating Activities .... (198,000) (846,000)
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Cash Flow from Investing Activities:
Proceeds from sale of assets ........................ 0 2,692,000
Purchase of equipment ............................... (530,000) (86,000)
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Net Cash Provided by Investing Activities ................ (530,000) 2,606,000
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Cash Flow from Financing Activities:
Proceeds from debt .................................. 2,523,000 236,000
Payment of debt ..................................... (1,818,000) (1,641,000)
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Net Cash provided by and used in Financing Activities .... 705,000 (1,405,000)
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NET INCREASE (DECREASE) IN CASH .......................... (23,000) 355,000
Cash at beginning of period .............................. 255,000 286,000
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Cash at end of period .................................... $ 232,000 $ 641,000
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest ........................................ 136,000 152,000
Income Taxes .................................... 0 16,000
</TABLE>
5
<PAGE>
HealthRite, Inc.
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
The information contained herein with respect to the six month periods ended
June 30, 1998 and 1997 has not been audited but was prepared in conformity with
generally accepted accounting principles for interim financial information and
instructions for Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, the
condensed consolidated financial statements do not include information and
footnotes required by generally accepted accounting principles for financial
statements. Included are the adjustments, which in the opinion of management are
necessary for a fair presentation of the financial information for the six month
periods ended June 30, 1998 and 1997. The results are not necessarily indicative
of results to be expected for the year.
2. Net (Loss) Per Share of Common Stock
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
Earnings per Share. Statement 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share unlike
primary earnings per share. Basic earnings per share exclude any dilutive
effects of options, warrants and convertible securities. Dilutive earnings per
share is very similar to the previously reported fully diluted earnings per
share. The Registrant adopted Statement No. 128 and has retroactively applied
the effects thereof for all periods presented. The impact on the per share
amounts previously reported was not significant. the effects of potential common
shares such as warrants, options, and convertible preferred stock has not been
included, if the effect would be antidilutive.
6
<PAGE>
HealthRite, Inc.
Management Discussion and Analysis of
Financial Condition and Results of Operations
General
Six Months Ended June 30, 1998 and June 30, 1997.
Revenues decreased $2,633,000 or 30% under the comparative period. The decrease
was attributable to the divestiture of the Vitamin Specialties chain of retail
stores in June 1997 and the decrease in Nautilus sales.
Concurrently, cost of sales decreased $1,665,000 or 31%. The percentage of cost
of sales to revenues decreased 0.7%.
In conjunction with the revenue decrease for the six month period, selling,
general and administrative expenses decreased $697,000. As a percentage of
revenues, selling, general and administrative expenses increased by 7% over the
comparable period. The increase was fundamentally attributable to the increased
advertising expense of $470,000 incurred by previous management and booked in
the first quarter of 1998.
Interest expense was $136,000 in the 1st half of 1998 as compared to $109,000 in
the same period of 1997. The difference was attributable to increased
borrowings.
The Registrant has assigned the Nautilus distribution rights for network
marketing to Worldwide Universal Health, Inc., a network marketing company.
HealthRite has received over $130,000 from Worldwide Universal Health, Inc. for
these rights and inventory to date and has included this in "other income" for
June 30, 1998.
Three Months Ended June 30, 1998 and June 30, 1997
Although revenue decreased 30% as a result of selling the retail stores and the
decrease in Nautilus sales, the percentage of cost of sales to revenues
decreased (3.4%) as did selling, general and administrative expenses to revenues
(1%) for the three month comparative periods. Without the advertising expense
recorded in the first quarter, a more measurable picture of recent activity
begins to emerge.
7
<PAGE>
PART II - Other Information
Seasonality
The Registrant believes that its business is not subject to significant
seasonality.
Liquidity and Capital Resources
The Registrant filed an 8K on July 27 disclosing the completion of a private
placement of 880,000 shares of common stock at $1.25 per share which netted over
$1,000,000. These proceeds will be used for working capital and expansion of the
manufacturing facilities of the Registrants wholly-owned subsidiary, Montana
Naturals Intl., Inc. The Registrant also expects that the additional capital
will enable it to continue to meet the revised listing requirements of NASDAQ.
In the private placement, 325,000 Shares were purchased by current officers and
directors of the Registrant and 400,000 Shares were purchased by Pure World,
Inc. (Nasdaq: PURW), Madis Botanicals, Inc., a subsidiary of Pure World,
supplies botanical extracts to Montana Naturals. The balance of the placement
was sold to unaffiliated investors. All purchasers agreed to grant the
management of HealthRite the voting rights to the Shares for a period of two
years from the date of the placement. As a result of the private placement, the
Registrant now has 5.3 million Shares outstanding in July.
In December 1997 the Registrants subsidiary, Jason Pharmaceuticals, Inc.,
entered into a loan agreement with Century Credit Corporation to provide working
capital. A three year term loan of $260,000 and a revolving credit line with
advances based on percentages of accounts receivable and raw materials inventory
were obtained. The entire loan is renewable in two year increments at December
9, 2000. The total of the revolving credit and term loan outstanding was limited
to a total of $1,000,000. At June 30, 1998 $600,000 was available of the line of
credit, of which $391,000 had been drawn. The term loan balance was $228,000 at
June 30, 1998.
The Company had working capital of $1,554,000 on June 30, 1998 compared with
$2,074,000 at December 31, 1997. The $520,000 decrease reflects the recording in
the 1st Quarter of 1998 of $470,000 in advertising debt which were not offset by
increases in current assets.
Inflation
To date, inflation has not had a material effect on the Registrants business.
Item 5. Other Information
The Registrant filed an 8K on July 27 disclosing the completion of a private
placement of 880,000 shares of common stock at $1.25 per share which netted over
$1,000,000.
8
<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
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Bradley T. MacDonald
Chairman and CEO
/s/ Randall Rueb
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Randall Rueb
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule below is summary info extracted from the
unaudited consolidated Balance Sheet and Inc St't of
June 30, 1998 for the six months then ended in the
report on Form 10-QSB for the six months June 30, 1998
of HealthRite, Inc. and is qualified in its entirety
by reference to such financials.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 232,000
<SECURITIES> 0
<RECEIVABLES> 1,433,000
<ALLOWANCES> 0
<INVENTORY> 2,359,000
<CURRENT-ASSETS> 4,564,000
<PP&E> 2,990,000
<DEPRECIATION> 214,000
<TOTAL-ASSETS> 7,740,000
<CURRENT-LIABILITIES> 3,010,000
<BONDS> 0
0
787,000
<COMMON> 4,000
<OTHER-SE> 1,284,000
<TOTAL-LIABILITY-AND-EQUITY> 7,740,000
<SALES> 6,096,000
<TOTAL-REVENUES> 6,096,000
<CGS> 3,699,000
<TOTAL-COSTS> 3,089,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,000
<INCOME-PRETAX> (680,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (680,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (728,000)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
