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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2000 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 of (I.R.S. Employer
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 [_]
Number of shares outstanding of Registrant's Common Stock, as of May 5, 2000:
5,524,531 shares
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1
<PAGE>
Index
PART I
FINANCIAL INFORMATION:
Condensed Consolidated Balance Sheet --
March 31, 2000 (unaudited) and December 31, 1999................ 3
Condensed Consolidated Statement of Operations --
Three Months Ended March 31, 2000 (unaudited)
and March 31, 1999.............................................. 4
Condensed Consolidated Statement of Cash Flows --
Three Months Ended March 31, 2000 (unaudited)
and March 31, 1999.............................................. 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...................................................... 10
2
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<TABLE>
<CAPTION>
HEALTHRITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2000 December 31, 1999
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(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash .................................................... $ 244,000 $ 154,000
Accounts receivable, net of allowance for doubtful
accounts of $33,000 .................................. 439,000 308,000
Merchandise inventory ................................... 527,000 549,000
Prepaid expenses and other current assets ............... 7,000 27,000
----------- -----------
Total Current Assets ............................... 1,217,000 1,038,000
Property, plant and equipment - net ......................... 1,005,000 1,010,000
Other assets ................................................ 152,000 64,000
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TOTAL ASSETS ....................................... $ 2,374,000 $ 2,112,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of obligations under capital lease ... $ 29,000 $ 29,000
Current maturities of long-term obligations ............. 540,000 500,000
Accounts payable and accrued expenses ................... 520,000 878,000
Subordinated notes payable .............................. 0 375,000
----------- -----------
Total Current Liabilities ............................... 1,089,000 1,782,000
Obilgations under capital leases less current maturities .... 44,000 51,000
Long-term obligations less current maturities ............... 636,000 492,000
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Total Liabilities .................................. 1,769,000 2,325,000
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Commitments and contingencies:
Redeemable convertible 8% preferred stock;
par value $.001; 2,000,000 authorized;
317,500 issued and outstanding, redemption value $635,000 605,000 605,000
----------- -----------
Stockholders' Equity
Common stock; par value $.001 per share; 10,000,000
authorized; 5,524,531 issued at March 31, 2000 and
5,524,531 issued at December 31, 1999 ................... 6,000 6,000
Additional paid-in capital .................................. 8,566,000 8,566,000
Series B redeemable convertible preferred stock;
par value $1.00; 542,957 shares issued .................. 543,000 0
Accumulated deficit ......................................... (9,115,000) (9,390,000)
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Total capital deficiency ................................ 0 (818,000)
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TOTAL LIABILITIES & STOCKHOLDER EQUITY ...................... $ 2,374,000 $ 2,112,000
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</TABLE>
3
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<TABLE>
<CAPTION>
HEALTHRITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
----------------------------
2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C>
Revenue (Note below) ................................ $ 975,000 $ 1,347,000
Cost of sales ....................................... 446,000 808,000
----------- -----------
Gross Profit ........................................ 529,000 539,000
Selling, general, and administration ................ 356,000 1,013,000
----------- -----------
Income/(loss) from operations ....................... 173,000 (474,000)
Other income/(expenses)
Interest expense, net ........................... (63,000) (25,000)
Other income/(expense) .......................... 178,000 13,000
----------- -----------
115,000 (12,000)
Income/(loss) form continuing operations ............ 288,000 (486,000)
----------- -----------
Discontinued operations:
Loss from discontinued operations ............... (0) (267,000)
Net income/(loss) ................................... 288,000 (753,000)
Less: Stock dividend ............................. (13,000) (13,000)
Accretion of preferred stock ............... (5,000) (5,000)
---------- -----------
18,000) (18,000)
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Net income/(loss) attributable to common shareholders 270,000 (771,000)
Basic and diluted loss per share:
Income/(loss) from continuing operations ........ $ .05 $ (.09)
Discontinued operations: ........................ (.00) (.05)
Net income/(loss) per share ......................... $ 0.05 $ (.14)
=========== ===========
Weighted average common shares outstanding--
Basic and diluted ................................... 5,524,531 5,397,000
</TABLE>
Note: Included in net sales are $446,000 for the three months ended March 31,
1999 relating to `TakeShape" sold through Montana Naturals International, Inc.
directly to retail chain stores. The Company is not pursuing sales directly to
retail chain stores since Montana Naturals International, Inc. became inactive.
Cost of goods sold for the three months ended March 31, 2000 includes a change
in estimate of the inventory obsolescence totaling $95,000. The gross profit
without regard to this adjustment is $434,000, which corresponds to a gross
profit percentage of 44.5% .
4
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HEALTHRITE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
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2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C>
Cash Flow from Operating Activities:
Net income/(loss) ........................................ $ 288,000 $ (769,000)
Depreciation & amortization ......................... 50,000 117,000
Provision for bad debts ............................. 0 23,000
Changes in assets and liabilities:
(Increase)/decrease in accounts receivable .......... (131,000) 1,166,000
(Increase)/decrease in inventory .................... 22,000 346,000
(Increase)/decrease in prepaid expenses &
other current assets ................................ 20,000 (374,000)
Increase/(decrease) in other assets ................. (88,000) 0
Increase/(decrease) in A/P and accrued expenses ..... (358,000) 350,000
----------- -----------
Net Cash provided by (used in) Operating Activities ...... (197,000) 859,000
----------- -----------
Cash Flow from Investing Activities:
(Increase)/decrease in plant equipment .............. 0 (395,000)
Purchase of equipment/leasehold improvements ........ (45,000) 0
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Net Cash (used in) Investing Activities ............. (45,000) (395,000)
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Cash Flow from Financing Activities:
Increase in credit line-net .............................. (184,000) 0
Repayment of capital lease obligations ................... (7,000) 0
Principal repayments of long-term debt ................... 0 (503,000)
Issuance of Series B redeemable convertible preferred .... 168,000 0
Dividend on preferred stock .............................. (13,000) 0
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Net Cash provided by (used in) Financing Activities: 332,000 (503,000)
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NET INCREASE/(DECREASE) IN CASH .............................. 90,000 (39,000)
Cash and cash equivalents at beginning of period ............. 154,000 503,000
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Cash and cash equivalents at end of period ................... 244,000 464,000
=========== ===========
Supplemental disclosure of cash flow information: Cash paid
during the period for:
Interest ............................................ 63,000 116,000
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Total .................................................... $ 63,000 $ 116,000
</TABLE>
The Company converted $375,000 of Subordinated notes payable and raised an
additional $168,000 issuing Series B redeemable convertible preferred stock in
the amount of $543,000.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The information contained herein with respect to the three month period ended
March 31, 2000 and 1999 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
three-month periods ended March 31, 2000 and 1999. The results are not
necessarily indicative of results to be expected for the year.
The Company is not pursuing sales directly to retail chain stores since October
1999 when Montana Naturals International, Inc. discontinued operations.
2. Redeemable Convertible Preferred Stock
In January, the Company retired $375,000 secured debt and raised $168,000 of new
borrowings by the issuance of $543,000 Private Placement of Series "B"
Redeemable Convertible Preferred Stock. This money was used to reduce the
payables at HealthRite, Inc. and its Jason Pharmaceuticals subsidiary and to
fund its Medicast e-commerce sales and marketing initiatives.
3. Income (loss) per common share:
Basic income (loss) per share is calculated by dividing net income (loss)
attributable to common stockholders by the weighted average number of
outstanding common shares during the year. Basic income per share excludes any
dilutive effects of options, warrants and other stock-based compensation. The
Company has not included potential common shares in the diluted per share
computation as the result would be antidilutive.
6
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO MARCH 31, 1999
First quarter revenue for 2000 of $975,000 decreased by $372,000 (27.6%) from
$1,347,000 for the first quarter of 1999. Included in net sales is $446,000 for
the three months ended March 31, 1999 relating to Take Shape sold through
Montana Naturals International, Inc. directly to retail chain stores. The
Company is not pursuing sales directly to retail chain stores since Montana
Naturals International, Inc. became inactive.
Cost of sales for the first quarter of 2000 decreased by $362,000 (44.8%) from
1999 primarily due to the Company realizing reduced manufacturing costs and new
plant efficiencies at its Owings Mills facility and the change in the estimate
of inventory obsolescence. Similarly, improved cost controls were the most
significant factor for the 14.3% increase in gross profit percentage from the
first quarter of 2000 over the previous year. Selling, general and
administrative expenses for the first quarter of 2000 decreased $657,000 (64.9%)
over the same quarter of 1999 as the expensive introductory marketing and
advertising campaigns of "TakeShape", which occurred in the first quarter 1999
were not repeated in 2000.
Income from operations for the first quarter of 2000 is 173,000, $647,000 more
than same period last year and is attributable to increased margins of Medifast
clinical products and to the reduced operating expenses related to the lower
monthly lease costs recently negotiated for its Owings Mills facility, lower
utility and telephone costs and increased efficiencies related to maintaining a
smaller space without giving up manufacturing capacity.
Net income for the three month period is $288,000 which is $1,041,000 greater
than the $753,000 loss for the first quarter of 1999. Higher margins on existing
revenues and teleweb sales with the discontinuation of "Take Shape" retail sales
and herbal sales through the unprofitable operation of Montana Naturals
International, Inc. are the basis of the improved operating results and
increased income. In addition, miscellaneous income includes the one time
realization of $181,000 resulting from negotiations with a former vendor.
7
<PAGE>
PART II - OTHER INFORMATION
SEASONALITY
The Company does not believe that its business is subject to seasonality.
LIQUIDITY AND CAPITAL RESOURCES
Jason Pharmaceuticals has a loan agreement with Wells Fargo Credit Corporation
to provide working capital. In 1997 a term loan of $260,000 was obtained in
addition to a revolving credit line with loan advances available based on
percentages of eligible accounts receivable and raw materials. The revolving
credit and term loan outstanding is limited to a total of $1,5000,000. At March
31, 2000 approximately $872,000 was available on the line of credit, of which
$426,000 had been drawn and the term loan balance was $202,000.
The Company had working capital of $128,000 on March 31, 2000 compared with
($744,000) at December 31, 1999. The $872,000 net increase reflects the profits
of $240,000 in the fourth quarter and first quarter income from operations of
$288,000. The company has sufficient cash flow from operations to fund its
current business plan.
INFLATION
To date, inflation has not had a material effect on the Company's business.
ITEM 5. OTHER INFORMATION
Litigation: HealthRite, Inc. has initiated legal action against Universal
Worldwide Health, Inc. and Century Industries, Inc. its successor by merger and
former directors and a former consultant of HealthRite, Inc. associated with
Century Industries, Inc. to collect receivables owed.
Shareholders Meeting: The HealthRite Annual Shareholder Meeting was held on May
5, 2000 in Washington, D.C. The Shareholders (84% voted in favor) elected the
following slate of Directors: Mr. Bradley T. MacDonald, Rev. Donald F. Reilly,
O.S.A., Mr. Michael C. MacDonald, Mr. Scott Zion and Ms. Kristina DeSantis.
Richard A. Eisner, LLP, auditors for HealthRite, Inc. failed to receive a
majority of the Shareholder votes.
The Directors elected Mr. Bradley T. MacDonald as Chairman of the Board, CEO,
Treasurer and Secretary, and Mr. Scott Zion as Assistant Secretary of the
Corporation.
8
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The Board of Directors and major shareholders of HealthRite, Inc. were concerned
about the high cost of the annual audit and the expenses related to a New York
firm auditing a small Baltimore Manufacturing Company with all the accounting
functions in one location with plant, equipment and inventory. The Board of
Directors of HealthRite, Inc. after reviewing proposals, has selected Wooden &
Benson Chartered of Towson, Maryland as the new independent auditors for
HealthRite, Inc. for the year 2000. The Company has also engaged Silver &
Silver, P.A. a 40-year old accounting firm located in Owings Mills, Maryland, as
the contract accounting firm to restructure the accounting department and review
the billings of the 1999 audit and give recommendations as to the final
settlement. The restructuring of finance and accounting for HealthRite will
reduce cost, while improving efficiencies, for the year 2000.
Forward Looking Statements: This document contains forwared-looking statements
which may involve known and unknown risks, uncertainties and other factors that
may cause HealthRite, Inc. actual results and performance in furture periods to
be materially different from any future results or performance suggested by
these statements. HealthRite, Inc. cautions investors not to place undue
reliance on forward-looking statements which speak only to management's
experience on this date.
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)
-----------------------------
Bradley T. MacDonald
Chairman and CEO
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> DEC-31-2000
<CASH> 244,000
<SECURITIES> 0
<RECEIVABLES> 472,000
<ALLOWANCES> (33,000)
<INVENTORY> 527,000
<CURRENT-ASSETS> 1,217,000
<PP&E> 1,005,000
<DEPRECIATION> 152,000
<TOTAL-ASSETS> 2,374,000
<CURRENT-LIABILITIES> 1,089,000
<BONDS> 0
0
605,000
<COMMON> 6,000
<OTHER-SE> (549,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,374,000
<SALES> 975,000
<TOTAL-REVENUES> 975,000
<CGS> 446,000
<TOTAL-COSTS> 356,000
<OTHER-EXPENSES> 178,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,000
<INCOME-PRETAX> 288,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 288,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 288,000
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
