**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-K**





R
            **Annual
                Report Pursuant to Section 13 or 15(d) of the
                Securities****Exchange
                Act of 1934**





**For
      the fiscal year ended December 31, 2006**





£
            **Transition
                Report Pursuant to Section 13 or 15(d) of the
                Securities****Exchange
                Act of 1934**





**For
      the transition period from ____________to __________**





**Commission
      File Number: 33-7106-A**









**NATURADE,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            **23-2442709**(State
                or other jurisdiction of
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)**601
                Valencia Avenue, Brea, CA**
            **92823**(Address
                of principal executive offices)
            (Zip
                code)





Registrant’s
      telephone number, including area code: **(714)
      573-4800**





Securities
      registered pursuant to Section 12(b) of the Act:


**None**





Securities
      registered pursuant to Section 12 (g) of the Act:


**None**







Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


£ Yes R No





Indicate
      by check mark if the registrant is a not required to file reports pursuant
      to
      Section 13 or Section 15(d) of the Act.


R Yes £ No





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 £ No R





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K. R





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Act. (Check
      one):





Large
      accelerated filer £ Non-accelerated filer R Accelerated filer £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). £ Yes R No





As
      of
      June 30, 2006, the last business day of the registrant’s most recently completed
      second fiscal quarter, the aggregate market value of such Common Stock held
      by
      non-affiliates was $365,415 based on the average of the bid and asked price
      on
      that date.





As
      of
      March 24, 2007, 43,332,733 shares of the registrant’s common stock were
      outstanding.











**TABLE
      OF CONTENTS**





PagePART
                I
            
            
            4Item
                1. Business
            
            
            4Item
                1A. Risk Factors
            
            
            21Item
                1B. Unresolved Staff Comments
            
            
            30Item
                2. Properties
            
            
            30Item
                3. Legal Proceedings
            
            
            31Item
                4. Submission of Matters to a Vote of Security Holders
            
            
            32PART
                II
            
            
            33Item
                5. Market for the Registrant’s Common Equity and Related Stockholder
                Matters and Issuer Purchases of Equity Securities
            
            
            33Item
                6. Selected Financial Data
            
            
            34Item
                7. Management’s Discussion and Analysis of Financial Condition and Results
                of Operations
            
            
            35Item
                7A. Quantitative and Qualitative Disclosures About Market
                Risk
            
            
            50Item
                8. Financial Statements and Supplementary Data
            
            
            50Item
                9. Changes in and Disagreements with Accountants on Accounting and
                Financial Disclosure
            
            
            50Item
                9A. Controls and Procedures
            
            
            50Item
                9B. Other Information
            
            
            51PART
                III
            
            
            52Item
                10. Directors and Executive Officers of the Registrant
            
            
            52Item
                11. Executive Compensation
            
            
            54Item
                12. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            
            62Item
                13. Certain Relationships and Related Transactions
            
            
            63Item
                14. Principal Accountant Fees and Services
            
            
            64PART
                IV
            
            
            65Item
                15. Exhibits and Financial Statements
            
            
            65




2


**SPECIAL
      NOTE REGARDING FORWARD-LOOKING STATEMENTS**





Except
      for the historical information contained herein, the matters addressed in this
      Annual Report on Form 10-K constitute “forward-looking statements.”
Forward-looking statements may be identified by the use of the words
“anticipates,” “expects,” “intends,” “plans,” and variations or similar
      expressions. These forward-looking statements are subject to a variety of risks
      and uncertainties, many of which are beyond our control, discussed under “Item
      1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K, which could
      cause actual results to differ materially from those anticipated by us. In
      addition, the information set forth in the reports we file from time to time
      with the SEC describe certain additional risks and uncertainties that could
      cause actual results to vary materially from the future results covered in
      such
      forward-looking statements. You should not place undue reliance on any of these
      forward-looking statements, which speak only as of the date hereof. We undertake
      no obligation to update any of these forward-looking statements to reflect
      events or circumstances after the date hereof or to reflect the occurrence
      of
      unexpected events.





NATURADE®,
      NATURADE TOTAL SOY®, THE DELICIOUS WAY TO GIVE HEART DISEASE THE SHAKETM, THE
      DELICIOUS CHOLESTEROL FIGHTER! ®, NATURADE 100% SOYTM, NATURADE 100% WHEYTM,
      NATURADE VEGTM, NATURADE SOY-FREE VEGTM, NATURADE MILK & EGGTM, NATURADE
      N-R-GTM, NATURADE PURE SOYTM, DIET LEANTM, POWER SHAKE®, FEEL ALIVE®, RIBOTEINTM,
      REVIVEXTM, HEAD STARTTM, AGELESS FOUNDATION LABORATORIES®, SYMCO®, SYMBIOTICS® and
      EXPEC® are trademarks or service marks of Naturade, Inc.


3


**PART
      I**





**Item
      1. Business**





**General**





Naturade,
      Inc. (the” Company”) develops and markets branded natural products. The Company
      is focused on innovative products designed to nourish the health and well-being
      of consumers.





The
      Company competes primarily in the market for natural, nutritional supplements.
      The Company’s products include:





·
            Naturade
                Total Soy®,
                a
                full line of nutritionally complete meal replacements for weight
                loss and
                cholesterol reduction available in several flavors of
                powders;





·
            Naturade®protein powders;





·
            ReVivexTMhealthy joint and arthritis pain relief products; As the result of
                the
                Company’s inability to adequately fund consumer marketing and promotions,
                the ReVivexTM brand has lost retailer support and has been discontinued at
                major retailers. Subsequently, Naturade has discontinued this
                brand.





·
            AgelessTM,
                a
                line of anti-aging products;





·
            Colostrum
                PlusTM,
                a
                line of products to enhance immune system
                functions;





·
            Diet
                Lean®products focused on the low carb dieter; and





·
            Other
                niche dietary supplements.





The
      Company’s products are sold to the mass market, the health food market and the
      military in the United States, Canada and selected international markets. The
      mass market consists of supermarkets, mass merchandisers, club stores and drug
      stores. The health food market consists of natural food supermarkets and over
      5,000 independent health food stores.





The
      Company also provides private label products to a limited number of
      customers.





The
      Company’s independent registered public accounting firm issued a going concern
      opinion on the Company’s December 31, 2006 financial statements by including an
      explanatory paragraph in which they expressed substantial doubt about its
      ability to continue as a going concern.





The
      Company was incorporated in 1986 under the laws of the state of Delaware. The
      Company’s principal executive offices are located at 601 Valencia Avenue, Suite
      100, Brea, California 92823, and its telephone number is (714) 573-4800. The
      Company’s website is located at *www.naturade.com* .





**History
      and Recent Developments**





***Product
      Introductions***





Naturade
      pioneered the introduction of soy protein powders in the 1950’s. In 1999, the
      FDA authorized qualifying products to claim on their label that “ *25*  *grams
      of soy protein daily, in a diet low in saturated fat and cholesterol,
      may*  *reduce
      the risk of heart disease.* ”
The
      Company introduced its Naturade Total Soy ® meal
      replacement powders featuring this claim on the first day allowed by the FDA.
      Naturade currently markets 26 SKUs featuring this claim.





In
      2002,
      Naturade broadened its focus to target the weight loss market with the
      introduction of the Naturade Total Soy ® line of
      meal replacements for cholesterol reduction and weight management. In 2003,
      the
      Company introduced the Diet LeanTM, a product marketed to reduce the absorption
      of starch calories. In 2004, this line was extended with additional meal
      replacement powders and dietary supplements.


4





In
      order
      to focus its resources on the Company’s core soy powder brands and new products
      and to raise working capital, the Company sold its Aloe Vera brands in 2004.
      The
      Aloe Vera products were focused primarily on the natural health and beauty
      segment, which were outside the Company’s current strategic focus.





In
      October 2004, Naturade introduced the ReVivexTM family of dietary supplements
      containing Celadrin®. Celadrin® has been reported to promote joint health and
      mobility. The Company also introduced ReVivexTM Pain Relief Lotion, a
      menthol-based topical analgesic for arthritis pain and backache, as well as
      pain
      from overexertion or injuries. The Company does not have a long-term supply
      agreement for Celadrin®. In the event the owner of Celadrin® refused to provide
      the Company with this product, or increased its prices, Naturade would be
      required to reformulate the ReVivexTM line to use another, perhaps less effective
      ingredient, or to pass any price increase on to our customers.




**Recent
      Developments**





***Chapter
      11 Filing***





On
      August
      31, 2006 (the “ Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Bankruptcy”) under Chapter 11 of
      the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
      Bankruptcy Court for the Central District of California (the “Bankruptcy
      Court”). Since the Petition Date, the Company has conducted activities as a
      debtor-in-possession under the Bankruptcy Code. See Note 1, *Chapter
      11Bankruptcy Proceedings* for
      additional information.





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”)
      applicable to a going concern, which assume that assets will be realized and
      liabilities are discharged in the normal course of business. As a result of
      the Chapter 11 Bankruptcy (see Note 1, *Chapter
      11Bankruptcy Proceedings* )
      such
      realization of assets and liquidation of liabilities is subject to uncertainty.
      A substantial portion of the Company's liabilities as of the Petition Date
      are
      subject to compromise or other treatment in the Chapter 11 Bankruptcy. For
      financial reporting purposes, those unsecured liabilities and obligations whose
      disposition is dependent on the outcome of the Chapter 11 Bankruptcy have been
      segregated and classified as liabilities subject to compromise in the December
      31, 2006 balance sheet. Generally, actions to enforce or otherwise effect
      repayment of all pre-Chapter 11 liabilities and pending litigation against
      the
      Company are stayed while the Company continues as a debtor-in-possession during
      bankruptcy proceedings. Schedules have been filed by the Company with the
      Bankruptcy Court setting forth the assets and liabilities of the Company as
      of
      the Petition Date as reflected in the Company's accounting records. Differences
      between amounts reflected in such schedules and claims filed by creditors will
      be investigated and either amicably resolved or adjudicated by the Bankruptcy
      Court. The ultimate amount of and settlement terms for such liabilities are
      not
      presently determinable.





Financial
      accounting and reporting during a Chapter 11 Bankruptcy for an entity with
      the
      expectation of reorganizing is prescribed in Statement of Position No. 90-7,
      “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”
(“SOP 90-7”). The Company has an expectation of reorganizing under the
      Bankruptcy Code. Accordingly, unsecured pre-petition liabilities, which may
      be
      subject to settlement, are classified as liabilities subject to compromise
      in the December 31, 2006 balance sheet. In addition, the Company has reported
      all transactions (other than interest expense) directly related to the Chapter
      11 Bankruptcy as reorganization items in its statement of operations for the
      year ended December 31, 2006. SOP 90-7's definition of reorganization items
      excludes (1) interest expense and (2) transactions required to be reported
      as
      discontinued operations or extraordinary items in conformity with GAAP. However,
      the accompanying financial statements do not include any adjustments that may
      be
      required in connection with restructuring the Company under Chapter 11 of the
      Bankruptcy Code.





On
      September 25, 2006, The Company's common stock was de-listed from the
      over-the-counter Bulletin Board and now trades on the "Pink Sheets." The Company
      intends filing a 15 (2) c statement with NASD in Spring 2007 to try to regain
      listing on the over-the counter Bulletin Board.


5





Since
      September 2006, the Company has sought consensual agreement with its secured
      lender, other secured parties and the committee of unsecured creditors. The
      parties reached consensual agreement on the Company’s Fifth Amended Plan of
      Reorganization (the “Plan”) which was heard in Bankruptcy Court on February 28
      2007 and approved. The Company expects its Plan to become effective in April
      2007 (the “Effective Date”), based upon representations the Company has received
      from Redux Holdings Inc. (“Redux”), the Company’s controlling shareholder, who
      has agreed to provide the funding required under its Plan. A copy of the Plan
      may be accessed at www.winthropcouchot.com/client_files.php under
      client documents - Naturade.





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be canceled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of restricted common stock to give Redux
      a
      95% equity and voting interest in the Company. All remaining shareholders will
      have a total of 5% equity interest in the Company.





***Recapitalization***





On
      July
      22, 2005, the Company entered into a recapitalization with Quincy Investments
      Corp. (“Quincy”) and its then principal stockholders, Health Holdings and
      Botanicals LLC (“Health Holdings”) and Westgate Equity Partners, L.P
      (“Westgate”). In connection with the recapitalization, Quincy negotiated, and
      arranged the financing for, the Company’s acquisition of selected assets of
      Ageless, Symco and Symbiotics described below. In addition, the recapitalization
      involved (1) the issuance of securities to Quincy, (2) the exchange by Health
      Holdings and Westgate of shares of the Company’s common stock and Series B
      Convertible Preferred Stock (“Series B”) for shares of Series C Convertible
      Preferred Stock (“Series C”) and (3) the extension of the maturity date of
      certain notes held by Health Holdings and Bill D. Stewart, a director and the
      Company’s chief executive officer (“Stewart”), and David A. Weil (“Weil”). The
      recapitalization resulted in the availability to the Company of additional
      products, the delay in the Company’s obligation to pay such notes with a
      resulting short-term increase in the Company’s liquidity, and a change in
      control of the Company.





On
      the Effective Date, all Company Series C Preferred shares, along with their
      voting and control rights, all options, all warrants, and all registration
      rights, will be cancelled as required under the Plan. The Company, as required
      by the Plan, will then issue Redux enough shares of the Company’s common stock
      to give Redux a 95% equity and voting interest in the Company. All remaining
      shareholders will have a total of 5% equity interest in the Company.




***Change
      in Control***





On
      August
      10, 2006, Quincy Investments Corp. (“Quincy”), the then principal shareholder of
      the Company, subsequent to executing a Letter of Intent of July 26, 2006 with
      Redux to transfer to Redux, Quincy’s controlling interest in Naturade, as
      reported on the Company’s Form 8-K filed with the Securities and Exchange
      Commission on August 2, 2006, entered into the Quincy Transfer Agreement (“the
      Definitive Agreement”) pursuant to which:





·
            Quincy
                transferred 28 million shares of the Company’s common stock, 4.2 million
                shares of Series C Convertible Preferred Stock (“Series C”) and 14 million
                warrants to purchase common stock to
                Redux;


·
              Redux
                  agreed to make cash contributions up to $500,000, at its sole discretion,
                  to the Company;


·
              Redux
                  and Quincy agreed to attempt to complete a Definitive Agreement
                  by August
                  31, 2006.


·
              It
                  should be noted that Quincy withheld 3,372,345 shares of Common
                  in
                  violation of the Quincy Transfer Agreement.





Before
      the transactions described above, Quincy owned 31,372,345 shares of the
      Company’s common stock, or 72.4% of the voting power of the Company’s common
      stock. Quincy also owned 4.2 million shares of Series C, which when added to
      Quincy’s common stock holdings, represented 55.3% of the combined voting power
      of the Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the holders of the Company’s common stock (on an
      as-converted basis) on all matters, including the election of directors,
      presented to the stockholders. As a result, Quincy had the power to elect a
      majority of the Board of Directors and to determine the outcome of any matter
      submitted to the stockholders, subject to the rights of Health Holdings and
      Botanicals, LLC holders of 12,600,000 shares of Series C who have the right
      to
      elect one director and to approve certain transactions.


6





The
      Definitive Agreement contemplated under the Letter of Intent was not been
      entered into and the Letter of Intent by its terms has expired. Although Quincy
      has threatened litigation against Redux related to the absence of a Definitive
      Agreement no lawsuit has been commenced. In contrast, the Company has initiated
      a lawsuit against Quincy and Peter Pocklington. See Legal Proceedings.




On
      August
      31, 2006 Laurus entered into an agreement with Redux, the principal shareholder
      of the Company, (the “Redux Agreement”) pursuant to which:




·
            Laurus
                Master Fund, Ltd. (“Laurus”) transferred 1,050,000 shares of the Company’s
                common stock to Redux;


·
              Laurus
                  transferred warrants to purchase 1,500,000 shares of the Company’s common
                  stock at $0.80 per share to Redux which were cancelled upon
                  transfer;


·
              Laurus
                  transferred an option to purchase 8,721,375 shares of the Company’s common
                  stock at $0.001 per share to Redux (“Laurus Options”);
                  and


·
              Redux
                  issued 574,787 shares of Redux common stock to Laurus, subject
                  to certain
                  provisions for anti-dilution and piggy back registration
                  rights.





On
      April
      13, 2007, Redux issued Laurus a cashless warrant to purchase up to 700,000
      shares of Redux common stock, in consideration of Laurus waving all default
      interest of the Company’s accrued default interest and fees.





On
      November 16, 2006, Redux acquired 500,000 shares of the Company’s common stock
      and warrants to purchase 3,647,743 shares of common stock from Liberty Company
      Financial, LLC (“Liberty”) and in exchange issued to Liberty 28,116 shares of
      Redux common stock.





As
      a
      result of the transactions described above, Redux controls voting rights of
      29,550,000 shares of the Company’s common stock and 4,200,000 shares of Series
      C, or 68.2% of the voting power of the Company’s common stock, 20.0% of the
      voting power of the Series C, and 52.5% of the combined voting power of the
      Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the Company’s common stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Redux has the power to elect a majority of the Board
      of Directors and to determine the outcome of any matter submitted to the
      stockholders, subject to the rights of the holders of the Series C described
      above. If the Laurus Options are included, these percentages increase.





On
      the Effective Date, all Company Series C Preferred shares, along with their
      voting and control rights, all options, all warrants, and all registration
      rights, will be cancelled as required under the Plan. The Company, as required
      by the Plan, will then issue Redux enough shares of common stock to give Redux
      a
      95% equity and voting interest in the Company. All remaining shareholders will
      have a total of 5% equity interest in the Company.




***Financing***





In
      July
      2005, the Company obtained a $4,000,000 convertible financing facility from
      Laurus, consisting of a $3,000,000 revolving credit facility and a $1,000,000
      term loan. In consideration of such financing facility, the Company issued
      to
      Laurus an option to purchase up to 8,721,375 shares of the Company’s common
      stock at $0.001 per share and a warrant to purchase up to 1,500,000 shares
      of
      the Company’s common stock at $0.80 per share. The financing facility was
      amended on January 11, 2006, by among other things, increasing the term loan
      to
      $1,650,000 and eliminated the conversion features on the facility. The Company
      issued Laurus 1,050,000 shares of the Company’s common stock in consideration
      for this amendment. See Note 4 to Financial Statements,
“Financing.”





On
      August
      31, 2006, prior to the Company’s filing under Chapter 11 of the US Bankruptcy
      Code, Laurus and Redux agreed to cause the Company to do the following (the
      “Financing Changes”):





·
            Laurus’
                claim in the approximate amount of $2,900,000 will be treated as
                fully
                secured and the liens granted Laurus pursuant to the Financing Agreement
                will remain without
                modification.


7





·
            Laurus
                will provide debtor in possession financing (“DIP”) pursuant to the terms
                and conditions of the financing
                agreement.


·
              Interest
                  will continue to accrue on the Term Loan pursuant the terms of
                  the
                  Financing Agreement however, payments will be suspended until the
                  first
                  day of the first full month after the Effective Date of the Chapter
                  11
                  filing.


·
              The
                  maturity date of the Term loan will be extended to January 6, 2010
                  and
                  principal payments will commence on the first day of the first
                  full month
                  after the Effective Date of the Chapter 11 filing and be payable
                  in equal
                  monthly installments until the maturity
                  date.





***Control
      by Principal Stockholders and Others***





As
      a
      result of this recapitalization and financing, Redux has substantial control
      over Naturade. For a description of the various rights of these parties, see
      “Risk Factors - *Certain*  *stockholders
      have the ability to control the Company and have other
      substantial*  *rights,
      preferences and privileges.”*





***Acquisitions***





On
      August
      3, 2005, the Company acquired certain assets relating to the health products
      retail business of Symco. On August 5, 2005, the Company acquired certain assets
      relating to the health products retail business of Ageless. In these
      acquisitions, Naturade acquired the right to distribute additional new products,
      including the AgelessTM line of anti-aging products and Colostrum PlusTM, a line
      of products reported to enhance immune system functions. For a description
      of
      these acquisitions (including the purchase prices, assets acquired and
      obligations assumed), see “Business- *Acquisitions* ”
below.
      See also “Risk Factors- *In
      the Company’s recent acquisitions, the Company assumed substantial
      additional*  *obligations* .” **





**Business
      Strategy**





Naturade
      is focused on innovative, scientifically supported nutritional supplements
      and
      natural products designed to nourish the health and well being of consumers.
      The
      key elements of our growth strategy include the following:





***Increase
      focus on weight loss***





Naturade
      is focused on the growth potential of the weight loss category. Clinical studies
      on both humans and animals have shown that a low calorie diet containing soy
      protein based foods is more effective in promoting weight loss than a low
      calorie diet containing animal protein based foods. The Company’s Diet LeanTM
brand of products offers a product line for new, complementary weight loss
      products.





***Capitalize
      on the health benefits of soy protein***





Naturade
      believes significant growth potential exists in the soy protein foods. In 1999,
      the U.S Food and Drug Administration (“FDA”) approved the claim that
“ *25
      grams of soy protein daily, in a diet low in saturated fat and
      cholesterol,*  *may
      reduce the risk of heart disease.”* This
      claim was approved by the FDA based on studies evaluating the relationship
      between dietary soy protein and the level of blood lipids, particularly
      cholesterol. To carry this claim, one serving of a product must deliver at
      least
      6.25 grams of soy protein with no more than three grams of fat and no more
      than
      one gram of saturated fat. Each of the Company’s soy protein based powders
      contains between 8 and 25 grams of soy protein per serving. The FDA, the
      American Heart Association and the Mayo Clinic all support daily intake of
      25
      grams of soy protein as part of a diet low in saturated fat and cholesterol.





***Excel
      in relationships with consumers and retailers***





Naturade
      has used its expertise in consumer packaged goods to build a strong relationship
      with its retail customers. The Company complements its broad sales and marketing
      efforts with programs focused on direct-to-consumer communication to generate
      trial use, cross-promote products and build brand loyalty. Despite the negative
      effects of the Company’s filing for bankruptcy protection under Chapter 11, the
      Company has maintained strong relationships with most of its retailers.


8





***Pursue
      innovation through science-based new products***





Naturade
      continues to emphasize new products as a long-term growth strategy. These
      include further exploitation of soy protein’s claims to lower cholesterol,
      support weight loss, reduce bone loss, reduce hot flashes and enhance
      performance. In addition, the Company intends to investigate future products
      based on other promising health benefits supported by scientific investigations
      in the weight loss and joint health categories. The Company’s marketing and
      research and development departments spearhead new product development,
      overseeing product formulation, testing and sample production runs carried
      out
      by our third-party manufacturers.





***Focus
      promotional spending to improve profitability by
      account***





The
      Company manages its spending plans based on an account’s potential, and then
      develops its promotional programs to optimize sales growth while limiting brand
      expense. As a result, contribution margins, defined as gross margins less direct
      brand expenses, were 17.6% of net sales for 2006 and 25.7% of net sales for
      2005. The decrease in contribution margin in 2006 was a result of increased
      costs related to product sourcing and an increase in customer claims and
      allowances following the Company’s filing for Chapter 11
      protection.





***Selectively
      pursue new distribution***





Naturade
      selectively pursues new distribution where initial investment in start-up costs
      has a strong expectation of delivering a near-term return. Similarly, the
      Company has elected to exit accounts where minimum profit standards cannot
      be
      met. As a result, Naturade is currently selling to a consolidated U.S. account
      base of approximately 36,000 stores in 2006 and 2005 and 20,000 in
      2004.





Expansion
      into international markets with a streamlined offering of best selling products
      is being pursued with the same targeted spending strategy.





***Identify
      and solicit strategic partners for growth***





Naturade
      continues to focus on external growth, making use of the resources of our
      principal shareholders to help identify compatible companies for strategic
      alliances, investments in the Company or acquisitions by the Company. The effort
      to identify additional funding in support of internal and external growth is
      ongoing.




**Brands
      and Product Lines**





***Weight
      loss brands***





Naturade
      Total Soy® is the Company’s largest selling brand, positioned for weight loss
      and cholesterol reduction. It is distributed in virtually all of the retail
      outlets serviced by the Company or its distributors. These products include
      shake mix powder products available in a variety of flavors in all natural
      and
      low carbohydrate formulation including original Naturade Total Soy® powder,
      Calcium ShakeTM and Naturade Low Carb Dieters Shake®.





First
      introduced in 1950, Naturade protein boosters are high protein, low carbohydrate
      powders offering consumers a range of protein choices. These powders are
      typically added to smoothies to make high protein drinks, but are also used
      to
      add protein to other foods prepared at home such as cereal, sauces or
      casseroles. We offer a broad selection of protein booster powders based on
      alternate protein sources, including Naturade 100% SoyTM, Naturade VegTM, Naturade
      N-R-GTM, Naturade 100% WheyTM, Naturade Soy-Free VegTM and Naturade Milk &
EggwhiteTM.





Diet
      LeanTM is a new Naturade weight loss brand introduced in 2003. Diet LeanTM offers
      four different SKUs of dietary supplement plus two meal replacement powders.
      These products include Diet Lean® Body Fat Regulator with CLA®, Diet Lean®
Weight Loss Multivitamin, Diet Lean® Fiber Supplement and Diet Lean® Low Carb
      Dieters Shake. The introduction of this brand and the subsequent introduction
      of
      products focused on the low carbohydrate dieter address the needs of consumers
      who will no longer be able to purchase ephedra-based products and will be
      looking for safe and effective dietary supplements that will help them lose
      weight.


9





Calcium
      Shake is a soy protein-based meal replacement for weight loss that is positioned
      to support bone health with the full daily value of 1000 mg of Calcium per
      serving.





***Soy
      protein-based products for heart health***





In
      1999,
      the FDA authorized a heart health claim for soy protein. Naturade markets 26
      different soy protein SKUs that qualify to carry the FDA approved claim that *“25
      grams of soy protein daily, in a diet low in saturated fat and*  *cholesterol,
      may reduce the risk of heart disease.”* These
      products accounted for approximately 51% of our net sales in 2005. Naturade
      Total Soy® was the first soy protein powder brand in the United States to carry
      this claim on the front of retail package labels and differentiates itself
      from
      competitors by continuing to emphasize this life-saving health message on its
      packages as well as in its advertising and promotional messages as “the
      delicious cholesterol fighter®.” We offer two soy protein-based nutritional
      supplement products positioned as energy enhancers, Power Shake® and Ribo-teinTM,
      plus Naturade Pure SoyTM, the only widely distributed meal replacement powder
      made with certified organic ingredients. In addition, three of the six low
      carbohydrate protein boosters are made with soy protein and carry the FDA heart
      health claim. To carry this claim, one serving of a product must deliver at
      least 6.25 grams of soy protein with no more than three grams of fat and no
      more
      than one gram of saturated fat. Each of the Company’s soy protein based powders
      contains between 8 and 25 grams of soy protein per serving.





***Joint
      health care products***





In
      late
      2004, the Company introduced ReVivexTM, a line of joint health products that
      utilize Celadrin®, a proprietary compound that studies show offers benefits not
      found in glucosamine based products, currently the standard for natural joint
      health supplements. The active ingredient in the ReVivexTM line, available in
      several oral (tablet) applications, has properties which are reported to cushion
      bones and joints to increase mobility and promote flexibility. As the result
      of
      the Company’s inability to adequately fund consumer marketing and promotions,
      the ReVivexTM brand has lost retailer support and has been discontinued at major
      retailers. Subsequently, Naturade has discontinued this brand .





***Immune
      system enhancement products***





In
      2005
      acquired the Colostrum PlusTM line of products from Symco, These products utilize
      bovine Colostrum which is very similar to human Colostrum and are reported
      to
      enhance immune system functions.





***Aloe
      Vera-based products***





During
      2004, Naturade sold our Aloe Vera brands for approximately $1.2 million in
      cash
      in order to raise working capital and focus its resources on meal replacements,
      diet products, sports nutrition and joint health care products. The Aloe Vera
      based products accounted for approximately 10%, of the Company’s 2004 net
      sales.





***Other
      products***





Naturade
      offers additional all-natural brands and product lines including sports
      nutrition powders, laxatives, digestive aids, cough/cold products and anti-aging
      products under the AgelessTM line which, cumulatively, account for approximately
      6% of 2006 net sales. These products are distributed almost exclusively through
      independent health food stores and natural supermarkets.




**Competition**





In
      light
      of the 2004 withdrawal of Slim Fast’s soy protein powders, Naturade faces only
      one significant competitor in the mass market powder sector, Genisoy® from MLO
      Products, Inc. Many other companies have entered the category since 1999 but
      hold only small market shares, including Twinlab, Amerifit, Kashi, Balance,
      EAS,
      Natrol, Rexall Sundown, Schiff (Weider) and Country Life (Hain). The Company
      also competes with Genisoy® and Kashi in the health food segment. In the health
      food sector, Naturade competes indirectly with Spiru-tein®, a brand from
      Nature’s Plus, Inc. Unlike Naturade Total Soy®, Spiru-tein® does not emphasize
      soy protein content in marketing its products and positions them as energy
      boosters rather than products for weight loss or cholesterol reduction.
      Spiru-tein® holds a substantial lead over Naturade’s entries in the energy
      category, Power Shake® and Ribo-teinTM.


10





**Sales,
      Marketing and Distribution**





In
      fiscal
      2006, the Company’s sales by distribution channel were 33.6% to the mass market,
      63.0% to the health food market and 3.4% in international channels, as compared
      to sales by distribution channel of 41.5% to the mass market, 55.8% to the
      health food market and 2.7% in international channels in fiscal 2005. The
      Company’s products are sold to both the health food market and the mass market
      using a sales management team augmented by independent brokers. Health food
      sales are primarily through distributors, while most mass market sales are
      direct to retailers. Naturade’s sales and distribution in Canada is also handled
      through distributors and brokers.





The
      Company’s direct sales force supervises broker sales organizations in the health
      food market and mass market. While headquarters sales calls are primarily the
      responsibility of our sales management, over 50 independent health food broker
      personnel and an additional 15 independent mass market broker personnel carry
      out follow-up calls and retail activity. The Company maintains brokerage
      agreements with its health food and mass market brokers throughout the United
      States. These agreements have a term of one year and may be terminated on 30
      days prior written notice by either party. In addition, these agreements grant
      the brokers exclusive territories to represent us and receive commissions on
      sales generated in these territories. Brokers do not take title to the Company’s
      products.





The
      Company sells its products in the health food market through a network of 19
      independent distributors and approximately 20 smaller independent distributors,
      who together service approximately 8,000 retail health food stores and natural
      supermarkets in the United States. These distributors take title to our
      products, combining these products with other companies’ products to serve the
      health food stores in their geographic area. Ten of these key distributors
      are
      divisions of United Natural Foods, Inc. (“UNFI”), a national health food
      distributor, while six other distributors are divisions of Tree of Life, Inc.
      (“TOL”), another national health food distributor. Combined, these two principal
      health food distributors accounted for 24% of the Company’s net sales during
      2006. Our direct sales force, along with brokers, often will solicit business
      from health food stores who then acquire our products from these distributors.
      While each of these national health food distributors is a corporate legal
      entity, their divisions independently make purchasing decisions on our products
      and are separately invoiced by us. Accordingly, in “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations,” the Company treats
      these divisions as separate customers for purposes of determining the top 40
      customers.





Mass
      market products are sold directly to mass market retailers or their designated
      distributors. One mass market customer, Sam’s Club and Wal-Mart, represented
      approximately 21% of the Company’s net sales in 2006. While this mass market
      customer is part of a single corporate legal entity, its retail operations
      are
      independent operations, have separate buying departments and are separately
      invoiced by the Company. Thus, in “Management’s Discussion and Analysis of
      Financial Condition and Results of Operations,” Naturade treats them as separate
      customers for purposes of determining the top 40 customers.





The
      loss
      of any one of the Company’s major customers could have a material adverse effect
      on its business.





**Third-Party
      Manufacturers**





Naturade
      out sources all of its manufacturing and, as a result, has been significantly
      dependent on third-party manufacturers such as Nellson Nutraceuticals, Omni-Pak,
      a division of NBTY, Inc Best Formulations, and Advanced Protein Systems. As
      a
      result of the Company’s filing for bankruptcy protection under Chapter 11, the
      Company has encountered significant challenges maintaining, or finding new
      third
      party manufacturers. Omni Pak and Nellson have ceased manufacturing the
      Company’s products and the Company has been forced to approach new manufacturers
      to source manufacture of its products. As a result, the Company has been forced
      to negotiate less favorable purchasing terms including cash in advance or cash
      on delivery in order to purchase inventory. This has caused the Company to
      encounter numerous inventory shortages. As the Company begins to emerge from
      bankruptcy, certain vendors are beginning to offer more favorable purchasing
      terms.


11





The
      Company currently contracts with third-party manufacturers who specialize in
      powder, liquid, tablet/capsule, and over-the counter drug production. Naturade
      selects its third-party manufacturers based upon several criteria, including
      quality, capacity, location and cost. Under the direction of the Company’s
      product development team, these third-party manufacturers create product
      formulations and develop sample production runs of prototype products. Naturade
      generally requests that a certificate of analysis, which indicates tested levels
      of key microbiological measures, accompany product batches received from
      third-party manufacturers.





**Raw
      Material Supplies**





Due
      to
      outsourcing of production, the Company has eliminated most of its raw material
      inventory. At December 31, 2006, raw material inventory was $49,879. This amount
      includes labels, corrugated boxes and shippers. The Company believes that the
      raw materials used by its third-party manufacturers are readily available from
      multiple supply sources. The Company has experienced significant delays due
      to
      supply problems related to the Chapter 11 filing. As the Company begins to
      emerge from bankruptcy, certain of these vendors are beginning to offer more
      favorable purchasing terms.





**Quality
      Control**





Naturade
      has established quality control standards for its third-party manufacturers,
      including lists of approved raw material suppliers, agreed upon production
      batch
      sizes, microbiological and other contaminant testing criteria, utilization
      of
      industry-specific independent laboratories for sample analysis and a formal
      incubation period for finished products, among other requirements.





**Seasonal
      Fluctuations**





As
      the
      Naturade Total Soy® brand has emphasized weight loss in connection with its meal
      replacement products, sales have become somewhat more seasonal, affected by
      higher December and first quarter demand due to intense consumer interest in
      dieting and healthy lifestyle following the holiday season, with a softening
      of
      sales in the beginning of the fourth quarter. In addition, the Company’s natural
      cough and cold line fluctuates with the cold season throughout the country.
      Because individual products have seasonal variations, as the Company’s product
      mix changes, it may experience more seasonality in the future. International
      sales tend to fluctuate depending upon economic conditions, seasonal patterns
      and cultural differences within each country.





**Trademarks,
      Copyrights and Other Intellectual Property**





Naturade
      maintains 53 registrations on trademarks with the United States Patent and
      Trademark Office. Naturade also maintains trademark registrations for a variety
      of marks in approximately 12 foreign countries. In addition, the Company holds
      other intellectual property rights. Federally registered trademarks have
      perpetual life, provided they are renewed on a timely basis and used properly
      as
      trademarks, subject to the rights of third parties to seek cancellation of
      the
      marks. The Company regards its trademarks and other proprietary rights as
      valuable assets and believes that they have significant value in the marketing
      of the Company’s products. Because of the Company’s limited financial resources,
      it cannot, in all cases, exhaustively monitor the marketplace for trademark
      violations. The Company will evaluate and pursue potential infringements on
      a
      case-by-case basis in accordance with its business needs and financial
      resources. If the Company is not aware of some infringing uses or elect not
      to
      pursue them, the value of its trademarks could be substantially weakened.





As
      part
      of the acquisition of Symco and Symbiotics, Naturade acquired the exclusive
      right to the trademark “Age Defiance,” and granted Symco and Symbiotics a
      license to use this trademark. See “Business-Acquisitions” for a discussion of
      the acquisition of Symco.


12




**Recapitalization**





In
      January 2005, Naturade was introduced to Quincy by a public relations firm
      retained by both Quincy and Naturade. Before this introduction, Naturade did
      not
      have any relationship with Quincy. Quincy, in turn, introduced Naturade to
      Ageless and to Symco and Symbiotics. Symco and Symbiotics were related companies
      under common control. Before this introduction, Naturade did not have any
      relationship with Ageless, Symco or Symbiotics.





On
      July
      22, 2005, the Company entered into a Master Investment Agreement (the “Master
      Investment Agreement”), with Quincy, Health Holdings, Westgate, Stewart and
      Weil, pursuant to which:





·
            Quincy
                negotiated, and arranged the financing for, the acquisition by Naturade
                of
                selected assets of Ageless, Symco and
                Symbiotics;





·
            Quincy
                remained a co-obligor on, and a principal of Quincy personally guaranteed,
                the payment of a portion of the purchase price of each such
                acquisition;





·
            Naturade
                issued to Quincy (i) 30,972,345 shares of Common Stock, (ii) warrants
                to
                purchase 7,000,000 shares of the Company’s common stock at $0.80 per share
                and additional 7,000,000 shares of the Company’s common stock at $1.02 per
                share, during the period from July 22, 2006 to July 22, 2015 (the
“Quincy
                Warrants”), and (iii) 4,200,000 shares of Series C, all in consideration
                of Quincy negotiating, and arranging the financing for the Company’s
                acquisition of the selected assets of Ageless, Symco and Symbiotics
                and
                guaranteeing the payment of a portion of the purchase price of each
                such
                transaction;





·
            Health
                Holdings surrendered the 41,054,267 shares of the Company’s common stock
                held by it in exchange for (i) 12,600,000 shares of Series C and
                (ii) a
                warrant to purchase 10,000,000 shares of the Company’s common stock at
                $1.00 per share, during the period from July 22, 2006 to July 22,
                2015
                (the “HHB Warrant”);





·
            Westgate
                surrendered the 13,540,723 shares of Series B held by it, including
                any
                accrued and unpaid dividends, in exchange for 4,200,000 shares of
                Series
                C;





·
            Health
                Holdings, Stewart and Weil extended the term of the Secured Promissory
                Notes issued to them pursuant to that certain Loan Agreement dated
                April
                23, 2003, from December 31, 2006 to December 31,
                2006;





·
            Naturade
                granted to Health Holdings, Westgate and Quincy certain registration
                rights with respect to the common stock issuable upon conversion
                of the
                Series C or exercise of the HHB Warrant or the Quincy Warrants (see
                “Business - Registration Rights”);
                and





·
            Quincy
                would grant to Health Holdings and Westgate certain co-sale rights
                described below.





The
      holders of the Series C voting as a separate class are entitled to elect one
      member of our Board of Directors. In addition, in matters presented for a vote
      of stockholders, including the election of other directors, the holders of
      the
      Series C vote together with the holders of Common stock as a single class,
      with
      a number of votes equal to the number of shares of common stock into which
      the
      Series C may then be converted. Under Delaware law, the holders of common stock
      and Series C vote as a separate class on any amendment to our Certificate of
      Incorporation which would (i) increase or decrease the aggregate number of
      authorized shares of such class, (ii) increase or decrease the par value of
      the
      shares of such class, or (iii) alter or change the powers, preferences or
      special rights of the shares of such class so as to affect them
      adversely.





In
      addition, Health Holdings is entitled to receive notice of, and to have a
      representative attend, all meetings of the Company’s Board of Directors, so long
      as Health Holdings owns any Series C.





On
      a
      liquidation or sale of Naturade, the holders of Series C would be entitled
      to
      receive a preferential payment equal to $1.00 per share (subject to adjustment),
      plus accrued but unpaid dividends. This preferential payment would reduce the
      amount available for distribution to the holders of the Company’s common
      stock.


13





For
      each
      fiscal year, the holders of Series C would be entitled to receive a cash
      dividend equal to 20% of the amount, if any, by which the Company’s pre-tax
      profits for such year exceed $10 million, which dividend would be distributed
      within 120 days of the end of such fiscal year. This cash dividend would reduce
      the amount available for other corporate purposes, including the expansion
      of
      our business or distributions to the holders of the Company’s common
      stock





Naturade
      has the right to require the conversion of all shares of Series C into the
      Company’s common stock at any time within ten days following a period of 20
      consecutive trading days for which the closing bid price of the Company’s common
      stock equals or exceeds $1.50 per share (as adjusted).





At
      any
      time after July 22, 2006, the holders of the Series C had the right to convert
      each share of Series C into one share of the Company’s common stock at $1.00 per
      share (subject to adjustment to prevent dilution). The issuance of these shares
      of the Company’s common stock could cause substantial dilution to the other
      holders of the Company’s common stock and the potential issuance of these shares
      of the Company’s common stock could depress the market price of the Company’s
      common stock and impair the Company’s ability to raise capital through the sale
      of the Company’s common stock





On
      December 31, 2012, Naturade is required to redeem the Series C for $1.00 per
      share (subject to adjustment), plus accrued but unpaid dividends, provided
      the
      Company is then legally able to do so. This cash dividend would reduce the
      amount available for other corporate purposes, including the expansion of its
      business or distributions to the holders of its.





The
      issuance of the shares of the Company’s common stock under the Master Investment
      Agreement and the shares of pursuant to the HHB Warrant and Quincy Warrants
      could cause substantial dilution to the other holders of the Company’s common
      stock, and the potential issuance of all such shares of the Company’s common
      stock could adversely affect the market price of the Company’s common stock and
      impair Naturade’s ability to raise capital through the sale of the Company’s
      common stock.





In
      the
      event Quincy desired to sell any shares of the Company’s common stock received
      pursuant to the Master Investment Agreement, other than a sale in the public
      market at fair market value (as defined in the Master Investment Agreement),
      Health Holdings and Westgate had the right to sell to the proposed transferee
      a
      pro rata portion of the Company’s common stock on the same terms and
      conditions.





Before
      the transactions contemplated by the Master Investment Agreement:





·
            Health
                Holdings beneficially owned 68.8% of the Company’s common stock (assuming
                the exercise of all options and warrants and the conversion of all
                convertible securities). In addition, William B. Doyle, Jr. and Lionel
                P.
                Boissiere, each of whom was, until August 10, 2005, a director of
                Naturade, were each a principal and a managing member of Doyle &
                Boissiere Fund I, LLC, a controlling shareholder of Health
                Holdings.





·
            Westgate
                beneficially owned 22.7% of the Company’s common stock (assuming the
                exercise of all options and warrants and the conversion of all convertible
                securities). In addition, Jay W. Brown and Robert V. Vitale, each
                of whom
                was, until August 10, 2005, a director of Naturade, were each a principal
                with Westgate Group, LLC, the general partner of
                Westgate.





·
            Bill
                D. Stewart was the Chairman of the Board and the Chief Executive
                Officer
                of Naturade, and David A. Weil was, until August 10, 2005, a director
                of
                Naturade.





·
            Naturade
                was indebted to Health Holdings, Stewart and Weil in the amount of
                $1,075,000, $100,000, and $75,000, respectively, under the Loan Agreement
                dated April 23, 2003.





·
            The
                public stockholders beneficially owned 6.0% of the Company’s common stock
                (assuming the exercise of all options and warrants and the conversion
                of
                all convertible securities).





As
      a
      result of the recapitalization, Quincy had the ability to elect a majority
      of
      our Board of Directors, control the outcome of all matters requiring stockholder
      approval (except such matters as require a class vote of the Series C) and
      control the Company’s management and affairs (except to the extent the approval
      of Laurus was required under the Financing Agreement as defined below).


14





***Change
      in Control***





On
      August
      10, 2006, Quincy Investments Corp. (“Quincy”), the then principal shareholder of
      the Company, subsequent to executing a Letter of Intent of July 26, 2006 with
      Redux to transfer to Redux Quincy’s controlling interest in Naturade, as
      reported on the Company’s Form 8-K filed with the Securities and Exchange
      Commission on August 2, 2006, entered into the Quincy Transfer Agreement,
      pursuant to which:





·
            Quincy
                transferred 28 million shares of the Company’s common stock , 4.2 million
                shares of Series C and 14 million warrants to purchase to
                Redux;


·
              Redux
                  agreed to make cash contributions up to $500,000, at its sole discretion,
                  to the Company;


·
              Redux
                  and Quincy agreed to attempt to complete a Definitive Agreement
                  by August
                  31, 2006.


·
              It
                  should be noted that Quincy withheld 3,372,345 shares of Common
                  in
                  violation of the Quincy Transfer
                  Agreement.





Before
      the transactions described above, Quincy owned 31, 372,345 shares of the
      Company’s common stock, or 72.4% of the voting power of the Company’s common
      stock. Quincy also owned 4.2 million shares of Series C, which when added to
      Quincy’s common stock represented 55.3%of the combined voting power of the
      Company’s common stock and the Series C Convertible Preferred Stock (“Series
      C”). The holders of the Series C are entitled to vote along with the (on an
      as-converted basis) on all matters, including the election of directors,
      presented to the stockholders. As a result, Quincy had the power to elect a
      majority of the Board of Directors and to determine the outcome of any matter
      submitted to the stockholders, subject to the rights of Health Holdings and
      Botanicals, LLC holders of 12,600,000 shares of Series C who have the right
      to
      elect one director and to approve certain transactions.





The
      Definitive Agreement contemplated under the Letter of Intent has not been
      entered into and the Letter of Intent, by its terms, has expired. Although
      Quincy has threatened litigation against Redux related to the absence of a
      Definitive Agreement, no lawsuit has been commenced. In contrast, the Company
      has initiated a lawsuit against Quincy and Peter Pocklington. See Legal
      Proceedings.





On
      August
      31, 2006 Laurus entered into an agreement with Redux, the principal shareholder
      of the Company, (the “Redux Agreement”) pursuant to which:





·
            Laurus
                Master Fund, Ltd. (“Laurus”) transferred 1,050,000 shares of the Company’s
                common stock to Redux;


·
              Laurus
                  transferred warrants to purchase 1,500,000 shares of the Company’s common
                  stock at $0.80 per share to Redux which were cancelled upon
                  transfer;


·
              Laurus
                  transferred an option to purchase 8,721,375 shares of the Company’s common
                  stock at $0.001 per share to Redux (the “Laurus Options”);
                  and


·
              Redux
                  issued 574,787 shares of Redux common stock to Laurus, subject
                  to certain
                  provisions for anti-dilution and piggy back registration
                  rights.





On
      April
      13, 2007, Redux issued Laurus a cashless warrant to purchase up to 700,000
      shares of Redux common stock, in consideration of Laurus waving all default
      interest of the Company’s accrued default interest and fees.





On
      November 16, 2006, Redux acquired 500,000 of the Company’s common stock and
      warrants to purchase 3,.647,743 shares of Common Stock from Liberty Company
      Financial, LLC (“Liberty”) and in exchange issued to Liberty 28,116 shares of
      Redux Common Stock.





As
      a
      result of the transactions described above, Redux controls voting rights of
      29,550,000 shares of the Company’s common stock and 4,200,000 shares of Series
      C, or 68.2% of the voting power of the Company’s common stock, 20.0% of the
      voting power of the Series C, and 52.5% of the combined voting power of the
      Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the Company’s common stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Redux has the power to elect a majority of the Board
      of Directors and to determine the outcome of any matter submitted to the
      stockholders, subject to the rights of the holders of the Series C described
      above. If the Laurus Options are included, these percentages increase.


15





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be cancelled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of common stock to give Redux a 95% equity
      and voting interest in the Company. All remaining shareholders will have a
      total
      of 5% equity interest in the Company.





**Financing**





In
      July
      2005, the Company obtained a $4,000,000 convertible financing facility from
      Laurus, consisting of a $3,000,000 revolving credit facility and a $1,000,000
      term loan. In consideration of such financing facility, the Company issued
      to
      Laurus an option to purchase up to 8,721,375 shares of the Company’s common
      stock at $0.001 per share and a warrant to purchase up to 1,500,000 shares
      of
      the Company’s at $0.80 per share. The financing facility was amended on January
      11, 2006, by among other things, increasing the term loan to $1,650,000 and
      eliminated the conversion features on the facility. The Company issued Laurus
      1,050,000 shares of its common stock in consideration for this amendment. See
      Note 4 to Financial Statements, “Financing.”





On
      August
      31, 2006, prior to the Company’s filing under Chapter 11 of the US Bankruptcy
      Code, Laurus and Redux agreed to cause the Company to do the following (the
      “Financing Changes”):





·
            Laurus’
                claim in the approximate amount of $2,900,000 will be treated as
                fully
                secured and the liens granted Laurus pursuant to the Financing Agreement
                will remain without modification.


·
              Laurus
                  will provide debtor in possession financing (“DIP”) pursuant to the terms
                  and conditions of the financing
                  agreement.


·
            Interest
                will continue to accrue on the Term Loan pursuant the terms of the
                Financing Agreement however, payments will be suspended until the
                first
                day of the first full month after the Effective Date of the Chapter
                11
                filing.





The
      maturity date of the Term loan will be extended to January 6, 2010 and principal
      payments will commence on the first day of the first full month after the
      Effective Date of the Chapter 11 filing and be payable in equal monthly
      installments until the maturity date.





For
      a
      more detailed description of the Financing Agreement, see “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations -
      Liquidity and Capital Resources - *Laurus
      Financing* .”





**Principal
      Stockholders**





At
      December 31, 2006, Redux, Health Holdings and Westgate control voting rights
      of
      29,550,000 shares of the Company’s common stock and 21 million shares of Series
      C, or 68.2% of the voting power of the Company’s common stock, 100 % of the
      voting power of the Series C, and 52.5% of the combined voting power of the
      Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the Company’s common stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, the Principal Stockholders have the ability to elect
      all of the Naturade directors, control the outcome of all matters requiring
      stockholder approval and control its management and affairs. For information
      on
      the number of shares of the Company’s common stock beneficially owned by each
      Principal Stockholder, see “Item 12. Security Ownership of Certain Beneficial
      Owners and Management and Related Stockholder Matters.”





The
      Principal Stockholders hold the following options and warrants to purchase
      additional shares of the Company’s common stock:





·
            Redux
                holds a warrant to purchase up to 7,000,000 shares of the Company’s common
                stock at any time on or after July 22, 2006 and before July 22, 2015
                at a
                price of $0.80 per share.





·
            Redux
                holds a warrant to purchase up to 7,000,000 shares of the Company’s common
                stock at any time on or after July 22, 2006 and before July 22, 2015
                at a
                price of $1.02 per share.


16





·
            Health
                Holdings holds a warrant to purchase up to 10,000,000 shares of Company’s
                common stock at any time on or after July 22, 2006 and before July
                22,
                2015 at a price of $1.00 per share.





·
            Redux
                holds an option to purchase up to 8,721,375 shares of the Company’s common
                stock, subject to certain limits, at any time on or after July 26,
                2005 at
                a price of $0.0001 per share.





·
            Redux
                holds a warrant to purchase up to 1,500,000 shares of the Company’s common
                stock at any time on or after July 26, 2005 through July 26, 2010
                at a
                price of $0.80 per share.





·
            Redux
                holds a warrant to purchase up to 3,647, 743 shares of the Company’s
                common stock, subject to certain limits, at any time on or after
                July 26,
                2006, at a price of $.08 per share.





·
            Redux,
                Health Holdings and Westgate hold 4,200,000, 12,600,000 and 4,200,000
                shares, respectively, of Series C, each of which is convertible into
                one
                share of the Company’s common stock (subject to adjustment to prevent
                dilution).





The
      issuance of these shares of the Company’s common stock could cause substantial
      dilution to the other holders of the common stock, and the potential issuance
      of
      these shares of common stock could depress the market price of its common stock
      and impair our ability to raise capital through the sale of common
      stock.





The
      Company granted Health Holdings and Westgate certain registration rights with
      respect to the Company’s common stock issuable upon the exercise of the
      foregoing options and warrants or the conversion of the Series C and convertible
      promissory notes. See “Business- Registration Rights.”





On
      the Effective Date, all Company Series C Preferred shares, along with their
      voting and control rights, all options, all warrants, and all registration
      rights, will be cancelled as required under the Plan. The Company, as required
      by the Plan, will then issue Redux enough shares of restricted common stock
      to
      give Redux a 95% equity and voting interest in the Company. All remaining
      shareholders will have a total of 5% equity interest in the Company.




**Acquisitions**





***Ageless,
      Symco and Symbiotics***





On
      July
      22, 2005, Quincy, Symco and Symbiotics entered into an Asset Purchase Agreement
      (the “Symco/Symbiotics Agreement”), pursuant to which Quincy had the right to
      acquire substantially all of the assets relating to Symco and Symbiotics’
health-related products retail business. As consideration for the assets, Quincy
      would (a) assume current accounts payable ($408,965) and the obligations under
      certain contracts, (b) pay all outstanding amounts owed under certain credit
      facilities ($224,313), (c) issue a promissory note payable to Symco and
      Symbiotics in the principal amount of $2,000,000, (x) less the amount necessary
      to repay the credit facilities, and (y) subject to a working capital adjustment,
      (d) pay an additional $60,000 in cash fifteen (15) days after the closing date
      and an additional $60,000 every thirty (30) days thereafter until the note
      is
      paid in full and (e) for a three (3) year period following the closing date,
      Quincy would pay to Symco and Symbiotics ten percent (10%) of the amount of
      the
      increase in contribution profit over a baseline amount of $2,000,000 based
      on
      the sale of products for each 12 month period during the three year period.
      The
      promissory note payable to Symco and Symbiotics is guaranteed by Peter H.
      Pocklington, a principal of Quincy, and from August 10, 2005 to August 10,
      2006,
      one of the Company’s directors. In this acquisition, the Company acquired the
      right to distribute, and substantially all of the assets related to, Colostrum
      PlusTM, a line of products reported to enhance immune system
      functions.





On
      July
      27, 2005, Quincy and Ageless entered into an Asset Purchase Agreement (the
      “Ageless Agreement”), pursuant to which Quincy had the right to acquire
      substantially all of assets relating to Ageless’ health-related products retail
      business. As consideration for the assets, Quincy would (a) assume current
      accounts payable ($173,593), (b) assume an obligation to an employee of the
      company in an amount equal to $600,000 and (c) issue a promissory note payable
      to Ageless in the principal amount of $700,000, subject to a working capital
      adjustment. The promissory note payable to Ageless is guaranteed by Peter H.
      Pocklington, a principal of Quincy, and from August 10, 2005 to August 10,
      2006,
      one of the Company’s directors. In this acquisition, the Company acquired the
      right to distribute, and substantially all of the assets related to, the
      AgelessTM line of anti-aging products.


17





On
      July
      22, 2005, pursuant to an Assignment and Assumption Agreement, Quincy assigned
      to
      Naturade all of its rights, title and interest in and to the Symco/Symbiotics
      Agreement, and Naturade agreed to perform all of Quincy’s obligations under the
      Symco/Symbiotics Agreement. Pursuant to an Assignment and Assumption Agreement
      dated July 28, 2005, Quincy assigned to Naturade all of its rights, title and
      interest in and to the Ageless Agreement, and Naturade agreed to perform all
      of
      Quincy’s obligations under the Ageless Agreement. In connection with these
      transactions, the Company entered into consulting agreements with certain key
      employees of Symco/Symbiotics and Ageless. In addition, Naturade is a co-maker
      on each of the promissory notes described above. Pursuant to the Consulting
      Agreement entered into by the Company and Naomi Balcombe (“Balcombe”), the
      founder of Ageless, (i) for a three (3) year period following the closing date,
      Naturade will pay to Balcombe ten percent (10%) of the amount of the increase
      in
      contribution profit over a baseline amount of $900,000 based on the sale of
      products for each 12 month period during the three year period and (ii) issued
      to Ms. Balcombe 1,800,000 shares of the Company’s common stock. Pursuant to the
      Consulting Agreements entered into by the Company and Douglas Wyatt, the founder
      of Symco and Symbiotics, and David W. Brown, the President of Symco and
      Symbiotics, Naturade issued to Messrs. Wyatt and Brown 2,850,000 shares and
      150,000 shares, respectively, of the Company’s common stock.





On
      August
      3, 2005, Naturade closed the acquisition of Symco and Symbiotics. On September
      30, the Company amended the terms of the acquisition to adjust the promissory
      note to include the subsequent purchase by Naturade of a computer system and
      the
      payoff of a promissory note in the amount of $274,382. In addition, the payments
      on the promissory note were modified from a balloon payment due on February
      3,
      2006 to nine monthly installments of $3,500 from October 1, 2005 and annual
      payments of $518,500 on June 1, 2006, $450,000 on June 1, 2007 and $476,305
      on
      June 1, 2008. In exchange for the elimination of the requirement for the Company
      to pay $60,000 for every thirty days the promissory note was outstanding,
      Naturade agreed to make monthly interest payments of $15,000 from October 2005
      to May 2006, $10,000 from June 2006 to May 2007 and $5,000 from June 2007 to
      May
      2008. On May 31, 2006, the promissory note was amended and restated whereby
      the
      principal amount of $1,000,000 would be repaid in monthly installments of
      $33,333 along with monthly interest charges of 7% per annum on the outstanding
      balance through November 2008.





On
      August
      9, 2005, Naturade closed the acquisition of Ageless.





At
      the
      time of the acquisitions, Quincy and the acquirees had no relationship to
      Naturade and Quincy and the acquirees were not related parties to each other.
      Under the terms of the Master Investment Agreement dated July 22, 2005, Quincy
      acted as a broker and facilitator and agreed to negotiate, and to arrange the
      financing for, Naturade’s acquisition of selected assets of Ageless, Symco and
      Symbiotics, and to remain as co-obligor on, and to cause a principal of Quincy
      to guarantee Naturade’s payment of, a portion of the purchase
      price.





In
      consideration of such services, Naturade agreed to issue Quincy 33,972,345
      shares of the Company’s common stock and to assume Quincy’s obligations under
      the Symco/Symbiotics Agreement and the Ageless Agreement. Among the obligations
      assumed by Naturade was the obligation to issue an aggregate of 3,000,000 shares
      of the Company’s common stock to the founders of Symco and Symbiotics in
      consideration of consulting services to be rendered by them concerning the
      purchased assets. As a result, Naturade issued Quincy 30,972,345 shares of
      the
      Company’s common stock and Symco and Symbiotics a combined 3,000,000 shares of
      Company’s common stock





For
      further information on the assets and liabilities of Ageless, Symco and
      Symbiotics acquired by the Company, and those not acquired by the Company,
      see
      the Company’s Current Report on Form 8-K/A filed with the SEC on February 28,
      2006. Litigation was subsequently commenced by Ageless and its principal against
      the Company, Quincy and Peter Pocklington. The Company has settled this
      litigation with respect to the Company only. Redux has purchased all claims
      filed in the Naturade bankruptcy by Ageless and its principal. See Item 13,
      Certain Relationships and Related Transactions.





In
      connection with the foregoing transactions, Naturade and Doyle & Boissiere
      LLC terminated that certain Consulting Agreement dated December 17, 1997,
      Naturade and Westgate terminated that certain Management Services Agreement
      dated January 2, 2002, and Health Holdings and Westgate terminated that certain
      Voting Agreement dated January 2, 2002. In November 2005, Quincy assumed the
      consulting agreement with David Brown and the Company issued Quincy 400,000
      shares of the Company’s common stock in compensation.


18





**Registration
      Rights**





***Health
      Holdings, Westgate and Quincy***





On
      July
      22, 2005, Naturade entered into a Registration Rights Agreement with Health
      Holdings, Westgate and Quincy providing them with certain rights to require
      the
      Company to register its common stock held by them or issuable to them upon
      the
      conversion of the Series C held by them or the exercise of the HHB Warrant
      or
      the Quincy Warrants. Under this agreement, Health Holdings, Westgate, Quincy
      and
      certain of their transferees had the right at any time after July 22, 2008
      to
      require Naturade to file a registration statement under the Securities Act
      of
      1933 (the “Securities Act”) covering the registrable securities. If, however,
      the underwriter advised the holders that marketing factors require a limitation
      of the number of shares to be underwritten, then the number of registrable
      securities would be reduced on a pro rata basis.





Under
      certain circumstances, Naturade is not be required to file a registration
      statement, including among others (i) if the Company had effected two previous
      registrations and such registration statements had been declared effective;
      and
      (ii) if the Company believes that it would be seriously detrimental to it and
      its stockholders for such registration to be effected at such time, Naturade
      has
      the right to defer the filing for no more than 90 days. If Naturade proposes
      the
      filing of a registration statement under the Securities Act for the sale of
      shares of the Company’s common stock or for the resale of shares of its common
      stock by other selling stockholders, Health Holdings, Westgate and Quincy have
      20 days to request that their shares be included in such registration statement.
      If, however, it is an underwritten offering and the underwriter advises the
      Company that the inclusion of such registrable securities may adversely affect
      the offering, the registrable securities will be reduced on a pro rata
      basis.





Whenever
      required under this agreement to effect a registration of the registrable
      securities, Naturade must prepare and file with the Securities and Exchange
      Commission (the “SEC”) a registration statement and use all commercially
      reasonable efforts to cause such registration statement to become effective
      and
      keep it effective for up to 180 days, or, if earlier, until the distribution
      contemplated by the registration statement has been completed.





***Laurus***





On
      July
      26, 2005, Naturade entered into a Registration Rights Agreement, which was
      subsequently modified on January 11, 2006 (the “Amended Registration Rights
      Agreement”), with Laurus providing Laurus with certain rights to require the
      Company to register its common stock held by them or issuable to them upon
      the
      exercise of the Laurus Warrant or the Laurus Option. Under this agreement,
      Naturade was required to file a registration statement within 60 days of the
      date of the Amended Registration Rights Agreement and have it effective within
      120 days of such date.





The
      Company had to use its reasonable commercial efforts to keep the registration
      statement continuously effective under the Securities Act until the date which
      is the earlier date of when (i) all registrable securities covered by such
      registration statement have been sold or (ii) all registrable securities covered
      by such registration statement may be sold immediately without registration
      under the Securities Act and without volume restrictions pursuant to Rule
      144(k), as determined by the counsel to the Company pursuant to a written
      opinion letter to such effect, addressed and acceptable to the Company’s
      transfer agent and the affected holders.





**Regulatory
      Matters**





The
      Company’s products are subject to regulation by numerous governmental agencies,
      principally the U.S. Food and Drug Administration (the “FDA”). The Company’s
      products are also subject to regulation by the Consumer Product Safety
      Commission, the U.S. Department of Agriculture, and the Environmental Protection
      Agency. Advertising of our products is subject to regulation by the U.S. Federal
      Trade Commission. State local and foreign agencies, regulate Naturade’s products
      where distributed.





Many
      Naturade products, including Naturade Total Soy® and protein powders, are food
      products that are not subject to regulation by the FDA’s drug regulations or the
      Dietary Supplement Health and Education Act of 1994 (“DSHEA”). These food
      products are regulated under the general FDA food regulations and may use
“structure/function” claims or health claims under appropriate circumstances,
      but unlike dietary supplements, are not required to carry a disclaimer regarding
      an FDA evaluation or disease. Effective October 26, 1999, the FDA approved
      a
      health claim for soy protein allowing the following product label claim: *“25
      grams of soy protein daily, in a diet low in*  *saturated
      fat and cholesterol, may reduce the risk of heart
      disease.”*


19





To
      carry
      this claim, one serving of a product must deliver at least 6.25 grams of soy
      protein with no more than three grams of fat and no more than one gram of
      saturated fat. Each of the Company’s soy protein based powders contain between 8
      and 25 grams of soy protein per serving. Naturade is currently shipping products
      that carry this heart disease claim under the brand names of Naturade Total
      Soy®, Naturade 100% SoyTM, Naturade VegTM, Naturade N-R-GTM, and Power
      Shake®.





The
      Company believes that its products currently are in substantial compliance
      with
      the latest regulations in product labeling, including food (Nutritional Labeling
      Education Act of 1991 or NLEA), dietary supplement (DSHEA), over-the-counter
      drug (OTC Monographs) and cosmetic packaging guidelines. In addition, we have
      implemented registration and compliance procedures as required by the recently
      enacted FDA Bioterrorism Act. Naturade retains control of all labels in-house
      and manage label development and usage as an element of quality assurance.
      In
      addition, all formula specifications are developed under the direction of the
      Company’s management.





**Backlog**





Naturade
      typically does not carry significant backlog orders and generally maintain
      a
      sufficient supply of the Company’s products to meet customer demands. Naturade’s
      policy is to ship product within seven days of the order being placed. Order
      fill rates have been significantly reduced during bankruptcy due to the
      Company’s inability to secure sufficient regular supply from prior
      manufacturers. In anticipation of emerging from bankruptcy, the Company has
      negotiated new supply agreements with two new manufacturers, and plans to
      restore customer order fill rates on most products to normal levels during
      the
      second quarter of 2007.





**Product
      Research and Development**





Naturade
      has historically devoted substantial resources to new product development and
      reformulation. The Company has initiated new product development efforts with
      third-party manufacturers who create product formulations, test and develop
      sample production runs of prototype products. Due to industry practice, the
      third-party manufacturers who then negotiate with the Company on final lot
      sizes
      and production costs often absorb these costs. Consequently, Naturade’s direct
      expenses in this area do not reflect the full cost of product research and
      development.





The
      Company’s direct product research and development expenses were $48,028,
      $223,443 and $274,057 in the fiscal years ended December 31, 2006, 2005 and
      2004, respectively.





Naturade
      introduced a carbohydrate blocker in September 2003 under the brand name Diet
      LeanTM. Diet Lean Carb Blocker is intended to be the first in a series of
      products to target the weight loss category and to be marketed by us under
      the
      Diet Lean name. In 2004, Naturade introduced a body fat regulator incorporating
      Tonalin® brand Conjugated Linoleic Acid (CLA) that is reported to reduce the
      number of fat cells in the body. Diet Lean® Body Fat Regulator is positioned to
      assist low carbohydrate dieters.





The
      Company introduced in late 2004, the ReVivexTM family of products containing
      CeladrinTM. CeladrinTM, a proprietary compound owned by an unrelated party, is a
      dietary supplement ingredient comprised of novel, targeted cetylated fatty
      acid
      esters, CeladrinTM enhances cell membranes throughout the body and restores
      fluids that cushions bones and joints to promote flexibility and mobility.
      In
      the event the owner of CeladrinTM refused to provide the Company with this
      product, or increased its prices, Naturade would be required either to
      reformulate the ReVivexTM line to use another, perhaps less effective ingredient,
      or to pass any price increase on to the Company’s customers. Naturade also
      introduced ReVivexTM lotion in late 2004. Containing menthol, ReVivexTM lotion is
      an OTC product that is positioned to temporarily relieve pain from arthritis,
      backache and injuries. As the result of the Company’s inability to adequately
      fund consumer marketing and promotions, the ReVivexTM brand has lost retailer
      support and has been discontinued at major retailers.




20




**Employees**





As
      of
      December 31, 2006, Naturade leased, from One World Science Inc., a subsidiary
      of
      Redux, 17 people, including 2 in administration, 11 in sales and marketing
      and 4
      in finance, accounting and information technology. The Company began leasing
      employees from One World Science in August 2006 to allow the Company to maintain
      continuity of operations during the Bankruptcy, and has no direct employees.
      The
      Company considers its relations with its leased employees to be
      good.





**Item
      1A. Risk Factors**





The
      short
      and long-term success of the Company is subject to certain risks, many of which
      are substantial in nature. Shareholders and prospective shareholders in the
      Company should consider carefully the following risk factors, in addition to
      other information contained herein. This Annual Report on Form 10-K contains
      forward-looking statements, which are subject to a variety of risks and
      uncertainties. The Company’s actual results could differ materially from those
      anticipated in these forward-looking statements as a result of various factors,
      including those set forth below.





An
      investment in the Company’s common stock involves a high degree of risk. In
      addition to the other information contained in this report, you should carefully
      consider the following risks and uncertainties before purchasing the Company’s
      common stock. If any of these risks or uncertainties were to occur, the
      Company’s business, financial condition and operating results could suffer
      serious harm. In that case, the trading price of the Company’s common stock
      could decline and you could lose all or part of your investment.





***On
      August 31, 2006 (the “Petition Date”), the Company filed for protection under
      Chapter 11 of the U.S. Bankruptcy Code.***





As
      a
      result of the Chapter 11 Bankruptcy (see Note 1, *Chapter
      11 Bankruptcy Proceedings* ),
      the
      realization of assets and liquidation of liabilities is subject to uncertainty.
      A substantial portion of the Company's liabilities as of the Petition Date
      are
      subject to compromise or other treatment in the Chapter 11 Bankruptcy. For
      financial reporting purposes, those unsecured liabilities and obligations whose
      disposition is dependent on the outcome of the Chapter 11 Bankruptcy have been
      segregated and classified as liabilities subject to compromise in the December
      31, 2006 balance sheet. Generally, actions to enforce or otherwise effect
      repayment of all pre-Chapter 11 liabilities and pending litigation against
      the
      Company are stayed while the Company continues as a debtor-in-possession during
      bankruptcy proceedings. Schedules have been filed by the Company with the
      Bankruptcy Court setting forth the assets and liabilities of the Company as
      of
      the Petition Date as reflected in the Company's accounting records. Differences
      between amounts reflected in such schedules and claims filed by creditors will
      be investigated and either amicably resolved or adjudicated by the Bankruptcy
      Court. The ultimate amount of and settlement terms for such liabilities are
      not
      presently determinable.





***The
      Company’s reorganization plan under Chapter11 of the U.S. Bankruptcy Code may
      not go effective if new funding does not come in as
      planned.***





The
      Company has submitted a plan for reorganization under its Chapter 11 Bankruptcy
      (the “Plan”) which was approved in Bankruptcy court on February 28 2007. The
      Plan requires new funding of up to $2,000,000 to be invested in the Company
      by
      Redux Holdings Inc. in April 2007. If for any reason this funding is not made
      to
      make the Plan effective, this could have an adverse impact on the company,
      its
      share price and whether the Company can continue as an on going
      concern.





***The
      Company may incur future losses which may affect its ability to continue
      as***  ***a
      going concern.***





The
      Company had a net loss of approximately $1.9 million, $ 402,000, $3.7 million,
      and $11.3 million for the fiscal years ended December 31, 2002, 2003,
      2005, and 2006, respectively, and net income of approximately $368,000 for
      the
      fiscal year ended 2004. At December 31, 2006, the Company had an accumulated
      deficit of $39,959,465, and a stockholders’ capital deficiency of $17,427,710.
      The Company anticipates that it will incur net losses for the foreseeable future
      and will need access to additional financing for working capital and to expand
      its business. If unsuccessful in those efforts, the Company could be forced
      to
      cease operations and investors in its common stock could lose their entire
      investment. The Company’s independent registered public accounting firm issued a
      going concern opinion on the Company’s December 31, 2006 financial statements by
      including an explanatory paragraph in which they expressed substantial doubt
      about its ability to continue as a going concern.




21





***The
      Company’s success depends on current and ongoing financing which may not
      be***  ***available
      or, if available, could result in substantial dilution to
      its***  ***stockholders,
      depress the market price of its common stock and impair
      its***  ***ability
      to raise capital by selling its common stock***





The
      Company’s success is dependent on its current financing as well as new financing
      to support its working capital requirements, acquire additional brands or
      businesses and fund its current operating losses. Additional financing is made
      more difficult by the Chapter 11 Bankruptcy since such matter may lower creditor
      confidence in the Company and lending entities may refuse to grant the Company
      a
      loan or line of credit, or if such loan or line of credit is granted, it may
      be
      granted only on terms materially less favorable to the Company than are
      available to its competitors, including, but not limited to, a higher than
      average rate of interest or the issuance of options, warrants or other rights
      to
      acquire its common stock at prices that are, or in the future may be, less
      than
      the market price of its common stock, which could result in substantial dilution
      to its stockholders, depress the market price of its common stock and impair
      its
      ability to raise capital by selling its common stock.





***In
      our recent acquisitions, we have assumed substantial additional
      obligations.***




In
      its
      acquisition of Ageless, the Company assumed accounts payable of $173,593 and
      an
      obligation to an employee in the amount of $600,000. In addition, the Company
      agreed to pay a purchase price consisting of a promissory note in the principal
      amount of $648,234, and entered into certain consulting agreements. In February
      2007, Redux purchased the claims filed in the Naturade bankruptcy for the
      Ageless acquisition from Ageless and its principal. See Item 13, Certain
      Relationships and Related Transactions. In its acquisition of Symco and
      Symbiotics, the Company assumed accounts payable of $408,965, indebtedness
      under
      credit facilities of $224,313 and obligations under certain contracts, totaling
      $274,382. In addition, the Company agreed to pay a purchase price consisting
      of
      a promissory note in the principal amount $1,476,305, and an earn-out, and
      entered into certain consulting agreements. For a description of these
      acquisitions, including the purchase prices, assets acquired and obligations
      assumed, see Note 8, Acquisitions. The Company has only limited resources
      available to us. If these resources are insufficient to allow the Company to
      pay
      these obligations as they come due and to maintain its business as it is
      currently operated, the Company could be forced to cease operations, and
      investors in the Company could lose their entire investment.




***The
      Company’s current financial condition could cause third party suppliers
      and***  ***manufacturers
      to refuse to do business with us, or to do so only on
      less***  ***favorable
      terms.***





The
      Company depends upon third-party suppliers and manufacturers, such as Advanced
      Protein Systems and Best Formulations, for its products. The Company does not
      have long-term supply agreements and the Chapter 11 Bankruptcy may lower vendor
      confidence in it and they may refuse to provide products or do business with
      it,
      or may do so only on less favorable terms, which could cause the Company’s net
      sales to decline. In addition, the Company’s current cash position could result
      in a higher degree of credit risk than normal for its suppliers. As a result,
      supplier pricing may include factors related to this credit risk such as the
      absence of cash discounts and the costs of extended terms that increase the
      Company’s cost for product and ultimately decrease our profitability. Any
      unfavorable change in the Company’s cash position could result in additional
      costs for product affecting its profitability. From time to time, the Company
      has experienced difficulties with various vendors requiring it to purchase
      product on cash upon delivery (“COD”) basis. As a result of purchasing on a COD
      basis, The Company could experience significant delays in shipments to its
      customers, which could have a material affect on its operating results. Although
      the Company believes that alternative sources of materials and contract
      manufacturing services are available, the loss of one or more suppliers or
      manufacturers as a result of the Chapter 11 Bankruptcy Matter could have a
      material adverse effect on results of operations until an alternative source
      is
      located and has commenced producing the Company’s products. ******




22





***The
      Company’s revenues depend on continued business from the Company’s
      key***  ***customers.***





The
      Company’s three largest customer’s together account for 45% of net sales for the
      twelve months ended December 31, 2006. One mass market customer, Wal-Mart/Sam’s
      Club, represented approximately 21% of the Company’s net sales, and two health
      food distributors, United Natural Foods, Inc. (“UNFI”) and Tree of Life, Inc.,
      accounted for 15% and 9%, respectively, of the Company’s net sales, during the
      twelve months ended December 31, 2006. The loss of any of these customers could
      have a material adverse effect on the Company’s results of operations. From time
      to time, major customers have experienced financial difficulties. Additionally,
      the issuance of a going concern opinion by the Company’s independent registered
      public accounting firm may create concern among existing and potential customers
      that the Company may be unable to fulfill product needs. As a result, due to
      the
      Chapter 11 Bankruptcy, existing and potential customers may determine not to
      do
      business with the Company, or only do so on less favorable terms, which may
      cause net sales to decline. The Company does not have long-term contracts with
      any of its customers and, accordingly, there can be no assurance that any
      customer will continue to place orders with the Company to the same extent
      it
      has in the past, or at all.




***If
      the Company’s third-party suppliers or manufacturers fail to timely
      deliver******products
      of acceptable quality or comply with FDA manufacturing guidelines,
      or******raise
      prices, profits may be affected.***





The
      use
      of third-party suppliers and manufacturers and the resulting loss of direct
      control over production could result in the Company’s failure to receive timely
      delivery of products of acceptable quality. Any failure by third party suppliers
      or manufacturers to deliver products, or the delivery of defective products,
      may
      adversely affect the Company’s ability to deliver products to its customers in a
      timely manner and of an acceptable quality. If the Company fails to deliver
      products of acceptable quality in a timely manner, its customers may seek
      alternative sources for its products. The Company’s use of third-party suppliers
      and manufacturers could also reduce its gross profits if the suppliers or
      manufacturers raise prices and the Company cannot find alternative, less costly
      sources or pass price increases on to customers.





Although
      the Company requires that the Company’s third-party suppliers and manufacturers
      comply with the FDA manufacturing guidelines, Naturade cannot assure that these
      third parties will always act in accordance to these regulations. If the
      manufacturing facilities used by the Company’s third- party suppliers or
      manufacturers did not meet those standards, the production of its products
      could
      be delayed until the necessary modifications are made to comply with those
      standards or alternate suppliers or manufacturers are located. Furthermore,
      the
      potential exists for circumstances to arise which would require the Company
      to
      seek out alternate suppliers or manufacturers who operate in compliance with
      the
      FDA’s requirements.





***Restrictions
      or requirements imposed by government regulation could result
      in***  ***material
      harm to the Company’s results of operations and financial
      condition.***





The
      Company’s operations, properties and products are subject to regulation by
      various foreign, federal, state and local government entities and agencies,
      including the FDA and the FTC. Among other matters, such regulation is concerned
      with statements and claims made in connection with the packaging, labeling,
      marketing and advertising of the Company’s products. The governmental agencies
      have a variety of processes and remedies available to them, including initiating
      investigations, issuing warning letters and cease and desist orders, requiring
      corrective labeling or advertising, requiring consumer redress, seeking
      injunctive relief or product seizure, imposing civil penalties and commencing
      criminal prosecution.





Weight
      loss products are subject to increased regulatory scrutiny due to intensified
      campaigns by both FTC and FDA. FTC has specifically launched a nation-wide
      law
      enforcement sweep against companies making false weight-loss claims. This
      initiative was created to stop deceptive advertising, provide refunds to
      consumers harmed by unscrupulous weight-loss advertisers, encourage media
      outlets not to carry advertisements containing bogus weight-loss claims and
      to
      educate consumers to be on their guard against companies promising miraculous
      weight loss without diet or exercise. The FTC campaign identifies seven specific
      claims that they consider suspect, including: “Lose weight without diet or
      exercise”; “Eat what you want and lose weight”; “Weight loss will be permanent”
(even when the user stops using the product); “Block the absorption of fat or
      calories, and lose substantial weight”; “Safely lose more than three pounds per
      week for a period of more than four weeks”; “Substantial weight loss for all
      users”; and “Diet patches, creams, wraps, earrings and other products worn on
      the body or rubbed into the skin that cause substantial weight loss.” If the FDA
      and FTC move beyond their current focus and more closely scrutinize weight
      loss
      products in the retail marketplace, there can be no assurance that this change
      in focus would not have an adverse effect on the sale of the Company’s
      products.


23





As
      a
      result of the Company’s efforts to comply with changes in applicable statutes
      and regulations, the Company has from time to time reformulated, eliminated
      or
      relabeled certain of its products and revised certain aspects of its sales,
      marketing and advertising programs. The Company may be subject in the future
      to
      additional laws or regulations administered by federal, state, local or foreign
      regulatory authorities, the repeal or amendment of laws or regulations which
      the
      Company considers favorable, such as the DSHEA, or more stringent
      interpretations of current laws or regulations. The Company cannot predict
      the
      nature of future laws, regulations, interpretations or applications, nor can
      the
      Company predict what effect additional governmental regulations or
      administrative orders, when and if promulgated, would have on its business
      in
      the future. Such future laws and regulations could, however, require the
      reformulation of products to meet new standards, the recall or discontinuance
      of
      products that cannot be reformulated, the imposition of additional record
      keeping requirements, expanded documentation of product efficacy, expanded
      or
      modified labeling and scientific substantiation, including health warnings
      or
      restrictions on benefits described for its products. Any of or all of such
      requirements could hurt sales of the Company’s products or increase its costs,
      resulting in material harm to its results of operations and financial
      condition.





***The
      Company’s competitors may develop products that are more effective or less*** ***costly.***





The
      market for nutraceutical products is highly competitive. Many of the Company’s
      competitors, such as GeniSoy and Health Source by Abbott Labs, have
      substantially greater capital resources, research and development capabilities,
      and manufacturing and marketing resources, capabilities and experience than
      the
      Company. Naturade’s competitors may succeed in developing products that are more
      effective or less costly than any products developed by the Company.
      Additionally, bovine colostrum, the key ingredient in the Symbiotics Brand,
      is a
      very popular health product. Many of the Company’s competitors offer a full line
      of colostrum products in stores and online with claims of high quality at low,
      wholesale prices. Success will depend among other things on the Company’s
      ability to out perform the other companies in its marketing and advertising
      efforts.





***The
      Company’s success depends on its ability to attract and retain qualified*** ***personnel.***





The
      Company’s success depends upon its ability to attract and retain qualified
      sales, marketing, scientific and executive management personnel. To
      commercialize its products and product candidates, Naturade must maintain and
      expand its personnel, particularly in the areas of product sales and marketing.
      Naturade faces intense competition, and the effects of bankruptcy, for such
      personnel from other companies, academic institutions, government entities
      and
      other research organizations. There can be no assurance that the Company will
      be
      successful in hiring, leasing or retaining qualified personnel. Moreover,
      managing the integration of new personnel could pose significant risks to the
      Company’s development and progress and increase its operating
      expenses.





***Expanding
      the Company’s sales in the mass market resulted in less stable
      demand***  ***for
      the Company’s products and higher costs of
      distribution.***





Although
      traditionally Naturade has been a marketer for the health food market, the
      Company recently built a presence in the mass market. While yielding increased
      revenue, selling to the mass market has also resulted in significant risks
      for
      the Company. Compared to sales in the health food market, the aggregate volume
      of mass market orders can vary significantly from period to period and tends
      to
      be more sensitive to short-term or local variations in market conditions. The
      instability can make planning difficult and can cause unexpected reductions
      in
      sales, or in orders that exceed the Company’s short-term capacity, in either
      case resulting in lost revenue. Failure to manage the costs and risks associated
      with the mass market could cause material adverse harm to the Company’s
      business.




24





***Certain
      stockholders have the ability to control the Company and have
      other******substantial
      rights, preferences and privileges.***





Redux,
      Health Holdings and Westgate (the “Principal Stockholders”) have the ability to
      control the Company and have other substantial rights, preferences and
      privileges, as a result of the following factors:





At
      December 31, 2006, the Principal Stockholders collectively owned 71.3% of the
      Company’s outstanding common stock, 100% of its outstanding Series C and options
      and warrants to acquire an additional 38% of its common stock (assuming the
      exercise of all options and warrants and the conversion of all convertible
      securities held by the Principal Stockholders, and after such exercise, common
      and Series C held would constitute 62%). As a result, the Principal Stockholders
      have the ability to elect all of the Company’s directors, control the outcome of
      all matters requiring stockholder approval and control the Company’s management
      and affairs.




As
      holders of the Series C, the Principal Stockholders are entitled to substantial
      rights, preferences and privileges, including the following:





·
            For
                each fiscal year, the holders of the Series C are entitled to receive
                a
                cash dividend equal to 20% of the amount, if any, by which the Company’s
                pre-tax profit for such year exceeds $10 million. This cash dividend
                would
                reduce the amount available for other corporate purposes, including
                the
                expansion of the Company’s business or distributions to the holders of its
                common stock.





·
            On
                the liquidation or sale of the company, the holders of the Series
                C are be
                entitled to receive a preferential payment equal to $1.00 per share
                (subject to adjustment), plus accrued but unpaid dividends. This
                preferential payment would reduce the amount available for distribution
                to
                the holders of the Company’s common
                stock.





·
            At
                any time after July 22, 2006, the holders of the Series C have the
                right
                to convert each share of Series C into one share of the Company’s common
                stock (subject to adjustment to prevent dilution). The issuance of
                these
                shares of common stock could cause substantial dilution to the other
                holders of the common stock, and the potential issuance of these
                shares of
                common stock could depress the market price of the Company’s common stock
                and impair its ability to raise capital through the sale of common
                stock.





·
            On
                December 31, 2012, Naturade is required to redeem the Series C for
                $1.00
                per share (subject to adjustment), plus accrued but unpaid dividends,
                provided the Company is legally able to do so. This cash dividend
                would
                reduce the amount available for other corporate purposes, including
                the
                expansion of the Company’s business or distributions to the holders of its
                common stock.





·
            The
                Principal Stockholders hold the following options and warrants to
                purchase
                additional shares of the Company’s common
                stock:





·
            Redux
                holds a warrant to purchase up to 7,000,000 shares of the Company’s common
                stock at any time on or after July 22, 2006 and before July 22, 2015
                at a
                price of $0.80 per share.





·
            Redux
                holds a warrant to purchase up to 7,000,000 shares of the Company’s common
                stock at any time on or after July 22, 2006 and before July 22, 2015
                at a
                price of $1.02 per share.





·
            Health
                Holdings holds warrants to purchase up to 10,000,000 shares of the
                Company’s common stock at any time on or after July 22, 2006 and before
                July 22, 2015 at a price of $1.00 per
                share.





·
            Redux
                holds an option to purchase up to 8,721,375 shares of the Company’s common
                stock, subject to certain limits, at any time on or after July 26,
                2005 at
                a price of $0.001 per share.





·
            Redux
                holds a warrant to purchase up to 1,500,000 shares of the Company’s common
                stock at any time on or after July 26, 2005 through July 26, 2010
                at a
                price of $0.80 per share.


25





·
            Redux
                holds a warrant to purchase up to 3,647, 743 shares of the Company’s
                common stock, subject to certain limits, at any time on or after
                July 26,
                2006, at a price of $.08 per share.





·
            Redux,
                Health Holdings and Westgate hold 4,200,000, 12,600,000 and 4,200,000
                shares, respectively, of Series C, each of which is convertible into
                one
                share of the Company’s common stock (subject to adjustment to prevent
                dilution).





·
            The
                issuance of these shares of the Company’s common stock could cause
                substantial dilution to the other holders of the common stock, and
                the
                potential issuance of these shares of common stock could depress
                the
                market price of the Company’s common stock and impair its ability to raise
                capital through the sale of common
                stock.





·
            The
                Company has granted the Principal Stockholders certain registration
                rights
                with respect to its common stock issuable upon the exercise of the
                foregoing options and warrants or the conversion of the Series C.





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be canceled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of its common stock to give Redux a 95%
      equity and voting interest in the Company. All remaining shareholders will
      have
      a total of 5% equity interest in the Company





***The
      exercise of outstanding options and warrants, and the conversion of outstanding
      shares of Series C and convertible promissory notes, could cause substantial
      dilution to the Company’s stockholders.***





The
      Company has issued options and warrants to acquire its common stock to the
      Principal Stockholders at various prices, some of which are, or may in the
      future have, exercise prices at or below the market price of the Company’s
      common stock. As of December 31, 2006, the Company had outstanding options
      and
      warrants to purchase a total 37,869,118 shares of its common stock, of which,
      29,147, 743 had exercise prices above the market price of its common stock
      on
      December 31, 2006 ($0.08 per share) and 8,721,375 shares had exercise prices
      at
      or below this market price. The weighted average exercise price was
      approximately $0.62 per share at that date. If exercised, these options and
      warrants could cause substantial dilution to the Company’s stockholders.





The
      Company also has issued shares of Series C, which are, or may in the future
      have, conversion prices at or below the market price of its common stock. As
      of
      December 31, 2006, the Company had outstanding 21,000,000 shares of Series
      C
      convertible to a total of 21,000,000, shares of its common stock, all of which
      had conversion prices above the market price of the Company’s common stock on
      December 31, 2006 ($0.08 per share). The weighted average conversion price
      was
      $1.00 per share at that date. If converted, these shares of Series C could
      cause
      substantial dilution to the Company’s stockholders.




The
      number of shares of the Company’s common stock issuable upon exercise of
      outstanding options and warrants, or the conversion of outstanding shares of
      Series C is subject to adjustment to prevent dilution upon stock splits, stock
      dividends, sales of the Company’s common stock at prices below the exercise or
      conversion price and other events.





On
      the Effective Date, all Company Series C Preferred shares, along with their
      voting and control rights, all options, all warrants, and all registration
      rights, will be cancelled as required under the Plan. The Company, as required
      by the Plan, will then issue Redux enough shares of the Company’s common stock
      to give Redux a 95% equity and voting interest in the Company. All remaining
      shareholders will have a 5% equity interest in the Company.




***The
      large number of shares of common stock issuable upon the exercise
      of***  ***outstanding
      options and warrants, or the conversion of outstanding shares
      of***  ***Series
      C, could depress the market price of***  ***the
      Company’s common stock and impair its ability to raise capital by
      selling***  ***its
      common stock.***





As
      of
      December 31, 2006, 43,332,733 shares of common stock were outstanding and
      58,869,118 additional shares (subject to adjustment to prevent dilution) were
      issuable upon the exercise of outstanding options and warrants or the conversion
      of outstanding shares of Series C. The exercise prices or conversion prices
      are,
      or in the future may be, less than the market price of the Company’s common
      stock. In addition, future sales of common stock or securities convertible
      into
      common stock at or below recent market prices could result in dilution of the
      common stock. The risk of dilution may cause some of the Company’s stockholders
      to sell their shares, which could further reduce the market price of the
      Company’s common stock and impair its ability to raise capital by selling common
      stock.


26





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be canceled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of its common stock to give Redux a 95%
      equity and voting interest in the Company. All remaining shareholders will
      have
      a 5% equity interest in the Company





***Future
      sales of equity securities could cause substantial dilution to
      the***  ***Company’s
      stockholders, depress the market price of its common stock and
      impair***  ***its
      ability to raise capital by selling its common stock.***





The
      Company may seek to obtain new financing from various sources, including the
      sale of its securities. Future sales of common stock or securities convertible
      into common stock at or below recent market prices could result in dilution
      of
      the common stock, depress the market price of the Company’s common stock and
      impair its ability to raise capital by selling its common stock.





***The
      Company has granted registration rights with respect to numerous
      shares,******the
      sale of which could depress the market price of its common stock and
      impair******its
      ability to raise capital by selling its common
      stock.***





The
      Company has granted registration rights to the holders of up to 64,490,618
      shares of common stock which are currently outstanding or are issuable upon
      the
      exercise of outstanding options and warrants or the conversion of outstanding
      shares of Series C, in addition to the shares being offered hereby. The
      availability of these shares for sale could depress the market price of the
      Company’s common stock and impair its ability to raise capital by selling its
      common stock.





On
      the Effective Date, all Company Series C Preferred shares, along with their
      voting and control rights, all options, all warrants, and all registration
      rights, will be cancelled as required under the Plan. The Company, as required
      by the Plan, will then issue Redux enough shares of its common stock to give
      Redux a 95% equity and voting interest in the Company. All remaining
      shareholders will have a 5% equity interest in the Company.





***The
      Company’s future success depends on the Company’s ability to develop
      and***  ***commercialize
      products.***





The
      Company currently is engaged in developing nutraceuticals, which are
      characterized by extensive and costly research and rapid technological progress
      and change. New process developments are expected to continue at a rapid pace
      in
      both industry and academia. The Company’s future success will depend on its
      ability to develop and commercialize its existing product candidates and to
      develop new products. There can be no assurance that Naturade will successfully
      complete the development of any of its existing product candidates or that
      any
      of its future products will be commercially viable or achieve market acceptance.
      In addition, research and development and discoveries by others could render
      some or all of our programs or potential product candidates uncompetitive or
      obsolete.





***The
      Company is subject to variability of quarterly results and, therefore,
      its***  ***results
      of operations for any period may not be indicative of future
      periods.***





The
      Company has experienced, and expects to continue to experience, variations
      in
      its net sales and operating results from quarter to quarter. The Company
      believes that the factors that influence this variability of quarterly results
      include the timing of its introduction of new product lines, the level of
      consumer acceptance of each product line, general economic and industry
      conditions that affect consumer spending and retailer purchasing, the
      availability of manufacturing capacity, the timing of trade shows, the product
      mix of customer orders, the timing of placement or cancellation of customer
      orders, the weather, transportation delays, the occurrence of chargebacks in
      excess of reserves and the timing of expenditures in anticipation of increased
      sales and actions of competitors. Accordingly, a comparison of the Company’s
      results of operations from period to period is not necessarily meaningful,
      and
      its results of operations for any period are not necessarily indicative of
      future performance.


27




***The
      change in control affected by the Company’s recent recapitalization
      may***  ***restrict***  ***future
      use of its tax loss carry forwards.***





As
      of
      December 31, 2006, the Company had federal net operating loss carry forwards
      of
      $29,756,012 that begin expiring in December 2017 and state net operating loss
      carry forwards of $18,817,934 that began expiring in December 2005. A valuation
      allowance for the full amount of net deferred taxes has been provided because
      it
      is more likely than not that the deferred taxes will not be realized. Under
      Section 382 of the Internal Revenue Code, certain significant changes in
      ownership, such as the Company’s recent recapitalization, may restrict the
      future utilization of these tax loss carry forwards. Based upon preliminary
      calculations, it is estimated that the utilization of tax losses for federal
      or
      state tax purposes would be limited to approximately $150,000 per year. As
      a
      result, federal net operating losses may expire before the Company is able
      to
      fully utilize them. As the Company is currently in a loss position this limit
      is
      not applicable. A more detailed calculation will be prepared once the Company
      has taxable income for federal purposes.




***The
      Company may not have sufficient resources to address product
      liability***  ***exposure.***





Product
      liability risk is inherent in the testing, manufacture, marketing and sale
      of
      the Company’s products and product candidates, and there can be no assurance
      that the Company will be able to avoid significant product liability exposure.
      The Company may be subject to various product liability claims, including,
      among
      others, that its products include inadequate instructions for use or inadequate
      warnings concerning possible side effects and interactions with other
      substances. Naturade currently maintains general liability insurance and product
      liability insurance at levels consistent with industry norms and as required
      by
      the Company’s principal customers. The Company believes such insurance to be
      adequate. There can be no assurance that the Company will be able to maintain
      insurance in sufficient amounts to protect it against such liabilities at a
      reasonable cost. Any future product liability claim against the Company could
      result in it paying substantial damages, which may not be covered by insurance
      and may have a material adverse effect on the Company’s business and financial
      condition.





***The
      Soy protein based foods category is experiencing a decline in
      sales.***





The
      Company’s business consists primarily of selling natural products and functional
      foods, including soy protein-based products. The soy foods category, which
      is a
      significant portion of the Company’s revenues, as a whole has recently
      experienced decreased sales. Other categories of dietary supplements have
      experienced reduced sales in recent periods after several years of dramatic
      growth. In particular, revenues in both the herbal and health food store
      categories have had periods of significant decline. There can be no assurance
      that this general consumer trend will not be experienced by the Company’s
      product categories as well. Even if the Company is successful in increasing
      sales within its market category, a decline in the overall market for natural
      products or functional foods could have a material adverse affect on its
      business.





***Adverse
      publicity may affect the Company’s ability to attract and
      retain***  ***distributors.***





The
      Company’s products are formulated with vitamins, minerals, herbs and other
      ingredients that it regards as safe when taken as recommended by the Company
      and
      that scientific studies have suggested may involve health benefits. While the
      Company conducts extensive quality control testing on its products, the Company
      generally does not conduct or sponsor clinical studies relating to the benefits
      of its products. The Company is highly dependent upon consumers’ perception of
      the overall integrity of its business, as well as the safety and quality of
      its
      products and similar products distributed by other companies that may not adhere
      to the same quality standards as the Company does. The Company could be
      adversely affected if any of its products, or any similar products distributed
      by other companies, should prove harmful or be asserted to be harmful to
      consumers, or should scientific studies provide unfavorable findings regarding
      the effectiveness of such products. The Company’s ability to attract and retain
      distributors could be adversely affected by negative publicity relating to
      it or
      to other direct sales organizations or by the announcement by any governmental
      agency of investigatory proceedings regarding the business practices of the
      Company or other direct sales organizations.


28




***The
      Company may not be able to protect its intellectual property which
      could***  ***enable
      other companies to replicate its products.***





The
      Company’s success depends in part on its ability to preserve its trade secrets
      and know-how, and operate without infringing on the property rights of third
      parties. The Company does not have any patents, and as a result another company
      could replicate one or more of its products. The Company’s policy is to pursue
      registrations for all of the trademarks associated with its key products. The
      Company relies on common law trademark rights to protect its unregistered
      trademarks as well as its trade dress rights. Common law trademark rights
      generally are limited to the geographic area in which the trademark is actually
      used, while a U.S. federal registration of a trademark enables the registrant
      to
      stop the unauthorized use of the trademark by any third party anywhere in the
      United States. The Company intends to register its trademarks in certain foreign
      jurisdictions where its products are sold. However, the protection available,
      if
      any, in such jurisdictions may not be as extensive as the protection available
      to the Company in the United States.




Currently,
      the Company has 53 U.S. trademarks. The Company also maintains trademark
      registrations in approximately 12 foreign countries. Because of its limited
      financial resources, the Company cannot in all cases exhaustively monitor the
      marketplace for trademark violations. The Company will evaluate and pursue
      potential infringement on a case-by-case basis in accordance with its business
      needs and financial resources. If the Company is not aware of some infringing
      uses or elect not to pursue them, the value of its trademarks could be
      substantially weakened. If the Company takes action to enforce its intellectual
      property rights, litigation may be necessary. Any such litigation could be
      very
      costly and could distract the Company’s personnel. Due to limited financial
      resources, the Company may be unable to pursue some litigation matters. In
      matters the Company does pursue, it can provide no assurance of a favorable
      outcome. An unfavorable outcome in any proceeding could have a material adverse
      effect on its business, financial condition and results of operations.




***New
      products are expensive to introduce and may not be
      successful.***





Each
      year, the Company introduces new products to meet consumer demands and counter
      competitive threats. These new products include product line extensions, such
      as
      new flavors of currently existing products, as well as new formulations or
      configurations such as Diet Lean® and ReVivexTM. The Company experiences
      significant costs in formulating new products, designing packaging and
      merchandising. There can be no assurance that consumers and retailers will
      accept its new products. In addition, there can be no assurance that once new
      products are initially distributed to mass market and health food retailers,
      there will be repeat orders for these new products. Furthermore, expensive
      introductory retailer charges for additional shelf space may negate any initial
      increase in sales.





***The
      Company’s stock price may be subject to significant
      fluctuations.***





Trading
      in the Company’s common stock is low in volume. The market price of the
      Company’s common stock is likely to be volatile and could be subject to
      significant fluctuations in response to factors such as quarterly variations
      in
      operating results, operating results which vary from the expectations of
      securities analysts and investors, changes in financial estimates, changes
      in
      market valuations of competitors, announcements by the Company or its
      competitors of a material nature, loss of one or more customers, additions
      or
      departures of key personnel, future sales of common stock and stock market
      price
      and volume fluctuations. For the five trading days ended December 31, 2006,
      the
      average daily trading volume of its common stock was 460 shares, compared to
      the
      up to 64,490,118 additional shares for which the Company has granted
      registration rights. Additionally, investor confidence may be adversely affected
      by issuance of a going concern opinion by the Company’s independent registered
      public accounting firm, which may cause the Company’s stock price to fall. Also,
      general political and economic conditions such as recession, or interest rate
      or
      currency rate fluctuations, may adversely affect the market price of the
      Company’s common stock.


29





On
      August
      25, 2006, the NASD delisted the Company from the Over the Counter Bulletin
      Board, due to the Company’s inability to timely file its second quarter 2006
      10Q. The Company is now listed and trading on the “Pink Sheets” with the symbol
      NRDC.PK. Listing on the Pink Sheets could adversely affect the Company’s ability
      to increase the share price and move the Company’s common stock listing to a
      national security exchange.





***The
      Company’s common stock is currently deemed to be a “penny stock.” As
      a***  ***result,
      trading of its shares may be subject to special requirements
      which***  ***could
      impede the Company’s stockholders’ ability to resell their
      shares.***





The
      Company’s common stock is a “penny stock” as that term is defined in Rule 3a51-1
      adopted under the Exchange Act because it is selling at a price below $5.00
      per
      share. In the future, if the Company was unable to list its common stock on
      a
      national securities exchange, or the per share sale price is not at least $5.00,
      its common stock may continue to be deemed to be a “penny stock.”





Section
      15(g) of the Exchange Act and Rule 15g-2, require broker-dealers dealing in
      penny stocks to provide potential investors with a document disclosing the
      risks
      of penny stocks and to obtain a manually signed and dated written receipt of
      the
      document before effecting any transaction in a penny stock for the investor’s
      account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve
      the account of any investor for transactions in such stocks before selling
      any
      penny stock to that investor. This procedure requires the broker-dealer to
      obtain from the investor information concerning his or her financial situation,
      investment experience and investment objectives; to determine reasonably, based
      on that information, that transactions in penny stocks are suitable for the
      investor and that the investor has sufficient knowledge and experience as to
      be
      reasonably capable of evaluating the risks of penny stock transactions; to
      provide the investor with a written statement setting forth the basis on which
      the broker-dealer made such determination; and to receive a signed and dated
      copy of such statement from the investor, confirming that it accurately reflects
      the investor’s financial situation, investment experience and investment
      objectives.





Compliance
      with these requirements may make it more difficult for holders of the Company’s
      common stock to resell their shares to third parties or to otherwise dispose
      of
      them.





***The
      Company may not be able to comply in a timely manner with Section 404
      of******the
      Sarbanes-Oxley Act of 2002, which could harm its operating
      results.***





Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002, the Company will be required,
      beginning in the Company’s fiscal year 2007, to perform an evaluation of the
      design and operating effectiveness of its internal controls and publicly attest
      to such evaluation. The Company has prepared an internal plan of action for
      compliance with the requirements of Section 404, although as of the date of
      this
      filing, it has not yet completed its effectiveness evaluation. Although the
      Company believes its internal controls are operating effectively, the Company
      cannot guarantee that it will not have a material weakness as reported by its
      independent registered public accounting firm. If the Company fails to complete
      this evaluation in a timely manner, it could be subject to regulatory scrutiny
      and a loss of public confidence in the Company’s internal controls. In addition,
      any failure to implement required new or improved controls, or difficulties
      encountered in their implementation, could harm the Company’s operating results
      or cause us to fail to meet our reporting obligations.





**Item
      1B. Unresolved Staff Comments**





None.





**Item
      2. Properties**





In
      December 1998, the Company signed a 7 1/2 year lease for a facility including
      new executive offices, sales and marketing offices and warehouse located in
      Irvine, California. This 50,000 square foot facility includes a 40,000 square
      foot finished goods warehouse area configured with a high-density steel rack
      and
      frame storage floor plan. This maximum cubic space utilization provides the
      Company with reasonably sufficient warehousing capacity for the term of the
      lease, specifically in light of the Company’s decision to outsource production,
      thereby eliminating the need for any manufacturing space. The rent expense
      related to this lease for fiscal year ended December 31, 2006 was $371,470.
      The
      lease agreement includes an approximate 9% rent increase after the second,
      fourth and sixth year of the lease period, with a 60-month extension after
      the
      initial lease term at the prevailing market rental rate. On November 1, 2005,
      the Company agreed to an extension of the lease until September 30, 2013. This
      extension resulted in a decrease in the monthly rent from $35,382 per month
      to
      $29,900 beginning on October 1, 2006 increasing to $30, 897 on October 1, 2007,
      $32,392 on October 1, 2008, $33,389 on October 1, 2009, $34,884 on October
      1,
      2010, $36,379 on October 1, 2011 and $37,874 on October 1, 2012.




30





As
      a
      result of the Company’s filing for protection under Chapter 11 of the US
      Bankruptcy Code, the Company requested that the Court reject this lease
      agreement and in September 2006, the Court approved the rejection.





On
      September 1, 2006, the Company entered into a sub-lease agreement with One
      World
      Science Inc, a subsidiary of Redux, whereby the Company sub-leases approximately
      9,000 square feet of office space for its corporate headquarters in Brea,
      California. The lease calls for monthly payments of $10,000 and is on a month
      to
      month basis.




**Item
      3. Legal Proceedings**




The
      Company is the subject of various litigation matters, including an eviction
      matter with the Irvine Company related to the Company’s office facilities lease.
      The lease was set to expire in 2013; however, the Company vacated the premises
      in August 2006. The Company has not accrued the remaining rent as December
      31,
      2006 and the Bankruptcy Court granted an order rejecting the lease on September
      7, 2006.





On
      September 30, 2006, a judgment in the amount of $271,000 was entered against
      the
      Company related to a vendor. Such amount has been accrued as of December 31,
      2006.





The
      following litigation matters are currently pending:





**a)** **Fortress
      Systems, LLC dba FSI Nutrition v. Naturade, Inc.** **(Case No. ADV**  **.06-08004
      U.S. Bankruptcy Court, District of Nebraska).** On
      January 11, 2006, Fortress Systems, LLC (dba FSI Nutrition) filed a claim
      against the Company in U.S. Bankruptcy Court, District of Nevada alleging
      failure to pay for a special order product. The plaintiff is seeking $47,255
      in
      damages. This claim was filed in the Company’s Chapter 11 bankruptcy case and is
      now treated as an unsecured creditor claim under the Plan.





**b)
      Naturade, Inc. v. Doyle & Boissiere, LLC; Health Holdings and Botanicals,
      LLC; Quincy Investments Corp.: Peter H. Pocklington: William B. Doyle, Jr.;
      Lionel P. Boissiere; and Does 1-70 (** **Orange
      County Superior Court, State of California, Case No.:
      07CC02752)** ,
      Filed
      on February 9, 2007. This lawsuit was initiated by the Company to seek
      compensation and damages relating to Breach of Fiduciary Duty, Breach of
      Contract, Fraud, Conversion, Breach of the Implied Covenant, Negligence,
      Accounting, and Declaratory Relief from several former directors and entities
      with which the Company had contractual relationships. The Company seeks
      compensatory and punitive damages against each defendant. A trial for this
      matter has not yet been set. Related to this litigation, on December 8, 2006,
      Quincy Investments, Inc. filed a proof of claim against the Company’s bankruptcy
      estate alleging a general unsecured claim in the approximate amount of
      $350,000.00 (“Quincy Claim”). The Company disputes the Quincy Claim, but has yet
      to file a formal objection to the Quincy Claim. The Company anticipates filing
      a
      formal objection in Bankruptcy Court to the Quincy Claim in April
      2007.





c) **Naturade,
      Inc. v. NBTY, Inc. d/b/a Omni-Pak Industries**  **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1057RK)** Filed on
      February 15, 2007. On December 11, 2006, NBTY, Inc. (“NBTY”) filed proof of
      claim against the Company’s bankruptcy estate alleging a general unsecured claim
      in the amount of $660,774.10 (“NBTY Claim”). The Company disputes the NBTY
      Claim, but has yet to file a formal objection to the NBTY Claim. On February
      15,
      2007, the Company filed a complaint against NBTY d/b/a/ Omni-Pak Industries
      to
      avoid and recover approximately $191,480.81 of preferential transfers of
      property under Bankruptcy Code Sections 547 and 550. A trial for this matter
      has
      not yet been set.





d) **Naturade,
      Inc. v. Yellow Transportation** **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1055RK).** Filed
      on
      February 14, 2007. On November 6, 2006, Yellow Transportation (“YT”) filed proof
      of claim against the Company’s bankruptcy estate alleging a general unsecured
      claim in the amount of $60,336.88 (“YT Claim”). The Company disputes the YT
      Claim, but has yet to file a formal objection to the YT Claim. On February
      14,
      2007, The Company filed a complaint against YT seeking to avoid and recover
      approximately $191,761.02 of preferential transfers of property under Bankruptcy
      Code Sections 547 and 550. A trial for this matter has not yet been set.


31





e) **Naturade,
      Inc. v. United Parcel Service, Inc.**  **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1056RK)** Filed on
      February 14, 2007. On November 6, 2006, UPS filed a proof of claim asserting
      an
      unsecured claim in the amount of $11,997.96 (“UPS Claim”). On February 14, 2007,
      the Company filed a complaint against UPS to avoid and recover approximately
      $22,784.68 of preferential transfers of property under Bankruptcy Code Sections
      547 and 550 (“UPS Complaint”). On April 9, 2007, the Company filed and served a
      motion seeking court approval of a settlement agreement with UPS that provides
      for UPS to pay the Company $3,500.00 and waive any and all other claims against
      the Company as consideration for the Company’s dismissal of the UPS Complaint
      with prejudice.





**f)
      Claims and Other Bankruptcy Related Litigation:** The
      Company anticipates that objections to numerous claims filed against the
      Company’s bankruptcy estate will be prepared and prosecuted by the Company in or
      about April 2007 based on several factual and legal grounds, which should result
      in the reduction or elimination of certain claims filed in the bankruptcy case. **** In
      addition thereto, the Company may commence additional adversary actions,
      including actions for avoidance and recovery of preferential transfers against
      certain of the Company’s pre-Petition Date creditors.





The
      Company has fully accrued the amounts claimed in these suits as of December
      31,
      2006. In addition, the Company has received a stay as to each of these lawsuits
      under its Chapter 11 Bankruptcy proceeding. As of this filing no plaintiff
      or
      other party has made a motion for or been granted a Relief from
      Stay.





**Item
      4. Submission of Matters to a Vote of Security Holders**





None




32




**PART
      II**





**Item
      5.**  **Market
      for the Registrant’s Common Equity, Related Stockholder**  **Matters
      and Issuer Purchases of Equity Securities**





**Market
      Information**





The
      Company’s common stock began trading on the over-the-counter securities market
      in the third quarter of 1991 under the symbol NRDC.OB. The over-the-counter
      market quotations reflect interdealer bid prices, without retail markup,
      markdown or commission, and may not necessarily represent actual transactions.
      The prices appearing below were obtained from the National Quotation Bureau.
      The
      Company’s stock was delisted from the over-the-counter bulletin board on
      September 25, 2006 and is currently trading on the “Pink Sheets”.





**Fiscal
                2006**
            
            **High**
            
            **Low**1st
                Quarter
            
            $
            .20
            
            $
            .102nd
                Quarter
            
            
            .15
            
            
            .073rd
                Quarter
            
            
            .15
            
            
            .034th
                Quarter
            
            
            .05
            
            
            .03





**Fiscal
                2005**
            
            **High**
            
            **Low**1st
                Quarter
            
            $
            .07
            
            $
            .042nd
                Quarter
            
            
            .08
            
            
            .053rd
                Quarter
            
            
            .30
            
            
            .054th
                Quarter
            
            
            .30
            
            
            .15





On
      April
      11, 2006, the last reported price for the Company’s common stock was $0.04.
      Stockholders are urged to obtain current market quotations for the Company’s
      common stock.





**Holders**





To
      the
      best knowledge of the Company, the number of record holders of common stock
      as
      of December 31, 2006 was 505. According to information obtained by the Company,
      approximately 210 additional shareholders hold the common stock in “street
      name.”





**Dividends**





The
      Company did not pay a cash dividend on our common stock during 2006 and 2005,
      and it does not anticipate paying any cash dividends in the foreseeable future.
      It intends to retain any future earnings to provide funds for the expansion
      of
      its business. The declaration and payment of cash dividends in the future will
      depend upon its earnings, financial condition, capital needs and other factors
      deemed relevant by its board of directors. The Company’s ability to pay
      dividends is limited by the provisions of Delaware law, the rights of the Series
      C and the approval rights granted to Laurus. See “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations - Liquidity and
      Capital Resources - *Laurus
      Financing.* ”




**Recent
      Sales of Unregistered Securities**





None


33


**Item
      6. Selected Financial Data**





The
      following tables summarize certain selected financial data for the years
      presented and should be read in conjunction with the more detailed information
      and financial statements, including notes thereto, presented elsewhere herein.
      The year ended December 31, 2006 was audited by Squar, Milner, Peterson, Miranda
      & Williamson, LLP. The years ended December 31, 2002 through 2005 were
      audited by BDO Seidman, LLP. The following table was derived from such audited
      financial statements.




**STATEMENT
      OF OPERATIONS DATA**





**Years
                Ended December 31,****2006**
            
            
            
            **2005**
            
            
            
            **2004**
            
            
            
            **2003**
            
            
            
            **2002**Net
                Sales
            
            $
            9,432,019
            
            
            100.0
            %
            $
            12,756,086
            
            
            100.0
            %
            $
            14,141,481
            
            
            100.0
            %
            $
            16,326,296
            
            
            100.0
            %
            $
            14,416,351
            
            
            100.0
            %Gross
                profit
            
            
            3,315,867
            
            
            35.2
            %
            
            6,250,649
            
            
            49.0
            %
            
            6,338,679
            
            
            44.8
            %
            
            7,663,997
            
            
            46.9
            %
            
            6,258,744
            
            
            43.4
            %Selling,
                general and administrative expenses
            
            
            7,542,707
            
            
            80.0
            %
            
            7,966,179
            
            
            62.5
            %
            
            7,149,935
            
            
            50.6
            %
            
            7,807,962
            
            
            47.8
            %
            
            7,983,164
            
            
            55.4
            %Impairment
                of goodwill
            
            
            2,694,357
            
            
            28.6
            %
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Impairment
                of customer lists
            
            
            1,049,336
            
            
            11.1
            %
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Reorganization
                professional fees
            
            
            410,306
            
            
            4.4
            %
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Depreciation
            
            
            56,723
            
            
            0.6
            %
            
            63,987
            
            
            0.5
            %
            
            66,995
            
            
            0.4
            %
            
            75,436
            
            
            0.4
            %
            
            86,218
            
            
            0.6
            %Amortization
            
            
            835,681
            
            
            8.9
            %
            
            392,579
            
            
            3.1
            %
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Operating
                loss
            
            
            (9,273,243
            )
            
            (98.3
            )%
            
            (2,172,096
            )
            
            (17.0
            )%
            
            (878,251
            )
            
            (6.2
            )%
            
            (219,401
            )
            
            (1.3
            )%
            
            (1,810,638
            )
            
            (12.6
            )%Other
                Income (loss):Gain
                on sale of brand
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            1,055,647
            
            
            7.5
            %
            
            -0-
            
            
            
            
            
            -0-Gain
                on expiration of warrants
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            500,000
            
            
            3.5
            %
            
            -0-
            
            
            
            
            
            -0-Change
                in derivative liabilities
            
            
            1,285,797
            
            
            (13.6
            )%
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Interest
                Expense:Interest
            
            
            (726,756
            )
            
            7.7
            %
            
            (499,908
            )
            
            3.9
            %
            
            (305,265
            )
            
            2.2
            %
            
            (189,462
            )
            
            1.2
            %
            
            (113,480
            )
            
            0.8
            %Deferred
                financing fees
            
            
            (2,464,399
            )
            
            26.1
            %
            
            (1,069,666
            )
            
            8.4
            %
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Total
                interest expense
            
            
            (3,191,155
            )
            
            33.8
            %
            
            (1,569,574
            )
            
            12.3
            %
            
            (305,265
            )
            
            2.2
            %
            
            (189,462
            )
            
            1.2
            %
            
            (113,480
            )
            
            0.8
            %Loss
                on sale of assets
            
            
            (59,257
            )
            
            0.6
            %Other
            
            
            (12,200
            )
            
            0.1
            %
            
            (5,785
            )
            
            (0.0
            )%
            
            (2,857
            )
            
            (0.0
            )%
            
            7,948
            
            
            0.0
            %
            
            28,300
            
            
            0.2
            %Income
                (loss) before provision for incometaxes
            
            
            (11,250,058
            )
            
            (119.3
            %)
            
            (3,747,455
            )
            
            (29.4
            )%
            
            369,274
            
            
            2.6
            %
            
            (400,915
            )
            
            (2.5
            )%
            
            (1,895,818
            )
            
            (13.2
            )%Provision
                for income taxes
            
            
            800
            
            
            0.0
            %
            
            800
            
            
            0.0
            %
            
            800
            
            
            0.0
            %
            
            800
            
            
            0.0
            %
            
            800
            
            
            0.0
            %Net
                income(loss)
            
            
            (11,250,858
            )
            
            (119.3
            %)
            
            (3,748,255
            )
            
            (29.4
            )%
            
            368,474
            
            
            2.6
            %
            
            (401,715
            )
            
            (2.5
            )%
            
            (1,896,618
            )
            
            (13.2
            )%Less:Preferred
                Stock Dividends-Series B
            
            
            -0-
            
            
            
            
            
            (157,318
            )
            
            
            
            
            (252,670
            )
            
            
            
            
            (228,908
            )
            
            
            
            
            (205,000
            )Deemed
                Dividends-Series B
            
            
            -0-
            
            
            
            
            
            1,109,127
            
            
            
            
            
            (285,714
            )
            
            
            
            
            (285,714
            )
            
            
            
            
            (285,714
            )Deemed
                Dividends-Series C
            
            
            (2,760,000
            )
            
            
            
            
            (1,150,000
            )
            
            
            
            
            -0-
            
            
            
            
            
            -0-
            
            
            
            
            
            -0-Net
                Loss Attributable to Common Shareholders
            
            $
            (14,010,858
            )
            
            
            
            $
            (3,946,446
            )
            
            
            
            $
            (169,910
            )
            
            
            
            $
            (916,337
            )
            
            
            
            $
            (2,387,332
            )Basic
                and diluted net loss pershare
            
            $
            (0.33
            )
            
            
            
            $
            (0.09
            )
            
            
            
            $
            (0.00
            )
            
            
            
            $
            (0.02
            )
            
            
            
            $
            (0.05
            )Weighted
                average number of shares used in computation of basic and diluted
                net loss
                per share
            
            
            42,619,350
            
            
            
            
            
            41,968,360
            
            
            
            
            
            44,651,170
            
            
            
            
            
            44,651,170
            
            
            
            
            
            44,117,284


34


**BALANCE
      SHEET DATA**





**As
                of December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Cash
                and cash equivalents
            
            $
            80,713
            
            $
            95,398
            
            $
            210,573
            
            $
            144,102
            
            $
            722,583Working
                capital (deficiency)
            
            
            (1,728,224
            )
            
            (6,592,541
            )
            
            (1,859,321
            )
            
            (1,789,482
            )
            
            (1,429,771
            )Total
                assets
            
            
            2,948,553
            
            
            11,989,026
            
            
            4,401,391
            
            
            4,076,557
            
            
            4,222,224Long
                term debt
            
            
            2,015,905
            
            
            1,388,897
            
            
            -0-
            
            
            5,609
            
            
            37,735Total
                stockholders’ deficit
            
            $
            (16,964,174
            )
            $
            (4,060,788
            )
            $
            (3,301,548
            )
            $
            (2,861,638
            )
            $
            (1,945,301
            )




**Item
      7. Management’s Discussion and Analysis of Financial Condition and
      Results**  **of
      Operations**





The
      following discussion and analysis of the Company’s financial condition and
      results of operations should be read in conjunction with “Item 6. Selected
      Financial Data” and the financial statements and related notes attached to this
      report. This discussion and analysis contains forward-looking statements that
      involve risks, uncertainties and assumptions. The Company’s actual results may
      differ materially from those anticipated in these forward-looking statements
      as
      a result of certain factors, including, but not limited, to those set forth
      under “Item 1A. Risk Factors” and elsewhere in this report.





**General**





The
      Company is a branded natural products marketing company focused on growth
      through innovative products designed to nourish the health and well being of
      consumers. The Company competes in the overall market for natural, nutritional
      supplements primarily in the segment defined by *Nutrition
      Business Journal* (“NBJ”),
      a San Diego-based research publication that specializes in this industry, as
      Supplements.





Within
      the broad soy foods market, segments such as meal replacement drinks, soy milk
      and bars have outperformed other categories. The Company’s products include
      Naturade Total Soy®, a full line of nutritionally complete meal replacements for
      weight loss and cholesterol reduction available in several flavors of powders,
      Naturade® protein powders, ReVivexTM healthy joint and arthritis pain relief
      products, Diet Lean® products focused on the low carb dieter, SportPharma®
sports nutrition products and other niche dietary supplements. The Company’s
      products are sold in supermarkets, mass merchandisers, club stores, drug stores,
      natural food supermarkets and over 5,000 independent health food
      stores.





***Chapter
      11 Filing***





On
      August
      31, 2006 (the “ Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Bankruptcy”) under Chapter 11 of
      the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
      Bankruptcy Court for the Central District of California (the “Bankruptcy
      Court”). Since the Petition Date, the Company has conducted activities as a
      debtor-in-possession under the Bankruptcy Code. See Note 1, *Chapter
      11 Bankruptcy Proceedings* for
      additional information. A copy of the Company’s Plan of Reorganization may be
      accessed at www.winthropcouchot.com/client_files.php under
      client documents - Naturade.





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”)
      applicable to a going concern, which assume that assets will be realized and
      liabilities are discharged in the normal course of business. As a result of
      the Chapter 11 Bankruptcy (see Note 1 to the Financial Statements) such
      realization of assets and liquidation of liabilities is subject to uncertainty.
      A substantial portion of the Company's liabilities as of the Petition Date
      are
      subject to compromise or other treatment in the Chapter 11 Bankruptcy. For
      financial reporting purposes, those unsecured liabilities and obligations whose
      disposition is dependent on the outcome of the Chapter 11 Bankruptcy have been
      segregated and classified as liabilities subject to compromise in the December
      31, 2006 balance sheet. Generally, actions to enforce or otherwise effect
      repayment of all pre-Chapter 11 liabilities and pending litigation against
      the
      Company are stayed while the Company continues as a debtor-in-possession during
      bankruptcy proceedings. Schedules have been filed by the Company with the
      Bankruptcy Court setting forth the assets and liabilities of the Company as
      of
      the Petition Date as reflected in the Company's accounting records. Differences
      between amounts reflected in such schedules and claims filed by creditors will
      be investigated and either amicably resolved or adjudicated by the Bankruptcy
      Court. The ultimate amount of and settlement terms for such liabilities are
      not
      presently determinable.




35





Financial
      accounting and reporting during a Chapter 11 Bankruptcy for an entity with
      the
      expectation of reorganizing is prescribed in Statement of Position No. 90-7,
      “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”
(“SOP 90-7”). The Company has an expectation of reorganizing under the
      Bankruptcy Code. Accordingly, unsecured pre-petition liabilities, which may
      be
      subject to settlement, are classified as liabilities subject to compromise
      in the December 31, 2006 balance sheet. In addition, the Company has reported
      all transactions (other than interest expense) directly related to the Chapter
      11 Bankruptcy as reorganization items in its statement of operations for the
      year ended December 31, 2006. SOP 90-7's definition of reorganization items
      excludes (1) interest expense and (2) transactions required to be reported
      as
      discontinued operations or extraordinary items in conformity with GAAP. However,
      the accompanying financial statements do not include any adjustments that may
      be
      required in connection with restructuring the Company under Chapter 11 of the
      Bankruptcy Code.





On
      September 25, 2006, The Company's common stock was de-listed from the
      over-the-counter Bulletin Board and now trades on the "Pink Sheets." The Company
      intends filing a 15c 2-11 statement with NASD in Spring 2007 to try to
      regain listing on the over-the counter Bulletin Board.





Since
      September 2006, the Company has sought consensual agreement with its secured
      lender, other secured parties and the committee of unsecured creditors. The
      parties reached consensual agreement on the Company’s Fifth Amended Plan of
      Reorganization (the “Plan”), which was heard in Bankruptcy Court on February 28
      2007 and approved. The Company expects its Plan to become effective in April
      2007 (the “Effective Date”), based upon representations the Company has received
      from Redux Holdings Inc. (“Redux”), the Company’s controlling shareholder, who
      has agreed to provide the funding required under its Plan. A copy of the Plan
      may be accessed at the website address www.winthropcouchot.com/client_files.php
      under client documents - Naturade.




***Change
      in Control***




On
      August
      10, 2006, Quincy Investments Corp. (“Quincy”), the then principal shareholder of
      the Company, subsequent to executing a Letter of Intent of July 26, 2006 with
      Redux to transfer to Redux Quincy’s controlling interest in Naturade, as
      reported on the Company’s Form 8-K filed with the Securities and Exchange
      Commission on August 2, 2006, entered into the Quincy Transfer Agreement,
      pursuant to which:





·
            Quincy
                transferred 28 million shares of the Company’s common stock,4.2 million
                shares of Series C and 14 million warrants to purchase the Company’s
                common stock to Redux;·
            Redux
                agreed to make cash contributions up to $500,000, at its sole discretion,
                to the Company;·
            Redux
                and Quincy agreed to attempt to complete a Definitive Agreement by
                August
                31, 2006.·
            Quincy
                withheld 3,372,345 shares of the Company’s common stock in violation of
                the Quincy Transfer Agreement.




Before
      the transactions described above, Quincy owned 31, 372,345 shares of the
      Company’s common stock, or 72.4% of the voting power of the Company’s common
      stock. Quincy also owned 4.2 million share of Series C, which when added to
      Quincy’s common stock represented 55.3% of the combined voting power of the
      Company’s common stock and the Series C.. The holders of the Series C are
      entitled to vote along with the Company’s common stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Quincy had the power to elect a majority of the
      Board
      of Directors and to determine the outcome of any matter submitted to the
      Company’s stockholders, subject to the rights of Health Holdings and Botanicals,
      LLC holders of 12,600,000 shares of Series C who have the right to elect one
      director and to approve certain transactions.





The
      Definitive Agreement contemplated under the Letter of Intent has not been
      entered into and the Letter of Intent by its terms has expired. Although Quincy
      has threatened litigation against Redux related to the absence of a Definitive
      Agreement, no lawsuit has been commenced. In contrast, the Company has initiated
      a lawsuit against Quincy and Peter Pocklington. See Note 12, Legal Proceedings.




36




On
      August
      31, 2006 Laurus entered into an agreement with Redux, the principal shareholder
      of the Company, (the “Redux Agreement”) pursuant to which:





·
            Laurus
                Master Fund, Ltd. (“Laurus”) transferred 1,050,000 shares of the Company’s
                common stock to Redux;·
            Laurus
                transferred warrants to purchase 1,500,000 shares of the Company’s common
                stock at $0.80 per share to Redux which were cancelled upon
                transfer;·
            Laurus
                transferred an option to purchase 8,721,375 shares of the Company’s common
                stock at $0.001 per share to Redux (the “Laurus
                Options”);·
            Redux
                issued 574,787, shares of Redux common stock to Laurus, subject to
                certain
                provisions for anti-dilution.





On
      April
      13, 2007, Redux issued Laurus a cashless warrant to purchase up to 700,000
      shares of Redux common stock, in consideration of Laurus waving all default
      interest of the Company’s accrued default interest and fees.





On
      November 16, 2006, Redux acquired 500,000 shares of the Company’s common stock
      and warrants to purchase 3,647,743 shares of the Company’s common stock from
      Liberty Company Financial, LLC (“Liberty”) and in exchange issued to Liberty
      28,116 shares of Redux common stock.





As
      a
      result of the transactions described above, Redux controls voting rights of
      29,550,000 shares of Company’s common stock and 4,200,000 shares of Series C, or
      68.2% of the voting power of the Company’s common stock, 20.0% of the voting
      power of the Series C, and 52.5% of the combined voting power of the Company’s
      common stock and the Series C. The holders of the Series C are entitled to
      vote
      along with the Company’s common stock (on an as-converted basis) on all matters,
      including the election of directors, presented to the stockholders. As a result,
      Redux has the power to elect a majority of the Company’s Board of Directors and
      to determine the outcome of any matter submitted to the stockholders, subject
      to
      the rights of the holders of the Series C described above. If the Laurus Options
      are included, these percentages increase.





**Results
      of Operations**





The
      following table sets forth, for the periods indicated, the percentage which
      certain items in the statement of operations data bear to net sales and the
      percentage dollar increase (decrease) of such items from period to
      period.





**Percent
                of Net Sales**
            
            **Percentage
                Dollar Increase (Decrease)****Year
                Ended December 31,**
            
            **Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2006**
            
            **2005**
            
            **2004**Net
                Sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %
            
            (26.1
            %)
            
            (9.8
            %)
            
            (13.4
            )%Gross
                profit
            
            
            35.2
            %
            
            49.0
            %
            
            44.8
            %
            
            (47.0
            %)
            
            (1.4
            %)
            
            (17.3
            )%Selling,
                general and administrative expenses
            
            
            80.0
            %
            
            62.5
            %
            
            51.0
            %
            
            (5.3
            %)
            
            11.4
            %
            
            (8.4
            )%Goodwill
                impairment
            
            
            28.6
            %
            
            —
            
            
            —
            
            
            (100.0
            %)
            
            —
            
            
            —Impairment
                of customer lists
            
            
            11.1
            %
            
            —
            
            
            —
            
            
            (100.0
            %)
            
            —
            
            
            —Reorganization
                professional fees
            
            
            4.4
            %
            
            —
            
            
            —
            
            
            (100.0
            %)
            
            —
            
            
            —Operating
                loss
            
            
            (98.3
            %)
            
            (17.0
            %)
            
            (6.2
            )%
            
            (326.9
            %)
            
            (147.3
            %)
            
            (300.3
            )%Interest
                expense
            
            
            33.8
            %
            
            12.3
            %
            
            2.2
            %
            
            (103.3
            %)
            
            63.8
            %
            
            61.1
            %Loss
                on sale of assets
            
            
            0.6
            %
            
            —
            
            
            —
            
            
            (100.0
            %)
            
            —
            
            
            —Other
                income (loss)
            
            
            0.1
            %
            
            0.0
            %
            
            0.0
            %
            
            —
            
            
            102.5
            %
            
            61.1
            %Income
                (loss) before provision for income taxes
            
            
            (119.3
            %)
            
            (29.4
            %)
            
            2.6
            %
            
            200.2
            %
            
            1,114.8
            %
            
            192.1
            %Provision
                for income taxes
            
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %
            
            0.0
            %Net
                income (loss)
            
            
            (119.3
            %)
            
            (29.4
            %)
            
            2.6
            %
            
            200.2
            %
            
            1,114.8
            %
            
            192.1
            %




37




**Major
      trends that affected the Company’s results of operations in
      2006**





The
      major
      trends of our results of operations in the year ended December 31, 2006 included
      the following:





·
            The
                filing for Chapter 11 Bankruptcy protection by the Company had a
                significant effect on revenues and earnings for the period. The filing
                resulted in product sourcing delays, customer order reductions, increased
                product costs and a significant increase in professional fees related
                to
                the reorganization.





·
            The
                general softness in the grocery segment related to competition from
                Wal-Mart and club stores continued to move consumers from historical
                purchasing patterns. We believe this trend is likely to
                continue.





·
            The
                emergence and subsequent decline in consumer demand for low carbohydrate
                products resulted in a modification of our Naturade Total Soy® line to a
                low carbohydrate formula in late 2004 and the subsequent re-introduction
                of our original formula in May 2005. This resulted in restocking
                charges,
                product returns and declines in our net sales related to conversion
                of
                retailer inventory back to the original
                formula.





·
            The
                removal of Cox-2 inhibitor prescription arthritis medications by
                the FDA
                resulted in consumer demand for natural pain relief products. The
                Company
                responded to this demand with the introduction of theReVivexTMline of products into approximately 30,000 retail outlets. As the
                result
                of the Company'sinability
                to adequately fund consumer marketing and promotions, theReVivexTMbrand has lost retailer supportand
                has been discontinued at major retailers during 2006. Subsequently,
                Naturade has discontinued this
                brand.





***2006
      Compared to 2005***





***Net
      Sales***





Net
      sales
      for 2006 decreased $3,324,067 or 26.1%, to $9,432,019 from $12,756,086 for
      2005.
      The decrease in net sales is due principally to the effects of the Chapter
      11
      filing. As a result of the filing, Naturade had difficulty filling orders until
      product sourcing could be secured. Naturade’s ability to meet retailer demands
      was interrupted resulting in a subsequent significant decrease in customer
      orders and revenues. As of December 31, 2006, no significant customers notified
      Naturade that they were discontinuing purchasing from Naturade.





Net
      Sales
      are calculated based upon gross revenues less certain allowances.





For
      2006,
      distributor and promotional allowances were $704,815, or 6.1% of gross sales,
      compared to $1,410,477, or 9.4% of gross sales, for the same period in 2005.
      The
      decrease in distributor and promotional allowances is a result of the decrease
      in sales for the period. Damages and returns for 2006 were $755,458, or 6.5
      % of
      gross sales, as compared to $300,167, or 2.0% of gross sales, for 2005.
      Increased returns of Ageless and of ReVivexTM products have resulted in increased
      returns as a percentage of gross sales. Cash discounts for 2006 were $120,784,
      or 1.0% of gross sales, as compared to $191,987, or 1.3% of gross sales, in
      the
      same period of 2005. The decrease in cash discounts is directly related to
      the
      decrease in sales for the period. Slotting charges related to new distribution
      for 2006 were $198,590, or 1.7% of gross sales, as compared to $235,908, or
      1.6%
      of gross sales, in 2005. Slotting charges decreased due to the decreased sales
      for the period. Coupon and rebate redemption for 2006 was $10,740, or 0.1%
      as
      compared to $14,345, or 0.1%, in the same period of 2005.





Mass
      market net sales for 2006 decreased $1,965,129 or 37.1%, to $3,329,502 from
      $5,294,631 for 2005. The decrease in net sales during the period is principally
      related to the decline in of ReVivexTM sales in mass channel customer accounts
      due to a lack of promotional spending and the effects of the Chapter 11
      Bankruptcy. Typically, customers who depend on 100% fill rates to maintain
      sufficient quantity of product for sale to consumers such as mass market
      customers, will be the first to make a product switch when a supplier does
      not
      invest sufficiently in consumer marketing to “pull” product thru retail, and
      when a supplier files for Chapter 11 protection. Naturade sales suffered in
      2006
      from these factors however, its major mass market customer Sam’s Club, continues
      to carry Naturade Total Soy in a significant number of clubs.





For
      2006,
      health food channel net sales decreased $1,358,938, or 18.2 %, to $6,102,517
      from $7,461,455 for 2005. The sales decrease is due principally to sourcing
      problems related to the Company’s Chapter 11 Bankruptcy filing. Subsequent to
      December 31, 2006, the Company has secured reliable product sourcing and is
      increasing its fill rates in this channel.




38





On
      a
      percent of net sales basis, the breakdown of sales between the mass market
      and
      health food channels was 64.7% for the health food channel and 35.3% for the
      mass market channel for 2006 as compared to 58.5 % and 41.5%, respectively,
      for
      the same period in 2005. The change in sales by channel is principally related
      to the effects of the Chapter 11 filing. Mass market accounts are less likely
      to
      retain a supplier who has delivery issues. In addition, the health food channel
      had historically retained more weeks supply of inventory than is typically
      held
      by mass retailers. As a result, they are impacted less by the potential
      disruption of the supply channel by Naturade’s filing for Chapter
      11.





For
      2006
      the top 40 customers accounted for $8,290,520, or 87.9%, of net sales, with
      23
      health food customers contributing $4,231,801 or 44.8%, of net sales, 14 mass
      market customers contributing $3,780,188 or 40.1%, of net sales, and three
      international customer contributing $278,531, or 3.0%, of net sales. This
      compares to the top 40 customers accounting for $10,618,072, or 83.2%, of net
      sales, with 13 health food customers contributing $3,127,916 or 24.5%, of net
      sales, 24 mass market customers contributing $7,162,391 or 56.1%, of net sales,
      and three international customer contributing $327,765, or 2.6%, of net sales
      for 2005.





For
      2006,
      the top 40 products represented $6,694,566 or 71.0%, of net sales, with 8
      Naturade Total Soy® products contributing $2,529,576 or 26.8%, of net sales, 13
      protein powders contributing $1,741,815 or 18.5% of net sales, 5 ReVivexTM
products contributing $432,616 or 4.6% of net sales, and 14 other products
      contributing $1,990,559 or 21.1% of net sales. This compares the top 40 products
      represented $9,818,130 or 77.0%, of net sales, with 11 Naturade Total Soy®
products contributing $3,697,550 or 29.0%, of net sales, 12 protein powders
      contributing $2,328,590 or 18.3% of net sales, six ReVivexTM products
      contributing $2,458,260 or 19.3% of net sales, and 11 other products
      contributing $1,333,730 or 10.5% of net sales in 2005.





For
      both
      periods, the Company considers the 10 divisions of UNFI which represented 18.4%
      and 15.2% of net sales for 2006 and 2005 respectively and the six divisions
      of
      Tree of Life which represented 11.6% and 9.0% of net sales for 2006 and 2005
      respectively as separate customers for purposes of this top 40 list, because
      of
      their ability to make independent purchasing decisions regarding the Company’s
      products. In addition, the Sam’s Club and Wal-Mart divisions which represented
      25.8% and 20.3% of net sales in 2006 and 2005 respectively, are one corporate
      legal entity, however they operate independently with separate buying
      departments and, thus, the Company considers them separate customers for
      purposes of this top 40 list. This analysis differs from that shown in “Item 1.
      Business—General” in which the divisions of these three entities are combined
      under their corporate parent to reflect three major customers. Costco, a fourth
      customer represented 2% of net sales in 2004 but had no purchases in 2005 or
      2006.





*Gross
      Profit*





Gross
      profit for 2006 decreased 47.0% to $3,315,867 or 35.2% of net sales, from
      $6,250,649 or 49.0% for 2005. The decrease is principally a result of lower
      sales for the period and the effects of Bankruptcy. Gross profit, as a
      percentage of sales decreased from 49.0% of net sales in 2005 to 35.2% percent
      of net sales in 2006, due to lower margins related to increased cost of product
      following Naturade’s difficulty in securing product sourcing as a result of the
      Chapter 11 filing coupled with increased customer deductions and claims which
      is
      a customary response to a company’s filing for Chapter 11 protection.





*Operating
      Costs and Expenses*





Operating
      costs and expenses for 2006 increased 49.5% to $12,589,110, or 133.5% of net
      sales, from $8,422,745, or 66.0% of net sales for 2005. Operating expense for
      the period includes one-time charges totaling $3,743,693 for the impairment
      of
      goodwill and customer lists related to the Sycmo and Ageless acquisitions (see
      Note 1- Organization and Significant Accounting Policies - Impairment).
      Additionally, operating expense for the period includes a non-cash charge of
      $835,681 in amortization of intangible assets acquired in acquisitions as
      compared to a similar charge of $392,579 for the same period in 2005 due to
      a
      full year of amortization of intangibles from the August 2005 acquisitions.
      Without these one-time and non-cash expenses, operating costs would have been
      84.9% of net sales for the period, as the result of reductions in operating
      expenses made by management post filing Chapter 11. The increase in operating
      costs as a percentage of sales resulted from the lower sales level in 2006.
      New
      Company management took immediate action from August 2006 to cut operating
      costs
      including;





·
            Reduction
                of monthly facility lease expense from approximately $540,000 per
                year to
                approximately $120,000 per year.






39




·
            A
                reduction in staffing resulting in an annual cost reduction of more
                than
                $1,000,000.




*Interest
      Expense*





Interest
      expense for 2006 increased $1,621,581 to $3,191,155 from $1,569,574 compared
      to
      the same period in 2005 principally due to the increase of $1,046,397 in
      amortization of deferred financing fees and debt discounts in 2006 related
      to
      the full year effect of the August 2005 recapitalization of the Company and
      the
      acquisitions of Symco and Ageless, and to the write off in 2006 of $347,601
      of
      deferred financing fees related to the Ageless Notes payable. In addition,
      increased borrowing costs of $250,910 increased interest expense in 2006 as
      a
      direct result of higher interest rates on higher debt levels.





***2005
      Compared to 2004***





***Net
      Sales***





Net
      sales
      for 2005 decreased $1,385,395 or 9.8%, to $12,756,086 from $14,141,481 for
      2004.
      The decrease in net sales was due principally to declines at retail, principally
      in the mass market, for the Company’s core protein powders which decreased
      $1,776,090. This decline can be attributed to the lack of capital to support
      the
      brands at retail coupled with a general softness in the market for protein
      powders and a general decline in the grocery sector. In addition, the Company
      sold its Aloe Vera line of products in November 2004, which totaled $1,394,080,
      in 2004, and the Company’s discontinued its ready-to-drink line, which accounted
      for $394,356 in 2004, in mid 2004 due to slow turns at retail. The decreases
      were partially offset by sales of the Ageless and Symco brands totaling
      $2,073,806 which were acquired in August 2005.





Net
      Sales
      are calculated based upon gross revenues less certain allowances.





For
      2005,
      distributor and promotional allowances were $1,410,477, or 9.4 % of gross sales,
      compared to $1,745,903, or 10.5 % of gross sales, for the same period in 2004.
      The decrease in distributor and promotional allowances was a result of the
      decrease in sales for the period. Damages and returns for 2005 were $300,167,
      or
      2.0 % of gross sales, as compared to $437,363, or 3.2 % of gross sales, for
      2004. Lower sales in the mass market resulted in lower returns. Cash discounts
      for 2005 were $191,987, or 1.3% of gross sales, as compared to $266,100, or
      1.9%
      of gross sales, in the same period of 2004. The decrease in cash discounts
      was
      directly related to the decrease in sales for the period. Slotting charges
      related to new distribution for 2005 were $235,908, or 1.6% of gross sales,
      as
      compared to $83,000, or 0.06% of gross sales, in 2004. Slotting charges
      increased due to placement of ReVivexTM product in 2005 primarily in mass market
      retail outlets. Coupon and rebate redemption for 2005 was $14,345, or 0.1%
      as
      compared to $21,000, or 0.1%, in the same period of 2004.





Mass
      market net sales for 2005 decreased $1,626,567, or 23.5%, to $5,294,631 from
      $6,921,198 for 2004. The decrease in net sales during the period is principally
      related to softness in the grocery channel partially offset by new product
      sales
      of ReVivexTM during the period. For 2005, health food channel net sales increased
      $241,172, or 3.3 %, to $7,461,455 from $7,220,283 for 2004. The sales increase
      is due principally to new sales of Ageless and Symco products, which were
      acquired in August 2005, of $2,073,806 partially offset by the lack of sales
      of
      Aloe Vera products, which accounted for $1,394,080 in 2004 sales as a result
      of
      the sale of this brand in November 2004 and the Company’s discontinued its
      ready-to-drink line in mid-2004, which accounted for $394,356 in
      2004.





On
      a
      percent of net sales basis, the breakdown of sales between the mass market
      and
      health food channels was 58.5% for the health food channel and 41.5% for the
      mass market channel for 2005 as compared to 51.1 % and 48.9%, respectively,
      for
      the same period in 2004. The change in sales by channel was principally related
      to the acquisitions of Symco and Ageless whose products are sold principally
      in
      the health food channel partially offset by the lack of Aloe Vera products
      which
      are principally sold in the health food channel coupled with the softness in
      the
      grocery channel which is principally in the mass market.




40





For
      2005
      the top 40 customers accounted for $10,618,072, or 83.2%, of net sales, with
      13
      health food customers contributing $3,127,916 or 24.5%, of net sales, 24 mass
      market customers contributing $7,162,391 or 56.1%, of net sales, and three
      international customer contributing $327,765, or 2.6%, of net sales. This
      compares to the top 40 customers accounting for $12,946,000, or 91.6%, of net
      sales, with 21 health food customers contributing $6,326,100, or 44.7%, of
      net
      sales, 18 mass market customers contributing $6,528,900 or 46.2%, of net sales,
      and one international customers contributing $91,000, or 0.7%, of net sales
      for
      2004.





For
      2005,
      the top 40 products represented $9,818,130 or 77.0%, of net sales, with 11
      Naturade Total Soy® products contributing $3,697,550 or 29.0%, of net sales, 12
      protein powders contributing $2,328,590 or 18.3% of net sales, six ReVivexTM
products contributing $2,458,260 or 19.3% of net sales, and 11 Diet LeanTM
products and other products contributing $1,333,730 or 10.5% of net sales.
      This
      compares the top 40 products represented $10,767,900 or 76.1%, of net sales,
      with 15 Naturade Total Soy® products contributing $5,706,900 or 40.4%, of net
      sales, 12 protein powders contributing $3,059,000 or 21.6% of net sales, three
      ReVivexTM products contributing $605,100 or 4.3% of net sales, two Diet LeanTM and
      other products contributing $1,396,900 or 9.8% of net sales 2004.





For
      both
      periods, the Company considers the 10 divisions of UNFI which represented 19%
      and 18% of net sales for 2005 and 2004 respectively and the 11 divisions of
      Tree
      of Life which represented 10% and 13% of net sales for 2005 and 2004
      respectively as separate customers for purposes of this top 40 list, because
      of
      their ability to make independent purchasing decisions regarding the Company’s
      products. In addition, the Sam’s Club and Wal-Mart divisions which represented
      20% and 23% of net sales in 2005 and 2004 respectively, are one corporate legal
      entity, however they operate independently with separate buying departments
      and,
      thus, the Company considers them separate customers for purposes of this top
      40
      list. This analysis differs from that shown in “Item 1. Business—General” in
      which the divisions of these three entities are combined under their corporate
      parent to reflect three major customers. Costco, a fourth customer represented
      2% of net sales in 2004 but had no purchases in 2005.





*Gross
      Profit*





Gross
      profit for 2005 decreased 1.4% to $6,250,649 or 49.0% of net sales, from
      $6,338,679 or 44.8% for 2004. The decrease was principally a result of lower
      sales for the period. Gross profit, as a percentage of sales increased from
      44.8% of net sales in 2004 to 49.0 percent of net sales in 2005, due to higher
      margins related to ReVivexTM products which carry an average gross margin of 51%
      and Symco products which carry an average gross margin of 60% compared to the
      average gross margin for other Naturade products of 48%.





*Operating
      Costs and Expenses*





Operating
      costs and expenses for 2005 increased $1,205,815 to $8,422,745, or 66.0% of
      net
      sales, from $7,216,930, or 51.0% of net sales, for 2004. Operating expense
      for
      the period include a non-cash charge of $392,579 in amortization of intangible
      assets acquired in acquisitions and one time transaction and transition costs
      of
      $478,000 related to the recapitalization. In addition, the Company purchased
      consumer advertising totaling $392,500 during the period related to promoting
      consumer awareness for its ReVivex brand. Without these one-time and non-cash
      expenses, operating costs would have been 56.1% of net sales for the
      period.





*Interest
      Expense*





Interest
      expense for 2005 increased $1,264,309 to $1,569,574 from $305,265 compared
      to
      the same period in 2004 principally due to amortization of deferred financing
      fees and debt discounts of $1,069,666 in 2005 related to the recapitalization
      of
      the Company coupled with the acquisitions of Symco and Ageless. In addition,
      increased borrowings on the Loan Agreement with related parties, coupled with
      increased average borrowings were partially offset by lower average interest
      rates on the Company’s credit facility during 2005. This resulted in an increase
      of $194,643 in interest expense during the period.





***Liquidity
      and Capital Resources***





On
      August
      31, 2006 (the “Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Bankruptcy”) under Chapter 11 of
      the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
      Bankruptcy Court for the Central District of California (the “Bankruptcy
      Court”). Since the Petition Date, the Company has conducted activities as a
      debtor-in-possession under the Bankruptcy Code. See Note 1, *Chapter
      11 Bankruptcy Proceedings* for
      additional information.




41





The
      Company’s credit facility consisted of a three year Credit and Security
      Agreement (the “Credit Agreement”) with Laurus Master Fund, LLP (“Laurus”) which
      was entered into on July 22, 2005. The Credit Agreement allowed for maximum
      borrowings of up to $4,000,000, of which $3,000,000 was a revolving note and
      $1,000,000 was a term note. On January 6, 2006, the Credit Agreement was amended
      whereby the term loan was increased to $1,650,000.





On
      August
      31, 2006, prior to the Company’s filing under Chapter 11 of the US Bankruptcy
      Code, Laurus and Redux agreed to cause the Company to do the following (the
      “Financing Changes”):





·
            Laurus’
                claim in the approximate amount of $2,900,000 will be treated as
                fully
                secured and the liens granted Laurus pursuant to the Financing Agreement
                will remain without modification.


·
              Laurus
                  will provide debtor in possession financing (“DIP”) pursuant to the terms
                  and conditions of the financing
                  agreement.


·
              Interest
                  will continue to accrue on the Term Loan pursuant the terms of
                  the
                  Financing Agreement however, payments will be suspended until the
                  first
                  day of the first full month after the Effective Date of the Chapter
                  11
                  filing.


·
              The
                  maturity date of the Term loan will be extended to January 6, 2010
                  and
                  principal payments will commence on the first day of the first
                  full month
                  after the Effective Date of the Chapter 11 filing and be payable
                  in equal
                  monthly installments until the maturity
                  date.





Borrowings
      on the revolving note are based on certain percentages of eligible accounts
      receivable and inventories and pays interest at prime plus 2% per annum.
      Available borrowings under the Credit Agreement were $80,946 at December 31,
      2006 and averaged $84,219 during 2006.





The
      Company was in default on the payment of the Investor Notes of $92,345 at
      December 31, 2005.





The
      Company was in default on the payment of the Seller Notes in the amount of
      $1,248,234 to Ageless at December 31, 2005 and was currently involved in
      litigation related to the Asset Purchase Agreement between the Company and
      Ageless. The Company has settled this litigation with respect to the Company
      only. In addition, in February 2007, Redux purchased from Ageless its claims
      in
      bankruptcy for this matter. The financial statements accompanying this Annual
      Report on Form 10-K have been prepared on a going-concern basis, which
      contemplates the realization of assets and the satisfaction of liabilities
      in
      the normal course of business. At December 31, 2006, the Company had an
      accumulated deficit of $39,959,465, a net working capital deficit of $1,728,244,
      a stockholders’ capital deficiency of $16,964,164, and has incurred recurring
      net losses. These factors, among others, raise substantial doubt about the
      Company’s ability to continue as a going concern. In addition, the Company’s
      independent registered public accounting firm has issued an opinion that
      substantial doubt exists as to the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that might
      result from a negative outcome of this uncertainty. The Company believes that
      its current Financing Agreement and growth in its core operations will sustain
      the Company for the next year.





The
      Company provided cash of $648,148 from operating activities in the year ended
      December 31, 2006, compared to a use of cash of $1,009,129 in operating
      activities for the year ended December 31, 2005. This increase in cash provided
      by operating activities is primarily due to a decrease in accounts receivable
      of
      $1,323,849 and an increase in cash provided from accounts payable and accrued
      expenses of $3,682,318 partially offset by the changes in warrent liability
      of
      $1,285,797 and increased operating losses of $11,250,858 principally related
      to
      the decrease in revenues for the period, the impairment of goodwill and customer
      lists and the effects of the Chapter 11 proceedings.





Net
      cash
      provided by inventories was $160,454 for the year ended December 31, 2006
      compared to net cash provided by inventories of $926,546 for the year ended
      December 31, 2005 primarily due to lower than normal inventory levels at the
      end
      of 2005 versus the end of 2004 coupled with the Company’s difficulty in
      obtaining product during the initial months of the Company’s Chapter 11
      proceedings resulting in additional reductions in inventory levels.




42





Net
      cash
      provided by accounts receivable was $1,323,849 for the year ended December
      31,
      2006 compared to net cash provided by accounts receivable of $324,921 for the
      same period of 2005, principally due to lower sales volume in 2006 as compared
      to sales volume in 2006 as a result of the Company’s Chapter 11 filing and
      reductions in fill rates due to product sourcing issues. Customer terms have
      remained constant; however there is a slight increase in day’s sales outstanding
      due to customers paying slower than historical averages after the Company filed
      for protection under Chapter 11.





Net
      cash
      provided by accounts payable and accrued expenses was $3,682,318 for the year
      ended December 31, 2006 compared to net cash used of $215,274 for the same
      period of 2005. The significant increase in accounts payable and accrued
      expenses is a direct result of the Company’s decreased cash availability during
      2006 and its Chapter 11 filing which resulted in a stay of all liabilities
      of
      the Company as of August 31, 2006, the petition date. The liabilities of the
      Company affected by the Chapter 11 filing and are subject to compromise as
      a
      result of the bankruptcy proceedings are separately identified in the
      accompanying Balance Sheet as of December 31, 2006. See Note 1- *Liabilities
      Subject to Compromise* .





The
      provision for excess and obsolete inventory provided $476,738 for the year
      ended
      December 31, 2006 compared to $140,975 for the same period of 2005 principally
      due to the discontinuance of ReVivexTM related products and label changes
      resulting in obsolete labels in 2006.





Net
      cash
      provided by prepaid expenses was $173,293 for the year ended December 31, 2006
      compared to net cash provided during the same period of 2005 of $35,726. The
      decrease in prepaid expenses in 2006 was principally due to the reduction in
      deferred rents and rental deposits is primarily as a result of the Company
      vacating the leased Irvine, California facility in August 2006.





The
      Company’s working capital deficit decreased $4,864,317 from $6,592,541 at
      December 31, 2005 to $1,728,224 at December 31, 2006. This decrease was largely
      due to the reclassification of $6,022,835 in current liabilities to long term
      liabilities subject to compromise partially offset by a $1,323,849 reduction
      in
      accounts receivable and a $637,192 reduction in inventories during the period.





Cash
      used
      in investment activities during the year ended December 31, 2006 was $23,226
      compared to cash used of $564,995 for the year ended December 31, 2005. This
      increase in cash used is principally related to the net assets acquired from
      the
      Symco and Ageless acquisitions in 2005.





The
      Company’s cash used in financing activities was $639,607 for the year ended
      December 31, 2006, compared to cash provided by financing activities of
      $1,458,949 for the same period of 2005. The increased use of cash in 2006 was
      primarily the result of net borrowings under the Company’s revolver of
      $1,189,526 as compared to net proceeds of $2,719,404 on the borrowing under
      the
      Laurus facility in 2005 (described in Notes 4 and 5).





On
      July
      22, 2005, the Company entered into the Master Investment Agreement by and among
      the Company, Westgate, Quincy, Bill D. Stewart (“Stewart”) and David A. Weil
      (“Weil”), pursuant to which the Company issued to Quincy (i) 30,972,345 shares
      of its common stock, (ii) warrants to purchase 14,000,000 shares of its common
      stock (the “Quincy Warrants”), and (iii) 4,200,000 shares of Series C, all in
      consideration of Quincy negotiating, and arranging the financing for, our
      acquisition of selected assets of Ageless, Symco and Symbiotics and guaranteeing
      the payment of a portion of the purchase price of each such transaction. Health
      Holdings surrendered the 41,054,267 shares of common stock held by it in
      exchange for (i) 12,600,000 shares of Series C and (ii) a warrant to purchase
      10,000,000 shares of the Company’s common stock (the “HHB Warrant”). Westgate
      surrendered the 13,540,723 shares of Series B Convertible Preferred Stock (the
      “Series B”) held by it, including any accrued and unpaid dividends, in exchange
      for 4,200,000 shares of Series C. Health Holdings, Stewart and Weil extended
      the
      term of the secured promissory notes issued to them pursuant to that certain
      Loan Agreement dated April 23, 2003, from December 31, 2006 to December 31,
      2006. See “Business-Recapitalization.”





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be canceled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of its common stock to give Redux 95% equity
      and voting interest in the Company. All remaining shareholders will have a
      5%
      equity interest in the Company.





43




***Laurus
      Financing***





On
      July
      26, 2005, Naturade entered into a Security and Purchase Agreement (the
“Financing Agreement”) with Laurus Master Fund, Ltd. (“Laurus”), providing for a
      $3,000,000 revolving credit facility and a $1,000,000 term loan. The
      indebtedness under the revolving facility is evidenced by a convertible
“Revolving Note” and one or more convertible “Minimum Borrowing Notes,” and the
      indebtedness under the term facility is evidenced by a convertible “Term Note.”
The Revolving Note, the Term Note and the Minimum Borrowing Notes are herein
      referred to as the “Laurus Notes.” Gross funds of $2,655,250 were advanced to us
      on July 26, 2005 under the Laurus Notes comprising $1,000,000 under the Term
      Note, $500,000 under the first minimum borrowing note (the “First Minimum
      Borrowing Note”), and $1,155,250 under the Revolving Note. The Company paid fees
      and expenses in cash to Laurus of $193,500 on the closing date, consisting
      of
“closing payment” of $156,000 and reimbursement of Laurus’ legal fees of
      $37,500. Also in connection with the Laurus financing, we issued a warrant
      to
      Liberty Company Financial LLC (“Liberty”) for introducing us to Laurus (the
“Liberty Warrant”). The Liberty Warrant entitles the holder to purchase up to
      3,647,743 shares of its common stock at a purchase price of $0.08 at any time
      on
      or after July 26, 2006 through July 26, 2011. On December 31, 2006, $1,276,570
      was outstanding under the Revolving Note, and $1,350,000 was outstanding under
      the Term Note.





The
      Company also issued Laurus a five-year warrant (the “Laurus Warrant”) to
      purchase an aggregate of 1,500,000 shares of its common stock at an exercise
      price of $0.80 per share and an option (the “Laurus Option”) to purchase
      8,721,375 shares of its common stock at an exercise price of $0.0001 per share,
      as described below.





In
      conjunction with the Financing Agreement, Health Holdings, Stewart and Weil
      extended the term of the Secured Promissory Notes issued to them pursuant to
      that certain Loan Agreement dated April 23, 2003, from December 31, 2005 to
      December 31, 2006.





On
      January 11, 2006, the Company and Laurus amended the Financing Agreement
      pursuant to which the parties:




·
            Increased
                the Term Note from $1,000,000, of which $909,000 was outstanding
                at
                January 11, 2006, to $1,650,000. Over advances totaling $650,000
                were
                transferred from the Revolving Note to the Term Note with the remaining
                $91,000 utilized as a reduction of the amount outstanding under the
                Revolving Note.





·
            Modified
                the payments on the Term Note from $30,000 per month beginning November
                1,
                2005 payable in shares of the Company’s Common Stock or $30,900 per month
                if paid in cash, to $50,000 per month in cash beginning April 1,
                2006.





·
            Converted
                the First Minimum Borrowing Note outstanding of $500,000 to the Revolving
                Note.





·
            Eliminated
                the ability of Laurus to convert the Term Note, the Revolving Note,
                and
                the First Minimum Borrowing Note into shares of the Company’s common
                stock.





·
            Extended
                the term of the Agreement from three years ending on July 26, 2008
                to
                three years ended January 6, 2009.





·
            Modified
                the prepayment provisions of the Revolving Note and the Term Note
                from an
                early payment fee of 35% of the loan amounts if paid prior to the
                termination date, to 5% if retired before January 6, 2007, 4% if
                retired
                prior to January 6, 2008 and 3% if retired prior to January 6,
                2009.





In
      consideration for entering into the amendment, Naturade issued to Laurus
      1,050,000 shares of the Company’s common stock.





*Laurus
      Notes.* The
      amount of funds available for borrowings under the Revolving Note are advanced
      pursuant to a formula consisting of (i) 90% of eligible accounts receivable
      (as
      defined in the Financing Agreement) (primarily receivables that are less than
      90
      days old), and (ii) 30% of eligible inventory (as defined in the Financing
      Agreement), up to a maximum inventory advance of $500,000; provided, however,
      that the amount available for borrowing may be limited by such reserves as
      Laurus deems proper based upon significant business developments relating to
      the
      Company or its account debtors. Laurus’ discretionary rights could reduce the
      amount of funds available for borrowing under the Revolving Note.




44





Principal
      on the Term Note is payable in 33 consecutive monthly installments of $50,000
      commencing on April 1, 2006 and on the first day of each month thereafter,
      subject to acceleration upon the occurrence of an Event of Default or
      termination of the Financing Agreement. The Term Note is guaranteed by Peter
      M.
      Pocklington, a principal of Quincy, and from August 10, 2005 until August 10,
      2006, one of the Company’s directors.





Amounts
      outstanding under the Laurus Notes will mature on January 6, 2009. If the
      Company terminates the Financing Agreement and the loans there under prior
      to
      the maturity date, it will incur an early payment fee equal to 5%, 4% and 3%
      of
      the total investment amount of $4,650,000 if terminated in the first, second
      or
      third year, respectively, of the term of the Financing Agreement. Interest
      on
      the amounts outstanding under the Laurus Notes accrues at the annual rate of
      2%
      above the prime rate, but not less than 6%. The interest rate charged, however,
      will be decreased by 2% (or 200 basis points) for every 25% increase in the
      market price of our common stock above the fixed conversion price of $0.80.
      The
      interest rate may not be reduced beyond 0%.





*Security
      and Events of Default.* The
      Laurus Notes are secured by a lien on substantially all of the Company’s assets.
      The Financing Agreement requires the Company us to maintain a lock box account
      to receive payments of our accounts receivable, and all funds transmitted to
      the
      lock box account will be applied to amounts outstanding under the Laurus Notes.
      Laurus may verify, inspect or appraise assets constituting the collateral.
      The
      lien granted to Laurus will continue in full force and effect, notwithstanding
      the termination of the Financing Agreement. The Financing Agreement sets forth
      certain circumstances under which the Financing Agreement can be declared in
      default and subject to termination, including among others if (i) there is
      a
      material adverse change in the Company’s condition and affairs (financial or
      otherwise); (ii) an insolvency proceeding is commenced; (iii) it default on
      any
      of its material agreements with third parties or there are material liens or
      attachments levied against its assets; (iv) its common stock ceases to be
      publicly traded; and (v) it fails to comply with the terms, representations
      and
      conditions of the Financing Agreement.





Upon
      the
      occurrence of an Event of Default and for so long as it is continuing, the
      interest rate charged will be increased by 2% per month until the default is
      cured; should the default continue beyond any applicable grace period, then
      Laurus could require the Company to repay 125% of any principal and interest
      outstanding under the Laurus Notes. Following the occurrence of an Event of
      Default, Laurus also has the right to demand repayment in full of all
      obligations owing to Laurus under the Financing Agreement, whether or not
      otherwise due and will retain its lien in the collateral provided by the Company
      until all the obligations have been satisfied.





*Affirmative
      and Negative Covenants.* Under
      the
      Financing Agreement, the Company may take certain actions only with the approval
      of Laurus, including the following material actions: incurring additional
      indebtedness (other than trade debt); making any distribution with respect
      to or
      repurchasing any shares of its capital stock; or entering into any merger,
      consolidation or reorganization with or purchasing any assets or stock of any
      other person.





The
      Financing Agreement also provides Laurus with a right of first refusal to
      provide additional financing on terms no less favorable than those offered
      by a
      third party with respect to any additional convertible indebtedness or the
      sale
      or issuance of any equity interests, other than straight equity
      issuances.





*Laurus
      Option.* The
      Laurus Option entitled Laurus to purchase, at any time and from time to time,
      up
      to 8,721,375 shares of the Company’s common stock at the exercise price of
      $0.001 per share. The Laurus Option could also be exercised by means of a
“cashless exercise,” and contains provisions to protect Laurus against dilution
      in the event of a stock dividend, split or combination, or a Company
      reorganization, consolidation, merger or dissolution.




*Laurus
      Warrant.* The
      Laurus Warrant gave Laurus the right to purchase up to 1,500,000 shares of
      the
      Company’s common stock from July 26, 2005 through July 26, 2010, at $0.80 per
      share. The Laurus Warrant could also be exercised by means of a “cashless
      exercise,” and contained provisions to protect Laurus against dilution in the
      event of a stock dividend, split or combination, or our reorganization,
      consolidation, merger or dissolution.


45


The
      issuance of shares of the Company’s common stock pursuant to the Laurus Option,
      the Laurus Warrant and Liberty Warrant could have caused substantial dilution
      to
      the holders of the Company’s common stock, depressed the market price of the
      Company’s common stock and impaired its ability to raise capital by selling
      common stock.





On
      August
      31, 2006 Laurus entered into an agreement with Redux, the principal shareholder
      of the Company, (the “Redux Agreement”) pursuant to which Laurus transferred the
      warrants to purchase 1,500,000 shares of the Company’s common stock at $0.80 per
      share to Redux which were cancelled upon transfer, and Laurus transferred an
      option to purchase 8,721,375 shares of the Company’s common stock at $0.001 per
      share to Redux (the “Laurus Options”). See Note 1 *Change
      in Control.*





*Registration
      Rights.* Pursuant
      to the terms of a Registration Rights Agreement between the Company and Laurus,
      the Company was obligated to file and obtain effectiveness for a registration
      statement registering the resale of shares of the Company’s common stock issued
      to Laurus for the amendment, common stock issuable upon the exercise of the
      Laurus Warrant and the Laurus Option. See “Business-Registration
      Rights.”





On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be canceled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of restricted common stock to give Redux
      a
      95% equity and voting interest in the Company. All remaining shareholders will
      have a total of 5% equity interest in the Company.




**Critical
      Accounting Policies and Use of Estimates**





The
      Company’s significant accounting policies are described in Note 1 of the
      Company’s Financial Statements for the year ended December 31, 2006, which have
      been prepared in accordance with accounting principles generally accepted in
      the
      United States. In preparing the financial statements, the Company is required
      to
      make estimates and judgments which affect the results of its operations and
      the
      reported value of assets and liabilities. Actual results may differ from these
      estimates. The Company believes that the following summarizes critical
      accounting policies which require significant judgments and estimates in the
      preparation of its financial statements.





***Revenue
      Recognition*** .
      Naturade recognizes revenue in accordance with SEC Staff Accounting Bulletin
      (SAB) No. 104, “Revenue Recognition in Financial Statements,” requires that four
      basic criteria must be met before revenue can be recognized: (1) persuasive
      evidence of an arrangement exists; (2) delivery has occurred or services
      rendered; (3) the fee is fixed and determinable; and (4) collectibility is
      reasonably assured. Determination of criteria (3) and (4) require management’s
      judgments regarding the fixed nature of the fee charged for services rendered
      and products delivered and the collectibility of those fees. To satisfy the
      criteria, Naturade: (1) inputs orders based upon receipt of a customer purchase
      order; (2) records revenue upon shipment of goods when risk of loss and title
      transfer under the Company’s arrangements with customers or otherwise complying
      with the terms of the purchase order; (3) confirms pricing through the customer
      purchase order and; (4) validates creditworthiness through past payment history,
      credit agency reports and other financial data. Other than through warranty
      rights, the Company’s customers do not have explicit or implicit rights of
      return. Should changes in conditions cause management to determine the revenue
      recognition criteria are not met for certain future transactions, such as a
      determination that an outstanding account receivable has become uncollectible,
      revenue recognized for any reporting period could be adversely
      affected.





The
      Company records revenues net of returns and allowances. Gross sales, which
      are
      defined as list price times units sold, include the following reductions for
      returns and allowances: Distributor Allowances





Distributor
      allowances are provided to all distributors as a reduction from list price
      and
      are recorded as a reduction off the invoice at time of billing. Revenues and
      accounts receivable are recorded net of these allowances.





·
            Promotional
                Allowances





Promotional
      allowances are related to specific promotions offered by Naturade related to
      in
      store promotions being offered by a retailer and distributor promotions being
      offered to retailers. In most cases, the promotion is designed to correspond
      with a similar consumer promotion being offered by the retailer, the cost of
      which is borne by the retailer. Promotional allowances are based upon purchases
      by the retailer or distributor during the promotional period and are deducted
      from the customer invoice at the time of billing. Revenues and accounts
      receivable are recorded net of these allowances. Shipments during the
      promotional period are not subject to return after the end of the promotional
      period.




46





For
      the
      12 months ended December 31, 2006, 2005 and 2004, distributor and promotional
      allowances were $704,815, or 6.1% of gross sales, $1,410,477, or 9.4% of gross
      sales, and $1,745,903, or 10.5% of gross sales, respectively.





·
            Damages
                and Returns





In
      the 12
      months ended December 31, 2006, 2005 and 2004, damages and returns were charged
      against revenues based upon historical return rates. Actual damages and returns
      are charged against the reserve when the product is returned, charges deducted
      or a consumer deduction is received. On a periodic basis, actual charges are
      compared to the reserve and, if required, the reserve rate is adjusted to
      reflect new trends.





For
      the
      12 months ended December 31, 2006, 2005 and 2004, damages and returns charged
      against revenues were $755,458, or 6.5% of gross sales, $300,167, or 2.0% of
      gross sales, and $437,363, or 3.0% of gross sales, respectively.





The
      following is a summary of the damages and returns reserve for the fiscal years
      ended December 31:





**2006**
            
            **2005**
            
            **2004**Beginning
                balance
            
            $
            42,910
            
            $
            55,067
            
            $
            -0-Provision
                for damages and returns
            
            
            755,458
            
            
            300,167
            
            
            437,364Actual
                damages and returns during the period
            
            
            409,240
            
            
            312,824
            
            
            382,297Ending
                balance
            
            $
            389,128
            
            $
            42,910
            
            $
            55,067





Damages
      and returns in past years have typically been immaterial to our overall results.
      In 2006 the returns have increased primarily as a result of increased Ageless
      and ReVivexTM product returns. As the returns as a percent of gross sales has
      increased , the reserve has accordingly been increased at December 31, 2006,
      based upon historical run rates in order to properly match revenues and
      deductions.





·
            Cash
                Discounts





Cash
      discounts are recorded as deducted by customers from remittances, as the
      customer does not earn them until the customer pays according to
      terms.





For
      the
      12 months ended December 31, 2006, 2005 and 2004, cash discounts were $120,784
      or 1.0% of gross sales, $191,987 or 1.3% of gross sales, and $266,100, or 1.9%
      of gross sales, respectively.





·
            Slotting





Slotting
      charges related to new distribution (either a new customer or a new product
      introduced to an existing customer) are recorded as a prepaid expense as
      incurred and amortized over 12 months as a reduction of revenues. Should a
      customer cease purchasing from Naturade or discontinue the respective product
      line, the unamortized slotting costs are charged against revenues at that time.
      There have been no significant unamortized slotting charges charged against
      revenues in the periods reported.





For
      the
      12 months ended December 31, 2006, 2005 and 2004, slotting costs were $198,590,
      or 1.7% of gross sales, $234,700, or 1.6% of gross sales, and $83,000, or 0.6%
      of gross sales, respectively. As a percentage to gross sales, slotting increased
      only marginally in 2006 but increased significantly in 2005 compared to 2004
      as
      a result of the new distribution of ReVivexTM brand of products during
      2005.




47




·
            Coupon
                and Rebate Redemption





Coupon
      and rebate costs are charged against revenues as redeemed. Historically,
      Naturade has incurred insignificant redemption of its consumer coupons or
      rebates. For the 12 months ended December 31, 2006, 2005 and 2004, coupon and
      rebate costs were $10,740, or 0.1% of gross sales, $20,800, or 0.1% of gross
      sales, and $46,000, or 0.2% of gross sales, respectively.





***Inventory
      Valuation*** .
      Merchandise inventories are stated at the lower of cost (first-in, first-out
      basis) or market. The Company considers cost to include the direct cost of
      finished goods provided by co-packers as well as the cost of those components
      supplied to the co-packers. At each balance sheet date, we evaluate the
      Company’s ending inventories for excess quantities and obsolescence. This
      evaluation includes analyses of forecast sales levels by product and historical
      demand. We write off inventories that are considered obsolete. Remaining
      inventory balances are adjusted to approximate the lower of the Company’s cost
      or market value and result in a new cost basis in such inventory until sold.
      If
      future demand or market conditions are less favorable than the Company’s
      projections, additional inventory write-down may be required, and would be
      reflected in cost of sales in the period the revision is made.





***Accounts
      Receivable and Allowances for Uncollectible Accounts*** .
      Accounts receivable are unsecured, and we are at risk to the extent such amounts
      become uncollectible. Accounts receivable is stated net of applicable reserves
      for returns and allowances, promotional allowances and doubtful accounts. The
      Company regularly reviews and monitors individual account receivable balances
      to
      determine if the reserve amounts are appropriate and provides for an allowance
      for uncollectible accounts by considering historical customer buying patterns,
      invoice aging, specific promotions and seasonal factors.





***Intangible
      Assets, Including Goodwill.*** The
      Company conducts periodic impairment reviews of intangible assets including
      goodwill. Such reviews require the Company to make estimates of future cash
      flows and fair values. These cash flow projections include significant
      assumptions about economic conditions, demand and pricing for the Company’s
      products, and costs. In addition, the determination of whether or not an
      impairment exists requires the Company to make certain assumptions and estimates
      in determining fair value of the reporting unit. While significant judgment
      is
      required, the Company believes that the assumptions and estimates used in its
      impairment reviews are reasonable. However, should these assumptions change
      in
      the future, the fair value models could result in lower fair values for
      intangible assets and goodwill, which could materially affect the value of
      the
      Company’s intangible assets and goodwill and results of operations.





***Impairment
      of Long-Lived Assets -*** In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“ *Accounting
      for the Impairment or*  *Disposal
      of Long-Lived Assets* ,”
the
      Company assesses the recoverability of its long-lived assets upon the occurrence
      of a triggering event by determining whether the depreciation and amortization
      of long-lived assets over their remaining lives can be recovered through
      projected undiscounted future cash flows. The amount of long-lived asset
      impairment, if any, is measured based on fair value and is charged to operations
      in the period in which long-lived asset impairment is determined by management.
      If long-lived assets become impaired, the Company recognizes an impairment
      loss
      measured as the amount by which the carrying value of the assets exceeds the
      estimated fair value of the assets.




***Impact
      of Contractual Obligations and Commercial Commitments***





The
      following summarizes the Company’s contractual obligations at December 31, 2006
      and the effects such obligations are expected to have on liquidity and cash
      flow
      in future periods.





**Payments
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than 1 Year**
            
            **1-3
                Years**
            
            **4-5
                Years**
            
            **After
                5 Years**Laurus
                Term Loan (a)
            
            $
            1,730,625
            
            $
            523,243
            
            $
            1,207,382
            
            $
            -0-
            
            $
            -0-Health
                Holdings Loan (a)
            
            
            2,079,508
            
            
            -0-
            
            
            701,352
            
            
            870,290
            
            
            507,866Revolving
                Credit (a)
            
            
            1,345,708
            
            
            1,345,708
            
            
            -0-
            
            
            -0-
            
            
            -0-Seller
                Note
            
            
            708,000
            
            
            708,000
            
            
            -0-
            
            
            -0-
            
            
            -0-Unsecured
                Creditors
            
            
            2,228,102
            
            
            185,675
            
            
            557,025
            
            
            1,485,402
            
            
            -0-Total
                Contractual Cash Obligations
            
            $
            8,091,953
            
            $
            2,762,636
            
            $
            2,465,759
            
            $
            2,355,692
            
            $
            507,866







(a)  Includes
      interest.




48





**Impact
      of Inflation**





From
      time
      to time, the Company experiences price increases from third-party manufacturers
      and these increases cannot always be passed on to the Company’s customers. While
      these price increases have not had a material impact on the Company’s historical
      operations or profitability in the past, they could affect sales in the
      future.





**New
      Accounting Pronouncements**





FASB
      Statement No. 157, *Fair
      Value Measurements,* has been
      issued by the Financial Accounting Standards Board (“FASB”). This new standard
      provides guidance for using fair value to measure assets and liabilities. Under
      Statement 157, fair value refers to the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants in the market in which the reporting entity transacts. In this
      standard, the FASB clarifies the principle that fair value should be based
      on
      the assumptions market participants would use when pricing the asset or
      liability. In support of this principle, Statement 157 establishes a fair value
      hierarchy that prioritizes the information used to develop those assumptions.
      The fair value hierarchy gives the highest priority to quoted prices in active
      markets and the lowest priority to unobservable data, for example, the reporting
      entity’s own data. Under the standard, fair value measurements would be
      separately disclosed by level within the fair value hierarchy. The provisions
      of
      Statement 157 are effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. Earlier application is encouraged, provided that the reporting entity
      has
      not yet issued financial statements for that fiscal year, including any
      financial statements for an interim period within that fiscal year. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.





The
      FASB
      has issued FASB Staff Position (FSP) EITF 00-19-2, "Accounting for Registration
      Payment Arrangements." This FSP specifies that the contingent obligation to
      make
      future payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, *Accounting
      for Contingencies.* The
      FSP
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable GAAP
      without regard to the contingent obligation to transfer consideration pursuant
      to the registration payment arrangement. This FSP amends various authoritative
      literature notably FASB Statement No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* FASB
      Statement No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity,* and
      FASB
      Interpretation No. 45, *Guarantor’s
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others.* This
      FSP
      is effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to December 21, 2006. For registration payment arrangements and
      financial instruments subject to those arrangements that were entered into
      prior
      to December 21, 2006, the guidance in the FSP is effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.





On
      July
      13, 2006, FASB issued Interpretation (FIN) No. 48, *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109,* FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes.* FIN 48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The new FASB standard also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.





On
      February 15, 2007, the FASB issued FASB Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115.* SFAS 159
      permits an entity to choose to measure many financial instruments and certain
      other items at fair value. This option is available to all entities, including
      not-for-profit organizations. Most of the provisions in Statement 159 are
      elective; however, the amendment to FASB Statement No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities,* applies
      to all entities with available-for-sale and trading securities. Some
      requirements apply differently to entities that do not report net income. The
      fair value option established by Statement 159 permits all entities to choose
      to
      measure eligible items at fair value at specified election dates. A business
      entity will report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings (or another performance indicator if the
      business entity does not report earnings) at each subsequent reporting date.
      A
      not-for-profit organization will report unrealized gains and losses in its
      statement of activities or similar statement. The fair value option:
      ( *a* )
      may be
      applied instrument by instrument, with a few exceptions, such as investments
      otherwise accounted for by the equity method; ( *b* )
      is
      irrevocable (unless a new election date occurs); and ( *c* )
      is
      applied only to entire instruments and not to portions of instruments. Statement
      159 is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007.  Early adoption is permitted as of the
      beginning of the previous fiscal year provided that the entity makes that choice
      in the first 120 days of that fiscal year and also elects to apply the
      provisions of FASB Statement No. 157, *Fair
      Value Measurements.* The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements *.*





49





**Item
      7A. Quantitative and Qualitative Disclosure About Market
      Risk**





In
      the
      normal course of business, the Company is exposed to a variety of risks
      including market risk associated with interest rate movements. The Company’s
      exposure to market risk for changes in interest rates relates primarily to
      the
      Company’s long-term debt.





The
      Company’s long-term debt primarily consists of a (i) a line of credit of
      $4,350,000 consisting of a $1,350,000 term loan combined with $3,000,000
      revolving debt with Laurus entered into on July 27, 2005, and amended on January
      11, 2006 and $1,050,000 borrowed under a Loan Agreement with investors entered
      into on April 14, 2003. The line of credit bears interest at prime rate plus
      2%
      and the Investor Notes bear interest at 15% per annum.





For
      the
      fiscal year ended December 31, 2006, the interest expense on the line of credit
      was $145,591. If the interest rate on the line of credit were to increase by
      one
      percent, this would result in an interest expense of $158,074 for the fiscal
      year ended December 31, 2006.




**Item
      8. Financial Statements and Supplementary Data**





The
      Company’s financial statements and the notes thereto, and the Report of
      Independent Registered Public Accounting Firm, filed with this Annual Report
      on
      Form 10-K in a separate section, Part IV, as shown in the index under Item
      15(a).




**Item
      9. Changes in and Disagreements with Accountants on Accounting
      and**  **Financial
      Disclosure**





None





**Item
      9A. Controls and Procedures**





The
      Company’s management, with the participation of the Company’s Chief Executive
      Officer, Richard Munro, and Principal Accounting Officer, Adam Michelin, carried
      out an evaluation of the effectiveness of the Company’s disclosure controls and
      procedures (as defined in Exchange Act Rule 15d-15(e)). Based upon that
      evaluation, the Chief Executive Officer and the Principal Accounting
      Officer concluded that, as of the end of the period covered by this report,
      the Company’s disclosure controls and procedures are not effective at the
      reasonable assurance level in making known to them material information relating
      to the Company (including its consolidated subsidiaries) required to be included
      in this report.




50





Disclosure
      controls and procedures, no matter how well designed and implemented, can
      provide only reasonable assurance of achieving an entity’s disclosure
      objectives. The likelihood of achieving such objectives is affected by
      limitations inherent in disclosure controls and procedures. These include the
      fact that human judgment in decision-making can be faulty and that breakdowns
      in
      internal control can occur because of human failures such a simple errors or
      mistakes or intentional circumvention of the established process. The Company’s
      disclosure controls and procedures are designed to provide reasonable assurance
      of achieving the Company’s disclosure objectives.





There were
      changes in the Company’s internal control over financial reporting, that
      occurred during the Quarter covered by this report that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting. During August 2006, the Company reduced
      personnel, moved its primary offices, and filed for protection under
      Chapter 11. These and other significant events resulted in material internal
      control changes.





**Item
      9B. Other Information**





None





51


**PART
      III**





**Item
      10. Directors and Executive Officers**





The
      names
      and ages of the directors and executive officers of the Company as of April
      10,
      2007, are as follows:





**Name**
            
            **Age**
            
            **Position**
            
            **Since**Richard
                L. Munro
            
            48
            
            Director
                and Chief Executive Officer
            
            2006Adam
                M. Michelin
            
            62
            
            Director,
                Chairman of the Board
            
            2006Dee
                S. Kelly
            
            45
            
            Chief
                Financial Officer
            
            2007Stephen
                L. Scott
            
            55
            
            Director
            
            2007Gary
                C. Cannon
            
            55
            
            Director
                and Secretary
            
            2006Karen
                Muller*
            
            51
            
            Director
            
            2006







*  Ms.
      Muller voluntarily submitted her resignation from the board on April 12,
      2007.





The
      directors serve until the next annual meeting of stockholders, or until their
      successors are elected. Officers serve at the discretion of the Board of
      Directors.





**Richard
      L. Munro** joined
      the Board of Directors on August 10, 2006 and has also served as the Company's
      CEOsince
      that date. Prior to joining Naturade, Mr. Munro was a principal of Enterprise
      Group, a management consulting firm, from March 2005 and a manager at Kibel
      Green Inc. from March 2003 to March 2005. At both EnterpriseGroup
      and
      Kibel Green, Mr Munro worked on a number of successful business turnaround
      engagements. Prior tothat,
      for
      five years he was a principal of Sirius Holdings, a management consulting firm,
      where he was also responsible for a number of'turnaround
      and consulting engagements. Mr. Munro has over 20 years experience in the areas
      of executiveleadership
      and operational management and is very experienced in evaluating, and
      implementing solutions for companies in operational and/or financial crisis.
      He
      is a member of the New Zealand Institute of Chartered Accountants, member of
      the
      American Institute of Certified Public Accountants, board member of The Forum
      for Corporate Directors Orange County, and holdsanMBA
      from
      Auckland University and a Bachelor of Commercedegree
      from Canterbury University.





**Adam
      M. Michelin** ,
      became
      Chairman of the Company’s Board of Directors on August 10, 2006 and serves on
      the Company’s audit committee. Mr. Michelin is currently the Chief Executive
      Officer, and founding member of Redux Holdings, Inc.  Mr. Michelin is also
      a principal and CEO of the Enterprise Group, since March 2005.  Prior to
      the Enterprise Group he was a principal with Kibel Green, Inc. for a period
      of
      11 years. Mr. Michelin has more than 32 years of practice in the areas of
      executive leadership, operations and is very experienced in evaluating,
      structuring and implementing solutions for companies in operational and/or
      financial crisis. Mr. Michelin received his Juris Doctorate from the University
      of West Los Angeles and his Bachelor of Science from Tri State
      University.





**Dee
      S. Kelly,**  **CPA** ,
      became
      Chief Financial Officer for the Company in January 2007. Ms. Kelly was formerly
      with Ernst & Young, LLP and has 22 years experience in public and private
      accounting. She has held a number of executive financial positions with
      international bio-tech and medical device manufacturers. Ms. Kelly recently
      served as Vice president, Finance for Cryoport, Inc. since 2003. She has also
      served as Vice President, Controller for Equifax Financial Services, Inc. from
      1995 to 2000, Corporate Controller for MacGillivray Freeman Films from 2000
      to
      2001, Corporate Controller for Masimo Corporation, a manufacturer of patient
      monitoring devices from 2001 to 2002 and principal of a private consulting
      practice since 2002.





**Stephen
      L. Scott** became a
      director of the Company’s Board of Directors in February 2007 and serves as the
      Audit Committee Chairman. Mr. Scott is a management and organizational
      consultant with over 20-years experience with diverse manufacturing businesses,
      including a specific background with developmental stage companies. Since 1996,
      Mr. Scott has been President of Technology Acquisition Group, providing
      expertise in corporate growth planning, strategic partner development, finance,
      operations, team building, product opportunity identification, corporate
      re-engineering and mergers and acquisitions. In addition to early stage and
      small companies, he has performed projects with Fortune 1000 firms such as
      IBM,
      GE, AT&T, Bristol-Myers Squibb, Warner-Lambert, Johnson & Johnson and
      Ayerst-Wyeth. Mr. Scott received his Juris Doctorate and Masters of Business
      Administration degrees from National University and his Bachelor of Science
      degree from the University of Akron.


52





**Gary
      C. Cannon** ,
      became
      the Company’s Secretary and a member of the Company’s Board of Directors on
      August 10, 2006. Prior to joining the Company, Mr. Cannon was securities counsel
      and compliance officer for The Affordable Energy Group, Inc. from November
      2004
      to May 2005; general and securities counsel for World Transport Authority,
      Inc.
      from July 2003 to November 2004; and is currently general and securities counsel
      for CryoPort, Inc. and the Company’s controlling shareholder, Redux Holdings,
      Inc. Mr. Cannon was in private practice from August 2000 to July 2003, and
      has
      practiced law for the past 20 years, representing all sizes of businesses in
      such areas as, formation, mergers and acquisitions, financing transactions,
      tax
      planning, and employee relations. Mr. Cannon has done extensive securities
      work
      and has served as a compliance officer for companies with respect to the
      Sarbanes-Oxley Act, and other compliance matters. Mr. Cannon obtained his Juris
      Doctorate from National University School of Law, his Masters of Business degree
      from National University and his Bachelor of Arts from United States
      International University.





**Karen
      Muller** was
      elected to the Company’s Board of Directors on August 10, 2006. Ms. Muller
      graduated from Fordham Law School, as a member of the Fordham Law Review, and
      holds a B.A. in Economics, summa cum laude, from Hunter College of the City
      University of New York. Ms. Muller has over 20 years experience in the
      investment banking and financial services industry. Ms. Muller has been a
      consultant to Redux, the controlling shareholder of Naturade, since July 2006.
      Since November 2004, Ms. Muller also has been a principal and part owner of
      Cerius Consulting Group, Inc., based in Orange County. From May 2003 until
      November 2004, Ms. Muller worked with the Newport Beach based investment banking
      firm Capital Asset Advisors. From October 1999 until February 2003, Ms, Muller
      was Chief Administrative Office and General Counsel of Epoch Networks, Inc.
      where she helped complete the restructuring and sale of Epoch’s Internet Service
      Provider business. Prior to joining Epoch, for ten years, Ms. Muller was
      Managing Director with Lehman Brothers. Prior to Lehman Brothers, Ms, Muller
      was
      an associate at the Wall Street law firm Cahill, Gordon & Reindel, where she
      worked on corporate finance and M&A transactions. She holds the title
      Director Emeritus of the Forum for Corporate Directors, for which she
      established an ISS approved board governance training program. Ms. Muller
      voluntarily submitted her resignation from the board on April 12,
      2007.





None
      of
      the directors or executive officers were selected pursuant to any arraignment
      or
      understanding, other than with the directors and executive officers of the
      Company acting within their capacity as such. There are no family relationships
      among directors or executive officers of the Company and no directorships are
      held by any director which has a class of securities registered pursuant to
      Section 12 of the Securities and Exchange Act of 1934, as amended (“the Exchange
      Act”), or subject to requirements of Section 15(d) of the Exchange Act or any
      company registered as an investment company under the Investment Company Act
      of
      1940. Officers serve at the discretion of the Board.





In
      2006,
      the Board of Directors held eleven meetings and the Audit Committee of the
      Board
      of Directors met four times. Overall attendance at such meeting was
      approximately 100%. Each Director attended more than 75% of the aggregate
      of all meeting of the Board of Directors.




**Code
      of Ethics**





The
      current Board of Directors adopted a Code of Ethics in March 2007, applicable
      to
      the chief executive officer, the chief financial officer, the controller, as
      well as all of the officers and senior staff. The Code of Ethics of the Company
      is available, free of charge, on request by writing to the Secretary of the
      Company.





**Director
      Compensation**





Effective
      March 23, 2007, each member of the Board of Directors receives $800 per calendar
      quarter for their service, except that Board members who receive cash
      compensation for their services as an officer of employee of Naturade or any
      of
      its affiliates are not paid. Also effective March 23, 2007, each member of
      the
      Audit Committee and the Compensation and Governance Committee receive $800
      per
      calendar quarter for their service, except that the Chairman of each committee
      receives $1,200 and members who receive cash compensation for their services
      as
      an officer or employee of Naturade or any of its affiliates are not paid. During
      the year ended December 31, 2006, directors’ compensation in the form of cash
      payments were paid to the former directors Kenneth Hallet and Michael Harris
      in
      the amount of $3,625 each. No other directors’ compensation was paid during
      2006.




53





**Audit
      Committee**





Effective,
      March 23, 2007, the members of the Audit Committee are Steve Scott, Chairman,
      Adam Michelin and Richard Munro. The Company has determined that Adam Michelin
      qualifies as an “audit committee financial expert” as defined in Item 401(h) of
      Regulation S-K. Steve Scott, Audit Committee chairman, is “independent” within
      the meaning of Rule 4200(a) (15) of the National Association of Securities
      Dealers.





**Compensation
      and Governance Committee**





Effective
      March 23, 2007, the members of the Compensation and Governance Committee were
      appointed by the Board as Karen Muller, Chairman, Gary Cannon and Adam Michelin.
      Ms. Muller voluntarily resigned from her position on the Board on April 12,
      2007. As of the date of this filing a replacement for the chairman of the
      Compensation and Governance Committee has not been named.





**Nominating
      Procedures and Criteria**





The
      Company does not have a nominating committee. The Board of Directors has
      determined that this is appropriate in light of the fact that one principal
      stockholder of the Company has sufficient voting power to elect all of the
      directors of the Company and, like all stockholders of the Company, has the
      power to nominate candidates at meetings of stockholders. Each of the directors
      takes part in the nomination of candidates for election as directors at the
      annual meeting, although it is anticipated that in the future this function
      will
      be handled by the newly established Compensation and Governance Committee.
      .





**Item
      11. Executive Compensation**





**Compensation
      Discussion and Analysis**





The
      Compensation Committee, consisting of three members of the Board of Directors,
      administers the executive compensation program. The role of the Compensation
      Committee is to oversee the Company’s compensation and benefit plans and
      policies, administer stock and option plans and review and approve annually
      all
      compensation decisions relating to the executive officers of the
      Company.





The
      compensation programs are designed to remunerate the Company’s executives and
      are intended to provide incentive to the senior executives and other employees
      to maximize stakeholder value, which in turn effects the overall compensation
      earned by the Company’s management. The Company has adopted compensation
      programs designed to achieve the following:





·
            Attract,
                motivate and retain superior
                talent;


·
              Encourage
                  high performance and promote
                  accountability


·
              Ensure
                  that compensation is commensurate with the company’s annual
                  performance


·
              Provide
                  performance awards for the achievement of financial and operational
                  targets and strategic objectives, essential to the Company’s long-term
                  growth.





The
      Compensation Committee members that were in place during the first half of
      2006
      all resigned their board positions pursuant to the change in control by Redux
      in
      August 2006. Since the Company filed Chapter 11 Bankruptcy proceedings, on
      August 31, 2006, the components of compensation have included base salaries
      only. There are currently no employment contracts in place. Employment contracts
      that were in place during the first half of the year became terminated upon
      the
      resignation of those executives pursuant to the change in control by Redux
      in
      August 2006. Additionally, from August 14, 2006 the Company began leasing its
      personnel from One World Science. Under this employee leasing arrangement,
      the
      Company maintains control over the compensation decisions of the leased
      employees.





A
      new
      Compensation Committee was appointed by the Board on March 26, 2007. The newly
      formed Compensation Committee has not adopted any formal or informal policies
      or
      guidelines for compensation. The company is expected to emerge from Bankruptcy
      proceedings in April 2007. Subsequent to the Company’s emerging from Bankruptcy
      proceedings, the Compensation Committee will evaluate the compensation plans
      for
      executive officers taking into account strategic goals and performance metrics.
      In addition the Compensation Committee will perform reviews of all Company
      compensation policies, including policies and strategy relating to executive
      compensation, as well as the appropriate mix of base salary, and incentive
      compensation.




54





**Elements
      of Compensation**





Executive
      compensation consists of the following elements:





***Base
      Salary.*** Base
      salaries for the Company’s executives are generally established based on the
      scope of their responsibilities, level of experience and individual performance,
      taking into account both external competitiveness and internal equity
      considerations. The goal for the base salary component is to compensate
      employees at a level that approximates the median salaries of individuals in
      comparable positions at similarly situated companies. Base Salaries are reviewed
      by the Compensation Committee and may be adjusted from time to time at the
      Compensation Committee’s discretion.





***Stock
      Options.*** In
      1998,
      the Company adopted the 1998 Incentive Stock Option Plan (the “Incentive Plan”).
      The Incentive Plan provides for the issuance of incentive stock options within
      the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
      (the
“Code”). The purpose of the Incentive Plan is to enable the Company to attract,
      retain and motivate its employees by providing for performance-based benefits.
      At the 2000 annual stockholders’ meeting, the number of shares of the Company’s
      Common Stock that may be subject to awards granted under the Incentive Plan
      was
      increased to 850,000. At the 2001 annual stockholders’ meeting, the number was
      further increased to 2,000,000. As of December 31, 2006 81,000 options to
      purchase shares of the Company’s Common Stock were outstanding under the
      Incentive Plan, of which 49,000 options to purchase shares (subject to
      adjustment to prevent dilution) had vested, and 1,919,000 shares were available
      for future awards under the Incentive Plan.





The
      Incentive Plan is administered by the Compensation Committee consisting of
      three
      members of the Board of Directors or administered by the full Board of
      Directors. The administrator has the power to construe and interpret the
      Incentive Plan and, subject to provisions of the Incentive Plan, to determine
      the persons to whom and the dates on which awards will be granted, the number
      of
      shares to be subject to each award, the times during the term of each award
      within which all or a portion of the award may be exercised, the exercise price,
      the type of consideration and other terms and conditions of the award. The
      exercise price of stock options under the Incentive Plan may not be less than
      the fair market value of the Common Stock subject to the option on the date
      of
      the option grant and in some cases may not be less that 110% of fair market
      value. The maximum term of the Incentive Plan is ten years, except that the
      Board may terminate the Incentive Plan earlier. The term of each individual
      award will depend upon the written agreement between the Company and the grantee
      setting forth the terms of the awards.





***General
      Benefits.*** The
      Company’s executives are eligible to participate in all employee benefit plans,
      such as medical and dental. Prior to the Company’s filing for Chapter 11
      Bankruptcy protection, the Company offered additional benefits to its executive
      officers such as life insurance and vehicle allowances.





***401(k)
      Plan*** *.* The
      Company maintains a 401(k) profit sharing plan (“401(k) Plan”) for the benefit
      of all employees who meet certain age and length of service requirements. The
      401(k) Plan provides for Company matching contributions equal to 25% of each
      employee participant’s contribution not to exceed 6% of the employee
      participant’s compensation.





On
      September 1, 2006, management voluntary suspended the 401(k) Plan as the Company
      began leasing its personnel from One World Science and no longer had any direct
      employees.





**2006
      Executive Base Salary and Incentive Compensation
      Determinations**





***Richard
      Munro***




Mr.
      Munro
      has served as the Company’s Chief Executive Officer since August, 2006. Mr.
      Munro has an annual base salary of $200,000. No additional incentive
      compensation has been granted to Mr. Munro. Mr. Munro does not have an
      employment agreement with the Company.


55





***Bill
      Stewart***




Mr.
      Stewart served as the Company’s Chief Executive Officer until August 2006, when
      he resigned pursuant to the change in control by Redux. Mr. Stewart had an
      employment agreement with the Company which provided for an annual base salary
      of $250,000 per year. No additional incentive compensation was granted to Mr.
      Stewart in 2006. Mr. Stewart’s employment agreement entitled him to severance in
      the amount of 12 months of base salary. Accordingly $250,000 has been accrued
      by
      the Company and is included in liabilities subject to compromise as of December
      31, 2006.





***Stephen
      M. Kasprisin***




Mr.
      Kasprisin served as the Company’s Chief Financial Officer and Chief Operations
      Officer until August 2006, when he resigned pursuant to the change in control
      by
      Redux. Mr. Kasprisin had an employment agreement with the Company which provided
      for an annual base salary of $200,000 per year. No additional incentive
      compensation was granted to Mr. Stewart in 2006. Mr. Kasprisin’s employment
      agreement entitled him to severance in the amount of 6 months of base salary.
      Accordingly $100,000 has been accrued by the Company and is included in
      liabilities subject to compromise as of December 31, 2006.





***Marwan
      Zreik***




Mr.
      Zreik
      served as the Company’s Executive Vice President of Sales until March 2006, when
      he voluntarily resigned his position with the Company to take a similar position
      with another company. Mr. Zreik had an employment agreement with the Company
      which provided for an annual base salary of $160,000 per year. No additional
      incentive compensation was granted to Mr. Zreik in 2006.




**2006
      SUMMARY COMPENSATION TABLE**





The
      table
      below summarizes the total compensation paid or earned by the Company’s Chief
      Executive Officer, and two other most highly compensated executive officers
      for
      the year ended December 31, 2006.





**Name
                and**
              **Principal
                Position**
            
            **Year**
            
            **Salary**
              **$**
            
            **Bonus**
              **$**
            
            **Stock**
              **Awards**
              **$**
            
            **Option**
              **Awards**
              **$
                (6)**
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **$**
            
            **Change
                in**
              **Pension
                Value and**
              **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **$**
            
            **All
                Other**
              **Compensation**
              **$**
            
            **Total**
              **$**Richard
                L. Munro,
              Chief
                Executive Officer and Director (1)
            
            
            2006
            
            $
            69,231
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            69,231Dee
                S. Kelly,
              Chief
                Financial Officer (2)
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Bill
                D. Stewart,
              Former
                Chief Executive Officer (3)
            
            
            2006
            
            $
            181,730
            
            $
            0
            
            $
            0
            
            $
            44,803
            
            $
            0
            
            $
            0
            
            $
            258,650
            
            $
            485,183Steven
                M. Kasprisin,
              Former
                Chief Financial Officer and Chief Operating Officer (4)
            
            
            2006
            
            $
            146,810
            
            $
            0
            
            $
            0
            
            $
            44,391
            
            $
            0
            
            $
            0
            
            $
            105,986
            
            $
            297,187Marwan
                Zreik,
              Former
                Executive Vice President (5)
            
            
            2006
            
            $
            27,692
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            1,750
            
            $
            29,442







(1)
            Mr.
                Munro became Chief Executive Officer and Director on August 10, 2006.




56





(2)
            Ms.
                Kelly became Chief Financial Officer on January 3, 2007 and had no
                earnings or other compensation in 2006.





(3)
            Mr.
                Stewart resigned as Chief Executive Officer on August 30, 2006.





(4)
            Mr.
                Kasprisin resigned as Chief Financial Officer and Chief Operating
                Officer
                on August 30, 2006.





(5)
            Mr.
                Zreik terminated his employment with the Company on March 1,
                2006.





(6)
            Reflects
                the dollar amount recognized for financial reporting purposes for
                the year
                ended December 31, 2006, in accordance with SFAS 123(R) of stock
                option
                awards pursuant to the 1998 Stock Option Plan, as amended, and thus
                includes amounts from awards granted in and prior to 2006. Assumptions
                used in the calculation of these amounts are included in Note 10,
                Stock
                Options and Warrants. All stock options were granted at the closing
                market
                price of the Company’s stock on the date of grant and vest ratably over 2
                to 4 years from the grant date. See Note 10 - Stock Options and
                Warrants.





The
      All
      Other Compensation column in the 2006 Summary Compensation Table consists of
      the
      following:





**Name
                and**
              **Principal
                Position**
            
            **Year**
            
            **Perquisites
                and Other Personal Benefits**
              **$
                (1)**
            
            **Tax
                Reimburse-ments**
              **$**
            
            **Insurance
                Premiums**
              **$**
            
            **Company
                Contri-butions to 401(k) plan**
              **$
                (2)**
            
            **Severence
                Payments / Accruals**
              **$
                (3)**
            
            **Change
                in control Payments / Accruals**
              **$**
            
            **Total**
              **$**Richard
                L. Munro,
              Chief
                Executive Officer and Director
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Dee
                S. Kelly,
              Chief
                Financial Officer
            
            
            2006
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            0Bill
                D. Stewart,
              Former
                Chief Executive Officer
            
            
            2006
            
            $
            8,650
            
            $
            0
            
            $
            0
            
            $
            0
            
            $
            250,000
            
            $
            0
            
            $
            258,650Steven
                M. Kasprisin,
              Former
                Chief Financial Officer and Chief Operating Officer
            
            
            2006
            
            $
            2,100
            
            $
            0
            
            $
            429
            
            $
            3,457
            
            $
            100,000
            
            $
            0
            
            $
            105,986Marwan
                Zreik,
              Former
                Executive Vice President
            
            
            2006
            
            $
            600
            
            $
            0
            
            $
            107
            
            $
            1,043
            
            $
            0
            
            $
            0
            
            $
            1,750







(1)
            Such
                amounts represent automobile allowances paid on behalf of Mr. Stewart,
                Mr.
                Kasprisin and Mr. Zreik,
                accordingly.




(2)
            Such
                amounts represent Company matching contributions to 401(k) savings
                plans.
                See Note 13- 401(k) plan.




(3)
            Such
                amounts represent accruals for severance payments pursuant to employment
                contracts described below. These amounts have been accrued as of
                the
                termination dates and are included in liabilities subject to compromise
                as
                of December 31, 2006.




57





**2006
      Grants of Plan-Based Awards**





The
      Company made no grants of plan-based awards to any of the named executive
      officers during 2006.





**Outstanding
      Equity Awards at December 31, 2006**





The
      Company had no outstanding equity awards at December 31, 2006. All option awards
      previously granted to Mr. Stewart, Mr. Kasprisin and Mr. Zreik expired upon
      their termination of employment. No new equity awards have been
      made.





**Option
      Exercises and Stock Vested**





None
      of
      the Company’s named executive officers or former executive officers exercised
      any stock options or similar awards during the fiscal year 2006. All outstanding
      stock options to named executive officers or former executive officers expired
      upon the termination of employment of Mr. Stewart, Mr. Kasprisin and Mr. Zreik.
      In addition, the Company had no unvested stock awards outstanding to any named
      executive officers or former executive officers.





**Pension
      Benefits**





None
      of
      the Company’s named executive officers or former executive officers are covered
      by a pension plan or other similar benefit plan that provides for payments
      or
      other benefits.





**Nonqualified
      Deferred Compensation**





The
      Company does not have any non-qualified deferred compensation
      plans.





**Potential
      Payments Upon Termination or Change in Control**





The
      Company currently has no employment agreements which would cause potential
      payments upon termination or change in control. Previous contracts with the
      former executive officers, Mr. Stewart, Mr. Kasprisin and Mr. Zreik expired
      upon
      their termination of employment. Severence payments for Mr. Stewart and Mr.
      Kasprisin have been accrued and are included in liabilities subject to
      compromise as of December 31, 2006.





**Compensation
      of Directors**





On
      December 16, 2005 the Board approved a compensation plan for non-management
      directors whereby, all non-management directors, except Mr. Pocklington, will
      receive directors fees of a quarterly cash retainer of $3,125 plus an option
      to
      purchase Common Stock of the Company with the number of shares calculated by
      dividing $9,375 by the average of the closing price of the Company’s Common
      Stock for each of the last five trading days preceding the first Board meeting
      during the quarter. The exercise price of the option will be the average of
      the
      closing price of the Company’s Common Stock for each of the last five trading
      days preceding the first Board meeting during the quarter. Such options shall
      (i) have a seven year term and (ii) be immediately exercisable in whole or
      part.
      This compensation plan for non-management directors was terminated in August
      2006.





Effective
      March 23, 2007, each member of the Board of Directors receives $800 per calendar
      quarter for their service, except that Board members who receive cash
      compensation for their services as an officer of employee of Naturade or any
      of
      its affiliates are not paid. Also effective March 23, 2007, each member of
      the
      Audit Committee and the Compensation and Governance Committee receive $800
      per
      calendar quarter for their service, except that the Chairman of each committee
      receives $1,200 and members who receive cash compensation for their services
      as
      an officer or employee of Naturade or any of its affiliates are not
      paid.




58





**Director
      Compensation Table**





Director
                Name
            
            Fees
                Earned or Paid in Cash ($)
            
            Stock
                Awards
              ($)
            
            Option
                Awards
              ($)
            
            Total
              ($)Richard
                L. Munro (2)
            
            
            —
            
            
            —
            
            
            —
            
            
            —Adam
                M. Michelin
            
            
            —
            
            
            —
            
            
            —
            
            
            —Stephen
                L. Scott
            
            
            —
            
            
            —
            
            
            —
            
            
            —Gary
                C. Cannon
            
            
            —
            
            
            —
            
            
            —
            
            
            —Karen
                Muller (4)
            
            
            —
            
            
            —
            
            
            —
            
            
            —Bill
                D. Stewart(1)
                (2)
            
            
            —
            
            
            —
            
            
            —
            
            
            —Peter
                H. Pocklington (1) (3)
            
            
            —
            
            
            —
            
            
            —
            
            
            —Kenneth
                B. Hallat (1)
            
            $
            3,625
            
            
            —
            
            
            —
            
            $
            3,625Michael
                D. Harris (1)
            
            $
            3,625
            
            
            —
            
            
            —
            
            $
            3,625Stephen
                M. Kasprisin (1) (2)
            
            
            —
            
            
            —
            
            
            —
            
            
            —







(1)
            Former
                director.


(2)
              Mr.
                  Munro, Mr. Stewart and Mr. Kasprisin were paid no additional amounts
                  for
                  their director services. Amounts paid to them as officers during
                  fiscal
                  2006 are included in the executive compensation tables
                  above.


(3)
              Mr.
                  Pocklington was paid a total of $125,000 during fiscal 2006 for
                  consulting
                  services.


(4)
              Ms.
                  Muller voluntarily submitted her resignation from the board on
                  April 12,
                  2007.




**Employment
      Contracts, Termination of Employment and Change-In-Control**  **Arrangements**





On
      February 18, 1998, the Company and Bill D. Stewart entered into an employment
      agreement under which the Company retained Mr. Stewart as Chief Executive
      Officer and a member of the Company’s Board of Directors for an initial term of
      48 months. Under the employment agreement, as amended, Mr. Stewart received
      an
      annual salary of $225,000, automobile lease payments and life insurance payable
      as directed by Mr. Stewart. Mr. Stewart may be terminated for “cause” if he
      willfully neglects his duties, commits a felony or act of dishonesty or refuses
      to comply materially with reasonable directives of the Board. A termination
      other than for “cause” would include Mr. Stewart’s death, disability or
      constructive termination (including an assignment of duties inconsistent with
      his position, a reduction in base salary and bonus and a material breach by
      us
      of any provision of his employment agreement). If employment is terminated
      for
“cause” or upon Mr. Stewart’s resignation, Mr. Stewart will be entitled only to
      the compensation earned by him prior to the date of termination, excluding
      any
      bonus. If employment is terminated other than for “cause,” Mr. Stewart will be
      entitled to the compensation earned by him prior to the date of termination,
      together with his annual salary, average bonus, medical benefits and automobile
      lease for 12 months following termination.





On
      March
      2, 1998, the Company granted to Mr. Stewart, pursuant to the Company’s 1998
      Incentive Stock Option Plan, options to acquire up to 255,000 shares of Common
      Stock at $4.00 per share (the average closing bid price of the shares of Common
      Stock on the NASD OTC Bulletin Board as quoted by Bloomberg, LP for the five
      (5)
      day trading period ending on March 2, 1998). These options were repriced to
      110%
      of the market price of the Common Stock on October 14, 1999 ($1.13). On February
      1, 2000, the Company granted to Mr. Stewart, pursuant to the Company’s 1998
      Incentive Stock Option Plan, options to acquire up to 60,000 shares of Common
      Stock at $0.875 per share (the closing bid price of the shares of Common Stock
      on the NASD OTC Bulletin Board, as quoted by Bloomberg, LP). Furthermore, on
      January 26, 2001, the Company granted to Mr. Stewart, pursuant to the Company’s
      1998 Incentive Stock Option Plan, options to acquire up to 50,000 shares of
      Common Stock at $0.44 per share (the closing bid price of the shares of Common
      Stock on the NASD OTC Bulletin Board, as quoted by Bloomberg, LP). All options
      will vest in four equal portions on each of the first four anniversaries of
      the
      grant date, subject to any limitations on exercise contained in the 1998
      Incentive Stock Option Plan and provided that the term of Mr. Stewart’s
      employment with the Company shall not have ended prior to such anniversary.
      In
      the event of any sale (including, pursuant to either a tender offer or a merger
      of the Company which results in the shareholders of the Company holding less
      than fifty percent (50%) of the stock of the surviving corporation) of the
      Company during such term, subject to certain limitations, all of Mr. Stewart’s
      options not then vested shall immediately vest.




59





As
      part
      of the Private Equity Transaction on January 2, 2002, as described more fully
      in
      Note 5 to the Financial Statements - Recapitalization, the employment agreement
      with Mr. Stewart was amended and restated to extend the term until December
      31,
      2003 and allow for the immediate vesting of options to purchase 365,000 shares
      of Common Stock, 297,500 of which would have vested by March 2, 2002, the
      four-year anniversary of the original employment agreement, at an exercise
      price
      reduced to $0.1477 per share, the purchase price in the Private Equity
      Transaction. The amended and restated employment agreement also reconfirmed
      the
      understanding that all options become fully vested in the event of any sale
      of
      the Company and extended the term of employment to December 31, 2003 which
      in
      turn, has been extended to December 31, 2006. In August 2005, Mr. Stewarts
      base
      compensation was increased to $250,000 per year and on December 16, 2005 the
      Board awarded Mr. Stewart 1,620,000 non-qualified options to purchase the
      Company’s Common Stock, which vest in eight equal quarterly
      amounts.





On
      March
      24, 2006, Mr. Stewart’s employment agreement was extended until December 31,
      2006 with annual renewals subject to a 90 day written notice provision. Mr.
      Stewart terminated his employment on August 30, 2006, pursuant to the change
      in
      control by Redux. A severance amount of $250,000 for Mr. Stewart has been
      accrued by the Company and is included in the Liabilities Subject to Compromise
      as of December 31, 2006.




In
      July
      2003, Mr. Kasprisin, Chief Financial Officer, entered into an employment
      agreement with the Company that can be terminated without cause by either party
      upon 30 days’ notice. Mr. Kasprisin is entitled to severance equal to six
      month’s base pay should he be terminated without cause by the Company. Pursuant
      to the employment agreement, Mr. Kasprisin was entitled to a base salary of
      $160,000 per year and a bonus based upon his base salary. In addition, Mr.
      Kasprisin has been granted options to purchase up to 150,000 shares of Common
      Stock, which options vest in equal quarterly amounts on each of the first eight
      quarters of his employment. In June 2004, Mr. Kasprisin’s employment agreement
      was amended in connection with his promotion to Chief Operating Officer,
      increasing the base compensation to $178,000 per year, adding a vehicle
      allowance of $300 per month and granting options to purchase an additional
      50,000 shares of Common Stock at a price of $0.26 per share, which options
      vest
      in eight equal quarterly amounts. In August 2005, Mr. Kasprisin’s base
      compensation was increased to $200,000 per year and on December 16, 2005, the
      Board awarded Mr. Kasprisin 1,615,000 non-qualified options to purchase the
      Company’s Common Stock, which vest in eight equal quarterly amounts. Mr.
      Kasprisin terminated his employment on August 30, 2006, pursuant to the change
      in control by Redux. A severance amount of $100,000 for Mr. Kasprisin has been
      accrued by the Company and is included in the Liabilities Subject to Compromise
      as of December 31, 2006.





**Incentive
      Stock Option Plan**





In
      1998,
      the Company adopted the 1998 Incentive Stock Option Plan (the “Incentive Plan”).
      The Incentive Plan provides for the issuance of incentive stock options within
      the meaning of Section 422 of the Internal Revenue Code of 1986, as amended
      (the
“Code”). The purpose of the Incentive Plan is to enable the Company to attract,
      retain and motivate its employees by providing for performance-based benefits.
      At the 2000 annual stockholders’ meeting, the number of shares of the Company’s
      Common Stock that may be subject to awards granted under the Incentive Plan
      was
      increased to 850,000. At the 2001 annual stockholders’ meeting, the number was
      further increased to 2,000,000. As of December 31, 2006 81,000 options to
      purchase shares of the Company’s Common Stock were outstanding under the
      Incentive Plan, of which 49,000 options to purchase shares (subject to
      adjustment to prevent dilution) had vested, and 1,919,000 shares were available
      for future awards under the Incentive Plan.





The
      Incentive Plan is administered by a committee consisting of three members of
      the
      Board of Directors or administered by the full Board of Directors. The
      administrator has the power to construe and interpret the Incentive Plan and,
      subject to provisions of the Incentive Plan, to determine the persons to whom
      and the dates on which awards will be granted, the number of shares to be
      subject to each award, the times during the term of each award within which
      all
      or a portion of the award may be exercised, the exercise price, the type of
      consideration and other terms and conditions of the award. The exercise price
      of
      stock options under the Incentive Plan may not be less than the fair market
      value of the Common Stock subject to the option on the date of the option grant
      and in some cases may not be less that 110% of fair market value. The maximum
      term of the Incentive Plan is ten years, except that the Board may terminate
      the
      Incentive Plan earlier. The term of each individual award will depend upon
      the
      written agreement between the Company and the grantee setting forth the terms
      of
      the awards.




**401(k)
      Plan**





The
      Company maintains a 401(k) profit sharing plan (“401(k) Plan”) for the benefit
      of all employees who meet certain age and length of service requirements. The
      401(k) Plan provides for Company matching contributions equal to 25% of each
      employee participant’s contribution not to exceed 6% of the employee
      participant’s compensation.





On
      September 1, 2006, management voluntary suspended the 401(k) Plan as the Company
      began leasing its personnel from One World Science and no longer had any direct
      employees.




60


**REPORT
      OF THE MANAGEMENT COMPENSATION COMMITTEE**








The
      current Compensation and Governance Committee was established on March 23,
      2007.
      The committee members were not involved in any decisions involving compensation
      for 2006. When Naturade’s controlling interest was acquired by Redux in August
      2007, all the former Naturade Board members resigned and shortly thereafter,
      any
      remaining Executive Officers that were appointed by the former Naturade Board
      also resigned. The newly established Compensation and Governance Committee
      will
      review all existing compensation arrangements at the Company and make any
      changes it deems appropriate. This committee is not in a position to comment
      on
      the appropriateness of the compensation of former Executive Officers, employees
      or board directors.


The
        Compensation Committee has reviewed and discussed the foregoing Compensation
        Discussion and Analysis
        required by Item 402(b) of Regulation S-K with management. Based on such
        review
        and discussions, the Compensation
        Committee recommended to the Board of Directors that the Compensation Discussion
        and Analysis be included into Naturade's Annual Report on Form 10-K for the
        year
        ended December 31, 2006.




THE
                MANAGEMENT COMPENSATIONCOMMITTEEKaren
                Muller, Chairman**
                Gary
                  Cannon
                  Adam
                    Michelin







**
      Ms.
      Muller voluntarily resigned from her position on the Board on April 12, 2007.
      As
      of the date of this filing a replacement for the chairman of the Management
      Compensation Committee has not been named.




61


**Compensation
      Committee Interlocks and Insider Participation**





None
      of
      the members of the Compensation Committee is or has been an officer or employee
      of the Company.





**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and Management**  **and
      Related Stockholder Matters**





The
      following table sets forth information regarding beneficial ownership, as of
      February 28, 2006, of the Company’s outstanding Common Stock by (i) any person
      who is known to the Company to be the beneficial owner of more than 5% of the
      Company’s voting securities, (ii) each director and each of the Named Executive
      Officers, and (iii) by the directors and executive officers of the Company
      as a
      group. Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission. In computing the number of shares
      beneficially owned by a person and the percentage of ownership of that person,
      shares of Common Stock subject to options or warrants held by that person that
      are currently exercisable or will become exercisable within 60 days are deemed
      outstanding but are not deemed to be outstanding as to any other
      person.





The
      Company’s Series C Convertible Preferred Stock votes with the common stock on
      all matters presented to the stockholders, on as as-converted-to-common stock
      basis. Each share of Series C Convertible Preferred Stock is convertible into
      one share of common stock (subject to adjustment for anti-dilution), at any
      time
      at the option of the holder.





**Name
                and Address of Beneficial Owner(1)**
            
            **Common
                Stock**
            
            **Percent
                of Common****Stock**
            
            **Series
                C****Convertible****Preferred
                Stock**
            
            **Percent
                of****Series
                C Convertible****Preferred****Stock**Redux
                Holdings, Inc
              11726
                San Vincente Blvd., Suite 300 Los Angeles, CA 90049
            
            
            29,550,000
            (2)
            
            68.2
            %
            
            4,200,000
            (2)
            
            20.0
            %Health
                Holdings and Botanicals, LLC(7) Suite 500 330 Primrose Rd. Burlingame,
                CA 94010 (5)
            
            
            —
            
            
            —
            
            
            12,600,000
            (3)
            
            60.0
            %Westgate
                Equity Partners, L.P. (8) One Magna Place, Suite 650 1401 South
                Brentwood Blvd. St. Louis, MO 63144 (6)
            
            
            —
            
            
            —
            
            
            4,200,000
            
            
            20.0
            %Richard
                Munro
            
            
            -0-
            
            
            *
            
            
            
            
            
            —Adam
                Michelin
            
            
            29,550,000
            (2)
            
            68.2
            %
            
            4,200,000
            (2)
            
            20.0
            %Steve
                Scott
            
            
            -0-
            
            
            *
            
            
            
            
            
            —Gary
                Cannon
            
            
            -0-
            
            
            *
            
            
            
            
            
            —Karen
                Muller
            
            
            -0-
            
            
            *
            
            
            
            
            
            —Executive
                officers and directors as a group (5 persons)
            
            
            29,550,000
            (4)
            
            68.2
            %
            
            4,200,000
            (4)
            
            20.0
            %







*
            Less
                than 1%





(1)
            Except
                as otherwise indicated, the address of each person named in the above
                table is in care of Naturade, Inc., 601 Valencia Avenue, Brea, CA
                92823.





(2)
            Adam
                Michelin was elected as one of our directors in 2006. Mr. Michelin
                is the
                principal stockholder of Redux Holdings, Inc. Mr. Michelin disclaims
                beneficial ownership of the common stock and the Series C Convertible
                Preferred Stock held by Redux Holdings, Inc. except to the extent
                of his
                indirect pecuniary interest in the shares. The common stock and Series
                C
                Convertible Preferred Stock were acquired as part of the recapitalization,
                see “Business—Recapitalization.” In the recapitalization, Redux Holdings,
                Inc. also acquired warrants and options to purchase 26,369,118 shares
                of
                common stock, all of which are currently
                exercisable.




62





(3)
            Acquired
                as part of the recapitalization, see “Business - Recapitalization.” In the
                recapitalization, Health Holdings also acquired a warrant to purchase
                10,000,000 shares of common stock beginning after July 22, 2006.





(4)
            Includes
                shares of common stock beneficially owned by Redux Holdings, Inc..,
                see
                note 2 above. See also notes 4, 5 and 6 above with respect to additional
                shares of common stock included in this total.





(5)
            Doyle
                & Boissiere Fund I, LLC exercises voting and investment power over
                the
                shares of common stock and Series C Convertible Preferred Stock held
                by
                Health Holdings. William B. Doyle, Jr. and Lionel P. Boissiere are
                the
                principal and managing members of Doyle & Boissiere Fund I,
                LLC.





(6)
            Westgate
                Group, LLC exercises voting and investment power over the shares
                of Series
                C Convertible Preferred Stock held by Westgate. Jay W. Brown and
                Robert V.
                Vitale are the managers and members of Westgate Group,
                LLC.





**Item
      13. Certain Relationships and Related Transactions**





Redux
      as
      part of its infusion of cash and other services to the Company during its
      bankruptcy, has provided legal services to the Company in the form of its
      General Counsel Gary Curtis Cannon. Mr. Cannon is retained by Redux to act
      as
      its General Counsel and SEC attorney for $12,000 per month. Redux provides
      Mr.
      Cannon’s services as the Company’s General Counsel and SEC attorney under his
      currant retainer agreement with Redux.





During
      the Company’s Chapter 11 Bankruptcy and to facilitate the Company’s
      reorganization, Redux has made corporate guarantees to one of the Company’s
      vendors to allow the Company to purchase formula to continue to produce and
      distribute certain of its products. Redux provided a corporate guarantee to
      Best
      Formulations Inc. to allow the Company to purchase certain of its products
      from
      it. Redux also provided a guarantee to the Unsecured Creditors and the Unsecured
      Creditors Committee under the Plan as part of its financial infusion and support
      of the Company reorganization.





On
      April
      14, 2003, the Company entered into a loan agreement (the “Loan Agreement”) with
      Health Holdings and Botanicals, LLC, a principal stockholder of Naturade, and
      David A. Weil, a past director and stockholder of the Company (the “Lender
      Group”), pursuant to which the Lender Group has agreed to lend the Company
      $450,000 and, subject to the discretion of the Lender Group, up to an additional
      $300,000. All advances under the Loan Agreement bear interest at the rate of
      15%
      per annum, are due on December 31, 2005, and are secured by substantially all
      of
      the Company’s assets. This due date was extended as discussed
      below.





On
      April
      14, 2004, the terms of the Loan Agreement were modified by the Joinder of Bill
      D. Stewart, our Chief Executive Officer as a member of the Lender Group, subject
      to all of the terms and conditions of the Loan Agreement, and the Lender Group
      advanced an additional $200,000, of which Bill D. Stewart advanced $100,000.
      Further, on May 3, 2004, the Lender Group advanced the Company an additional
      $100,000. Further, on August 16, 2004, advances allowed under the Loan Agreement
      were increased to a total of $950,000 and the Lender Group advanced an
      additional $200,000 to Naturade. There are no additional amounts available
      to
      advance under the Loan Agreement. Proceeds of the advances were used for working
      capital. On January 26, 2005, the terms of the Loan Agreement were modified
      to
      extend the due date to December 31, 2005. Pursuant to the recapitalization
      in
      July, 2005, Health Holdings, Stewart and Weil agreed to extend the term of
      the
      Secured Promissory Notes issued to them under the Loan Agreement from December
      31, 2005 to December 31, 2006. The Secured Promissory Notes became claims under
      the Company’s Chapter 11 bankruptcy proceedings in August 2006.





On
      August
      30, 2005, the Company entered into a consulting agreement with Quincy,
      Naturade’s then largest stockholder, whereby Quincy would provide advice to the
      Company and its affiliates regarding acquisitions, strategic planning,
      operations and financing. For its services, Quincy would receive a Consulting
      Fee of $300,000 per year payable in monthly installments. In addition, Quincy
      would receive Acquisition Fees equal to 2% of the purchase price of any
      acquisitions completed or equity capital raised during the term of the
      consulting agreement. When earned, 50% of such Acquisition Fees would be
      credited by us against future Consulting Fees. The consulting agreement was
      terminated in August 2006, pursuant to the assumption of control of the
      Company’s common stock voting rights by Redux Holdings, Inc.


63







On
      August
      16, 2006, the Company entered into a Services Agreement with One World Science,
      Inc., a subsidiary of Redux, whereby One World Science would provide various
      services including among others, advertising, sales, compliance and customer
      service to Company for an amount of the fully burdened costs of the services
      plus up to 25% of such costs. The Company continues to lease all of its
      employees from One World Science.





On
      September 1, 2006, the Company entered into a Sublease and Occupancy Agreement
      with One World Science, Inc. whereby One World Science subleases to the Company
      approximately 9,000 square feet of office space including all necessary services
      for $10,000 per month. The Company continues to use this space in Brea,
      California to house its operations.





On
      February 28, 2007, Redux purchased from Naomi Balcombe and Ageless (Balcombe
      and
      Ageless are collectively, referred to herein as the “Ageless Parties”) the
      $1,248,234 claim the Ageless parties submitted in the Naturade
      bankruptcy.





Ms.
      Muller, a director of Naturade from August 10, 2006 to April 12, 2007, has
      a
      consulting agreement, entered into in July 2006, with Redux pursuant to which
      she was issued shares of Redux common stock.





**Item
      14. Principal Accountant Fees and Services**





The
      Company incurred the following fees to BDO Seidman, LLP during fiscal year
      2005:





**Year
                ended**
              **December
                31,****2005**Audit
                Fees
            
            $
            111,440Tax-related
                Fees (Tax return preparation)
            
            
            18,585All
                other FeesAcquisition
                related fees
            
            
            92,114





The
      Company incurred the following fees to Squar, Milner, Peterson, Miranda &
Williamson LLP during fiscal year 2006:





**Year
                ended**
              **December
                31,****2006**Audit
                Fees
            
            $
            210,000Tax-related
                Fees (Tax return preparation)
            
            
            -0-Audit
                Related Fees
            
            
            10,000





The
      Audit
      Committee administers the Company’s engagement of independent auditors and
      pre-approves all audit and permissible non-audit services on a case-by-case
      basis. In approving non-audit services, the Audit Committee considers whether
      the engagement could compromise the independence of said auditors, and whether
      for reasons of efficiency or convenience it is in the best interest of the
      Company to engage its independent auditor to perform the services. The Audit
      Committee has determined that performance by BDO Seidman, LLP and Squar, Milner,
      Peterson, Miranda & Williamson LLP of the non-audit services related to the
      fees on the table above did not affect their independence.




64





The
      Audit
      Committee has not approved any non-audit services pursuant to Paragraph
      (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.




**PART
      IV**





**Item
      15. Exhibits and Financial Statements**





(a)
      See
      the Index to Financial Statements on page F-1 for a list of financial statements
      filed as part of this report.





Financial
      statement schedules have been omitted because they either are not applicable
      or
      the required information is shown in the Company’s financial statements or the
      related notes thereto.





(b)  Exhibits:
      The following is a list of exhibits filed as a part of this report:




**Exhibit****Number**
            
            **Document**3.1
            
            Certificate
                of Incorporation of Naturade, Inc., together with amendments and
                Certificates of Designation relating thereto, incorporated by reference
                to
                Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended September 30, 1997.3.2
            
            Certificate
                of Amendment to Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on December 20, 2001, and incorporated
                by
                reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed
                on January 3, 2002.3.3
            
            Certificate
                of Designation of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on December 20, 2001,
                and
                incorporated by reference to Exhibit 3.5 to the Company’s Current Report
                on Form 8-K filed on January 3, 2002.3.4
            
            Certificate
                of Amendment to Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on December 28, 2001, and incorporated
                by
                reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed
                on January 3, 2002.3.5
            
            Certificate
                of Elimination of Series A Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on January 3, 2002 incorporated
                by reference to Exhibit 3.5 to Form SB-2 (File No.
                333-127397).3.6
            
            Certificate
                of Amendment of Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on May 15, 2003 incorporated by reference
                to Exhibit 3.6 to Form SB-2 (File No. 333-127397).3.7
            
            Certificate
                of Amendment of Certificate of Designation of Series B Convertible
                Preferred Stock of Naturade, Inc., filed with the Delaware Secretary
                of
                State on May 15, 2003 incorporated by reference to Exhibit 3.7 to
                Form
                SB-2 (File No. 333-127397).3.8
            
            Certificate
                of Decrease of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005 incorporated
                by reference to Exhibit 3.8 to Form SB-2 (File No.
                333-127397).3.9
            
            Certificate
                of Designation of Series C Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005, and
                incorporated by reference to Exhibit 3.1 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.3.10
            
            Certificate
                of Elimination of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005, and
                incorporated by reference to Exhibit 3.2 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.




65




**Exhibit****Number**
            
            **Document**3.11
            
            Amended
                and Restated Bylaws of Naturade, Inc., as amended December 7, 2001,
                incorporated by reference to Exhibit 3.6 to the Company’s Current Report
                on Form 8-K filed on January 3, 2002.4.1
            
            Form
                of certificate of common stock, par value $0.0001 per share incorporated
                by reference to Exhibit 4.1 to Form SB-2 (File No.
                333-127397).4.2
            
            Form
                of certificate of Series C Convertible Preferred Stock, par value
                $0.0001
                per share, incorporated by reference to Exhibit 4.1 to the Company’s
                Current Report on Form 8-K filed on July 28, 2005.10.1*
            
            Form
                of Option Agreement for Purchase of Naturade, Inc. Common Stock for
                Directors, incorporated by reference to Exhibit M to the Company’s Annual
                Report on Form 10-K for the fiscal year ended September 30,
                1995.10.2*
            
            Naturade,
                Inc. 1998 Incentive Stock Option Plan, as amended, incorporated by
                reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q
                for the period ended March 31, 1998.10.3*
            
            Incentive
                Stock Option Plan with Bill D. Stewart, dated March 2, 1998, incorporated
                by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form
                10-Q filed for the period ended March 31,
                1998.




66




**Exhibit****Number**
            
            **Document**10.4
            
            Industrial
                Lease, dated as of December 23, 1998, between the Company and The
                Irvine
                Company, incorporated by reference to Exhibit 10.25 to the Company’s
                Quarterly Report on Form 10-Q filed for the period ended June 30,
                2000.10.5
            
            Loan
                Agreement among the Company, Health Holdings and Botanicals, LLC
                and Wald
                Holdings, LLC, dated as of August 31, 2000, incorporated by reference
                to
                Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on
                September 20, 2000.10.6*
            
            Amended
                and Restated Employment Agreement between the Company and Bill D.
                Stewart,
                dated as of January 2, 2002, incorporated by reference to Exhibit
                10.32 to
                the Company’s Current Report on Form 8-K filed January 3,
                2002.10.7
            
            Loan
                Agreement by and among the Company, Health Holdings and Botanicals,
                LLC
                and David A. Weil, dated April 14, 2003, incorporated by reference
                to
                Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended December 31, 2002.10.8*
            
            First
                Amendment to Amended and Restated Employment Agreement between the
                Company
                and Bill D. Stewart, dated March 29, 2004, incorporated by reference
                to
                Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended December 31, 2003.10.9
            
            Joinder
                to Loan Agreement of Naturade, Inc., dated as of April 13, 2003,
                by and
                among Bill D. Stewart and the lenders listed therein, incorporated
                by
                reference to Exhibit 10.46 to the Company’s Current Report on Form 8-K
                filed on April 22, 2004.10.10
            
            Secured
                Promissory Note for $100,000 by the Company payable to Bill D. Stewart,
                dated April 14, 2004, incorporated by reference to Exhibit 10.48
                to the
                Company’s Current Report on Form 8-K filed on April 22,
                2004.10.11
            
            Secured
                Promissory Note for $100,000 by the Company payable to Health Holdings
                & Botanicals, LLC, dated April 14, 2004, incorporated by reference
                to
                Exhibit 10.49 to the Company’s Current Report on Form 8-K filed on April
                22, 2004.10.12
            
            Secured
                Promissory Note for $25,000 by the Company payable to David Weil,
                dated
                May 3, 2004, incorporated by reference to Exhibit 10.50 to the Company’s
                Current Report on Form 8-K filed on May 6, 2004.10.13
            
            Secured
                Promissory Note for $75,000 by the Company payable to Health Holdings
                & Botanicals, LLC, dated May 3, 2004, incorporated by reference to
                Exhibit 10.51 to the Company’s Current Report on Form 8-K filed on May 6,
                2004.10.14*
            
            Revised
                Employment Agreement between the Company and Stephen M. Kasprisin,
                dated
                as of June 1, 2004, incorporated by reference to Exhibit 10.53 to
                the
                Company’s Current Report on Form 8-K filed on June 14,
                2004.10.15*
            
            Revised
                Employment Agreement between the Company and Marwan Zreik, dated
                as of
                June 1, 2004, incorporated by reference to Exhibit 10.54 to the Company’s
                Current Report on Form 8-K filed on June 14, 2004.10.16
            
            Asset
                Purchase Agreement, dated November 2, 2004, between the Company and
                L.O.D.C. Group, LTD, incorporated by reference to Exhibit 10.54 to
                the
                Company’s Current Report on Form 8-K filed on November 9,
                2004.10.17
            
            First
                Amendment, dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 13, 2003, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.57 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.18
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 14, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.58 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.19
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 13, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.59 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.




67




**Exhibit****Number**
            
            **Document**10.20
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                August 16, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.60 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.21
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 13, 2003, between the Company and David A. Weil, incorporated
                by
                reference to Exhibit 10.61 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.22
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 3, 2004, between the Company and David A. Weil, incorporated
                by
                reference to Exhibit 10.62 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.23
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 3, 2004, between the Company and Bill D. Stewart, incorporated
                by
                reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.24
            
            First
                Amendment to Loan Agreement, dated August 21, 2003, between the Company
                and Howard Shao incorporated by reference to Exhibit 10.24 to FormSB-2
                (File No. 333-127397).10.25
            
            Second
                Amendment to Loan Agreement, dated September 23, 2004, between the
                Company
                and Howard Shao incorporated by reference to Exhibit 10.25 to Form
                SB-2
                (File No. 333-127397).10.26
            
            Third
                Amendment to Loan Agreement, dated March 25, 2005, between the Company
                and
                Howard Shao, incorporated by reference to Exhibit 10.64 to the Company’s
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2005.10.27
            
            Master
                Investment Agreement, dated as of July 22, 2005, by and among the
                Company,
                Health Holdings and Botanicals, LLC, Westgate Equity Partners, L.P.,
                Quincy Investments Corp., Bill D. Stewart and David A. Weil, incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.28
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Health
                Holdings and Botanicals, LLC to purchase up to 10,000,000 shares
                of common
                stock at $1.00 per share, incorporated by reference to Exhibit 10.2
                to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.29
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Quincy
                Investments Corp. to purchase up to 7,000,000 shares of common stock
                at
                $0.80 per share, incorporated by reference to Exhibit 10.3 to the
                Company’s Current Report on Form 8-K filed on July 28, 2005.10.30
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Quincy
                Investments Corp. to purchase up to 7,000,000 shares of common stock
                at
                $1.02 per share, incorporated by reference to Exhibit 10.4 to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.31
            
            Registration
                Rights Agreement, dated as of July 22, 2005, by and among the Company,
                Health Holdings and Botanicals, LLC, Westgate Equity Partners, L.P.
                and
                Quincy Investments Corp., incorporated by reference to Exhibit 10.5
                to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.32
            
            Asset
                Purchase Agreement, dated as of July 22, 2005, by and among Quincy
                Investments Corp., Symco, Inc. and Symbiotics, Inc., incorporated
                by
                reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.33
            
            Assignment
                and Assumption Agreement dated, as of July 22, 2005, by and among
                the
                Company, Quincy Investments Corp., Symco, Inc. and Symbiotics, Inc.,
                incorporated by reference to Exhibit 10.7 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.10.34
            
            Asset
                Purchase Agreement, dated as of July 27, 2005, by and between Quincy
                Investments Corp. and The Ageless Foundation, Inc., incorporated
                by
                reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.35
            
            Assignment
                and Assumption Agreement, dated as of July 28, 2005, by and among
                the
                Company, Quincy Investments Corp. and The Ageless Foundation, Inc.,
                incorporated by reference to Exhibit 10.9 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.




68




**Exhibit****Number**
            
            **Document**10.36
            
            Security
                and Purchase Agreement, by and between the Company and Laurus Master
                Fund,
                Ltd., dated July 26, 2005, incorporated by reference to Exhibit 10.1
                to
                the Company’s Current Report on Form 8-K filed on August 1,
                2005.10.37
            
            Common
                Stock Purchase Option, dated as of July 26, 2005, entitling Laurus
                Master
                Fund, Ltd. to purchase up to 8,721,375 shares of common stock at
                $0.001
                per share, incorporated by reference to Exhibit 10.2 to the Company’s
                Current Report on Form 8-K filed on August 1, 2005.10.38
            
            Common
                Stock Purchase Warrant, dated as of July 26, 2005, entitling Laurus
                Master
                Fund, Ltd. to purchase up to 1,500,000 shares of common stock at
                $0.80 per
                share, incorporated by reference to Exhibit 10.3 to the Company’s Current
                Report on Form 8-K filed on August 1, 2005.10.39
            
            Secured
                Convertible Term Note in the amount of $1,000,000, by and between
                the
                Company and Laurus Master Fund, Ltd., dated July 26, 2005, incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on August 1, 2005.10.40
            
            Secured
                Revolving Note in the amount of $3,000,000, by and between the Company
                and
                Laurus Master Fund, Ltd., dated July 26, 2005, incorporated by reference
                to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on
                August 1, 2005.10.41
            
            Registration
                Rights Agreement, dated as of July 26, 2005, by and between the Company
                and Laurus Master Fund, Ltd., incorporated by reference to Exhibit
                10.6 to
                the Company’s Current Report on Form 8-K filed on August 1,
                2005.10.42
            
            Secured
                Convertible Minimum Borrowing Note in the amount of $500,000, by
                and
                between the Company and Laurus Master Fund, Ltd., dated July 26,
                2005,
                incorporated by reference to Exhibit 10.7 to the Company’s Current Report
                on Form 8-K filed on August 1, 2005.10.43
            
            Promissory
                Note in the amount of $1,775, 687.46, dated August 3, 2005, by Quincy
                Investments Corp. and the Company payable to Symbiotics, Inc.,
                incorporated by reference to Exhibit 4.1 to the Company’s Current Report
                on Form 8-K filed on August 9, 2005.10.44
            
            Promissory
                Note in the amount of $648,234.00, dated August 5, 2005, by Quincy
                Investments Corp. and the Company payable to The Ageless Foundation,
                Inc.,
                incorporated by reference to Exhibit 4.2 to the Company’s Current Report
                on Form 8-K filed on August 9, 2005.10.45
            
            Guaranty
                of Promissory Note, dated as of August 3, 2005, by Peter H. Pocklington
                for the benefit of each of Symco Inc. and Symbiotics, Inc., incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005.10.46
            
            Guaranty
                of Promissory Note, dated as of August 5, 2005, by Peter H. Pocklington
                for the benefit of The Ageless Foundation, Inc., incorporated by
                reference
                to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on
                August 9, 2005.10.47
            
            Trademark
                License Agreement, dated August 3, 2005, by and among the Company,
                Symco,
                Inc. and Symbiotics, Inc., incorporated by reference to Exhibit 10.9
                to
                the Company’s Current Report on Form 8-K filed on August 9,
                2005.10.48
            
            Consulting
                Agreement, dated August 30, 2005, between Naturade, Inc. and Quincy
                Investment Corp., incorporated by reference to Exhibit 1.01 to the
                Company’s Current Report on Form 8-K filed on September 6,
                2005.10.49
            
            Asset
                Purchase Agreement, dated as of October 7, 2005, by and between Naturade,
                Inc. and Innovation Ventures, L.L.C. d b a Living Essentials, incorporated
                by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
                filed on October 14, 2005.10.50
            
            Amendment
                and Waiver, dated November 25, 2005 between Naturade, Inc. and Laurus
                Master Fund Ltd. incorporated by reference to Exhibit 99.1 to the
                Company’s Current Report on Form 8-K filed on December 1,
                2005.10.51
            
            Overadvance
                Side Letter between Naturade, Inc. and Laurus Master Fund Ltd., dated
                November 29, 2005 incorporated by reference to Exhibit 99.2 to the
                Company’s Current Report on Form 8-K filed on December 1,
                2005.




69




**Exhibit****Number**
            
            **Document**10.52
            
            Payoff
                Agreement by and between Naturade, Inc., Peter Pocklington and David
                Brown, dated November 22, 2005 incorporated by reference to Exhibit
                99.3
                to the Company’s Current Report on Form 8-K filed on December 1,
                2005.10.53
            
            Amended
                and Restated Security and Purchase Agreement, by and between Laurus
                Master
                Fund, LTD. and Naturade, Inc., dated January 6, 2006 incorporated
                by
                reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.54
            
            Amended
                and Restated Secured Term Note in the amount of $1,650,000, by and
                between
                Laurus Master Fund, LTD. and Naturade, Inc., dated January 6, 2006
                incorporated by reference to Exhibit 10.2 to the Company’s Current Report
                on Form 8-K filed on January 16, 2006.10.55
            
            Amended
                and Restated Secured Revolving Note in the amount of $3,000,000 by
                and
                between Laurus Master Fund, LTD. and Naturade, Inc., dated January
                6, 2006
                incorporated by reference to Exhibit 10.3 to the Company’s Current Report
                on Form 8-K filed on January 16, 2006.10.56
            
            Reaffirmation
                and Ratification Agreement and Amendment by and between Laurus Master
                Fund, LTD. and Naturade, Inc., dated January 6, 2006 incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.57
            
            Amended
                and Restated Registration Rights Agreement, dated as of January 6,
                2006,
                by and between Naturade, Inc., and Laurus Master Fund, LTD incorporated
                by
                reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.58
            
            Consulting
                Agreement, dated as of August 5, 2005, by and between Naomi Balcombe
                and
                Naturade, Inc. incorporated by reference to Exhibit 10.11 to the
                Company’s
                Current Report on Form 8-K filed on August 9, 2005,10.59
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                5, 2005, by and between Naturade, Inc. and Naomi Balcombe incorporated
                by
                reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005,10.60
            
            Transition
                Agreement, entered into as of August 3, 2005, by and between Naturade,
                Inc., Symco, Inc. and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.61
            
            Consulting
                Agreement, dated as of August 3, 2005, by and between Douglas Wyatt
                and
                Naturade, Inc. Incorporated and Symbiotics, Inc. incorporated by
                reference
                to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on
                August 9, 2005,10.62
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                3, 2005, by and between Naturade, Inc. and Douglas Wyatt incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005,10.63
            
            Consulting
                Agreement, dated as of August 3, 2005, by and between David Brown
                and
                Naturade, Inc. and Symbiotics, Inc. incorporated by reference to
                Exhibit
                10.5 to the Company’s Current Report on Form 8-K filed on August 9,
                2005,10.64
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                3, 2005, by and between Naturade, Inc. and David Brown and Symbiotics,
                Inc. incorporated by reference to Exhibit 10.6 to the Company’s Current
                Report on Form 8-K filed on August 9, 2005,10.65
            
            Common
                Stock Lock Up Agreement, dated August 3, 2005, by and between Naturade,
                Inc. and Douglas Wyatt and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.66
            
            Common
                Stock Lock Up Agreement, dated August 3, 2005, by and between Naturade,
                Inc. and David Brown and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.67
            
            Fourth
                Amendment to Loan Agreement, dated as of March 24, 2006, by and between
                Naturade, Inc. and Howard Shao incorporated by reference to Exhibit
                99.1
                to the Company’s Current Report on Form 8-K filed on March 29,
                2006.




70




**Exhibit****Number**
            
            **Document**10.68*
            
            Second
                Amendment to Amended and Restated Employment Agreement, dated as
                of March
                24, 2006, by and between Naturade, Inc. and Bill D. Stewart incorporated
                by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
                filed on March 29, 2006.10.69
            
            Agreement,
                dated May 31, 2006, by and among Quincy Investments Corp., Naturade,
                Inc.,
                Symbiotics, Inc. and Symco, Incorporated, incorporated by reference
                to
                Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 31,
                200610.70
            
            Amended
                and Restated Promissory Note, dated May 31, 2006, by and among Quincy
                Investments Corp., Naturade, Inc., Symbiotics, Inc. and Symco,
                incorporated by reference to Exhibit 10.2 to the Company’s Current Report
                on Form 8-K filed on May 31, 200610.71
            
            Agreement
                dated August 10, 2006, by and among Redux Holdings, Inc. and Quincy
                Investments Corp. incorporated by reference to Exhibit 10.1 to the
                Company’s Current Report on Form 8-K filed on August 10,
                200610.72
            
            Letter
                Agreement dated August 31, 2006 between Laurus Master Fund, LLC and
                Redux
                Holdings, Inc. incorporated by reference to Exhibit 10.1 to the Company’s
                Quarterly Report on From 10-Q for the Quarterly Period ended September
                20,
                2006.10.73
            
            Treatment
                Letter dated August 31, 2006 from Redux Holdings, Inc. to Laurus
                Master
                Fund, LLC. incorporated by reference to Exhibit 10.2 to the Company’s
                Quarterly Report on From 10-Q for the Quarterly Period ended September
                20,
                2006.**10.74
            
            Services
                Agreement between One World Science, Inc. , a wholly owned subsidiary
                of
                Redux Holdings, Inc. and the Company dated August 16, 2006, requiring
                One
                World Science, Inc. to provide services to the Company, including,
                but not
                limited to, Manufacturing and Packing Coordination Services; Warehouse,
                Inventory Management and Distribution Services; Advertising Services;
                Customer Support Services; Sales Services; and Management, Financial
                and
                Legal Services.**10.75
            
            Letter
                Agreement Dated November 16, 2006 between Laurus Master Fund, LLC
                and
                Redux Holdings, Inc. to waive Default and Fees owed by the Company
                and for
                Redux Holding, Inc to acquire all of Laurus Master Fund, LLC’s Company
                Common Stock and Warrants for shares of Redux Holdings, Inc. Common
                Stock.**10.76
            
            Sublease
                and Occupancy Agreement dated September 1, 2006 between One World
                Science,
                Inc. , a wholly owned subsidiary of Redux Holdings, Inc. and the
                Company
                leasing the office space at 601 Valencia Avenue, Suite 100, Brea,
                California 92823 on a month to month basis.**10.77
            
            Letter
                Agreement Dated November 16, 2006 between Liberty Company Financial,
                LLC
                and Redux Holdings, Inc. whereby Liberty will transfer all its Company
                stock and warrants for Shares of Redux Holdings, Inc. Common
                Stock.**10.78
            
            Global
                Settlement Agreement dated February 14, 2007 between the Company,
                Redux
                Holdings, Inc., the Official Committee of Unsecured Creditors appointed
                in
                the Creditors Chapter 11 Case, Health Holdings & Botanicals, LLC and
                Doyle & Boissiere LLC settling claims of secured and unsecured
                creditors in the Company’s Chapter 11 Bankruptcy**10.79
            
            Stipulation
                between Debtor and Window Rock Enterprises, Inc. Re Resolution of
                Objections to Confirmation of Debtors Fourth Amended Chapter 11 Plan
                of
                Reorganization and Order thereon Dated February 28, 2007 resolving
                all
                disputed claims between the Company and Window Rock Enterprises,
                Inc.**10.80
            
            Signature
                page for Stipulation of Debtor and Window Rock Enterprises set forth
                in
                Exhibit 10.80**10.81
            
            Assignment
                of Claim Agreement, Dated February 28, 2007 by Ageless Foundation,
                Inc.
                and Naomi Balcombe, to Redux Holdings, Inc.14.1
            
            Code
                of Financial Ethics incorporated by reference to Exhibit 14 to the
                Company’s Annual Report on Form 10-K for the fiscal year ended December
                31, 2003**14.2
            
            Charter
                of Audit Committee adopted by the Company Board of Directors on March
                23,
                2007.**14.3
            
            Charter
                of Compensation and Governance Committee adopted by the Company Board
                of
                Directors on March 23, 2007.**31.1
            
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**31.2
            
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**32.1
            
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002**32.2
            
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002




*  Management
      contracts or compensatory plan or arrangement.





**  Filed
      herewith.




71




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) 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.




NATURADE,
                INC.Date:
              April 16, 2007
            
            /s/
              Richard MunroRichard
                Munro,
              Chief
                Executive Officer




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      duly signed below by the following persons on behalf of the registrant and
      in
      the capacities and dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/Richard
                L. Munro
            
            Director
                and Chief Executive Officer
            
            April
                16, 2007Richard
                Munro
            
            (Principal
                Executive Officer)/s/
                Dee S. Kelly
            
            Chief
                Financial Officer
            
            April
                16, 2007Dee
                S. Kelly
            
            (Principal
                Accounting Officer)/s/
                Adam M. Michelin
            
            Director,
                Chairman of the Board
            
            April
                16, 2007Adam
                Michelin/s/
                Stephen L. Scott
            
            Director
            
            April
                16, 2007Stephen
                L. Scott
            
            [Chairman
                of the Audit Committee]/s/
                Gary C. Cannon
            
            Director
                and Secretary
            
            April
                16, 2007Gary
                C. Cannon





72




**INDEX
      OF FINANCIAL STATEMENTS**





Reports
                of Independent Registered Public Accounting Firms
            
            F-1Balance
                Sheets
            
            F-3Statements
                of Operations
            
            F-4Statements
                of Stockholders’ Deficit
            
            F-5Statements
                of Cash Flows
            
            F-6Notes
                to Financial Statements
            
            F-7










**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders


Naturade,
      Inc


Brea,
      California





We
      have
      audited the accompanying balance sheet of Naturade, Inc. (the “Company”) as of
      December 31, 2006 and the related statements of operations, stockholders’
deficit, and cash flows for the year then ended. These financial statements
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements based on our
      audit.





We
      conducted our audit in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included consideration of internal controls
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audit provides a reasonable basis for our
      opinion.





In
      our
      opinion, such financial statements present fairly, in all material respects,
      the
      financial position of the Company as of December 31, 2006 and the results of
      its
      operations and its cash flows for the year then ended, in conformity with
      accounting principles generally accepted in the United States of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company’s recurring losses from operations, net working capital
      deficit and stockholders’ capital deficiency, and Chapter 11 bankruptcy filing
      raise substantial doubt about its ability to continue as a going concern.
      Management’s plans concerning these matters are also described in Note 1. The
      financial statements do not include any adjustments that might result from
      the
      outcome of these uncertainties.





/s/
      Squar, Milner, Peterson, Miranda & Williamson, LLP




Newport
      Beach, California


March
      30,
      2007


F-1


**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors and Stockholders


Naturade,
      Inc


Brea,
      California





We
      have
      audited the accompanying balance sheet of Naturade, Inc. (the “Company”) as of
      December 31, 2005 and the related statements of operations, stockholders’
deficit, and cash flows for each of the two years in the periods ended December
      31, 2005. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with auditing standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audits included consideration of internal controls
      over
      financial reporting as a basis for designing audit procedures that are
      appropriate in the circumstances, but not for expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly, we express no such opinion. An audit also includes examining,
      on a
      test basis, evidence supporting the amounts and disclosures in the financial
      statements, assessing the accounting principles used and significant estimates
      made by management, as well as evaluating the overall financial statement
      presentation. We believe that our audits provide a reasonable basis for our
      opinion.





In
      our
      opinion, such financial statements present fairly, in all material respects,
      the
      financial position of the Company as of December 31, 2005 and the results of
      its
      operations and its cash flows for each of the two years in the periods ended
      December 31, 2005, in conformity with accounting principles generally accepted
      in the United States of America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company’s recurring losses from operations, net working capital
      deficit and stockholders’ capital deficiency raise substantial doubt about its
      ability to continue as a going concern. Management’s plans concerning these
      matters are also described in Note 1. The financial statements do not include
      any adjustments that might result from the outcome of this
      uncertainty.





/s/
      BDO
      Seidman, LLP





Los
      Angeles, California


March
      31,
      2006





F-2


**NATURADE,
      INC.**


**(DEBTOR
      IN POSSESSION)**


**Balance
      Sheets**


**As
      of December 31, 2006 and December 31, 2005**





**December
                31,****2006**
            
            **December
                31,****2005**ASSETSCurrent
                assets:Cash
                and cash equivalents
            
            $
            80,713
            
            $
            95,398Accounts
                receivable, net
            
            
            838,381
            
            
            2,162,230Inventories,
                net
            
            
            258,981
            
            
            896,173Prepaid
                expenses and other current assets
            
            
            56,101
            
            
            229,394Total
                current assets
            
            
            1,234,176
            
            
            3,383,195Property
                and equipment, net
            
            
            51,547
            
            
            137,203Goodwill
            
            
            -
            
            
            2,653,572Customer
                lists, trademarks and formulations, net
            
            
            419,266
            
            
            2,311,111Deferred
                financing fees, net
            
            
            1,239,900
            
            
            3,461,943Other
                assets
            
            
            3,664
            
            
            42,002Total
                assets
            
            $
            2,948,553
            
            $
            11,989,026LIABILITIES,
                REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’
                DEFICITCurrent
                liabilities:Accounts
                payable
            
            $
            777,307
            
            $
            2,904,019Accrued
                expenses
            
            
            499,428
            
            
            779,234Current
                portion of notes payable to related parties
            
            
            -
            
            
            1,250,000Revolving
                credit
            
            
            1,276,570
            
            
            2,719,404Current
                portion of long-term debt
            
            
            409,095
            
            
            2,323,079Total
                current liabilities
            
            
            2,962,400
            
            
            9,975,736Long-term
                debt, less current maturities
            
            
            2,015,905
            
            
            1,388,897Warrant
                derivative liability (27,869,118 Shares)
            
            
            -
            
            
            1,855,181Total
                liabilities not subject to compromise
            
            
            4,978,305
            
            
            13,219,814Liabilities
                subject to compromise (Note 1)
            
            
            9,344,422
            
            
            -Total
                Liabilities
            
            
            14,322,727
            
            
            13,219,814COMMITMENTS
                AND CONTINGENCIESREDEEMABLE
                CONVERTIBLE PREFERRED STOCKRedeemable
                convertible preferred stock, Series C including accumulated preferred
                stock dividends of $3,910,000 at December 31, 2006 and $1,150,000
                at
                December 31, 2005; par value $0.0001 per share: authorized, 50,000,000
                shares; issued and outstanding, 21,000,000 shares at December 31,
                2006 and
                December 31, 2005 ($21,000,000 redemption value)
            
            
            5,590,000
            
            
            2,830,000STOCKHOLDERS’
                DEFICIT:Common
                stock, par value $0.0001 per share; authorized, 100,000,000 shares;
                issued
                and outstanding, 43,332,733 at December 31, 2006 and 39,651,964 at
                December 31, 2005
            
            
            4,334
            
            
            3,965Non-voting
                common stock, par value $0.0001 per share; authorized, 2,000,000
                shares;
                issued and outstanding, 117,284 at December 31, 2006 and
                2005
            
            
            12
            
            
            12Additional
                paid-in capital
            
            
            22,990,945
            
            
            21,883,842Accumulated
                deficit
            
            
            (39,959,465
            )
            
            (25,948,607
            )Total
                stockholders’ deficit
            
            
            (16,964,174
            )
            
            (4,060,788
            )Total
                liabilities, redeemable convertible preferred stock and stockholders’
                deficit
            
            $
            2,948,553
            
            $
            11,989,026




See
      accompanying notes to financial
      statements.


F-3


**NATURADE,
      INC.**


**(DEBTOR
      IN POSSESSION)**


**Statements
      of Operations for the Years Ended December 31, 2006, 2005 and
      2004**





**Year****Ended**
              **December
                31, 2006**
            
            **Year****Ended**
              **December
                31, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**Net
                sales
            
            $
            9,432,019
            
            $
            12,756,086
            
            $
            14,141,481Cost
                of sales
            
            
            6,116,152
            
            
            6,505,437
            
            
            7,802,802Gross
                profit
            
            
            3,315,867
            
            
            6,250,649
            
            
            6,338,679Costs
                and expenses:Selling,
                general and administrative expenses
            
            
            7,542,707
            
            
            7,966,179
            
            
            7,149,935Impairment
                of goodwill
            
            
            2,694,357
            
            
            —
            
            
            —Impairment
                of customer lists
            
            
            1,049,336
            
            
            —
            
            
            —Reorganization
                expense - professional fees
            
            
            410,306
            
            
            —
            
            
            —Depreciation
            
            
            56,723
            
            
            63,987
            
            
            66,995Amortization
            
            
            835,681
            
            
            392,579
            
            
            —Total
                operating costs and expenses
            
            
            12,589,110
            
            
            8,422,745
            
            
            7,216,930Operating
                loss
            
            
            (9,273,243
            )
            
            (2,172,096
            )
            
            (878,251
            )Other
                expense (income):Gain
                on sale of brand
            
            
            —
            
            
            —
            
            
            (1,055,647
            )Gain
                on expiration of warrant
            
            
            —
            
            
            —
            
            
            (500,000
            )Change
                in derivative warrant liability
            
            
            (1,285,797
            )
            
            —
            
            
            —Loss
                on sale of assets
            
            
            59,257
            
            
            —
            
            
            —Other
                expense (income)
            
            
            12,200
            
            
            5,785
            
            
            2,857Total
                other expense ( income)
            
            
            (1,214,340
            )
            
            5,785
            
            
            (1,552,790
            )Interest
                expense:Interest
            
            
            726,756
            
            
            499,908
            
            
            305,265Amortization
                of deferred financing fees
            
            
            2,464,399
            
            
            1,069,666
            
            
            —Total
                interest expense
            
            
            3,191,155
            
            
            1,569,574
            
            
            305,265Income
                (loss) before provision for income taxes
            
            
            (11,250,058
            )
            
            (3,747,455
            )
            
            369,274Provision
                for income taxes
            
            
            800
            
            
            800
            
            
            800Net
                income (loss)
            
            $
            (11,250,858
            )
            $
            (3,748,255
            )
            $
            368,474Less:Preferred
                stock dividends-Series B
            
            $
            —
            
            $
            (157,318
            )
            $
            (252,670
            )Deemed
                dividend-Series B
            
            
            —
            
            
            1,109,127
            
            
            (285,714
            )Deemed
                dividend-Series C
            
            
            (2,760,000
            )
            
            (1,150,000
            )
            
            —Net
                loss attributable to common shareholders
            
            $
            (14,010,858
            )
            $
            (3,946,446
            )
            $
            (169,910
            )Basic
                and diluted net loss per share
            
            $
            (0.33
            )
            $
            (0.09
            )
            $
            (0.00
            )Weighted
                Average Number of Shares used in Computation of Basic and Diluted
                Net Loss
                per share
            
            
            42,619,350
            
            
            41,968,360
            
            
            44,651,170




See
      accompanying notes to financial
      statements.




F-4





**NATURADE,
      INC.**


**(DEBTOR
      IN POSSESSION)**


**Statements
      of Stockholders’ Deficit for the Years Ended December 31, 2006,
      2005**  **and
      2004**





**Common**
            
            **Common
                (Non-Voting)**
            
            **Additional**
              **Paid-In**
            
            **(Accumulated****Shares**
            
            **Amount**
            
            **Shares**
            
            **Amount**
            
            **Capital**
            
            **Deficit)**
            
            **Total**BALANCE,
                DECEMBER 31, 2003
            
            
            44,533,886
            
            $
            4,453
            
            
            117,284
            
            $
            12
            
            $
            18,987,458
            
            
            ($21,853,561
            )
            
            ($2,861,638
            )Preferred
                stock dividends
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (252,670
            )
            
            (252,670
            )Accretion
                of preferred stock
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (285,714
            )
            
            (285,714
            )Net
                income for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            368,474
            
            
            368,474BALANCE,
                DECEMBER 31, 2004
            
            
            44,533,886
            
            
            4,453
            
            
            117,284
            
            
            12
            
            
            18,987,458
            
            
            (22,023,471
            )
            
            (3,031,548
            )Recapitalization
                (Note 5)Conversion
                of common stock to Series C Preferred Stock
            
            
            (41,054,267
            )
            
            (4,105
            )
            
            
            
            
            
            
            
            (1,103,855
            )
            
            —
            
            
            (1,107,960
            )Conversion
                of Series B Preferred StockSeries
                C Preferred Stock
            
            
            30,972,345
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,297,104
            
            
            1,297,104Issuance
                of common stock
            
            
            
            
            
            3,097
            
            
            
            
            
            
            
            
            2,574,651
            
            
            
            
            
            2,577,748Stock
                issued to acquire companies (Note 8)Stock
                issued to sellers
            
            
            4,800,000
            
            
            480
            
            
            
            
            
            
            
            
            1,325,628
            
            
            
            
            
            1,326,108Stock
                issued to settle consulting agreement
            
            
            400,000
            
            
            40
            
            
            
            
            
            
            
            
            99,960
            
            
            
            
            
            100,000Preferred
                stock dividends-Series B
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (157,318
            )
            
            (157,318
            )Accretion
                of preferred stock-Series B
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (166,667
            )
            
            (166,667
            )Accretion
                of preferred stock-Series C
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,150,000
            )
            
            (1,150,000
            )Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,748,255
            )
            
            (3,748,255
            )BALANCE,
                DECEMBER 31, 2005
            
            
            39,651,964
            
            
            3,965
            
            
            117,284
            
            
            12
            
            
            21,883,842
            
            
            (25,948,607
            )
            
            (4,060,788
            )Cancellation
                of warrant derivative liability
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            569,384
            
            
            —
            
            
            569,384Stock
                based compensation
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            97,510
            
            
            
            
            
            97,510Stock
                issued to settle consulting agreement
            
            
            1,130,769
            
            
            114
            
            
            
            
            
            
            
            
            112,964
            
            
            
            
            
            113,078Stock
                issued to restructure debt agreement
            
            
            2,550,000
            
            
            255
            
            
            
            
            
            
            
            
            327,245
            
            
            
            
            
            327,500Accretion
                of preferred stock-Series C
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,760,000
            )
            
            (2,760,000
            )Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (11,250,858
            )
            
            (11,250,858
            )BALANCE,
                DECEMBER 31, 2006
            
            
            43,332,733
            
            $
            4,334
            
            
            117,284
            
            $
            12
            
            $
            22,990,945
            
            
            ($39,959,465
            )
            
            ($16,964,174
            )





See
      accompanying notes to financial
      statements.


F-5


**NATURADE,
      INC.**


**(DEBTOR
      IN POSSESSION)**


**Statements
      of Cash Flows for the Years Ended December 31, 2006, 2005 and
      2004**





**Year****Ended**
              **December
                31, 2006**
            
            **Year****Ended**
              **December
                31, 2005**
            
            **Year
                Ended****December
                31, 2004**Cash
                flows from operating activities:Net
                income (loss)
            
            $
            (11,250,858
            )
            $
            (3,748,255
            )
            $
            368,474Adjustments
                to reconcile net income (loss) to net cash provided by (used in)
                operating
                activities:Depreciation
                and amortization
            
            
            892,404
            
            
            456,566
            
            
            66,995Change
                in warrant liability
            
            
            (1,285,797
            )
            
            —
            
            
            —Amortization
                of loan discounts and deferred financing fees
            
            
            2,464,399
            
            
            1,069,666
            
            
            —Loss
                on retirement of property and equipment
            
            
            59,257
            
            
            —
            
            
            —Provision
                for excess and obsolete inventories
            
            
            476,738
            
            
            140,975
            
            
            59,197Issuance
                of common stock for consulting
            
            
            113,077
            
            
            —
            
            
            —Stock
                based compensation
            
            
            97,510
            
            
            —
            
            
            —Impairment
                of goodwill
            
            
            2,694,357
            
            
            —
            
            
            —Impairment
                of customer lists
            
            
            1,049,336
            
            
            —
            
            
            —Gain
                on expiration of warrant
            
            
            —
            
            
            —
            
            
            (500,000
            )Gain
                on sale of brand
            
            
            —
            
            
            —
            
            
            (1,055,647
            )Changes
                in operating assets and liabilities:Accounts
                receivable
            
            
            1,323,849
            
            
            324,921
            
            
            171,963Inventories
            
            
            160,454
            
            
            926,546
            
            
            (614,284
            )Prepaid
                expenses and other current assets
            
            
            173,293
            
            
            35,726
            
            
            (115,307
            )Other
                assets
            
            
            (2,188
            )
            
            —
            
            
            300Accounts
                payable and accrued expenses
            
            
            3,682,317
            
            
            (215,274
            )
            
            394,366Net
                cash provided by (used in) operating activities
            
            
            648,148
            
            
            (1,009,129
            )
            
            (1,223,943
            )Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (23,226
            )
            
            (6,300
            )
            
            —Acquisitions
            
            
            —
            
            
            (558,695
            )
            
            —Proceeds
                from sale of brand
            
            
            —
            
            
            —
            
            
            1,228,420Net
                cash provided by (used in) investing activities
            
            
            (23,226
            )
            
            (564,995
            )
            
            1,228,420Cash
                flows from financing activities:Net
                borrowings (repayments) under line of credit
            
            
            —
            
            
            (1,875,899
            )
            
            (355,881
            )Net
                borrowings (repayments) under the revolving credit line
            
            
            (1,189,526
            )
            
            2,719,404
            
            
            —Proceeds
                from issuance of debt to related parties
            
            
            483,000
            
            
            300,000
            
            
            500,000Payments
                of long-term debt
            
            
            (47,000
            )
            
            (130,517
            )
            
            (82,125
            )Deferred
                financing fees
            
            
            (34,856
            )
            
            (554,039
            )
            
            —Net
                Proceeds (repayment) from term loan
            
            
            148,775
            
            
            1,000,000
            
            
            —Net
                cash provided by (used in) financing activities
            
            
            (639,607
            )
            
            1,458,949
            
            
            61,994Net
                increase (decrease) in cash and cash equivalents
            
            
            (14,685
            )
            
            (115,175
            )
            
            66,471Cash
                and cash equivalents, beginning of period
            
            
            95,398
            
            
            210,573
            
            
            144,102Cash
                and cash equivalents, end of period
            
            $
            80,713
            
            $
            95,398
            
            $
            210,573**Supplemental
                Disclosures of Cash Flow Information**Cash
                paid during the year for:Interest
            
            $
            303,991
            
            $
            262,008
            
            $
            177,876Income
                taxes
            
            $
            800
            
            $
            800
            
            $
            800Non-cash
                financing transactions:Preferred
                stock dividend accrued- Series B
            
            $
            —
            
            $
            157,318
            
            $
            252,670Deemed
                dividend -Series B
            
            $
            —
            
            $
            (1,109,127
            )
            $
            285,714Deemed
                dividend -Series C
            
            $
            2,760,000
            
            $
            1,150,000
            
            $
            —Write
                off of warrant liability
            
            $
            569,384
            
            $
            —
            
            $
            —Stock
                issued in settlement of debt
            
            $
            120,000
            
            $
            —
            
            $
            —Acquired
                business non-cash consideration (note 8):Fair
                value of common stock issued
            
            $
            —
            
            $
            3,903,896
            
            $
            —Fair
                value of preferred stock
            
            $
            —
            
            $
            336,000
            
            $
            —Notes
                payable
            
            $
            —
            
            $
            2,724,539
            
            $
            —




See
      accompanying notes to financial
      statements.   F-6




**NATURADE,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**YEARS
      ENDED DECEMBER 31, 2006, 2005 AND 2004**





**1.**  **ORGANIZATION
      AND SIGNIFICANT ACCOUNTING POLICIES**





***Organization
      -*** Naturade,
      Inc., a Delaware corporation (the “Company” or “Naturade”), is a branded
      nutraceuticals marketing company focused on high growth, innovative natural
      products that positioned to health conscious consumers. The Company’s products
      include low carbohydrate, high protein powders, nutritional supplements, joint
      health and arthritis pain relief products, and soy protein based powders. Its
      products are sold to the health food and mass market channels through
      distributors and directly to retailers in the United States and
      overseas.





***Basis
      of Presentation-*** The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States of America. The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States requires management to make estimates
      and assumptions that affect the amounts reported in the financial statements
      and
      accompanying notes. Actual results could differ from those
      estimates.





The
      Company has filed for Reorganization under Chapter 11 of the United States
      Bankruptcy Code. The accompanying financial statements do not purport to show
      or
      provide for the consequences of the bankruptcy proceedings. In particular,
      such
      financial statements do not purport to show (a) as to assets, their realizable
      value on a liquidation basis or their availability to satisfy liabilities;
      (b)
      as to pre-petition liabilities, the amounts that may allowed for claims or
      contingencies, or the status of priority thereof; (c) as to shareholder
      accounts, the effect of any changes that may be made in the capitalization
      of
      the Company; or (d) as to operations, the effect of any changes that may be
      made
      in its business.





On
      September 25, 2006, the Company’s Common Stock was de-listed from the
      Over-the-Counter Bulletin Board and now trades on the “Pink Sheets.” The Company
      intends on filing a 15c 2-11 statement with NASD in Spring 2007 to try to regain
      listing on the over-the-counter Bulletin Board.





***Chapter
      11 Bankruptcy Proceedings*** **** ***-*** On
      August
      31, 2006 (the “ Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Bankruptcy”) under Chapter 11 of
      the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
      Bankruptcy Court for the Central District of California (the “Bankruptcy
      Court”). Since the Petition Date, the Company has conducted activities as a
      debtor-in-possession under the Bankruptcy Code. A copy of the Company’s Plan of
      Reorganization may be accessed at www.winthropcouchot.com/client_files.php under
      client documents - Naturade.





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”)
      applicable to a going concern, which assume that assets will be realized and
      liabilities are discharged in the normal course of business. As a result of
      the Chapter 11 Bankruptcy such realization of assets and liquidation of
      liabilities is subject to uncertainty. A substantial portion of the Company's
      liabilities as of the Petition Date are subject to compromise or other treatment
      in the Chapter 11 Bankruptcy. For financial reporting purposes, those unsecured
      liabilities and obligations whose disposition is dependent on the outcome of
      the
      Chapter 11 Bankruptcy have been segregated and classified as liabilities subject
      to compromise in the December 31, 2006 balance sheet. Generally, actions to
      enforce or otherwise effect repayment of all pre-Chapter 11 liabilities and
      pending litigation against the Company are stayed while the Company continues
      as
      a debtor-in-possession during bankruptcy proceedings. Schedules have been filed
      by the Company with the Bankruptcy Court setting forth the assets and
      liabilities of the Company as of the Petition Date as reflected in the Company's
      accounting records. Differences between amounts reflected in such schedules
      and
      claims filed by creditors will be investigated and either amicably resolved
      or
      adjudicated by the Bankruptcy Court. The ultimate amount of and settlement
      terms
      for such liabilities are not presently determinable.





Financial
      accounting and reporting during a Chapter 11 Bankruptcy for an entity with
      the
      expectation of reorganizing is prescribed in Statement of Position No. 90-7,
      “Financial Reporting by Entities in Reorganization under the Bankruptcy Code”
(“SOP 90-7”). The Company has an expectation of reorganizing under the
      Bankruptcy Code. Accordingly, unsecured pre-petition liabilities, which may
      be
      subject to settlement, are classified as liabilities subject to compromise
      in the December 31, 2006 balance sheet. In addition, the Company has reported
      all transactions (other than interest expense) directly related to the Chapter
      11 Bankruptcy as reorganization items in its statement of operations for the
      year ended December 31, 2006. SOP 90-7's definition of reorganization items
      excludes (1) interest expense and (2) transactions required to be reported
      as
      discontinued operations or extraordinary items in conformity with GAAP. However,
      the accompanying financial statements do not include any adjustments that may
      be
      required in connection with restructuring the Company under Chapter 11 of the
      Bankruptcy Code.




F-7




On
      September 25, 2006, The Company's common stock was de-listed from the
      over-the-counter Bulletin Board and now trades on the "Pink Sheets." The Company
      intends on filing a 15c 2-11 statement with NASD in Spring 2007 to try to regain
      listing on the over-the-counter Bulletin Board.





Since
      September 2006, the Company has sought consensual agreement with its secured
      lender, other secured parties and the committee of unsecured creditors. The
      parties reached consensual agreement on the Company’s Fifth Amended Plan of
      Reorganization (the “Plan”) which was heard in Bankruptcy Court on February 28
      2007 and approved. The Company expects its Plan to become effective in April
      2007 (the “Effective Date”), based upon representations the Company has received
      from Redux Holdings Inc. (“Redux”), the Company’s controlling shareholder, who
      has agreed to provide the funding required under its Plan. A copy of the
      Company’s Plan of Reorganization may be accessed at www.winthropcouchot.com/client_files.php under
      client documents - Naturade.





The
      Company’s plan of reorganization under Chapter 11 was approved on February 28,
      2007, by the United States Bankruptcy Court, Central District of California,
      Santa Ana Division (Case No. SA 06-11493 RK). The reorganization plan received
      virtually unanimous support from the Company’s creditors and shareholders, as
      well as strong support from the Company’s lenders and the Company’s Unsecured
      Creditors Committee. The Company expects to emerge from Chapter 11 before the
      end of April 2007 and will remain a fully reporting publicly traded company.





The
      Company’s reorganization plan provides for a recapitalization of the Company
      with the Company’s controlling shareholder, Redux Holdings, Inc. (RDXH.PK)
      providing a substantial cash infusion to meet the Company’s future working
      capital needs. In addition to a comprehensive debt restructuring, the
      reorganization plan features an equity allocation and the plan allows for the
      retention of an equity interest by existing shareholders in the company.





The
      Company’s reorganization plan as approved by the court is expected to become
      effective in April 2007. On the Effective Date, all Company Series C
      Preferred shares, along with their voting and control rights, all options,
      all
      warrants, and all registration rights, will be cancelled as required under
      the
      Plan. The Company, as required by the Plan, will then issue Redux enough shares
      of restricted common stock to give Redux a 95% equity and voting interest in
      the
      Company. All remaining shareholders will have a total of 5% equity interest
      in
      the Company.





***Going
      Concern -*** The
      Company is currently operating under Chapter 11 of the U.S. Bankruptcy Code
      and
      continuation as a going concern is contingent upon, among other things, the
      Company’s ability to (i) obtain confirmation of a plan of reorganization under
      the U.S. Bankruptcy Code; (ii) return to profitability; (iii) generate
      sufficient cash flows from operations; and (v) obtain financing sources to
      meet
      the Company’s future obligations. These matters create substantial doubt about
      the Company’s ability to continue as a going concern. The financial statements
      do not reflect any adjustments relating to the recoverability and classification
      of recorded asset amounts or the amounts and classifications of liabilities
      that
      might result from the outcome of these uncertainties. Additionally, a plan
      of
      reorganization could materially change amounts reported in the financial
      statements, which do no give effect to all adjustments of the carrying value
      of
      assets and liabilities that are necessary as a consequence of reorganization
      under Chapter 11 bankruptcy. The Company’s continuation as a going concern will
      depend on refinancing from Redux pursuant to the approved Plan of
      Reorganization, continuing tight management of cash and profitable operations
      and continuing to obtain favorable credit terms from vendors. Management expects
      that vendors will begin to extend further credit after the Company emerges
      from
      bankruptcy with refinancing, and that the company will return to normal levels
      of customer order fill rates in the second quarter 2007 and be profitable with
      a
      lower overhead structure. Additionally, Company management has taken cost
      containment measures to reduce operating costs including reduction of monthly
      facility lease expense from approximately $540,000 per year to approximately
      $120,000 per year, and reduction in staffing resulting in an annual cost
      reduction of more than $1,000,000. The Company’s court approved plan of
      reorganization, expected to become effective in April 2007, provides for a
      recapitalization of the Company with the Company’s controlling shareholder,
      Redux Holdings, Inc. (RDXH.PK) providing a substantial cash infusion to meet
      the
      Company’s future working capital needs and allow the Company’s continuation as a
      going concern.




F-8


As
      of December 31, 2005 and for fiscal years 2005
      and 2004, the accompanying financial statements have been prepared on a
      going-concern basis, which contemplates the realization of assets and the
      satisfaction of liabilities in the normal course of business. At December 31,
      2005, the Company has an accumulated deficit of $25,948,607, a net working
      capital of $6,592,541, a stockholders' capital deficiency of $4,060,779 and
      has
      incurred recurring net losses. These factors, among others, raise substantial
      doubt about the Company's ability to continue as a going
      concern.




The
      financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts
      or
      the amounts and classification of liabilities that might be necessary should
      the
      Company be unable to continue as a going concern. The Company's continuation
      as
      a going concern depends on its ability to generate sufficient cash flow to
      meet
      its obligations on a timely basis, to comply with the terms and covenants of
      its
      financing agreements, to obtain additional financing or refinancing as may
      be
      required and ultimately to attain successful operations.




***Change
      in Control -*** On
      August
      10, 2006, Quincy Investments Corp. (“Quincy”), the principal shareholder of the
      Company, subsequent to executing a Letter of Intent of July 26, 2006 with Redux
      to transfer to Redux, Quincy’s controlling interest in Naturade, as reported on
      the Company’s Form 8-K filed with the Securities and Exchange Commission on
      August 2, 2006, entered into the Quincy Transfer Agreement (“the Definitive
      Agreement”) pursuant to which:





·
            Quincy
                transferred 28 million shares of the Company’s common stock ,4.2 million
                shares of Series C Convertible Preferred Stock (“Series C”) and 14 million
                warrants to purchase common stock to
                Redux;


·
              Redux
                  agreed to make cash contributions up to $500,000, at its sole discretion,
                  to the Company;


·
              Redux
                  and Quincy agreed to attempt to complete a Definitive Agreement
                  by August
                  31, 2006.


·
              Quincy
                  withheld 3,372,345 shares of Common in violation of the Quincy
                  Transfer
                  Agreement.





Before
      the transactions described above, Quincy owned 31,372,345 shares of the
      Company’s common stock, or 72.4% of the voting power of the Company’s common
      stock. Quincy also owned 4.2 million shares of Series C. which when added to
      Quincy’s common stock holdings, represented 55.3% of the combined voting power
      of the Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the holders of the Company’s common stock (on an
      as-converted basis) on all matters, including the election of directors,
      presented to the stockholders. As a result, Quincy had the power to elect a
      majority of the Board of Directors and to determine the outcome of any matter
      submitted to the stockholders, subject to the rights of Health Holdings and
      Botanicals, LLC holders of 12,600,000 shares of Series C who have the right
      to
      elect one director and to approve certain transactions.





The
      Definitive Agreement contemplated under the Letter of Intent was not been
      entered into and the Letter of Intent by its terms has expired. Although Quincy
      has threatened litigation against Redux related to the absence of a Definitive
      Agreement no lawsuit has been commenced. In contrast, the Company has initiated
      a lawsuit against Quincy and Peter Pocklington. See Note 12, Legal Proceedings.




On
      August
      31, 2006 Laurus entered into an agreement with Redux, the principal shareholder
      of the Company, (the “Redux Agreement”) pursuant to which:




·
            Laurus
                Master Fund, Ltd. (“Laurus”) transferred 1,050,000 shares of the Company’s
                common stock to Redux;


·
              Laurus
                  transferred warrants to purchase 1,500,000 shares of the Company’s common
                  stock at $0.80 per share to Redux which were cancelled upon
                  transfer;


·
              Laurus
                  transferred an option to purchase 8,721,375 shares of the Company’s common
                  stock at $0.001 per share to Redux (“Laurus Options”);
                  and


·
              Redux
                  issued 574,787 shares of Redux common stock to Laurus, subject
                  to certain
                  provisions for anti-dilution and piggy back registration
                  rights.




On
      November 16, 2006, Redux acquired 500,000 shares of the Company’s common stock
      and warrants to purchase 3,647,743 shares of common stock from Liberty Company
      Financial, LLC (“Liberty”) and in exchange issued to Liberty 28,116 shares of
      Redux common stock.




On
      April
      13, 2007, Redux issued Laurus a cashless warrant to purchase up to 700,000
      shares of Redux common stock, in consideration of Laurus waving all default
      interest of the Company’s accrued default interest and fees.




As
      a
      result of the transactions described above, Redux controls voting rights of
      29,550,000 shares of the Company’s common stock and 4,200,000 shares of Series
      C, or 68.2% of the voting power of the Company’s common stock, 20.0% of the
      voting power of the Series C, and 52.5% of the combined voting power of the
      Company’s common stock and the Series C. The holders of the Series C are
      entitled to vote along with the Company’s common stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Redux has the power to elect a majority of the Board
      of Directors and to determine the outcome of any matter submitted to the
      stockholders, subject to the rights of the holders of the Series C described
      above. If the Laurus Options are included, these percentages increase.




F-9




On
      the
      Effective Date, all Company Series C Preferred shares, along with their voting
      and control rights, all options, all warrants, and all registration rights,
      will
      be cancelled as required under the Plan. The Company, as required by the Plan,
      will then issue Redux enough shares of common stock to give Redux a 95% equity
      and voting interest in the Company. All remaining shareholders will have a
      total
      of 5% equity interest in the Company.




***Liabilities
      Subject to Compromise -*** Under
      Chapter 11 of the U.S. Bankruptcy Code, certain claims against the Company
      in
      existence prior to the filing of the petition for relief under the federal
      bankruptcy laws are stayed while the Company continues business operations
      as a
      debtor-in-possession. These estimated claims are reflected in the December
      31,
      2006 Balance Sheet as Liabilities Subject to Compromise and are summarized
      in
      the table below. Such claims remain subject to future adjustments. Adjustments
      may result from actions of the bankruptcy court, negotiations, rejection or
      acceptance of executory contracts, determination of value of any collateral
      securing claims, proofs of claim or other events.





The
      Company has received approval from the bankruptcy court to pay or otherwise
      honor certain of its pre-petition obligations, including approval to pay payroll
      and other business related expenses of ongoing employees in the ordinary course
      of business. Accordingly, these pre-petition items have been excluded from
      Liabilities Subject to Compromise as of December 31, 2006.





The
      liabilities subject to compromise consisted of the following items:




December
                31, 2006Accounts
                payable
            
            $
            5,155,049Notes
                payable for acquisitions
            
            
            2,663,206Accrued
                Interest
            
            
            695,343Notes
                payable to related parties
            
            
            658,381Accrued
                commissions
            
            
            172,443Total
                liabilities subject to compromise
            
            $
            9,344,422





***Reorganization
      Items*** ***-*** Reorganization items are presented separately in the Statement of Operations
      and
      represent items of expense that are realized or incurred by the Company because
      it is in reorganization under Chapter 11 of the U.S. Bankruptcy Code.




***Cash
      and Cash Equivalents -*** The
      Company considers all highly liquid investments with maturities of three months
      or less when purchased to be cash equivalents.





***Use
      of Estimates and Assumptions -*** The
      preparation of financial statements in conformity with generally accepted
      accounting principles requires management to make estimates and assumptions
      that
      affect the reported amounts of assets and liabilities and disclosure of
      contingent assets and liabilities at the date of the financial statements and
      the reported amounts of revenues and expenses during the reporting period.
      Actual results could differ materially from those estimates.





***Concentration
      of Credit Risk -*** Financial
      instruments that subject Naturade to concentration of credit risk consist
      primarily of cash and accounts receivable. The Company has historically had
      sales to four major customers in excess of 10% of the Company’s total net sales,
      however the Company does not consider this a significant risk based on the
      strong financial resources of these well established companies. Credit risk
      with
      respect to the remaining trade accounts receivable is generally diversified
      due
      to the large number of entities comprising the Company’s remaining customer base
      and their geographic dispersion. Naturade performs ongoing credit evaluations
      of
      its customers and maintains an allowance for estimated credit losses. The
      Company maintains cash balances with financial institutions that are in excess
      of federally insured limits.




F-10




***Fair
      Value of Financial Instruments -*** The
      Company’s balance sheets include the following financial instruments: cash and
      cash equivalents, trade accounts receivable, trade accounts payable, warrant
      liabilities and long-term debt. The Company considers the carrying amounts
      in the financial statements to approximate fair value of these financial
      instruments due to the relatively short period of time between the origination
      of the instruments and their expected realization or the interest rates which
      approximate current market rates.





***Accounts
      Receivable -*** Accounts
      receivable is stated net of applicable reserves for returns and allowances,
      promotional allowances and doubtful accounts. The Company regularly reviews
      and
      monitors individual account receivable balances to determine if the reserve
      amounts are appropriate and provides for an allowance for uncollectible accounts
      by considering historical customer buying patterns, invoice aging, specific
      promotions and seasonal factors. Accounts receivable are presented net of an
      allowance for doubtful accounts of $46,225 at December 31, 2006 and $9,740
      at
      December 31, 2005, and net of an allowance for returns and allowances of
      $736,985 and $313,869 at December 31, 2006 and December 31, 2005, respectively.
      The allowance for doubtful accounts and returns and allowances includes the
      following:





Balance
                as of December 31, 2003
            
            $
            695,685Provision
                for doubtful accounts and returns and allowances
            
            
            745,660Deductions
            
            
            (1,109,306
            )Balance
                as of December 31, 2004
            
            
            332,039Provision
                for doubtful accounts and returns and allowances
            
            
            821,354Deductions
            
            
            (829,784
            )Balance
                as of December 31, 2005
            
            
            323,609Provision
                for doubtful accounts and returns and allowances
            
            
            1,694,379Deductions
            
            
            (1,234,778
            )Balance
                as of December 31, 2006
            
            $
            783,210




***Inventories
      -*** Inventories
      are valued at the lower of cost or market. The weighted average method is used
      to determine cost. The reserve for excess and obsolete inventories includes
      the
      following:





Balance
                as of December 31, 2003
            
            $
            77,251Provision
                for excess and obsolete inventory
            
            
            59,197Write-offs
            
            
            (55,137
            )Balance
                as of December 31, 2004
            
            
            81,311Provision
                for excess and obsolete inventory
            
            
            140,975Write-offs
            
            
            (38,632
            )Balance
                as of December 31, 2005
            
            
            183,654Provision
                for excess and obsolete inventory
            
            
            476,738Write-offs
            
            
            (578,746
            )Balance
                as of December 31, 2006
            
            $
            81,646




***Property
      and Equipment -*** Property
      and equipment are stated at cost, less accumulated depreciation and amortization
      computed using the straight-line method over the estimated useful lives of
      the
      related assets ranging from five to ten years. Leasehold improvements are
      amortized on a straight-line basis over the lesser of the lease term or
      estimated useful life. Expenditures for maintenance and repairs are charged
      to
      operations as incurred.





***Intangible
      Assets, Including Goodwill.*** The
      Company accounts for goodwill under SFAS No. 142, *Goodwill and Other
      Intangible Assets*. Under SFAS No. 142, goodwill and other intangible assets
      with indefinite useful lives are not amortized, but are reviewed annually for
      impairment or more frequently if impairment indicators arise. The Company uses
      a
      discounted cash flow projection as its primary method for determining the fair
      value of the reporting unit or Company for impairment evaluation.




F-11




***Impairment
      of Long-Lived Assets -*** In
      accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144,
“ *Accounting
      for the Impairment or*  *Disposal
      of Long-Lived Assets* ,”
the
      Company assesses the recoverability of its long-lived assets upon the occurrence
      of a triggering event by determining whether the depreciation and amortization
      of long-lived assets over their remaining lives can be recovered through
      projected undiscounted future cash flows. The amount of long-lived asset
      impairment, if any, is measured based on fair value and is charged to operations
      in the period in which long-lived asset impairment is determined by management.
      If long-lived assets become impaired, the Company recognizes an impairment
      loss
      measured as the amount by which the carrying value of the assets exceeds the
      estimated fair value of the assets.





***Income
      Taxes -*** The
      Company accounts for income taxes under the provisions of SFAS 109, *Accounting
      for Income Taxes* .
      Under
      this method, deferred income taxes are recognized for the tax consequences
      in
      future years of differences between the tax bases of assets and liabilities
      and
      their financial reporting amounts at each year-end based on enacted tax laws
      and
      statutory rates applicable to the periods in which the differences are expected
      to affect taxable income. Valuation allowances are established, when necessary,
      to reduce deferred tax assets to the amount expected to be
      realized.





***Revenue
      Recognition*** -
      Sales
      are recognized upon shipment and passage of title. This is when the customer
      has
      made the fixed commitment to purchase the goods, the products are shipped per
      the customers’ instructions, the sales price is fixed and determinable, and
      collection is reasonably assured. The Company accrues for estimated returns
      at
      the time of sale. The Company accounts for certain promotional allowances such
      as consumer coupons and rebates, $3,802, $14,345 and $20,800 in 2006, 2005
      and
      2004, respectively, and customer slotting fees of $198,590, $234,700 and $83,000
      in 2006, 2005 and 2004, respectively, as a reduction of sales and new store
      opening costs of $10,998, $38,687and $38,700 in 2006, 2005 and 2004,
      respectively, are recorded as cost of goods sold in the period incurred in
      accordance with Emerging Issues Task Force (“EITF”) issue No.
      01-09.





***Net
      Income (Loss) Per Share -*** Basic
      earnings (loss) per share (“EPS”) excludes dilution and is computed by dividing
      net income or loss attributable to common stockholders by the weighted average
      of common shares outstanding for the period. Diluted EPS reflects the potential
      dilution that could occur if securities or other contracts to issue common
      stock
      (i.e., convertible preferred stock, warrants to purchase common stock and common
      stock options using the treasury stock method) were exercised or converted
      into
      common stock. Potentially dilutive securities, representing convertible
      preferred stock, warrants and options to purchase 59,637,618, 64,622,618, and
      2,231,000 shares of common stock for the years ended December 31, 2006, 2005
      and
      2004, respectively are excluded in EPS as their effect would be
      anti-dilutive.





***Research
      and Development -*** Research
      and development costs are expensed when incurred and amounted to $48,028,
      $223,443 and $274,057 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





***Advertising
      and Promotion -*** The
      Company complies with EITF issue No. 01-9, whereby certain payments to customers
      are presented as a reduction of sales. These payments amounted to $1,462,246,
      $1,410,477 and $1,745,903 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





***Advertising
      -*** The
      Company expenses the cost of advertising as incurred. Advertising expenses
      amounted to $188,857, $855,213, and $346,372 for the years ended December 31,
      2006, 2005 and 2004, respectively.





***Deferred
      Rent -*** Deferred
      rent totaling $35,084 at December 31, 2005, is included in accrued expenses.
      Deferred rent represents rental expense (recorded on a straight-line basis)
      in
      excess of actual rental payments to date. The Company had no deferred rent
      as of
      December 31, 2006.





***Guarantees*** -
      In
      November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB
      Interpretation Number (“FIN”) 45 “ *Guarantor’s
      Accounting*  *and
      Disclosure Requirements for Guarantees, including Indirect Guarantees
      of*  *Indebtedness
      of Others — an interpretation of FASB Statements No. 5, 57 and
      107*  *and
      rescission of FIN 34* .”
The
      following is a summary of the Company’s agreements that the Company has
      determined are within the scope of FIN 45.




F-12




Under
      its
      bylaws, the Company has agreed to indemnify its officers and directors for
      certain events or occurrences arising as a result of an officer’s or director’s
      serving in such capacity. The term of the indemnification period is the
      officer’s or director’s lifetime. The maximum potential amount of future
      payments the Company could be required to make under these indemnification
      agreements is unlimited. However, the Company has a directors’ and officers’
liability insurance policy that limits its exposure and enables it to recover
      a
      portion of any future amounts paid. As a result of its insurance policy
      coverage, the Company believes the estimated fair value of these indemnification
      agreements is minimal and has no liability recorded for these agreements as
      of
      December 31, 2006.





The
      Company enters into indemnification provisions under (i) its agreements with
      other companies in its ordinary course of business, typically business partners,
      contractors, customers and landlords, and (ii) its agreements with investors.
      Under these provisions the Company generally agrees to indemnify and hold
      harmless the indemnified party for losses suffered or incurred by the
      indemnified party as a result of the Company’s activities or, in some cases, as
      a result of the indemnified party’s activities under the agreement. These
      indemnification provisions often include indemnifications relating to
      representations made by the Company with regard to intellectual property rights.
      These indemnification provisions generally survive the termination of the
      underlying agreement. In addition, in some cases, the Company has agreed to
      reimburse employees for certain expenses and to provide salary continuation
      during short-term disability. The maximum potential amount of future payments
      the Company could be required to make under these indemnification provisions
      is
      unlimited. The Company has not incurred material costs to defend lawsuits or
      settle claims related to these indemnification provisions. As a result, the
      Company believes the estimated fair value of these provisions is minimal.
      Accordingly, the Company has no liabilities recorded for these agreements as
      of
      December 31, 2006.





***Major
      Customers -*** During
      the fiscal years ended December 31, 2006, 2005 and 2004, the Company had sales
      to four customers in excess of 10% of the Company’s total net sales as shown in
      the following table.


F-13




**Major
      Customers Table**





**Customer
                One**
            
            **Customer
                Two**
            
            **Customer
                Three**
            
            **Customer
                Four****Sales**
            
            **Accounts****Receivable****Balance****Year-end**
            
            **Sales**
            
            **Accounts****Receivable****Balance****Year-end**
            
            **Sales**
            
            **Accounts****Receivable****Balance**
              **Year-end**
            
            **Sales**
            
            **Accounts****Receivable****Balance****Year-end**December
                31, 2006
            
            $
            2,435,842
            
            $
            315,195
            
            $
            1,733,290
            
            $
            291,426
            
            $
            1,091,516
            
            $
            65,060
            
            $
            -0-
            
            $
            -0-December
                31, 2005
            
            $
            2,597,668
            
            $
            343,100
            
            $
            2,358,038
            
            $
            325,011
            
            $
            1,220,085
            
            $
            182,858
            
            $
            -0-
            
            $
            -0-December
                31, 2004
            
            $
            3,231,200
            
            $
            722,295
            
            $
            2,603,800
            
            $
            174,538
            
            $
            1,795,500
            
            $
            81,628
            
            $
            279,100
            
            $
            227,001





The
      loss
      of any one of these customers could have a material adverse effect on the
      Company’s results of operations. The Company does not have long-term contracts
      with any of its customers and, accordingly, there can be no assurance that
      any
      customer will continue to place orders with the Company to the same extent
      it
      has in the past, or at all.





***Sale
      of Brand*** -
      During
      2004, the Company sold all of the assets related to its aloe vera based product
      lines in an all cash transaction. The sale included two product lines sold
      primarily through health food stores and natural food supermarkets including
      aloe vera gel concentrate drinks and Aloe Vera 80® brand topical products. The
      transaction was completed on November 2, 2004 for a purchase price of
      approximately $1,285,787 and included all inventory and tangible and intangible
      personal property related to these two brands and resulted in a gain of
      $1,055,647. The proceeds on the sale were used to reduce borrowings under the
      Credit Agreement between the Company and Wells Fargo Business Credit,
      Inc.





***Accounting
      for Stock-Based Compensation -*** SFAS
      123,
“ *Accounting
      for Stock-Based*  *Compensation* ,”
      requires disclosure of the fair value method of accounting for stock options
      and
      other equity instruments. Under the fair value method, compensation cost is
      measured at the grant date based on the fair value of the award and is
      recognized over the service period which is usually the vesting period. Prior
      to
      the adoption of SFAS 123 for the year ended December 31, 2006, the Company
      had
      chosen, under the provisions of SFAS 123, to account for employee stock-based
      transactions using the intrinsic value method under Accounting Principles Board
      (“APB”) Opinion No. 25, “ *Accounting*  *for
      Stock Issued to Employees.”*





Pursuant
      to SFAS 123, the Company had elected to continue using the intrinsic value
      method of accounting for stock-based awards granted to employees and directors
      in accordance with APB Opinion No. 25 and related interpretations in accounting
      for its stock option plan. Had the compensation cost for the Company’s stock
      option plan been determined based on the fair value at the grant dates for
      awards under the plan consistent with the method of SFAS 123, the Company’s net
      loss and loss per share would have been the pro forma amounts presented
      below:





**Year
                Ended**
              **December
                31, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**Net
                income (loss): As reported
            
            $
            (3,748,255
            )
            $
            368,474Add:
                Stock-based employee compensation expense included in reported net
                loss
            
            
            —
            
            
            —Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (91,312
            )
            
            (5,704
            )Pro
                forma
            
            $
            (3,839,567
            )
            $
            362,770Basic
                and diluted net income (loss) per share:As
                reported
            
            $
            (0.09
            )
            $
            0.00Pro
                forma
            
            $
            (0.10
            )
            $
            0.00





The
      fair
      value for each option grant was estimated on the date of grant using the
      Black-Scholes option pricing model with the following assumptions:





**Year
                Ended****December
                31, 2005**
            
            **Year
                Ended****December
                31, 2004**Weighted
                average risk-free interest rate
            
            4.41
                to 5.21%
            
            4.41
                to 5.21%Expected
                life of an option
            
            5
                years
            
            5
                yearsExpected
                stock volatility
            
            76%
            
            76%




F-14





Effective
      January 1, 2006, the Company began recording compensation expense associated
      with stock options for employees in accordance with SFAS No. 123R, “Share-Based
      Payment” (“SFAS 123R”) Prior to January 1, 2006, the Company accounted for
      stock-based compensation related to stock options using the intrinsic value
      method of accounting for stock-based awards granted to employees and directors
      in accordance with APB Opinion No. 25, “Accounting for Stock Issued to
      Employees,” and related interpretations in accounting for its stock option plan.
      The Company has adopted the modified prospective transition method provided
      under SFAS 123R, and as a result, has not retroactively adjusted results from
      prior periods. Under this transition method, compensation expense associated
      with stock options recognized in the year ended December 31, 2006 includes
      expense related to the remaining unvested portion of all stock option awards
      granted prior to January 1, 2006, based on the grant date fair value estimated
      in accordance with the original provisions of SFAS 123, “Accounting for Stock
      Based Compensation” (“SFAS 123”).





As
      a
      result of the adoption of SFAS 123R, the Company’s net loss for the year ended
      December 31, 2006 includes $97,510 of compensation expense related to the
      Company’s stock options. The compensation expense related to all of the
      Company’s stock-based compensation arrangements is recorded as a component of
      selling, general and administrative expenses. As the Company is currently in
      a
      tax loss carryover position, no tax benefits were recorded for the compensation
      expense under SFAS 123R.





***Recently
      Issued Accounting Standards*** **** ***-*** FASB
      Statement No. 157, *Fair
      Value Measurements,* has been
      issued by the Financial Accounting Standards Board (“FASB”). This new standard
      provides guidance for using fair value to measure assets and liabilities. Under
      Statement 157, fair value refers to the price that would be received to sell
      an
      asset or paid to transfer a liability in an orderly transaction between market
      participants in the market in which the reporting entity transacts. In this
      standard, the FASB clarifies the principle that fair value should be based
      on
      the assumptions market participants would use when pricing the asset or
      liability. In support of this principle, Statement 157 establishes a fair value
      hierarchy that prioritizes the information used to develop those assumptions.
      The fair value hierarchy gives the highest priority to quoted prices in active
      markets and the lowest priority to unobservable data, for example, the reporting
      entity’s own data. Under the standard, fair value measurements would be
      separately disclosed by level within the fair value hierarchy. The provisions
      of
      Statement 157 are effective for financial statements issued for fiscal years
      beginning after November 15, 2007, and interim periods within those fiscal
      years. Earlier application is encouraged, provided that the reporting entity
      has
      not yet issued financial statements for that fiscal year, including any
      financial statements for an interim period within that fiscal year. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.




The
      FASB
      has issued FASB Staff Position (FSP) EITF 00-19-2, "Accounting for Registration
      Payment Arrangements." This FSP specifies that the contingent obligation to
      make
      future payments or otherwise transfer consideration under a registration payment
      arrangement, whether issued as a separate agreement or included as a provision
      of a financial instrument or other agreement, should be separately recognized
      and measured in accordance with FASB Statement No. 5, *Accounting
      for Contingencies.* The
      FSP
      further clarifies that a financial instrument subject to a registration payment
      arrangement should be accounted for in accordance with other applicable GAAP
      without regard to the contingent obligation to transfer consideration pursuant
      to the registration payment arrangement. This FSP amends various authoritative
      literature notably FASB Statement No. 133, *Accounting
      for Derivative Instruments and Hedging Activities,* FASB
      Statement No. 150, *Accounting
      for Certain Financial Instruments with Characteristics of both Liabilities
      and
      Equity,* and
      FASB
      Interpretation No. 45, *Guarantor’s
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others.* This
      FSP
      is effective immediately for registration payment arrangements and the financial
      instruments subject to those arrangements that are entered into or modified
      subsequent to December 21, 2006. For registration payment arrangements and
      financial instruments subject to those arrangements that were entered into
      prior
      to December 21, 2006, the guidance in the FSP is effective for financial
      statements issued for fiscal years beginning after December 15, 2006, and
      interim periods within those fiscal years. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.





On
      July
      13, 2006, FASB issued Interpretation (FIN) No. 48, *Accounting
      for Uncertainty in Income Taxes - An Interpretation of FASB Statement No.
      109,* FIN 48
      clarifies the accounting for uncertainty in income taxes recognized in an
      enterprise’s financial statements in accordance with FASB Statement No. 109, *Accounting
      for Income Taxes.* FIN 48
      also prescribes a recognition threshold and measurement attribute for the
      financial statement recognition and measurement of a tax position taken or
      expected to be taken in a tax return. The new FASB standard also provides
      guidance on derecognition, classification, interest and penalties, accounting
      in
      interim periods, disclosure, and transition. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements.




F-15





On
      February 15, 2007, the FASB issued FASB Statement No. 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities - Including
      an
      Amendment of FASB Statement No. 115.* SFAS 159
      permits an entity to choose to measure many financial instruments and certain
      other items at fair value. This option is available to all entities, including
      not-for-profit organizations. Most of the provisions in Statement 159 are
      elective; however, the amendment to FASB Statement No. 115, *Accounting
      for Certain Investments in Debt and Equity Securities,* applies
      to all entities with available-for-sale and trading securities. Some
      requirements apply differently to entities that do not report net income. The
      fair value option established by Statement 159 permits all entities to choose
      to
      measure eligible items at fair value at specified election dates. A business
      entity will report unrealized gains and losses on items for which the fair
      value
      option has been elected in earnings (or another performance indicator if the
      business entity does not report earnings) at each subsequent reporting date.
      A
      not-for-profit organization will report unrealized gains and losses in its
      statement of activities or similar statement. The fair value option:
      ( *a* )
      may be
      applied instrument by instrument, with a few exceptions, such as investments
      otherwise accounted for by the equity method; ( *b* )
      is
      irrevocable (unless a new election date occurs); and ( *c* )
      is
      applied only to entire instruments and not to portions of instruments. Statement
      159 is effective as of the beginning of an entity’s first fiscal year that
      begins after November 15, 2007.  Early adoption is permitted as of the
      beginning of the previous fiscal year provided that the entity makes that choice
      in the first 120 days of that fiscal year and also elects to apply the
      provisions of FASB Statement No. 157, *Fair
      Value Measurements.* The
      adoption of this pronouncement is not expected to have material effect on the
      Company’s financial statements *.*





**2.**  **INVENTORIES**





Inventories
      are stated at the lower of weighted average cost or market. Weighted average
      cost is determined on a first-in, first-out basis. Inventories at December
      31,
      2006 and December 31, 2005 consisted of the following:





**December
                31, 2006**
            
            **December
                31, 2005**Raw
                materials
            
            $
            49,879
            
            $
            235,885Finished
                goods
            
            
            290,748
            
            
            843,942Subtotal
            
            
            340,627
            
            
            1,079,827Less:
                Reserve for excess and obsolete inventories
            
            
            (81,646
            )
            
            (183,654
            )$
            258,981
            
            $
            896,173





**3.**  **PROPERTY
      AND EQUIPMENT**





Property
      and equipment at December 31, 2006 and December 31, 2005 consisted of the
      following:





**December
                31, 2006**
            
            **December
                31, 2005**Machinery
                and equipment
            
            $
            517,477
            
            $
            583,485Building
                and improvements
            
            
            —
            
            
            160,196Automobiles
            
            
            83,980
            
            
            83,980Total
            
            
            601,457
            
            
            827,661Less
                accumulated depreciation and amortization
            
            
            (549,910
            )
            
            (690,458
            )Property
                and equipment, net
            
            $
            51,547
            
            $
            137,203





Depreciation
      expenses amounted to $56,723, $63,987 and $66,995 for the fiscal years ended
      December 31, 2006, 2005 and 2004, respectively.





**4.**  **DEBT**





Long-term
      debt consists of the following at December 31, 2006 and 2005.





**December
                31, 2006**
            
            **December
                31, 2005**Revolving
                note
            
            $
            1,276,570
            
            $
            2,719,404Investor
                notes with majority shareholder and other investors
            
            
            —
            
            
            92,345Seller
                notes
            
            
            —
            
            
            2,710,540Term
                loan
            
            
            1,350,000
            
            
            909,091Loan
                agreement with shareholder
            
            
            1,075,000
            
            
            1,250,000Total
            
            
            3,701,570
            
            
            7,681,380Less
                revolving note and current portion of long-term debt
            
            
            (1,685,665
            )
            
            (6,292,483
            )Long-term
                debt
            
            $
            2,015,905
            
            $
            1,388,897




F-16





Future
      minimum principal payments under long-term debt as of December 31, 2006 are
      as
      follows:





**Year
                Ending December 31**2007
            
            $
            1,685,6652008
            
            
            545,4602009
            
            
            669,9852010
            
            
            329,4482011
                and thereafter
            
            
            471,012Total
            
            $
            3,701,570




***Financing
      Agreement -*** In
      July
      2005, the Company obtained a $4,000,000 convertible financing facility from
      Laurus, consisting of a $3,000,000 revolving credit facility and a $1,000,000
      term loan. In consideration of such financing facility, The Company issued
      to
      Laurus an option to purchase up to 8,721,375 shares of the Company’s common
      stock at $0.0001 per share and a warrant to purchase up to 1,500,000 shares
      of
      the Company’s common stock at $0.80 per share. The financing facility was
      amended on January 11, 2006, by among other things, increasing the term loan
      to
      $1,650,000 and eliminated the conversion features on the facility. The Company
      issued Laurus 1,050,000 shares of the Company’s common stock in consideration
      for this amendment.





Indebtedness
      under the revolving facility is based upon 35% of eligible inventory and 90%
      of
      eligible accounts receivable. The financing facility has a term of three years
      ending on July 26, 2008. As part of the Chapter 11 restructuring, Laurus has
      agreed to extend the period for the repayment for the Term Loan to be
      repaid in equal monthly installments beginning the first day of the first full
      month following the Effective Date of the Plan through and including
      January 2010. The financing facility carries an interest rate of
      prime plus 2% per annum (10.25% at December 31, 2006), subject to certain
      reductions based upon growth of the Company’s stock price.





The
      Company is subject to certain reporting covenants (such as the timely filing
      of
      financial reports with the Securities and Exchange Commission, monthly financial
      reporting deadlines and collateral reporting), is required to obtain Laurus’
approval of certain actions (such as incurring additional indebtedness, making
      any distribution on or repurchasing any common stock or merging with or
      purchasing any assets of stock of any person) and has granted Laurus a right
      of
      first refusal with respect to certain future financings. The Company is in
      compliance with all covenants at December 31, 2006.





The
      loans
      are secured by all of the assets of the Company. The term loan is guaranteed
      by
      Peter H. Pocklington, a principal of Quincy, and a former director of the
      Company.





In
      consideration for entering into the Financing Agreement, the Company issued
      to
      Laurus, an option (the “Laurus Option”) and a warrant (the “Laurus Warrant”) to
      purchase shares of the Company’s common stock. The Laurus Option entitles the
      holder to purchase up to 8,721,375 shares of common stock, subject to certain
      limitations on the amount of common stock held by Laurus, at a purchase price
      of
      $0.001 per share at any time on or after July 26, 2005. The Laurus Warrant
      entitles the holder to purchase up to 1,500,000 shares of common stock at a
      purchase price of $0.80 per share at any time on or after July 26, 2005 through
      July 26, 2010. The number of shares of common stock issuable upon exercise
      of
      the Laurus Option and the Laurus Warrant is subject to adjustment to prevent
      dilution upon stock splits, stock dividends, and other events. The exercise
      price of the Laurus Option and the Laurus Warrant may be paid, at the option
      of
      Laurus, by the cancellation of indebtedness under the financing
      facility.





The
      Company paid to Laurus in cash a total of $193,500 in fees and expenses,
      existing of a “closing payment” of $156,000 and reimbursement of $37,500 of
      Laurus legal fees. Also in connection with the Laurus financing, the Company
      issued a warrant to Liberty Company Financial LLC (“Liberty”) for introducing
      the Company to Laurus (the “Liberty Warrant”). The Liberty Warrant entitles the
      holder to purchase up to 3,647,743 shares of common stock at a purchase price
      of
      $0.08 at any time on or after July 26, 2006 through July 26, 2011.




F-17





The
      value
      of the warrants and options issued to Laurus, using Black Scholes, equaling
      $786,036 and composed of the value of the Laurus Option $694,106 and the Laurus
      Warrant $91,930 was classified as a discount and is amortized as interest
      expense over 36 months using the interest method. Based on assessment of the
      terms of this exchange, the Company determined that there is no beneficial
      conversion feature of this exchange.





The
      value
      of the warrant issue to Liberty of $223,555 using the Black Scholes valuation
      model was capitalized as deferred finance fee and is amortized over 36 months
      using the interest method.





On
      January 11, 2006 the Company and Laurus amended the Financing Agreement,
      pursuant to which the parties:





·
            Increased
                the term loan from $1,000,000, of which $909,000 was outstanding
                at
                January 11, 2006, to $1,650,000. Over advances totaling $650,000
                were
                transferred from the Revolving Note to the Term Note with the remaining
                $91,000 utilized as a reduction of the amount outstanding under the
                Revolving Note.





·
            Modified
                the payments on the Term Note from $30,000 per month beginning November
                1,
                2005 payable in shares of the Company’s common stock or $30,900 per month
                if paid in cash, to $50,000 per month in cash beginning April 1,
                2006.





·
            Eliminated
                the First Minimum Borrowing Note outstanding of
                $500,000.





·
            Eliminated
                the ability of Laurus to convert the Term Note, the Revolving Note,
                and
                the Minimum Borrowing Notes into shares of the Company’s common
                stock.





·
            Extended
                the term of the Financing Agreement from three years ending on July
                26,
                2008 to three years ending January 6,
                2009.





·
            Modified
                the prepayment provisions of the Revolving Note and the Term Note
                from an
                early payment fee of 35% of the loan amounts if paid prior to the
                termination date, to 5% if retired before January 6, 2007, 4% if
                retired
                prior to January 6, 2008 and 3% if retired prior to January 6,
                2009.





·
            In
                consideration for entering into the amendment, the Company issued
                to
                Laurus 1,050,000 shares of common
                stock.





The
      value
      of the shares issued to Laurus in consideration for the debt modification plus
      the remaining unamortized deferred financing fees are being amortized over
      the
      renewed term of the Financing Agreement.





On
      August
      31, 2006, pursuant to the Company’s filing under Chapter 11 of the US Bankruptcy
      Code, Laurus and Redux agreed to cause the Company to do the
      following:





·
            Laurus’
                claim in the amount of $2,900,000 will be treated as fully secured
                and the
                liens granted Laurus pursuant to the Security and Purchase Agreement
                dated
                July 26, 2005 between Laurus and the Company (the “Financing Agreement”)
                will remain without modification.





·
            Laurus
                will provide debtor in possession financing (“DIP”) pursuant to the terms
                and conditions of the financing
                agreement.




·
            Interest
                will continue to accrue on the Term Loan pursuant the terms of the
                Financing Agreement however, payments will be suspended until the
                first
                day of the first full month after the Effective Date of the Chapter
                11
                filing.





·
            The
                maturity date of the Term loan will be extended to January 6, 2010
                and
                principal payments will commence on the first day of the first full
                month
                after the Effective Date of the Chapter 11 filing and be payable
                in equal
                monthly installments until the maturity
                date.




F-18





·
            To
                the extent that the Laurus DIP financing and/or Naturade’s use of Laurus
                cash collateral is insufficient, Redux shall be responsible for funding
                all payments needed to confirm the plan and for working capital of
                Naturade before and after
                confirmation.





·
            Laurus
                will support the treatment of Laurus’ claims pursuant to Naturade’s Plan,
                and will cast a vote in favor of the confirmation of such Plan, provided
                that the treatment of Laurus’ claims pursuant to the Plan is materially
                the same as that set forth herein.




At
      December 31, 2006, $569,007 was outstanding under the revolving facility as
      pre-petition debt, $707,563 was outstanding under the revolving facility as
      post
      petition debt, and $1,350,000 was outstanding under the term loan as
      pre-petition debt. These loans are fully secured and the pre-petition amounts
      are not included in the liabilities subject to compromise.





***Loan
      Agreements with Shareholder and Other Investors -*** On
      April
      14, 2003, the Company entered into a Loan Agreement (the “2003 Loan Agreement”)
      with Health Holdings and certain other lenders (the “2003 Lender Group”),
      pursuant to which the 2003 Lender Group agreed to lend the Company $450,000
      and,
      subject to the discretion of the 2003 Lender Group, up to an additional
      $300,000. All advances under the 2003 Loan Agreement bear interest at the rate
      of 15% per annum, are secured by substantially all of the assets of the Company,
      and are subordinated to the Company’s indebtedness to Laurus. In consideration
      of the extension of credit under the 2003 Loan Agreement, Wells Fargo waived
      all
      defaults of the Company as of December 31, 2003 under the Credit
      Agreement.





On
      April
      14, 2004, the terms of the 2003 Loan Agreement were modified by the Joinder
      of
      Bill D. Stewart, the then Chief Executive Officer of the Company, as a member
      of
      the 2003 Lender Group, subject to all of the terms and conditions of the 2003
      Loan Agreement, and the 2003 Lender Group advanced an additional $200,000,
      of
      which Bill D. Stewart advanced $100,000. Further, on May 3, 2004, the 2003
      Lender Group advanced the Company an additional $100,000. On August 16, 2004,
      advances allowed under the 2003 Loan Agreement were increased to a total of
      $950,000 and the 2003 Lender Group advanced an additional $200,000 to the
      Company. In July 2005, advances allowed under the 2003 Loan Agreement were
      increased to a total of $1,250,000 and the 2003 Lender Group advanced an
      additional $300,000 to the Company. There are no additional amounts available
      to
      advance under the 2003 Loan Agreement. Proceeds of the advances have been used
      for working capital. On January 26, 2005, the terms of the 2003 Loan Agreement
      were modified to extend the due date to December 31, 2005. On July 22, 2005,
      pursuant to the acquisitions of Ageless and Symco, the terms of the 2003 Loan
      Agreement were again modified to extend the due date to December 31, 2006.
      On
      August 31, 2006 these loans became claims pursuant to the Company’s filing under
      Chapter 11 of the U.S. Bankruptcy Code. As of December 31, 2006, there is
      $1,250,000 outstanding under the 2003 Loan Agreement of which $1,075,000 will
      be
      treated as fully secured and is included in Long Term Debt. Interest on the
      $1,075,000 of 10%  will
      accrue beginning the Effective Date of the Company’s Chapter 11 filing, to be
      paid monthly with monthly principal payments to begin two years from the
      Effective Date. The remaining $175,000 is included in Liabilities Subject to
      Compromise.





In
      April
      2006, The Company’s then principal shareholder, Quincy, loaned the Company
      $350,000. This loan is payable on demand and does not carry a stated interest
      charge. At December 31, 2006, $350,000 was outstanding on this unsecured loan
      and is accordingly included in Liabilities Subject to Compromise. There is
      no
      written agreement for this loan between Quincy and the Company.




**5.**  **RECAPITALIZATION**





In
      January 2005, Naturade was introduced to Quincy by a public relations firm
      retained by both Quincy and Naturade. Before this introduction, Naturade did
      not
      have any relationship with Quincy. Quincy, in turn, introduced Naturade to
      Ageless and to Symco and Symbiotics. Symco and Symbiotics were related companies
      under common control. Before this introduction, Naturade did not have any
      relationship with Ageless, Symco or Symbiotics.




F-19





On
      July
      22, 2005, the Company entered into a Master Investment Agreement (the “Master
      Investment Agreement”), with Quincy, Health Holdings, Westgate, Stewart and
      Weil, pursuant to which:





·
            Quincy
                negotiated, and arranged the financing for, the acquisition by Naturade
                of
                selected assets of Ageless, Symco and
                Symbiotics;





·
            Quincy
                remained a co-obligor on, and a principal of Quincy personally guaranteed,
                the payment of a portion of the purchase price of each such
                acquisition;





·
            Naturade
                issued to Quincy (i) 30,972,345 shares of Common Stock, (ii) warrants
                to
                purchase 7,000,000 shares of the Company’s common stock at $0.80 per share
                and additional 7,000,000 shares of the Company’s common stock at $1.02 per
                share, during the period from July 22, 2006 to July 22, 2015 (the
“Quincy
                Warrants”), and (iii) 4,200,000 shares of Series C, all in consideration
                of Quincy negotiating, and arranging the financing for the Company’s
                acquisition of the selected assets of Ageless, Symco and Symbiotics
                and
                guaranteeing the payment of a portion of the purchase price of each
                such
                transaction;





·
            Health
                Holdings surrendered the 41,054,267 shares of the Company’s common stock
                held by it in exchange for (i) 12,600,000 shares of Series C and
                (ii) a
                warrant to purchase 10,000,000 shares of the Company’s common stock at
                $1.00 per share, during the period from July 22, 2006 to July 22,
                2015
                (the “HHB Warrant”);





·
            Westgate
                surrendered the 13,540,723 shares of Series B held by it, including
                any
                accrued and unpaid dividends, in exchange for 4,200,000 shares of
                Series
                C;





·
            Health
                Holdings, Stewart and Weil extended the term of the Secured Promissory
                Notes issued to them pursuant to that certain Loan Agreement dated
                April
                23, 2003, from December 31, 2006 to December 31,
                2006;





·
            Naturade
                granted to Health Holdings, Westgate and Quincy certain registration
                rights with respect to the common stock issuable upon conversion
                of the
                Series C or exercise of the HHB Warrant or the Quincy Warrants (see
                “Business - Registration Rights”);
                and





·
            Quincy
                would grant to Health Holdings and Westgate certain co-sale rights
                described below.





The
      holders of the Series C voting as a separate class are entitled to elect one
      member of our Board of Directors. In addition, in matters presented for a vote
      of stockholders, including the election of other directors, the holders of
      the
      Series C vote together with the holders of Common stock as a single class,
      with
      a number of votes equal to the number of shares of common stock into which
      the
      Series C may then be converted. Under Delaware law, the holders of common stock
      and Series C vote as a separate class on any amendment to our Certificate of
      Incorporation which would (i) increase or decrease the aggregate number of
      authorized shares of such class, (ii) increase or decrease the par value of
      the
      shares of such class, or (iii) alter or change the powers, preferences or
      special rights of the shares of such class so as to affect them
      adversely.





In
      addition, Health Holdings is entitled to receive notice of, and to have a
      representative attend, all meetings of the Company’s Board of Directors, so long
      as Health Holdings owns any Series C.





On
      a
      liquidation or sale of Naturade, the holders of Series C would be entitled
      to
      receive a preferential payment equal to $1.00 per share (subject to adjustment),
      plus accrued but unpaid dividends. This preferential payment would reduce the
      amount available for distribution to the holders of the Company’s common
      stock.





For
      each
      fiscal year, the holders of Series C would be entitled to receive a cash
      dividend equal to 20% of the amount, if any, by which the Company’s pre-tax
      profits for such year exceed $10 million, which dividend would be distributed
      within 120 days of the end of such fiscal year. This cash dividend would reduce
      the amount available for other corporate purposes, including the expansion
      of
      our business or distributions to the holders of the Company’s common
      stock




F-20





Naturade
      has the right to require the conversion of all shares of Series C into the
      Company’s common stock at any time within ten days following a period of 20
      consecutive trading days for which the closing bid price of the Company’s common
      stock equals or exceeds $1.50 per share (as adjusted).





On
      December 31, 2012, Naturade is required to redeem the Series C for $1.00 per
      share (subject to adjustment), plus accrued but unpaid dividends, provided
      the
      Company is then legally able to do so. This cash dividend would reduce the
      amount available for other corporate purposes, including the expansion of its
      business or distributions to the holders of its.





The
      issuance of the shares of the Company’s common stock under the Master Investment
      Agreement and the shares of pursuant to the HHB Warrant and Quincy Warrants
      could cause substantial dilution to the other holders of the Company’s common
      stock, and the potential issuance of all such shares of the Company’s common
      stock could adversely affect the market price of the Company’s common stock and
      impair Naturade’s ability to raise capital through the sale of the Company’s
      common stock.





In
      the
      event Quincy desired to sell any shares of the Company’s common stock received
      pursuant to the Master Investment Agreement, other than a sale in the public
      market at fair market value (as defined in the Master Investment Agreement),
      Health Holdings and Westgate had the right to sell to the proposed transferee
      a
      pro rata portion of the Company’s common stock on the same terms and
      conditions.





Before
      the transactions contemplated by the Master Investment Agreement:





·
            Health
                Holdings beneficially owned 68.8% of the Company’s common stock (assuming
                the exercise of all options and warrants and the conversion of all
                convertible securities). In addition, William B. Doyle, Jr. and Lionel
                P.
                Boissiere, each of whom was, until August 10, 2005, a director of
                Naturade, were each a principal and a managing member of Doyle &
                Boissiere Fund I, LLC, a controlling shareholder of Health
                Holdings.





·
            Westgate
                beneficially owned 22.7% of the Company’s common stock (assuming the
                exercise of all options and warrants and the conversion of all convertible
                securities). In addition, Jay W. Brown and Robert V. Vitale, each
                of whom
                was, until August 10, 2005, a director of Naturade, were each a principal
                with Westgate Group, LLC, the general partner of
                Westgate.





·
            Bill
                D. Stewart was the Chairman of the Board and the Chief Executive
                Officer
                of Naturade, and David A. Weil was, until August 10, 2005, a director
                of
                Naturade.





·
            Naturade
                was indebted to Health Holdings, Stewart and Weil in the amount of
                $1,075,000, $100,000, and $75,000, respectively, under the Loan Agreement
                dated April 23, 2003.





·
            The
                public stockholders beneficially owned 6.0% of the Company’s common stock
                (assuming the exercise of all options and warrants and the conversion
                of
                all convertible securities).





As
      a
      result of the recapitalization, Quincy had the ability to elect a majority
      of
      our Board of Directors, control the outcome of all matters requiring stockholder
      approval (except such matters as require a class vote of the Series C) and
      control the Company’s management and affairs (except to the extent the approval
      of Laurus was required under the Financing Agreement as defined below).




**6.**  **WARRANT
      LIABILITY**





The
      warrants issued to Quincy, Laurus (including Laurus option) and Liberty had
      certain registration rights which require the Company to register the common
      stock deliverable upon exercise of the warrants and option. Due to the
      requirement to issue registered shares, these instruments were determined to
      be
      liabilities. The total shares deliverable under these instruments of 27,869,118
      was determined to have a fair market value of $1,855,181 by using a
      Black-Scholes valuation model and were recorded as liabilities.




F-21




On
      August
      10, 2006, the Laurus warrant (for up to 1,500,000 shares) was transferred to
      Redux (see Note 1, *Change
      in Control* )
      and
      then cancelled. The carrying value of the Laurus warrant liability of $91,930
      was written off to other income (change in warrant liability).





As
      of
      September 30, 2006, the Company determined that as a result of the bankruptcy
      filing and in consideration of the Company’s Initial Plan of Reorganization, the
      remaining warrant and option instruments were likely to be cancelled. Based
      on
      this evaluation, the Company determined that the registration rights were
      effectively eliminated. The Company determined the fair value of the remaining
      warrant and option liability to be $569,737 which was reclassified to additional
      paid in capital. The mark-to-market adjustment to fair value on the remaining
      warrant and option liability of $1,285,797 was recorded to other income (change
      in warrant liability).





**7.**  **PRIVATE
      EQUITY TRANSACTION**





*Private
      Equity Transaction —* On
      January 2, 2002, the Company privately sold the Series B for $2 million to
      Westgate Equity The Series B bore dividends at a rate of 10% per annum, which
      accumulated and compounded semi-annually. The Series B was convertible into
      common stock at any time at the option of the holder. On the seventh anniversary
      of its issuance, any unconverted shares of Series B would be automatically
      redeemed by the Company at the original issuance price plus accrued and unpaid
      dividends, provided the Company was legally able to do so. Two members of the
      Board of Directors of the Company were elected exclusively by the holders of
      the
      Series B voting as a separate class. The Series B has a beneficial conversion
      feature of $2,000,000, which was recorded as a discount and is being amortized
      over seven years.





On
      December 31, 2005, the Warrants were not exercised and accordingly expired.
      As
      the Warrants were initially classified outside of equity and were recorded
      at
      fair value, the subsequent expiration of the warrants was classified as charge
      to earnings in accordance with SFAS No. 150: “ *Accounting
      for Certain*  *Financial
      Instruments with Characteristics of Both Liabilities and
      Equity.”*





After
      the
      completion of the Private Equity Transaction, to accommodate the market rate
      conversion ratio of certain outstanding notes, the Company and Westgate agreed
      to adjust the conversion formula for the Series B. In addition, Westgate and
      Health Holdings agreed that (i) the Company may grant additional options to
      purchase up to 1,250,000 shares of common stock to employees in accordance
      with
      the Naturade, Inc. 1998 Incentive Stock Option Plan, and (ii) Health Holdings
      would grant to Westgate a proxy to vote 1.041 shares of common stock owned
      by
      Health Holdings for each share of common stock issued on exercise of the new
      options.





The
      Company has used the net proceeds of the transactions for working capital and
      general corporate purposes.





On
      July
      22, 2005, Westgate exchanged the Series B for 4,200,000 shares of Series C.





**8.**  **ACQUISITIONS**





On
      July
      22, 2005, Quincy, Symco and Symbiotics entered into an Asset Purchase Agreement
      (the “Symco/Symbiotics Agreement”), pursuant to which Quincy had the right to
      acquire substantially all of the assets relating to Symco and Symbiotics’
health-related products retail business. As consideration for the assets, Quincy
      would (a) assume current accounts payable ($408,965) and the obligations under
      certain contracts, (b) pay all outstanding amounts owed under certain credit
      facilities ($224,313), (c) issue a promissory note payable to Symco and
      Symbiotics in the principal amount of $2,000,000, (x) less the amount necessary
      to repay the credit facilities, and (y) subject to a working capital adjustment,
      (d) pay an additional $60,000 in cash fifteen (15) days after the closing date
      and an additional $60,000 every thirty (30) days thereafter until the note
      is
      paid in full and (e) for a three (3) year period following the closing date,
      Quincy would pay to Symco and Symbiotics ten percent (10%) of the amount of
      the
      increase in contribution profit over a baseline amount of $2,000,000 based
      on
      the sale of products for each 12 month period during the three year period.
      The
      promissory note payable to Symco and Symbiotics is guaranteed by Peter H.
      Pocklington, a principal of Quincy, and from August 10, 2005 to August 10,
      2006,
      one of the Company’s directors. In this acquisition, the Company acquired the
      right to distribute, and substantially all of the assets related to, Colostrum
      PlusTM, a line of products reported to enhance immune system
      functions.




F-22





On
      July
      27, 2005, Quincy and Ageless entered into an Asset Purchase Agreement (the
      “Ageless Agreement”), pursuant to which Quincy had the right to acquire
      substantially all of assets relating to Ageless’ health-related products retail
      business. As consideration for the assets, Quincy would (a) assume current
      accounts payable ($173,593), (b) assume an obligation to an employee of the
      company in an amount equal to $600,000 and (c) issue a promissory note payable
      to Ageless in the principal amount of $700,000, subject to a working capital
      adjustment. The promissory note payable to Ageless is guaranteed by Peter H.
      Pocklington, a principal of Quincy, and from August 10, 2005 to August 10,
      2006,
      one of the Company’s directors. In this acquisition, the Company acquired the
      right to distribute, and substantially all of the assets related to, the
      AgelessTM line of anti-aging products.





On
      July
      22, 2005, pursuant to an Assignment and Assumption Agreement, Quincy assigned
      to
      Naturade all of its rights, title and interest in and to the Symco/Symbiotics
      Agreement, and Naturade agreed to perform all of Quincy’s obligations under the
      Symco/Symbiotics Agreement. Pursuant to an Assignment and Assumption Agreement
      dated July 28, 2005, Quincy assigned to Naturade all of its rights, title and
      interest in and to the Ageless Agreement, and Naturade agreed to perform all
      of
      Quincy’s obligations under the Ageless Agreement. In connection with these
      transactions, the Company entered into consulting agreements with certain key
      employees of Symco/Symbiotics and Ageless. In addition, Naturade is a co-maker
      on each of the promissory notes described above. Pursuant to the Consulting
      Agreement entered into by the Company and Naomi Balcombe (“Balcombe”), the
      founder of Ageless, (i) for a three (3) year period following the closing date,
      Naturade will pay to Balcombe ten percent (10%) of the amount of the increase
      in
      contribution profit over a baseline amount of $900,000 based on the sale of
      products for each 12 month period during the three year period and (ii) issued
      to Ms. Balcombe 1,800,000 shares of the Company’s common stock. Pursuant to the
      Consulting Agreements entered into by the Company and Douglas Wyatt, the founder
      of Symco and Symbiotics, and David W. Brown, the President of Symco and
      Symbiotics, Naturade issued to Messrs. Wyatt and Brown 2,850,000 shares and
      150,000 shares, respectively, of the Company’s common stock.





On
      August
      3, 2005, Naturade closed the acquisition of Symco and Symbiotics. On September
      30, the Company amended the terms of the acquisition to adjust the promissory
      note to include the subsequent purchase by Naturade of a computer system and
      the
      payoff of a promissory note in the amount of $274,382. In addition, the payments
      on the promissory note were modified from a balloon payment due on February
      3,
      2006 to nine monthly installments of $3,500 from October 1, 2005 and annual
      payments of $518,500 on June 1, 2006, $450,000 on June 1, 2007 and $476,305
      on
      June 1, 2008. In exchange for the elimination of the requirement for the Company
      to pay $60,000 for every thirty days the promissory note was outstanding,
      Naturade agreed to make monthly interest payments of $15,000 from October 2005
      to May 2006, $10,000 from June 2006 to May 2007 and $5,000 from June 2007 to
      May
      2008. On May 31, 2006, the promissory note was amended and restated whereby
      the
      principal amount of $1,000,000 would be repaid in monthly installments of
      $33,333 along with monthly interest charges of 7% per annum on the outstanding
      balance through November 2008.





On
      August
      9, 2005, Naturade closed the acquisition of Ageless.





At
      the
      time of the acquisitions, Quincy and the acquirees had no relationship to
      Naturade and Quincy and the acquirees were not related parties to each other.
      Under the terms of the Master Investment Agreement dated July 22, 2005, Quincy
      acted as a broker and facilitator and agreed to negotiate, and to arrange the
      financing for, Naturade’s acquisition of selected assets of Ageless, Symco and
      Symbiotics, and to remain as co-obligor on, and to cause a principal of Quincy
      to guarantee Naturade’s payment of, a portion of the purchase
      price.





In
      consideration of such services, Naturade agreed to issue Quincy 33,972,345
      shares of the Company’s common stock and to assume Quincy’s obligations under
      the Symco/Symbiotics Agreement and the Ageless Agreement. Among the obligations
      assumed by Naturade was the obligation to issue an aggregate of 3,000,000 shares
      of the Company’s common stock to the founders of Symco and Symbiotics in
      consideration of consulting services to be rendered by them concerning the
      purchased assets. As a result, Naturade issued Quincy 30,972,345 shares of
      the
      Company’s common stock and Symco and Symbiotics a combined 3,000,000 shares of
      Company’s common stock





For
      further information on the assets and liabilities of Ageless, Symco and
      Symbiotics acquired by the Company, and those not acquired by the Company,
      see
      the Company’s Current Report on Form 8-K/A filed with the SEC on February 28,
      2006. Litigation was subsequently commenced by Ageless and its principal against
      the Company, Quincy and Peter Pocklington. The Company has settled this
      litigation with respect to the Company only. Redux has purchased all claims
      filed in the Naturade bankruptcy by Ageless and its principal. See Item 13,
      Certain Relationships and Related Transactions.




F-23





In
      connection with the foregoing transactions, Naturade and Doyle & Boissiere
      LLC terminated that certain Consulting Agreement dated December 17, 1997,
      Naturade and Westgate terminated that certain Management Services Agreement
      dated January 2, 2002, and Health Holdings and Westgate terminated that certain
      Voting Agreement dated January 2, 2002. In November 2005, Quincy assumed the
      consulting agreement with David Brown and the Company issued Quincy 400,000
      shares of the Company’s common stock in compensation.





The
      acquisitions were accounted for as business combinations under SFAS No. 141.
      The
      purchase prices, including transaction costs, were allocated to assets and
      liabilities based on their estimated fair value, including specific intangible
      assets. The excess of the purchase price over the net of the amounts assigned
      to
      assets acquired and liabilities assumed was recognized as goodwill. The value
      of
      the 30,972,345 shares and warrants issued to Quincy are considered as part
      of
      the costs of the acquisitions and were allocated to the purchase cost for
      Ageless and Symco based on a usual broker fee percentage to the total purchase
      price of the acquisitions. The remaining value was allocated to deferred
      financing fees (debt issuance cost and guarantee fees) ratably to the three
      amounts of debt guaranteed by Quincy, the Laurus Notes, the Ageless Note and
      the
      Symco Note. The deferred financing fees are amortized over the term of each
      loan
      based on the interest method.





In
      November 2005, Quincy assumed the consulting agreement with David Brown, and
      the
      Company issued Quincy 400,000 shares of common stock in
      compensation.





The
      following is a current summary of the Symco and Ageless
      transactions:





Purchase
                Price (preliminary):Cash
            
            $
            558,695Common
                stock
            
            
            1,794,260Preferred
                stock
            
            
            63,484Warrants
            
            
            159,765Notes
                payable
            
            
            2,724,539Total
            
            $
            5,300,743





Allocated
      as follows (preliminary):





Accounts
                receivable
            
            $
            300,720Inventory
            
            
            392,642Equipment
            
            
            100,000Customer
                lists, trademarks and formulations
            
            
            2,700,000Goodwill
            
            
            2,386,298Accounts
                payable
            
            
            (578,917
            )Total
            
            $
            5,300,743





The
      customer lists and trademarks are being amortized over 36 months and
      formulations are being amortized over 24 months. Deferred financing fees are
      being amortized and charged to interest expense over the life of the Laurus
      financing based upon the interest method of amortization. Goodwill is expected
      to be tax deductible. See Note 1 - *Impairment* for
      adjustments made during the year ended December 31, 2006.





**9.**  **IMPAIRMENT
      OF GOODWILL AND INTANGIBLES**





On
      June
      30, 2006, due to the Company’s continuing poor financial condition, management
      assessed the recoverability of the carrying value of goodwill in accordance
      with
      Statement of Financial Accounting Standards No. 142, *Goodwill
      and Other Intangible Assets* .
      Based
      on this assessment, the Company concluded that all goodwill of $2,694,357 was
      fully impaired. The impairment loss reflects the amount by which the carrying
      value of goodwill exceeded its estimated fair value determined by the estimated
      future discounted cash flows.




F-24





On
      September 30, 2006, based upon the Company's assessment and in accordance with
      SFAS No. 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      the
      Company concluded that the carrying value of the intangible customer lists
      associated with the Ageless and Symco acquisitions (see Note 7), exceeded the
      fair market values as determined by the Company’s assessment of the estimated
      future discounted cash flows. Consequently, an impairment loss in the amount
      of
      $666,033 was recorded at that time to reflect the estimated reduction in the
      fair values of the Ageless and Symco customer lists at that time. On December
      31, 2006, the Company determined further impairment of the customer lists had
      occurred and an impairment loss in the amount of $383,303 was recorded at that
      time.





**10.**  **STOCK
      OPTIONS AND WARRANTS**





***Employee
      Stock Option Plan*** In
      February 1998, the Company adopted an Incentive Stock Option Plan (the “Plan”)
      to enable participating employees to acquire shares of the Company’s common
      stock. The Plan provided for the granting of incentive stock options up to
      an
      aggregate of 850,000 shares, as amended. In October 2001, the Company amended
      the Plan by increasing to 2,000,000 the number of shares of the Company’s common
      stock that may be subject to awards granted pursuant to the Plan. The actual
      number of incentive stock options that may be granted to employees is determined
      by the Compensation Committee based on the parameters set forth in the Plan.
      Under the terms of the Plan, incentive stock options may be granted at not
      less
      than 100% of the fair market value at the date of the grant (110% in the case
      of
      10% shareholders). Incentive options granted under the Plan vest over a
      four-year period from the date of grant. As of December 31, 2006, 81,000
      incentive stock options under the Plan were outstanding at the weighted average
      exercise price per share of $0.13.. These options expire upon the termination
      of
      employment of the employees.





***Director
      Stock Options -*** In
      October 1999, options to purchase 87,500 shares of common stock were granted
      to
      each of two then new board members at an exercise price of $1.03. These options
      expired on October 14, 2006.





***Senior
      Management Options*** **-** On
      December 16, 2005, the Board of Directors (the “Board”) awarded Bill D. Stewart,
      the then Chief Executive Officer of the Company, an option to purchase 1,620,000
      shares of common stock and Stephen M. Kasprisin, the then Chief Operating/Chief
      Financial Officer of the Company, an option to purchase 1,616,500 shares of
      common stock. The options have a seven year term, vest in equal quarterly
      increments over two years and were granted at an exercise price equal to the
      closing price of the Company’s common stock on December 16, 2005. The options
      were granted pursuant to the 1998 Incentive Stock Option Plan of the Company.
      Mr. Stewart and Mr. Kasprisin terminated their employment with the Company
      on
      August 30, 2006 pursuant with the change in control by Redux. All unexercised
      options under these senior management option grants expired upon their
      termination of employment.




F-25


The
      estimated fair value of each option award granted was determined on the date
      of
      grant using the Black-Scholes option valuation model with the following
      weighted-average assumptions for option grants during the year ended December
      31, 2006.




Risk-free
                interest rate
            
            
            4.42
            %Expected
                volatility of common stock
            
            
            17.77
            %Dividend
                yield rate
            
            
            -0-Expected
                option term
            
            
            5
                years




The
      computation of the expected term is based on a weighted average calculation
      of
      the estimated average life of unexercised options. The expected volatility
      is
      based on the historical volatility of the S&P small capital 600 fund for the
      12 months prior to the end of the quarter options were granted. The Company
      elected to use this index as a result of the relative small number of shares
      held by non-affiliate shareholders (2,586,102) as compared to total outstanding
      shares (43,332,733). The Company believes this index is a more accurate
      indicator of the volatility of similar companies of similar size versus the
      movement of the Company’s stock with limited trading volume. The risk free
      interest is based upon the implied yield on U.S. Treasury constant maturities
      with a remaining term equal to the expected term of the option. The dividend
      yield rate is projected to be zero. The estimated forfeiture rate on stock
      options was zero and was based upon past history of the Company.





A
      summary
      of the Company’s outstanding stock options is as follows:





**Number
                of****Shares**
            
            **Weighted****Average****Exercise****Price
                per****Share**
            
            **Number****Exercisable**
            
            **Weighted****Average****Exercise****Price
                per****Share**Outstanding
                at December 31, 2003
            
            
            1,707,000
            
            $
            0.19
            
            
            771,000
            
            $
            0.35Granted
            
            
            100,000
            
            $
            0.08Exercised
            
            
            -0-Expired
            
            
            (176,000
            )
            $
            0.08Outstanding
                at December 31, 2004
            
            
            1,631,000
            
            $
            0.19
            
            
            1,233,875
            
            $
            0.24Granted
            
            
            12,528,875
            
            $
            0.07Exercised
            
            
            -0-
            
            $
            0.00Expired
            
            
            (285,000
            )
            $
            0.18Outstanding
                at December 31, 2005
            
            
            13,874,875
            
            $
            0.09
            
            
            10,369,625
            
            $
            0.03Granted
            
            
            220,000
            
            $
            0.12Exercised
            
            
            -0-
            
            $
            0.00Expired
            
            
            (5,292,500
            )
            $
            0.19Outstanding
                at December 31, 2006**
            
            
            8,802,375
            
            $
            0.002
            
            
            8,770,375
            
            $
            0.002







**
      Includes 8,721,375 fully vested options issued to Laurus.





The
      following table summarizes information about stock options outstanding at
      December 31, 2006:





**Range
                of Exercise Prices**
            
            **Options****Outstanding**
            
            **Weighted****Average****Remaining****Contract
                Life****In
                Years**
            
            **Weighted****Average****Exercise****Price**
            
            **Options****Exercisable**
            
            **Weighted****Average****Exercise
                Price****for
                Exercisable****Options**$0.001
                - $0.01
            
            
            8,721,375
            
            
            Indefinite
            
            $
            0.001
            
            
            8,721,375
            
            $
            0.001$0.10
                - $0.25
            
            
            81,000
            
            
            5
            
            $
            0.11
            
            
            49,000
            
            $
            0.098,802,375
            
            
            
            
            $
            0.002
            
            
            8,770,375
            
            $
            0.002





The
      weighted average fair value of the options granted to employees for the years
      ended December 31, 2006, 2005 and 2004 estimated using the Black-Scholes option
      valuation model was $0.12, $0.069and $0.010 per option
      respectively.


F-26


At
      December 31, 2006, there was no unamortized compensation costs related to
      non-vested stock options which is expected to be recognized in the
      future.





The
      aggregate intrinsic value of options outstanding and exercisable at December
      31,
      2006 was $340,134.





The
      following table summarizes non-vested options at December 31, 2006:





**Number
                of**
            
            **Grant
                Date****Shares**
            
            **Fair
                Value**Non-vested
                at December 31, 2005
            
            
            3,505,250Granted
            
            
            220,000
            
            $
            0.12Vested
            
            
            (1,072,625
            )Exercised
            
            
            —Expired
            
            
            (2,620,625
            )Non-vested
                at December 31, 2006
            
            
            32,000




***Warrants
      –*** On
      January 2, 2002, the Company sold warrants to purchase 33,641,548 shares of
      common stock. The aggregate purchase price of the warrants was $500,000 and
      the
      aggregate exercise price was $3.5 million. These warrants expired on December
      31, 2005. This transaction is described more fully in Note 6, *Private
      Equity Transaction.*





In
      1999,
      the Company granted warrants to purchase 600,000 shares of common stock at
      $1.00
      per share in conjunction with certain financing agreements. These warrants
      expire ten years from the date of grant. As part of the *Private
      Equity*  *Transaction* described
      in Note 6 the holders of the warrants agreed they would be exercisable for
      Non-Voting common stock.





In
      consideration for entering into the Financing Agreement described in Note 4,
      the
      Company issued to Laurus, an option (the “Laurus Option”) and a warrant (the
“Laurus Warrant”) to purchase shares of the Company’s common stock. The Laurus
      Option entitles the holder to purchase up to 8,721,375 shares of common stock,
      subject to certain limitations on the amount of common stock held by Laurus,
      at
      a purchase price of $0.001 per share at any time on or after July 26, 2005.
      The
      Laurus Warrant entitles the holder to purchase up to 1,500,000 shares of common
      stock at a purchase price of $0.80 per share at any time on or after July 26,
      2005 through July 26, 2010.





In
      consideration for entering into the Master Investment Agreement described in
      Note 5, the Company issued to Quincy, warrants to purchase shares of common
      stock. The warrants entitle the holder to purchase up to 7,000,000 shares of
      common stock at a purchase price of $0.80 per share at any time on or after
      July
      22, 2006 until July 22, 2015 and to purchase up to 7,000,000 shares of common
      stock at a purchase price of $1.02 per share at any time on or after July 22,
      2006 until July 22, 2015. In addition, the Company issued to Health Holdings,
      warrants to purchase shares of the Company’s common stock. The warrants entitle
      the holder to purchase up to 10,000,000 shares of common stock at a purchase
      price of $1.00 per share during the period from July 22, 2006 until July 22,
      2015.





On
      July
      26, 2005, the Company issued to Liberty a warrant to purchase up to 3,647,743
      shares of the Company’s common stock at a purchase price of $0.08 per share for
      introducing the Company to Laurus. Redux acquired Liberty’s warrant and all
      rights thereto on November 16, 2006.





A
      summary
      of the Company’s outstanding warrants is as follows:





**Number
                of**
              **Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per**
              **Share**
            
            **Number**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                per**
              **Share**January
                1, 2004
            
            
            34,241,548
            
            $
            0.12
            
            
            34,241,548
            
            $
            0.12Granted
            
            
            -0-
            
            $
            -0-Exercised
            
            
            -0-
            
            $
            -0-Expired
            
            
            (33,641,548
            )
            $
            0.10Outstanding
                at December 31, 2004
            
            
            600,000
            
            $
            1.00
            
            
            600,000
            
            $
            1.00Granted
            
            
            29,147,743
            
            $
            0.83Exercised
            
            
            -0-
            
            $
            0Expired
            
            
            -0-
            
            $
            0Outstanding
                at December 31, 2005
            
            
            29,747,743
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86Granted
            
            
            -0-
            
            $
            0Exercised
            
            
            -0-
            
            $
            0Expired
            
            
            -0-
            
            
            0Cancelled
            
            
            (1,500,000
            )
            $
            0.80Outstanding
                at December 31, 2006
            
            
            28,247,743
            
            $
            0.83
            
            
            29,747,743
            
            $
            0.83




F-27




The
      following table summarizes information about warrants outstanding at December
      31, 2006:





**Range
                of Exercise Prices**
            
            **Warrants**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contract
                Life**
              **In
                Years**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Warrants**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
              **for
                Exercisable**
              **Warrants**$0.01-$0.10
            
            
            3,647,743
            
            
            4
            
            $
            0.08
            
            
            3,647,743
            
            $
            0.08$0.80-$1.10
            
            
            24,600,000
            
            
            4
            
            $
            0.94
            
            
            24,600,000
            
            $
            0.9428,247,743
            
            
            
            
            $
            0.83
            
            
            28,247,743
            
            $
            0.83





**11.**  **INCOME TAXES**





The
      provision for income taxes for the years ended December 31, 2006, 2005 and
      2004
      consists of the following:





**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**CurrentFederal
            
            $
            0
            
            $
            0
            
            $
            0State
            
            
            800
            
            
            800
            
            
            800Total
                current
            
            
            800
            
            
            800
            
            
            800DeferredFederal
            
            
            0
            
            
            0
            
            
            0State
            
            
            0
            
            
            0
            
            
            0Total
                deferred
            
            
            0
            
            
            0
            
            
            0Total
                provision
            
            $
            800
            
            $
            800
            
            $
            800





The
      Company has no foreign operations and all international sales are transacted
      in
      the United States and paid in U.S. Dollars. As a result, the Company has no
      provision for foreign taxes.





The
      income tax provision differs from the amount of income tax determined by
      applying the U.S. federal income tax rate to income before income taxes due
      to
      the following:





**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**
            
            **Year
                Ended**
              **December
                31, 2004**Computed
                tax (benefit) expense
            
            $
            (3,825,092
            )
            $
            (1,241,835
            )
            $
            125,281Increase
                (decrease) in income taxes resulting from:Nondeductible
                expenses
            
            
            3,549
            
            
            9,425
            
            
            9,209Effect
                of gain on retirement of warrants
            
            
            -0-
            
            
            -0-
            
            
            (204,027
            )State
                income taxes, net of federal tax benefit
            
            
            (675,816
            )
            
            (219,147
            )
            
            22,108Federal/state
                true ups
            
            
            —
            
            
            —
            
            
            44,095State
                NOL disallowance and others
            
            
            392,211
            
            
            (167,403
            )
            
            82,985Change
                in valuation allowance
            
            
            4,105,148
            
            
            1,618,960
            
            
            (79,651
            )State
                minimum franchise tax
            
            
            800
            
            
            800
            
            
            800$
            800
            
            $
            800
            
            $
            800




F-28




Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. The significant components of the
      net
      deferred tax assets and liabilities were as follows:





**Year
                Ended**
              **December
                31, 2006**
            
            **Year
                Ended**
              **December
                31, 2005**Current
                deferred tax assets (liabilities)Uniform
                capitalization
            
            $
            10,340
            
            $
            45,228Accounts
                receivable
            
            
            313,284
            
            
            129,444Accruals
            
            
            369,154
            
            
            31,451Inventory
                reserve
            
            
            -0-
            
            
            73,461State
                taxes
            
            
            155
            
            
            -0-Other
            
            
            39,308
            
            
            232,578Valuation
                allowance
            
            
            (732,241
            )
            
            (512,162
            )Total
                current
            
            
            —
            
            
            —Non-current
                deferred tax assets (liabilities):Net
                operating losses and credit carry forwards
            
            
            11,246,120
            
            
            8,298,252Depreciation
            
            
            (4,666
            )
            
            (11,051
            )Intangibles
            
            
            1,061,140
            
            
            -0-Other
            
            
            -0-
            
            
            130,323Valuation
                allowance
            
            
            (12,302,594
            )
            
            (8,417,524
            )Total
                non-current
            
            
            —
            
            
            —Total
            
            $
            —
            
            $
            —





The
      following is a summary of the change in the valuation allowance:





January
                1, 2004
            
            $
            7,390,377Change
                in the valuation allowance
            
            
            (79,651
            )December
                31, 2004
            
            
            7,310,726Change
                in the valuation allowance
            
            
            1,618,960December
                31, 2005
            
            
            8,929,686Change
                in the valuation allowance
            
            
            4,105,109December
                31, 2006
            
            $
            13,034,835





As
      of
      December 31, 2006, the Company had federal net operating loss carry forwards
      of
      $29,756,012 that begin expiring in December 2017 and state net operating loss
      carry forwards of $18,817,934 that begin expiring in December 2005. A valuation
      allowance for the full amount of net deferred taxes has been provided because
      it
      is more likely than not that the deferred taxes will not be realized. Under
      Section 382 of the Internal Revenue Code, certain significant changes in
      ownership, such as the Company’s recent recapitalization, may restrict the
      future utilization of these tax loss carry forwards. Based upon preliminary
      calculations, it is estimated that the utilization of tax losses for federal
      or
      state tax purposes would be limited to approximately $150,000 per year. As
      a
      result, federal net operating losses may expire before the Company is able
      to
      fully utilize them. As the Company is currently in a loss position this limit
      is
      not applicable. A more detailed calculation will be prepared once the Company
      has taxable income for federal purposes.




**12.**  **COMMITMENTS, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS**





***Employment
      Agreements –*** The
      Company had an employment agreement with Mr. Stewart, former Chief Executive
      Officer (“CEO”) that began in February 1998 with an original four year term. As
      amended, the agreement provides for an annual salary of $225,000. As part of
      the
      Private Equity Transaction on January 2, 2002 as described more fully in Note
      6,
      the employment agreement with the Company’s CEO was amended to allow for the
      immediate vesting of options to purchase 365,000 shares of Common Stock, 297,500
      of which would have vested by March 2, 2002, at an exercise price reduced to
      $0.1477 per share, which equals the terms of the *Private*  *Equity
      Transaction* .
      The
      amended and restated employment agreement also reconfirmed the understanding
      that all options become fully vested in the event of any sale of the Company
      and
      extended the term of employment to December 31, 2003 which in turn was extended
      to December 31, 2006. In August 2005, Mr. Stewart’s base compensation was
      increased to $250,000 per year and on December 16, 2005 the Board awarded Mr.
      Stewart non-qualified options to purchase 1,620,000 shares of the Company’s
      common stock, which vest in eight equal quarterly amounts. On March 24, 2006,
      Mr. Stewart’s employment agreement was extended until December 31, 2006. On
      August 10, 2006, Mr. Stewart resigned as chief executive officer of the Company
      pursuant to the assumption of control of the Company’s common stock voting
      rights by Redux Holdings, Inc.




F-29





In
      July
      2003, Mr. Kasprisin, former Chief Financial Officer, entered into an employment
      agreement with the Company that could be terminated without cause by either
      party upon 30 days’ notice. Mr. Kasprisin was entitled to severance equal to six
      month’s base pay should he be terminated without cause by the Company. Pursuant
      to the employment agreement, Mr. Kasprisin was entitled to a base salary of
      $160,000 per year and a bonus based upon his base salary. In addition, Mr.
      Kasprisin was granted options to purchase up to 150,000 shares of Common Stock,
      which options vest in equal quarterly amounts on each of the first eight
      quarters of his employment. In June 2004, Mr. Kasprisin’s employment agreement
      was amended in connection with his promotion to Chief Operating Officer,
      increasing the base compensation to $178,000 per year, adding a vehicle
      allowance of $300 per month and granting options to purchase an additional
      50,000 of common stock, which options vest in eight equal quarterly amounts.
      In
      August 2005, Mr. Kasprisin’s base compensation was increased to $200,000 per
      year and on December 16, 2005, the Board awarded Mr. Kasprisin non-qualified
      options to purchase 1,615,000 shares of the Company’s common stock, which vest
      in eight equal quarterly amounts. On August 10, 2006, Mr. Kasprisin resigned
      as
      Chief Financial Officer of the Company pursuant to the assumption of control
      of
      the Company’s common stock voting rights by Redux Holdings, Inc.





The
      Company does not currently have any active employment agreements.





***Operating
      Leases –*** In
      December 1998, the Company signed a 7 1/2 year lease for a facility including
      new executive offices, sales and marketing offices and warehouse located in
      Irvine, California. This 50,000 square foot facility includes a 40,000 square
      foot finished goods warehouse area configured with a high-density steel rack
      and
      frame storage floor plan. This maximum cubic space utilization provides the
      Company with reasonably sufficient warehousing capacity for the term of the
      lease, specifically in light of the Company’s decision to outsource production,
      thereby eliminating the need for any manufacturing space. The rent expense
      related to this lease for fiscal year ended December 31, 2006 was $371,470.
      The
      lease agreement includes an approximate 9% rent increase after the second,
      fourth and sixth year of the lease period, with a 60-month extension after
      the
      initial lease term at the prevailing market rental rate. On November 1, 2005,
      the Company agreed to an extension of the lease until September 30, 2013. This
      extension resulted in a decrease in the monthly rent from $35,382 per month
      to
      $29,900 beginning on October 1, 2006 increasing to $30, 897 on October 1, 2007,
      $32,392 on October 1, 2008, $33,389 on October 1, 2009, $34,884 on October
      1,
      2010, $36,379 on October 1, 2011 and $37,874 on October 1, 2012. As a result
      of
      the Company’s filing for protection under Chapter 11 of the US Bankruptcy Code,
      the Company requested that the Court reject this lease agreement and in
      September 2006, the Court approved the rejection.





On
      September 1, 2006, the Company entered into a sub-lease agreement with One
      World
      Science Inc, a subsidiary of Redux, whereby the Company leases certain space
      in
      Brea, California. The lease calls for monthly payments of $10,000 and is on
      a
      month to month basis.




Rental
      expenses charged to operations were $381,470, $421,383 and $458,687 for the
      years ended December 31, 2006, 2005 and 2004, respectively.




F-30




***Legal
      Proceedings***  ***–*** From
      time
      to time, the Company is party to various other claims and litigation that arise
      in the normal course of business. While any litigation contains an element
      of
      uncertainty, management believes that the ultimate outcome of these claims
      and
      litigation will not have a material adverse effect on the Company’s results of
      operations or financial condition. Prior to August 31, 2006, the Bankruptcy
      filing date, The Company was involved in the following litigation:





**Ageless
      Foundation, Inc. v. Quincy Investment Corp., Naturade, Inc. and
      Peter**  **H.
      Pocklington** **(Case No. 05-25540 Circuit Court of the 11th Judicial District
      in**  **and
      for Miami-Dade County, Florida).** On
      December 30, 2005, Ageless filed a complaint in Circuit Court of the 11th
      Judicial District in and for Miami-Dade County, Florida against Quincy, the
      Company and Peter H. Pocklington, the former Chairman of the Board of the
      Company, for the alleged failure to pay certain consideration for the purchase
      of corporate assets sold by Ageless to Quincy, which obligation allegedly was
      guaranteed by the Company and Peter H. Pocklington. Ageless is seeking damages
      in the amount of $648,234. This case was settled through the Chapter 11
      Bankruptcy proceedings and the Company is no longer a party to this
      litigation.





On
      September 30, 2006, a judgment in the amount of $271,000 was entered against
      the
      Company related to a vendor. Such amount has been accrued as of December 31,
      2006 and is included in Liabilities Subject to Compromise.





The
      Company has fully accrued the amounts claimed in these suits as of December
      31,
      2006 and has included such amounts in Liabilities Subject to Compromise. In
      addition, the Company has received a stay as to each of these lawsuits under
      its
      Chapter 11 Bankruptcy proceeding. As of this filing no plaintiff or other party
      has made a motion for or been granted a Relief from Stay.





The
      Company is the subject of various litigation matters, including an eviction
      matter with the Irvine Company related to the Company’s office facilities lease.
      The lease was set to expire in 2013; however, the Company vacated the premises
      in August 2006. The Company discontinued the accrual for the remaining rent
      as
      of August 31, 2006 as the lease was rejected by order of the bankruptcy on
      August 31, 2006. Accrued rents remaining unpaid as of August 31, 2006 are
      included in Liabilities Subject to Compromise as of December 31,
      2007.





The
      following litigation matters are currently pending:





a) **** **Fortress
      Systems, LLC dba FSI Nutrition v. Naturade, Inc.** **(Case No. ADV**  **.06-08004
      U.S. Bankruptcy Court, District of Nebraska).** On
      January 11, 2006, Fortress Systems, LLC (dba FSI Nutrition) filed a claim
      against the Company in U.S. Bankruptcy Court, District of Nevada alleging
      failure to pay for a special order product. The plaintiff is seeking $47,255
      in
      damages. This claim was filed in the Company’s Chapter 11 bankruptcy case and is
      now treated as an unsecured creditor claim under the Plan.





b) **Naturade, Inc. v. Doyle & Boissiere, LLC; Health Holdings and Botanicals,
      LLC; Quincy Investments Corp.: Peter H. Pocklington: William B. Doyle, Jr.;
      Lionel P. Boissiere; and Does 1-70 (** **Orange
      County Superior Court, State of California, Case No.: 07CC02752)** Filed
      on
      February 9, 2007. This lawsuit was initiated by the Company to seek
      compensation and damages relating to Breach of Fiduciary Duty, Breach of
      Contract, Fraud, Conversion, Breach of the Implied Covenant, Negligence,
      Accounting, and Declaratory Relief from several former directors and entities
      with which the Company had contractual relationships. The Company seeks
      compensatory and punitive damages against each defendant. A trial for this
      matter has not yet been set. Related to this litigation, on December 8, 2006,
      Quincy Investments, Inc. filed a proof of claim against the Company’s bankruptcy
      estate alleging a general unsecured claim in the approximate amount of
      $350,000.00 (“Quincy Claim”). The Company disputes the Quincy Claim, but has yet
      to file a formal objection to the Quincy Claim. The Company anticipates filing
      a
      formal objection in Bankruptcy Court to the Quincy Claim in April
      2007.





c) **Naturade,
      Inc. v. NBTY, Inc. d/b/a Omni-Pak Industries**  **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1057RK)** Filed on
      February 15, 2007. On December 11, 2006, NBTY, Inc. (“NBTY”) filed proof of
      claim against the Company’s bankruptcy estate alleging a general unsecured claim
      in the amount of $660,774.10 (“NBTY Claim”). The Company disputes the NBTY
      Claim, but has yet to file a formal objection to the NBTY Claim. On February
      15,
      2007, the Company filed a complaint against NBTY d/b/a/ Omni-Pak Industries
      to
      avoid and recover approximately $191,480.81 of preferential transfers of
      property under Bankruptcy Code Sections 547 and 550. A trial for this matter
      has
      not yet been set.




F-31





d) **Naturade,
      Inc. v. Yellow Transportation** **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1055RK).** Filed
      on
      February 14, 2007. On November 6, 2006, Yellow Transportation (“YT”) filed proof
      of claim against the Company’s bankruptcy estate alleging a general unsecured
      claim in the amount of $60,336.88 (“YT Claim”). The Company disputes the YT
      Claim, but has yet to file a formal objection to the YT Claim. On February
      14,
      2007, The Company filed a complaint against YT seeking to avoid and recover
      approximately $191,761.02 of preferential transfers of property under Bankruptcy
      Code Sections 547 and 550. A trial for this matter has not yet been set.





e) **Naturade,
      Inc. v. United Parcel Service, Inc.**  **(United
      States Bankruptcy Court, Adversarial Case No.: SA07-1056RK)** Filed on
      February 14, 2007. On November 6, 2006, UPS filed a proof of claim asserting
      an
      unsecured claim in the amount of $11,997.96 (“UPS Claim”). On February 14, 2007,
      the Company filed a complaint against UPS to avoid and recover approximately
      $22,784.68 of preferential transfers of property under Bankruptcy Code Sections
      547 and 550 (“UPS Complaint”). On April 9, 2007, the Company filed and served a
      motion seeking court approval of a settlement agreement with UPS that provides
      for UPS to pay the Company $3,500.00 and waive any and all other claims against
      the Company as consideration for the Company’s dismissal of the UPS Complaint
      with prejudice.





f) **** **Claims
      and Other Bankruptcy Related Litigation:** The
      Company anticipates that objections to numerous claims filed against the
      Company’s bankruptcy estate will be prepared and prosecuted by the Company in or
      about April 2007 based on several factual and legal grounds, which should result
      in the reduction or elimination of certain claims filed in the bankruptcy case. **** In
      addition thereto, the Company may commence additional adversary actions,
      including actions for avoidance and recovery of preferential transfers against
      certain of the Company’s pre-petition date creditors.





The
      Company has fully accrued the amounts claimed in these suits as of December
      31,
      2006. In addition, the Company has received a stay as to each of these lawsuits
      under its Chapter 11 Bankruptcy proceeding. As of this filing no plaintiff
      or
      other party has made a motion for or been granted a Relief from
      Stay.





***Related
      Party Transactions -*** Redux
      controls voting rights of 29,550,000 shares of Common Stock and 4,200,000 shares
      of Series C, or 72.4% of the voting power of the Common Stock, 20.0% of the
      voting power of the Series C, and 54% of the combined voting power of the Common
      Stock and the Series C. The holders of the Series C are entitled to vote along
      with the Common Stock (on an as-converted basis) on all matters, including
      the
      election of directors, presented to the stockholders. As a result, Redux has
      the
      power to elect a majority of the Board of Directors and to determine the outcome
      of any matter submitted to the stockholders, subject to the rights of the
      holders of the Series C.





Redux
      as
      part of its infusion of cash and other services to the Company during its
      bankruptcy, has provide legal services to the Company in the form of its General
      Counsel Gary Curtis Cannon. Mr. Cannon is retained by Redux to act as its
      General Counsel and SEC attorney for $12,000 per month. Redux provides Mr.
      Cannon’s services as the Company’s General Counsel and SEC attorney under his
      currant retainer agreement with Redux.





During
      the Company’s Chapter 11 Bankruptcy and to facilitate the Company’s
      reorganization, Redux has made corporate guarantees to one of the Company’s
      vendors to allow the Company to purchase formula to continue to produce and
      distribute certain of its products. Redux provided a corporate guarantee to
      Best
      Formulations Inc. to allow the Company to purchase certain of its formula from
      it. Redux also provided a guarantee to the Unsecured Creditors and the Unsecured
      Creditors Committee under the Plan as part of its financial infusion and support
      of the Company reorganization.





On
      April
      14, 2003, the Company entered into a loan agreement (the “Loan Agreement”) with
      Health Holdings and Botanicals, LLC, a principal stockholder of Naturade, and
      David A. Weil, a past director and stockholder of the Company (the “Lender
      Group”), pursuant to which the Lender Group has agreed to lend the Company
      $450,000 and, subject to the discretion of the Lender Group, up to an additional
      $300,000. All advances under the Loan Agreement bear interest at the rate of
      15%
      per annum, are due on December 31, 2005, and are secured by substantially all
      of
      the Company’s assets. This due date was extended as discussed
      below.




F-32





On
      April
      14, 2004, the terms of the Loan Agreement were modified by the Joinder of Bill
      D. Stewart, our Chief Executive Officer as a member of the Lender Group, subject
      to all of the terms and conditions of the Loan Agreement, and the Lender Group
      advanced an additional $200,000, of which Bill D. Stewart advanced $100,000.
      Further, on May 3, 2004, the Lender Group advanced the Company an additional
      $100,000. Further, on August 16, 2004, advances allowed under the Loan Agreement
      were increased to a total of $950,000 and the Lender Group advanced an
      additional $200,000 to Naturade. There are no additional amounts available
      to
      advance under the Loan Agreement. Proceeds of the advances have been used for
      working capital. On January 26, 2005, the terms of the Loan Agreement were
      modified to extend the due date to December 31, 2006. Pursuant to the
      recapitalization in July, 2005, Health Holdings, Stewart and Weil agreed to
      extend the term of the Secured Promissory Notes issued to them under the Loan
      Agreement from December 31, 2006 to December 31, 2006. The Secured Promissory
      Notes became claims under the Company’s Chapter 11 bankruptcy proceedings in
      August 2006.





On
      August
      30, 2005, the Company entered into a consulting agreement with Quincy,
      Naturade’s then largest stockholder, whereby Quincy would provide advice to the
      Company and its affiliates regarding acquisitions, strategic planning,
      operations and financing. For its services, Quincy would receive a Consulting
      Fee of $300,000 per year payable in monthly installments. In addition, Quincy
      would receive Acquisition Fees equal to 2% of the purchase price of any
      acquisitions completed or equity capital raised during the term of the
      consulting agreement. When earned, 50% of such Acquisition Fees would be
      credited by the Company against future Consulting Fees. The consulting agreement
      was terminated in August 2006, pursuant to the assumption of control of the
      Company’s common stock voting rights by Redux Holdings, Inc.





Redux
      as
      part of its infusion of cash and other services to the Company during its
      bankruptcy, has provide legal services to the Company in the form of its General
      Counsel Gary Curtis Cannon. Mr. Cannon is retained by Redux to act as its
      General Counsel and SEC attorney for $12,000 per month. Redux provides Mr.
      Cannon’s services as the Company’s General Counsel and SEC attorney under his
      currant retainer agreement with Redux.





During
      the Company’s Chapter 11 Bankruptcy and to facilitate the Company’s
      reorganization, Redux has made corporate guarantees to one of the Company’s
      vendors to allow the Company to purchase formula to continue to produce and
      distribute certain of its products. Redux provided a corporate guarantee to
      Best
      Formulations Inc. to allow the Company to purchase certain of its formula from
      it. Redux also provided a guarantee to the Unsecured Creditors and the Unsecured
      Creditors Committee under the Plan as part of its financial infusion and support
      of the Company reorganization





On
      August
      16, 2006, the Company entered into a Services Agreement with One World Science,
      Inc., a subsidiary of Redux, whereby One World Science would provide various
      services including among others, advertising, sales, compliance and customer
      services to the Company for an amount of the fully burden costs of the services
      plus up to 25% of such costs. The Company continues to lease all of its
      employees from One World Science.





On
      September 1, 2006, the Company entered into a Sublease and Occupancy Agreement
      with One World Science, Inc. whereby One World Science subleases to the Company
      approximately 9,000 square feet of office space including all necessary services
      for $10,000 per month. The Company continues to use this space in Brea,
      California to house its operations.





On
      February 28, 2007, Redux purchased from Naomi Balcombe and Ageless (Balcombe
      and
      Ageless are collectively, referred to herein as the “Ageless Parties”) the
      $1,248,234 claim the Ageless parties submitted in the Naturade
      bankruptcy.





Ms.
      Muller, a director of Naturade from August 10, 2006 to April 12, 2007, has
      a
      consulting agreement, entered into in July 2006, with Redux pursuant to which
      she was issued shares of Redux common stock.





F-33




**13.**  **401(k)
      PLAN**





The
      Company has a 401(k) profit sharing plan that is available to all employees
      of
      the Company who meet certain age and length of service requirements. The plan
      provides for Company matching contributions equal to 25% of each employee
      participant’s contribution not to exceed 6% of the employee participant’s
      compensation. The Company’s contribution to the plan was $20,859, $15,040 and
      $17,016 for the years ended December 31, 2006, 2005 and 2004,
      respectively.





On
      September 1, 2006, management voluntary suspended the 401(k) Plan as the Company
      began leasing its personnel from One World Science and no longer had any direct
      employees. Company continues to lease all of its employees from One World
      Science.





**14.**  **SEGMENT
      REPORTING**





Operating
      segments are defined as components of an enterprise about which separate
      financial information is available that is evaluated regularly by the Company’s
      chief operating decision-maker, or decision-making group, in deciding how to
      allocate resources and in assessing performance. The Company’s chief operating
      decision-maker is the CEO.





The
      Company’s reportable operating segments include health food specialty stores and
      mass market categories. The Company does not allocate operating expenses to
      these segments, nor does it allocate specific assets to these segments.
      Therefore, segment information reported includes only sales, cost of sales
      and
      gross profit. Operating segment data for the years ended December 31, 2006,
      2005
      and 2004 are as follows:





Distribution
      Channels





**Health
                Food**
            
            **Mass**
            
            **Total**Year
                ended December 31, 2006Sales
            
            $
            6,102,517
            
            $
            3,329,502
            
            $
            9,432,019Cost
                of sales
            
            
            3,973,743
            
            
            2,142,409
            
            
            6,116,152Gross
                profit
            
            $
            2,128,774
            
            $
            1,187,093
            
            $
            3,315,867





**Health
                Food**
            
            **Mass**
            
            **Total**Year
                ended December 31, 2005Sales
            
            $
            7,461,455
            
            $
            5,294,631
            
            $
            12,756,086Cost
                of sales
            
            
            3,448,562
            
            
            3,056,875
            
            
            6,505,437Gross
                profit
            
            $
            4,012,893
            
            $
            2,237,756
            
            $
            6,250,649





**Health
                Food**
            
            **Mass**
            
            **Total**Year
                ended December 31, 2004Sales
            
            $
            7,220,283
            
            $
            6,921,198
            
            $
            14,141,481Cost
                of sales
            
            
            3,947,949
            
            
            3,854,853
            
            
            7,802,802Gross
                profit
            
            $
            3,272,334
            
            $
            3,066,345
            
            $
            6,338,679





Sales
      are
      attributed to geographic areas based on the location of the entity to which
      the
      products were sold. Geographic segment data for the years ended December 31,
      2006, 2005 and 2004 are as follows:





**United
                States**
            
            **International**
            
            **Total**Year
                ended December 31, 2006Sales
            
            $
            8,828,309
            
            $
            603,710
            
            $
            9,432,019Cost
                of sales
            
            
            5,832,408
            
            
            283,744
            
            
            6,116,152Gross
                profit
            
            $
            2,995,901
            
            $
            319,966
            
            $
            3,315,867Year
                ended December 31, 2005Sales
            
            $
            12,405,687
            
            $
            350,399
            
            $
            12,756,086Cost
                of sales
            
            
            6,311,493
            
            
            193,944
            
            
            6,505,437Gross
                profit
            
            $
            6,094,193
            
            $
            156,456
            
            $
            6,250,649Year
                ended December 31, 2004Sales
            
            $
            13,747,244
            
            $
            394,237
            
            $
            14,141,481Cost
                of sales
            
            
            7,570,658
            
            
            232,144
            
            
            7,802,802Gross
                profit
            
            $
            6,176,586
            
            $
            162,093
            
            $
            6,338,679





F-34





**15.**  **QUARTERLY
      FINANCIAL DATA (UNAUDITED)**





Summary
      unaudited quarterly financial data from continuing operations for 2006 and
      2005
      are as follows:





**Fiscal
                year ended December 31, 2006**
            
            **First**
              **Quarter**
            
            **Second**
              **Quarter**
            
            **Third**
              **Quarter**
            
            **Fourth**
              **Quarter
                (1)**Net
                sales
            
            $
            3,795,512
            
            $
            2,786,622
            
            $
            1,769,464
            
            $
            1,080,421Gross
                profit
            
            
            1,869,477
            
            
            1,342,386
            
            
            713,031
            
            
            (609,027
            )Operating
                loss
            
            
            (446,464
            )
            
            (1,222,484
            )
            
            (1,496,511
            )
            
            (6,107,784
            )Net
                loss
            
            $
            (1,300,972
            )
            $
            (4,631,467
            )
            $
            (3,136,114
            )
            $
            (2,182,305
            )Net
                loss per share, basic and diluted
            
            $
            (0.05
            )
            $
            (0.12
            )
            $
            (0.09
            )
            $
            (0.05
            )Weighted
                average shares outstanding, basic
            
            
            40,883,673
            
            
            43,332,733
            
            
            43,332,733
            
            
            43,332,733





(1)
      Adjustments made in the fourth quarter of 2006 include the
      following:


·
                An
                    increase of $240,206 was recorded in the Accounts Receivable
                    reserve for
                    returns and charge backs. The Company’s Chapter 11 Bankruptcy filing
                    caused customers to delay issuance of payments, returns and chargebacks
                    to
                    the Company beyond the historical payment terms experienced by
                    the
                    Company. An analysis was performed on the aged receivables as
                    of December
                    31, 2006 which warranted the increase to the reserve.
  ·
                Deferred
                    financing fees related to the Ageless note payable in the amount
                    of
                    $347,601 were written off to interest expense.This
                    note became due in February 2006, at which time the related deferred
                    financing fees would have been fully amortized, however the amortization
                    was scheduled beyond the term of the note. After analysis, the
                    Company has
                    determined the impact of this fourth quarter adjustment as it
                    relates to
                    the results of the first quarter earnings in 2006 is not
                    material.
  ·
                Additional
                    prepetition liabilities were recorded in the amount of $624,411
                    relating
                    to bankruptcy claims received under the Chapter 11 bankruptcy
                    proceedings.
  ·
                Intangible
                    assets relating to Ageless and Symco customer lists were evaluated
                    by the
                    Company and written down according to the decline in present
                    value based
                    on analysis performed at December 31, 2006. Accordingly, the
                    remaining
                    unamortized value of $296,389 of the Ageless customer lists was
                    written
                    off and the unamortized value of the Symco customer list was
                    written down
                    by $86,907.
  ·
                A
                    change in the warrant liability of $1,285,797 was recorded as
                    income to
                    restate the amount previously written off to Additional Paid
                    in Capital at
                    September 30, 2006.The
                    combined effect of this December entry accounted for the following
                    adjustments:
  a)
                For
                    the August 2006 cancellation of the Laurus warrant (for up to
                    1,500,000
                    shares) upon transfer to Redux, the carrying value of the Laurus
                    warrant
                    liability of $91,930 was written off to other income (change
                    in warrant
                    liability).
  b)
                In
                    September 2006, pursuant to the Company’s bankruptcy filing and related
                    Plan of Reorganization, it was determined that the remaining
                    liability
                    warrants were likely to be cancelled and therefore registration
                    rights
                    were effectively eliminated. The Company determined the fair
                    value of the
                    remaining warrant and option liability to be $569,737 which was
                    reclassified to additional paid in capital. The mark-to-market
                    adjustment
                    to fair value on the remaining warrant and option liability of
                    $1,285,797
                    was recorded to other income (change in warrant liability).
  After
          analysis of this December adjustment, the Company has determined the impact
          of
          this fourth quarter adjustment as relates to the results of the third quarter
          earnings in 2006 is not material .
  ·
                Interestof
                    $131,447based on a default rate of 18%, was accrued on the Ageless note
                    from
                    February 6, 2006 to August 31,
                    2006.
  ·
                Deferred
                    financing fees of $30,000 were written
                    off.
  **Fiscal
                  year ended December 31, 2005**
              
              **First
                  Quarter**
              
              **Second
                  Quarter**
              
              **Third
                  Quarter**
              
              **Fourth
                  Quarter**Net
                  sales
              
              $
              2,913,531
              
              $
              2,761,811
              
              $
              3,559,979
              
              $
              3,520,765Gross
                  profit
              
              
              1,376,017
              
              
              1,212,291
              
              
              1,851,404
              
              
              1,810,937Operating
                  loss
              
              
              (231,966
              )
              
              (279,280
              )
              
              (686,335
              )
              
              (974,515
              )Net
                  loss
              
              
              (316,559
              )
              
              (365,076
              )
              $
              (1,241,512
              )
              $
              (1,825,108
              )Net
                  loss per share, basic and diluted
              
              $
              (0.01
              )
              $
              (0.01
              )
              $
              (0.04
              )
              $
              (0.03
              )Weighted
                  average shares outstanding, basic
              
              
              44,651,170
              
              
              44,651,170
              
              
              39,533,703
              
              
              39,251,964




**16.**  **SUBSEQUENT EVENTS**





The
      Company’s plan of reorganization under Chapter 11 was approved on February 28,
      2007, by the United States Bankruptcy Court, Central District of California,
      Santa Ana Division (Case No. SA 06-11493 RK). The reorganization plan received
      virtually unanimous support from the Company’s creditors and shareholders, as
      well as strong support from the Company’s lenders and the Company’s Unsecured
      Creditors Committee. The
      Company expects its Plan to becomeeffective**in
      April
      2007 (the “Effective Date”)based
      upon representations the Companyhas
      received from Redux Holdings Inc.(“Redux”),
      the
      Company”s controlling shareholder, who has agreed toprovide
      the funding required under its Plan.A
      copy of
      the Plan may be accessed at the website addresswww.winthropcouchot.com/client_files.phpunder
      client documents-Naturade.
      The Company will remain a fullyreporting
      publicly traded company.




F-35




The
        Company’s reorganization plan provides for a recapitalization of the Company
        with the Company’s controlling shareholder, Redux Holdings, Inc. (RDXH.PK)
        providing a substantial cash infusion to meet the Company’s future working
        capital needs. In addition to a comprehensive debt restructuring, the
        reorganization plan features an equity allocation and the plan allows for
        the
        retention of an equity interest by existing shareholders in the company.


The
      Company’s reorganization plan as approved by the court is expected to become
      effective in April 2007, at which time all Company Series C Preferred shares,
      along with their voting and control rights, all options, all warrants, and
      all
      registration rights, will be cancelled as required under the Plan. The Company,
      as required by the Plan, will then issue Redux enough shares of restricted
      common stock to give Redux a 95% equity and voting interest in the Company.
      All
      remaining shareholders will have a total of 5% equity interest in the Company.




F-36




**EXHIBIT
      INDEX**




**Exhibit****Number**
            
            **Document**3.1
            
            Certificate
                of Incorporation of Naturade, Inc., together with amendments and
                Certificates of Designation relating thereto, incorporated by reference
                to
                Exhibit 3.1 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended September 30, 1997.3.2
            
            Certificate
                of Amendment to Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on December 20, 2001, and incorporated
                by
                reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed
                on January 3, 2002.3.3
            
            Certificate
                of Designation of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on December 20, 2001,
                and
                incorporated by reference to Exhibit 3.5 to the Company’s Current Report
                on Form 8-K filed on January 3, 2002.3.4
            
            Certificate
                of Amendment to Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on December 28, 2001, and incorporated
                by
                reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed
                on January 3, 2002.3.5
            
            Certificate
                of Elimination of Series A Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on January 3, 2002 incorporated
                by reference to Exhibit 3.5 to Form SB-2 (File No.
                333-127397).3.6
            
            Certificate
                of Amendment of Certificate of Incorporation of Naturade, Inc., filed
                with
                the Delaware Secretary of State on May 15, 2003 incorporated by reference
                to Exhibit 3.6 to Form SB-2 (File No. 333-127397).3.7
            
            Certificate
                of Amendment of Certificate of Designation of Series B Convertible
                Preferred Stock of Naturade, Inc., filed with the Delaware Secretary
                of
                State on May 15, 2003 incorporated by reference to Exhibit 3.7 to
                Form
                SB-2 (File No. 333-127397).3.8
            
            Certificate
                of Decrease of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005 incorporated
                by reference to Exhibit 3.8 to Form SB-2 (File No.
                333-127397).3.9
            
            Certificate
                of Designation of Series C Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005, and
                incorporated by reference to Exhibit 3.1 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.3.10
            
            Certificate
                of Elimination of Series B Convertible Preferred Stock of Naturade,
                Inc.,
                filed with the Delaware Secretary of State on July 28, 2005, and
                incorporated by reference to Exhibit 3.2 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.3.11
            
            Amended
                and Restated Bylaws of Naturade, Inc., as amended December 7, 2001,
                incorporated by reference to Exhibit 3.6 to the Company’s Current Report
                on Form 8-K filed on January 3, 2002.4.1
            
            Form
                of certificate of common stock, par value $0.0001 per share incorporated
                by reference to Exhibit 4.1 to Form SB-2 (File No.
                333-127397).4.2
            
            Form
                of certificate of Series C Convertible Preferred Stock, par value
                $0.0001
                per share, incorporated by reference to Exhibit 4.1 to the Company’s
                Current Report on Form 8-K filed on July 28, 2005.10.1*
            
            Form
                of Option Agreement for Purchase of Naturade, Inc. Common Stock for
                Directors, incorporated by reference to Exhibit M to the Company’s Annual
                Report on Form 10-K for the fiscal year ended September 30,
                1995.10.2*
            
            Naturade,
                Inc. 1998 Incentive Stock Option Plan, as amended, incorporated by
                reference to Exhibit 10.17 to the Company’s Quarterly Report on Form 10-Q
                for the period ended March 31, 1998.10.3*
            
            Incentive
                Stock Option Plan with Bill D. Stewart, dated March 2, 1998, incorporated
                by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form
                10-Q filed for the period ended March 31,
                1998.









**Exhibit****Number**
            
            **Document**


10.4
            
            Industrial
                Lease, dated as of December 23, 1998, between the Company and The
                Irvine
                Company, incorporated by reference to Exhibit 10.25 to the Company’s
                Quarterly Report on Form 10-Q filed for the period ended June 30,
                2000.10.5
            
            Loan
                Agreement among the Company, Health Holdings and Botanicals, LLC
                and Wald
                Holdings, LLC, dated as of August 31, 2000, incorporated by reference
                to
                Exhibit 99.1 to the Company’s Current Report on Form 8-K filed on
                September 20, 2000.10.6*
            
            Amended
                and Restated Employment Agreement between the Company and Bill D.
                Stewart,
                dated as of January 2, 2002, incorporated by reference to Exhibit
                10.32 to
                the Company’s Current Report on Form 8-K filed January 3,
                2002.10.7
            
            Loan
                Agreement by and among the Company, Health Holdings and Botanicals,
                LLC
                and David A. Weil, dated April 14, 2003, incorporated by reference
                to
                Exhibit 10.40 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended December 31, 2002.10.8*
            
            First
                Amendment to Amended and Restated Employment Agreement between the
                Company
                and Bill D. Stewart, dated March 29, 2004, incorporated by reference
                to
                Exhibit 10.45 to the Company’s Annual Report on Form 10-K for the fiscal
                year ended December 31, 2003.10.9
            
            Joinder
                to Loan Agreement of Naturade, Inc., dated as of April 13, 2003,
                by and
                among Bill D. Stewart and the lenders listed therein, incorporated
                by
                reference to Exhibit 10.46 to the Company’s Current Report on Form 8-K
                filed on April 22, 2004.10.10
            
            Secured
                Promissory Note for $100,000 by the Company payable to Bill D. Stewart,
                dated April 14, 2004, incorporated by reference to Exhibit 10.48
                to the
                Company’s Current Report on Form 8-K filed on April 22,
                2004.10.11
            
            Secured
                Promissory Note for $100,000 by the Company payable to Health Holdings
                & Botanicals, LLC, dated April 14, 2004, incorporated by reference
                to
                Exhibit 10.49 to the Company’s Current Report on Form 8-K filed on April
                22, 2004.10.12
            
            Secured
                Promissory Note for $25,000 by the Company payable to David Weil,
                dated
                May 3, 2004, incorporated by reference to Exhibit 10.50 to the Company’s
                Current Report on Form 8-K filed on May 6, 2004.10.13
            
            Secured
                Promissory Note for $75,000 by the Company payable to Health Holdings
                & Botanicals, LLC, dated May 3, 2004, incorporated by reference to
                Exhibit 10.51 to the Company’s Current Report on Form 8-K filed on May 6,
                2004.10.14*
            
            Revised
                Employment Agreement between the Company and Stephen M. Kasprisin,
                dated
                as of June 1, 2004, incorporated by reference to Exhibit 10.53 to
                the
                Company’s Current Report on Form 8-K filed on June 14,
                2004.10.15*
            
            Revised
                Employment Agreement between the Company and Marwan Zreik, dated
                as of
                June 1, 2004, incorporated by reference to Exhibit 10.54 to the Company’s
                Current Report on Form 8-K filed on June 14, 2004.10.16
            
            Asset
                Purchase Agreement, dated November 2, 2004, between the Company and
                L.O.D.C. Group, LTD, incorporated by reference to Exhibit 10.54 to
                the
                Company’s Current Report on Form 8-K filed on November 9,
                2004.10.17
            
            First
                Amendment, dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 13, 2003, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.57 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.18
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 14, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.58 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.19
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 13, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.59 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.









**Exhibit****Number**
            
            **Document**


10.20
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                August 16, 2004, between the Company and Health Holdings & Botanicals,
                LLC, incorporated by reference to Exhibit 10.60 to the Company’s Annual
                Report on Form 10-K for the fiscal year ended December 31,
                2005.10.21
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                April 13, 2003, between the Company and David A. Weil, incorporated
                by
                reference to Exhibit 10.61 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.22
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 3, 2004, between the Company and David A. Weil, incorporated
                by
                reference to Exhibit 10.62 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.23
            
            First
                Amendment dated as of January 26, 2005, to Secured Promissory Note,
                dated
                May 3, 2004, between the Company and Bill D. Stewart, incorporated
                by
                reference to Exhibit 10.63 to the Company’s Annual Report on Form 10-K for
                the fiscal year ended December 31, 2005.10.24
            
            First
                Amendment to Loan Agreement, dated August 21, 2003, between the Company
                and Howard Shao incorporated by reference to Exhibit 10.24 to FormSB-2
                (File No. 333-127397).10.25
            
            Second
                Amendment to Loan Agreement, dated September 23, 2004, between the
                Company
                and Howard Shao incorporated by reference to Exhibit 10.25 to Form
                SB-2
                (File No. 333-127397).10.26
            
            Third
                Amendment to Loan Agreement, dated March 25, 2005, between the Company
                and
                Howard Shao, incorporated by reference to Exhibit 10.64 to the Company’s
                Annual Report on Form 10-K for the fiscal year ended December 31,
                2005.10.27
            
            Master
                Investment Agreement, dated as of July 22, 2005, by and among the
                Company,
                Health Holdings and Botanicals, LLC, Westgate Equity Partners, L.P.,
                Quincy Investments Corp., Bill D. Stewart and David A. Weil, incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.28
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Health
                Holdings and Botanicals, LLC to purchase up to 10,000,000 shares
                of common
                stock at $1.00 per share, incorporated by reference to Exhibit 10.2
                to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.29
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Quincy
                Investments Corp. to purchase up to 7,000,000 shares of common stock
                at
                $0.80 per share, incorporated by reference to Exhibit 10.3 to the
                Company’s Current Report on Form 8-K filed on July 28, 2005.10.30
            
            Common
                Stock Purchase Warrant, dated as of July 22, 2005, entitling Quincy
                Investments Corp. to purchase up to 7,000,000 shares of common stock
                at
                $1.02 per share, incorporated by reference to Exhibit 10.4 to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.31
            
            Registration
                Rights Agreement, dated as of July 22, 2005, by and among the Company,
                Health Holdings and Botanicals, LLC, Westgate Equity Partners, L.P.
                and
                Quincy Investments Corp., incorporated by reference to Exhibit 10.5
                to the
                Company’s Current Report on Form 8-K filed on July 28,
                2005.10.32
            
            Asset
                Purchase Agreement, dated as of July 22, 2005, by and among Quincy
                Investments Corp., Symco, Inc. and Symbiotics, Inc., incorporated
                by
                reference to Exhibit 10.6 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.33
            
            Assignment
                and Assumption Agreement dated, as of July 22, 2005, by and among
                the
                Company, Quincy Investments Corp., Symco, Inc. and Symbiotics, Inc.,
                incorporated by reference to Exhibit 10.7 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.10.34
            
            Asset
                Purchase Agreement, dated as of July 27, 2005, by and between Quincy
                Investments Corp. and The Ageless Foundation, Inc., incorporated
                by
                reference to Exhibit 10.8 to the Company’s Current Report on Form 8-K
                filed on July 28, 2005.10.35
            
            Assignment
                and Assumption Agreement, dated as of July 28, 2005, by and among
                the
                Company, Quincy Investments Corp. and The Ageless Foundation, Inc.,
                incorporated by reference to Exhibit 10.9 to the Company’s Current Report
                on Form 8-K filed on July 28, 2005.









**Exhibit****Number**
            
            **Document**


10.36
            
            Security
                and Purchase Agreement, by and between the Company and Laurus Master
                Fund,
                Ltd., dated July 26, 2005, incorporated by reference to Exhibit 10.1
                to
                the Company’s Current Report on Form 8-K filed on August 1,
                2005.10.37
            
            Common
                Stock Purchase Option, dated as of July 26, 2005, entitling Laurus
                Master
                Fund, Ltd. to purchase up to 8,721,375 shares of common stock at
                $0.001
                per share, incorporated by reference to Exhibit 10.2 to the Company’s
                Current Report on Form 8-K filed on August 1, 2005.10.38
            
            Common
                Stock Purchase Warrant, dated as of July 26, 2005, entitling Laurus
                Master
                Fund, Ltd. to purchase up to 1,500,000 shares of common stock at
                $0.80 per
                share, incorporated by reference to Exhibit 10.3 to the Company’s Current
                Report on Form 8-K filed on August 1, 2005.10.39
            
            Secured
                Convertible Term Note in the amount of $1,000,000, by and between
                the
                Company and Laurus Master Fund, Ltd., dated July 26, 2005, incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on August 1, 2005.10.40
            
            Secured
                Revolving Note in the amount of $3,000,000, by and between the Company
                and
                Laurus Master Fund, Ltd., dated July 26, 2005, incorporated by reference
                to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on
                August 1, 2005.10.41
            
            Registration
                Rights Agreement, dated as of July 26, 2005, by and between the Company
                and Laurus Master Fund, Ltd., incorporated by reference to Exhibit
                10.6 to
                the Company’s Current Report on Form 8-K filed on August 1,
                2005.10.42
            
            Secured
                Convertible Minimum Borrowing Note in the amount of $500,000, by
                and
                between the Company and Laurus Master Fund, Ltd., dated July 26,
                2005,
                incorporated by reference to Exhibit 10.7 to the Company’s Current Report
                on Form 8-K filed on August 1, 2005.10.43
            
            Promissory
                Note in the amount of $1,775, 687.46, dated August 3, 2005, by Quincy
                Investments Corp. and the Company payable to Symbiotics, Inc.,
                incorporated by reference to Exhibit 4.1 to the Company’s Current Report
                on Form 8-K filed on August 9, 2005.10.44
            
            Promissory
                Note in the amount of $648,234.00, dated August 5, 2005, by Quincy
                Investments Corp. and the Company payable to The Ageless Foundation,
                Inc.,
                incorporated by reference to Exhibit 4.2 to the Company’s Current Report
                on Form 8-K filed on August 9, 2005.10.45
            
            Guaranty
                of Promissory Note, dated as of August 3, 2005, by Peter H. Pocklington
                for the benefit of each of Symco Inc. and Symbiotics, Inc., incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005.10.46
            
            Guaranty
                of Promissory Note, dated as of August 5, 2005, by Peter H. Pocklington
                for the benefit of The Ageless Foundation, Inc., incorporated by
                reference
                to Exhibit 10.10 to the Company’s Current Report on Form 8-K filed on
                August 9, 2005.10.47
            
            Trademark
                License Agreement, dated August 3, 2005, by and among the Company,
                Symco,
                Inc. and Symbiotics, Inc., incorporated by reference to Exhibit 10.9
                to
                the Company’s Current Report on Form 8-K filed on August 9,
                2005.10.48
            
            Consulting
                Agreement, dated August 30, 2005, between Naturade, Inc. and Quincy
                Investment Corp., incorporated by reference to Exhibit 1.01 to the
                Company’s Current Report on Form 8-K filed on September 6,
                2005.10.49
            
            Asset
                Purchase Agreement, dated as of October 7, 2005, by and between Naturade,
                Inc. and Innovation Ventures, L.L.C. d b a Living Essentials, incorporated
                by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K
                filed on October 14, 2005.10.50
            
            Amendment
                and Waiver, dated November 25, 2005 between Naturade, Inc. and Laurus
                Master Fund Ltd. incorporated by reference to Exhibit 99.1 to the
                Company’s Current Report on Form 8-K filed on December 1,
                2005.10.51
            
            Overadvance
                Side Letter between Naturade, Inc. and Laurus Master Fund Ltd., dated
                November 29, 2005 incorporated by reference to Exhibit 99.2 to the
                Company’s Current Report on Form 8-K filed on December 1,
                2005.









**Exhibit****Number**
            
            **Document**


10.52
            
            Payoff
                Agreement by and between Naturade, Inc., Peter Pocklington and David
                Brown, dated November 22, 2005 incorporated by reference to Exhibit
                99.3
                to the Company’s Current Report on Form 8-K filed on December 1,
                2005.10.53
            
            Amended
                and Restated Security and Purchase Agreement, by and between Laurus
                Master
                Fund, LTD. and Naturade, Inc., dated January 6, 2006 incorporated
                by
                reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.54
            
            Amended
                and Restated Secured Term Note in the amount of $1,650,000, by and
                between
                Laurus Master Fund, LTD. and Naturade, Inc., dated January 6, 2006
                incorporated by reference to Exhibit 10.2 to the Company’s Current Report
                on Form 8-K filed on January 16, 2006.10.55
            
            Amended
                and Restated Secured Revolving Note in the amount of $3,000,000 by
                and
                between Laurus Master Fund, LTD. and Naturade, Inc., dated January
                6, 2006
                incorporated by reference to Exhibit 10.3 to the Company’s Current Report
                on Form 8-K filed on January 16, 2006.10.56
            
            Reaffirmation
                and Ratification Agreement and Amendment by and between Laurus Master
                Fund, LTD. and Naturade, Inc., dated January 6, 2006 incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.57
            
            Amended
                and Restated Registration Rights Agreement, dated as of January 6,
                2006,
                by and between Naturade, Inc., and Laurus Master Fund, LTD incorporated
                by
                reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
                filed on January 16, 2006.10.58
            
            Consulting
                Agreement, dated as of August 5, 2005, by and between Naomi Balcombe
                and
                Naturade, Inc. incorporated by reference to Exhibit 10.11 to the
                Company’s
                Current Report on Form 8-K filed on August 9, 2005,10.59
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                5, 2005, by and between Naturade, Inc. and Naomi Balcombe incorporated
                by
                reference to Exhibit 10.12 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005,10.60
            
            Transition
                Agreement, entered into as of August 3, 2005, by and between Naturade,
                Inc., Symco, Inc. and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.61
            
            Consulting
                Agreement, dated as of August 3, 2005, by and between Douglas Wyatt
                and
                Naturade, Inc. Incorporated and Symbiotics, Inc. incorporated by
                reference
                to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on
                August 9, 2005,10.62
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                3, 2005, by and between Naturade, Inc. and Douglas Wyatt incorporated
                by
                reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
                filed on August 9, 2005,10.63
            
            Consulting
                Agreement, dated as of August 3, 2005, by and between David Brown
                and
                Naturade, Inc. and Symbiotics, Inc. incorporated by reference to
                Exhibit
                10.5 to the Company’s Current Report on Form 8-K filed on August 9,
                2005,10.64
            
            Independent
                Contractor Proprietary Information and Inventions Agreement, dated
                August
                3, 2005, by and between Naturade, Inc. and David Brown and Symbiotics,
                Inc. incorporated by reference to Exhibit 10.6 to the Company’s Current
                Report on Form 8-K filed on August 9, 2005,10.65
            
            Common
                Stock Lock Up Agreement, dated August 3, 2005, by and between Naturade,
                Inc. and Douglas Wyatt and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.5 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.66
            
            Common
                Stock Lock Up Agreement, dated August 3, 2005, by and between Naturade,
                Inc. and David Brown and Symbiotics, Inc. incorporated by reference
                to
                Exhibit 10.7 to the Company’s Current Report on Form 8-K filed on August
                9, 2005,10.67
            
            Fourth
                Amendment to Loan Agreement, dated as of March 24, 2006, by and between
                Naturade, Inc. and Howard Shao incorporated by reference to Exhibit
                99.1
                to the Company’s Current Report on Form 8-K filed on March 29,
                2006.









**Exhibit****Number**
            
            **Document**


10.68*
            
            Second
                Amendment to Amended and Restated Employment Agreement, dated as
                of March
                24, 2006, by and between Naturade, Inc. and Bill D. Stewart incorporated
                by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K
                filed on March 29, 2006.10.69
            
            Agreement,
                dated May 31, 2006, by and among Quincy Investments Corp., Naturade,
                Inc.,
                Symbiotics, Inc. and Symco, Incorporated, incorporated by reference
                to
                Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 31,
                200610.70
            
            Amended
                and Restated Promissory Note, dated May 31, 2006, by and among Quincy
                Investments Corp., Naturade, Inc., Symbiotics, Inc. and Symco,
                incorporated by reference to Exhibit 10.2 to the Company’s Current Report
                on Form 8-K filed on May 31, 200610.71
            
            Agreement
                dated August 10, 2006, by and among Redux Holdings, Inc. and Quincy
                Investments Corp. incorporated by reference to Exhibit 10.1 to the
                Company’s Current Report on Form 8-K filed on August 10,
                200610.72
            
            Letter
                Agreement dated August 31, 2006 between Laurus Master Fund, LLC and
                Redux
                Holdings, Inc. incorporated by reference to Exhibit 10.1 to the Company’s
                Quarterly Report on From 10-Q for the Quarterly Period ended September
                20,
                2006.10.73
            
            Treatment
                Letter dated August 31, 2006 from Redux Holdings, Inc. to Laurus
                Master
                Fund, LLC. incorporated by reference to Exhibit 10.2 to the Company’s
                Quarterly Report on From 10-Q for the Quarterly Period ended September
                20,
                2006.**10.74
            
            Services
                Agreement between One World Science, Inc. , a wholly owned subsidiary
                of
                Redux Holdings, Inc. and the Company dated August 16, 2006, requiring
                One
                World Science, Inc. to provide services to the Company, including,
                but not
                limited to, Manufacturing and Packing Coordination Services; Warehouse,
                Inventory Management and Distribution Services; Advertising Services;
                Customer Support Services; Sales Services; and Management, Financial
                and
                Legal Services.**10.75
            
            Letter
                Agreement Dated November 16, 2006 between Laurus Master Fund, LLC
                and
                Redux Holdings, Inc. to waive Default and Fees owed by the Company
                and for
                Redux Holding, Inc to acquire all of Laurus Master Fund, LLC’s Company
                Common Stock and Warrants for shares of Redux Holdings, Inc. Common
                Stock.**10.76
            
            Sublease
                and Occupancy Agreement dated September 1, 2006 between One World
                Science,
                Inc. , a wholly owned subsidiary of Redux Holdings, Inc. and the
                Company
                leasing the office space at 601 Valencia Avenue, Suite 100, Brea,
                California 92823 on a month to month basis.**10.77
            
            Letter
                Agreement dated November 16, 2006 between Liberty Company Financial,
                LLC
                and Redux Holdings, Inc. whereby Liberty will transfer all its Company
                stock and warrants for Shares of Redux Holdings, Inc. Common
                Stock.**10.78
            
            Global
                Settlement Agreement Dated February 14, 2007 between the Company,
                Redux
                Holdings, Inc., the Official Committee of Unsecured Creditors appointed
                in
                the Creditors Chapter 11 Case, Health Holdings & Botanicals, LLC and
                Doyle & Boissiere LLC settling claims of secured and unsecured
                creditors in the Company’s Chapter 11 Bankruptcy**10.79
            
            Stipulation
                between Debtor and Window Rock Enterprises, Inc. Re Resolution of
                Objections to Confirmation of Debtors Fourth Amended Chapter 11 Plan
                of
                Reorganization and Order thereon Dated February 28, 2007 resolving
                all
                disputed claims between the Company and Window Rock Enterprises,
                Inc.**10.80
            
            Signature
                page for Stipulation of Debtor and Window Rock Enterprises set forth
                in
                Exhibit 10.80**10.81
            
            Assignment
                of Claim Agreement, Dated February 28, 2007 by Ageless Foundation,
                Inc.
                and Naomi Balcombe, to Redux Holdings, Inc.14.1
            
            Code
                of Financial Ethics incorporated by reference to Exhibit 14 to the
                Company’s Annual Report on Form 10-K for the fiscal year ended December
                31, 2003**14.2
            
            Charter
                of Audit Committee adopted by the Company Board of Directors on March
                23,
                2007.**14.3
            
            Charter
                of Compensation and Governance Committee adopted by the Company Board
                of
                Directors on March 23, 2007.









**Exhibit****Number**
            
            **Document**


**31.1
            
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**31.2
            
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**32.1
            
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002**32.2
            
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002







*
            Management
                contracts or compensatory plan or arrangement.





**
            Filed
                herewith.