<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

              ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2000
                        Commission File Number: 33-7106-A

                                 NATURADE, INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  DELAWARE                              23-2442709
         (STATE OF INCORPORATION)         (I.R.S. EMPLOYER IDENTIFICATION NO.)

                14370 MYFORD ROAD, IRVINE, CA               92606
         (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:

                         COMMON STOCK, $0.0001 PAR VALUE

          Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.    Yes  X     No
                                                 -----     ------

          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. (X)

          As of March 23, 2001, 7,347,389 shares of the registrant's Common
Stock were outstanding and the aggregate market value of such Common Stock held
by non-affiliates as of that date was $904,959 based on the average of the bid
and asked price on that date.

                            Exhibit Index on Page 67


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                                 NATURADE, INC.
                                TABLE OF CONTENTS

PART I

ITEM 1.     BUSINESS

ITEM 2.     PROPERTIES

ITEM 3.     LEGAL PROCEEDINGS

ITEM 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5.     MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
            STOCKHOLDER MATTERS

ITEM 6.     SELECTED FINANCIAL DATA

ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
            CONDITION AND RESULTS OF OPERATIONS

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
            RISK

ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.     CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
            ACCOUNTING AND FINANCIAL DISCLOSURE

PART III.

ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS

ITEM 11.    EXECUTIVE COMPENSATION

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
            AND MANAGEMENT

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PART IV.

ITEM 14.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
            ON FORM 8-K


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PART I

ITEM 1.           BUSINESS

General

          Naturade, Inc. a Delaware corporation incorporated in 1986 (the
"Company" or "Naturade"), is a branded nutraceuticals marketing company focused
on high growth potential niche products and differentiating itself from broad
line dietary supplement manufacturers. The Company is committed to marketing
innovative natural products that actively nourish and improve the health and
well being of consumers. The Company's products are sold in supermarkets (e.g.,
Kroger and Albertson's), drug stores (e.g., CVS and Rite-Aid), mass merchants
(e.g., Wal*Mart and K-Mart), club stores (e.g., Sam's Clubs and Costco), and
health food stores (e.g., Whole Foods and Wild Oats). The Company collectively
refers to the supermarket/drug/mass/club channel as the mass market channel. The
Company is well known in the health food distribution channel for its 50 years
of leadership in soy protein products and for its 20 years of success in aloe
vera products. In 1999, Naturade entered the mass market channel with a new meal
replacement product, Naturade Total Soy. By the end of 2000, Naturade had become
the number one brand in the mass market channel with a 43% share among the three
major competitors (as reported by Information Resources, Inc (IRI), a market
research firm which compiles syndicated data based on actual cash register
scanned sales) and distribution in over 28,000 supermarkets, health food, drug
and mass merchandise stores. Naturade products are sold to both the health food
and mass market channels through a direct sales force, augmented by independent
brokers. Health food sales are primarily through distributors, while most mass
sales are direct to retailers.

          In March 1998, a new investor group brought in Chief Executive
Officer (CEO) Bill Stewart, a strong consumer products-oriented leader, to
re-invent Naturade as a multi-channel company that could compete effectively
in both the health food and mass market. As CEO, Mr. Stewart surrounded
himself with a seasoned management team, several of whom had worked together
with Bill for over ten years at a major consumer packaged goods company.
Under his direction, the Company has invested over $8 million in
restructuring, legal settlement and other charges during 1998 and 1999 to
build a solid platform for growth.

         In October 1999, the U.S. Food & Drug Administration (FDA) authorized a
heart health claim for soy protein that allows certain 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." Naturade began shipping
products that prominently featured this claim on the first day allowed by the
FDA and believes that it has materially benefited from the FDA decision through
increased shelf distribution and increased consumer product sampling. Naturade
currently markets 35 different products featuring this claim, including its
largest brand, Naturade Total Soy(TM).


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<PAGE>

          In fiscal 2000, the Company continued the restructuring started under
new management by establishing a $3 million, three year line of credit with a
major asset-based lender, expanding into 28,000 store outlets, growing sales
into the health food market, launching Naturade Total Soy product line
extensions in bars and new soy protein powders, tightening controls over fixed
and variable costs and improving its computer information systems. In the fourth
quarter of 2000, the Company began shipping its new Ready-to-Drink product line
extension of Naturade Total Soy targeting the $1.1 billion meal replacement
category.

Financial Information About Industry Segments

          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. Commencing in
January 1999, the Company's reportable operating segments include health food
and mass market distribution channels. 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. The financial information for the Company is presented
in the financial statements accompanying this report.

Strategy

          Naturade is a branded nutraceuticals marketing company that
differentiates itself from broad line dietary supplement manufacturers by
focusing on high growth categories with natural products backed by strong
scientific support. The Company intends to capitalize on its 50-year history as
a leader in soy protein products and the long term potential that has been
established for soy protein through 20 years of clinical testing. Naturade's
traditional market strength has been in sales of branded products to independent
health food stores and natural supermarkets, including Whole Foods, Wild Oats,
Vitamin Shoppe and Mother's Market. The Company holds a 50% market share in
protein powders sold through all the major health food distributors, including
Tree of Life, UNFI and Nature's Best. Following the March 1999 introduction of
Naturade Total Soy, Naturade's soy protein products have quickly grown to the
leading market position with a 45% share among the top three brands in the mass
market. The Company intends to maintain its leadership position with innovative
product line extensions. In the fourth quarter of 2000, the Company began
shipping its Ready-to-Drink products into the health food and mass market
channels.

Products

         Naturade markets innovative natural products that nourish and improve
the health and well being of consumers. Approximately 63% of Naturade's sales in
fiscal 2000 are derived from protein powders, of which 81% are soy protein based
products.


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<PAGE>

                    Naturade Total Soy Products

          At the forefront of the Company's product line is Naturade Total Soy,
a full line of nutritionally complete meal replacements that make it easy to get
25 grams of soy protein daily by offering a variety of great-tasting products
with high concentrations of soy protein. These products include Shake Mix
Powder, Calcium 1000, Nutrition Bar and Ready-to-Drink.

                   Naturade Soy Protein Booster Products

          First introduced in 1950, Naturade soy protein booster products are
meal supplements which allow consumers to add protein to drinks and foods they
already prepare at home. These brands include Naturade 100% Soy(TM), Naturade
Veg(TM) and Naturade N-R-G(TM). In all, Naturade offers 35 different soy protein
products that meet the requirements of the FDA heart health claim. In addition,
the Company offers a broad selection of products based on alternate protein
sources, including Naturade 100% Whey(TM), Naturade Soy-Free Veg(TM), Naturade
Milk & Egg(TM) and a complete line of sports nutrition products.

                    Aloe Vera Brand

         The Company's aloe vera lines include Aloe Vera 80(R) health & beauty
care, aloe vera juice and a line of concentrated aloe gel dietary supplements.
Naturade Stomach Formula is a best seller through health food distributors and
the leading item in the Naturade aloe vera gel drink line. Unlike most
competitive juice products, Naturade Aloe Gel Drinks are concentrated with more
than 100% active solids per serving (less water). The Aloe Vera 80 brand is the
only complete aloe vera-based line available in retail stores.

          Market Segmentation

          Naturade is the top soy protein powder company in the health food
distribution channel. The Company dominates the protein powder category with
eight of the top ten stock keeping units (SKUs) and a 50% share of the market
based on bi-monthly SPINS Distributor Information, the independent source for
syndicated sales data through health food distributors. Its soy protein-based
revenues grew 37% last year. In addition, the Company's aloe vera based brands
are among the market leaders sold through health food distributors in both
health & beauty care and in aloe drinks & juices.

          In under a year, the Company achieved the leading soy protein position
in the mass channel, with a 45% market share as measured by IRI. By December 31,
2000, the Company had received authorization for distribution in approximately
28,000 store outlets. Naturade has captured placement in major mass retailers
including Wal*Mart, Kmart, Kroger, Albertson's, Costco, CVS, Sam's Clubs,
Safeway, Rite Aid and Eckerd Drugs. In addition, the Company has placed product
through all the top mass drug distributors, including Cardinal, McKesson HBOC
and Bergen Brunswig.

          Product Line Extension


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          In 2000, the Company introduced Naturade Total Soy Calcium 1000, a
line extension of its successful Naturade Total Soy product line. Naturade Total
Soy Calcium 1000 is an advanced bone care formula that surpasses all relevant
competition as the only single serving product that supplies the full 1000 mg
recommended minimum daily value of Calcium and prominently features the allowed
FDA health claim, "may reduce the risk of Osteoporosis. The product targets a
$340 million category that grew over $65 million in 1999 (according to IRI).

          The Company's newest product, a Ready-to-Drink extension of its market
leading Naturade Total Soy brand, is the first soy protein entry in the single
serving can segment that dominates the $1.1 billion meal replacement category.
The giant Ready-to-Drink segment of the meal replacement market offers over four
times the potential of the Company's traditional protein powder marketplace.
This represents an enormous growth opportunity as Naturade brings together its
strengths in natural products, protein powders, soy protein technology, good
tasting products and a strong distribution base.

          In response to a ground swell of industry concern over genetically
modified organisms (GMO) in the health food channel, the Company recently
introduced new Non-GMO lines of products made with Identity Preserved (IP) soy
beans grown with no genetically modified organisms. Naturade Premium Soy(TM) was
introduced in late 1999, while Ribo-tein(TM), an energy supplement and Naturade
Organic Soy(TM), the first major brand entry as an organically grown meal
replacement, were introduced in 2000.

Sales

           For the fiscal year ended December 31, 2000 ("Fiscal 2000"), Naturade
had net sales of $15,671,494, of which 97% was domestic and 3% was
international. Total gross profit for Fiscal 2000 was $7,370,366, of which
$7,190,946 was generated by domestic sales and $179,420 was generated by
international sales. For the fiscal year ended December 31, 1999 ("Fiscal
1999"), Naturade had net sales of $11,946,702, of which 95% was domestic and 5%
was international. Total gross profit for Fiscal 1999 was $4,569,798 of which
$4,468,092 was generated by domestic sales and $101,706 was generated by
international sales. For the three months ended December 31, 1998, Naturade had
net sales of $3,597,155, of which 81% was domestic and 19% was international.
Total gross profit for the period was $1,327,205, of which $1,101,047 was
generated by domestic sales and $226,158 was generated by international sales.
For the fiscal year ended September 30, 1998 ("Fiscal 1998"), Naturade had net
sales of $13,506,972, of which 90% was domestic and 10% was international. Total
gross profit for Fiscal 1998 was $5,712,883 of which $5,159,073 was generated by
domestic sales and $553,810 was generated by international sales.

               Domestic Sales

               Naturade's direct sales force supervises broker sales
organizations in the health food and mass market channels. While headquarters
sales calls are primarily the responsibility of


                                       6
<PAGE>

Naturade's sales management, follow-up calls and retail activity are carried out
by over 60 health food broker personnel and an additional 50 mass market broker
personnel.

               The health food branded products are sold through a stocking
distributor network of 15 key distributors and approximately 15 smaller
distributors, who together service approximately 10,000 retail health food
stores in the United States. Six of these key distributors are divisions of Tree
of Life, Inc, a national health food distributor; their aggregate purchases
during Fiscal 2000 represented approximately 18% of the Company's total sales.
The loss of this major health food distributor could have a material adverse
effect on the Company.

          Sales for Fiscal 2000 in the United States are broken down by
geographic regions as follows: %
<TABLE>
                  <S>                        <C>
                  Northeast Region           19.9
                  Southeast Region           15.7
                  Southwest Region            7.5
                  Mid-West Region            17.2
                  Rocky Mountain Region       7.3
                  California and Hawaii      21.9
                  Northwest Region           10.5
                                           --------
                                            100.0
</TABLE>

               Naturade 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 Naturade and receive commissions on sales generated in these
territories.

               Foreign Sales

               Naturade's international business is designed to meet each
country's unique cultural and distribution requirements. Naturade will typically
grant the wholesaler or distributor the right to utilize Naturade's trademarks
and brand names in a specified geographical territory and commit the wholesaler
or distributor to a non-binding sales goal to purchase minimum levels of
Naturade's products. The Company also offers secondary brands in addition to the
Naturade brand and offers private label products to its international customers.

               Approximately 40% of the Company's international sales in Fiscal
2000 were in Canada, 26% in Singapore and 12% in Spain, with the remaining 22%
in approximately five other countries. As part of its new global marketing
strategy, the Company has decided to emphasize branded products and reduce its
dependence on international private label business due to its low margin and
unpredictability. This change in strategy explains the decrease in


                                       7
<PAGE>

sales to Saudi Arabia and Korea compared to 1999.

Seasonal Fluctuations

               The Company's domestic business is not seasonal. However, as the
Naturade Total Soy brand expands in the meal replacement category sales will
likely be impacted by higher first quarter demand due to intense consumer
interest in dieting and healthy lifestyle following the holiday season with a
softening of sales in fourth quarter. This softening is partially offset by the
Company's increasing new account sales and additional sku's being sold to
current accounts. In addition, international sales tend to fluctuate depending
upon economic conditions, seasonal patterns and cultural differences within each
country.

Regulatory Matters

          The Company's products are subject to regulation by numerous
governmental agencies, principally the FDA. The Company's products are also
subject to regulation by, among other regulatory agencies, the Consumer Product
Safety Commission, the U.S. Department of Agriculture, and the Environmental
Protection Agency. Advertising of the Company's products is subject to
regulation by the U.S. Federal Trade Commission. The Company's products are also
regulated by various state and local agencies as well as each foreign country in
which the Company distributes its products.

           Many Naturade products, including Naturade Total Soy, are food
products that are not subject to regulation by the FDA's Over-the-Counter (OTC)
Drug regulations or the Dietary Supplement Health and Education Act (DSHEA) of
1994. These food products may use "structure/function" claims, 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"

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. The Company is currently shipping 35 products that carry this
heart disease claim under the brand names of Naturade Total Soy, Naturade 100%
Soy, Naturade Veg, Naturade NRG, Naturade Premium Soy, Naturade Organic Soy and
Ribo-tein.

          The enactment of DSHEA established a clear legal framework for the
Company's marketing efforts as it removed many of the legal threats that the
industry had faced. Under DSHEA, dietary supplements (including several Naturade
products) are separately regulated from over-the-counter drugs or food products.
Dietary supplements may bear "structure/function" claims on the product label.
In addition, balanced literature may be used in connection with the sale of
dietary supplements in retail stores.


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<PAGE>

        On January 6, 2000, the FDA promulgated a final regulation governing
the use of "Statements Made for Dietary Supplements Concerning the Effect of
the Product on the Structure or Function of the Body." Companies such as
Naturade, with less than 500 employees and revenues of less than $20 million,
must be in compliance with these regulations by June 6, 2001. The regulation,
which is less than one page in length, was accompanied by 40 pages of
analysis, explanation and commentary setting forth the views of the FDA on
the nature of acceptable claims.

        With the regulation, the FDA changed certain earlier positions and,
among other things, stated that certain afflictions occurring in the course
of daily living, such as pre-menstrual syndrome (PMS) and aging, are no
longer considered diseases and hence, dietary supplements may now carry
related "structure/function" claims. This change will have a significant
positive impact on claims for the Company's products such as THE CHINESE WAY
PMS Support.

        Conversely, the FDA will only permit a limited claim for cholesterol
support for cholesterol levels that are already within the normal range. This
will have a negative affect on dietary supplements with cholesterol
structure/function claims such as THE CHINESE WAY Cholesterol Support. In
addition, the continued status of that product's Chinese Red Yeast as a
dietary supplement ingredient is currently the subject of litigation in the
federal courts by the FDA and other companies.

        While this regulation, and FDA's interpretation thereof, may
ultimately have a significant impact on the scope of acceptable claims that
may be made for many of the Company's products, there is no reason to expect
that the regulation will impact the Company differently than any other
manufacturer or marketer of similar products. In addition, FDA is currently
accepting additional public comments on the regulation and has indicated that
there may be further changes, which could be positive or negative for the
Company.

Backlog

        Naturade typically does not carry backlog orders and generally maintains
a sufficient supply of its products to meet customer demands. The Company's
policy is to ship product within seven days of the order being placed.

Competition

          Naturade's competitive strategy is to differentiate itself from broad
line dietary supplement manufacturers by focusing on high growth categories with
natural products backed by strong scientific support. Since it pioneered the soy
protein powder market 50 years ago and the aloe vera brand based health and
beauty aids market 20 years ago, the Company has a history of name brand
recognition and an image of quality, consistency and value.

                    Health Food

          The Company's products are sold to health food stores through brokers
and health food distributors. Spins Distributor Information, the independent
source for syndicated sales data through health food distributors, reported a
52.1% share of the market for Naturade in the Supplement Powders category based
on warehouse withdrawals for the 52 week period ended September/October 1999.
This 52.1% share was more than 2.5 times the share of the next leading
competitor in this report.


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<PAGE>

         Approximately 16% of Naturade's sales in Fiscal 2000 was derived from
the aloe vera brand, almost all of which came through health food stores and
natural foods supermarkets. Naturade is the only widely distributed health food
store brand offering a full line of products in which aloe vera is the primary
ingredient, although broad competition does exist for "natural" health and
beauty care products. Based on distributor sales reports, Aloe Vera 80 SKU's are
generally represented in the top 15% of all products sold by product type.

         The leading Naturade Gel Concentrate Drink products are generally at
the top of the ranking in health food distributor sales.

          In Fiscal 2000, health food represented approximately 64% of the
Company's sales.

                    Mass Market

          Naturade's distribution in the mass market expanded significantly to
28,000 store outlets by the end of 2000 from 10,000 store outlets at the end of
1999. Most of this new distribution is on the Naturade Total Soy brand. Through
December 31, 2000, IRI reported a 45.1% Naturade share among the top three mass
soy protein brands.

Copyrights, Trademarks and Licenses

          Naturade maintains registrations on over twenty trademarks in the U.
S. Patent and Trademark Office, as well as a California registration on one
trademark. The Company also maintains trademark registrations for a variety of
names in over twelve foreign countries. In addition, Naturade maintains a
variety of copyright registrations and holds certain other intellectual property
rights.

Product Research and Development

          Naturade invested significantly in the introduction of 16 new products
in 2000 through close working relationships with its key vendor co-packers. In
addition, the Company significantly improved its Aloe Vera 80 line by
reformulating these products with Active Aloe standardized to guaranteed 10%
polysaccharides. The Company has distinguished itself from the competition by
bringing reformulations and new products to market in an average of six months
or less.

          The Company devotes substantial resources to new product development
and reformulation. Naturade's product research and development expenses were
$251,457, $326,946 and $279,370, respectively, in the fiscal years ended
December 31, 2000, December 31, 1999 and September 30, 1998, respectively, and
$62,474 for the three months ended December 31, 1998

         New products introduced in 2000 include: Naturade Total Soy bars,
Naturade Total Soy Ready-to-Drink, Naturade Total Soy Calcium 1000, Ribo-tein
High Energy Shake,


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Naturade Organic Soy, THE CHINESE WAY PMS Support and three new products in the
Aloe Vera 80 line. Each 2.1-oz. Naturade Total Soy bar is a complete meal
replacement that supplies 11 grams of soy protein and is an excellent source of
calcium to help support bone health.

         Ribo-tein(TM) High-Energy Shake was introduced in 2000 to target the
sizable energy segment of the soy protein market. Ribo-tein is a dietary
supplement containing Ribose, the carbohydrate ingredient that boosts the
creation of ATP (Adenosine Triphosphate) in muscles and supports a faster
recovery after energy expenditure.

         In 2000, Naturade provided consumers with an organic choice in the soy
protein meal replacement category with its introduction of Naturade Organic
Soy(TM). This product is the choice for environmentally-oriented consumers. The
crops used in Naturade Organic Soy are organically grown and processed in
accordance with the California Foods Act of 1990 and would meet the 2000
standards recently proposed by USDA.

         As the issue of foods containing genetically modified organisms (GMO's)
began to take center stage in the minds of trade groups and consumer activists,
Naturade responded quickly in 1999 with the introduction of Naturade Premium
Soy, a soy-based protein booster made with non-GMO soy protein isolate. Since
that time, all new soy protein products introduced have been made with soy
protein isolate made with non-GMO soybeans. Development has also progressed on
conversion of the current soy protein booster line to non-GMO soybeans; the
Company expects such transition to be completed during 2001.

         In 2000, Naturade established an exclusive agreement with the producer
of Active Aloe, and reformulated its line of twenty-five Aloe Vera 80(R) beauty
care products with 10% guaranteed polysaccharides. The one year agreement
assured that Aloe Vera 80 would be the only standardized aloe vera brand
available in the retail store with Active Aloe and its guaranteed level of 10%
polysaccharides. Active Aloe preserves over 200 natural aloe compounds along
with the heavy molecular weight polysaccharides that are lost in most commercial
processing. Importantly, it is primarily the polysaccharides that work to
hydrate a dry epidermal layer. As with other herbs, standardization is a key
selling point to the retailer and the consumer. Since other brands are not
standardized, it is impossible to know whether or not they will deliver the
promised efficacy. The three new Aloe Vera 80 hair care products with Active
Aloe introduced in 2000 include: Tea Tree Shampoo - nutritionally formulated to
promote a healthy scalp without stripping the hair shaft and deeply clean oily
hair without drying; Botanical Shampoo - enriched with herbal extracts,
specially formulated to restore vitality and shine to hair; and, Botanical
Conditioner - enriched with herbal extracts, provides maximum nourishing
benefits to revive and repair dry, damaged hair.

         THE CHINESE WAY PMS Support(TM) was introduced in 2000 to offer
women a natural solution for a problem for which there has been no effective
remedy available in any retail store. Premenstrual syndrome support is an
all-natural herbal supplement to help relieve the discomfort of PMS that is
experienced by 18% of all women (according to a 1998 Gallup Study).

                                       11
<PAGE>

          Over the past three years, the Company has reformulated virtually all
its products which comply with the latest regulations in product labeling
throughout all categories; including food (Nutritional Labeling Education Act of
1991 or NLEA), dietary supplement (DSHEA), over-the-counter drug (OTC
Monographs) and cosmetic packaging regulations. The Company retains control of
all labels in-house and aggressively manages label development and usage as an
element of quality assurance. In addition, all formula specifications are
developed under the direction of Naturade management. Each new batch is
quarantined at the Naturade warehouse until approved for release by in-house
quality assurance.

Employees

          As of December 31, 2000, Naturade employed 31 people, including four
in administration, ten in sales and marketing, three in product development,
seven in finance and accounting and seven in warehouse and distribution. The
Company considers its relations with its employees to be good.

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 Report on Form
10-K contains forward-looking statements which ware 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.

            Impact of Government Regulation

          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 FTC. See "Government Regulation." 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.

          As a result of the Company's efforts to comply with 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 DSHEA, or more
stringent


                                       12
<PAGE>

interpretations of current laws or regulations. The Company is unable to predict
the nature of such 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 the Company's
business in the future. Such future laws and regulations could, however, require
the reformulation of certain products to meet new standards, the recall or
discontinuance of certain products that cannot be reformulated, the imposition
of additional record keeping requirements, expanded documentation of product
efficacy, and expanded or modified labeling and scientific substantiation. Any
or all of such requirements could have a material adverse effect on the
Company's results of operations and financial condition. See "Government
Regulation."

          Technological Changes

          The Company currently is engaged in developing nutraceuticals,
which are characterized by extensive research efforts 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 the
Company 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, there can be no assurance
that research and development and discoveries by others will not render some
or all of the Company's programs or potential product candidates
uncompetitive or obsolete.

          Dependence on Third-Party Manufacturers

          Although the FDA does not currently regulate manufacturing
facilities for nutraceutical products, there can be no assurance that the FDA
at some time in the future will not begin regulating these manufacturing
facilities. Since the Company outsourced its manufacturing requirements in
1999, Naturade is significantly dependent on these third-party manufacturers.
If the FDA were to begin regulating the manufacturing facilities for
nutraceuticals and if the manufacturing facilities used by the Company's
third-party manufacturers did not meet those standards, the production of the
Company's products could be delayed until the necessary modifications are
made to comply with those standards or alternate manufacturers are located.
If the manufacturer were unable or unwilling to make the necessary
modifications, the Company would be required to find an alternate source to
manufacture its products.

          Competition

          The market for nutraceutical products is highly competitive. Many, if
not all, of the Company's competitors have substantially greater capital
resources, research and development capabilities, and manufacturing and
marketing resources, capabilities and experience than the Company. The Company's
competitors may succeed in developing products that are more effective or less
costly than any products that may be developed by the Company.


                                       13
<PAGE>

          Dependence on Qualified Personnel

          The Company's success is dependent upon its ability to attract and
retain qualified scientific and executive management personnel. To commercialize
its products and product candidates, the Company must maintain and expand its
personnel, particularly in the areas of product sales and marketing. The Company
faces intense competition 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 or retaining
qualified personnel. Moreover, managing the integration of such new personnel
could pose significant risks to the Company's development and progress and
increase its operating expenses.

          Variability of Quarterly Results

          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 which influence this variability of quarterly
results include the timing of the Company's 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
the Company's results of operations for any period are not necessarily
indicative of future performance.

          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. The Company currently maintains a general
liability insurance policy and a product liability insurance policy. There can
be no assurance that the Company will be able to maintain such insurance in
sufficient amounts to protect the Company against such liabilities at a
reasonable cost. Any future product liability claim against the Company could
result in the Company paying substantial damages, which may not be covered by
insurance and may have a material adverse effect on the business and financial
condition of the Company.

          Effect of Adverse Publicity

          The Company's products consist of vitamins, minerals, herbs and other
ingredients that the Company regards as safe when taken as suggested by the
Company and that various


                                       14
<PAGE>

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 which may not
adhere to the same quality standards as the Company. The Company could be
adversely affected if any of the Company's products or any similar products
distributed by other companies should prove or be asserted to be harmful to
consumers or should scientific studies provide unfavorable findings regarding
the effectiveness of the Company's 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 organization or by the announcement by
any governmental agency of investigatory proceedings regarding the business
practices of the Company or other direct sales organizations.

          Intellectual Property Protection

          Our success depends in part on our ability to obtain and maintain
patent protection for our technologies and products, preserve our trade secrets,
and operate without infringing on the property rights of third parties. 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 United States 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 the Company's
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 received over twenty United States
trademarks as well as a California registration on one trademark. The Company
also maintains trademark registrations in over twelve foreign countries. To
the extent the Company does not have patents on its products, another company
may replicate one or more of the Company's products. Litigation may be
necessary to enforce the Company's proprietary rights. Any such litigation
could be very costly and could distract the Company's personnel. Naturade can
provide no assurance of a favorable outcome of any litigation proceeding. An
unfavorable outcome in any proceeding could have a material adverse effect on
the Company's business, financial condition and results of operations.

ITEM 2.   PROPERTIES

          In December 1998, the Company signed a 7 1/2 year lease agreement for
new executive offices, sales and marketing and warehouse facility located in
Irvine, California. This new 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


                                       15
<PAGE>

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, 2000
was $446,881. Detailed information relating to this lease is presented in the
footnotes to the financial statements accompanying this report.

          In June 1999, the Company sold its interest in its former headquarters
facility in Paramount, California and recorded a gain of $281,997. In connection
with this sale, the Company paid off approximately $1.9 million of bank and
other debt obligations.

          In connection with the Company's acquisition of certain assets of
Performance Nutrition, Inc. ("PNI") as discussed in Item 3 below, as of August
1, 1997, the Company entered into a lease for 4,490 square feet in a facility
located in Dallas, Texas. The lease terminates on August 1, 2002, and rent is
paid at the rate of $3,256 per month. The Company subleased this facility as of
October 1, 1998 for the remainder of the lease term at a sublease rental rate
equal to the lease rental rate.

ITEM 3.   LEGAL PROCEEDINGS

          On March 11, 1999, a civil judgment (the "PNI Judgment") was entered
against the Company and a co-defendant for a total of $2,774,000 by the United
States Bankruptcy Court for the Northern District of Texas following trial in a
proceeding initiated by the Trustee (the "PNI Trustee") in the Chapter 7
bankruptcy case of Performance Nutrition, Inc. ("PNI"). On August 5, 1999, the
Bankruptcy Court approved a settlement agreement ("Settlement Agreement")
between the Company and the PNI Trustee. The Settlement Agreement provided the
Company with a full release of the PNI Judgment and the costs and interest
thereon, as well as any and all other claims which the PNI Trustee has or might
have against the Company (including a preference claim for approximately
$130,000 filed in January 1999 by the PNI Trustee). The Settlement Agreement
required the Company to deliver to the PNI Trustee (1) a cash payment of
$1,350,000 which was made in 1999, (2) a promissory note in the amount of
$424,000, which has been fully paid off as of December 31, 2000, and (3) a
contingent promissory note in the amount of $226,000, which would become payable
only to the extent that the Company's sales for the second, third and fourth
quarters of 1999 exceed specified targets. As the Company's sales did not meet
the specified target, no amount will be payable under the contingent promissory
note. Consequently, the adjusted total cost to the Company of the settlement is
$1,774,000, exclusive of interest on the promissory note.

          In addition to the above-described litigation, 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.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  None.


                                       16
<PAGE>

PART II

ITEM 5.   MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

          The Company's common shares began trading on the over-the-counter
securities market in the third quarter of 1991 under the symbol NRDC. 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.

<TABLE>
<CAPTION>
FISCAL 2000                                  HIGH              LOW
<S>                                        <C>             <C>
          1st Quarter                      $ 1.19          $   .63
          2nd Quarter                         .81              .56
          3rd Quarter                         .63              .56
          4th Quarter                         .63              .44
<CAPTION>
FISCAL 1999                                  HIGH              LOW
<S>                                        <C>             <C>

          1st Quarter                       $2.81        $    1.50
          2nd Quarter                        1.16              .63
          3rd Quarter                        1.19              .63
          4th Quarter                        1.56              .63
</TABLE>

                  On March 23, 2001, the last reported price for the Company's
Common Stock was $.44.

Holders

          To the best knowledge of the Company, the number of registered record
holders of common stock as of March 1, 2001, was 542. According to information
obtained by the Company, approximately 700 additional shareholders hold the
Company's common stock in "street name."

Dividends

          The Company did not pay a cash dividend on its common stock during
Fiscal 1999 and 2000, and the Company does not anticipate paying any cash
dividends in the foreseeable future. As of the date of this Annual Report on
Form 10-K, the Company intends to follow a


                                       17
<PAGE>

policy of retaining any future earnings to provide funds for the expansion of
its business.

Options and Warrants

          As part of a restructuring of the Company in 1991, equity holders
exchanged their shares for new common stock and Class A and Class B Warrants.
The Class A Warrants expired at December 31, 1996. The Class B Warrants allowed
for the purchase of one share of common stock for $1.25 per share. Between
December 31, 1999 and January 14, 2000, 588 warrants were exercised. On January
15, 2000, the remaining 324,520 unexercised Class B warrants expired.

          During 1999, the Company issued 60,000 shares of common stock based
upon the exercise of stock options at prices ranging from $.50 to $.94 per
share. During 1999, 600,000 warrants were issued to Health Holdings and
Botanicals, LLC ("Health Holdings"), a majority stockholder of the Company, as
part of the Finance Agreement (see Note 4 to the Financial Statements).

ITEM 6.  SELECTED FINANCIAL DATA

          The following tables summarize certain selected financial data for the
periods presented for the Company and should be read in conjunction with the
more detailed information and financial statements, including notes thereto,
presented elsewhere herein.


                                       18
<PAGE>
STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
                                                                                     Three Months
                                                                                          Ended
                                                   Years Ended December 31             December 31
                                                  2000               1999(1)               1998
                                                  ----               -------               ----
<S>                                           <C>                  <C>                  <C>
Net Sales                                     $15,671,494          $11,946,702          $3,597,155
Gross Profit                                    7,370,366            4,569,798           1,327,205

Selling, general and
  administrative expenses                       8,839,159            8,923,832           1,975,550

Other operating expenses                             --              2,844,344                --

Operating Income
  (Loss)                                       (1,468,793)          (7,198,378)           (648,345)

Other Income
  (Loss)                                         (661,499)          (2,497,635)           (298,328)


(Loss) Income before
  provision for
  income taxes                                 (2,130,292)          (9,696,013)           (946,673)

Provision for
  income tax                                          800                  800                   0

Net (Loss) Income                              (2,131,092)          (9,696,813)           (946,673)

Basic Net (Loss) Income
  Earnings per share                               ($0.30)              ($1.81)             ($0.18)

Weighted Average Number                         7,000,000            5,346,000           5,227,000
  of Shares used in
  Computation of
  Basic Net (Loss) Earnings
  per Share

Diluted Net (Loss) Income
  Earnings per share                               ($0.30)              ($1.81)             ($0.18)

Weighted Average Number                         7,000,000            5,346,000           5,227,000
  of Shares used in
  Computation of
  Diluted Net (Loss) Earnings
  per Share

<CAPTION>
                                                            Years Ended September 30
                                                1998                   1997                1996
                                                ----                   ----                ----
<S>                                         <C>                    <C>                 <C>
Net Sales                                   $13,506,972            $12,578,419         $10,105,532
Gross Profit                                  5,712,883              6,196,624           4,869,105

Selling, general and
  administrative expenses                     8,928,723              5,377,644           4,324,154

Other operating expenses                          --                     --                  --

Operating Income
  (Loss)                                     (3,215,840)               818,980             545,951

Other Income
  (Loss)                                       (858,525)              (405,685)           (341,793)


(Loss) Income before
  provision for
  income taxes                               (4,074,365)               413,295             204,158

Provision for
  income tax                                     35,450                165,000              38,000

Net (Loss) Income                            (4,109,815)               248,295             166,158

Basic Net (Loss) Income
  Earnings per share                             ($0.84)                 $0.08               $0.06

Weighted Average Number                       4,874,000              2,945,000           2,578,000
  of Shares used in
  Computation of
  Basic Net (Loss) Earnings
  per Share

Diluted Net (Loss) Income
  Earnings per share                             ($0.84)                 $0.08               $0.06

Weighted Average Number                       4,874,000              3,232,000           2,777,000
  of Shares used in
  Computation of
  Diluted Net (Loss) Earnings
  per Share
</TABLE>

(1) Commencing January 1, 1999, the Company changed its fiscal year to end
December 31st.

                                       19
<PAGE>

BALANCE SHEET DATA

<TABLE>
<CAPTION>
                                As of December 31                         As of September 30
                             2000            1999                 1998           1997           1996
                             ----            ----                 ----           ----           ----
<S>                      <C>             <C>                  <C>             <C>            <C>
Cash and Cash
  Equivalents               $202,648      $1,056,240           $1,975,513       $157,585       $120,143


Working Capital             $226,869       ($649,929)          $3,116,309     $1,356,136       $879,651


Total Assets              $5,389,819      $5,102,950           $9,548,470     $7,753,574     $5,160,235


Long-Term Debt            $5,049,770      $3,778,528           $2,011,523     $2,235,908     $2,418,334



Total Stockholders'
 (Deficit) Equity        ($4,472,397)    ($4,002,962)          $4,328,192     $2,685,286     $1,080,224
</TABLE>

                                       20
<PAGE>

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

        The Company changed its fiscal year from September 30 to December 31,
effective for the calendar year beginning January 1, 1999. Consequently, the
financial statements discussed herein are for the year ended December 31, 2000,
December 31, 1999, the three months ended December 31, 1998 (the transition
period) and the year ended September 30, 1998.

Results of Operations

FISCAL 2000 COMPARED TO FISCAL 1999

          Although the softness in the health food industry first seen in
fiscal 1999 brought on by a weakness in the dietary supplement category
continued into fiscal 2000, the Company maintained its sales strength in key
health food accounts with only a 6% decline in health food sales.
Furthermore, the toehold established in the more diverse mass market in
fiscal 1999 blossomed into a much broader and robust customer base with
28,000 store outlets reached by the end of fiscal 2000. In fiscal 2000, the
top 25 customers accounted for over $12.9 million or 82.1% of net sales and
the top 25 skus accounted for 62.9% of net sales.

Net Sales

          Net sales for the fiscal year ended December 31, 2000 increased
$3,724,792 or 31.2% to $15,671,494 from $11,946,702 for the fiscal year ended
December 31, 1999. The Company tracks sales by distribution channel (health food
and mss) and geographically (domestic and international). The increase in sales
is primarily due to the continued successful launch of Naturade Total Soy
products for the mass market. Mass sales for the fiscal year ended December 31,
2000 increased $4,339,804, or 335%, to $5,633,809 from $1,294,005 for the fiscal
year ended December 31, 1999. Health food sales for the fiscal year ended
December 31, 2000 decreased $615,012, or 5.8%, to $10,037,685 from $10,652,697
for the fiscal year ended December 31, 1999. Domestic sales for the fiscal year
ended December 31, 2000 increased $3,835,978, or 33.8%, to $ 15,192,775 from
$11,356,797 for the fiscal year ended December 31, 1999. International sales for
the fiscal year ended December 31, 2000 decreased $111,186, or 18.8%, to
$478,719 from $589,905 for the fiscal year ended December 31, 1999.

          For the fiscal year ended December 31, 2000, the top 40 customers
accounted for $14,413,300, or 92%, of net sales, with 24 health food customers
contributing $8,980,500, or 57.3%, of net sales, 14 mass market customers
contributing $5,120,200, or 32.7%, of net sales, and two international customers
contributing $312,600, or 2%, of net sales. For the fiscal year ended December
31, 1999, the top forty customers accounted for $10,493,900 or 88% of net sales,
with 20 health food customers contributing $9,028,600, or 75.6%, of net sales,
17 mass market customers contributing $1,137,600, or 9.5%, of net sales, and
three international customers contributing $327,700, or 2.7%, of net sales.


                                       21
<PAGE>

          For the fiscal year ended December 31, 2000, the Company continued its
successful rollout of Naturade Total Soy products, with 12 powder products
contributing $6,032,400, or 38.5%, of net sales. During the later half of 2000,
the Company launched three product line extensions in the Naturade Total Soy
family including Naturade Total Soy Calcium 1000, Naturade Total Soy bars and
Naturade Total Soy Ready-to-Drink which combined contributed $653,400, or 4.2%,
of net sales. This compares favorably with sales for the twelve Naturade Total
Soy powder products of $1,367,000, or 11.4%, of net sales, for the fiscal year
ended December 31, 1999.

          For the fiscal year ended December 31, 2000, the top 40 products
represented $11,410,100, or 72.8%, of net sales, with 11 Naturade Total Soy
products contributing $5,678,600, or 36.2%, of net sales, 15 protein powders
contributing $3,729,700, or 23.8%, of net sales and 14 aloe vera and other
products representing $2,001,800, or 12.8%, of net sales. For the fiscal year
ended December 31, 1999, the top 40 products represented $8,132,400, or 68.1%,
of net sales with eight Naturade Total Soy products contributing $1,181,600, or
9.9%, of net sales, 16 protein powders contributing $4,468,500, or 37.4%, of net
sales and 16 aloe vera and other products representing $2,482,300, or 20.8%, of
net sales.

Gross Margin

           Gross profit as a percentage of sales for fiscal 2000 increased
8.7% to 47% from 38.3% in fiscal 1999. This improvement in gross profit
percentage is primarily due to better inventory control in fiscal 2000
compared to fiscal 1999 in which approximately $875,000 in obsolete inventory
was reserved compared to approximately $190,000 in fiscal 2000. Also
impacting the gross profit percentage for fiscal 1999 was the sale of
$148,164 of raw materials to co-packers at cost which produced no gross
margin, thereby lowering the gross margin for fiscal 1999.

Selling, General and Administrative Expenses

           Selling, general and administrative expenses for the fiscal year
ended December 31, 2000 decreased $84,673, or .9%, to $8,839,159, or 56.4%,
of net sales, from $8,923,832, or 74.7%, of net sales, for the fiscal year
ended December 31, 1999.  This downward trend includes a $525,691 reduction
in general and administrative costs, a $169,937 reduction in marketing
expenses, a $75,229 reduction in research and development costs, offset by a
$318,567 increase in shipping and receiving costs, a $323,790 increase in
sales costs, a $43,064 increase in depreciation and amortization and a net
reduction of $763 in miscellaneous costs. The significant trends are
explained below.

          Marketing costs consist of advertising, trade and consumer
promotions, marketing consultants, public relations, design and product
development and other. For fiscal 2000, these marketing costs decreased
$169,937, or 6.6%, compared to fiscal 1999, to $2,396,532, or 15.3%, of net
sales for the fiscal year ended December 31, 2000 from $2,566,469, or 21.5%,
of net sales for the fiscal year ended December 31, 1999. This downward trend
is primarily due to a significant reduction in advertising and marketing
consulting expenses, partially offset by an increase in trade promotions as
the Company revamped its marketing focus to target specific customers with
trade promotions which have a more direct impact on current sales.

          Sales costs consisting of sales personnel and related costs as well
as sales commissions increased $323,790, or 18.9%, compared to the prior
fiscal year to $2,035,621, or 13%, of net sales for the fiscal year ended
December 31, 2000, from $1,711,831, or 14.3%, of net sales for the fiscal
year ended December 31, 1999. While commissions accounted for approximately
$167,500, or 51.7% of the increase, commissions as a percent of sales
remained within the 4% range with commissions for the fiscal year ended
December 31, 2000 comprising 4.2% of net sales, compared to 4.1% of net sales
for the fiscal year ended December 31, 1999. Other sales expenses including
additional personnel, related benefit costs and travel costs comprise the
balance of the increase.

                                       22
<PAGE>

          Shipping and receiving costs consist of all warehouse operating
costs plus freight costs to the Company's customers. For the fiscal year
ended December 31, 2000, these shipping and receiving costs increased
$318,567, or 29.2%, compared to fiscal 1999 to $1,411,351, or 9%, of net
sales, from $1,092,784, or 9.1%, of net sales, for the fiscal year ended
December 31,1999. Incremental freight-out costs represented approximately
$200,000, or 62.8%, of this increase, with additional personnel and warehouse
costs representing the balance. For the fiscal year ended December 31, 2000,
freight out represented 5.9% of net sales, slightly lower than the 6.1% of
net sales freight-out represented for the fiscal year ended December 31,
1999. For the fiscal year ended December 31, 2000, freight-out costs were
lower due to some truckload shipments to mass market customers which are
cheaper on a per unit basis than the Company's more typical
less-than-truckload freight-out shipments, compared to no such shipments for
the fiscal year ended December 31, 1999.

          General and administrative (G&A) costs decreased $525,691, or
16.9%, for fiscal 2000 compared to fiscal 1999 to $2,579,980, or 16.5% of net
sales, for the fiscal year ended December 31, 2000 from $3,105,671, or 26.0%
of net sales, for the fiscal year ended December 31, 1999. There were three
major causes for this decrease. The first cause was lower payroll expense of
approximately $317,000 for fiscal 2000 compared to fiscal 1999 due to a
corporate restructuring which reduced senior management and other positions.
The second cause was a reduction of approximately $179,000 in outside
financial consultants and legal advisors as the Company's financial
structuring issues where more fully resolved in fiscal 2000. The third cause
was a reduction in bad debt expense of approximately $30,000 in fiscal 2000
compared to fiscal 1999 due to better control over customer receivables over
90 days.

          The fiscal 1999 other operating expense amount included the PNI
lawsuit settlement of $1,774,000 as explained in Note 7 to the Financial
Statements, and the write off of intangible assets of $1,070,344 as explained in
Note 8 to the Financial Statements. There is no comparable amount for fiscal
2000.

Other Income (Expense)

           Other (income) expense consists of two components, interest expense
and other expense, which are separately discussed below.

          Interest expense consists of bank and other interest related to
notes shown on Note 4 to the Financial Statements. For fiscal 2000, these
interest expenses decreased $1,691,423 compared to fiscal 1999 to $660,569,
or 4.2% of sales, for the fiscal year ended December 31, 2000, from
$2,351,992, or 19.7% of sales, for the fiscal year ended December 31, 1999.
For the fiscal year ended December 31, 2000, $509,968 consisted of interest
from bank and other debt. The remaining $150,601 related to the amortization
of the debt discount associated with the Health Holdings Finance Agreement as
explained in Note 4 to the Financial Statements. The major reason for the
interest decline in fiscal 2000 was the recording in fiscal 1999 of interest
expense related to the conversion feature of the $4 million Health Holdings
Credit Agreement debt. This conversion feature allowed Health Holdings to
convert any portion of the borrowings into shares of the Company's common
stock at a conversion price equal to the lower of $.75 per share or the then
fair market value of the Company's common stock. Due to this conversion
feature, the Company recorded a non-cash interest expense of approximately
$1,501,000 for the fiscal year ended December 31, 1999.

          The other expense category consists of unusual or non-recurring
charges net of other income. For the fiscal year ended December 31, 2000 this
other expense decreased $144,713 compared to fiscal 1999 to $930 for the fiscal
year ended December 31, 2000, from $145,643, or 1.2% of sales, for the fiscal
year ended December 31, 1999.


                                       23
<PAGE>

FISCAL 1999 COMPARED TO FISCAL 1998

          Commencing January 1, 1999, the Company changed its fiscal year to end
December 31st. Consequently, this analysis compares the new fiscal year ended
December 31, 1999 (fiscal 1999) with the prior fiscal year ended September 30,
1998 (fiscal 1998).

Net Sales

          Fiscal 1999 was a milestone year for Naturade. While the health food
industry experienced continued softness, the Company maintained its sales
strength in key health food accounts, while establishing a toehold in the more
diverse mass market. In fiscal 1999, the top 25 customers accounted for almost
$9.2 million, or 76.8% of net sales, and the top 25 skus accounted for 54.1% of
net sales.

          Net sales for the fiscal year ended December 31, 1999 declined
$1,560,270, or 11.6%, to $11,946,702 from $13,506,972 for the fiscal year ended
September 30, 1998. This decline was primarily due to a decrease in
International and Kids Plex sales which were partially offset by the successful
launch of Naturade Total Soy. Domestic core sales (which include Naturade Total
Soy but exclude Kids Plex, The Chinese Way and Private Label), represented 90.2%
of net sales in fiscal 1999, increased $726,481, or 7.2%, compared to fiscal
1998. Of this amount, Naturade Total Soy represented over $1,300,000, or 11.0%
of net sales. Due to the cancellation of sales to a major health retailer in
early 1999 initiated by Naturade for slow payment of accounts due, Kids Plex
sales declined $1,394,365, or 88.8%, to $176,189 from $1,570,554 for fiscal
1998. International sales declined $817,292, or 59.1%, to $564,530 from
$1,381,822 for fiscal 1998.

          While the Company has maintained its market share in the health food
category, the Company's domestic dollar sales were affected by the overall
industry softness. Sales to mass market retailers of products designed to be
different from health food offerings partially offset health food category
weakness.

          The health food segment decline includes a decline in Kids Plex(R)
sales related to a single customer which in fiscal 1998 accounted for over 95%
of Kids Plex(R) sales. In January 1999, the Company stopped selling to a major
health food retailer due to its large accounts receivable balance outstanding
and its unwillingness to pay Naturade invoices in a timely manner. The Company
has fully reserved for these receivables as of December 31, 1999. Sales to this
retailer were $1,350,712 for the fiscal year ended September 30, 1998 for which
there were no comparable sales in calendar 1999.

          The decline in international sales is due to the Company's new global
marketing strategy in which management has decided to emphasize branded products
and reduce its dependence on international private label business due to its low
margin and unpredictability. During fiscal 1998, the Company's international
sales of $1,381,322 included $416,077 of non-recurring, low margin private label
business from a Chinese customer for which there were no comparable sales in the
same period of 1999. Saudi Arabian sales were $139,658 and $482,854, for the
December 31, 1999 and September 30, 1998 fiscal years, respectively. The


                                       24
<PAGE>

Saudi Arabian decline was due to a slowness in the Arabic market and
management's decision to tighten credit terms to the Company's exclusive Saudi
Arabian distributor.

Gross Margin

           Gross profit as a percentage of sales for fiscal 1999 decreased to
38.3% from 42.3% in fiscal 1998. The gross profit percentage for fiscal 1999 was
affected by several management-led initiatives. This included writing off or
reserving approximately $900,000 in obsolete inventory and the Company's
decision to outsource production in order to add capacity, focus its resources
on marketing and distribution, lower fixed operating costs and ensure quality
control. While this outsourcing decision has added significantly to the
Company's ability to serve its customers, it has slightly penalized gross
profits in fiscal 1999 due to startup and transitional costs.

Selling, General and Administrative Expenses

           Selling, general and administrative expenses for the fiscal year
ended December 31, 1999 increased $438,442, or 5.2%, to $8,923,832, or 74.7%,
of net sales from $8,485,390, or 62.8%, of net sales for the fiscal year
ended September 30, 1998. This increase was attributable to several increases
in general and administrative expenses including new building rent, higher
bad debt expense and additional costs associated with investor relations and
management consulting services which are explained below.

          Marketing costs consist of advertising, trade and consumer
promotions, marketing consultants, public relations, design and product
development and other. For fiscal 1999, these marketing costs decreased
$34,474, or 1.3% compared to the prior fiscal year, to $2,566,469, or 21.5%
of net sales, for the fiscal year ended December 31, 1999, from $2,600,943,
or 19.3% of net sales, for the fiscal year ended September 30, 1998. This
decline is attributable to a slight reduction in advertising as the Company
refocused its marketing efforts on more customer-specific trade promotions.

          Sales costs consisting of sales personnel and related costs as well
as sales commissions decreased $368,152, or 17.7%, compared to the prior
fiscal year to $1,711,830, or 14.3% of net sales, for the fiscal year ended
December 31, 1999, from $2,079,982, or 15.4% of net sales, for the fiscal
year ended September 30, 1998. Non-commission sales costs accounted for all
of the decline and consisted of approximately $158,000 in lower international
expenses as the Company reduced its international activities due to lower
margins and a slowdown in the Asian market and approximately $223,000 in
lower domestic costs as the Company curtailed its expenses to support the
Kids Plex product line due its lower sales prospects.

          Shipping and receiving costs consist of all warehouse operating
costs plus freight costs to the Company's customers. For fiscal 1999, these
shipping and receiving costs decreased $79,328, or 6.8%, compared to the
prior fiscal year to $1,092,784, or 9.1% of net sales, for the fiscal year
ended December 31,1999, from $1,172,112, or 8.7%, for the fiscal year ended
September 30, 1998. This decrease was due to a reduction in personnel and
warehouse costs as the Company moved to modern and more labor-efficient
operating quarters, offset by a $7,000 increase in freight-out costs as the
Company's push into the mass market sometimes required greater use of rush
and demo shipments used for new mass accounts.

          General and administrative (G&A) costs increased $752,689, or 32.0%,
for fiscal 1999 compared to fiscal 1998 to $3,105,671, or 26.0% of net sales,
for the fiscal year ended December 31, 1999, from $2,352,982, or 17.4%, for the
fiscal year ended September 30, 1998. There were four major causes for this
increase. The first was rent expense of approximately $365,000 for fiscal 1999
compared to none for fiscal 1998 since in fiscal 1998 the Company owned its own
facility whereas in April 1999 it moved to new rented facilities.


                                       25
<PAGE>

The second major cause was an increase in the reserves for doubtful accounts and
returns and allowances of approximately $150,000 over fiscal 1998 amounts due to
an increase in customer receivables over 90 days and unauthorized credits. The
third major cause was the recognition in fiscal 1999 of a full year of
management consulting charges at the rate of $75,000 per quarter. In fiscal
1998, the Company only incurred three quarters' worth of charges since these
quarterly amounts commenced in January 1998. The final major cause was
approximately $88,000 of investor relations costs in fiscal 1999 for which there
were none in fiscal 1998.

          As previously reported, during fiscal 1998, the Company conducted an
extensive review and assessment of its business which resulted in the
establishment of a new strategic direction calling for the Company to
aggressively invest in products designed for the mass market. In this endeavor,
the Company conducted extensive market research, retained product development
consultants and incurred other expenses in this new product design effort. The
Company views these product design costs as an investment in the future
direction of Naturade. For fiscal 1998, these expenses included $82,964 for
market research and $360,369 for product development consultants and other costs
for which there were no comparable costs in fiscal 1999.

          The fiscal 1999 other operating expense amount includes the PNI
lawsuit settlement of $1,774,000 as explained in Note 7 to the Financial
Statements, and the write off of intangible assets of $1,070,344 as explained in
Note 8 to the Financial Statements. There is no comparable amount for fiscal
1998.

Other (Income) Expense

           Other (income) expense consists of two components, interest expense
and other expense, which are separately discussed below.

          Interest expense consists of bank and other interest related to notes
shown on Note 4 to the Financial Statements. For fiscal 1999, these interest
expenses increased $1,954,276 compared to the prior fiscal year to $2,351,992,
or 19.7% of net sales, for the fiscal year ended December 31, 1999, from
$397,716, or 2.9%, for the fiscal year ended September 30, 1998. The cause of
this significant increase is the recording of interest expense related to the
conversion feature of the $4 million Health Holdings Credit Agreement debt which
allows Health Holdings to convert any portion of the borrowings into shares of
the Company's common stock at a conversion price equal to the lower of $.75 per
share or the then fair market value of the Company's common stock. The Company
borrowed on this Credit Agreement on August 8, 1999 for $3 million and on
December 30, 1999 for $650,000. Due to this conversion feature and the $3.65
million in borrowings, the Company recorded a non-cash interest expense of
approximately $1,501,000 for the fiscal year ended December 31, 1999 as
explained in Note 4 to the Financial Statements. Also in fiscal 1999, the
Company recorded a non-cash interest expense of approximately $429,000 related
to warrants granted to Health Holdings as part of the Health Holdings Finance
Agreement as explained in Note 4 to the Financial Statements.


                                       26
<PAGE>

          The other expense category consists of unusual or non-recurring
charges net of other income. This other expense decreased $315,166 for fiscal
1999 compared to fiscal 1998 to $145,643, or 1.2% of net sales, for the fiscal
year ended December 31, 1999, from $460,809, or 3.4% of net sales, for the
fiscal year ended September 30, 1998.



                                       27
<PAGE>

Liquidity and Capital Resources

       The Company used cash of $2,642,876 in operating activities for the
fiscal year ended December 31, 2000 compared to the use of cash of $4,605,402 in
operating activities for the fiscal year ended December 31, 1999.

        The Company's working capital increased from ($649,929) at December 31,
1999 to $226,869 at December 31, 2000. This increase was due to the conversion
of the $1.6 million due to Health Holdings into the Company's common stock in
March 2000 (See Note 4 to the Financial Statements), an increase in net Accounts
Receivable of $1,264,485 due to the significantly higher sales in December 2000
versus December 1999, increases in Accounts Payable and Accrued Expenses of
$385,930 and the Company's operating losses for the fiscal year ended December
31, 2000.

        Cash used in investing activities for the fiscal year ended December 31,
2000 totaled $31,223. The primary use of this cash was the purchase of equipment
used in the Company's operations.

        The Company's cash provided by financing activities of $1,820,507 for
the fiscal year ended December 31, 2000 was the net result of borrowings under
the line of credit, borrowings from the Credit Agreement with Health Holdings
and borrowings under the Loan Agreement (See Note 4 to the Financial
Statements), offset by payments of long-term obligations.

         As more fully explained in Note 4 to the Financial Statements,
effective August 31, 2000, the Company entered into a Loan Agreement with Health
Holdings and other investors (the "Lender Group") which provides for advances
(the "Loan Advances") of up to $1.2 million at an annual interest rate of 8%
with a due date of August 31, 2003. The Loan Agreement further provides that the
Lender Group may convert all or any part of the Loan Advances into shares of the
Company's common stock at a conversion price equal to the lower of the average
closing bid of the Company's common stock for the ten trading days prior to the
making of a Loan Advance or the average closing bid of the Company's common
stock for the ten trading days prior to the date of receipt of notice of
conversion.

            On January 27, 2000, the Company entered into a three year Credit
and Security Agreement with Wells Fargo Business Credit (Wells Fargo) which
provides for a $3 million


                                       28
<PAGE>

secured line of credit at the prime rate (9.5% at December 31, 2000) plus 1.5%
to be used for working capital. The Company will apply funds drawn under this
facility to finance inventory and receivables. This agreement replaced the South
Bay Bank line of credit and is collateralized by substantially all of the
Company's assets. Borrowings under this agreement totaled $1,810,534 at December
31, 2000. As of December 31, 2000, the Company was not in compliance with the
minimum net income covenant and is pursuing a waiver from its lender. However,
there can be no assurance that the Company will be successful in having this
covenant waived. In such event, Wells Fargo would be entitled to exercise
remedies under the Credit and Security Agreement including termination of this
agreement.

          The financial statements accompanying this 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, 2000, the Company has an accumulated deficit of $15,822,739,
net working capital of $226,869 and a stockholders' capital deficiency of
$4,472,397, has incurred recurring net losses and is in violation of one of
its debt covenants. 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 that might result from the outcome
of this uncertainty.

          In response to these conditions, the Company, under current
management has made certain financial and organizational changes and
completed a detailed analysis of the Company's core competencies, the
nutraceutical market, competitors, specific product categories and externally
available resources. Based on this analysis, the management team has focused
its sales force on growth-oriented health food and mass market retail
segments, taken action to reduce overhead costs and developed product line
extensions in the rapidly growing soy protein category, specifically in the
ready-to-drink market segment. Management is also continuing its efforts to
obtain additional funds so that the Company can meet its obligations and
sustain operations.

          Based on the current operating plan, the Company believes that its
existing cash balances and financing arrangements will provide us with
sufficient funds to finance our operations for at least the next twelve
months. Furthermore, the Company was not in compliance with one of its debt
covenants and is pursuing a waiver from its lender. In the past, we utilized
both operating and capital lease financing for certain equipment used in our
operations and expect to continue to selectively do so in the future. We may
in the future require additional funds to support our working capital
requirements or for other purposes, and may seek to raise such additional
funds through the sale of public or private equity and/or debt financings or
from other sources. No assurance can be given that additional financing will
be available in the future or that if available, such financing will be
obtainable on terms favorable to us or our stockholders when we may require
it.

New Accounting Pronouncements

          Statement of Financial Accounting Standards (SFAS) No. 133, Accounting
for Derivative Instruments and Hedging Activities, is effective for all fiscal
years beginning after June 15, 2000. SFAS 133, as amended, established
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
Under SFAS 133, certain contracts that were not formerly considered derivatives
may now meet the definition of a derivative. The Company adopted SFAS 133
effective January 1, 20001. The adoption of SFAS 133 did not have a significant
impact on the financial position, results of operations, or cash flows of the
Company.

          In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial
Statements, which the Company adopted in the fourth quarter of 2000. Adoption of
SAB No. 101 did not have a


                                       29
<PAGE>

material impact on the Company's financial statements.

          In March 2000, the FASB issued FASB Interpretation No. 44,
Accounting for Certain Transactions Involving Stock Compensation, as
Interpretation of Accounting Principles Board ("APB") Opinion No. 25,
Accounting for Stock Issued to Employees ("FIN 44"). FIN 44 clarifies the
application of APB No. 25 for the following: the definition of employee for
purposes of applying APB No. 25; the criteria for determining whether a plan
qualifies as a non-compensatory plan; the accounting consequence for various
modifications to the terms of a previously fixed stock option or award; and
the accounting for an exchange of stock compensation awards in a business
combination. The Company repriced options to purchase 381,000 shares of
common stock in 1999. The Company adopted FIN 44 effective July 1, 2000 and
such adoption did not have material impact on the Company's financial
statements. However, the repriced options are now accounted for as variable
awards and future increases in the Company's stock price may affect future
operating results.

FORWARD-LOOKING INFORMATION

         This Annual Report on Form 10-K contains forward-looking statements
within the meaning of that term in the Private Securities Litigation Reform Act
of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934). Additional written or oral forward-looking
statements may be made by the Company from time to time, in filings with the
Securities Exchange Commission or otherwise. Statements contained herein that
are not historical facts are forward-looking statements made pursuant to the
safe harbor provisions referenced above. Any matters discussed herein including,
without limitation, the Company's introduction of new products, future sales
levels, availability of raw materials, ability to maintain or secure replacement
financing and the potential outcome of pending litigation involving the Company,
are forward-looking statements. In addition, when used in this discussion, the
words "anticipates," "expects," "intends," "plans," variations thereof and
similar expressions are intended to identify forward-looking statements.

          Forward-looking statements are inherently subject to risk and
uncertainties, some of which cannot be predicted or quantified based on current
expectations. Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or underlying the
forward-looking statements contained in this Annual Report. Statements in this
Annual Report on Form 10-K, particularly in "Item 1. Business", "Item 3. Legal
Proceedings", the Notes to Financial Statements and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
describe certain factors that could contribute to or cause such differences
including, but not limited to, unanticipated developments in any one or more of
the following areas: the rate of consumer acceptance of new product
introductions, competition, the number and nature of customers and their product
orders, pricing, sourcing and sales (including foreign government regulation,
trade and importation concerns and fluctuation in exchange rates), availability
and costs of borrowing, changes in taxes due to change in the mix of U.S. and
non-U.S. revenue, pending or threatened litigation, the availability of key
personnel, the availability of raw materials and other risk factors which may be
detailed from time to time in the Company's Securities and Exchange Commission
filings.


                                       30
<PAGE>

          Readers are cautioned not to place undue reliance on any
forward-looking statement contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unexpected events.

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 $3 million
line of credit entered into on January 27, 2000, a $4 million Credit
Agreement with the majority shareholder of the Company and an $800,000 Loan
Agreement with the majority shareholder of the Company and other investors.
The line of credit bears interest at prime rate plus 1.5%. The Credit
Agreement bears interest at 8% per annum with a due date of July 31, 2004.
The Loan Agreement bears interest at 8% per annum with a due date of August
2003. Given the fixed interest rate on the Credit Agreement and Loan
Agreement, the impact of interest rate changes with respect to the Credit
Agreement and Loan Agreement would not have a material impact on the
Company's results of operations. Given the variable interest rate on the line
of credit, the impact of interest rate changes on the line of credit could
have a material impact on the Company's results of operations.  For the
fiscal year ended December 31, 2000, the interest expense on the line of
credit was $137,203. If the interest rate on the line of credit was increased
by one percent, this would result in an interest expense of $151,118 for the
fiscal year ended December 31, 2000.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         Attached as Exhibits are Financial Statements and the supplementary
financial information as required (see Item 14- Exhibits).

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

               None


                                       31
<PAGE>

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

         The names and ages of the directors and executive officers of the
Company as of March 2, 2001, are as follows:

<TABLE>
<CAPTION>

              Name                                   Age              Position                   Since
             ------                                 -----            ----------                 -------
         <S>                                        <C>            <C>                         <C>
         Bill D. Stewart                             58               Director,
                                                                    Chairman of the Board,
                                                                    Chief Executive Officer           1998

         Lionel P. Boissiere, Jr.                    42               Director                        1997

         William B. Doyle, Jr.                       41               Director                        1997

         Derek Hall                                  55               Director                    October 1999

         David A. Weil                               62               Director                    October 1999

         Lawrence J. Batina                          48             Chief Financial Officer,           1999
                                                                    Chief Operating Officer,
                                                                    Secretary-Treasurer
</TABLE>

The directors serve until the next annual meeting of shareholders, or until
their successors are elected.

BILL D. STEWART. Mr. Stewart served from 1989 to 1997 as President of The
Thompsons Minwax Company. In that capacity Mr. Stewart effected an increase in
Thompsons sales from $20 million to $200 million, led the acquisition of the Red
Devil Coatings Co. from Insilco Co., built The Thompsons waterproofing business
to a greater than 60% market share, launched the national sales effort for
Thompson Exterior Stain, and successfully moved the Do-It-Yourself business into
the mass market sales channel, establishing relationships with Wal*Mart, K-Mart
and Target. Mr. Stewart served as Vice President of Sales with Thompsons from
1986 to 1989. Prior to joining Thompsons, Mr. Stewart served for 16 years with
Richardson Vicks in various capacities.

LIONEL P. BOISSIERE, JR. During the past six years, Mr. Boissiere has been an
investor and advisor to middle market companies. From 1993 through 1995 he
worked with Govett LTD, and since 1995 Mr. Boissiere has been a Managing Member
at Doyle & Boissiere LLC.

WILLIAM B. DOYLE, JR. Since 1995 Mr. Doyle has served as Managing Member of
Doyle & Boissiere LLC. Prior to such time Mr. Doyle was with Govett LTD. Mr.
Doyle is an investor and an advisor to middle market companies.


                                       32
<PAGE>

DEREK HALL. Mr. Hall is a long-time senior pharmaceutical executive. As the
Chief Sales Officer and Vice President of McKesson Corporation, Mr. Hall managed
sales and marketing for the nation's largest wholesale drug business as part of
a 26 year career with McKesson. Following McKesson, Mr. Hall served as the CEO
of four dietary supplement and health companies including Enzymatic Therapy and
Nature's Way. Mr. Hall and his team successfully acquired and managed Enzymatic
Therapy along with three other add-on acquisitions funded by an investment
group. He has participated in numerous professional activities including
committees of the National Association of Chain Drug Stores, National Wholesale
Drug Association and The Board of Trustees for the National College of
Naturopathic Medicine.

DAVID A. WEIL. Mr. Weil has been an investor and advisor to early stage
companies during the past five years. Mr. Weil currently serves as co-Chief
Executive Officer of two private companies. Until June 1998, Mr. Weil also
served as co-Chief Executive Officer of Frontline Capital, Inc., a broker-dealer
which specialized in working with early stage companies. Mr. Weil holds
engineering and law degrees from Washington University and an LLM degree from
New York University.

LAWRENCE J. BATINA. Mr. Batina holds an MBA from Harvard Business School, a BS
degree in Accounting with a minor in MIS from the University of California at
Berkeley and is a CPA. He joined the Company in 1999 after serving for two years
as Vice President and Corp. Controller for a $180 million marketing company.
From 1994-97, he was Senior Vice President and General Manager of Prepared
Products Co., a $50 million food processing company. Prior to that, Mr. Batina
was President and Chief Operating Officer of American Confectionery Co., a $30
million candy and chocolate company and a consulting manager with KPMG Peat
Marwick.


                                       33
<PAGE>

ITEM 11. EXECUTIVE COMPENSATION

          The following table sets forth the annual compensation paid and
accrued by the Company during the year ended September 30, 1998, the three
months ended December 31, 1998 and the fiscal years ended December 31, 2000 and
December 31, 1999 to the executive officers to whom it paid in excess of
$100,000 ("named executive officers"), including cash and issuance of
securities.

<TABLE>
<CAPTION>
                                             Summary Compensation Table
-------------------------------------------------------------------------------------------------------------------
                                         Annual Compensation                    Long Term        All Other
                                                                               Compensation     Compensation
                                                                                  Awards
-------------------------------------------------------------------------------------------------------------------
Name and                                                          Other         Securities
Principal                                                         Annual        Underlying
Position              Year           Salary      Bonus        Compensation      Options/SAR
                                      ($)         ($)              ($)              (#)

-------------------------------------------------------------------------------------------------------------------
<S>                <C>              <C>         <C>           <C>               <C>             <C>
Bill Stewart,      9/30/98           117,692     74,700        102,238 (1)         255,000 (3)       6,786 (9)
Chief Executive    10/1-12/31/98      53,846          -             -                  -             4,020 (9)
Officer            12/31/99          200,000          -             -                  -            15,850 (9)
                   12/31/00          200,000                                       60,000 (4)       16,121 (9)
-------------------------------------------------------------------------------------------------------------------
Allan Schulman,    9/30/98           182,976          -             -               10,000 (5)      13,969 (10)
President          10/1-12/31/98      48,046          -             -                                1,208 (10)
                   12/31/99          139,961          -             -                               17,884 (10)
                   12/31/00               -           -             -                               12,148 (10)
-------------------------------------------------------------------------------------------------------------------
Anthony Roth,         9/30/98        110,423       26,613        38,953 (2)        30,000 (6)          745 (11)
VP Domestic        10/1-12/31/98      36,346       25,000           -                  -
Sales                12/31/99         63,017          -             -                  -
                   12/31/00               -           -             -                  -
-------------------------------------------------------------------------------------------------------------------
Lawrence Batina,   12/31/99          132,692          -             -              100,000 (7)         177 (12)
Chief Financial    12/31/00          144,996                                        15,000 (8)       1,184 (12)
Officer/Chief
Operating Officer
-------------------------------------------------------------------------------------------------------------------
</TABLE>


(1)      Such amount includes relocation expenses of $37,102 paid by the Company
         on behalf of Mr. Stewart.

(2)      Such amount includes relocation expenses of $13,958 and real estate
         sales expenses of $24,995 paid by the Company on behalf of Mr. Roth.

(3)      Such amount represents stock options which were granted by the Company
         to Mr. Stewart during fiscal 1998. These options vest over 4 years and
         expire 7 years from the initial grant date. Per Board of Directors
         resolution, these options were repriced on October 14, 1999 to 110% of
         the fair market value of the Company's common stock on that date.

(4)      Such amount represents stock options which were granted by the Company
         to Mr. Stewart during fiscal 2000 with an excerise price of $.875 per
         share . These options vest over 4 years and expire 7 years from the
         initial grant date.

(5)      Such amount represents stock options which were granted by the Company
         to Mr. Schulman during the indicated fiscal year. These options vest at
         the time of grant, expire one year after Mr.


                                       34
<PAGE>

         Schulman ceases to serve on the Company's Board of Directors, and have
         an exercise price equal to the average bid price of the Company's
         common stock for the 30 day period ending the December 31 prior to
         grant.

(6)      Such amount represents stock options which were granted by the Company
         to Mr. Roth during Fiscal 1998. Due to the resignation of this
         executive officer in May 1999, these options expired in 1999.

(7)      Such amount represents stock options which were granted by the Company
         to Mr. Batina during fiscal 1999. These options vest over 4 years and
         expire 7 years from the initial grant date. Per Board of Directors
         resolution, these options were repriced on October 14, 1999 to 110% of
         the fair market value of the Company's common stock on that date.

(8)      Such amount represents stock options which were granted by the Company
         to Mr. Batina during fiscal 2000 with an exercise price of $.875 per
         share . These options vest over 4 years and expire 7 years from the
         initial grant date.

(9)      Such amount represents automobile lease payments and life insurance
         premiums, respectively, paid on behalf of Mr. Stewart in the following
         periods: $15,000 and $1,121 for the fiscal year ended December 31,
         2000, $15,000 and $850 for the fiscal year ended December 31, 1999,
         $3,750 and $270 for the three months ended December 31, 1998 and $6,250
         and $536 for the fiscal year ended September 30, 1998.

(10)     Such amount represents automobile lease payments, life insurance
         premiums and Company contributions to the Company's 401(k) Plan,
         respectively, paid on behalf of Mr. Schulman in the following periods:
         $12,148, $0 and $0 for the fiscal year ended December 31, 2000,
         $14,234, $1,905 and $1,745 for the fiscal year ended December 31, 1999,
         $474, $734 and $0 for the three months ended December 31, 1998 and
         $10,692, $1,046 and $2,231 for the fiscal year ended September 30,
         1998.

(11)     Such amount represents life insurance premiums paid on behalf of Mr.
         Roth for the fiscal year ended September 30, 1998. Mr. Roth resigned
         from the Company in May 1999.

(12)     Such amount represents Company contributions to the Company's 401(k)
         Plan paid on behalf of Mr. Batina in the following periods: $1,185 for
         the fiscal year ended December 31, 2000 and $177 for the fiscal year
         ended December 31, 1999.


In addition, Mr. Stewart, Mr. Schulman, Mr. Roth and Mr. Batina participated
with other full-time employees in the Company's group health and life insurance
program.


                                       35
<PAGE>

         Options/SAR Grants In Last Fiscal Year
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
                                                                               Potential Realization Value at
                                              Individual Grants                 Assumed Annual Rates of Stock
                                                                             Price Appreciation for Option Term
-------------------------------------------------------------------------------------------------------------------
               Number of         % of Total      Exercise
Name           Securities       Options/SARs     or base      Expiration
               Underlying       Granted to       price           Date         5% ($)      10% ($)         0% ($)
               Options/SARs     Employees in     ($/Sh)
               Granted (#)      fiscal year
-------------------------------------------------------------------------------------------------------------------
<S>            <C>             <C>              <C>           <C>           <C>          <C>             <C>
Bill Stewart   60,000 (1)          50%           $.875           2/1/07      $21,373      $49,808          $0


Lawrence       15,000 (1)        12.5%           $.875           2/1/07       $5,343      $12,452          $0
Batina
-------------------------------------------------------------------------------------------------------------------
</TABLE>



(1) Options vest and become exercisable at the rate of 25% each year beginning
on the first anniversary of the grant date.

No options were exercised by officers or directors during the fiscal years ended
December 31, 2000, December 31, 1999 or the three months ended December 31,
1998.

                           Aggregated Option/SAR Exercises in Last Fiscal Year
                                    and FY-End Option/SAR Values

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                                          # of Shares underlying                 Value of unexercised in the money
                                   options/sar's at fiscal year end (#)         options/sar's at fiscal year end ($)
----------------------------------------------------------------------------------------------------------------------
Name                                   Exercisable/Unexercisable                     Exercisable/Unexercisable
----------------------------------------------------------------------------------------------------------------------
<S>                               <C>                                           <C>
Bill Stewart                            127,500/187,500                                     $0/$0
----------------------------------------------------------------------------------------------------------------------
Allan Schulman                          60,000/0                                            $0/$0
----------------------------------------------------------------------------------------------------------------------
Lawrence Batina                         25,000/90,000                                       $0/$0
----------------------------------------------------------------------------------------------------------------------
</TABLE>


COMPENSATION OF DIRECTORS

          Through November 2000, all directors except Messrs. Boissiere and
Doyle received directors' fees of $1,000 per month. Effective December 2000, all
directors except Messrs. Boissiere and Doyle received directors' fees of $2,500
per month.

EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS

          The Company and Bill D. Stewart have entered into an employment
agreement under which the Company has retained Mr. Stewart as Chief Executive
Officer and a member of the Company's Board of Directors for a period of 48
months beginning March 2, 1998. Under the employment agreement Mr. Stewart
receives an annual salary of $200,000 and certain


                                       36
<PAGE>

other executive compensation as described in the Executive Compensation
Table. The Company also agreed to grant to Mr. Stewart, pursuant to the
Naturade, Inc. 1998 Incentive Stock Option Plan, options to acquire 255,000
shares of Common Stock. The employment agreement may be terminated by either
party. If the employment agreement is terminated for "Cause" (as defined in
the employment agreement) by the Company, or by resignation by Mr. Stewart,
he is entitled to the compensation then earned and vested prior to the date
of termination (excluding any bonus). If the employment agreement is
terminated other than for "Cause" by the Company or death or disability by or
of Mr. Stewart, he is entitled to (i) the compensation earned by and vested
in him prior to the date of termination as provided for in the employment
agreement (including bonus) and the 1998 Incentive Stock Option Plan up to
that date, and (ii) payment of his salary, average bonus, and continuation of
certain benefits through the 12 months following termination.

          On March 2, 1998 the Company granted to Bill D. Stewart, pursuant to
the Company's 1998 Incentive Stock Option Plan, options to acquire up to 255,000
shares of Common Stock. The exercise price for such options was $4.00 per share
(the average closing bid price of the shares of Common Stock on the NASDAQ OTC
Bulletin Board as quoted by Bloomberg, LP for the five (5) day trading period
ending on March 2, 1998). At a Board of Directors meeting held on October 14,
1999, these options were repriced to 110% of the market price of the Common
Stock on October 14, 1999 ($1.13). Such 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 agreement with the Company
shall not have ended prior to such anniversary. Notwithstanding the foregoing,
in the event of any sale (including, without limitation, 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.

          In February 1999, Mr. Batina entered into an employment agreement with
the Company which can be terminated without cause by either party upon 30 days
notice. Pursuant to the employment agreement, Mr. Batina is entitled to a base
salary of $156,000 per year and a bonus of up to 30% of his base salary pursuant
to the incentive bonus plan. In addition, Mr. Batina has been granted options to
purchase up to 100,000 shares of Common Stock, which options vest in equal
annual amounts on each of the first four anniversaries of his employment. At a
Board of Directors meeting held on October 14, 1999, these options were repriced
to 110% of the market price of the Common Stock on October 14, 1999 ($1.13).

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

          The following table sets forth information regarding beneficial
ownership as of December 31, 2000, of the Company's outstanding Common Stock by
any person who is known to the Company to be the beneficial owner of more than
5% of the Company's voting securities, the Company's equity securities held by
each director and by each of the named executive officers and the directors and
executive officers of the Company as a group.


                                       37
<PAGE>

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 held by that person that are currently
exercisable or will become exercisable within 60 days are deemed outstanding.


                                       38
<PAGE>

<TABLE>
<CAPTION>
Name & Address                       Class      Amount and Nature of      Percent
of Beneficial Owner (1)            of Stock      Beneficial Owner         of Class
-----------------------             --------     ----------------        --------
<S>                                <C>          <C>                     <C>
Lionel P. Boissiere, Jr .......      Common                0 (2)             0%
William B. Doyle, Jr ..........      Common                0 (2)             0%
Derek Hall ....................      Common           29,000 (3)           .02%
David Weil ....................      Common          235,000 (4)           1.3%
Bill D. Stewart ...............      Common          127,500 (5)            .7%
Lawrence J. Batina ............      Common           25,500 (6)            .1%

Health Holdings and ...........      Common       16,187,356 (2)          89.5%
Botanicals, Inc. ..............      Preferred     1,250,024 (2)           100%
330 Primrose Rd ...............
5th Floor
Burlingame, CA. 94010

Executive Officers and ........      Common       16,604,356 (6)          91.8%
Directors As a Group
Consisting of 6 Persons
</TABLE>

FOOTNOTES

(1) Except as otherwise indicated, the address of each person named in the above
table is in care of Naturade, Inc., 14370 Myford Road, Irvine, CA. 92606.

(2) Total includes 5,064,412 shares of Common Stock owned by Health Holdings;
1,250,024 shares of the Company's Series A Convertible Preferred Stock
("Preferred Shares") owned by Health Holdings; 600,000 shares of Common Stock
exercisable under warrants related to the Company's Finance Agreement as
discussed under Item 13; 9,494,373 shares of Common Stock exercisable under the
Company's Credit Agreement as discussed under Item 13, and 1,028,571 shares of
Common Stock exercisable under the Company's Loan Agreement as discussed under
Item 13. Common and Preferred Shares of Health Holdings are held by (i) Doyle &
Boissiere Fund I, LLC, a Delaware limited liability company (of which Messrs.
William B. Doyle, Jr., and Lionel P. Boissiere, directors of the Company, are
principals and managing members), (ii) Mr. Anders Brag and (iii) Taishan
Holdings, Inc., a British Virgin Islands corporation (of which Messrs. William
S. Doyle (no relation to William B. Doyle, Jr.) and Anders Brag hold equity
interests). Messrs. William B. Doyle, Jr. and Lionel P. Boissiere each disclaim
beneficial ownership of the Company's Common Shares and Preferred Shares held by
Health Holdings.

(3) Total includes 4,000 shares of Common Stock directly owned and 25,000
shares of Common Stock which can be purchased under presently exercisable
options.


                                       39
<PAGE>

(4) Total includes 90,000 shares of Common Stock solely owned by Mr. Weil,
120,000 shares of Common Stock owned by a company of which Mr. Weil is a 50%
owner and 25,000 shares of Common Stock which can be purchased under presently
exercisable options.

(5) Total includes 127,500 shares of Common Stock which can be purchased under
presently exercisable options.

(6) Total includes 25,000 shares of Common Stock which can be purchased under
presently exercisable options.

(7) Total includes shares of Common Stock beneficially owned by Health
Holdings; see note 2 above. See also notes 3, 4, 5 and 6 above with respect
to additional shares of Common Stock includes in this total.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

          On December 15, 1997, the Company, Allan Schulman, L. S. Smith, Dallas
Gold & Silver Exchange, Inc. ("DGSE"), and Barry M. Zwick (Mr. Schulman, Dr.
Smith, DGSE and Mr. Zwick, together, the "Shareholders" and, collectively, with
the Company, "Sellers") entered into a Stock Purchase Agreement (the "Purchase
Agreement") and certain ancillary documents (collectively, the "Transaction
Documents") with Health Holdings. Mr. Schulman was formerly President, Chief
Executive Officer and Chairman of the Board of the Company; Dr. Smith is a
shareholder of and was consultant to the Company; Dr. Smith is Chairman of the
Board, Chief Executive Officer and controlling shareholder of DGSE; DGSE is a
shareholder of the Company; and Mr. Zwick is a former director and shareholder
of the Company.

          Taishan Holdings, Inc. ("THI") is a British Virgin Islands
corporation. William S. Doyle and Anders Brag (each a director of the Company)
own 50% and 25%, respectively, of the equity interests in THI, and William S.
Doyle serves as President of THI. William S. Doyle is not related to William B.
Doyle, Jr. Doyle & Boissiere LLC is a Delaware limited liability company ("D&B")
of which William B. Doyle, Jr. and Lionel Boissiere (each a director of the
Company) are principals. As of the date of this Annual Report on Form 10-K, THI
and D&B are not affiliates. D&B and Anders Brag hold shares of convertible
preferred stock of Health Holdings representing approximately 85% of the
outstanding stock of Health Holdings on a fully-diluted basis, and THI holds
approximately 7.5% of the outstanding shares of Health Holdings on a
fully-diluted basis.

          Pursuant to the terms of the Purchase Agreement, the Shareholders sold
to Health Holdings 858,473 shares of Common Stock in exchange for $2,575,419.
Simultaneously, the Company sold to Health Holdings (a) 2,023,222 newly issued
shares of Common Stock and (b) 1,250,024 shares of Preferred Stock for a total
purchase price of $6,000,000.

          Through, to and until December 15, 2007, each share of Preferred Stock
is convertible into one share of Common Stock in accordance with the following
terms. Upon the issuance by Naturade of one share of Common Stock pursuant to
the exercise of any warrant, option, contract or similar right, 1.22 shares of
Preferred Stock shall immediately become and remain convertible at a conversion
price equal to the average exercise price of the corresponding one share of
Common Stock. Conversely, if any currently outstanding warrant, option, contract
or similar right to purchase shares of Common Stock shall expire unexercised on
or prior to


                                       40
<PAGE>

December 15, 2007, the corresponding number of shares of Preferred Stock (on a
1.22 for one basis) shall become redeemable at par at the option of the Company.

          In the event that, prior to December 15, 2007, (i) any person other
than D&B or an affiliate of D&B acquires 15% or more of the Common Stock, (ii)
the Company is party to any merger, consolidation, in each case into or with a
person other than D&B or its affiliate, (iii) the Company sells all or
substantially all of the assets of the Company to a person other than D&B or its
affiliate, or (iv) the Company makes an offering or offerings of the Company's
securities, the aggregate gross proceeds of which are in excess of $10,000,000,
the shares of Preferred Stock shall become and remain convertible at a
conversion price of $1.45 per share. While convertible, the shares of Preferred
Stock shall have full voting rights with the Common Stock on an "as converted"
basis.

          The Transaction Documents include a Registration Rights Agreement,
dated as of December 15, 1997, between the Company and Health Holdings; a
Consulting Agreement, dated as of December 12, 1997, between the Company and
D&B; a First Amendment to Lease, dated as of December 15, 1997, between Allan
Schulman and the Company, collectively as landlord, on the one hand, and the
Company, as tenant, on the other (which was subsequently terminated upon the
sale of the Company's former headquarters); a Mutual Option Agreement, dated
December 15, 1997, between Allan Schulman and the Company (which was
subsequently terminated upon the sale of the Company's former headquarters); an
Employment, Consulting and Non-Competition Agreement, dated as of December 15,
1997, between Allan Schulman and the Company (which was subsequently
terminated); and a Letter Agreement, dated December 11, 1997, between the
Company and DGSE pursuant to which the Company exchanged 108,500 shares of DGSE
common stock held by the Company for 48,000 shares of Common Stock of the
Company held by DGSE. The Health Holdings Transaction was reported by the
Company on Form 8-K filed by the Company on December 23, 1997, which is
incorporated herein by this reference.

          Pursuant to Option Agreements dated January 25, 1995, each Director
then serving on the Company's Board was granted an option to acquire 20,000
additional shares of Common Stock at an exercise price equal to the average bid
price of the Common Stock for the thirty day period ending December 30, 1994
(which was $1.07 per share). In addition, the Option Agreements provide that
Directors will be granted options to purchase an additional 10,000 shares of
Common Stock for each year that they serve as a director of the Company after
January 1, 1995, at a price equal to the average bid price of the Common Stock
for the 30 day period ending December 30th preceding the date on which such
option is granted. These options expire one year after the Director leaves the
Board. During February 1997, five directors each were granted options to acquire
10,000 additional shares of Common Stock, at an exercise price equal to the
average bid price of the Common Stock for the thirty day period ending December
30, 1996 (which was $1.96 per share). During January 1998, two directors, Mr.
Schulman and Mr. Zwick were each granted options to acquire 10,000 additional
shares of Common Stock, at an exercise price equal to its average bid price of
the Common Stock for the thirty day period ending December 31, 1997 (which was
$4.63 per share.) By special resolution of the Board, Msrs. Schulman and Zwick
assigned these options ratably to three prior directors.


                                       41
<PAGE>

          On October 14, 1999, the Company granted 50,000 options to each of the
two new Directors Messrs. Hall and Weil at an exercise price of $1.03, which was
the closing price of the Company's Common Stock on that day.

          In March 1999, the Company entered into a Finance Agreement (the
"Finance Agreement") with Health Holdings. The Finance Agreement provides that
the Company may borrow up to $1.0 million at a per annum interest rate of 8%.
The Finance Agreement further provides that for each dollar borrowed, the
Company shall issue a warrant ("Warrant") to Health Holdings to purchase
three-tenths (0.3) of a share of Common Stock of the Company at an exercise
price of $2.125 per share, subject to adjustment. As of June 30, 1999, the
Company had issued 300,000 Warrants under the Finance Agreement prior to the
Amendment referred to below. The Warrants are exercisable for a period of ten
years commencing on the date of grant.

          In June 1999, the Finance Agreement was amended (the "Amendment") to
increase the amount of available borrowings to $1.6 million at an interest rate
of 8% per annum. The Amendment further provides that for each dollar borrowed
over $1.0 million, the Company shall issue a Warrant to Health Holdings to
purchase one-half (0.5) of a share of Common Stock of the Company at an exercise
price of $1.00 per share. Further, the exercise price of the 300,000 Warrants
previously issued under the Finance Agreement prior to the Amendment was reset
to $1.00 per share, subject to adjustment. As of December 31, 1999, the Company
had issued 300,000 Warrants under the Amendment. All borrowings under the
Finance Agreement are secured by the assets of the Company. All borrowings made
prior to June 1, 1999 are due on March 7, 2000; those made after May 31, 1999
are due May 31, 2000. As of December 31,1999, the Company borrowed $1,600,000
under the Finance Agreement and the Amendment and issued a total of 600,000
Warrants to Health Holdings. The Company recorded the fair value of the warrants
issued as a debt discount and will amortize this discount over the life of the
debt. Interest expense of approximately $429,000 was recorded related to the
warrant grants for the fiscal year ended December 31, 1999. The Finance
Agreement further provides that at any time upon written notice, Health Holdings
may convert any portion of the advances into shares of the Company's Common
Stock at a conversion price equal to the lower of $1.00 per share or the then
fair market value of the Company's Common Stock.

          In March 2000, the Company and Health Holdings signed a further
Amendment to the Finance Agreement whereby the advances of $1,600,000 plus
accrued interest of $23,145 were converted into Common Stock of the Company as
provided for in the Agreement. Per the Agreement, the debt was converted at $
 .8125 per share, which resulted in 1,997,717 shares of restricted Common Stock
being issued to Health Holdings. Effective with the conversion, the Finance
Agreement terminated and is no longer in effect.

          In August 1999, the Company entered into a Credit Agreement (the
"Credit Agreement") with Health Holdings. The Credit Agreement provides for
advances (the "Advances") of $4 million at a per annum interest rate of 8% with
a due date of July 31, 2004. As of December 31, 2000, the Company has draw down
the full $4 million of this


                                       42
<PAGE>

Credit Agreement. The Credit Agreement further provides that any time upon
written notice, Health Holdings may convert any portion of the Advances into
shares of the Company's Common Stock at a conversion price equal to the lower of
$.75 per share or the then fair market value of the Company's Common Stock. On
October 1, 2000, Health Holdings agreed to convert the interest earned from
April 1 to September 30, 2000 of $153,788 to the outstanding principal amount as
a payment-in-kind (PIK). With this PIK amount added to the original September
30, 2000 borrowings of $4 million, the December 31, 2000 borrowings total
$4,153,788. Health Holdings has agreed to PIK the October 1 to December 31, 2000
interest of $83,759 which will be added to the principal on January 1, 2001.

            In August 2000, the Company entered into a Loan Agreement (the "Loan
Agreement") with Health Holdings and other investors (the "Lender Group"). The
Loan Agreement allows for advances (the "Loan Advances") of up to $1.2 million
at an interest rate of 8% per annum with a due date of August 31, 2003. Interest
only payments are required on a quarterly basis. As of December 31, 2000, the
Company had borrowed $800,000 under this facility. The Loan Agreement further
provides that the Lender Group may convert all or any part of the Loan Advances
into shares of the Company's common stock at a conversion price equal to the
lower of (a) the average closing bid of the Company's common stock for the ten
trading days prior to the making of a Loan Advance or (b) the average closing
bid of the Company's common stock for the ten trading days prior to the date of
receipt of notice of conversion.


                                       43
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(A)      The following documents are filed as part of this report:

(1)      Financial Statements. The following Financial Statements are included
in this report.

         FINANCIAL STATEMENTS

Balance Sheets
Statements of Operations and Comprehensive Income (Loss)
Statements of Stockholders' (Deficit) Equity
Statements of Cash Flows
Notes to Financial Statements

(2)      Exhibits. Exhibits required to be filed as part of this report are
listed in the Exhibit Index.

(B)      There were no reports on Form 8-K filed.


(C)      Financial Statement Schedules.

The following is a list of the financial statement schedules filed as part of
this Annual Report on Form 10-K:

     None

Supplemental Information to be furnished with Reports filed pursuant to Section
15 (d) of the Act by registrants which have not registered securities pursuant
to Section 12 of the Act:

No annual report or proxy material has been sent to security holders with
respect to Fiscal 2000. Proxy materials will be furnished to security holders
subsequent to the filing of this Form 10-K and copies of such material will be
furnished to the Commission when it is sent.


                                       44
<PAGE>

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 2, 2001             /s/ BILL D. STEWART
                                    ------------------------------------------
                                    Bill D. Stewart
                                    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.

<TABLE>
<CAPTION>
 SIGNATURE                                  TITLE                                    DATE
<S>                                  <C>                                        <C>
/s/ BILL D. STEWART
-----------------------------         Director
Bill D. Stewart                      Chief Executive Officer
                                     (Principal Executive Officer)               April 2, 2001

/s/ LAWRENCE J. BATINA               Chief Financial Officer
---------------------------          (Principal Accounting Officer)              April 2, 2001
Lawrence J. Batina

/s/ LIONEL P. BOISSIERE, JR.          Director                                   April 2, 2001
------------------------------
Lionel P. Boissiere

/s/ WILLIAM B. DOYLE, JR.             Director                                   April 2, 2001
-------------------------
William B. Doyle, Jr.

/s/ DEREK HALL                        Director                                   April 2, 2001
---------------------
Derek Hall

/s/ DAVID A. WEIL                     Director                                   April 2, 2001
-----------------------
David A. Weil
</TABLE>


                                       45
<PAGE>

NATURADE, INC.

TABLE OF CONTENTS

                                                                      PAGE

INDEPENDENT AUDITORS' REPORT                                           47

FINANCIAL STATEMENTS FOR THE YEARS ENDED
   DECEMBER 31, 2000 AND DECEMBER 31, 1999,
   THE THREE MONTHS ENDED DECEMBER 31, 1998
   AND THE YEAR ENDED SEPTEMBER 30, 1998

   BALANCE SHEETS                                                      48

   STATEMENTS OF OPERATIONS                                            49

   STATEMENT OF COMPREHENSIVE LOSS                                     50

   STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)                        51

   STATEMENTS OF CASH FLOWS                                            52

   NOTES TO FINANCIAL STATEMENTS                                       53


                                       46
<PAGE>



INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Stockholders of Naturade, Inc.

We have audited the accompanying balance sheets of Naturade, Inc. as of
December 31, 2000 and 1999, and the related statements of operations,
comprehensive loss, stockholders' equity (deficit), and cash flows for the
years then ended, the three months ended December 31, 1998 and the year ended
September 30, 1998. 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 generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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, 2000 and
1999, and the results of its operations and its cash flows for the years then
ended, the three months ended December 31, 1998 and the year ended September
30, 1998, 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 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/  DELOITTE & TOUCHE LLP
--------------------------

Costa Mesa, California
March 9, 2001


                                       47
<PAGE>

NATURADE, INC.

BALANCE SHEETS
AS OF DECEMBER 31, 2000 AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
                           ASSETS
                                                                                       2000                    1999
<S>                                                                                       <C>                    <C>
Current assets:
   Cash and cash equivalents                                                              $202,648               $1,056,240
   Accounts receivable, net                                                              2,481,808                1,217,323
   Inventories                                                                           2,116,659                2,225,289
   Prepaid expenses and other current assets                                               238,200                  178,603
                                                                                  -----------------      ------------------
                           Total current assets                                          5,039,315                4,677,455

Property and equipment, net                                                                266,418                  326,317
Other assets                                                                                84,086                   99,178
                                                                                  -----------------      ------------------
                           Total assets                                                 $5,389,819               $5,102,950
                                                                                  =================      ===================

                           LIABILITIES AND STOCKHOLDERS' DEFICIT

Current  liabilities:
   Accounts payable                                                                     $2,272,472               $2,035,862
   Accrued expenses                                                                        696,894                  547,573
   Current portion of long-term debt                                                     1,843,080                2,743,949
                                                                                        ----------               ---------
                           Total current liabilities                                     4,812,446                5,327,384

Long-term debt, less current maturities                                                  5,049,770                3,778,528

COMMITMENTS AND CONTINGENCIES (Note 7)

STOCKHOLDERS' DEFICIT:
Common stock, par value $0.0001 per share; authorized, 50,000,000
  shares; issued and outstanding, 7,347,389 at December 31, 2000
  and 5,349,084 at December 31, 1999                                                           735                      535
Preferred stock, par value $0.0001 per share; authorized, 2,000,000
   shares; issued and outstanding, 1,250,024, at liquidation value                             125                      125

Additional paid-in capital                                                              11,349,482                9,688,025
Accumulated deficit                                                                    (15,822,739)             (13,691,647)
                                                                                  -----------------      ------------------
                           Total stockholders' deficit                                  (4,472,397)              (4,002,962)
                                                                                  -----------------      ------------------
                           Total liabilities and stockholders' deficit                  $5,389,819               $5,102,950
                                                                                  =================      ===================
</TABLE>

                 See accompanying notes to financial statements.


                                       48
<PAGE>

NATURADE, INC

STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999, THE
   THREE MONTHS ENDED DECEMBER 31, 1998 AND THE YEAR ENDED SEPTEMBER 30, 1998

<TABLE>
<CAPTION>
                                                                                               Three Months
                                                         Year Ended          Year Ended            Ended            Year Ended
                                                     December 31, 2000    December 31, 1999  December 31, 1998   September 30, 1998

<S>                                                  <C>                  <C>                <C>                  <C>
Net sales                                               $15,671,494          $11,946,702         $3,597,155          $13,506,972

Cost of sales                                             8,301,128            7,376,904          2,269,950            7,794,089
                                                         ----------           ----------         ----------           ----------

Gross profit                                              7,370,366            4,569,798          1,327,205            5,712,883
                                                         ----------           ----------         ----------           ----------

Costs and expenses:
     Selling, general and  administrative expenses        8,839,159            8,923,832          1,975,550            8,485,390
     New product design costs                                     -                    -                  -              443,333
     Other operating expense                                      -            2,844,344                                       -
                                                         ----------          -----------         ----------           ----------


       Total operating costs and expenses                 8,839,159           11,768,176          1,975,550            8,928,723
                                                         ----------          -----------         ----------           ----------

Operating loss                                           (1,468,793)          (7,198,378)          (648,345)          (3,215,840)

Other expense:
    Interest expense                                        660,569            2,351,992             89,981              397,716
    Other expense                                               930              145,643            208,347              460,809
                                                         ----------          -----------         ----------           ----------

Loss before provision for income taxes                   (2,130,292)          (9,696,013)          (946,673)          (4,074,365)

Provision for income taxes                                      800                  800                  -               35,450
                                                         ----------          -----------         ----------           ----------

Net loss                                                ($2,131,092)         ($9,696,813)         ($946,673)         ($4,109,815)
                                                        ============        =============      =============      ==============
Basic and Diluted Net Loss per share                         ($0.30)              ($1.81)            ($0.18)              ($0.84)
                                                        ============        =============      =============      ==============
Weighted Average Number of Shares used in Computation
  of Basic and Diluted Net Loss per share                 7,000,000            5,346,000          5,227,000            4,874,000
</TABLE>

                 See accompanying notes to financial statements


                                       49
<PAGE>

NATURADE, INC

STATEMENTS OF COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999,
   THE THREE MONTHS ENDED DECEMBER 31, 1998 AND THE YEAR ENDED SEPTEMBER 30,
   1998

<TABLE>
<CAPTION>
                                                                                                Three Months
                                                            Year Ended        Year Ended            Ended          Year Ended
                                                        December 31, 2000  December 31, 1999  December 31, 1998  September 30, 1998
<S>                                                    <C>                <C>                  <C>               <C>
Net loss                                                   ($2,131,092)       ($9,696,813)         ($946,673)        ($4,109,815)
                                                           ============       ============      ============         ============

Other comprehensive loss:
  Reclassification adjustments for gains included                    -                  -                  -             (83,400)
  in net loss Comprehensive Loss:                          ($2,131,092)       ($9,696,813)         ($946,673)        ($4,193,215)
                                                           ============       ============      ============         ============

                 See accompanying notes to financial statements
</TABLE>


                                       50
<PAGE>

NATURADE, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31,
  2000 AND 1999, THE THREE MONTHS ENDED DECEMBER 31, 1998 AND THE YEAR ENDED
  SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                                                   Common                             Preferred       Additional
                                              ------------------------------------------------------------------------ Paid-In
                                                   Shares            Amount          Shares             Amount          Capital
<S>                                           <C>                    <C>             <C>                <C>            <C>
BALANCE SEPTEMBER 30, 1997                        3,297,223             $330              -                -           $1,539,902

  Issuance of common stock                        2,042,222              204                                            6,000,000
  Issuance of preferred stock                                                        1,250,024              125
  Repurchase of common stock                        (48,000)              (5)                                            (244,120)
  Cancellation of common stock                     (100,000)             (10)                                             (72,117)
  Issuance of stock options                                                                                               115,516
  Exercise of stock warrants                         12,286                1                                               36,527
  Decrease in unrealized gain on
     available-for-sale security, net

     Net loss for the year
                                                -----------        -----------     -------------     ------------    -------------

BALANCE SEPTEMBER 30, 1998                        5,203,731             $520         1,250,024             $125        $7,375,708

  Issuance of common stock                           70,000                7                                               77,493

     Net loss for the period
                                                -----------        -----------     -------------     ------------    -------------

BALANCE, DECEMBER 31, 1998                        5,273,731              527         1,250,024              125         7,453,201

  Issuance of stock warrants and
       convertible debt                                                                                                 2,194,973
  Exercise of stock warrants and                     75,353                8                                               39,851
        issuance of common stock
     Net loss for the year
                                                -----------        -----------     -------------     ------------    -------------

BALANCE, DECEMBER 31, 1999                        5,349,084             $535         1,250,024             $125        $9,688,025

  Issuance of common stock                        1,998,305              200                                            1,661,457

     Net loss for the period
                                                -----------        -----------     -------------     ------------    -------------

BALANCE, DECEMBER 31, 2000                        7,347,389             $735         1,250,024             $125       $11,349,482
                                                ===========       ===========     =============     ============    =============

<CAPTION>

                                                  Retained                Accumulated
                                                   Earnings                   Other
                                                 (Accumulated             Comprehensive
                                                   Deficit)                  Income            Total
<S>                                              <C>                      <C>                <C>
BALANCE SEPTEMBER 30, 1997                         $1,061,654                $83,400         $2,685,286

  Issuance of common stock                                                                   $6,000,204
  Issuance of preferred stock                                                                      $125
  Repurchase of common stock                                                                  ($244,125)
  Cancellation of common stock                                                                 ($72,127)
  Issuance of stock options                                                                    $115,516
  Exercise of stock warrants                                                                    $36,528
  Decrease in unrealized gain on
     available-for-sale security, net                                        (83,400)          ($83,400)

     Net loss for the year                         (4,109,815)                     -        ($4,109,815)
                                                 -------------          --------------     -------------

BALANCE SEPTEMBER 30, 1998                        ($3,048,161)                    $0         $4,328,192

  Issuance of common stock                                                                      $77,500

     Net loss for the period                         (946,673)                     -          ($946,673)
                                                 -------------          --------------     -------------

BALANCE, DECEMBER 31, 1998                         (3,994,834)                     0         $3,459,019

  Issuance of stock warrants and
       convertible debt                                                                      $2,194,973
  Exercise of stock warrants and                                                                $39,859
        issuance of common stock
     Net loss for the year                         (9,696,813)                     -        ($9,696,813)
                                                 -------------          --------------     -------------

BALANCE, DECEMBER 31, 1999                       ($13,691,647)                    $0        ($4,002,962)

  Issuance of common stock                                                                   $1,661,657

     Net loss for the year                         (2,131,092)                     -        ($2,131,092)
                                                 -------------          --------------     -------------

BALANCE, DECEMBER 31, 2000                       ($15,822,739)                     0        ($4,472,397)
                                                 =============          ==============     =============
</TABLE>


                                       51
<PAGE>

NATURADE, INC

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999, THE
  THREE MONTHS ENDED DECEMBER 31, 1998 AND THE YEAR ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
                                                                           Year Ended            Year Ended
                                                                        December 31, 2000     December 31, 1999
Cash flows from operating activities:
<S>                                                                       <C>                  <C>
Net loss                                                                  ($2,131,092)         ($9,696,813)
Adjustments to reconcile net loss to
   net cash used in operating activities:
Depreciation and amortization                                                  83,549              149,797
Provision for bad debt expense                                                207,474              437,396
Provision for excess and obsolete inventories                                 189,867              874,571
Deferred income taxes
Gain (loss) from sale of property & equipment                                   7,573             (147,757)
Writeoff of Intangible Assets                                                     -              1,070,344
Writeoff of debt discount for debt conversions                                173,747
Expense for stock options, warrants and convertible debt                       37,778            2,194,973
Net gain on exchange of available-for-sale security
Legal settlement payment under terms of note                                      -                424,000
Changes in assets and liabilities:
   Accounts receivable                                                     (1,471,959)            (360,108)
   Inventories                                                                (81,237)          (1,005,879)
   Income taxes receivable                                                        -                163,416
   Prepaid expenses and other current assets                                  (59,597)             147,251
   Other assets                                                                15,092               16,836
   Accounts payable and accrued expenses                                      385,930            1,126,570
                                                                          -----------           -----------
          Net cash used in operating activities:                           (2,642,876)          (4,605,402)

Cash flows from investing activities:

Related Party Receivable                                                          -                600,000
Purchase of property and equipment                                            (32,473)            (292,772)
Proceeds from sale of property and equipment                                    1,250            1,981,756
                                                                          -----------           -----------
          Net cash (used in) provided by investing activities:                (31,223)           2,288,984

Cash flows from financing activities:

Net borrowings (repayment) under line of credit                               830,226             (469,692)
Proceeds from issuance of debt to related party                             1,303,788            5,099,399
Proceeds from issuance of debt                                                    -                163,242
Payments of long-term debt, including capital lease                          (314,242)          (2,302,179)
Repurchase of common stock
Proceeds from exercise of convertible debt feature                                -                 38,800
Proceeds from exercise of stock options/warrants                                  735                1,059
                                                                          -----------           -----------
          Net cash provided by financing activities:                        1,820,507            2,530,629

Net increase (decrease) in cash and cash equivalents                         (853,592)             214,211
Cash and cash equivalents, beginning of period                              1,056,240              842,029
                                                                          -----------           -----------
Cash and cash equivalents, end of period                                  $   202,648          $ 1,056,240
                                                                          ===========          ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:

Interest                                                                  $   347,864          $   432,816
Taxes                                                                     $       800          $       800

Non-cash transaction

In March 2000, Health Holdings and Botanicals, LLC converted the entire
outstanding balance under the Finance Agreement of $1,600,000 plus accrued
interest of $23,145 into 1,997,717 shares of restricted common stock of the
Company based on the then fair market value of the Company's common stock of
$.812

<CAPTION>

                                                                    Three Months Ended              Year Ended
                                                                    December 31, 1998           September 30, 1998
Cash flows from operating activities:
<S>                                                                 <C>                         <C>
Net loss                                                                  ($946,673)                ($4,109,815)
Adjustments to reconcile net loss to
   net cash used in operating activities:
Depreciation and amortization                                                47,178                     186,454
Provision for bad debt expense                                               59,800                      61,000
Provision for excess and obsolete inventories                                   -                       200,000
Deferred income taxes                                                           -                       146,528
Gain (loss) from sale of property & equipment                                 6,363                       8,184
Writeoff of Intangible Assets
Writeoff of debt discount for debt conversions
Expense for stock options, warrants and convertible debt                        -                       115,516
Net gain on exchange of available-for-sale security                                                    (110,125)
Legal settlement payment under terms of note
Changes in assets and liabilities:
   Accounts receivable                                                       64,881                     (75,632)
   Inventories                                                             (136,041)                    255,681
   Income taxes receivable                                                      -                      (163,416)
   Prepaid expenses and other current assets                               (116,952)                   (166,752)
   Other assets                                                             (31,343)                    157,659
   Accounts payable and accrued expenses                                    (99,511)                     80,837
                                                                        -----------                 -----------
          Net cash used in operating activities:                         (1,152,298)                 (3,413,881)

Cash flows from investing activities:

Related Party Receivable                                                        -                      (600,000)
Purchase of property and equipment                                           (2,490)                    (45,986)
Proceeds from sale of property and equipment                                    -                         1,925
                                                                        -----------                 -----------
          Net cash (used in) provided by investing activities:               (2,490)                   (644,061)

Cash flows from financing activities:

Net borrowings (repayment) under line of credit                                 -                       300,000
Proceeds from issuance of debt to related party
Proceeds from issuance of debt
Payments of long-term debt, including capital lease                         (56,196)                   (216,862)
Repurchase of common stock                                                                             (244,125)
Proceeds from exercise of convertible debt feature                           77,500                   6,000,329
Proceeds from exercise of stock options/warrants                                                         36,528
                                                                        -----------                 -----------
          Net cash provided by financing activities:                         21,304                   5,875,870

Net increase (decrease) in cash and cash equivalents                     (1,133,484)                  1,817,928
Cash and cash equivalents, beginning of period                            1,975,513                     157,585
                                                                        -----------                 -----------
Cash and cash equivalents, end of period                                $   842,029                 $ 1,975,513
                                                                        ===========                 ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
CASH PAID DURING THE PERIOD FOR:

Interest                                                                $    91,095                 $   396,782
Taxes                                                                   $         0                 $   141,036
</TABLE>
                 See accompanying notes to financial statements


                                       52
<PAGE>

NATURADE, INC.

NOTES TO FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2000 AND 1999, THE THREE MONTHS ENDED DECEMBER 31,
1998 AND THE YEAR ENDED SEPTEMEBER 30, 1998

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION - Naturade, Inc., a Delaware corporation (the "Company" or
"Naturade"), is a leading provider of low carbohydrate, high protein powders,
aloe vera based health and beauty aids, nutritional and herbal supplements,
aloe drinks and soy protein based powders, bars and ready-to-drink products.
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.

GOING CONCERN - 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,
2000, the Company has an accumulated deficit of $15,822,739, net working
capital of $226,869, a stockholders' capital deficiency of $4,472,397, has
incurred recurring net losses and was not in compliance with one of its debt
covenants. 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. As described in Note 4, the Company
is not in compliance with a certain provision of its debt agreement and is
pursuing a waiver from its lender. The Company's continuation as a going
concern is dependent upon 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.

In response to these conditions, the Company, under current management has
made certain financial and organizational changes and completed a detailed
analysis of the Company's core competencies, the nutraceutical market,
competitors, specific product categories and externally available resources.
Based on this analysis, the management team has focused its sales force on
growth-oriented health food and mass market retail segments, taken action to
reduce overhead costs and developed product line extensions in the rapidly
growing soy protein category, specifically in the ready-to-drink market
segment. Management is also continuing its efforts to obtain additional funds
so that the Company can meet its obligations and sustain operations.

CHANGE IN FISCAL YEAR - Effective October 1, 1998, the Company changed its
reporting period from a fiscal year ending September 30th to December 31st.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid investments
with maturities of three months or less when purchased to be cash equivalents.

CONCENTRATION OF CREDIT RISK - Financial instruments that subject Naturade to
concentration of credit risk consist primarily of cash, accounts receivables,
related party receivables, and notes receivable. Credit risk
with respect to trade accounts receivable is generally diversified due to the
large number of entities comprising the Company's 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.


                                       53
<PAGE>

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 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 are presented net of an allowance for
doubtful accounts of $175,915 and $291,387 at December 31, 2000 and December 31,
1999, respectively, and net of an allowance for returns of $353,479 and $225,479
at December 31, 2000 and December 31, 1999, respectively. The allowance for
doubtful accounts and returns includes the following:
<TABLE>
         <S>                                                   <C>
         Balance as of December 31, 1998                       $ 200,800
             Provision for doubtful accounts and returns         437,396
            Deductions                                          (121,330)
                                                               ---------
          Balance as of December 31, 1999                        516,866
           Provision for doubtful accounts and returns           207,474
           Deductions                                           (194,946)
                                                               ---------
          Balance as of December 31, 2000                      $ 529,394
                                                               =========
</TABLE>

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:

<TABLE>
         <S>                                                <C>
         Balance as of December 31, 1998                     $ 200,000
             Provision for excess and obsolete inventory       874,571
             Write-offs                                       (480,104)
                                                             ---------
          Balance as of December 31, 1999                      594,467
             Provision for excess and obsolete inventory       189,867
             Write-offs                                       (514,716)
                                                             ---------
          Balance as of December 31, 2000                    $ 269,618
                                                             =========
</TABLE>

INVESTMENTS - The Company accounts for investments pursuant to Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The Company's investments have been
categorized as "available for sale" and, as a result, are stated at fair value.
Accordingly, any unrealized holding gains and losses are to be included as a
component of accumulated other comprehensive income, net of tax, until realized.
As of December 31, 2000, the Company had no investments.

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 - As of December 31, 1999, the Company wrote off the net
carrying value of all intangible assets based on a review of its trademarks,
copyrights and other intangible assets in accordance with SFAS 121.

IMPAIRMENT OF LONG-LIVED ASSETS - In accordance SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets", the Company reviews long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. If long-lived assets
become impaired, the Company recognizes an impairment loss measured as the
amount by which the carrying


                                       54
<PAGE>

value of the assets exceeds the estimated fair value of the assets. During 1999,
the Company determined that impairment had occurred with respect to its
intangible assets and wrote off the remaining net carrying values.

INCOME TAXES - The Company accounts for income taxes under the provisions of
SFAS No. 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.
The Company accrues for estimated returns at the time of sale. In December
1999, the Securities and Exchange Commission issued Staff Accounting Bulletin
101, Revenue Recognition ("SAB 101"). SAB 101 summarizes certain of the SEC
staff's views in applying generally accepted accounting principles to
selected revenue recognition issues in financial statements. Implementation
of SAB 101 was required by the fourth quarter of 2000. The implementation of
SAB 101 did not have a material impact on the Company's financial condition
or results of operations.

NET INCOME (LOSS) PER SHARE - Basic earnings 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 are excluded in net loss periods as their effect
would be antidilutive.

RESEARCH AND DEVELOPMENT - Research and development costs are expensed when
incurred and amounted to $251,457, $326,946, $62,474 and $279,370 for the years
ended December 31, 2000 and December 31,1999, the three months ended December
31, 1998 and for the year ended September 30, 1998.

ADVERTISING - The Company expenses the cost of advertising as incurred.
Advertising expenses amounted to $126,743, $667,155, $185,213 and $1,448,390 for
the years ended December 31, 2000 and December 31, 1999, the three months ended
December 31, 1998 and for the year ended September 30, 1998.

DEFERRED RENT - Deferred rent totaling $78,933 and $35,877 at December 31, 2000
and December 31, 1999, respectively, is included in accrued expenses. Deferred
rent represents rental expense (recorded on a straight-line basis) in excess of
actual rental payments to date.

MAJOR CUSTOMER - During the fiscal years ended December 31, 2000 and December
31, 1999, the three months ended December 31, 1998, and the fiscal year ended
September 30, 1998, the Company had sales to a customer in excess of 10% of the
Company's total net sales. Sales to this customer were $2,859,864, $2,875,942,
$626,681 and $2,915,524 for the fiscal years ended December 31, 2000 and
December 31, 1999, the three months ended December 31, 1998 and the year ended
September 30, 1998, respectively. Accounts receivable from this customer were
approximately $266,250 and $403,169 at December 31, 2000 and December 31, 1999.
The loss of this customer 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.

ACCOUNTING FOR STOCK-BASED COMPENSATION - SFAS No. 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. The Company has chosen, under the provisions of SFAS No. 123, to
continue 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


                                       55
<PAGE>

Employees."

NEW ACCOUNTING PRONOUNCEMENTS - Statement of Financial Accounting Standards
(SFAS) No. 133, Accounting for Derivative Instruments and Hedging Activities,
is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as
amended, established accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities. Under SFAS 133, certain contracts that
were not formerly considered derivatives may now meet the definition of a
derivative. The Company adopted SFAS 133 effective January 1, 2001. The
adoption of SFAS 133 did not have a significant impact on the financial
position, results of operations, or cash flows of the Company.

In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, which the
Company adopted in the fourth quarter of 2000. Adoption of SAB No. 101 did not
have a material impact on the Company's financial statements.

In March 2000, the FASB issued FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation, as Interpretation of
Accounting Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued
to Employees ("FIN 44"). FIN 44 clarifies the application of APB No. 25 for the
following: the definition of employee for purposes of applying APB No. 25; the
criteria for determining whether a plan qualifies as a non-compensatory plan;
the accounting consequence for various modifications to the terms of a
previously fixed stock option or award; and the accounting for an exchange of
stock compensation awards in a business combination. The Company adopted FIN 44
effective July 1, 2000 and such adoption did not have material impact on the
Company's financial statements.

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 from those estimates.

RECLASSIFICATIONS - Certain reclassifications were made to prior statements to
conform to the current year presentation.

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, 2000 and December 31, 1999 consisted of the following:

<TABLE>
<CAPTION>
                                                                December 31, 2000       December 31, 1999
<S>                                                             <C>                     <C>
          Raw Materials                                          $   300,219             $      180,174
          Finished Goods                                           2,086,058                  2,639,582
                                                                  ----------                 -----------

          Subtotal                                                 2,386,277                  2,819,756
          Less: Reserve for Excess and Obsolete Inventories         (269,618)                  (594,467)
                                                                  ----------                 -----------
                                                                  $2,116,659                 $2,225,289
                                                                  ==========                 ===========
</TABLE>


                                       56
<PAGE>

3. PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2000 and December 31, 1999 consisted of
the following:
<TABLE>
<CAPTION>
                                                             December 31,2000          December 31, 1999
          <S>                                                <C>                       <C>
          Land                                                      $-                           $-
          Building and improvements                               160,196                      148,581
          Machinery and equipment                                 406,650                      417,038
          Automobiles                                              83,980                      101,344
                                                               ----------                    ----------
          Total                                                   650,826                      666,963
          Less accumulated depreciation and amortization         (384,408)                    (340,646)
                                                               ----------                    ----------

          Property and equipment, net                          $  266,418                     $326,317
                                                               ==========                    ==========
</TABLE>

4. DEBT

Long-term debt consists of the following at December 31, 2000 and December 31,
1999.
<TABLE>
<CAPTION>
                                                                               December 31, 2000    December 31, 1999
<S>                                                                            <C>                  <C>
 Line of Credit                                                                    $ 1,810,534       $   980,308
 Credit Agreement with majority shareholder                                          4,153,788         3,650,000
 Loan Agreement with majority shareholder and other investors                          800,000               -0-
 Finance Agreement with majority stockholder, net of debt discount                         -0-         1,449,399
 Note Payable to Performance Nutrition, Inc (Note 7)                                       -0-           282,667
 Notes Payable due to a former stockholder's estate,
    borrowings bear interest at 8% and are due in monthly
    installments of $2,832                                                             120,081           143,434
 Other notes payable                                                                     8,447            16,669
                                                                                   -----------       ------------
 Total                                                                               6,892,850         6,522,477
Less line of credit and current portion of long-term debt                           (1,843,080)       (2,743,949)
                                                                                   -----------       ------------
Long-term debt                                                                     $ 5,049,770       $ 3,778,528
                                                                                   ===========       ============
</TABLE>


          A summary of long-term debt maturities as of December 31, 2000 is as
follows:
<TABLE>
<CAPTION>
            YEAR ENDING DECEMBER 31            AMOUNT
            <S>                            <C>
                    2001                    $1,843,080
                    2002                        28,584
                    2003                       829,664
                    2004                     4,185,914
                    2005                         5,608
                    thereafter                    --
                                               -------
                           Total           $ 6,892,850
                                            ===========
</TABLE>

LINE OF CREDIT - On January 27, 2000, the Company entered into a three year
Credit and Security Agreement with Wells Fargo Business Credit that allows for
maximum borrowings of up to $3,000,000, based on certain percentages of eligible
accounts receivable and inventories as defined. Amounts due under the Credit and
Security Agreement bear interest at the prime rate plus 1.5%. Borrowings under
the Credit and Security Agreement which totaled $1,810,534 at December 31, 2000,
are collateralized by substantially all assets of the Company. At December 31,
2000 the prime rate was 9.5% and the interest charge under the Credit and
Security Agreement was 11.0%. The Credit and Security Agreement contains
covenants which, among other things,


                                       57
<PAGE>

require that certain financial ratios are met. As of December 31, 2000, the
Company was not in compliance with the minimum net income covenant and is
pursuing a waiver from its lender.

CREDIT AGREEMENT WITH MAJORITY SHAREHOLDER - In August 1999, the Company entered
into a Credit Agreement (the "Credit Agreement") with Health Holdings and
Botanicals, LLC ("Health Holdings"), a majority stockholder of the Company. The
Credit Agreement allows for advances (the "Advances") of $4 million at an
interest rate of 8% per annum with a due date of July 31, 2004. Initially,
interest only payments were required on a quarterly basis. On October 1, 2000,
Health Holdings agreed to convert the interest earned from April 1 to September
30, 2000 of $153,788 to the outstanding principal amount as a payment-in-kind
(PIK). Also, on January 1, 2001, Health Holdings agreed to convert the interest
earned from October 1 to December 31, 2000 of $83,759 to the outstanding
principal amount as a payment-in-kind. The Credit Agreement further provides
that any time upon written notice, Health Holdings may convert any portion of
the Advances into shares of the Company's common stock at a conversion price
equal to the lower of $.75 per share or the then fair market value of the
Company's common stock.

FINANCE AGREEMENT WITH MAJORITY SHAREHOLDER - In March 1999, the Company entered
into a Finance Agreement (the "Finance Agreement") with Health Holdings. The
Finance Agreement provides that the Company may borrow up to $1 million at an
interest rate of 8% per annum. The Finance Agreement further provides that for
each dollar borrowed, the Company shall issue a warrant to Health Holdings to
purchase three-tenths (0.3) of a share of common stock of the Company at an
exercise price of $2.125 per share. As of June 30, 1999, the Company had issued
300,000 warrants under the Finance Agreement prior to the Amendment referred to
below. The warrants are exercisable for a period of ten years commencing on the
date of grant.

In June 1999, the Finance Agreement was amended (the "Amendment") to increase
the amount of available borrowings to $1.6 million also at an interest rate of
8% per annum. The Amendment further provides that for each dollar borrowed over
$1 million; the Company shall issue a warrant to Health Holdings to purchase
one-half (1/2) of a share of common stock of the Company at an exercise price of
$1.00 per share. Further, the exercise price of the 300,000 warrants previously
issued under the Finance Agreement prior to the Amendment was reset to $1.00 per
share. All borrowings under the Finance Agreement are secured by the assets of
the Company. As of December 31,1999, the Company borrowed $1,600,000 under the
Finance Agreement and the Amendment and issued a total of 600,000 warrants to
Health Holdings. The Company recorded the fair value of the warrants issued as a
debt discount and will amortize this discount over the life of the debt.
Interest expense of approximately $429,000 was recorded related to the warrant
grants for the fiscal year ended December 31, 1999. The Finance Agreement
further provides that at any time upon written notice, Health Holdings may
convert any portion of the advances into shares of the Company's common stock at
a conversion price equal to the lower of $1.00 per share or the then fair market
value of the Company's common stock.

In March 2000, Health Holdings converted the entire outstanding balance under
the Finance Agreement of $1,600,000 plus accrued interest of $23,145 into
1,997,717 shares of restricted common stock of the Company based on the then
fair market value of the Company's common stock of $.812. The unamortized debt
discount was written off to interest expense in accordance with EITF 98-5
ACCOUNTING FOR CONVERTIBLE SECURITIES WITH BENEFICIAL CONVERSION FEATURES OR
CONTINGENTLY ADJUSTABLE CONVERSION RATIOS. Effective with this conversion, the
Finance Agreement terminated and is no longer in effect.

LOAN AGREEMENT WITH MAJORITY SHAREHOLDER AND OTHER INVESTORS - In August 2000,
the Company entered into a Loan Agreement (the "Loan Agreement") with Health
Holdings and other investors (the "Lender Group"). The Loan Agreement allows for
advances (the "Loan Advances") of up to $1.2 million at an interest rate of 8%
per annum with a due date of August 31, 2003. Interest only payments are
required on a quarterly basis. As of December 31, 2000, the Company had borrowed
$800,000 under this facility. The Loan Agreement further provides that the
Lender Group may elect to convert all or any part of the Loan Advances into
shares of the Company's common stock at a conversion price equal to the lower of
(a) the average closing bid of the Company's common stock for the ten trading
days prior to the making of a Loan Advance or (b) the average closing bid of the
Company's common stock for the ten trading days prior to the date of receipt of
notice of conversion.


                                       58
<PAGE>

5. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK - During fiscal year ended September 30, 1998, the
Company issued 1,250,024 shares of its preferred stock to Health Holdings. The
shares pay no dividends except in the event of a liquidation or reorganization
of the Company. While convertible, the preferred shares have voting rights
equivalent to the common stock on as "as converted' basis.

Through and until December 15, 2007, each preferred share is convertible in
accordance with the following terms. Upon the issuance by Naturade of one common
share pursuant to the exercise of any warrant, option, contract or similar
right, outstanding on November 21, 1997, 1.22 preferred shares shall immediately
become and remain convertible at a conversion price equal to the average
exercise price of the corresponding one common share issued. Conversely, if any
outstanding warrant, option, contract or similar right to purchase common shares
expires unexercised on or prior to December 15, 2007, the corresponding number
of preferred shares (on a 1.22 for one basis) shall become redeemable at par at
the Company's option.

In the event that, prior to December 15, 2007, (1) any person other than the
majority stockholder of Health Holdings or an affiliate acquires 15% or more of
the common stock, (2) the Company is party to any merger, consolidation, in each
case into or with a person other than Health Holding's majority stockholder or
affiliate, (3) the Company sells all or substantially all of the assets of the
Company to a person other than the majority stockholder of Health Holdings or an
affiliate, (4) the Company makes an offering or offerings of the Company's
securities, the aggregate gross proceeds of which are in excess of $10,000,000,
the preferred shares become and remain convertible at an exercise price of $1.45
per share.

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 575,000 shares. In July 2000, the
Company amended the Plan by increasing to 850,000 the number of shares of the
Company's common stock which may be subject to awards granted pursuant to the
Plan. The actual amount of incentive stock options that may be granted to
employees is determined by the Administrative 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. The Company has
granted 611,250 incentive options under the Plan at the weighted average price
of $1.45 as of December 31, 2000. These options expire seven years from the date
of grant.

DIRECTOR STOCK OPTIONS - In January 1998, 19,998 options were issued to board
members who served a full year at an exercise price of $4.63. During April 1998,
options to acquire an additional 51,000 shares were issued to a board member at
an exercise price of $4.05. In October 1999, 50,000 options were issued to each
of the two new board members at an exercise price of $1.03.

WARRANTS - In 1999, the Company granted warrants in conjunction with certain
financing agreements. These warrants expire ten years from the date of grant.

As part of a restructuring of the Company in 1991, equity holders exchanged
their shares for new common stock and Class A and Class B Warrants. The Class A
Warrants expired at December 31, 1996. The Class B Warrants allowed for the
purchase of one share of common stock for $1.25 per share. Between December 31,
1999 and January 14, 2000, 588 warrants were exercised. On January 15, 2000, the
remaining 324,520 unexercised Class B warrants expired.


                                       59
<PAGE>

A summary of the Company's outstanding stock options and warrants activity is as
follows:
<TABLE>
<CAPTION>


                                                    WEIGHTED                         WEIGHTED AVERAGE
                                       NUMBER OF  AVERAGE EXERCISE       NUMBER          EXERCISE
                                        SHARES    PRICE PER SHARE      EXERCISABLE         PRICE
<S>                                  <C>          <C>                <C>               <C>
Outstanding at September 30, 1997      887,747     $    1.90            887,747            $  1.90
   Granted                             395,998     $    3.78
   Exercised                           (12,286)         3.00
   Expired                             (80,000)         1.50

Outstanding at September 30, 1998    1,191,459     $    2.54            906,459            $  2.06

   Exercised                           (70,000)    $    1.11
   Expired                            (104,998)    $    3.38

Outstanding at December 31, 1998     1,016,461     $    1.78            731,461            $  2.00

   Granted                             949,000     $    1.00
   Exercised                           (60,353)    $     .65
   Expired                             (30,000)    $    3.00
                                     ----------
Outstanding at December 31, 1999     1,875,108     $    1.10          1,330,358            $  1.12

   Granted                             140,000     $     .83
   Exercised                              (588)
   Expired                            (583,270)    $    1.30
                                     ----------


Outstanding at December 31, 2000     1,431,250     $    1.04            962,750            $  1.06
</TABLE>

The following table summaries information about stock options and warrants
outstanding at December 31, 2000

<TABLE>
<CAPTION>
                                           WEIGHTED                                 WEIGHTED
                                           AVERAGE     WEIGHTED                      AVERAGE
                        OPTIONS AND       REMAINING    AVERAGE   OPTIONS AND      EXERCISE PRICE
        RANGE OF          WARRANTS      CONTRACT LIFE EXERCISE    WARRANTS FOR     EXERCISABLE
     EXERCISE PRICES    OUTSTANDING        IN YEARS     PRICE    EXERCISABLE   OPTIONS AND WARRANTS
     <S>                <C>             <C>           <C>        <C>              <C>
        $.60-.875          255,000            2         $.76        78,750            $ .63
        $1.00              600,000            8         $1.00      600,000            $1.00
        $1.03-1.18         536,250            2         $1.11      244,000            $1.13
        $1.62               20,000            2         $1.62       20,000            $1.62
        $3.30               20,000            2         $3.30       20,000            $3.30
                         ---------                                --------
                         1,431,250                                $962,750            $1.06
</TABLE>

The estimated weighted average fair value of options or warrants granted during
the years ended December 31, 2000, December 31, 1999 and September 30, 1998 are
$.50, $1.14 and $2.09, respectively. No options or warrants were granted during
the three months ended December 31, 1998. Pursuant to SFAS No. 123, the Company
has 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 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 No. 123, the Company's net loss and loss per
share would have been the pro forma amounts presented below:


                                       60
<PAGE>

<TABLE>
<CAPTION>
                            Year Ended                 Year Ended         Three Months           Year Ended
                        December 31, 2000          December 31, 1999    December 31, 1998  September 30, 1998
<S>                 <C>          <C>               <C>                  <C>                <C>
Net loss:           As reported  $  (2,131,092)      $(9,696,813)       $   (916,673)        $  (4,109,815)
                    Pro forma    $  (2,450,382)       (9,944,695)       $   (993,116)        $  (4,295,585)

Basic and Diluted
net loss per share: As reported  $  (.30)            $     (1.81)       $     (0.18)         $       (0.84)
                    Pro forma    $  (.35)            $     (1.88)       $     (0.19)         $       (0.88)
</TABLE>

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:

<TABLE>
<CAPTION>
                              Year Ended          Year Ended          Year Ended
                          December 31, 2000   December 31, 1999   September 30, 1998
<S>                       <C>                 <C>                 <C>
   WEIGHTED AVERAGE             6.71%           5.45 to 5.62%        5.39 to 5.88%
RISK-FREE INTEREST RATE

EXPECTED LIFE OF               7 years             7 years               3 years
    AN OPTION

EXPECTED STOCK                   45%                 64%                   45%
    VOLATILITY
</TABLE>


                                       61
<PAGE>

6. INCOME TAXES

The provision for income taxes for the years ended December 31, 2000 and 1999,
the three months ended December 31, 1998 and the fiscal year ended September 30,
1998 consists of the following:
<TABLE>
<CAPTION>
                        Year Ended           Year Ended           Three Months           Year Ended
                    December 31, 2000    December 31, 1999    December 31, 1998      September 30, 1998
<S>                 <C>                  <C>                  <C>                    <C>
Current:
   Federal                   -                   -                     -                  $(113,967)
   State                    800                 800                    -                      2,889
                          ------              ------                ------                ----------

Total current               800                 800                    -                   (111,078)
                                                                                          ---------

Deferred:
  Federal                    -                   -                     -                    124,202
  State                      -                   -                     -                     22,326
                          ------              ------                ------                ----------

Total deferred               -                   -                     -                    146,528
                          ------              ------                ------                ----------

Total provision             800                 800                    -                  $  35,450
                          ======              ======                ======               ===========
</TABLE>

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:

<TABLE>
<CAPTION>
                                             Year Ended            Year Ended          Three Months           Year Ended
                                         December 31, 2000     December 31, 1999     December 31, 1998    September 30, 1998
<S>                                     <C>                    <C>                   <C>                  <C>
  Computed tax (benefit) expense          $  (720,219)           $(3,393,605)           $  (321,869)         $(1,426,038)
  Increase (decrease) in income taxes
       resulting from:
       Nondeductible expenses                   3,555                  6,157                  2,832                6,800
       State income taxes, net of
        federal tax benefit                       528                    528                 16,642
       Other                                 (576,751)                                         (800)             (43,560)
       Change in valuation allowance        1,293,687              3,387,720                319,837            1,481,606
                                          -----------            -----------            -----------          -----------

                                          $       800            $       800            $      --            $    35,450
                                          ===========            ===========            ===========          ===========

</TABLE>


                                       62
<PAGE>


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:

<TABLE>
<CAPTION>
                                                    December 31, 2000       December 31, 1999
                                                   -------------------     -------------------
<S>                                                <C>                    <C>
Current deferred tax assets/(liabilities):
  Uniform capitalization                              $    73,723              $     78,096
  Allowance for bad debt                                   52,833                   108,135
  Allowance for returns                                   173,959                    96,595
  Accrued vacation                                         20,114                    14,512
  Accrued bonuses                                             -                       5,683
  Inventory reserve                                       674,544                   111,156
  State taxes                                                 272                       -
  Disallowed interest                                     910,508                       -
  Other                                                    31,399                  (196,907)
  Valuation allowance                                  (1,937,352)                 (217,270)
                                                      -----------               -----------
Total current

Noncurrent deferred tax assets/(liabilities):
  Net operating losses and credit carryforwards         4,544,187                 4,868,906
  Depreciation                                            (80,430)                   16,959
  Stock options                                            86,028                    86,028
  Other                                                    (4,287)                     -
  Valuation allowance                                  (4,545,497)               (4,971,893)
                                                      -----------               -----------

Total noncurrent                                             -                         -
                                                      -----------               -----------

Total                                                 $      -                 $       -
                                                      ===========              ============
</TABLE>

As of December 31, 2000, the Company had federal net operating loss
carryforwards of approximately $11,621,000, which begin expiring in December
2017 and state net operating loss carryforwards of $6,178,000, which begin
expiring in December 2002.

7. COMMITMENTS, CONTINGENCIES, AND RELATED PARTY TRANSACTIONS

EMPLOYMENT AGREEMENTS - The Company has a four-year employment agreement with
its chief executive officer (CEO) that began in March 1998. The agreement
provides for an annual salary of $200,000.

CONSULTING AGREEMENTS - The Company is committed to a consulting agreement with
an affiliate of Health Holdings for $300,000 per year payable quarterly. The
agreement is automatically renewable for successive one-year terms so long as
Health Holdings or any of its affiliates owns 25% or more of the Company.

OPERATING LEASES - The Company rents property and equipment under certain
noncancellable operating leases expiring in various years through 2006. Future
minimum commitments under operating leases as of December


                                       63
<PAGE>

31, 2000 are as follows:

<TABLE>
<CAPTION>
     YEAR ENDING DECEMBER 31        AMOUNT
     <S>                        <C>
           2001                    $ 454,054
           2002                      432,795
           2003                      428,510
           2004                      415,266
           2005                      424,634
        Thereafter                   318,440
                                     -------

          Total                  $ 2,473,699
</TABLE>

Rent expense charged to operations was $489,937, $486,622, $20,426 and $124,000
for the years ended December 31, 2000 and December 31, 1999, for the three
months ended December 31, 1998 and the fiscal year ended September 30, 1998,
respectively.

LEGAL PROCEEDINGS - On March 11, 1999, a civil judgment (the "PNI Judgment") was
entered against the Company and a co-defendant for a total of $2,774,000 by the
United States Bankruptcy Court for the Northern District of Texas following
trial in a proceeding initiated by the Trustee (the "PNI Trustee") in the
Chapter 7 bankruptcy case of Performance Nutrition, Inc. ("PNI"). On August 5,
1999, the Bankruptcy Court approved a settlement agreement between the Company
and the PNI Trustee (the "Settlement Agreement"). The Settlement Agreement
provided the Company with a full release of the Judgment and required the
Company to deliver to the PNI Trustee (1) a cash payment of $1,350,000 which was
made in 1999, (2) a promissory note in the amount of $424,000, which was fully
paid off as of December 31, 2000, and (3) a contingent promissory note in the
amount of $226,000, which became payable only to the extent that the Company's
sales for the second, third and fourth quarters of 1999 exceeded specified
targets. As the Company's sales did not meet the specified targets, no amount
was payable under the contingent promissory note. Consequently, the adjusted
total cost to the Company of the settlement was $1,774,000, exclusive of
interest on the promissory note.

In addition to the above-described litigation, 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.

8. REVIEW OF INTANGIBLES

During 1999, the Company conducted a review of its trademarks, copyrights and
other intangible assets in accordance with SFAS 121 which states that long
lived assets are to be reviewed for impairment whenever circumstances and
situations change such that there is an indication that the carrying amount
may not be recoverable. In 1999, the Company stopped selling to a significant
customer for its Kids Plex product line and has been exploring new customers
and distribution channels. As a result, the Company believes that an
impairment of the related trademarks that were acquired in 1997 has occurred
and that the full carrying amount should be written off. Consequently, the
Company wrote off the net carrying value of $1,070,344 during 1999.

9.  401(k) PLAN

The Company has a 401(k) 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 $12,621, $13,963, $2,005 and $11,393 for
the years ended December


                                       64
<PAGE>

31, 2000 and December 31, 1999, for the three months ended December 31, 1998 and
for the fiscal year ended September 30, 1998, respectively.

10. 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.

Commencing in January 1999, 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, 2000 and December 31, 1999 are as follows:

<TABLE>
<CAPTION>
                                          Distribution Channels
                                          Health Food     Mass         Total
                                          -----------     ----        ------
<S>                                       <C>          <C>         <C>
  Year ended December 31, 2000
   Sales                                 $10,037,685   $ 5,633,809 $15,671,494
   Cost of Sales                           5,480,295     2,820,833   8,301,128
                                           ---------   -----------   ---------
  Gross Profit                             4,557,390     2,812,976   7,370,366
                                           =========   ===========   =========

                                          Distribution Channels
                                          Health Food      Mass        Total
                                          -----------   -----------   ---------
 Year ended December 31, 1999
   Sales                                 $10,652,697    $1,294,005 $11,946,702
   Cost of Sales                           6,533,649       843,255   7,376,904
                                           ---------   -----------   ---------
  Gross Profit                             4,119,048       450,750   4,569,798
                                           =========   ===========   =========
</TABLE>

   Prior to January 1999, the Company's sales to the mass market segment were
not significant.

The Company exports products to several international customers. A summary of
net sales classified by geographic area is as follows:

<TABLE>
<CAPTION>
     NET SALES FOR THE                            SAUDI                                  OTHER
       PERIODS ENDED               DOMESTIC       ARABIA   CANADA     KOREA   CHINA  INTERNATIONAL    TOTAL
<S>                              <C>              <C>      <C>       <C>      <C>    <C>            <C>
Year ended December 31, 2000     $15,192,775     $   -     $193,392 $   -    $ -      $285,327      $15,671,494
Year ended December 31, 1999      11,356,797      139,658   137,916  123,124   -       189,207       11,946,702
Three Mos December 31, 1998        2,903,631      191,446      -      18,866  395,091   88,121        3,597,155
Year ended September 30, 1998     12,125,650      482,854      -      39,648  417,975  440,845       13,506,972
</TABLE>


                                       65
<PAGE>

11. QUARTERLY FINANCIAL DATA (UNAUDITED)

Summary unaudited quarterly financial data from continuing operations for
2000 and 1999 is as follows:

<TABLE>
<CAPTION>
                                                         First         Second          Third         Fourth
Fiscal Year Ended December 31, 2000                     Quarter        Quarter        Quarter         Quarter
                                                       -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>             <C>           <C>
Net Sales                                              $ 3,386,534    $ 3,672,249     $3,839,867    $ 4,772,844
Gross Margin                                             1,544,941      1,808,905      1,754,877      2,261,643
Operating Loss                                            (450,259)      (356,686)      (390,981)      (270,867)
Net loss                                                  (726,659)      (494,381)      (520,569)      (389,483)
Net loss per share, basic and diluted                       ($0.12)        ($0.07)        ($0.07)        ($0.05)
Wtd. avg shares outstanding,
 basic and diluted                                       5,898,405      7,347,389      7,347,389      7,347,389

<CAPTION>

                                                          First         Second          Third         Fourth
Fiscal Year Ended December 31, 1999                      Quarter        Quarter        Quarter        Quarter
                                                       -----------    -----------    -----------    -----------
<S>                                                    <C>            <C>            <C>            <C>
Net Sales                                              $ 2,352,808    $ 2,781,116    $ 3,298,259    $ 3,514,519
Gross Margin                                               968,179        939,819      1,423,842      1,237,958
Operating Loss                                          (3,746,886)    (1,151,509)      (594,394)    (1,705,589)
Net loss                                                (3,782,272)    (1,175,094)    (2,080,605)    (2,658,842)
Net loss per share, basic and diluted                       ($0.71)        ($0.22)        ($0.39)        ($0.50)
Wtd avg. share outstanding,
 basic and diluted                                       5,336,733      5,349,084      5,349,084      5,349,084
</TABLE>


                                       66
<PAGE>

<TABLE>
                                 INDEX TO EXHIBITS
Document                                                                                       PG #
<S>             <C>                                                                            <C>
2               Stock Purchase Agreement, dated as of December 15, 1997 (the                    N/A
                "Stock Purchase Agreement"), by and among the Company, Allan
                Schulman, L.S. Smith, Dallas Gold & Silver Exchange, Inc.
                ("DGSE"),  Barry M. Zwick and Health Holdings and Botanicals,
                Inc. ("HHB"), incorporated by reference to the  Company's
                Current Report on Form 8-K filed on  December 23, 1997.

3.1             Certificate of Incorporation of Naturade, Inc., together with                   N/A
                Amendments and Certificate of Designations relating thereto
                incorporated by reference to the Company's  Form 10-K Annual
                Report filed for fiscal 1997 and the exhibits and attachments
                thereto.

3.2             Bylaws of Naturade, Inc., as Amended incorporated by reference                  N/A
                to the Company's Form 10-K Annual Report filed for fiscal 1997
                and the exhibits and attachments thereto.

4.1             Registration Rights Agreement, dated as of December 15, 1997,                   N/A
                by and between the Company and HHB, incorporated by reference
                to the Company's Current Report on Form 8-K as filed on
                December 23, 1997.

4.2             Form of Class B Warrant Certificate, incorporated by reference                  N/A
                to the Company's Form 10-K Annual Report filed for Fiscal 1991
                and the Exhibits and Attachments thereto.

10.1            Consulting Agreement, dated as of December 12, 1997, by and                     N/A
                between the Company and Doyle & Boissiere LLC, incorporated by
                reference to the Company's Current Report on Form 8-K filed
                December 23, 1997.


                                       67
<PAGE>

10.2            Mutual Option Agreement, dated as of December 15, 1997, by and                  N/A
                between the Company and Allan Schulman, incorporated by
                reference to the Company's Current Report on Form 8-K as filed
                December 23, 1997.

10.3            Employment, Consulting and Non-Competition Agreement, dated as                  N/A
                of December 12, 1997, by and between the Company and Allan
                Schulman, incorporated by reference to the Company's Current
                Report on Form 8-K as filed December 23, 1997.

10.4            Form of Option Agreement for Purchase of Naturade, Inc. Common                  N/A
                Stock for Directors, incorporated by reference to the Company's
                Form 10-K Annual Report filed for Fiscal 1995 and the Exhibits
                and Attachments thereto.

10.5            Form of Broker Agreement between NPI and Domestic Brokers,                      N/A
                incorporated by reference to the Company's Form 10-K Annual
                Report filed for Fiscal 1991 and the Exhibits and Attachments
                thereto.

10.6            Consulting Agreement with Dr. L.S. Smith, incorporated by                       N/A
                reference to the Company's Form 10-Q Report filed for the
                quarterly period ended March 31,1994 and the Exhibits and
                Attachments thereto.

10.7            Addendum to Consulting Agreement with L.S. Smith dated as of                    N/A
                November 13, 1996, incorporated by reference to the Company's
                Form 10-K Annual Report filed for fiscal 1997 and the exhibits
                and attachments thereto.

10.8            Amendment dated May 2, 1995 to Agreement For Purchase of Stock                  N/A
                and Real Property dated January 1, 1995, incorporated by
                Reference to the Company's Form 10-Q Report filed for quarterly
                period ended December 31, 1994 and Exhibits and Attachments
                thereto.


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<PAGE>

10.9            Open Line of Credit with South Bay Bank, incorporated by                        N/A
                reference to the Company's Form 10-K Annual Report filed for
                Fiscal 1995 and the Exhibits and Attachments thereto.

10.10           Open Line of Credit with South Bay Bank dated as of                             N/A
                February 21, 1997, in the principal amount of $1,200,000
                incorporated by reference to the Company's Form 10-K Annual
                Report filed for fiscal 1997 and the exhibits and attachments
                thereto.

10.11           Open Line of Credit with South Bay Bank dated as of                             N/A
                September 24, 1997, in the principal amount of $1,500.000,
                incorporated by reference to the Company's Form 10-K Annual
                Report filed for fiscal 1997 and the exhibits and attachments
                thereto.

10.12           Settlement Agreement with Neal D'Agostino dated November 30,                    N/A
                1995, incorporated by reference to the Company's Form 10-K
                Annual Report filed for Fiscal 1995 and the Exhibits and
                Attachments thereto.

10.13           Lease Agreement between NPI and Messrs. Schulman and Becker,                    N/A
                incorporated by reference to the Company's Form 10-K Annual
                Report filed for Fiscal 1991 and the Exhibits and Attachments
                thereto, and the First Amendment to Lease, dated as of
                December 15, 1997, by and among Allan Schulman and the
                Registrant (collectively as landlord) and the Company (as
                tenant), incorporated by reference to the Company's Current
                Report on Form 8-K as filed December 23, 1997.


                                       69
<PAGE>

10.14           Asset Transfer Agreement and Plan of Liquidation and                            N/A
                Dissolution, dated as of June 30, 1997, by and among Harrier,
                Inc., a Delaware corporation, the Company and DermaRay
                International, L.L.C., a California limited liability company
                incorporated by reference to the Company's Form 10-K Annual
                Report filed for fiscal 1997 and the exhibits and attachments
                thereto.

10.15           Naturade, Inc. 1998 Incentive Stock Option Plan, incorporated                   N/A
                by reference to the Company's Form 10-Q Report filed for the
                quarterly period ended March 31, 1998 and the exhibits and
                attachments thereto.

10.16           Incentive Stock Option Plan with Bill D. Stewart dated March 2,                 N/A
                1998, incorporated by reference to the Company's Form 10-Q
                Report  filed for the quarterly period ended March 31, 1998 and
                the exhibits and attachments thereto.

10.17           Incentive Stock Option Plan with Ronald Ahrens dated April 20,                  N/A
                1998, incorporated by reference to the Company's Form 10-Q
                Report filed for the quarterly period ended March 31, 1998 and
                the exhibits and  attachments thereto.

10.18           Employment Contract with Bill D. Stewart, CEO dated March 2,                    N/A
                1998 incorporated by reference to the Company's Form 10-Q
                Report  filed for the quarterly period ended March 31, 1998 and
                the exhibits and  attachments thereto.

10.19           Finance Agreement by and Between Naturade, Inc. and Health                      N/A
                Holdings and Botanicals, Inc. dated March 17, 1999,
                incorporated by reference to the Company's Form 10-Q Report
                filed for the quarterly period ended March 31, 1999


                                       70
<PAGE>

10.20           Amendment No. 1 to Finance Agreement by and between Naturade,                    N/A
                Inc. and Health Holdings and Botanicals, Inc. dated June 1,
                1999, incorporated by reference to the Company's Form 10-Q
                Report filed for the quarterly period ended September 30, 1999


10.21           Credit Agreement by and Between Naturade, Inc. and Health                        N/A
                Holdings and Botanicals, Inc. dated August 9, 1999,
                incorporated by reference to the Company's Form 10-Q Report
                filed for the quarterly period ended June 30, 1999

                Settlement Agreement between Naturade, Inc. and the PNI
10.22           Trustee, August 1999, incorporated by reference to the                           N/A
                Company's Form 10-Q Report filed for the quarterly period ended
                June 30, 1999



10.23           Employment Contract with Lawrence J. Batina, COO/CFO dated                       N/A
                February 1, 1999, incorporated by reference to the Company's
                Form 10-Q Report filed for the quarterly period ended March 31,
                1999.

10.24           Credit and Security Agreement by and Between Naturade, Inc. and                  N/A
                Wells Fargo Business Credit, Inc. dated January 27, 2000

10.25           Amendment No. 2 to Finance Agreement by and between Naturade,                    N/A
                Inc. and Health Holdings and Botanicals, LLC dated March 17,
                2000, incorporated by reference to the Company's Form 10-Q
                Report filed for the quarterly period ended March 31, 2000

10.26           Industrial Lease dated as of December 23, 1998 between the                       N/A
                Company and The Irvine Company, incorporated by reference to
                the Company's Form 10-Q Report filed for the quarterly period
                ended June 30, 2000.


                                       71
<PAGE>

10.27           Loan Agreement by and Between Naturade, Inc. and Health                          Document 2
                Holdings and Botanicals, LLC. and Wald Holdings, LLC. Dated
                August 31, 2000

23.1            Consent of Rose, Snyder & Jacobs, dated                                          N/A
                December 22, 1998


23.2            Consent of McGladry & Pullen, LLP, dated December 28, 1998                       N/A

23.3            Consent of Rose, Snyder & Jacobs, dated                                          N/A
                March 27, 2000
</TABLE>

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