**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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





**For
      the quarterly period ended September 30, 2006**





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





**For
      the transition period from ____________to __________**  ****





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


________________





**NATURADE,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            
            **23-2442709**(State
                or other jurisdiction of
            
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)**601
                Valencia Avenue, Suite 100, Brea, CA**
            
            **92823**(Address
                of principal executive offices)
            
            (Zip
                Code)





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





________________





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





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





Large
                  accelerated filer£
              Accelerated
                  filer£
              Non-accelerated
                  filerR


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





As
      of
      November 6, 2006, 41,432,733 shares of the registrant’s Common Stock were
      outstanding.













FORM
      10-Q





**QUARTERLY
      REPORT**


**Quarter
      Ended September 30, 2006**





**TABLE
      OF CONTENTS**




**PAGE**PART I. FINANCIAL INFORMATIONItem
                  1.
              Financial
                  StatementsCondensed
                  Balance Sheets as of September 30, 2006 and December 31,
                  2005
              3Condensed
                  Statements of Operations for the three and nine months ended September
                  30,
                  2006 and September 30, 2005
              4Condensed
                  Statements of Cash Flows for the nine months ended September 30,
                  2006 and
                  September 30, 2005
              5Notes
                  to Condensed Financial Statements
              6Item
                  2.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              20Item
                  3.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              37Item
                  4.
              Controls
                  and Procedures
              37PART II. OTHER INFORMATIONItem
                  1.
              Legal
                  Proceedings
              38Item
                  1A.
              Risk
                  Factors
              38Item
                  2.
              Unregistered
                  Sales of Equity Securities and Use of Proceeds
              38Item
                  3.
              Defaults
                  Upon Senior Securities
              39Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              39Item
                  5.
              Other
                  Information
              39Item
                  6.
              Exhibits
              39SIGNATURES


**Part
        I. Financial Information**





**Item
        1. Financial Statements**


**NATURADE,
        INC.**
 **Debtor
        in Possession**
 **Condensed
          Balance Sheets**
 **As
            of September 30, 2006 (Unaudited) and December 31, 2005**


ASSETSSeptember
                    30, 2006
                
                December
                    31, 2005(Unaudited)Current
                    assets:Cash
                    and cash equivalents
                
                $
                71,647
                
                $
                95,398Accounts
                    receivable, net
                
                
                1,099,602
                
                
                2,162,230Inventories,
                    net
                
                
                808,662
                
                
                896,173Prepaid
                    expenses and other current assets
                
                
                129,766
                
                
                229,394Total
                    current assets
                
                
                2,109,677
                
                
                3,383,195Property
                    and equipment, net
                
                
                48,558
                
                
                137,203Goodwill
                
                
                -
                
                
                2,653,572Customer
                    lists, trademarks and formulations, net
                
                
                945,072
                
                
                2,311,111Deferred
                    financing fees, net
                
                
                2,055,104
                
                
                3,461,943Other
                    assets
                
                
                42,585
                
                
                42,002Total
                    assets
                
                $
                5,200,996
                
                $
                11,989,026LIABILITIES,
                    REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS'
                    DEFICITLiabilities
                    not subject to compromise:Current
                    liabilities:Accounts
                    payable
                
                $
                331,503
                
                $
                2,904,019Accrued
                    expenses
                
                
                110,169
                
                
                431,071Accrued
                    interest
                
                
                -
                
                
                348,163Notes
                    payable to related parties
                
                
                -
                
                
                1,250,000Revolving
                    credit line
                
                
                1,329,276
                
                
                2,719,404Current
                    portion of long-term debt
                
                
                -
                
                
                2,323,079Total
                    current liabilties
                
                
                1,770,948
                
                
                9,975,736Long-term
                    debt, less current maturities
                
                
                1,350,000
                
                
                1,388,897Warrants
                    (27,869,118 Shares)
                
                
                -
                
                
                1,855,181Total
                    liabilities not subject to compromise
                
                
                3,120,948
                
                
                13,219,814Liabilities
                    subject to compromise (Note 2)
                
                
                10,017,096
                
                
                -Total
                    Liabilities
                
                
                13,138,044
                
                
                13,219,814COMMITMENTS
                    AND CONTINGENCIESREDEEMABLE
                    CONVERTIBLE PREFERRED STOCKRedeemable
                    convertible preferred stock, Series C including accumulated
                    preferredstock
                    dividends of $3,220,000 at September 30, 2006 and $1,150,000
                    at December
                    31, 2005;par
                    value $0.0001 per share:authorized 50,000,000 shares; issued
                    and
                    outstanding,21,000,000
                    shares at June 30, 2006 and December 31, 2005 ($21,000,000
                    redemptionvalue).
                
                
                4,900,000
                
                
                2,830,000STOCKHOLDERS'
                    DEFICIT:Common
                    stock, par value $0.0001 per share; authorized,
                    100,000,000shares;
                    issued and outstanding, 41,432,733 at September 30, 2006
                    and39,651,964
                    at December 31, 2005.
                
                
                4,334
                
                
                3,965Non-Voting
                    Common stock, par value $0.0001 per share; authorized,2,000,000
                    shares; issued and outstanding, 117,284 shares at September 30,
                    2006 andDecember
                    31, 2005.
                
                
                12
                
                
                12Additional
                    paid-in capital
                
                
                24,244,965
                
                
                21,883,842Accumulated
                    deficit
                
                
                (37,086,359
                )
                
                (25,948,607
                )Total
                    stockholders' deficit
                
                
                (12,837,048
                )
                
                (4,060,788
                )Total
                    liabilities, redeemable convertible preferred stock and stockholders'
                    deficit
                
                $
                5,200,996
                
                $
                11,989,026




See
      accompanying notes to condensed financial statements.


3


**NATURADE,
                    INC.****(DEBTOR-IN-POSSESSION)****Condensed
                    Statements of Operations for the Three and the Nine
                    Months****Ended
                    September 30, 2006 and September 30,
                    2005**
  Three
                    Months
                
                Three
                    Months
                
                Nine
                    Months
                
                Nine
                    MonthsEnded
                
                Ended
                
                Ended
                
                EndedSeptember
                    30, 2006
                
                September
                    30, 2005
                
                September
                    30, 2006
                
                September
                    30, 2005(Unaudited)
                
                (Unaudited)
                
                (Unaudited)
                
                (Unaudited)Net
                    sales
                
                $
                1,769,464
                
                $
                3,559,979
                
                $
                8,351,598
                
                $
                9,235,321Cost
                    of sales
                
                
                1,056,433
                
                
                1,708,575
                
                
                4,426,704
                
                
                4,795,609Gross
                    profit
                
                
                713,031
                
                
                1,851,404
                
                
                3,924,894
                
                
                4,439,712Costs
                    and expenses:Selling,
                    general and administrative expenses
                
                
                1,967,570
                
                
                2,367,451
                
                
                6,338,332
                
                
                5,436,402Depreciation
                
                
                9,440
                
                
                14,732
                
                
                52,021
                
                
                45,035Amortization
                
                
                233,333
                
                
                155,556
                
                
                700,000
                
                
                155,556Total
                    operating costs and expenses
                
                
                2,210,343
                
                
                2,537,739
                
                
                7,090,353
                
                
                5,636,993Operating
                    loss
                
                
                (1,497,312
                )
                
                (686,335
                )
                
                (3,165,459
                )
                
                (1,197,281
                )Impairment
                    of Goodwill & Customer lists
                
                
                666,040
                
                
                -
                
                
                3,360,397
                
                
                -Other
                    expense (Income)
                
                
                253,289
                
                
                10,711
                
                
                261,107
                
                
                7,265Reorganization
                    expenseProfessional
                    fees
                
                
                104,298
                
                
                -
                
                
                104,298
                
                
                -Interest
                    expense:Interest
                
                
                134,579
                
                
                118,081
                
                
                508,604
                
                
                281,456Amortization
                    of deferred financing fees
                
                
                480,596
                
                
                436,385
                
                
                1,667,088
                
                
                436,385Total
                    Interest Expense
                
                
                615,175
                
                
                554,466
                
                
                2,175,692
                
                
                717,841Loss
                    before provision for income taxes
                
                
                (3,136,114
                )
                
                (1,251,512
                )
                
                (9,066,953
                )
                
                (1,922,387
                )Provision
                    for income taxes
                
                
                -
                
                
                -
                
                
                800
                
                
                800Net
                    loss
                
                $
                (3,136,114
                )
                $
                (1,251,512
                )
                $
                (9,067,753
                )
                $
                (1,923,187
                )Less:Preferred
                    Stock Dividends-Series B
                
                $
                -
                
                $
                (21,310
                )
                $
                -
                
                $
                (157,318
                )Deemed
                    Dividend-Series B
                
                
                -
                
                
                1,251,984
                
                
                -
                
                
                1,109,127Deemed
                    Dividend-Series C
                
                
                (690,000
                )
                
                (460,000
                )
                
                (2,070,000
                )
                
                (460,000
                )Net
                    Loss Attributable to Common Shareholders
                
                $
                (3,826,114
                )
                $
                (480,838
                )
                $
                (11,137,753
                )
                $
                (1,431,378
                )Basic
                    and Diluted Net Loss per share
                
                $
                (0.09
                )
                $
                (0.01
                )
                $
                (0.26
                )
                $
                (0.03
                )Weighted
                    Average Number of Shares used in Computation ofBasic
                    and Diluted Net Loss per share
                
                
                43,332,733
                
                
                39,533,703
                
                
                43,332,733
                
                
                42,873,886


See
      accompanying notes to condensed financial statements


4


**NATURADE,
                    INC****(DEBTOR-IN-POSSESSION)****Condensed
                    Statements of Cash Flows for the Nine Months****Ended
                    September 30, 2006 and September 30,
                    2005**
  Nine
                    months
                
                Nine
                    monthsEnded
                
                EndedSeptember
                    30, 2006
                
                September
                    30, 2005(Unaudited)
                
                (Unaudited)Cash
                    flows from operating activities:Net
                    loss
                
                $
                (9,067,753
                )
                $
                (1,923,187
                )Adjustments
                    to reconcile net loss tonet
                    cash (used in) provided by operating activities:Depreciation
                    and amortization
                
                
                752,021
                
                
                200,591Amortization
                    of loan discounts and deferred financing fees
                
                
                1,667,088
                
                
                436,385Issuance
                    of common stock for consulting
                
                
                440,578
                
                
                -Stock
                    Based Compensation
                
                
                65,732
                
                
                -Impairment
                    of Goodwill
                
                
                3,319,612
                
                
                -Changes
                    in operating assets and liabilities:Accounts
                    receivable
                
                
                1,062,628
                
                
                448,323Inventories
                
                
                87,511
                
                
                774,692Prepaid
                    expenses and other current assets
                
                
                99,627
                
                
                (50,367
                )Other
                    assets
                
                
                (582
                )
                
                -Accounts
                    payable and accrued expenses
                
                
                2,546,401
                
                
                (252,429
                )Net
                    cash provided by/ (used in) operating activities before reorganization
                    items
                
                
                972,863
                
                
                (365,992
                )Professional
                    fees paid for services rendered in connection with the Chapter
                    11
                    proceeding
                
                
                (104,298
                )
                
                -Net
                    cash provided by (used in) operating activities
                
                
                868,565
                
                
                (365,992
                )Cash
                    flows from investing activities:Purchase
                    of property and equipment
                
                
                (22,632
                )
                
                -Acquisitions
                
                
                -
                
                
                (558,695
                )Loss
                    on Retirement
                
                
                59,256
                
                
                -Net
                    cash used in investing activities
                
                
                36,624
                
                
                (558,695
                )Cash
                    flows from financing activities:Net
                    borrowings (repayments) under line of credit
                
                
                -
                
                
                1,917,844Net
                    borrowings (repayments) under the revolving credit line
                
                
                (1,390,127
                )
                
                (1,875,897
                )Proceeds
                    (payments) of long-term debt
                
                
                440,909
                
                
                (25,609
                )Proceeds
                    from issuance of debt to related parties
                
                
                350,000
                
                
                300,000Deferred
                    financing fees
                
                
                (260,249
                )
                
                (390,500
                )Proceeds
                    (payments) from term loan
                
                
                (69,473
                )
                
                1,000,000Net
                    cash provided by (used in) financing activities
                
                
                (928,940
                )
                
                925,838Net
                    increase (decrease) in cash and cash equivalents
                
                
                (23,751
                )
                
                1,151Cash
                    and cash equivalents, beginning of period
                
                
                95,398
                
                
                210,573Cash
                    and cash equivalents, end of period
                
                $
                71,647
                
                $
                211,724**Supplemental
                    Disclosures of Cash Flow Information****Cash
                    paid during the period for:**Interest
                
                $
                248,491
                
                $
                132,001Income
                    taxes
                
                $
                800
                
                $
                800**Non-cash
                    financing transactions:**Preferred
                    stock dividend accrued-Series B
                
                $
                -
                
                $
                157,318Deemed
                    dividend-Series B
                
                $
                -
                
                $
                (1,109,027
                )Deemed
                    dividend-Series C
                
                $
                2,070,000
                
                $
                460,000Conversion
                    of common stock and Series B preferred stock to Series C preferred
                    stock
                
                $
                -
                
                $
                1,180,000**Acquired
                    Business (Note 6):**Non-cash
                    consideration:Fair
                    value of common stock issues
                
                $
                -
                
                $
                1,794,260Fair
                    value of preferred stock
                
                $
                -
                
                $
                63,484Notes
                    Payable
                
                $
                -
                
                $
                2,724,539Warrants
                
                $
                -
                
                $
                159,765




See
      accompanying notes to condensed financial statements.


5


**NATURADE,
      INC.**


(DEBTORS-IN-POSSESSION)


**Notes
      to Condensed Financial Statements**


**(Unaudited)**





1.
            *Basis
                of Presentation and Going Concern —*The accompanying unaudited financial statements have been prepared
                in
                accordance with accounting principles generally accepted in the United
                States of America for interim financial information and with the
                instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
                they do not include all of the information and footnotes required
                by
                accounting principles generally accepted in the United States for
                complete
                financial statements. The preparation of financial statements in
                conformity with accounting principles generally accepted in the United
                States requires management to make estimates and assumptions that
                affect
                the amounts reported in the financial statements and accompanying
                notes.
                Actual results could differ from those
                estimates.





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




On
      September 25, 2006, the Company's Common Stock was
      de-listed from the Over-the-counter Bulletin Board and now trades on the "Pink
      Sheets."





**Chapter
      11 Bankruptcy Proceedings**





On
      August
      31, 2006 (the “Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Matter”) under Chapter 11 of the
      United States Bankruptcy Code (the “Bankruptcy Court”), in the United States
      Bankruptcy Court for the Central District of California (the
“Court”) (Case No. 06-11493). We will continue to operate our businesses as
“debtors in possession” (“DIP”) under the jurisdiction of the Court, under Court
      protection from creditors and claimants and in accordance with the
      applicable provisions of the Bankruptcy Code and orders of the Court. Since
      the
      bankruptcy filing, all orders allowing the Company to conduct normal business
      activities have been entered by the Court. While the Company is in
      bankruptcy proceedings, all transactions not in the ordinary course of business
      require the prior approval of the Court.





As
      a
      consequence of the company's bankruptcy filing, pending litigation against
      the Company is generally stayed, and no party may take any action to collect
      its
      pre-petition claims except pursuant to order of the Court. The Court has set
      December 11, 2006 as the Bar Date for claimants to file claims. Differences
      between claim amounts identified by the Company and claims filed by claimants
      will be investigated and resolved in connection with the Company's claims
      resolution process, and only holders of claims that are ultimately allowed
      for
      purposes of the Company's bankruptcy will be entitled to distributions. Since
      the settlement of terms of allowed claims are subject to a confirmed plan of
      reorganization, the ultimate distribution with respect to the allowed claims
      is
      not presently ascertainable.





On
      October 10, 2006, Naturade filed with the Court our Plan of Reorganization,
      (the “Plan”) and Disclosure Statement, (the “Disclosure Statement”). Around
      November 15, 2006, the Company plans to file Amended Plan of Reorganization
      and
      Disclosure Statement prior to a scheduled Court hearing later that week. The
      Plan and the Disclosure Statement set forth the terms of the proposed settlement
      between the Company, the Company's secured creditors, the Official Committee
      of
      Unsecured Creditors, and its stockholders. The Disclosure Statement also
      includes a description of the events that led up to the Company's bankruptcy
      filing and the actions taken to improve the Company's financial situation while
      in bankruptcy. The Plan has not been approved by the necessary constituencies
      and remains subject to approval by the Court. Naturade cannot provide any
      assurance that any plan of reorganization ultimately confirmed by the Bankruptcy
      Court will be consistent with the terms of the Plan and Disclosure Statement.
      If
      confirmed, the Plan will provide the Company with significant relief
      from pre-filing claims. The Plan details how the claims of each class of
      creditors and interest holders will be treated.





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”)
      applicable to a going concern, which assume that assets will be realized and
      liabilities will be discharged in the normal course of business. As a result
      of
      the Chapter 11 Matter, such realization of assets and liquidation of liabilities
      is subject to uncertainty. A substantial portion of the Company's liabilities
      as
      of the Petition Date are subject to compromise or other treatment in the Chapter
      11 Matter. For financial reporting purposes, those unsecured liabilities and
      obligations whose disposition is dependent on the outcome of the Chapter 11
      Matter are segregated and classified as liabilities subject to compromise in
      the
      September 30, 2006 balance sheet. Generally, actions to enforce or otherwise
      effect repayment of all pre-Chapter 11 liabilities and pending litigation
      against the Company are stayed while the Company continues as a
      debtor-in-possession during bankruptcy proceedings. Schedules have been filed
      by
      the Company with the Bankruptcy Court setting forth the assets and liabilities
      of the Company as of the Petition Date as reflected in the Company's accounting
      records. Differences between amounts reflected in such schedules and claims
      filed by creditors will be investigated and either amicably resolved or
      adjudicated by the Bankruptcy Court. The ultimate amount of and settlement
      terms
      for such liabilities are not presently determinable.





6


Financial
      accounting and reporting during a Chapter 11 Matter for an entity with the
      expectation of reorganizing is prescribed in Statement of Position No. 90-7,
      “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”
(“SOP 90-7”). The Company has an expectation of reorganizing under the
      Bankruptcy Code. Accordingly, unsecured pre-petition liabilities, which may
      be
      subject to settlement, are classified as liabilities subject to compromise
      in
      the September 30, 2006 balance sheet. In addition, the Company has reported
      all
      transactions (other than interest expense) directly related to the Chapter
      11
      Matter as reorganization items in its statement of operations for the three
      and
      nine months ended September 30, 2006. SOP 90-7's definition of reorganization
      items excludes (1) interest expense and (2) transactions required to be reported
      as discontinued operations or extraordinary items in conformity with GAAP.
      The
      accompanying condensed balance sheet at September 30, 2006 and the condensed
      statements of operations and cash flows for the periods ended September 30,
      2006
      and 2005 are unaudited. Such financial statements have been prepared on the
      same
      basis as the Company's audited consolidated financial statements and, in the
      opinion of management, reflect all adjustments, which (except the impairment
      of
      goodwill) consist only of a normal recurring nature, necessary for a fair
      presentation of the financial position and results of operations for such
      periods. However, the accompanying financial statements do not include any
      adjustments that may be required in connection with restructuring the Company
      under Chapter 11 of the Bankruptcy Code. These unaudited condensed financial
      statements should be read in conjunction with the December 31, 2005 audited
      financial statements included in the Company's Form 10-K as previously filed
      with the Securities and Exchange Commission on April 13, 2006.




The
      results of operations for the interim periods shown in this report are not
      necessarily indicative of results to be expected for the fiscal
      year.





**Going
      Concern**




The
      Company is currently operating under Chapter 11 of the U.S. Bankruptcy Code
      and
      continuation as a going concern is contingent
      upon, among other things, the Company’s ability to (i) obtain confirmation of a
      plan of reorganization under the U.S. Bankruptcy Code; (ii) return to
      profitability; (iii) generate sufficient cash flows from operations; and (v)
      obtain financing sources to meet the Company’s future obligations. These matters
      create substantial doubt about the Company’s ability to continue as a going
      concern. The condensed quarterly financial statements do not reflect any
      adjustments relating to the recoverability and classification of recorded asset
      amounts or the amounts and classifications of liabilities that might result
      from
      the outcome of these uncertainties. Additionally, a plan of reorganization
      could
      materially change amounts reported in the condensed financial statements,
      which do no give effect to all adjustments of the carrying value of assets
      and
      liabilities that are necessary as a consequence of reorganization under Chapter
      11 bankruptcy.


**Recently
      Issued Accounting Standards**





In
      December of 2004, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standards (“SFAS”)
      No. 123R, *Share-Based
      Payment* .
      SFAS
      No. 123R addresses the accounting for share-based payments to employees, including
      grants of employee stock options. Under the new standard, companies will no
      longer be able to account for share-based compensation
      transactions using the intrinsic method in accordance with APB Opinion No.
      25, *Accounting
      for Stock Issued to* *Employees.* Instead,
      companies are required to account for such transactions using a fair-value
      method and recognize the related expense
      associated with share-based payments in the condensed consolidated statement
      of
      operations. In April 2005, the Securities and
      Exchange Commission (“SEC”) delayed the effective date for SFAS No. 123R until
      the first quarter of fiscal 2006, and allows, but
      does
      not require, companies to restate the full fiscal year of 2005 or retroactive
      restatement to earlier periods to reflect the impact of expensing share-based
      payments under SFAS No. 123R. SFAS No. 123R became effective for the Company
      on January
      1, 2006. The adoption of SFAS No. 123R and its effects are described in
      Note 10 — Stock Based Compensation.





In
      November of 2004, the FASB issued SFAS No. 151, *Inventory
      Costs-an Amendment of ARB No. 43.* SFAS
      No.
      151 amends the
      guidance in Accounting Research Bulletin (“ARB”) No 43, Chapter 4, *Inventory
      Pricing,* to
      clarify the accounting for abnormal amounts
      of idle facility expense, freight, handling costs, and wasted material
      (spoilage). SFAS No. 151 requires that these items be recognized
      as current-period charges regardless of whether they meet the criterion of
“so
      abnormal.” In addition, SFAS No. 151 requires
      that allocation of fixed production overhead to the costs of conversion be
      based
      on the normal capacity of production facilities.
      The provisions of SFAS No. 151 are effective for inventory costs incurred during
      fiscal years beginning after June 15, 2005. The
      Company adopted SFAS 151 effective January 1, 2006. However, the adoption of
      SFAS No. 151 did not have an impact on the Company’s
      financial statements as the Company’s accounting policies were already in
      conformance with the key aspects of SFAS No.
      151.





2.
            *Liabilities
                Subject To Compromise and Reorganization Items —*Under
                Chapter 11 of the U.S. Bankruptcy Code, certain claims against the
                Company
                in existence prior to the filing of the petition for relief under
                the
                federal bankruptcy laws are stayed while the Company continues business
                operations as a debtor-in-possession. These estimated claims are
                reflected
                in the September 30, 2006 Condensed Balance Sheet as Liabilities
                Subject
                to Compromise and are summarized in the table below. Such claims
                remain
                subject to future adjustments. Adjustments may result from actions
                of the
                bankruptcy court, negotiations, rejection or acceptance of executory
                contracts, determination of value of any collateral securing claims,
                proofs of claim or other events.






7


The
      Company has received approval from the bankruptcy court to pay or otherwise
      honor certain of its pre-petition obligations, including approval to pay payroll
      and other business related expenses of ongoing employees in the ordinary course
      of business. Accordingly, these pre-petition items have been excluded from
      Liabilities Subject to Compromise as of September 30, 2006.





The
      liabilities subject to compromise consisted of the following items:




September
                    30, 2006(unaudited)Accounts
                    payable
                
                $
                4,479,574Notes
                    payable to related parties
                
                
                4,333,412Accrued
                    Interest
                
                
                528,134Accrued
                    commissions
                
                
                193,915Accrued
                    other expenses
                
                
                482,061Total
                    liabilities subject to compromise
                
                $
                10,017,096


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




8







3.
            *Impairment*-
                On June 30, 2006, due to the Company’s continuing poor financial
                condition, management assessed the recoverability of the carrying
                value of
                goodwill in accordance with Statement of Financial Accounting Standards
                No. 142,*Goodwill
                and Other Intangible Assets*.
                Management concluded that all goodwill approximating $2,700,000 was
                fully
                impaired. The impairment loss reflects the amount by which the carrying
                value of goodwill exceeded its estimated fair value determined by
                the
                estimated future discounted cash flows. The impairment loss is recorded
                as
                “Impairment of Goodwill & Customer lists” in the accompanying
                statement of operations for the nine months ended September 30,
                2006.
              Based
                  upon the Company's assessment and in accordance with SFAS No. 144,*Accounting
                  for the Impairment or Disposal of Long-Lived Assets*,
                  management concluded that the carrying value of customer lists
                  associated
                  with the Ageless and Symco acquisitions (see Note 7), exceeded
                  its fair
                  market value as determined by the estimated future discounted cash
                  flows.
                  Consequently, an impairment loss in the amount of $666,040 was
                  recorded as
                  "Impairment of Goodwill and Customer Lists" in the condensed statement
                  of
                  operations for the three and nine months ended September 30,
                  2006.





4.
            *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 September 30, 2006 and December 31, 2005 consisted
                of the
                following:








**September
                30, 2006**
            
            **December
                31, 2005****(Unaudited)**Raw
                Materials
            
            $
            203,157
            
            $
            235,885Finished
                Goods
            
            
            648,434
            
            
            843,942Subtotal
            
            
            851,591
            
            
            1,079,827Less:
                Reserve for Excess and Obsolete Inventories
            
            
            (42,929
            )
            
            (183,654
            )$
            808,662
            
            $
            896,173








5.
            *Recapitalization/Change
                in Control —*On
                July 22, 2005, the Company entered into a Master Investment Agreement
                (the
                “Master Investment Agreement “), with Quincy Investments Corp. (“Quincy”),
                Health Holdings and Botanicals, LLC (“Health Holdings”), Westgate Equity
                Partners, L.P. (“Westgate”), Bill D. Stewart (“Stewart”) and David A. Weil
                (“Weil”), pursuant to which:




·
            Quincy
                negotiated, and arranged the financing for the acquisition by the
                Company
                of selected assets of The Ageless Foundation, Inc. (“Ageless”), Symco,
                Inc. (“Symco”), and Symbiotics, Inc.
                (“Symbiotics”);





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





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





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





·
            Westgate
                surrendered 13,540,723 shares of Series B Convertible Preferred Stock
                (“Series B”) held by it, including any accrued and unpaid dividends, in
                exchange for 4,200,000 shares of Series
                C;




9




·
            Health
                Holdings, Stewart and Weil extended the term of the Secured Promissory
                Notes issued to them pursuant to that certain Loan Agreement dated
                April
                14, 2003, from December 31, 2005 to December 31,
                2006;





·
            The
                Company granted to Health Holdings, Westgate and Quincy certain
                registration rights with respect to the common stock issuable upon
                conversion of the Series C or exercise of the Health Holdings Warrant
                or
                the Quincy Warrants; and





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





On
      a
      liquidation or sale of the Company, the holders of Series C will be entitled
      to
      receive a preferential payment equal to $1.00 per share (subject to adjustment),
      plus accrued but unpaid dividends.





For
      each
      fiscal year, the holders of Series C will be entitled to receive a cash dividend
      equal to 20% of the amount, if any, by which the Company’s pre-tax profits for
      such year exceed $10 million, which dividend will be distributed within 120
      days
      of the end of such fiscal year. The Company will have the right to require
      the
      conversion of all shares of Series C into common stock at any time within ten
      days following a period of 20 consecutive trading days for which the closing
      bid
      price of the common stock equals or exceeds $1.50 per share (as
      adjusted).





Each
      holder of Series C will have the right, at such holder’s option, at any time
      after July 22, 2006, to convert any such shares initially into one share of
      common stock at $1.00 per share. The number of shares of common stock will
      be
      increased to protect the holder against dilution in the event of a stock
      dividend, stock split, combination or reclassification or the issuance of common
      stock at a price less than $1.00 per share (as adjusted).


On
      December 31, 2012, the Company is required to redeem the Series C for $1.00
      per
      share (subject to adjustment), plus accrued but unpaid dividends, provided
      the
      Company is then legally able to do so.





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





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





The
      outstanding shares of Series B were not converted under the original terms
      of
      the Series B and the holders of the Series B stock exchanged their shares of
      Series B for shares of Series C. The Series B was eliminated from the
      Certificate of Incorporation of the Company.





The
      fair
      value of the Series C issued to Health Holdings was $1,008,000. The Health
      Holdings Warrant was valued at $597,062 using the Black Scholes valuation model
      (“Black Sholes”). The cost to buy the common shares (or unaudited fair value of
      the Series C plus the warrants in this case) is in excess of the par value
      and
      as such the difference is charged to additional paid in capital. As the fair
      value of the Series C is less than its value at maturity of $12,600,000, the
      difference between the recorded value of the Series C issued to Health Holdings
      ($1,008,000) and the value at maturity ($12,600,000) in the amount of
      $11,592,000 will be accreted to December 31, 2012 and charged to retained
      earnings as a preferred stock dividend.




Common
      stock issued to Quincy was valued at the cost per share at the date of closing
      $0.08 or $2,477,788. The Series C was valued at $336,000, based upon the value
      of common stock, if converted. The difference between the terminal value of
      Series C of $4,200,000 and the value at closing of $336,000 ($3,864,000) will
      be
      accreted to December 31, 2012 and charged to retained earnings as a preferred
      stock dividend. The Company determined that there is no beneficial conversion
      feature of this exchange. The Quincy Warrants were valued at $845,592 using
      Black Scholes. Of the total value of the common stock, Quincy Warrants and
      Series C shares ($3,659,380), $691,401 was allocated to the purchase cost for
      Ageless and Symco based on a usual broker fee percentage to the total purchase
      price of the acquisitions. The remaining value of $2,967,979 was allocated
      to
      deferred financing fees (debt issuance cost and guarantee fees) ratably to
      the
      three amounts of debt guaranteed by Quincy. The deferred financing fees will
      be
      amortized over the term of each loan based on the interest method. (See Note
      7).





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





·
            Quincy
                transferred its voting stock and Warrants to Purchase Common Stock
                in the
                Company to Redux;


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


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




10


Before
      the transactions described above, Quincy owned 28,000,000 shares of Common
      Stock, or 63.7% of the voting power of the Common
      Stock and 51.4% of the combined voting power of the Common Stock and the Series
      C .The holders of the Series C are entitled to vote along with the Common Stock
      (on an as-converted basis) on all matters, including the election
      of directors, presented to the stockholders. As a result, Quincy had the power
      to elect a majority of the Board of Directors and to determine
      the outcome of any matter submitted to the stockholders, subject to the rights
      of Health Holdings , holders of
      12,600,000 shares of Series C who have the right to elect one director and
      to
      approve certain transactions.





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





·
            Laurus
                transferred 1,050,000 shares of the Company’s Common Stock to
                Redux;


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


·
            Laurus
                transferred an option to purchase 8,721,375 shares of the Company’s Common
                Stock at $0.0001 per share to
                Redux;


·
            Redux
                issued 574,787, subject to certain provisions for anti-dilution,
                shares of
                Redux Common Stock to Laurus.





As
      a
      result of the transactions described above, Redux controls voting rights of
      37,771,375 shares of Common Stock and 4,200,000 shares of Series C, or 75.0%
      of
      the voting power of the Common Stock, 20.0% of the voting power of the Series
      C,
      and 58.8% of the combined voting
      power of the Common Stock and the Series C. The holders of the Series C are
      entitled to vote along with the Common Stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Redux has the power to elect
      a
      majority of the Board of Directors and to determine the outcome of any matter
      submitted to the stockholders, subject to the rights of the
      holders of the Series C described above.





6.
            *Financing
                —*On
                July 26, 2005, the Company entered into a Security and Purchase Agreement
                (the “Financing Agreement”) with Laurus, pursuant to which Laurus provided
                the Company with a $4,000,000 convertible financing facility composed
                of a
                $3,000,000 revolving credit facility and a $1,000,000 term loan.
                The
                indebtedness under the revolving facility is evidenced by a convertible
                “Revolving Note” and one or more convertible “Minimum Borrowing Notes,”
                and the indebtedness under the term loan is evidenced by a convertible
                “Term Note” (collectively, the “Laurus Notes”). Gross funds of $2,655,250
                were advanced to the Company on July 26, 2005 under the Laurus Notes,
                comprised of $1,000,000 under the Term Note, $500,000 under the first
                Minimum Borrowing Note (the “First Minimum Borrowing Note”) and $1,155,250
                under the Revolving Note.




Indebtedness
      under the revolving facility is based upon 35% of eligible inventory and 90%
      of
      eligible accounts receivable. The financing facility has a term of three years
      ending on July 26, 2008. As part iof the Chapter 11 restructuring, Laurus has
      agreed to extend the period for the repayment for the Term Loan to be
      repaid in equal monthly installments beginning the first day of the first full
      month following the Effective Date of the Plan through to and including
      January 2010. The financing facility carries an interest rate of
      prime plus 2% per annum (10.25% at September 30, 2006), subject to certain
      reductions based upon growth of the Company’s stock price.





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





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





The
      Company used a portion of the proceeds of the facility to payoff its current
      bank credit facility with Wells Fargo Business Credit, Inc. (“Wells Fargo”) and
      used the remainder for working capital purposes.





In
      consideration for entering into the Financing Agreement, the Company issued
      to
      Laurus, an option (the “Laurus Option”) and a warrant (the “Laurus Warrant”) to
      purchase shares of the Company’s common stock. The Laurus Option entitled the
      holder to purchase up to 8,721,375 shares of common stock, subject to certain
      limitations on the amount of common stock held by Laurus, at a purchase price
      of
      $0.001 per share at any time on or after July 26, 2005. The Laurus Warrant
      entitled the holder to purchase up to 1,500,000 shares of common stock at a
      purchase price of $0.80 per share at any time on or after July 26, 2006 through
      July 26, 2010. The number of shares of common stock issuable upon exercise
      of
      the Laurus Option and the Laurus Warrant is subject to adjustment to prevent
      dilution upon stock splits, stock dividends, and other events. The exercise
      price of the Laurus Option and the Laurus Warrant could be paid, at the option
      of Laurus, by the cancellation of indebtedness under the financing
      facility.





11


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





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





The
      value
      of the Liberty Warrant of $223,555 using Black Scholes was capitalized as
      deferred finance fee and will be amortized over 36 months using the interest
      method.





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





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





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





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





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





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





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





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





On
      August
      31, 2006, prior to the Company’s filing under Chapter 11 of the US Bankruptcy
      Code, the Company agreed to the following:





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





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




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





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





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





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




The
      Redux
      Agreement and this agreement are attached as Exhibits 10.1 and 10.2 to this
      filing.





12


At
      September 30, 2006, $1,042,740 was outstanding under the revolving facility
      as
      pre-petition debt, $286,536 was outstanding as post petition debt, and
      $1,350,000 was outstanding under the term loan as pre-petition
      debt.





7.
            *Acquisitions
                —*On
                July 22, 2005, Quincy, Symco and Symbiotics entered into an Asset
                Purchase
                Agreement (the “Symco/Symbiotics Agreement’), pursuant to which Quincy had
                the right to acquire certain assets relating to Symco and Symbiotics’
                health-related products retail business. As consideration for the
                assets,
                Quincy would (a) assume current accounts payable ($408,985) and the
                obligations under certain contracts, (b) pay all outstanding amounts
                owed
                under certain credit facilities ($274,382), (c) issue a promissory
                note
                payable to Symco and Symbiotics in the principal amount of $2,000,000,
                (x)
                less the amount necessary to repay the credit facilities, and (y)
                subject
                to a working capital adjustment, (d) pay an additional $60,000 in
                cash
                fifteen (15) days after the closing date and an additional $60,000
                every
                thirty (30) days thereafter until the note is paid in full and (e)
                for a
                three (3) year period following the closing date, Quincy would pay
                to
                Symco and Symbiotics ten percent (10%) of the amount of the increase
                in
                contribution profit over a baseline amount of $2,000,000 based on
                the sale
                of products for each 12 month period during the three year period.
                Peter
                H. Pocklington, a principal of Quincy, and since August 10, 2005,
                one of
                the Company’s directors, guaranteed the promissory note payable to Symco
                and Symbiotics. In this acquisition, the Company acquired distribution
                rights, and substantially all of the assets related to, Colostrum
                PlusTM, a
                line of products to enhance immune system
                functions.





On
      July
      27, 2005, Quincy and Ageless entered into an Asset Purchase Agreement (the
      “Ageless Agreement”), pursuant to which Quincy had the right to acquire certain
      assets relating to Ageless’ health-related products retail business. As
      consideration for the assets, Quincy would (a) assume current accounts payable
      ($173,593), (b) assume an obligation to an employee of the company in an amount
      equal to $600,000 and (c) issue a promissory note payable to Ageless in the
      principal amount of $700,000, subject to a working capital adjustment. Peter
      H.
      Pocklington, a principal of Quincy, and since August 10, 2005, one of the
      Company’s directors, guaranteed the promissory note payable to Ageless. The
      Company is currently in litigation with Ageless regarding payments on the note
      and counter claims by the Company related to alleged breeches of representations
      and warranties by Ageless no Note 14). In this acquisition, the Company acquired
      distribution rights, and substantially all of the assets related to, the
      AgelessTM line of anti-aging products.





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





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





13


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





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





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





The
      acquisitions were accounted for as business combinations under SFAS No. 141.
      The
      purchase prices, including transaction costs, were allocated to assets and
      liabilities based on their estimated fair value, including specific intangible
      assets. The excess of the purchase price over the net of the amounts assigned
      to
      assets acquired and liabilities assumed was recognized as goodwill. The value
      of
      the 30,972,345 shares and warrants issued to Quincy are considered as part
      of
      the costs of the acquisitions and were included as part of the purchase
      price.


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





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





Purchase
      Price:




Cash
            
            $
            558,695Common
                stock
            
            
            1,794,260Preferred
                stock
            
            
            63,484Warrants
            
            
            159,565Notes
                payable
            
            
            2,724,539Total
            
            $
            5,300,743





Allocated
      as follows:




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





The
      customer lists and trademarks are being amortized over 36 months and
      formulations are being amortized over 24 months. Deferred financing fees are
      being amortized and charged to interest expense over the life of the Laurus
      financing based upon the interest method of amortization. Goodwill is expected
      to be tax deductible.  See Note 3 for adjustment made during the three
      months ended September 30, 2006.





8.
            *Loan
                Agreement with Majority Shareholders and Other Investors
                —*In
                August 2000, the Company entered into a loan agreement (the “Investor
                Notes”) with Health Holdings and other investors (the “Lender Group”). The
                Investor Notesprovided that the Lender Group could 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. Between June 2001 and August 2003, all but $202,345 Investor
                Notes were converted to common
                stock.





On
      August
      21, 2003, the terms of the remaining outstanding Investor Notes were modified
      to
      include increasing the interest rate to 15% per annum paid in quarterly
      increments and setting a principal repayment schedule of $20,000 each on
      September 15, 2003 and October 15, 2003, installments of $10,000 per month
      from
      January 15, 2004 through July 15, 2004 and a final payment of $92,345 on August
      15, 2004. On September 23, 2004, the payment terms on these Investor Notes
      were
      modified to December 31, 2004.





14


On
      March
      25, 2005, the payment provisions of the Investor Notes were amended to require
      a
      principal payment of $20,000 plus accrued interest on July 15, 2005 with the
      remaining principal of $92,345 plus accrued interest due December 31, 2005.
      In
      addition, the conversion provision of the Investor Notes allowing the holder
      to
      convert outstanding Investor Notes to the Company’s common stock at a
      predetermined price was eliminated. On March 24, 2006, the payment provisions
      of
      the Investor Notes were amended to require an interest payment of $10,000 on
      March 31, 2006 and a payment of $92,345, plus accrued interest on September
      30,
      2006. On May 25, 2006, the Company issued 1,000,000 shares of common stock
      valued at $0.12 per share ($120,000) as payment of the principal and interest
      on
      the Investor Notes. At September 30, 2006, there was $-0- outstanding under
      the
      Investor Notes.


On
      April
      14, 2003, the Company entered into a loan agreement (the “Loan Agreement”) with
      Health Holdings and certain other lenders (the “Lender Group”), pursuant to
      which the Lender Group agreed to lend the Company $450,000 and, subject to
      the
      discretion of the Lender Group, up to an additional $300,000. All advances
      under
      the Loan Agreement bear interest at the rate of 15% per annum, are secured
      by
      substantially all of the assets of the Company, and are subordinated to the
      Company’s indebtedness to Wells Fargo. In consideration of the extension of
      credit under the Loan Agreement, Wells Fargo waived all defaults of the Company
      as of December 31, 2003 under the Credit and Security Agreement dated as of
      January 27, 2000.





On
      April
      14, 2004, the terms of the Loan Agreement were modified by the joinder of Bill
      D. Stewart, the Chief Executive Officer of the Company, as a member of the
      Lender Group, subject to all of the terms and conditions of the Loan Agreement,
      and the Lender Group advanced an additional $200,000, of which Bill D. Stewart
      advanced $100,000. Further, on May 3, 2004, the Lender Group advanced the
      Company an additional $100,000. On August 16, 2004, advances allowed under
      the
      Loan Agreement were increased to a total of $950,000 and the Lender Group
      advanced an additional $200,000 to the Company. On January 26, 2005, the terms
      of the Loan Agreement were modified to extend the due date to December 31,
      2005.





On
      June
      3, 2005, the terms of the Loan Agreement were modified to increase the maximum
      advance to $1,550,000, and the Lender Group advanced an additional $175,000.
      Proceeds of the advances have been used for working capital. On July 27, 2005,
      the terms of the Loan Agreement were modified to extend the due date to December
      31, 2006. As of September 30, 2006, there was $1,250,000 outstanding under
      the
      Loan Agreement.





In
      April
      2006, The Company’s principal shareholder, Quincy, loaned the Company $350,000.
      This loan is payable on demand and does not carry a stated interest charge.
      At
      September 30, 2006, $350,000 was outstanding on this loan. There is no written
      agreement for this loan between Quincy and the Company.




9.
            *Private
                Equity Transaction —*On
                January 2, 2002, the Company privately sold the Series B for $2 million
                to
                Westgate Equity The Series B bore dividends at a rate of 10% per
                annum,
                which accumulated and compounded semi-annually. The Series B was
                convertible into common stock at any time at the option of the holder.
                On
                the seventh anniversary of its issuance, any unconverted shares of
                Series
                B would be automatically redeemed by the Company at the original
                issuance
                price plus accrued and unpaid dividends, provided the Company was
                legally
                able to do so. Two members of the Board of Directors of the Company
                were
                elected exclusively by the holders of the Series B voting as a separate
                class. The Series B has a beneficial conversion feature of $2,000,000,
                which was recorded as a discount and is being amortized over seven
                years.




10.
            *Stock-Based
                Compensation —*Effective January 1, 2006, the Company began recording compensation
                expense associated with stock options for employees in accordance
                with
                SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”) Prior to January 1,
                2006, the Company accounted for stock-based compensation related
                to stock
                options using the intrinsic value method of accounting for stock-based
                awards granted to employees and directors in accordance with APB
                Opinion
                No. 25, “Accounting for Stock Issued to Employees,” and related
                interpretations in accounting for its stock option plan. The Company
                has
                adopted the modified prospective transition method provided under
                SFAS
                123R, and as a result, has not retroactively adjusted results from
                prior
                periods. Under this transition method, compensation expense associated
                with stock options recognized in the three and nine month periods
                ended
                September 30, 2006 includes expense related to the remaining unvested
                portion of all stock option awards granted prior to January 1, 2006,
                based
                on the grant date fair value estimated in accordance with the original
                provisions of SFAS 123, “Accounting for Stock Based Compensation” (“SFAS
                123”).





As
      a
      result of the adoption of SFAS 123R, the Company’s net loss for the nine months
      ended September 30, 2006 includes $65,733 of compensation expense related to
      the
      Company’s stock options. The compensation expense related to all of the
      Company’s stock-based compensation arrangements is recorded as a component of
      selling, general and administrative expenses. As the Company is currently in
      a
      tax loss carryover position, no tax benefits were recorded for the compensation
      expense under SFAS 123R.





15


The
      Company has not had any exercise of stock options; however, the Company will
      issue new shares upon the exercise of stock options in the future.





*Employee
      Stock Option Plan —* In
      February 1998, the Company adopted an Incentive Stock Option Plan (the “Plan”)
      to enable participating employees to acquire shares of the Company’s common
      stock. The Plan provided for the granting of incentive stock options up to
      an
      aggregate of 850,000 shares, as amended. In October 2001, the Company amended
      the Plan by increasing to 2,000,000 the number of shares of the Company’s common
      stock that may be subject to awards granted pursuant to the Plan. The actual
      number of incentive stock options that may be granted to employees is determined
      by the Compensation Committee based on the parameters set forth in the Plan.
      Under the terms of the Plan, incentive stock options may be granted at not
      less
      than 100% of the fair market value at the date of the grant (110% in the case
      of
      10% shareholders). Incentive options granted under the Plan vest over a
      four-year period from the date of grant. The Company has granted 1,699,000
      incentive options under the Plan at the weighted average exercise price per
      share of $0.103 as of September 30, 2006. These options expire seven years
      from
      the date of grant.


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





The
      estimated fair value of each option award granted was determined on the date
      of
      grant using the Black-Scholes option valuation model with the following
      weighted-average assumptions for option grants during the nine months ended
      September 30, 2006.




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




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





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




**Number
                of****Shares**
            
            
            **Weighted****Average**
              **Exercise****Price**
              **per****Share**
            
            **NumberExercisable**
            
            
            **Weighted****Average**
              **Exercise****Price**
              **per****Share**Outstanding
                at December 31, 2005
            
            13,874,875
            
            $
            0.09
            
            10,369,625
            
            $
            0.03Granted
            
            220,000
            
            $
            0.12Exercised
            
            
            
            $Expired
            
            (352,000
            )
            $
            0.14Outstanding
                at September 30, 2006
            
            13,742,875
            
            $
            0.07
            
            10,992,875
            
            $
            0.04





The
      aggregate intrinsic value of options outstanding and exercisable at September
      30, 2006 was $988,124.





The
      following table summarizes non-vested options at September 30,
      2006:




**Number
                of**
              **Shares**
            
            **Grant-Date**
              **Fair
                Value**Non-vested
                at December 31, 2005
            
            
            3,505,250Granted
            
            
            220,000
            
            $
            0.12Vested
            
            
            (1,072,625
            )Exercised
            
            
            -0-Expired
            
            
            (352,000
            )Non-vested
                at September 30, 2006
            
            
            2,300,625




16




The
      following table summarizes information about stock options outstanding at
      September 30, 2006:




**Range
                of Exercise Prices**
            
            **Options**
              **Outstanding**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contract
                Life**
              **In
                Years**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            **Options**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Exercise
                Price**
              **for
                Exercisable**
              **Options**$0.0001
                - $0.01
            
            
            8,721,375
            
            
            Indefinite
            
            $
            0.0001
            
            
            8,721,375
            
            $
            0.0001$0.025
                - $0.08
            
            
            980,000
            
            
            5
            
            $
            0.04
            
            
            980,000
            
            $
            0.04$0.10
                - $0.50
            
            
            3,850,000
            
            
            7
            
            $
            0.20
            
            
            1,549,375
            
            $
            0.20$0.70
                - $1.13
            
            
            191,500
            
            
            1
            
            $
            0.90
            
            
            191,500
            
            $
            0.9013,742,875
            
            
            
            
            $
            0.07
            
            
            11,442,250
            
            $
            0.05




The
      weighted average fair value of each option granted during the nine months ended
      September 30, 2006, estimated using the Black-Scholes option valuation model,
      was $0.031 per option.





At
      September 30, 2006, there was no of unamortized compensation costs related
      to non-vested stock options which is expected to be recognized in the
      future.





For
      stock
      options granted prior to the adoption of SFAS 123R, the following table
      illustrates the pro forma effect on net income and earnings per common share
      as
      if the Company had applied the fair value recognition provisions of SFAS 123R
      in
      determining stock-based compensation for awards under the plan:




**Three
                  Months**
                **Ended**
                **September
                  30, 2005**
              
              **Nine
                  Months**
                **Ended**
                **September
                  30, 2005**
 Net
                  loss: As reported
              
              $
              (1,251,512
              )
              $
              (1,923,187
              )Add:
                  Stock-based employee compensation expense included in reported
                  net
                  loss
              
              
              0
              
              
              0Deduct:
                  Total stock-based employee compensation expense determined
                  under
                fair
                  value based method for all awards
              
              
              (3,243
              )
              
              (9,729
              )Pro
                  forma
              
              $
              (1,254,755
              )
              $
              (1,932,916
              )Basic
                  and diluted net loss per share:As
                  reported
              
              $
              (0.01
              )
              $
              (0.03
              )Pro
                  forma
              
              $
              (0.01
              )
              $
              (0.03
              )





*Warrants* —In
      1999,
      the Company granted warrants to purchase 600,000 shares of common stock in
      conjunction with certain financing agreements. These warrants expire ten years
      from the date of grant.





In
      consideration for entering into the Financing Agreement described in Note 6,
      the
      Company issued to Laurus, the Laurus Option and the Laurus Warrant to purchase
      shares of the Company’s common stock. The Laurus Option entitles the holder to
      purchase up to 8,721,375 shares of common stock, subject to certain limitations
      on the amount of common stock held by Laurus, at a purchase price of $0.001
      per
      share at any time on or after July 26, 2005. The Laurus Warrant entitles the
      holder to purchase up to 1,500,000 shares of common stock at a purchase price
      of
      $0.80 per share at any time on or after July 26, 2006 through July 26,
      2010.


Quincy
      still holds the Quincy Warrants. which entitle Quincy to purchase up to
      7,000,000 shares of common stock at a purchase price of $0.80 per share at
      any
      time on or after July 22, 2006 until July 22, 2015 and to purchase up to
      7,000,000 shares of common stock at a purchase price of $1.02 per share at
      any
      time on or after July 22, 2006 until July 22, 2015. In addition, the Company
      issued the Health Holdings Warrant which entitles Health Holdings to purchase
      up
      to 10,000,000 shares of common stock at a purchase price of $1.00 per share
      at
      any time on or after July 22, 2006 until July 22, 2015. On
      July
      26, 2005, the Company issued the Liberty Warrant which entitles Liberty to
      purchase up to 3,647,743 shares of the Company’s common stock at $0.08 per share
      for introducing the Company to Laurus.





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


**Number
                of**
              **Shares**
            
            **Weighted****Average**
              **Exercise****Price**
              **per****Share**
            
            **Number**
              **Exercisable**
            
            **Weighted****Average**
              **Exercise****Price**
              **per****Share**Outstanding
                at December 31, 2005
            
            
            29,747,743
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86Granted
            
            
            -0-
            
            $
            0Exercised
            
            
            -0-
            
            $
            0Expired
            
            
            (1,500,000
            )
            $
            0.80Outstanding
                at September 30, 2006
            
            
            28,247,743
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86







17


The
      following table summarizes information about warrants outstanding at September
      30, 2006:




**Range
              of Exercise
              Prices**
            
            
            **Warrants**
              **Outstanding**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contract
                Life**
              **In
                Years**
            
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Warrants**
              **Exercisable**
            
            
            **Weighted**
              **Average**
              **Exercise
                Price**
              **for
                Exercisable**
              **Warrants**$0.01-$0.10
            
            
            3,647,743
            
            
            5
            
            $
            0.08
            
            
            0
            
            $
            0$0.80-$1.10
            
            
            24,600,000
            
            
            5
            
            $
            0.94
            
            
            2,100,000
            
            $
            0.8628,247,743
            
            
            
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86







11.
            *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 decision-maker, or decision-making group, in deciding
                how to allocate resources and in assessing performance. The Company’s
                chief decision maker is the Chief Executive
                Officer.




The
      Company has two reportable operating segments: health food specialty stores
      and
      mass market stores. 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 three and nine month periods ended September 30, 2006
      and
      2005 was as follows:






**Distribution
                Channels****Health
                Food**
            
            **Mass
                Market**
            
            **Total**Three
                months ended September 30, 2006Sales
            
            $
            1,018,246
            
            $
            751,218
            
            $
            1,769,464Cost
                of sales
            
            
            590,828
            
            
            465,605
            
            
            1,056,433Gross
                profit
            
            $
            427,418
            
            $
            285,613
            
            $
            713,031Three
                months ended September 30, 2005Sales
            
            $
            2,143,409
            
            $
            1,416,570
            
            $
            3,559,979Cost
                of sales
            
            
            909,984
            
            
            798,591
            
            
            1,708,575Gross
                profit
            
            $
            1,233,425
            
            $
            617,979
            
            $
            1,851,404Nine
                months ended September 30, 2006Sales
            
            $
            5,056,363
            
            $
            3,295,235
            
            $
            8,351,598Cost
                of sales
            
            
            2,546,664
            
            
            1,880,040
            
            
            4,426,704Gross
                profit
            
            $
            2,509,699
            
            $
            1,415,195
            
            $
            3,924,894Nine
                months ended September 30, 2005Sales
            
            $
            5,012,167
            
            $
            4,223,154
            
            $
            9,235,321Cost
                of sales
            
            
            2,409,959
            
            
            2,385,650
            
            
            4,795,609Gross
                profit
            
            $
            2,602,208
            
            $
            1,837,504
            
            $
            4,439,712






18





Sales
      are
      attributed to geographic areas based on the location of the entity to which
      the
      products were sold. Geographic segment data for the three and nine month
      periods ended September 30, 2006 and 2005 was as follows:




**United
                States**
            
            **International**
            
            **Total**Three
                months ended September 30, 2006Sales
            
            $
            1,740,460
            
            $
            29,004
            
            $
            1,769,464Cost
                of sales
            
            
            1,040,481
            
            
            15,952
            
            
            1,056,433Gross
                profit
            
            $
            699,979
            
            $
            13,052
            
            $
            713,031Three
                months ended September 30, 2005Sales
            
            $
            3,537,613
            
            $
            22,366
            
            $
            3,559,979Cost
                of sales
            
            
            1,696,274
            
            
            12,301
            
            
            1,708,575Gross
                profit
            
            $
            1,841,339
            
            $
            10,065
            
            $
            1,851,404Nine
                months ended September 30, 2006Sales
            
            $
            8,130,124
            
            $
            221,474
            
            $
            8,351,598Cost
                of sales
            
            
            4,304,893
            
            
            121,811
            
            
            4,426,704Gross
                profit
            
            $
            3,825,231
            
            $
            99,663
            
            $
            3,924,894Nine
                months ended September 30, 2005Sales
            
            $
            9,133,165
            
            $
            102,156
            
            $
            9,235,321Cost
                of sales
            
            
            4,738,199
            
            
            57,410
            
            
            4,795,609Gross
                profit
            
            $
            4,394,966
            
            $
            44,746
            
            $
            4,439,712






During
      the three and nine months ended September 30, 2006 and 2005, the Company had
      sales to three customers whose purchases exceed 10% of the Company’s total net
      sales as shown in the table below.










**Major
                Customer
                Table**




**Customer
                One**
            
            **Customer
                Two**
            
            **Customer
                Three****Sales**
            
            **Accounts**
              **Receivable**
              **Balance**
              **Quarter-end**
            
            **Sales**
            
            **Accounts**
              **Receivable**
              **Balance**
              **Quarter-end**
            
            **Sales**
            
            **Accounts**
              **Receivable**
              **Balance**
              **Quarter-end**Three
                Months ended September 30, 2006
            
            $
            548,828
            
            $
            412,134
            
            $
            262,770
            
            $
            197,291
            
            $
            141,091
            
            $
            80,784Three
                Months ended September 30, 2005
            
            $
            750,800
            
            $
            184,262
            
            $
            532,500
            
            $
            370,251
            
            $
            348,900
            
            $
            247,642Nine
                Months ended September 30, 2006
            
            $
            1,855,614
            
            $
            412,134
            
            $
            1,144,211
            
            $
            197,291
            
            $
            872,364
            
            $
            80,784Nine
                Months ended September 30, 2005
            
            $
            2,236,100
            
            $
            184,262
            
            $
            1,731,700
            
            $
            370,251
            
            $
            1,102,800
            
            $
            247,642




19




12.
            *Guarantees
                —*In
                November 2002, the Financial Accounting Standards Board (“FASB”) issued
                FASB Interpretation Number (“FIN”) 45, “Guarantor’s Accounting and
                Disclosure Requirements for Guarantees, including Indirect Guarantees
                of
                Indebtedness of Others-an interpretation of FASB Statements No. 5,
                57 and
                107 and rescission of FIN 34.” The following is a summary of the Company’s
                agreements that the Company has determined are within the scope of
                FIN
                45.





Pursuant
      to its bylaws, the Company has agreed to indemnify the current officers and
      directors of the Company for certain events or occurrences arising as a
      result of an officer’s or director’s serving in such capacity. The term of the
      indemnification period is the officer’s or director’s lifetime. The maximum
      potential amount of future payments the Company could make under these
      indemnification agreements is unlimited. However, the Company has a directors’
and officers’ liability insurance policy that limits its exposure and enables it
      to recover a portion of any future amounts paid. As a result of its insurance
      policy coverage, the Company believes the estimated fair value of these
      indemnification agreements is minimal and has no liability recorded for these
      agreements as of September 30, 2006.





The
      Company enters into indemnification provisions under (i) its agreements with
      other companies in its ordinary course of business, typically business partners,
      contractors, customers and landlords and (ii) its agreements with investors.
      Under these provisions the Company generally agrees to indemnify and hold
      harmless the indemnified party for losses suffered or incurred by the
      indemnified party as a result of the Company’s activities or, in some cases, as
      a result of the indemnified party’s activities under the agreement. These
      indemnification provisions often include indemnifications relating to
      representations made by the Company with regard to intellectual property rights.
      These indemnification provisions generally survive the termination of the
      underlying agreement. In addition, in some cases, the Company has agreed to
      reimburse employees for certain expenses and to provide salary continuation
      during short-term disability. The maximum potential amount of future payments
      the Company could be required to make under these indemnification provisions
      is
      unlimited. The Company has not incurred material costs to defend lawsuits or
      settle claims related to these indemnification provisions. As a result, the
      Company believes the estimated fair value of these provisions is minimal.
      Accordingly, the Company has no liabilities recorded for these agreements as
      of
      September 30, 2006.





13.
            *Litigation
                —*From time to time, the Company is party to various other claims and
                litigation that arise in the normal course of business. While any
                litigation contains an element of uncertainty, management believes
                that
                the ultimate outcome of these claims and litigation will not have
                a
                material adverse effect on the Company’s results of operations or
                financial condition.





The
      Company is currently involved in the following litigation:





Ageless
      Foundation, Inc. v. Quincy Investment Corp., Naturade, Inc. and Peter H.
      Pocklington. On December 30, 2005, Ageless filed an action against Quincy,
      the
      Company and Peter H. Pocklington, the Company's Chairman of the Board
      of Directors at that time, for the alleged failure to pay certain consideration
      for the purchase of corporate assets sold by Ageless to Quincy, which obligation
      allegedly was guaranteed by the Company and Peter H. Pocklington. Ageless is
      seeking damages in the amount of $648,234.





Fortress
      Systems, LLC dba FSI Nutrition v. Naturade, Inc.. On January 11, 2006, Fortress
      Systems, LLC (dba FSI Nutrition filed a claim against the Company alleging
      failure to pay for a special order product. The plaintiff is seeking $47,255
      in
      damages.





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





The
      Company has fully accrued the amounts claimed in these suits as of September
      30,
      2006. In addition, the Company has received a stay as to each of these lawsuits
      under its Chapter 11 Bankruptcy proceeding. As of this filing no plaintiff
      or
      other party has made a motion for or been granted a Relief from
      Stay.





The
      Company is the subject of various litigation matters, including an eviction
      matter with the Irvine Company related to the Company’s office facilities lease.
      The lease was set to expire in 2013; however, the Company vacated the premises
      in August 2006. The Company has not accrued the remaining rent as of September
      30, 2006 as the lease was rejected by order of the bankruptcy on August 31,
      2006





20


**ITEM
      2. Management’s Discussion and Analysis of Financial Condition and
      Results****of
      Operations**





*This
      discussion contains “forward-looking statements.” Although the
      Company*  *believes
      that the expectations reflected in such forward-looking statements
      are*  *reasonable,
      such statements are inherently subject to risk and the Company
      can*  *give
      no assurances that such expectations will prove to be correct.
      Such*  *forward-looking
      statements involve risks and uncertainties, and actual results*  *could
      differ from those described herein. Future results may be subject
      to*  *numerous
      factors, many of which are beyond the Company’s control. Such
      risk*  *factors
      include, without limitation, the risks set forth below under
“Risk*  *Factors.”
      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.*





All
      comparisons below are for the three and nine month periods ended September
      30,
      2006 compared to the three and nine month periods ended September 30,
      2005.





**The
      Company**





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





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





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





·
            Naturade®
                protein powders;





·
            ReVivexTM
                healthy joint and arthritis pain relief
                products;





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





·
            Ageless
                Foundation® anti-aging products;





·
            Symbiotics®
                Colostrum products; and





·
            Other
                niche dietary supplements.





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





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





The
      Company’s independent registered public accounting firm issued a going concern
      opinion on the Company’s December 31, 2005 financial statements by including an
      explanatory paragraph in which they expressed substantial doubt about its
      ability to continue as a going concern.





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




21


**Recent
      Developments**





***Chapter
      11 Filing***





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





The
      accompanying financial statements have been prepared in accordance with
      accounting principles generally accepted in the United States (“GAAP”)
      applicable to a going concern, which assume that assets will be realized and
      liabilities are discharged in the normal course of business. As a result of
      the Chapter 11 Matter (see Note 1), such realization of assets and liquidation
      of liabilities is subject to uncertainty. A substantial portion of the Company's
      liabilities as of the Petition Date are subject to compromise or other treatment
      in the Chapter 11 Matter. For financial reporting purposes, those unsecured
      liabilities and obligations whose disposition is dependent on the outcome of
      the
      Chapter 11 Matter will be segregated and classified as liabilities subject
      to
      compromise in the September 30, 2006 balance sheet. Generally, actions to
      enforce or otherwise effect repayment of all pre-Chapter 11 liabilities and
      pending litigation against the Company are stayed while the Company continues
      as
      a debtor-in-possession during bankruptcy proceedings. Schedules have been filed
      by the Company with the Bankruptcy Court setting forth the assets and
      liabilities of the Company as of the Petition Date as reflected in the Company's
      accounting records. Differences between amounts reflected in such schedules
      and
      claims filed by creditors will be investigated and either amicably resolved
      or
      adjudicated by the Bankruptcy Court. The ultimate amount of and settlement
      terms
      for such liabilities are not presently determinable.





Financial
      accounting and reporting during a Chapter 11 Matter for an entity with the
      expectation of reorganizing is prescribed in Statement of Position No. 90-7,
      “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”
(“SOP 90-7”). The Company has an expectation of reorganizing under the
      Bankruptcy Code. Accordingly, unsecured pre-petition liabilities, which may
      be
      subject to settlement, are classified as liabilities subject to compromise
      in the September 30, 2006 balance sheet. In addition, the Company has reported
      all transactions (other than interest expense) directly related to the Chapter
      11 Matter as reorganization items in its statement of operations for the three
      and nine months ended September 30, 2006. SOP 90-7's definition of
      reorganization items excludes (1) interest expense and (2) transactions required
      to be reported as discontinued operations or extraordinary items in conformity
      with GAAP. The accompanying condensed balance sheet at September 30, 2006 and
      the condensed statements of operations and cash flows for the periods ended
      September 30, 2006 and 2005 are unaudited. Such financial statements have been
      prepared on the same basis as the Company's audited consolidated financial
      statements and, in the opinion of management, reflect all adjustments, which
      (except the impairment of goodwill) consist only of a normal recurring nature,
      necessary for a fair presentation of the financial position and results of
      operations for such periods. However, the accompanying financial statements
      do
      not include any adjustments that may be required in connection with
      restructuring the Company under Chapter 11 of the Bankruptcy Code. These
      unaudited condensed financial statements should be read in conjunction with
      the
      December 31, 2005 audited financial statements included in the Company's Form
      10-K as previously filed with the Securities and Exchange Commission on April
      13, 2006.




On
      September 25, 2006, The Company's Common Stock was
      de-listed from the over-the-counter Bulletin Board and now trades on the "Pink
      Sheets."




***Change
      in Control***




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





·
            Quincy
                transferred its voting stock and Warrants to Purchase Common Stock
                in the
                Company to Redux;


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


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





Before
      the transactions described above, Quincy owned 28,000,000 shares of Common
      Stock, or 63.7% of the voting power of the


Common
      Stock and 51.4% of the combined voting power of the Common Stock and the Series
      C Convertible Preferred Stock (“Series C”).


The
      holders of the Series C are entitled to vote along with the Common Stock (on
      an
      as-converted basis) on all matters, including the


election
      of directors, presented to the stockholders. As a result, Quincy had the power
      to elect a majority of the Board of Directors and to


determine
      the outcome of any matter submitted to the stockholders, subject to the rights
      of Health Holdings and Botanicals, LLC holders


of
      12,600,000 shares of Series C who have the right to elect one director and
      to
      approve certain transactions.





As
      the
      Definitive Agreement contemplated under the Letter of Intent has not been
      entered into and the Letter of Intent by its terms has expired, Quincy has
      threatened litigation against Redux related to its failure to enter into a
      Definitive Agreement.





22


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





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


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


·
            Laurus
                transferred an option to purchase 8,721,375 shares of the Company’s Common
                Stock at $0.001 per share to Redux;


·
            Redux
                issued 574,787, subject to certain provisions for anti-dilution,
                shares of
                Redux Common Stock to Laurus.





As
      a
      result of the transactions described above, Redux controls voting rights of
      37,771,375 shares of Common Stock and 4,200,000 shares of Series
      C,
      or 75.0% of the voting power of the Common Stock, 20.0% of the voting power
      of
      the Series C, and 58.8% of the combined voting
      power of the Common Stock and the Series C. The holders of the Series C are
      entitled to vote along with the Common Stock (on an as-converted
      basis) on all matters, including the election of directors, presented to the
      stockholders. As a result, Redux has the power to elect
      a
      majority of the Board of Directors and to determine the outcome of any matter
      submitted to the stockholders, subject to the rights of the
      holders of the Series C described above.




***Financing***





In
      July
      2005, the Company obtained a $4,000,000 convertible financing facility from
      Laurus, consisting of a $3,000,000 revolving credit facility and a $1,000,000
      term loan. In consideration of such financing facility, The Company issued
      to
      Laurus an option to purchase up to 8,721,375 shares of common stock at $0.0001
      per share and a warrant to purchase up to 1,500,000 shares of common stock
      at
      $0.80 per share. The financing facility was amended on January 11, 2006, by
      among other things, increasing the term loan to $1,650,000 and eliminated the
      conversion features on the facility. The Company issued Laurus 1,050,000 shares
      of common stock in consideration for this amendment. See Note 6 to Financial
      Statements, “Financing.”





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





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


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


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


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





***Acquisitions***





In
      August
      2005, the Company acquired certain assets relating to the health products retail
      business of The Ageless Foundation, Inc. (“Ageless”), Symco, Inc. (“Symco”) and
      Symbiotics, Inc. (“Symbiotics”). See Note 7 to Financial Statements,
“Acquisitions.”




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





The
      major
      trends affecting the Company’s results of operations in the first nine months
      ended September 30, 2006 included the following:





·
            The
                Company’s filing for protection under Chapter 11 Bankruptcy has had a
                negative effect on the Company’s ability to purchase inventory for the
                three months ended September 30, 2006. The Company believes this
                trend is
                likely to continue until the Chapter 11 Matter is
                resolved..





·
            The
                Company’s lack of sufficient cash to maintain proper inventory levels has
                had a negative effect on the Company’s revenues for the nine months
                ended September 30, 2006. The Company believes this trend is likely
                to
                continue unless the Company obtains sufficient capital to bring inventory
                levels back to historical levels.





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






23




**Critical
      Accounting Policies and Use of Estimates**





In
      preparing the financial statements, the Company is required to make estimates
      and judgments that affect the results of its operations and the reported value
      of assets and liabilities. Actual results may differ from these estimates.
      The
      Company believes that the following summarizes the critical accounting policies
      that require significant judgments and estimates in the preparation of the
      Company’s financial statements.





*Revenue
      Recognition* . The
      Company recognizes revenue in accordance with SEC Staff Accounting Bulletin
      (“SAB”) No. 101, *Revenue
      Recognition in Financial*  *Statements* , as
      amended by SAB No. 101A, No. 101B and No. 104. SAB No. 101 requires that four
      basic criteria must be met before revenue can be recognized: (1) persuasive
      evidence of an arrangement exists; (2) delivery has occurred or services
      rendered; (3) the fee is fixed and determinable; and (4) collectibility is
      reasonably assured. Determination of criteria (3) and (4) require management’s
      judgments regarding the fixed nature of the fee charged for services rendered
      and products delivered and the collectibility of those fees. To satisfy the
      criteria, the Company: (1) inputs orders based upon receipt of a customer
      purchase order; (2) record revenue upon shipment of goods when risk of loss
      and
      title transfer under the Company’s arrangements with customers or otherwise
      comply with the terms of the purchase order; (3) confirm pricing through the
      customer purchase order and; (4) validate creditworthiness through past payment
      history, credit agency reports and other financial data. Other than through
      warranty rights, the Company’s customers do not have explicit or implicit rights
      of return. Should changes in conditions cause us to determine the revenue
      recognition criteria are not met for certain future transactions, such as a
      determination that an outstanding account receivable has become uncollectible,
      revenue recognized for any reporting period could be adversely
      affected.


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





·
            Distributor
                Allowances





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





·
            Promotional
                Allowances





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





For
      the
      nine months ended September 30, 2006 and 2005, distributor and promotional
      allowances were $949,654, or 9.7% of gross sales, and $1,050,175, or 9.7% of
      gross sales, respectively.





·
            Damages
                and Returns





In
      the
      nine months ended September 30, 2006 and 2005, damages and returns were charged
      against revenues based upon historical return rates. Actual damages and returns
      are charged against the reserve when the product is returned, charges deducted
      or a consumer deduction is received. On a periodic basis, actual charges are
      compared to the reserve and, if required, the reserve rate is adjusted to
      reflect new trends. For the nine months ended September 30, 2006 and 2005,
      damages and returns charged against revenues were $423,178, or 4.3% of gross
      sales, and $245,080, or 2.3% of gross sales, respectively.




24


The
      following is a summary of the damages and returns reserve:




Nine
                Months Ended
              September
                30, 2006
            
            Nine
                Months Ended
              September
                30, 2005Beginning
                balance
            
            $
            42,910
            
            $
            55,067Provision
                for damages and returns
            
            
            423,178
            
            
            167,600Actual
                damages and returns during the period
            
            
            208,790
            
            
            172,507Ending
                balance
            
            $
            257,298
            
            $
            50,160





Damages
      and returns are typically immaterial to the Company’s overall results. As the
      majority of returns represent consumer returns, which trail sales by about
      a
      month, the reserve has been set at approximately 2.5% of the past month’s sales
      based upon historical run rates in order to properly match revenues and
      deductions.





·
            Cash
                Discounts





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





For
      the
      nine months ended September 30, 2006 and 2005, cash discounts were $100,265
      or
      1.0% of gross sales, and $167,544, or 1.5% of gross sales,
      respectively.





·
            Slotting





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





For
      the
      nine months ended September 30, 2006 and 2005, slotting costs were $119,254,
      or
      1.2% of gross sales, and $163,086, or 1.5% of gross sales,
      respectively.





·
            Coupon
                and Rebate Redemption





Coupon
      and rebate costs are charged against revenues as redeemed. Historically,
      Naturade has incurred insignificant redemption of its consumer coupons or
      rebates.





For
      the
      nine months ended September 30, 2006 and 2005, coupon and rebate costs were
      $1,544 and $11,029, respectively.





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





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







25


**Results
      of Operations**





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





**Percent
                of Net Sales**
              **Nine
                Months Ended September 30,**
            
            **Percentage
                Dollar Increase (Decrease)**
              **Nine
                Months Ended September 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                sales
            
            
            100
            %
            
            100
            %
            
            (10
            )%
            
            (12
            )%Gross
                profit
            
            
            47
            %
            
            48
            %
            
            (12
            )%
            
            (8
            )%Selling,
                general and administrative expenses
            
            
            86
            %
            
            61
            %
            
            19
            %
            
            0
            %Depreciation
                & amortization.
            
            
            9
            %
            
            2
            %
            
            366
            %
            
            (12
            )%Operating
                loss
            
            
            (39
            )%
            
            (13
            )%
            
            (173
            )%
            
            (83
            )%Interest
                expense
            
            
            26
            %
            
            8
            %
            
            203
            %
            
            223
            %Loss
                before provision for income taxes
            
            
            (101
            )%
            
            (21
            )%
            
            (337
            )%
            
            (121
            )%Provision
                for income taxes
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Net
                loss
            
            
            (101
            )%
            
            (21
            )%
            
            (337
            )%
            
            (121
            )%





The
      Company incurred non-cash, consulting and investment relations expenditures
      in
      the nine months ended September 30, 2006 which were not incurred in the previous
      period. The Company believes it is necessary to compare results after adjustment
      for these expenditures in order to properly evaluate the effects of the
      Company’s recent acquisitions and results from operations. The following chart
      summarizes the effect on earnings from these expenditures:




**Nine
                Months Ended**
              **September
                30, 2006**
            
            **Nine
                Months Ended**
              **September
                30, 2005**Net
                loss attributable to common shareholders
            
            $
            (11,137,753
            )
            $
            (1,431,378
            )Plus
                non-cash charges:Preferred
                stock dividend-Series B
            
            
            -0-
            
            
            157,318Deemed
                dividend-Series B
            
            
            -0-
            
            
            (1,109,127
            )Deemed
                dividend-Series C
            
            
            2,070,000
            
            
            460,000Impairment
                of goodwill
            
            
            3,360,397
            
            
            -0-Stock
                based compensation
            
            
            65,732
            
            
            -0-Net
                income before non-cash charges
            
            
            (5,641,624
            )
            
            (1,923,187
            )Interest
                expense
            
            
            508,604
            
            
            281,456Amortization
                of deferred financing fees (1)
            
            
            1,667,088
            
            
            436,385Taxes
            
            
            800
            
            
            800Earnings
                before non-cash charges, interest and taxes
            
            
            (3,465,132
            )
            
            (1,201,546
            )Depreciation
            
            
            52,021
            
            
            45,035Amortization
                (2)
            
            
            700,000
            
            
            155,556Earnings
                before non-cash charges, interest, taxes, depreciation and
                amortization
            
            
            (2,713,111
            )
            
            (1,003,955
            )Consulting
                and investment relations costs (3)
            
            
            496,456
            
            
            -Reorganization
                expenses
            
            
            104,298
            
            
            -Earnings
                  before non-cash charges, interest, taxes, depreciation, amortization,
                  consulting and investment relations costs and reorganization
                  expenses
            
            
            (2,112,357
            )
            
            (1,003,955
            )





(1)
            Represents
                the amortization of deferred financing fees based upon the interest
                method.(2)
            Represents
                amortization of intangible assets acquired in Symco and Ageless
                transactions.(3)
            Represents
                consulting and investment fees related to raising future capital
                for the
                Company.





26


The
      amortization of deferred financing fees will continue through the life of the
      financing. The amortization of intangibles will remain for the useful life
      of
      the respective assets which range from 36 months to 60 months in
      duration.





*Net
      Sales*





Net
      sales
      for the three months ended September 30, 2006 of $1,769,464 decreased $1,790,515
      or 50.3% as compared to net sales of $3,559,979 for the three months ended
      September 30, 2005. Net sales for the nine months ended September 30, 2006
      were
      $8,351,598, a decrease of $883,723 or 9.6% as compared to net sales for the
      nine
      months ended September 30, 2005 of $9,235,321. The decrease in net sales for
      this period is due principally to the Company’s filing for protection under the
      US Bankruptcy Code. The filing resulted in a disruption in shipping due to
      lack
      of capital to purchase sufficient inventory levels and an inability to maintain
      traditional order fill ratios. In addition, a disruption of operations during
      corporate move, resulted in the Company shutting down shipping operations for
      a
      week while the warehouse was moved.





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





For
      the
      nine months ended September 30, 2006, distributor and promotional allowances
      were $949,654, or 9.7% of gross sales, compared to $1,050,175, or 9.7% of gross
      sales, for the same period in 2005. There is no change in distributor and
      promotional allowances as a percent of gross sales. Damages and returns for
      the
      nine months ended September 30, 2006 were $423,178, or 4.3% of gross sales,
      as
      compared to $245,080, or 2.3% of gross sales, for the nine months ended
      September 30, 2005. Lower sales in the mass market have resulted in lower
      returns. Cash discounts for the nine months ended September 30, 2006 were
      $100,265, or 1.0% of gross sales, as compared to $167,544, or 1.5% of gross
      sales, in the same period of 2005. Cash discounts for the six months ended
      September 30, 2006 decreased due to lower collections during the period.
      Slotting charges related to new distribution for the nine months ended September
      30, 2006 were $119,254, or 1.2% of gross sales, as compared to $163,086, or
      1.5%
      of gross sales, in the same period of 2005. There were no significant new
      slotting charges in the nine months ended September 30, 2006 as we did not
      introduce a significant amount of new products during the period and the
      introduction of Ageless and Symco products to the health channel did not require
      slotting charges. Coupon and rebate redemption for the nine months ended
      September 30, 2006 was $1,544, as compared to $11,029 in the same period of
      2005.





*Mass
      Market Net Sales* . For
      the three months ended September 30, 2006, mass market revenues decreased
      $665,352 or 47% to $751,218 from $1,416,570 for the three months ended
      September 30, 2006. For the nine months ended September 30, 2006 mass market
      net
      sales decreased $927,919, or 22.0%, to $3,295,235 from $4,223,154 for the nine
      months ended September 30, 2005. The decrease in net sales during the period
      is
      principally related to the decreased sales of the ReVivex® brand during the
      period due to the lack of promotional funds available for consumer advertising
      coupled with decreased inventory availability due to the Company’s Chapter 11
      filing.





*Health
      Food Net Sales.* For the
      three months ended September 30, 2006, health food channel net sales decreased
      $1,125,163, or 52.5%, to $1,018,246 from $2,143,409 for the three months
      ended September 30, 2005. For the nine months ended September 30, 2006, health
      food channel net sales increased $44,196, or .9%, to $5,056,363 from
      $5,012,167 for the nine months ended September 30, 2005. The sales increase
      is
      principally related to sales of Ageless and Symco brands partially offset by
      reductions in sales of core protein powders related to lower fill rates on
      customer orders as a result of cash restrictions on inventory purchases. The
      Ageless and Symco brands were acquired in August 2005.





*Channels
      of Distribution.* On a
      percent of net sales basis, the breakdown of sales between the mass market
      and
      health food channels was 57.5% and 60.5% for the health food channel and 42.5%
      and 39.5% for the mass market channel for the three and nine month periods
      ended
      September 30, 2006 as compared to 60.2% and 54.3% for the health food channel
      and 39.8% and 45.7% for the mass market channel, respectively, for the same
      period in 2005. The change in sales by channel is principally related to the
      sales of Ageless and Symco brands which are principally sold through the health
      food channel coupled by the decline in ReVivex® brands in the mass market
      channel.




27


For
      the
      three months ended September 30, 2006, domestic net sales decreased $1,797,153
      or 50.8%, to $1,740,460 from $3,537,613 for the three months ended September
      30,
      2005. For the nine months ended September 30, 2006, domestic net sales decreased
      $1,003,040, or 11.0%, to $8,130,125 from $9,133,165 for the nine months ended
      September 30, 2005. The decrease in domestic net sales is principally due to
      Sales shortfalls in the mass and health channels due to inventory restrictions
      related to the Chapter 11 filing. For the three months ended September 30,
      2006,
      international sales increased $6,637, or 29.7%, to $29,003 from $22,366. For
      the
      nine months ended September 30, 2006, international sales increased $119,318,
      or
      116.8%, to $221,474 from $102,156. International sales for the both periods
      increased principally due to the expansion of the Ageless and Symco products
      to
      international customers in the fourth quarter of 2005 which continued to grow
      during the nine months ended September 30, 2006.




*Gross
      Profit*





Gross
      profit for the nine months ended September 30, 2006 decreased $514,818 or 1.1%
      to $3, 924,894 from $4,439,712 for the same period in 2005. The decrease for
      the
      period is principally a result of decreased revenues for the period along with
      decreased margins from sales of Symbiotics and Ageless products versus the
      Company’s core products. Gross profit, as a percentage of sales decreased from
      48.1% to 47.0% of net sales in the nine month period ended September 30, 2005
      compared to the nine month period ended September 30, 2006, due to lower margins
      related to increased costs to purchase product due to vendor changes related
      to
      the Chapter 11 filing.





*Operating
      Costs and Expenses*





Operating
      costs and expenses for the nine months ended September 30, 2006 increased by
      $1,453,360 to $7,080,353, or 85.9% of net sales, from $5,636,993, or 61.8%
      of
      net sales, for the same period in 2005. Operating expense for the period include
      a non-cash charge of $700,000 in amortization of intangible assets acquired
      in
      acquisitions and one time costs of $1,667,088 related to financing and potential
      acquisition activities. Without these non-recurring and non-cash expenses,
      operating costs would have been 56.6% of net sales for the period.




*Interest
      Expense*




Interest
      expense for the nine months ended September 30, 2006 increased $1,457,851 to
      $2,175,692 from $717,841 compared to the same period in 2005 principally due
      to
      amortization of deferred financing fees and debt discounts of $1,667,088 in
      2006
      related to the recapitalization of the Registrant coupled with the acquisitions
      of Symbiotics and Ageless {these were in 2005}. In addition, increased
      borrowings on the Loan Agreement with related parties, coupled with increased
      average borrowings partially offset by lower average interest rates on the
      Registrant’s credit facility during the nine months ended September 30, 2006
      resulted in an increase of $1,457,851 in interest expense during the
      period.





**Liquidity
      and Capital Resources**





On
      August
      31, 2006 (the “Petition Date”), the Company filed a voluntary petition for
      protection and reorganization (the “Chapter 11 Matter”) under Chapter 11 of the
      United States Bankruptcy Code (the “Bankruptcy Code”) in the United States
      Bankruptcy Court for the Central District of California (the “Bankruptcy
      Court”). Since the Petition Date, the Company has conducted activities as a
      debtor-in-possession under the Bankruptcy Code. See Note 2 for additional
      information.





The
      Company’s operating activities provided cash of $868,565 in the nine months
      ended September 30, 2006, compared to cash used of $365,992 from operating
      activities in the nine months ended September 30, 2005. This increase in cash
      used from operating activities is primarily due to the increase in cash
      provided by accounts payable of $2,546,401 during the period .





Net
      cash
      provided by inventories was $87,511 for the nine months ended September 30,
      2006, compared with net cash provided by inventories of $774,692 for the nine
      months ended September 30, 2005. The ongoing shortage of cash required
      management to reduce inventories during the first nine months of 2006. The
      Company has incurred a reduction in fill rates due to cash constraints on the
      purchasing of inventory, from an average of 93% in 2005 to approximately 86%
      in
      2006,resulting in lost sales during the period.





Net
      cash
      provided from accounts receivable was $1,062,628 for the nine month period
      ended
      September 30, 2006 compared to net cash provided from accounts receivable of
      $448,323 for the same period of 2005, principally due a larger increase in
      sales
      from January 1, 2005 to September 30, 2005 versus the same period in 2006.
      General customer terms, receivable days outstanding and the Company’s collection
      policies have remained constant.





28


Net
      cash
      provided by accounts payable and accrued expenses was $2,546,401 for the nine
      month period ended September 30, 2006 compared to net cash provided of $252,429
      for the same period of 2005, principally due to an increase in accounts
      payable vendor days outstanding to approximately 90 days as a result of the
      Company’s cash position during the period.




The
      Company’s working capital deficit increased
      $4,435,826 from $6,592,541 at December 31, 2005 to $11,028,367 at September
      30,
      2006. This increase was largely due to a decrease in accounts
      receivable of $1,062,628 related to decreased sales during the later portion
      of
      the period coupled with a decrease in inventories of $87,511 and an increase
      in
      accounts payable and accrued expenses of $2,262,132 due to the difficulties
      in
      purchasing inventories due to the cash constraints on the Company and borrowings
      of $486,872 from a principal shareholder of the Company partially offset by
      the
      transfer of $1,390,127of revolving debt to term debt in conjunction with the
      amendment of the Financing Agreement on January 11, 2006.




There
      were no changes in the provision for excess and obsolete inventory for the
      nine
      month period ended September 30, 2006 and 2005.




The
      Company’s cash used by financing activities was $928,940 for the nine months
      ended September 30, 2006, compared to cash provided by financing activities
      of $925,838 for the same period of 2005. The decrease in cash used by financing
      activities was the result of borrowings of $440,909 on the Term Note during
      the
      nine months ending September 30, 2006 combined with increased borrowings from
      related parties of $350,000 compared to payments of $25,609 in the same period
      of 2005. This was partially offset by increased repayments on the line of credit
      of $1,390,127 as compared to repayments of 41,947 in 2005.





As
      of
      September 30, 2006, the Company was in compliance with all of the covenants
      of
      the Credit Agreement with Laurus.





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 September 30, 2006, the Company had an
      accumulated deficit of $37,086,360, and a stockholders’ capital deficiency of
      $12,837,049 and had incurred recurring net losses. These factors, among others,
      raise substantial doubt about the Company’s ability to continue as a going
      concern. The financial statements do not include any adjustments that might
      result from the outcome of this uncertainty. The Company’s independent
      registered public accounting firm qualified their opinion on the Company’s
      December 31, 2005 financial statements by including an explanatory paragraph
      in
      which they expressed substantial doubt about the Company’s ability to continue
      as a going concern.





The
      Company’s liquidity would be adversely affected if the Company commits a default
      under the Financing Agreement and Laurus exercises its right to terminate,
      or
      demand immediate payment of all amounts outstanding under, the Financing
      Agreement as a result of a default. In addition, if the Company continues to
      incur declines in revenues, the Company could encounter a shortage in cash
      reserves required to meet current commitments. This could result in the Company
      being unable to obtain products necessary to fulfill customer orders. The
      Company has raised additional capital through the financing with Laurus as
      described in Note 6. The Company and/or its principal shareholder are
      seeking to raise additional capital. 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 acceptable to the Company or its
      stockholders.




29




**New
      Accounting Pronouncements**





In
      November 2004, the FASB issued SFAS No. 151, *Inventory
      Costs* . This
      statement amends the guidance in Accounting Research Bulletin (“ARB”) No. 43,
      Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts
      of idle facility expense, freight, handling costs, and wasted material
      (spoilage). SFAS No. 151 requires that those items be recognized as
      current-period charges. In addition, this statement requires that allocation
      of
      fixed production overheads to costs of conversion be based upon the normal
      capacity of the production facilities. The provisions of SFAS No. 151 are
      effective for inventory cost incurred in fiscal years beginning after June
      15,
      2005. The Company adopted these provisions January 1, 2006. The adoption of
      this
      pronouncement did not have material effect on the Company’s financial
      statements.





**Forward
      Looking Statements**





Except
      for the historical information contained herein, the matters addressed in this
      Quarterly Report on Form 10-Q constitute “forward-looking statements.”
Forward-looking statements may be identified by the use of the words
“anticipates,” “expects,” “intends,” “plans,” and variations or similar
      expressions. These forward-looking statements are subject to a variety of risks
      and uncertainties, many of which are beyond the control of the Company,
      including those discussed below under “Risk Factors” and elsewhere in this
      Quarterly Report on Form 10-Q, which could cause actual results to differ
      materially from those anticipated by the Company’s management. In addition, the
      information set forth in the reports the Company files with the SEC from time
      to
      time, describe certain additional risks and uncertainties that could cause
      actual results to vary materially from the future results covered in such
      forward-looking statements. Readers are cautioned not to place undue reliance
      on
      any of these forward-looking statements, which speak only as of the date of
      this
      report. The Company undertakes no obligation to update any of these
      forward-looking statements to reflect events or circumstances after the date
      of
      this report or to reflect the occurrence of unexpected events.




30


**RISK
      FACTORS**





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





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





As
      a
      result of the Chapter 11 Matter (see Note 1), the realization of assets and
      liquidation of liabilities is subject to uncertainty. A substantial portion
      of
      the Company's liabilities as of the Petition Date are subject to compromise
      or
      other treatment in the Chapter 11 Matter. For financial reporting purposes,
      those unsecured liabilities and obligations whose disposition is dependent
      on
      the outcome of the Chapter 11 Matter will be segregated and classified as
      liabilities subject to compromise in the September 30, 2006 balance sheet.
      Generally, actions to enforce or otherwise effect repayment of all pre-Chapter
      11 liabilities and pending litigation against the Company are stayed while
      the
      Company continues as a debtor-in-possession during bankruptcy proceedings.
      Schedules have been filed by the Company with the Bankruptcy Court setting
      forth
      the assets and liabilities of the Company as of the Petition Date as reflected
      in the Company's accounting records. Differences between amounts reflected
      in
      such schedules and claims filed by creditors will be investigated and either
      amicably resolved or adjudicated by the Bankruptcy Court. The ultimate amount
      of
      and settlement terms for such liabilities are not presently
      determinable.





***The
      Company’s reorganization plan under Chapter11 of the U.S. Bankruptcy Code may
      not be approved by secured creditors and/or the unsecured
      creditors*** *.*





The
      Company has submitted a plan for reorganization under its Chapter 11 Bankruptcy
      (the “Plan”). The Company may or may not have this Plan approved and supported
      by the secured creditors and /or unsecured creditors. Failure to reach an
      accommodation on the Plan could have an adverse impact on the company, its
      share
      price and whether the Company can continue as an on going concern.





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





The
      Company had a net loss of approximately $2.7 million, $1.9 million, $402,000,
      $368,000, and $3.7 million for the fiscal years ended December 31,
      2001, 2002, 2003, 2004, and 2005, respectively, and $8.4 million loss for the
      nine months ended September 30, 2006. At September 30, 2006, the Company had
      an
      accumulated deficit of $37,086,360, and a stockholders’ capital deficiency of
      $12,837,049. The Company anticipates that it will incur net losses for the
      foreseeable future and will need access to additional financing for working
      capital and to expand its business. If unsuccessful in those efforts, the
      Company could be forced to cease operations and investors in its common stock
      could lose their entire investment. Discuss a new sentence.




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





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





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





In
      its
      acquisition of Ageless, the Company assumed accounts payable of $173,593 and
      an
      obligation to an employee in the amount of $600,000. In addition, the Company
      agreed to pay a purchase price consisting of a promissory note in the principal
      amount of $648,234, and entered into certain consulting agreements. In its
      acquisition of Symco and Symbiotics, the Company assumed accounts payable of
      $408,965, indebtedness under credit facilities of $224,313 and obligations
      under
      certain contracts, totaling $274,382. In addition, the Company agreed to pay
      a
      purchase price consisting of a promissory note in the principal amount
      $1,476,305, and an earn out, and entered into certain consulting agreements.
      For
      a description of these acquisitions, including the purchase prices, assets
      acquired and obligations assumed, see Note 7, “Acquisitions.” The Company has
      only limited resources available to us. If these resources are insufficient
      to
      allow the Company to pay these obligations as they come due and to maintain
      its
      business as it is currently operated, the Company could be forced to cease
      operations, and investors in in the Company could lose their entire
      investment.





31


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





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





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





The
      Company’s three largest customer’s together account for 46.4% of net sales for
      the nine months ended September 30, 2006. One mass market customer,
      Wal-Mart/Sam’s Club, represented approximately 22.2% of the Company’s net sales,
      and two health food distributors, United Natural Foods, Inc. (“UNFI”) and Tree
      of Life, Inc., accounted for 13.7% and 10.4%, respectively, of the Company’s net
      sales, during the nine months ended September 30, 2006. The loss of any of
      these
      customers could have a material adverse effect on the Company’s results of
      operations. From time to time, major customers have experienced financial
      difficulties. Additionally, the issuance of a going concern opinion by the
      Company’s independent registered public accounting firm may create concern among
      existing and potential customers that the Company may be unable to fulfill
      product needs. As a result, due to the Chapter 11 Matter, existing and potential
      customers may determine not to do business with the Company, or only do so
      on
      less favorable terms, which may cause net sales to decline. The Company does
      not
      have long-term contracts with any of its customers and, accordingly, there
      can
      be no assurance that any customer will continue to place orders with the Company
      to the same extent it has in the past, or at all.





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





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





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





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





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





32





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





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





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





The
      market for nutraceutical products is highly competitive. Many of the Company’s
      competitors, such as GeniSoy and Health Source by Abbott Labs, have
      substantially greater capital resources, research and development capabilities,
      and manufacturing and marketing resources, capabilities and experience than
      the
      Company. Naturade’s competitors may succeed in developing products that are more
      effective or less costly than any products developed by the
      Company.





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





The
      Company’s success depends upon its ability to attract and retain qualified
      sales, marketing, scientific and executive management personnel. To
      commercialize its products and product candidates, Naturade must maintain and
      expand its personnel, particularly in the areas of product sales and marketing.
      Naturade faces intense competition 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 new
      personnel could pose significant risks to the Company’s development and progress
      and increase its operating expenses.





***Expanding
      the Company’s sales in the mass market resulted in less stable
      demand***  ***for
      the Company’s products.***





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





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





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





At
      September 30, 2006, the Principal Stockholders collectively owned 74.8% of
      the
      Company’s outstanding common stock, 100% of its outstanding Series C and options
      and warrants to acquire an additional 14.1% of its common stock (assuming the
      exercise of all options and warrants and the conversion of all convertible
      securities held by the Principal Stockholders). As a result, the Principal
      Stockholders have the ability to elect all of the Company’s directors, control
      the outcome of all matters requiring stockholder approval and control the
      Company’s management and affairs.





33


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





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





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





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





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





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





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





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





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





·
            Redux
                holds an option to purchase up to 8,721,375 shares of common stock,
                subject to certain limits, at any time on or after July 26, 2005
                at a
                price of $0.0001 per share, and a warrant to purchase up to 1,500,000
                shares of common stock at any time on or after July 26, 2005 through
                July
                26, 2010 at a price of $0.80 per
                share.





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





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





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








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





The
      Company has issued options and warrants to acquire common stock to the Principal
      Stockholders and to its employees at various prices, some of which are, or
      may
      in the future have, exercise prices at or below the market price of the
      Company’s common stock. As of September 30, 2006, the Company had outstanding
      options and warrants to purchase a total 43,490,618 shares of its common stock,
      of which, 29,682,500 had exercise prices above the market price of its common
      stock on September 30, 2006 ($0.10 per share) and 13,808,118 shares had exercise
      prices at or below this market price. The weighted average exercise price was
      $0.62 per share at that date. If exercised, these options and warrants could
      cause substantial dilution to the Company’s stockholders.





The
      Company also has issued shares of Series C which are, or may in the future
      have,
      conversion prices at or below the market price of its common stock. As of
      September 30, 2006, the Company had outstanding 21,000,000 shares of Series
      C
      convertible to a total of 21,000,000, shares of its common stock, all of which
      had conversion prices above the market price of the Company’s common stock on
      September 30, 2006 ($0.10 per share). The weighted average conversion price
      was
      $1.00 per share at that date. If converted, these shares of Series C could
      cause
      substantial dilution to the Company’s stockholders.





34


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





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





As
      of
      September 30, 2006, 43,332,733 shares of common stock were outstanding and
      64,490,618 additional shares (subject to adjustment to prevent dilution) were
      issuable upon the exercise of outstanding options and warrants or the conversion
      of outstanding shares of Series C. The exercise prices or conversion prices
      are,
      or in the future may be, less than the market price of the Company’s common
      stock. In addition, future sales of common stock or securities convertible
      into
      common stock at or below recent market prices could result in dilution of the
      common stock. The risk of dilution may cause some of the Company’s stockholders
      to sell their shares, which could further reduce the market price of the
      Company’s common stock and impair its ability to raise capital by selling common
      stock.





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





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





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





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





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





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





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





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





35


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





As
      of
      December 31, 2005, the Company had federal net operating loss carry forwards
      of
      $23,328,277 that begin expiring in December 2017 and state net operating loss
      carry forwards of $11,777,297 that begin expiring in December 2005. A valuation
      allowance for the full amount of net deferred taxes has been provided because
      it
      is more likely than not that the deferred taxes will not be realized. Under
      Section 382 of the Internal Revenue Code, certain significant changes in
      ownership, such as our recent recapitalization and change of control, may
      restrict the future utilization of these tax loss carry forwards. Based upon
      preliminary calculations, we estimate that the utilization of tax losses for
      federal tax purposes would be limited to approximately $150,000 per year. As
      a
      result, federal net operating losses may expire before the Company is able
      to
      fully utilize them. As the Company is currently in a loss position this limit
      is
      not applicable. A more detailed calculation will be prepared once the Company
      has taxable income for federal and state purposes.





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





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





***The
      dietary supplement industry as a whole is experiencing a decline in
      sales.***





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





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





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





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





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




Currently,
      the Company has 22 U.S. trademarks as well as a California registration on
      two
      trademarks. The Company also maintains trademark registrations in approximately
      20 foreign countries. Because of its limited financial resources, the Company
      cannot in all cases exhaustively monitor the marketplace for trademark
      violations. The Company will evaluate and pursue potential infringement on
      a
      case-by-case basis in accordance with its business needs and financial
      resources. If the Company is not aware of some infringing uses or elect not
      to
      pursue them, the value of its trademarks could be substantially weakened. If
      the
      Company takes action to enforce its intellectual property rights, litigation
      may
      be necessary. Any such litigation could be very costly and could distract the
      Company’s personnel. Due to limited financial resources, the Company may be
      unable to pursue some litigation matters. In matters the Company does pursue,
      it
      can provide no assurance of a favorable outcome. An unfavorable outcome in
      any
      proceeding could have a material adverse effect on its business, financial
      condition and results of operations.




36


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





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





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





Trading
      in the Company’s common stock is low in volume. The market price of the
      Company’s common stock is likely to be volatile and could be subject to
      significant fluctuations in response to factors such as quarterly variations
      in
      operating results, operating results which vary from the expectations of
      securities analysts and investors, changes in financial estimates, changes
      in
      market valuations of competitors, announcements by the Company or its
      competitors of a material nature, loss of one or more customers, additions
      or
      departures of key personnel, future sales of common stock and stock market
      price
      and volume fluctuations. For the five trading days ended September 30, 2006,
      the
      average daily trading volume of its common stock was 4,245 shares,
      compared to the 64,490,118 additional shares for which the Company has granted
      registration rights. Additionally, investor confidence may be adversely affected
      by issuance of a going concern opinion by the Company’s independent registered
      public accounting firm, which may cause the Company’s stock price to fall. Also,
      general political and economic conditions such as recession, or interest rate
      or
      currency rate fluctuations, may adversely affect the market price of the
      Company’s common stock. ADD something about bulletin board to pink sheets here
      or in body?





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





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





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





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





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





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





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





37


***ITEM
      3*** . **Quantitative
      and Qualitative Disclosures About Market Risk.**





The
      Company’s earnings are not affected by fluctuations in the value of the U.S.
      dollar as compared to foreign currencies as a result a current lack of
      international purchases. As a result, the Company bears no risk of exchange
      rate
      gains or losses that may result in the future as a result of this financing
      structure. 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 $4.0 million line of credit
      originally entered into on July 27, 2005, a $1,550,000 Loan Agreement with
      a
      majority shareholder and other investors and $350,000 in loans from a majority
      shareholder. The line of credit bears interest at prime rate plus 2.0%. The
      Loan
      Agreement bears interest at 15% per annum and is due on December 31, 2006.
      The
      loans from a majority shareholder have no stated interest. However, given the
      fixed interest rate on the Loan Agreement, interest rate changes generally
      will
      have no effect on the interest rates under the Loan Agreement or the Investor
      Notes or 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 nine month period ended September 30, 2006, the interest expense on the
      line
      of credit was $248,491. If the interest rate on the line of credit for the
      nine
      month period ended September 30, 2006 had increased by one percent to prime
      rate
      plus 3.0%, this would result in an interest expense of $272,734.




***ITEM
      4*** . **Controls
      and Procedures** .





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





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





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




38


**PART
      II. Other Information**




***ITEM
      1***  **.
      Legal Proceedings.**





From
      time
      to time, the Company is party to various claims and litigation that arise in
      the
      ordinary course of business. While any litigation contains an element of
      uncertainty, management believes that the ultimate outcome of any pending claims
      and litigation will not have a material effect on the Company’s results of
      operations or financial condition.





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





**Fortress
      Systems, LLC dba FSI Nutrition v. Naturade, Inc. (Case No.
      ADV**  **.06-08004
      U.S. Bankruptcy Court, District of Nebraska).** On
      January 11, 2006, Fortress Systems, LLC (dba FSI Nutrition) filed a claim
      against the Company in U.S. Bankruptcy Court, District of Nevada alleging
      failure to pay for a special order product. The plaintiff is seeking $47,255
      in
      damages.





The
      Company is the subject of various litigation matters, including an eviction
      matter with the Irvine Company related to the Company’s office facilities lease.
      The lease was set to expire in 2013; however, the Company vacated the premises
      in August 2006. The Company has not accrued the remaining rent as September
      30,
      2006 and management believes that the lease will be rejected as a result of
      the
      Chapter 11 Matter.





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





The
      Company has fully accrued the amounts claimed in these suits as of September
      30,
      2006. In addition, the Company has received a stay as to each of these lawsuits
      under its Chapter 11 Bankruptcy proceeding. As of this filing no plaintiff
      or
      other party has made a motion for or been granted a Relief from
      Stay.





The
      Company is the subject of various litigation matters, including an eviction
      matter with the Irvine Company related to the Company’s office facilities lease.
      The lease was set to expire in 2013; however, the Company vacated the premises
      in August 2006. The Company has not accrued the remaining rent as of September
      30, 2006 as the lease was rejected by order of the bankruptcy on August 31,
      2006As of the filing of this report, the plaintiffs have not requested and
      have
      not been granted a separation from the Company’s chapter 11 filing.






***ITEM
      1A***  **.
      Risk Factors.**





See
“Risk
      Factors” in Part I, Item 2 of this Quarterly Report on Form 10-Q for a
      description of the Company’s risk factors.




***ITEM
      2***  **.
      Unregistered Sales of Equity Securities and Use of
      Proceeds.**




NONE


39


***ITEM
      3*****.
      Defaults Upon Senior Equity Securities**.





NONE.




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





NONE




***ITEM
      5***  **.
      Other Information**  .





NONE




***ITEM
      6*** **. Exhibits**





(a)
      Exhibits




**Exhibit**
              **Number**
            **Document****10.1
            Letter
                Agreement dated August 31, 2006 between Laurus Master Fund, LLC and
                Redux
                Holdings, Inc.**10.2
            Treatment
                Letter dated August 31, 2006 from Redux Holdings, Inc. to Laurus
                Master
                Fund, LLC**31.1
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**31.2
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**32
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002







*
            Management
                contracts or compensatory plan or arrangement.**
            Filed
                herewith.








40


**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this report to be signed on its behalf by the undersigned thereunto
      duly authorized.





NATURADE,
                INC.(Registrant)DATE:
                November 14, 2006
            By
            */s/*Richard MunroRichard
                MunroChief
                Executive OfficerDATE:
                November 14, 2006
            By
            */s/*Adam MichelinAdam
                MichelinPrincipal
                Accounting Officer









**EXHIBIT
      INDEX**




**Exhibit**
              **Number**
            **Document****10.1
            Letter
                Agreement dated August 31, 2006 between Laurus Master Fund, LLC and
                Redux
                Holdings, Inc.**10.2
            Treatment
                Letter dated August 31, 2006 from Redux Holding, Inc. toLaurus Master
                Fund, LLC**31.1
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**31.2
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**32
            Certification
                Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002









*
            Management
                contracts or compensatory plan or arrangement.**
            Filed
                herewith.