**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-Q**





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





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





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





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





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


________________




**NATURADE,
      INC.**


(Exact
      name of registrant as specified in its charter)





**Delaware**
            **23-2442709**(State
                or other jurisdiction of
            (I.R.S.
                Employer Identification No.)incorporation
                or organization)**601
                Valencia Avenue, 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 filer R





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
      September 20, 2006, 43,332,733 shares of the registrant’s Common Stock were
      outstanding.










FORM
      10-Q





**QUARTERLY
      REPORT**


**Quarter
      Ended June 30, 2006**





**TABLE
      OF CONTENTS**





**PAGE**PART
              I. FINANCIAL INFORMATIONItem 1.
            Financial
                Statements (unaudited)
            3Balance
                Sheets as of June 30, 2006 and December 31, 2005
            3Statements
                of Operations for the six months ended June 30, 2006 and June 30,
                2005
            4Statements
                of Cash Flows for the six months ended June 30, 2006 and June 30,
                2005
            5Notes
                to Financial Statements
            6Item 2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            22Item 3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            43Item 4.
            Controls
                and Procedures
            43PART
              II. OTHER INFORMATIONItem 1.
            Legal
                Proceedings
            44Item 1A.
            Risk
                Factors
            44Item 2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            44Item 3.
            Defaults
                Upon Senior Securities
            45Item 4.
            Submission
                of Matters to a Vote of Security Holders
            45Item 5.
            Other
                Information
            45Item 6.
            Exhibits
            45SIGNATURES
            46








**PART
      I. FINANCIAL INFORMATION**





***ITEM
      1.*** **Financial
      Statements.**





**NATURADE,
      INC.**





**Balance
      Sheets**


**As
      of June 30, 2006 and December 31, 2005**


**(Unaudited)**





ASSETSJune
                30, 2006
            
            December
                31, 2005(Unaudited)Current
                assets:Cash
                and cash equivalents
            
            
            
            $
            45,187
            
            $
            95,398Accounts
                receivable, net
            
            
            
            
            1,974,446
            
            
            2,162,230Inventories,
                net
            
            
            
            
            732,965
            
            
            896,173Prepaid
                expenses and other current assets
            
            
            
            
            272,807
            
            
            229,394Total
                current assets
            
            
            
            
            3,025,405
            
            
            3,383,195Property
                and equipment, net
            
            
            
            
            112,911
            
            
            137,203Goodwill
            
            
            
            
            -
            
            
            2,653,572Customer
                lists, trademarks and formulations, net
            
            
            
            
            1,844,444
            
            
            2,311,111Deferred
                financing fees, net
            
            
            
            
            2,535,701
            
            
            3,461,943Other
                assets
            
            
            
            
            42,584
            
            
            42,002Total
                assets
            
            
            
            $
            7,561,045
            
            $
            11,989,026LIABILITIES,
                REDEEMABLE CONVERTIBLE PREFERRED STOCK
              AND
                STOCKHOLDERS' DEFICITCurrent
                liabilities:Accounts
                payable
            
            
            
            $
            3,752,290
            
            $
            2,904,019Accrued
                expenses
            
            
            
            
            602,330
            
            
            431,071Accrued
                interest
            
            
            
            
            485,753
            
            
            348,163Notes
                payable to related parties
            
            
            
            
            1,600,000
            
            
            1,250,000Revolving
                credit line
            
            
            
            
            1,758,401
            
            
            2,719,404Current
                portion of long-term debt
            
            
            
            
            2,696,540
            
            
            2,323,079Total
                current liabilities
            
            
            
            
            10,895,314
            
            
            9,975,736Long-term
                debt, less current maturities
            
            
            
            
            1,466,666
            
            
            1,388,897Warrants
                (29,147,743 Shares)
            
            
            
            
            1,855,181
            
            
            1,855,181Total
                Liabilities
            
            
            
            
            14,217,161
            
            
            13,219,814COMMITMENTS
                AND CONTINGENCIESREDEEMABLE
                CONVERTIBLE PREFERRED STOCKRedeemable
                convertible preferred stock, Series C including accumulated
                preferredstock
                dividends of $2,530,000 at June 30, 2006 and$1,150,000at
                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).
            
            
            
            
            4,210,000
            
            
            2,830,000STOCKHOLDERS'
                DEFICIT:Common
                stock, par value $0.0001 per share; authorized,
                100,000,000shares;
                issued and outstanding, 43,332,733 at June 30, 2006 and39,651,964
                at December 31, 2005.
            
            
            
            
            4,333
            
            
            3,965Non-Voting
                Common stock, par value $0.0001 per share; authorized,2,000,000
                shares; issued and outstanding, 117,284 shares at June 30, 2006 andDecember
                31, 2005.
            
            
            
            
            12
            
            
            12Additional
                paid-in capital
            
            
            
            
            22,389,785
            
            
            21,883,842Accumulated
                deficit
            
            
            
            
            (33,260,246
            )
            
            (25,948,607
            )Total
                stockholders' deficit
            
            
            
            
            (10,866,116
            )
            
            (4,060,788
            )Total
                liabilities, redeemable convertible preferred stock and stockholders'
                deficit
            
            
            
            $
            7,561,045
            
            $
            11,989,026




See
        accompanying notes to financial statements.




3


**NATURADE,
      INC.**





**Statements
      of Operations for theThree and Six Months**


**Ended
      June 30, 2006 and June 30, 2005**


Three
                  Months
              
              Three
                  Months
              
              Six
                  Months
              
              Six
                  MonthsEnded
              
              Ended
              
              Ended
              
              EndedJune
                  30, 2006
              
              June
                  30, 2005
              
              June
                  30, 2006
              
              June
                  30, 2005(Unaudited)
              
              (Unaudited)
              
              (Unaudited)
              
              (Unaudited)Net
                  sales
              
              $
              2,786,622
              
              $
              2,761,811
              
              $
              6,582,134
              
              $
              5,675,342Cost
                  of sales
              
              
              1,444,236
              
              
              1,549,520
              
              
              3,370,271
              
              
              3,087,034Gross
                  profit
              
              
              1,342,386
              
              
              1,212,291
              
              
              3,211,863
              
              
              2,588,308Costs
                  and expenses:Selling,
                  general and administrative expenses
              
              
              2,316,067
              
              
              1,476,538
              
              
              4,370,763
              
              
              3,068,951Depreciation
              
              
              15,470
              
              
              15,033
              
              
              42,581
              
              
              30,303Amortization
              
              
              233,333
              
              
              -
              
              
              466,667
              
              
              -Total
                  operating costs and expenses
              
              
              2,564,870
              
              
              1,491,571
              
              
              4,880,011
              
              
              3,099,254Operating
                  loss
              
              
              (1,222,484
              )
              
              (279,280
              )
              
              (1,668,148
              )
              
              (510,946
              )Impairment
                  of Goodwill
              
              
              2,694,357
              
              
              -
              
              
              2,694,357
              
              
              -Other
                  expense (Income)
              
              
              8,950
              
              
              (1,771
              )
              
              7,818
              
              
              (3,446
              )Interest
                  expense:Interest
              
              
              172,373
              
              
              87,567
              
              
              374,025
              
              
              173,375Amortization
                  of deferred financing fees
              
              
              533,303
              
              
              -
              
              
              1,186,491
              
              
              -Total
                  Interest Expense
              
              
              705,676
              
              
              87,567
              
              
              1,560,516
              
              
              173,375Loss
                  before provision for income taxes
              
              
              (4,631,467
              )
              
              (365,076
              )
              
              (5,930,839
              )
              
              (680,875
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              800
              
              
              800Net
                  loss
              
              $
              (4,631,467
              )
              $
              (365,076
              )
              $
              (5,931,639
              )
              $
              (681,675
              )Less:Preferred
                  Stock Dividends-Series B
              
              $
              -
              
              $
              (68,844
              )
              $
              -
              
              $
              (136,008
              )Deemed
                  Dividend-Series B
              
              
              -
              
              
              (71,429
              )
              
              -
              
              
              (142,857
              )Deemed
                  Dividend-Series C
              
              
              (690,000
              )
              
              -
              
              
              (1,380,000
              )
              
              -Net
                  Loss Attributable to Common Shareholders
              
              $
              (5,321,467
              )
              $
              (505,349
              )
              $
              (7,311,639
              )
              $
              (960,540
              )Basic
                  and Diluted Net Loss per share
              
              $
              (0.12
              )
              $
              (0.01
              )
              $
              (0.17
              )
              $
              (0.02
              )Weighted
                  Average Number of Shares used in Computation ofBasic
                  and Diluted Net Loss per share
              
              
              43,332,733
              
              
              44,651,170
              
              
              43,332,733
              
              
              44,651,170






See
        accompanying notes to financial statements.


4


**NATURADE,
      INC.**





**Statements
      of Cash Flows for the Six Months**


**Ended
      June 30, 2006 and June 30, 2005**








Six months
            
            Six monthsEnded
            
            EndedJune
                30, 2006
            
            June
                30, 2005(Unaudited)
            
            (Unaudited)Cash
                flows from operating activities:Net
                loss
            
            $
            (5,931,639
            )
            $
            (681,675
            )Adjustments
                to reconcile net loss tonet
                cash (used in) provided by operating activities:Depreciation
                and amortization
            
            
            509,248
            
            
            30,303Amortization
                of loan discounts and deferred financing fees
            
            
            1,186,491
            
            
            -Issuance
                of common stock for consulting
            
            
            440,578
            
            
            -Stock
                Based Compensation
            
            
            65,733
            
            
            -Impairment
                of Goodwill
            
            
            2,694,357
            
            
            -Changes
                in assets and liabilities:Accounts
                receivable
            
            
            187,784
            
            
            610,065Inventories
            
            
            163,208
            
            
            647,643Prepaid
                expenses and other current assets
            
            
            (43,413
            )
            
            (45,155
            )Other
                assets
            
            
            (582
            )
            
            -Accounts
                payable and accrued expenses
            
            
            1,157,120
            
            
            24,441Net
                cash provided by (used in) operating activities:
            
            
            428,885
            
            
            585,622Cash
                flows from investing activities:Purchase
                of property and equipment
            
            
            (18,289
            )
            
            -Acquisitions
            
            
            (40,785
            )
            
            -Net
                cash used in investing activities:
            
            
            (59,074
            )
            
            -Cash
                flows from financing activities:Net
                borrowings (repayments) under line of credit
            
            
            (961,003
            )
            
            (705,158
            )Payments
                of long-term debt
            
            
            (139,679
            )
            
            (5,609
            )Proceeds
                from issuance of debt to related parties
            
            
            350,000
            
            
            175,000Deferred
                financing fees
            
            
            (260,249
            )
            
            -Proceeds
                from term loan
            
            
            590,909
            
            
            -Net
                cash provided by (used in) financing activities:
            
            
            (420,022
            )
            
            (535,767
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            (50,211
            )
            
            49,855Cash
                and cash equivalents, beginning of period
            
            
            95,398
            
            
            210,573Cash
                and cash equivalents, end of period
            
            $
            45,187
            
            $
            260,428**Supplemental
                Disclosures of Cash Flow Information****Cash
                paid during the period for:**Interest
            
            $
            169,380
            
            $
            69,656Income
                taxes
            
            $
            800
            
            $
            800**Non-cash
                financing transactions:**Preferred
                stock dividend accrued-Series B
            
            $
            -
            
            $
            136,008Deemed
                dividend-Series B
            
            $
            -
            
            $
            142,857Deemed
                dividend-Series C
            
            $
            1,380,000
            
            $
            -




See
        accompanying notes to financial statements.





5


**NATURADE,
      INC.**





**Notes
      to 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.





Naturade,
      Inc.’s (the “Company”) financial statements have been prepared based upon the
      assumption that the Company will continue as a going concern. The Company’s
      former independent registered public accounting firm modified their report
      on
      the Company’s financial statements for the fiscal year ended December 31, 2005
      with a statement that substantial doubt exists as to the Company’s ability to
      continue as a going concern. The financial statements do not include any
      adjustments that might result from a negative outcome of this
      uncertainty.





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
      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 (see Note 2), 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, will be classified as liabilities subject to compromise
      in the September 30, 2006 balance sheet. In addition, the Company will report
      all transactions (other than interest expense) directly related to the Chapter
      11 Matter as reorganization items in its future statement of operations. 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
      June
      30, 2006 and the condensed statements of operations and cash flows for the
      periods ended June 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.





6


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.








2.
            *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” in the accompanying statement of operations for
                the quarter ended June 30, 2006.





3.
            *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
                June 30, 2006 and December 31, 2005 consisted of the
                following:





**June
                30, 2006**
            
            **December
                31, 2005****(Unaudited)**Raw
                Materials
            
            $
            182,529
            
            $
            235,885Finished
                Goods
            
            
            579,653
            
            
            843,942Subtotal
            
            
            762,182
            
            
            1,079,827Less:
                Reserve for Excess and Obsolete Inventories
            
            
            (29,217
            )
            
            (183,654
            )$
            732,965
            
            $
            896,173





4.
            *Leases
                —*The
                Company rents property and equipment under certain non-cancelable
                operating leases expiring in various years through 2013. Such leases
                may
                be rejected in the Chapter 11 matter. Future minimum commitments
                under
                operating leases as of June 30, 2006 are as
                follows:





**Year**
            
            **Amount**2006
                (July-December)
            
            $
            209,4722007
            
            
            384,5432008
            
            
            382,6812009
            
            
            399,1272010
            
            
            412,585Thereafter
            
            
            1,204,992Total
            
            $
            2,993,400





7


5.
            *Recapitalization
                —*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
                would negotiate, and arrange 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
                would remain a co-obligor on, and a principal of Quincy would personally
                guarantee, the payment of a portion of the purchase price of each
                such
                acquisition;





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





**•**
            Westgate
                would surrender the 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;





**•**
            Health
                Holdings, Stewart and Weil would extend 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 would grant 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
                would grant 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).





8


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 has 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. 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 Westgate is $336,000. Since the fair value
      of
      the consideration issued or paid is less than the carrying amount of the
      preferred stock being retired, the difference was credited to retained earnings
      and included in net income (loss) attributable to common shareholders. As the
      fair value of the Series C is less than the value at maturity of $4,200,000,
      the
      difference between the recorded value of the Series C issued to Health Holdings
      and the value at maturity, in the amount of $3,864,000, will be accreted to
      December 31, 2012 and charged to retained earnings as a preferred stock
      dividend.





The
      fair
      value of the Series C issued to Health Holdings is $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
      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. Series C was valued based upon the value of common stock,
      if converted of $336,000. 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
      30, 2005, the Company entered into a Management Services Agreement under which
      certain principals of Quincy will provide management and consulting services
      to
      the Company.





6.
            *Financing
                —*On
                July 26, 2005, the Company entered into a Security and Purchase Agreement
                (the “Financing Agreement”) with Laurus Master Fund, Ltd. (“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.




9


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 and carries an interest rate of prime plus 2% per annum
      (10.25% at June 30, 2006), subject to certain reductions based upon growth
      of
      the Company’s stock price. The term loan will be repaid in 33 installments of
      $50,000 commencing April 1, 2006.





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, and since August 10, 2005, one
      of
      the Company’s directors.





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 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. The number of shares of common stock issuable upon exercise
      of
      the Laurus Option and the Laurus Warrant is subject to adjustment to prevent
      dilution upon stock splits, stock dividends, and other events. The exercise
      price of the Laurus Option and the Laurus Warrant may be paid, at the option
      of
      Laurus, by the cancellation of indebtedness under the financing
      facility.





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





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.





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





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





**•**
            Increased
                the term 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.




10




**•**
            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.





At
      June
      30, 2006, $1,758,401 was outstanding under the revolving facility, and
      $1,500,000 was outstanding under the term loan.








Future
      minimum principal payments under long-term debt as of June 30, 2006 are as
      follows:





Year
                Ending December 312006
                (July-December)
            $2,998,2342007
            3,358,4012008
            366,667Thereafter
            -Total
            $6,723,302








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.




11




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 (See 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.





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.





12


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 summary of the Symco and Ageless transactions:





Purchase
      Price (preliminary):





Cash
            
            $
            558,695Common
                stock
            
            
            1,794,260Preferred
                stock
            
            
            63,584Warrants
            
            
            159,565Notes
                payable
            
            
            2,724,539Total
            
            $
            5,300,743





Allocated
      as follows (preliminary):





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





The
      customer lists and trademarks are being amortized over 36 months and
      formulations are being amortized over 24 months. Deferred financing fees are
      being amortized and charged to interest expense over the life of the Laurus
      financing based upon the interest method of amortization. Goodwill is expected
      to be tax deductible.





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 Notes allowed for advances (the “Loan Advances”) of up to $1.2
                million at an interest rate of 8% per annum with due dates of September
                11, 2002 for $50,000 and August 31, 2003 for the remaining balance
                outstanding.





The
      Loan
      Agreement further provided 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. On June
      13,
      2001, two investors converted their total debt of $150,000 plus accrued interest
      of $2,400 into common stock, receiving a total of 476,250 shares of the
      Company’s common stock based on the then fair market value of $0.32. As part of
      the Private Equity Transaction on January 2, 2002 as described more fully in
      Note 9, Health Holdings converted into common stock all of the Company’s
      Investor Notes due to Health Holdings, plus accrued interest of $11,051 for
      a
      total debt conversion of $752,496. On August 8, 2002, one investor (who was
      then
      a member of the Board of Directors) converted debt of $50,000 which was due
      September 11, 2002 plus accrued interest of $427 into common stock, receiving
      a
      total of 720,392 shares of the Company’s common stock based on the then fair
      market value of $0.07.





On
      August
      21, 2003, the terms of the remaining outstanding Investor Notes totaling
      $202,345 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. 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 June 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 June 30, 2006, there was $-0- outstanding under the Investor
      Notes.





13


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 June 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
      June 30, 2006, $350,000 was outstanding on this loan. There is no written
      agreement for this loan between Quincy and the Company.





9.
            *Line
                of Credit —*On
                January 27, 2000, the Company entered into a three year Credit and
                Security Agreement (the “Credit Agreement”) with Wells Fargo, which
                initially allowed for maximum borrowings of up to $3,000,000, based
                on
                certain percentages of eligible accounts receivable and inventories
                as
                defined. In consideration of the extension of credit under the Loan
                Agreement, on April 14, 2003, Wells Fargo waived all defaults of
                the
                Company as of December 31, 2002 under the Credit Agreement and amended
                the
                agreement to, among other things, reduce the covenants regarding
                minimum
                net income and minimum book net worth and increased the interest
                rate to
                the prime rate plus 4.5%. On November 6, 2003, the terms of the Credit
                Agreement were modified to extend the maturity date until March 31,
                2004
                and on March 29, 2004, the terms of the Credit Agreement were modified
                to
                extend the maturity date until December 31, 2005. On July 26, 2005,
                the
                Credit Agreement was paid in full.





10.
            *Private
                Equity Transaction —*On
                January 2, 2002, the Company privately sold 13,540,723 shares of
                Series B
                (the “Shares”) for $2 million, and warrants, which expire on December 31,
                2004, to purchase an additional 33,641,548 shares of Series B at
                an
                aggregate exercise price of $3.5 million (the “Warrants”), for $500,000.
                The Shares and Warrants were purchased by Westgate Equity Partners,
                L.P.
                (“Westgate”). The Series B bears dividends at a rate of 10% per annum,
                which will accumulate and compound semi-annually if not paid in cash.
                The
                Series B may be converted 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 will be automatically redeemed by the Company
                at the
                original issuance price plus accrued and unpaid dividends, provided
                the
                Company is legally able to do so. Two members of the Board of Directors
                of
                the Company are elected exclusively by the holders of the Series
                B voting
                as a separate class.





The
      Company had the right to redeem the Series B at any time prior to December
      31,
      2004 if the Company received a bona fide offer from a third party to invest
      equity capital in the Company and the holders of the Series B did not make
      a
      counter offer satisfying certain price requirements. No bona fide offer was
      made
      and the Company did not redeem the Series B. 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.





14


As
      part
      of this transaction (the “Private Equity Transaction”), the Company entered into
      a Management Services Agreement under which certain principals of Westgate
      or
      its affiliates will provide management and consulting services to the
      Company.





On
      December 31, 2004, the Warrants were not exercised and accordingly expired.
      As
      the Warrants were initially classified outside of equity and were recorded
      at
      fair value, the subsequent expiration of the Warrants was classified as charge
      to earnings in accordance with Statement of Financial Accounting Standards
      No.
      150, “Accounting for Certain Financial Instruments with Characteristics of Both
      Liabilities and Equity.”





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





On
      July
      22, 2005 Westgate exchanged the Series B for 4,200,000 shares of Series C.
      (See
      Note 6)





11.
            *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 six months periods ended June 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 six months
      ended June 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.





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 $0.13 as of June 30, 2006. These options expire seven years from the
      date of grant.





15


*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 expire 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 six months ended
      June
      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**
            
            **Number**
              **Exercisable**
            
            **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
            
            
            -0-
            
            $
            0Expired
            
            
            (352,000
            )
            $
            0.14Outstanding
                at June 30, 2006
            
            
            13,742,875
            
            $
            0.07
            
            
            10,992,875
            
            $
            0.04





The
      aggregate intrinsic value of options outstanding and exercisable at June 30,
      2006 was $996,845.





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





**Number
                of**
              **Shares**
            
            **Grant-Date**
              **Fair
                Value**Non-vested
                at December 31, 2005
            
            
            3,505,250Granted
            
            
            220,000
            
            $
            0.12Vested
            
            
            (623,250
            )Exercised
            
            
            -0-Expired
            
            
            (352,000
            )Non-vested
                at June 30, 2006
            
            
            2,750,000







16





The
      following table summarizes information about stock options outstanding at June
      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
            
            
            1,100,000
            
            $
            0.20$0.70
                - $1.13
            
            
            191,500
            
            
            1
            
            $
            0.90
            
            
            191,500
            
            $
            0.9013,742,875
            
            
            
            
            $
            0.07
            
            
            10,992,875
            
            $
            0.04




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





At
      June
      30, 2006, there was $ 190,834 of unamortized compensation costs related to
      non-vested stock options which is expected to be recognized over a remaining
      weighted average vesting period of 2 years.





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**
              **June
                30, 2006**
            
            **Three
                Months**
              **Ended**
              **June
                30, 2005**
            
            **Six
                Months**
              **Ended**
              **June
                30, 2006**
            
            **Six
                Months**
              **Ended**
              **June
                30, 2005**Net
                loss: As reported
            
            $
            (4,631,467
            )
            $
            (365,076
            )
            $
            (5,931,639
            )
            $
            (681,675
            )Add:
                Stock-based employee compensation expense included in reported net
                loss
            
            
            ---
            
            
            ---
            
            
            ---
            
            
            ---Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (32,987
            )
            
            (599
            )
            
            (65,974
            )
            
            (1,198
            )Pro
                forma
            
            $
            (4,664,454
            )
            $
            (365,675
            )
            $
            (5,997,613
            )
            $
            (682,873
            )Basic
                and diluted net loss per share:As
                reported
            
            $
            (0.12
            )
            $
            (0.01
            )
            $
            (0.17
            )
            $
            (0.02
            )Pro
                forma
            
            $
            (0.12
            )
            $
            (0.01
            )
            $
            (0.17
            )
            $
            (0.02
            )




17





*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. As part of the Private Equity Transaction described
      in
      Note 10, the holders of the warrants agreed they would be exercisable for
      Non-Voting common stock. On December 31, 2004, the warrants issued to Westgate
      in conjunction with the Private Equity Transaction described in Note 10, were
      not exercised and accordingly expired.





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





In
      consideration for entering into the Master Investment Agreement described in
      Note 5, the Company issued to Quincy warrants to purchase shares of the
      Company’s common stock. The warrants entitle the holder to purchase up to
      7,000,000 shares of common stock at a purchase price of $0.80 per share at
      any
      time on or after July 22, 2006 until July 22, 2015 and to purchase up to
      7,000,000 shares of common stock at a purchase price of $1.02 per share at
      any
      time on or after July 22, 2006 until July 22, 2015. In addition, the Company
      issued to Health Holdings a warrant to purchase shares of the Company’s common
      stock. The warrant entitles the holder 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 to Liberty a warrant 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
            
            
            -0-
            
            $
            0Outstanding
                at June 30, 2006
            
            
            29,747,743
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86





The
      following table summarizes information about warrants outstanding at June 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
            
            
            26,100,000
            
            
            5
            
            $
            0.94
            
            
            2,100,000
            
            $
            0.8629,747,743
            
            
            
            
            $
            0.83
            
            
            2,100,000
            
            $
            0.86








12.
            *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.




18





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 six month periods ended June 30, 2006 and 2005
      was as follows:





**Distribution
                Channels****Health
                Food**
            
            **Mass
                Market**
            
            **Total**Three
                months ended June 30, 2006Sales
            
            $
            1,683,766
            
            $
            1,102,856
            
            $
            2,786,622Cost
                of sales
            
            
            847,353
            
            
            596,883
            
            
            1,444,236Gross
                profit
            
            $
            836,413
            
            $
            505,973
            
            $
            1,342,386Three
                months ended June 30, 2005Sales
            
            $
            1,328,956
            
            $
            1,432,855
            
            $
            2,761,811Cost
                of sales
            
            
            707,697
            
            
            841,823
            
            
            1,549,520Gross
                profit
            
            $
            621,259
            
            $
            591,032
            
            $
            1,212,291Six
                months ended June 30, 2006Sales
            
            $
            4,038,117
            
            $
            2,544,017
            
            $
            6,582,134Cost
                of sales
            
            
            1,955,836
            
            
            1,414,435
            
            
            3,370,271Gross
                profit
            
            $
            2,082,281
            
            $
            1,129,582
            
            $
            3,211,863Six
                months ended June 30, 2005Sales
            
            $
            2,868,758
            
            $
            2,806,584
            
            $
            5,675,342Cost
                of sales
            
            
            1,499,975
            
            
            1,587,059
            
            
            3,087,034Gross
                profit
            
            $
            1,368,783
            
            $
            1,219,525
            
            $
            2,588,308




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 six month periods
      ended June 30, 2006 and 2005 was as follows:





**United
                States**
            
            **International**
            
            **Total**Three
                months ended June 30, 2006Sales
            
            $
            2,664,763
            
            $
            121,859
            
            $
            2,786,622Cost
                of sales
            
            
            1,377,213
            
            
            67,023
            
            
            1,444,236Gross
                profit
            
            $
            1,287,550
            
            $
            54,837
            
            $
            1,342,386Three
                months ended June 30, 2005Sales
            
            $
            2,722,719
            
            $
            39,092
            
            $
            2,761,811Cost
                of sales
            
            
            1,528,632
            
            
            20,888
            
            
            1,549,520Gross
                profit
            
            $
            1,194,087
            
            $
            18,204
            
            $
            1,212,291Six
                months ended June 30, 2006Sales
            
            $
            6,389,664
            
            $
            192,471
            
            $
            6,582,134Cost
                of sales
            
            
            3,264,412
            
            
            105,859
            
            
            3,370,271Gross
                profit
            
            $
            3,125,252
            
            $
            86,612
            
            $
            3,211,863Six
                months ended June 30, 2005Sales
            
            $
            5,595,552
            
            $
            79,790
            
            $
            5,675,342Cost
                of sales
            
            
            3,041,925
            
            
            45,108
            
            
            3,087,034Gross
                profit
            
            $
            2,553,627
            
            $
            34,682
            
            $
            2,588,308




During
      the six months ended June 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.





19





**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 June 30, 2006
            
            $
            588,221
            
            $
            330,099
            
            $
            413,520
            
            $
            305,707
            
            $
            365,414
            
            $
            144,472Three
                Months ended June 30, 2005
            
            $
            688,058
            
            $
            443,691
            
            $
            518,829
            
            $
            362,473
            
            $
            351,952
            
            $
            126,956Six
                Months ended June 30, 2006
            
            $
            1,306,788
            
            $
            330,099
            
            $
            920,219
            
            $
            305,707
            
            $
            833,935
            
            $
            144,472Six
                Months ended June 30, 2005
            
            $
            1,485,321
            
            $
            443,691
            
            $
            1,181,257
            
            $
            362,473
            
            $
            663,929
            
            $
            126,956








13.
            *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.





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





14.
            *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:





20


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, our Chairman of the Board of Directors, 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.





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 June 30,
      2006
      and management believes that the lease will be rejected as a result of the
      Chapter 11 Matter.





On
      June
      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 June 30, 2006.





The
      Company has fully accrued the amounts claimed in these suits as of June 30,
      2006.





15.
            *Issuance
                of Unregistered Common Stock —*During the 3 months ended June 30, 2006, the Company issued the following
                equity securities directly, without the services of an underwriter,
                and
                without registration under the Securities Act of 1933, as amended
                (the
                “Securities Act”), in reliance on Section 4(2) of the Securities
                Act:





**•**
            The
                Company issued to CEO Cast, Inc., 400,000 shares of common stock,
                in
                consideration of CEO Cast, Inc. providing certain investor relations
                consulting. The shares were valued at a price of $0.10 ($40,000),
                which
                was the closing price of the Company’s common stock on May 31, 2006, and
                the total costs of $40,000 was charged to selling, general and
                administrative expense in May 2006;
                and,





**•**
            The
                Company issued to Howard Shao, 1,000,000 shares of common stock in
                payment
                of the Investor Notes plus accrued interest to Mr. Shao (see Note
                7). The
                shares were valued at a price of $0.12 ($120,000), which was the
                closing
                price of the Company’s common stock on May 25, 2006.





21


**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 six month periods ended June 30, 2006
      compared to the three and six month periods ended June 30, 2005.





**The
      Company**





Naturade
      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* .





22


**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 2 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 will be discharged in the normal course of business. As a result
      of
      the Chapter 11 Matter (see Note 2), 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, will be classified as liabilities subject to compromise
      in the September 30, 2006 balance sheet. In addition, the Company will report
      all transactions (other than interest expense) directly related to the Chapter
      11 Matter as reorganization items in its future statement of operations. 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
      June
      30, 2006 and the condensed statements of operations and cash flows for the
      periods ended June 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.




***Recapitalization***





In
      July
      2005, the Company completed a recapitalization in which Quincy Investments
      Corp.
      (“Quincy”) acquired (i) 30,972,345 shares of common stock, (ii) warrants to
      purchase 14,000,000 shares of common stock and (iii) 4,200,000 shares of Series
      C Convertible Preferred Stock (the “Series C”), all in consideration of Quincy
      negotiating, and arranging the financing for, the acquisitions described below
      and guaranteeing the payment of a portion of the purchase price of each such
      acquisition. In this recapitalization, the Company’s principal stockholders,
      Health Holdings and Botanicals LLC (“Health Holdings”) and Westgate Equity
      Partners, L.P. (“Westgate”) exchanged all shares of common stock and Series B
      Convertible Preferred Stock held by them, including any accrued and unpaid
      dividends, for (i) 16,800,000 shares of Series C and (ii) warrants to purchase
      10,000,000 shares of common stock. See Note 5 to Financial Statements,
“Recapitalization.”





23


***Financing***





In
      July
      2005, the Company obtained a $4,000,000 convertible financing facility from
      Laurus Master Fund, Ltd. (“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.”





***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 six months
      ended June 30, 2006 included the following:





**•**
            The
                Company’s lack of sufficient cash to maintain proper inventory levels has
                had a negative effect on the Company’s revenues for the six months ended
                June 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
                sale of products acquired in the Ageless and Symco transactions in
                late
                2005 which accounted for $465,855 and $1,393,841, respectively, in
                revenues in the six months ended June 30,
                2006.





**•**
            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.





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







**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.





24


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
      six months ended June 30, 2006 and 2005, distributor and promotional allowances
      were $297,706, or 6.9% of gross sales, and $371,038, or 10.7% of gross sales,
      respectively.





•
            Damages
                and Returns





In
      the
      six months ended June 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 six months ended June 30, 2006 and 2005, damages
      and
      returns charged against revenues were $155,731, or 2.1 % of gross sales, and
      $156,362, or 2.3% of gross sales, respectively.


25




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





Six
                Months Ended
              June
                30, 2006
            
            Six
                Months Ended
              June
                30, 2005Beginning
                balance
            
            $
            42,910
            
            $
            55,067Provision
                for damages and returns
            
            
            155,731
            
            
            156,362Actual
                damages and returns during the period
            
            
            (164,553
            )
            
            (170,260
            )Ending
                balance
            
            $
            34,088
            
            $
            41,169





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 3.4% 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
      six months ended June 30, 2006 and 2005, cash discounts were $68,698, or 0.9%
      of
      gross sales, and $114,040, or 1.7 % 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
      six months ended June 30, 2006 and 2005, slotting costs were $75,537, or 1.0%
      of
      gross sales, and $104,663, 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
      six months ended June 30, 2006 and 2005, coupon and rebate costs were $1,007
      and
      $5,022, 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, billbacks 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.




26




**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**
              **Six
                Months Ended June 30,**
            
            **Percentage
                Dollar Increase (Decrease)**
              **Six
                Months Ended June 30,****2006**
            
            **2005**
            
            **2006**
            
            **2005**Net
                sales
            
            
            100
            %
            
            100
            %
            
            16
            %
            
            (29
            %)Gross
                profit
            
            
            49
            %
            
            46
            %
            
            24
            %
            
            (29
            %)Selling,
                general and administrative expenses
            
            
            66
            %
            
            54
            %
            
            42
            %
            
            (22
            %)Depreciation
                & amortization.
            
            
            8
            %
            
            1
            %
            
            1,581
            %
            
            (14
            %)Operating
                loss
            
            
            (25
            %)
            
            (9
            %)
            
            (226
            )%
            
            (45
            %)Interest
                expense
            
            
            24
            %
            
            3
            %
            
            800
            %
            
            13
            %Loss
                before provision for income taxes
            
            
            (49
            %)
            
            (12
            %)
            
            375
            %
            
            (60
            %)Provision
                for income taxes
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %Net
                loss
            
            
            (49
            %)
            
            (12
            %)
            
            375
            %
            
            (60
            %)








The
      Company incurred non-cash, consulting and investment relations expenditures
      in
      the six months ended June 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:





**Six
                Months Ended**
              **June
                30, 2006**
            
            **Six
                Months Ended**
              **June
                30, 2005**Net
                loss attributable to common shareholders
            
            $(7,311,639)
            
            $(960,540)Plus
                non-cash charges:Preferred
                stock dividend-Series B
            
            --
            
            136,008Deemed
                dividend-Series B
            
            --
            
            142,857Deemed
                dividend-Series C
            
            1,380,000
            
            --Impairment
                of goodwill
            
            2,694,357
            
            --Stock
                based compensation
            
            65,733
            
            --Net
                income before non-cash charges
            
            (3,171,549)
            
            (681,675)Interest
                expense
            
            374,025
            
            173,375Amortization
                of deferred financing fees (1)
            
            1,186,491
            
            --Taxes
            
            800
            
            800Earnings
                before non-cash charges, interest and taxes
            
            (1,610,233)
            
            (507,500)Depreciation
            
            42,581
            
            15,033Amortization
                (2)
            
            433,667
            
            --Earnings
                before non-cash charges, interest, taxes, depreciation and
                amortization
            
            (1,133,985)
            
            (492,467)Consulting
                and investment relations costs (3)
            
            296,459
            
            --Earnings
                before non-cash charges, interest, taxes, depreciation, amortization
                and
                consulting and investment relations costs
            
            $(837,526)
            
            $(492,467)





(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.





27


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 June 30, 2006 of $2,786,622 increased $24,811 or
      1.0%
      as compared to net sales of $2,761,811 for the three months ended June 30,
      2005.
      Net sales for the six months ended June 30, 2006 were $6,582,134, an increase
      of
      $906,793 or 16.0% as compared to net sales for the six months ended June 30,
      2005 of $5,675, 342. The increase in net sales for both periods is due
      principally to sales of Symbiotics and Ageless brands, which were acquired
      in
      August 2005, totaling $703,887 and $1,746,722 for the three and six months
      ended
      June 30, 2006 respectively partially offset by declines in the sale of ReVivex®
brands of $330, 345 and $746,472 for the three and six months ended June 30,
      2006 respectively and declines in core products sales of $348,731 and $93,457
      for the three and six months ended June 30, 2006. The decline in both ReVivex®
and core brands can be attributed to the lack of capital to support the brands
      at retail coupled with a lack of capital to purchase sufficient inventory
      necessary to maintain traditional order fill ratios.





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





For
      the
      six months ended June 30, 2006, distributor and promotional allowances were
      $297,706, or 7.0% of gross sales, compared to $371,038, or 10.7% of gross sales,
      for the same period in 2005. The decrease in distributor and promotional
      allowances is a result of increased revenues coming from the sales of Symco
      and
      Ageless brands which do not typically have promotional allowances. Damages
      and
      returns for the six months ended June 30, 2006 were $167,600, or 3.9% of gross
      sales, as compared to $218,400, or 6.3% of gross sales, for the six months
      ended
      June 30, 2006. Lower sales in the mass market have resulted in lower returns.
      Cash discounts for the six months ended June 30, 2006 were $34,889, or 0.8%
      of
      gross sales, as compared to $69,372, or 2.0% of gross sales, in the same period
      of 2005. Cash discounts for the six months ended June 30, 2006 decreased due
      to
      lower collections during the period. Slotting charges related to new
      distribution for the six months ended June 30, 2006 were $43,888, or 1.0% of
      gross sales, as compared to $47,782, or 1.4% of gross sales, in the same period
      of 2005. There were no significant new slotting charges in the six months ended
      June 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 six months ended June 30, 2006 was $141, as compared to $3,459 in the
      same period of 2005.





*Mass
      Market Net Sales* .
      For the
      three months ended June 30, 2006, mass market revenues decreased $329,999 or
      23.0% from $1,432,855 to $1,102,856 for the three months ended June 30, 2005.
      For the six months ended June 30, 2006 mass market net sales decreased $262,567,
      or 9.4%, to $2,544,017 from $2,806,584 for the six months ended June 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.





*Health
      Food Net Sales.* For
      the
      three months ended June 30, 2006, health food channel net sales increased
      $354,810, or 26.7 %, to $1,683,766 from $1,328,956 for the three months ended
      June 30, 2005. For the six months ended June 30, 2006, health food channel
      net
      sales increased $1,169,359, or 40.8 %, to $4,038,117 from $2,868,758 for the
      six
      months ended June 30, 2005. The sales increase is principally related to sales
      of Ageless and Symco brands which were $703,887 and $1,746,722, respectively,
      for the three and six months ended June 30, 2006 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 60.4% and 61.3% for the health food channel and 39.6%
      and 38.7% for the mass market channel for the three and six month periods ended
      June 30, 2006 as compared to 48.1% and 50.5% for the health food channel and
      51.9% and 49.5% 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.





28


For
      the
      three months ended June 30, 2006, domestic net sales decreased $57,956, or
      2.2%,
      to $2,664,763 from $2,722,719 for the three months ended June 30, 2005. For
      the
      six months ended June 30, 2006, domestic net sales increased $794,112, or 14.2%,
      to $6,389,664 from $5,595,552 for the six months ended June 30, 2005. The
      increase in domestic net sales is principally due to the sales of Ageless and
      Symco brands that are currently sold principally in the U.S.A. For the three
      months ended June 30, 2006, international sales increased $82,767, or 211.7%,
      to
      $121,859 from $39,092. For the six months ended June 30, 2006, international
      sales increased $112,681, or 141.2%, to $192,471 from $79,790. 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 six months ended June 30, 2006.





*Gross
      Profit*





Gross
      profit for the three months ended June 30, 2006 increased $130,095 or 10.7%
      to
      $1,342,386 from $1,212,291 for the same period in 2005. Gross profit for the
      six
      months ended June 30, 2006 increased $623,556 or 24.1% to $3,211,864 from
      $2,588,308 for the same period in 2005. The increase for both periods is
      principally a result of increased revenues for the period along with increased
      margins from sales of Symbiotics and Ageless products versus the Company’s core
      products. Gross profit, as a percentage of sales increased from 43.9% and 45.6%
      of net sales in the three and six month periods ended June 30, 2005
      respectively, to 48.2% and 48.8% of net sales in the three and six month periods
      ended June 30, 2006 respectively, due to higher margins related to Ageless
      products which carry an average gross margin of 72% and Symbiotics products
      which carry an average gross margin of 60% compared to the average gross margin
      for other Registrant products of 45%.





*Operating
      Costs and Expenses*





Operating
      costs and expenses for the three months ended June 30, 2006 increased by
      $1,073,299 to $2,564,870, or 92.0% of net sales, from $1,491,571, or 54.0%
      of
      net sales, for the same period in 2005. Operating expense for the period include
      a non-cash charge of $233,333 in amortization of intangible assets acquired
      in
      acquisitions and one time costs of $133,383 related to financing and potential
      acquisition activities. Without these non-recurring and non-cash expenses,
      operating costs would have been 78.9% of net sales for the period. The remaining
      increase in operating costs for the period is related to increased professional
      fees for audit and consulting of $138,407 related to the integration of the
      acquisitions by the Company in late 2005, $265,000 related to the forgiveness
      of
      management fees by the Company’s principal shareholder in 2005 coupled with
      $75,000 in management fees charged by the Company’s new principal shareholder in
      2006 and payroll related charges of $310,615 for employees acquired in the
      Ageless and Symbiotics acquisition .




Operating
      costs and expenses for the six months ended June 30, 2006 increased $1,780,757
      to $4,880,011, or 74.1% of net sales, from $3,099,254, or 54.6% of net sales,
      for the same period in 2005. Operating expense for the period includes a
      non-cash charge of $466,667 in amortization of intangible assets acquired in
      acquisitions and non-recurring costs of $296,459 related to financing and
      potential acquisition activities. Without these one-time and non-cash expenses,
      operating costs would have been 62.5% of net sales for the period. The remaining
      increase in operating costs for the period is related to increased professional
      fees for audit and consulting of $138,407 related to the integration of the
      acquisitions by the Company in late 2005, $265,000 related to the forgiveness
      of
      management fees by the Company’s principal shareholder in 2005 coupled with
      $150,000 in management fees charged by the Company’s new principal shareholder
      in 2006 and payroll related charges of $464,224 for employees acquired in the
      Ageless and Symbiotics acquisition .





*Interest
      Expense*





Interest
      expense for the three months ended June 30, 2006 increased $618,109 to $705,676
      from $87,568 compared to the same period in 2005 principally due to amortization
      of deferred financing fees and debt discounts of $653,188 in 2006 related to
      the
      recapitalization of the Registrant coupled with the acquisitions of Symbiotics
      and Ageless.





29


Interest
      expense for the six months ended June 30, 2006 increased $1,387,141 to
      $1,560,516 from $173,375 compared to the same period in 2005 principally due
      to
      amortization of deferred financing fees and debt discounts of $1,186,491 in
      2006
      related to the recapitalization of the Registrant coupled with the acquisitions
      of Symbiotics and Ageless. 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 six months ended June 30, 2006 resulted in an increase
      of
      $200,650 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 $428,885 in the six months ended
      June 30, 2006, compared to cash provided of $585,622 from operating activities
      in the six months ended June 30, 2005. This increase in cash used from operating
      activities is primarily due to the increased net loss for the period partially
      offset by the increase in cash provided by accounts payable of $1,157,120 during
      the period related to cash constraints incurred by the Company during the period
      combined with a decrease in cash provided by inventory and cash provided by
      receivables of $during the same period in 2005.





Net
      cash
      provided by inventories was $163,208 for the six months ended June 30, 2006,
      compared with net cash provided by inventories of $647,643 for the six months
      ended June 30, 2005. Management elected to reduce inventories during the first
      six months of 2005 in order to offset reduced sales forecasted for the period.
      The Company continues to maintain inventory levels necessary to minimize demands
      on cash yet sufficient to meet current customer orders, however, the Company
      has
      incurred a reduction in fill rates due to cash constraints on the purchasing
      of
      inventory, from an average of 92% in 2005 to approximately 83% in 2006,resulting
      in lost sales during the period.





Net
      cash
      provided from accounts receivable was $187,784 for the six month period ended
      June 30, 2006 compared to net cash provided from accounts receivable of $610,065
      for the same period of 2005, principally due a larger increase in sales from
      January 1, 2005 to June 30, 2005 versus the same period in 2006. General
      customer terms, receivable days outstanding and the Company’s collection
      policies have remained constant.





Net
      cash
      provided by accounts payable and accrued expenses was $1,157,120 for the six
      month period ended June 30, 2006 compared to net cash provided of $24,441 for
      the same period of 2005, principally due to an increase in accounts payable
      related an extension of vendor days outstanding to approximately 90 days as
      a
      result of the Company’s cash position during the period coupled with increased
      purchases by the Company over the same period in 2005 due to increased
      sales..





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





The
      Company’s working capital deficit increased $1,277,368 from $6,592,541 at
      December 31, 2005 to $7,869,909 at June 30, 2006. This increase was largely
      due
      an increase in accounts receivable of $ 187,784 related to decreased sales
      during the later portion of the period coupled with a decrease in inventories
      of
      $163,208 and an increase in accounts payable and accrued expenses of $1,019,530
      due to the difficulties in purchasing inventories due to the cash constraints
      on
      the Company and borrowings of $350,000 from a principal shareholder of the
      Company partially offset by the transfer of $740,909 of revolving debt to term
      debt in conjunction with the amendment of the Laurus Financing Agreement on
      January 11, 2006.





30


The
      Company’s cash used by financing activities was $420,022 for the six months
      ended June 30, 2006, compared to cash used by financing activities of $535,767
      for the same period of 2005. The decrease in cash used by financing activities
      was the result of borrowings of $590,099 on the Term Note during the six months
      ending June 30, 2006 combined with increased borrowings from related parties
      of
      $350,000 compared to $175,000 in the same period of 2005. This was partially
      offset by increased repayments on the line of credit of  $961,003 as
      compared to $705,158 in 2005.





As
      of
      June 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 June 30, 2006, the Company had an
      accumulated deficit of $33,260,246, a net working capital deficit of $7,869,909
      and a stockholders’ capital deficiency of $10,866,116, 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 is seeking to raise additional funds through
      the sale of public or private equity and/or debt financings or from other
      sources. No assurance can be given that additional financing will be available
      in the future or that, if available, such financing will be obtainable on terms
      acceptable to the Company or its stockholders.





31


**Impact
      of Contractual Obligations and Commercial Commitments**





The
      following summarizes the Company’s contractual obligations at June 30, 2006 and
      the effects such obligations are expected to have on liquidity and cash flow
      in
      future periods.





**Payments
                Due by Period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than 1 Year**
            
            **1-3
                Years**
            
            **4-5
                Years**
            
            **After
                5 Years**Long-term
                debt
            
            $
            3,354,572
            
            $
            2,037,572
            
            $
            1,317,000
            
            
            -0-
            
            
            -0-Seller
                notes
            
            
            2,700,040
            
            
            1,773,734
            
            
            926,306
            
            
            -0-
            
            
            -0-Revolving
                credit
            
            
            2,135,819
            
            
            2,135,819
            
            
            -0-
            
            
            -0-
            
            
            -0-Operating
                leases
            
            
            3,108,847
            
            
            420,603
            
            
            770,574
            
            
            817,330
            
            
            1,100,340Employment
                agreements (a)
            
            
            2,450,000
            
            
            650,000
            
            
            900,000
            
            
            900,000
            
            
            (a
            )Consulting
                agreements
            
            
            300,000
            
            
            300,000
            
            
            -
                0-
            
            
            -
                0-
            
            
            -
                0-Total
                contractual cash obligations
            
            
            14,049,278
            
            
            7,317,728
            
            
            3,913,880
            
            
            1,717,330
            
            
            1,100,340Series
                C ConvertibleRedeemable
                Preferred Stock
            
            
            21,000,000
            
            
            -
                0-
            
            
            -
                0-
            
            
            -
                0-
            
            
            21,000,000Total
            
            $
            35,049,278
            
            $
            7,317,728
            
            $
            3,913,880
            
            $
            1,717,330
            
            $
            22,100,340


____________





(a)  Employment
      agreement for Chief Operating Officer/Chief Financial Officer has an indefinite
      term.





**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.





32


**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 2), 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 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,
      and $368,000 for the fiscal years ended December 31, 2001, 2002, 2003, 2004,
      and
      2005, respectively, and $5,931,639 loss for the six months ended June 30, 2006.
      At June 30, 2006, the Company had an accumulated deficit of $33,260,246, a
      net
      working capital deficit of $7,869,909 and a stockholders’ capital deficiency of
      $10,866,116. 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. Based on this situation, 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 December 31, 2005 financial
      statements have been prepared on the assumption that it will continue as a
      going
      concern and do not include material adjustments that would be necessary if
      the
      Company were to cease operation.





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





In
      our
      acquisition of Ageless, we assumed accounts payable of $173,593 and an
      obligation to an employee in the amount of $600,000. In addition, we 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 our acquisition
      of
      Symco and Symbiotics, we assumed accounts payable of $408,965, indebtedness
      under credit facilities of $224,313 and obligations under certain contracts,
      totaling $274,382. In addition, we 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 6, “Acquisitions.” We have only limited resources available to
      us. If these resources are insufficient to allow us to pay these obligations
      as
      they come due and to maintain our business as it is currently operated, we
      could
      be forced to cease operations, and investors in our common stock could lose
      their entire investment.


33


***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 issuance of a going concern opinion since such opinion
      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.





On
      July
      26, 2005, we entered into a Financing Agreement with Laurus, pursuant to which
      Laurus provided us 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 Financing
      Agreement was amended on January 11, 2006 whereby the term loan was increased
      to
      $1,650,000. The amount available for borrowing under the Financing Agreement
      may
      be limited by such reserves as Laurus deems proper based upon significant
      developments relating to the Company or its account debtors. Laurus’
discretionary rights could reduce the amount of funds available for borrowing
      under the revolving credit facility.





Although
      the Company believed that the financing under the Financing Agreement was
      sufficient to meet its current operating needs, recent operating results
      indicate that additional financing will be required during the next 12 months
      in
      order to continue to acquire additional brands or businesses and continue
      operations. In connection with the Financing Agreement, Naturade granted Laurus
      an option to purchase 8,721,375 shares of common stock at a purchase price
      of
      $0.0001 per share and a warrant to purchase 1,500,000 shares at a purchase
      price
      of $0.80 per share. On August 15, 2006, the closing sales price of the Company’s
      common stock in the over-the-counter market was $0.10. The issuance of these
      shares of common stock could cause substantial dilution to the Company’s
      stockholders, depress the market price of the Company’s common stock and impair
      the Company’s ability to raise capital by selling the Company’s common
      stock.





***The
      Company’s revenues depend on the integration and continued revenues
      of***  ***acquired
      businesses.***





On
      July
      28, 2005, pursuant to an Assignment and Assumption Agreement, Quincy assigned
      to
      the Company all of its right, title and interest in and to the Ageless Agreement
      and the Symco/Symbiotics Agreement and the Company agreed to perform all of
      Quincy’s obligations under the Ageless Agreement and the Symco/Symbiotics
      Agreement. The Company’s success depends on the integration of these acquired
      companies and their continued revenues. If Naturade is not successful in
      integrating these acquisitions or future acquisitions, the Company’s future
      growth may be hindered which may have a material adverse effect on the Company’s
      business and financial condition.





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





The
      Company’s three largest customer’s together account for 44.6% of net sales for
      the six months ended June 30, 2006. One mass market customer, Wal-Mart/Sam’s
      Club, represented approximately 19.0% of the Company’s net sales, and two health
      food distributors, United Natural Foods, Inc. (“UNFI”) and Tree of Life, Inc.,
      accounted for 13.4% and 12.1%, respectively, of the Company’s net sales, during
      the six months ended June 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, 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. For
      example, Wal-Mart elected to eliminate all protein powders from distribution
      in
      November 2004. As a result, the Company’s revenues in 2005 were reduced by
      $960,000 as a result of the discontinuance of Naturade Total Soy® products by
      Wal-Mart. In addition, the Company elected to discontinue a national seasonal
      program with Costco in 2004, instead electing to promote a regional program
      in
      high volume regions. This resulted in a reduction of approximately $1,450,000
      in
      annual revenues from Costco.




34




***The
      Company depends on third-party suppliers and manufacturers for
      its***  ***products.***





The
      Company depends upon third-party suppliers and manufacturers, such as Omni
      Pak
      Industries and Nellson Nutraceuticals, for its products. Naturade does not
      have
      long-term supply agreements with any of its suppliers or manufacturers. Although
      the Company believes that alternative sources of materials and contract
      manufacturing services are available, the loss of one or more suppliers or
      manufacturers could have a material adverse effect on results of operations
      until an alternative source is located and has commenced producing the Company’s
      products.





***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.





***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 does not have long-term supply agreements and the going concern opinion
      by our independent registered public accounting firm may lower vendor confidence
      in us and they may refuse to provide products or do business with us, or may
      do
      so only on less favorable terms, which could cause our net sales to decline.
      In
      addition, our current cash position could result in a higher degree of credit
      risk than normal for our 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 our cost for product and ultimately
      decrease our profitability. Any unfavorable change in our cash position could
      result in additional costs for product affecting our profitability. From time
      to
      time, we have experienced difficulties with various vendors requiring us to
      purchase product on cash upon delivery (“COD”) basis. As a result of purchasing
      on a COD basis, we could experience significant delays in shipments to our
      customers, which could have a material affect on our operating
      results.





***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.





35


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. Naturade 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.





36


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





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





**•**
            At
                June 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.





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





o
            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.





o
            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.





o
            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.





o
            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:





o
            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.





o
            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.





o
            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.





o
            Laurus
                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.




37





o
            Quincy,
                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).





o
            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 June 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 June 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 June
      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 June
      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.





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
      June 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.





38








***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.





***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.





***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, 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.





39


***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.





40


***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 June 30, 2006, the
      average daily trading volume of its common stock was 6,240 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.





***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.





41


***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.





42




***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 $92,345 in Investor Notes. 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 Investor Notes
      bear interest at 15% per annum with the remaining balance due on June 30, 2006.
      However, given the fixed interest rate on the Loan Agreement and Investor Notes,
      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 six month period ended June 30,
      2006, the interest expense on the line of credit was $169,380. If the interest
      rate on the line of credit for the six month period ended June 30, 2006 had
      increased by one percent to prime rate plus 3.0%, this would result in an
      interest expense of $185,905.





***ITEM
      4*** **.
      Controls and Procedure** s.





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
      was
      no change in the Company’s internal control over financial reporting, that
      occurred during the period covered by the report that has materially affected,
      or is reasonably likely to materially affect, the Company’s internal control
      over financial reporting.





43


**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, our Chairman of the Board, 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 June 30,
      2006
      and management believes that the lease will be rejected as a result of the
      Chapter 11 Matter.





On
      June
      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 June 30, 2006.




***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.**




During
      the 3 months ended June 30, 2006, the Company issued the following equity
      securities directly, without the services of an underwriter, and without
      registration under the Securities Act of 1933, as amended (the “Securities
      Act”), in reliance on Section 4(2) of the Securities Act:





**•**
            The
                Company issued to CEO Cast, Inc., 400,000 shares of common stock,
                in
                consideration of CEO Cast, Inc. providing certain investor relations
                consulting. The shares were valued at a price of $0.10 ($60,000),
                which
                was the closing price of the Company’s common stock on May 31, 2006, and
                the total costs of $60,000 was charged to selling, general and
                administrative expense in May 2006;
                and,





**•**
            The
                Company issued to Howard Shao, 1,000,000 shares of common stock in
                payment
                of the Investor Notes plus accrued interest to Mr. Shao (see Note
                7). The
                shares were valued at a price of $0.12 ($120,000), which was the
                closing
                price of the Company’s common stock on May 25, 2006.





44




***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****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.





45


**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:
                September 25, 2006
            By
            */s/*Richard
                MunroRichard
                MunroChief
                Executive OfficerDATE:
                September 25, 2006
            By
            */s/*Adam
                MichelinAdam
                MichelinPrincipal
                Accounting Officer






46


**EXHIBIT
      INDEX**





**Exhibit**
              **Number**
            **Document****31.1
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**31.2
            Certification
                Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934,
                Adopted
                Pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002**32
            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.





47