##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the quarterly period ended September 30, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the transition period from  to
 Commission File Number: 33-7106-A
 NATURADE, INC.
  Delaware
    
    23-2442709(State or other jurisdiction of incorporation or
    
    (I. R. S. Employer Identification No.)organization)
 14370 Myford Rd., Irvine, California 92606
 (714) 573-4800
 
 þ o
 o þ
 o þ




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FORM 10-Q
 QUARTERLY REPORT
Quarter Ended September 30, 2005
 TABLE OF CONTENTS
 PAGEPART I. FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (unaudited)Balance Sheets as of September 30, 2005 and December 31, 2004
    
    
    3Statements of Operations for the three and nine months ended September 30, 2005 and September 30, 2004
    
    
    4Statements of Cash Flows for the nine months ended September 30, 2005 and September 30, 2004
    
    
    5Notes to Financial Statements
    
    
    6Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4.
    
    Controls and Procedures
    
    
    36PART II. OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    37Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3.
    
    Defaults Upon Senior Equity Securities
    
    
    38Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    38Item 5.
    
    Other Information
    
    
    38Item 6.
    
    Exhibits
    
    
    39SIGNATURES
    
    
    42EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 ITEM 1. Financial Statements.
 NATURADE, INC.
 Balance Sheets
As of September 30, 2005 and December 31, 2004
(Unaudited)
 September 30, 2005
    
    
    December 31, 2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    211,724
    
    
    $
    210,573Accounts receivable, net
    
    
    2,038,828
    
    
    
    2,186,431Inventories, net
    
    
    1,216,635
    
    
    
    1,598,685Prepaid expenses and other current assets
    
    
    319,175
    
    
    
    268,810Total current assets
    
    
    3,786,362
    
    
    
    4,264,499Property and equipment, net
    
    
    149,854
    
    
    
    94,890Goodwill
    
    
    4,508,685
    
    
    
    Intangible
assets, net
    
    
    2,544,444
    
    
    
    Deferred financing fees
    
    
    501,635
    
    
    
    Other assets
    
    
    42,002
    
    
    
    42,002Total assets
    
    $
    11,532,982
    
    
    $
    4,401,391LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable
    
    $
    2,702,120
    
    
    $
    2,666,425Accrued expenses
    
    
    704,336
    
    
    
    513,544Current portion of Notes Payable to Related Parties
    
    
    92,345
    
    
    
    1,067,954Revolving Credit, net of discount of $742,357
    
    
    1,175,477
    
    
    
    Current portion of long-term debt
    
    
    2,108,234
    
    
    
    1,875,897Total current liabilities
    
    
    6,782,512
    
    
    
    6,123,820Long-term Notes Payable to Related Parties,less current maturities
    
    
    1,250,000
    
    
    
    Long-term debt, less current maturities
    
    
    1,616,305
    
    
    
    Total Liabilities
    
    
    9,648,817
    
    
    
    6,123,820COMMITMENTS AND CONTINGENCIESREDEEMABLE CONVERTIBLE PREFERRED STOCKRedeemable convertible preferred stock, Series B including accumulated preferred
stock dividends of $-0-at September 30, 2005 and $686,578 at
December 31, 2004, less discount of $-0- at September 30, 2005,
and $1,142,858 at December 31, 2004, par value $0.0001 per
share: authorized -0 shares at September 30, 2005 and 50,000,000 at December 31,
2004; issued and outstanding, -0- at September 30, 2005 and 13,540,723 at
December 31, 2004 ($2,000,000 redemption value)
    
    
    
    
    
    
    1,309,119Redeemable convertible preferred stock, Series C including accumulated preferred
stock dividends of $163,098 at September 30, 2005 and $-0- at
December 31, 2004, less discount of $6,686,993 at September 30, 2005,
and $-0- at December 31, 2004, par value $0.0001 per
share: authorized 50,000,000 shares; issued and outstanding, 21,000,000
at September 30, 2005 and -0- at December 31, 2004
($21,000,000 redemption value)
    
    
    14,313,007
    
    
    
    STOCKHOLDERS DEFICIT:Common stock, par value $0.0001 per share; authorized, 100,000,000
shares; issued and outstanding, 39,251,964 at September 30,2005
and 44,533,886 at December 31, 2004
    
    
    3,925
    
    
    
    4,453Preferred stock, Series A, par value $0.0001 per share; authorized, 2,000,000
shares; issued and outstanding, 0 at September 30, 2005 and December 31, 2004
    
    
    0
    
    
    
    0Non-Voting Common stock, par value $0.0001 per share; authorized,
2,000,000 shares; issued and outstanding, 117,284 at September 30, 2005 and
December 31, 2004
    
    
    12
    
    
    
    12Additional paid-in capital
    
    
    12,644,476
    
    
    
    18,987,458Accumulated deficit
    
    
    (25,077,255
    )
    
    
    (22,023,471
    )Total stockholders deficit
    
    
    (12,428,842
    )
    
    
    (3,031,548
    )Total liabilities and stockholders deficit
    
    $
    11,532,982
    
    
    
    4,401,391
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NATURADE, INC
 
 Statements of Operations for the Three Months and Nine Months  Ended
September 30, 2005 and September 30, 2004
 Three Months
    
    
    Three Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    Ended
    
    
    EndedSeptember 30, 2005
    
    
    September 30, 2004
    
    
    September 30, 2005
    
    
    September 30, 2004(Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)
    
    
    (Unaudited)Net sales
    
    $
    3,559,979
    
    
    $
    3,654,751
    
    
    $
    9,235,321
    
    
    $
    10,551,281Cost of sales
    
    
    1,708,575
    
    
    
    1,919,725
    
    
    
    4,795,609
    
    
    
    5,708,393Gross profit
    
    
    1,851,404
    
    
    
    1,735,026
    
    
    
    4,439,712
    
    
    
    4,842,888Costs and expenses:Selling, general and administrative expenses
    
    
    2,367,451
    
    
    
    1,659,614
    
    
    
    5,436,402
    
    
    
    5,446,919Depreciation
    
    
    14,732
    
    
    
    15,877
    
    
    
    45,035
    
    
    
    51,355Amortization
    
    
    155,556
    
    
    
    
    
    
    
    155,556
    
    
    
    Total operating costs and expenses
    
    
    2,537,739
    
    
    
    1,675,491
    
    
    
    5,636,993
    
    
    
    5,498,274Operating income (loss)
    
    
    (686,335
    )
    
    
    59,535
    
    
    
    (1,197,281
    )
    
    
    (655,386
    )Other expense:Interest expense
    
    
    164,170
    
    
    
    78,328
    
    
    
    337,545
    
    
    
    222,526Other expense (income)
    
    
    10,711
    
    
    
    (1,316
    )
    
    
    7,265
    
    
    
    (6,404
    )Loss before provision for income taxes
    
    
    (861,216
    )
    
    
    (17,477
    )
    
    
    (1,542,091
    )
    
    
    (871,508
    )Provision for income taxes
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    800Net loss
    
    
    (861,216
    )
    
    
    (17,477
    )
    
    
    (1,542,891
    )
    
    
    (872,308
    )Less:Preferred Stock Dividend
    
    
    (21,310
    )
    
    
    (63,928
    )
    
    
    (157,318
    )
    
    
    (187,145
    )Deemed Dividend-Series B
    
    
    (23,810
    )
    
    
    (71,429
    )
    
    
    (166,667
    )
    
    
    (214,285
    )Deemed Dividend-Series C
    
    
    (163,098
    )
    
    
    
    
    
    
    (163,098
    )
    
    
    Net loss applicable to common shares
    
    $
    (1,069,434
    )
    
    $
    (152,834
    )
    
    $
    (2,029,974
    )
    
    $
    (1,273,738
    )Loss per share:Basic
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Weighted Average Number of Shares used in Computation of
Loss per Share:Basic
    
    
    39,533,703
    
    
    
    44,533,886
    
    
    
    42,873,825
    
    
    
    44,533,886Diluted
    
    
    39,533,703
    
    
    
    44,533,886
    
    
    
    42,873,825
    
    
    
    44,533,886
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NATURADE, INC
 
 Statements of Cash Flows for the Nine Months
Ended September 30, 2005 and September 30, 2004
 Nine Months Ended
    
    
    Nine Months EndedSeptember 30, 2005
    
    
    September 30, 2004(Unaudited)
    
    
    (Unaudited)Cash flows from operating activities:Net loss
    
    ($
    1,542,891
    )
    
    ($
    872,308
    )Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:Depreciation and amortization
    
    
    200,591
    
    
    
    51,355Amortization of loan discounts and deferred finance fees
    
    
    56,089
    
    
    
    Changes in assets and liabilities:Accounts receivable
    
    
    506,669
    
    
    
    735,303Inventories
    
    
    708,242
    
    
    
    (302,206
    )Prepaid expenses and other current assets
    
    
    (340,865
    )
    
    
    (56,002
    )Other assets
    
    
    
    
    
    
    (12,000
    )Accounts payable and accrued expenses
    
    
    (344,326
    )
    
    
    654,508Net cash provided by (used in) operating activities:
    
    
    (756,491
    )
    
    
    198,650Cash flows from investing activities:Acquisitions
    
    
    (558,695
    )
    
    
    Net cash used in financing activities:
    
    
    (558,695
    )
    
    
    Cash flows from financing activities:Net payments under line of credit
    
    
    (1,875,897
    )
    
    
    (501,630
    )Net borrowings under revolver
    
    
    1,917,843
    
    
    
    Proceeds from term loan
    
    
    1,000,000
    
    
    
    Proceeds on issuance of debt to related parties
    
    
    300,000
    
    
    
    500,000Payments of long-term debt
    
    
    (25,609
    )
    
    
    (73,853
    )Net cash provided by (used in) financing activities:
    
    
    1,316,337
    
    
    
    (75,483
    )Net increase in cash and cash equivalents
    
    
    1,151
    
    
    
    123,167Cash and cash equivalents, beginning of period
    
    
    210,573
    
    
    
    144,102Cash and cash equivalents, end of period
    
    $
    211,724
    
    
    $
    267,269Supplemental Disclosures of Cash Flow InformationCash paid during the period for:Interest
    
    $
    132,001
    
    
    $
    132,858Taxes
    
    $
    800
    
    
    $
    800Non-cash financing activities:Preferred stock dividend
    
    $
    157,318
    
    
    $
    187,145Deemed dividend-Series B
    
    $
    166,667
    
    
    $
    214,285Deemed dividend-Series C
    
    $
    163,098
    
    
    $
    0Acquired business (Note 6):Non-cash consideration:Fair value of common stock issues
    
    $
    3,803,895
    
    
    $
    0Fair value of preferred stock
    
    $
    336,000
    
    
    $
    0Notes Payable
    
    $
    2,724,539
    
    
    $
    0
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NATURADE, INC.
 
 Notes to Financial Statements
(Unaudited)
 1.
    
    Basis of Presentation The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United States for interim
financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by accounting
principles generally accepted in the United States for complete financial statements. The
preparation of financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes. Actual results
could differ from those estimates.The results of operations for the interim periods shown in this report are not necessarily
indicative of results to be expected for the fiscal year. In the opinion of management, the
information contained herein includes all adjustments necessary for the fair presentation of the
financial statements. All such adjustments are of a normal recurring nature. These financial
statements do not include all disclosures associated with the Companys annual audited financial
statements included in the Companys Annual Report on Form 10-K and, accordingly, should be read
in conjunction with such statements.The Companys financial statements have been prepared based upon the assumption that the Company
will continue as a going concern. The Companys independent registered public accounting firm has
qualified their report on the Companys financial statements for the fiscal year ended December
31, 2004 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.
 2.
    
    Inventories Inventories are stated at the lower of weighted average cost or market.
Weighted average cost is determined on a first-in, first-out basis. Inventories at September
30, 2005 and December 31, 2004 consisted of the following:
 September 30, 2005
    
    
    December 31, 2004(Unaudited)
    
    
    (Audited)Raw Materials
    
    $
    242,500
    
    
    $
    203,610Finished Goods
    
    
    1,055,446
    
    
    
    1,476,386Subtotal
    
    
    1,297,946
    
    
    
    1,679,996Less: Reserve for Excess and Obsolete Inventories
    
    
    (81,311
    )
    
    
    (81,311
    )$
    1,216,635
    
    
    $
    1,598,685
 3.
    
    Leases The Company rents property and equipment under certain non-cancelable operating
leases expiring in various years through 2007. Future minimum commitments under operating
leases as of September 30, 2005 are as follows:
 Year
    
    Amount2005 (October-December)
    
    $
    113,9812006
    
    
    299,5582007
    
    
    15,320Total
    
    $
    428,859
 4. 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);
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
    
    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 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.
       7




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5.
    
    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, comprising $1,000,000 under the Term Note,
$500,000 under the first minimum borrowing note (the First Minimum Borrowing Note) and
$1,155,250 under the Revolving Note. At September 30, 2005, $1,417,844 was outstanding under
the revolving facility, $500,000 was outstanding under the First Minimum Borrowing Note and
$1,000,000 was outstanding under the term loan.
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6.
    
    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 the right to distribute, and substantially all of the assets related to,
Colostrum Plus, a line of products to enhance immune system functions.
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Cash
    
    $
    558,695Common Stock
    
    
    3,803,895Preferred Stock
    
    
    336,000Notes Payable
    
    
    2,724,539Total
    
    $
    7,423,129
  Accounts receivable
    
    $
    359,066Inventory
    
    
    326,192Equipment
    
    
    100,000Customer lists, trademarks and formulations
    
    
    2,700,000Accounts payable
    
    
    (570,814
    )Goodwill
    
    
    4,508,685Total
    
    $
    7,423,129
  7.
    
    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.
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8.
    
    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.
 9.
    
    Private Equity Transaction On January 2, 2002, the Company privately sold 13,540,723 shares
of Series B Convertible Preferred Stock (the Shares) for $2 million, and warrants, which
expire on December 31, 2004, to purchase an additional 33,641,548 shares of Series B
Convertible Preferred Stock 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 Convertible Preferred Stock bears dividends at a rate of 10% per
annum, which will accumulate and compound semi-annually if not paid in cash. The Series B
Convertible Preferred Stock 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
Convertible Preferred Stock 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 Convertible Preferred Stock voting as a separate class.
  12




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10.
    
    Stock-Based Compensation
 Employee Stock Option Plan 
 Director Stock Options 
 Warrants
   13




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Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber of
    
    
    Price per
    
    
    Number
    
    
    Price perShares
    
    
    Share
    
    
    Exercisable
    
    
    ShareOutstanding at December 31, 2004
    
    
    1,631,000
    
    
    $
    0.19
    
    
    
    1,233,875
    
    
    $
    0.24Granted
    
    
    9,343,875
    
    
    $
    0.01Exercised
    
    
    -0-
    
    
    $
    0Expired
    
    
    (264,500
    )
    
    $
    0.17Outstanding at September 30, 2005
    
    
    10,710,375
    
    
    $
    0.03
    
    
    
    10,361,875
    
    
    $
    0.03
  Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    AverageRemaining
    
    
    Average
    
    
    
    
    
    
    Exercise PriceOptions
    
    
    Contract Life
    
    
    Exercise
    
    
    Options
    
    
    for ExercisableRange of Exercise Prices
    
    Outstanding
    
    
    In Years
    
    
    Price
    
    
    Exercisable
    
    
    Options$0.0001 - $0.01
    
    
    8,721,375
    
    
    Indefinite
    
    $
    0.0001
    
    
    
    8,721,375
    
    
    $
    0.0001$0.025 - $0.08
    
    
    1,230,000
    
    
    
    6
    
    
    $
    0.04
    
    
    
    1,230,000
    
    
    $
    0.04$0.10 - $0.50
    
    
    531,500
    
    
    
    5
    
    
    $
    0.17
    
    
    
    183,000
    
    
    $
    0.21$0.70 - $1.13
    
    
    227,500
    
    
    
    2
    
    
    $
    0.91
    
    
    
    227,500
    
    
    $
    0.91
  Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseNumber of
    
    
    Price per
    
    
    Number
    
    
    Price perShares
    
    
    Share
    
    
    Exercisable
    
    
    ShareOutstanding at December 31, 2004
    
    
    600,000
    
    
    $
    1.00
    
    
    
    600,000
    
    
    $
    1.00Granted
    
    
    29,147,743
    
    
    $
    0.83Exercised
    
    
    -0-
    
    
    $
    0Expired
    
    
    -0-
    
    
    $
    0Outstanding at September 30, 2005
    
    
    29,747,743
    
    
    $
    0.83
    
    
    
    2,100,000
    
    
    $
    0.86
  Weighted
    
    
    
    
    
    
    
    
    
    
    WeightedAverage
    
    
    Weighted
    
    
    
    
    
    
    AverageRemaining
    
    
    Average
    
    
    
    
    
    
    Exercise PriceWarrants
    
    
    Contract Life
    
    
    Exercise
    
    
    Warrants
    
    
    for ExercisableRange of Exercise Prices
    
    Outstanding
    
    
    In Years
    
    
    Price
    
    
    Exercisable
    
    
    Warrants$0.01-$0.10
    
    
    3,647,743
    
    
    
    5
    
    
    $
    0.08
    
    
    
    0
    
    
    $
    0$0.80-$1.10
    
    
    26,100,000
    
    
    
    5
    
    
    $
    0.83
    
    
    
    600,000
    
    
    $
    1.00
 14




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##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net loss: As reported
    
    $
    (861,216
    )
    
    $
    (17,477
    )
    
    $
    (1,542,891
    )
    
    $
    (872,308
    )Add: Stock-based employee
compensation expense included in
reported net loss
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards
    
    
    (3,243
    )
    
    
    (1,426
    )
    
    
    (9,729
    )
    
    
    (4,278
    )Pro forma
    
    $
    (864,464
    )
    
    $
    (18,903
    )
    
    $
    (1,552,620
    )
    
    $
    (876,586
    )Basic and Diluted net loss per share:As reported:Basic
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.03
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Pro forma:Basic
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.00
    )
    
    $
    (0.05
    )
    
    $
    (0.03
    )
 11.
    
    Segment Reporting Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the Companys chief
decision-maker, or decision-making group, in deciding how to allocate resources and in
assessing performance.
   Distribution ChannelsHealth Food
    
    
    Mass Market
    
    
    TotalThree months ended September 30, 2005Sales
    
    $
    2,143,409
    
    
    $
    1,416,570
    
    
    $
    3,559,979Cost of sales
    
    
    909,984
    
    
    
    798,591
    
    
    
    1,708,575Gross profit
    
    $
    1,233,425
    
    
    $
    617,979
    
    
    $
    1,851,404Three months ended September 30, 2004Sales
    
    $
    1,834,638
    
    
    $
    1,820,113
    
    
    $
    3,654,751Cost of sales
    
    
    969,117
    
    
    
    950,608
    
    
    
    1,919,725Gross profit
    
    $
    865,521
    
    
    $
    869,505
    
    
    $
    1,735,026Nine months ended September 30, 2005Sales
    
    $
    5,012,167
    
    
    $
    4,223,154
    
    
    $
    9,235,321Cost of sales
    
    
    2,409,959
    
    
    
    2,385,650
    
    
    
    4,795,609Gross profit
    
    $
    2,602,208
    
    
    $
    1,837,504
    
    
    $
    4,439,712Nine months ended September 30, 2004Sales
    
    $
    5,602,981
    
    
    $
    4,948,300
    
    
    $
    10,551,281Cost of sales
    
    
    3,075,372
    
    
    
    2,633,021
    
    
    
    5,708,393Gross profit
    
    $
    2,527,609
    
    
    $
    2,315,279
    
    
    $
    4,842,888
 15




---



##### Table of Contents



United States
    
    
    International
    
    
    TotalThree months ended September 30, 2005Sales
    
    $
    3,537,613
    
    
    $
    22,366
    
    
    $
    3,559,979Cost of sales
    
    
    1,696,274
    
    
    
    12,301
    
    
    
    1,708,575Gross profit
    
    $
    1,841,339
    
    
    $
    10,065
    
    
    $
    1,851,404Three months ended September 30, 2004Sales
    
    $
    3,539,163
    
    
    $
    115,588
    
    
    $
    3,654,751Cost of sales
    
    
    1,849,849
    
    
    
    69,876
    
    
    
    1,919,725Gross profit
    
    $
    1,689,314
    
    
    $
    45,712
    
    
    $
    1,735,026Nine months ended September 30, 2005Sales
    
    $
    9,133,165
    
    
    $
    102,156
    
    
    $
    9,235,321Cost of sales
    
    
    4,738,199
    
    
    
    57,410
    
    
    
    4,795,609Gross profit
    
    $
    4,394,966
    
    
    $
    44,746
    
    
    $
    4,439,712Nine months ended September 30, 2004Sales
    
    $
    10,188,352
    
    
    $
    362,929
    
    
    $
    10,551,281Cost of sales
    
    
    5,501,275
    
    
    
    207,118
    
    
    
    5,708,393Gross profit
    
    $
    4,687,077
    
    
    $
    155,811
    
    
    $
    4,842,888
  Major Customer Table
 Customer One
    
    
    Customer Two
    
    
    Customer ThreeAccounts
    
    
    
    
    
    
    Accounts
    
    
    
    
    
    
    AccountsReceivable
    
    
    
    
    
    
    Receivable
    
    
    
    
    
    
    ReceivableBalance
    
    
    
    
    
    
    Balance
    
    
    
    
    
    
    BalanceSales
    
    
    Quarter-end
    
    
    Sales
    
    
    Quarter-end
    
    
    Sales
    
    
    Quarter-endThree Months
ended September 30,
2005
    
    $
    750,800
    
    
    $
    184,262
    
    
    $
    532,500
    
    
    $
    370,251
    
    
    $
    348,900
    
    
    $
    247,642Nine Months ended
September 30, 2005
    
    $
    2,236,100
    
    
    $
    184,262
    
    
    $
    1,731,700
    
    
    $
    370,251
    
    
    $
    1,012,800
    
    
    $
    247,642Three Months ended
September 30, 2004
    
    $
    805,500
    
    
    $
    494,704
    
    
    $
    672,700
    
    
    $
    244,806
    
    
    $
    446,200
    
    
    $
    177,931Nine Months ended
September 30, 2004
    
    $
    2,171,100
    
    
    $
    494,704
    
    
    $
    2,181,400
    
    
    $
    244,806
    
    
    $
    1,541,600
    
    
    $
    177,931
 12.
    
    Guarantees In November 2002, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation Number (FIN) 45, Guarantors Accounting and Disclosure Requirements for
Guarantees, including Indirect Guarantees of Indebtedness of Others-an interpretation of FASB
Statements No.5,57 and /07 and rescission of FIN34. The following is a summary of the
Companys agreements that the Company has determined are within the scope of FIN 45.
  16




---



##### Table of Contents



13.
    
    Subsequent EventOn October 7, 2005, the Company entered into an agreement to acquire
certain assets of Innovation Ventures, LLC dba Living Essentials (Living Essentials). The
closing of the acquisition is subject to certain conditions, including the completion of its
due diligence, an audit of Living Essentials financial statements, the Company obtaining
financing and the absence of material adverse changes in the business of Living Essentials.
 17




---



##### Table of Contents



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 above 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.
  The Company
   
    
    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;
    
    ReVivex 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.
    www.naturade.com
 18




---



##### Table of Contents



Recent Developments
 Recapitalization
  Financing
  Acquisitions
   Major trends that affected the Companys results of operations in 2005
  
    
    The sale of the Aloe Vera brand in November 2004 resulted in the
elimination of approximately $51,244 and $501,838 in net sales for these products from
the three months and the nine months ended September 30, 2005, respectively.
    
    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 discontinuance of the ready-to-drink line resulted in a reduction of
$7,955 and $172,113 in net sales for the three months and the nine months ended
September 30, 2005, respectively.
 19




---



##### Table of Contents




    
    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.
    
    The removal of Cox-2 inhibitor prescription arthritis medications by the
FDA resulted in consumer demand for natural pain relief products. The Company
responded to this demand with the introduction of the ReVivex® line of products into
approximately 30,000 retail outlets by September 30, 2005.
 Critical Accounting Policies and Use of Estimates
  Revenue Recognition Revenue Recognition in Financial Statements
  
    
    Distributor AllowancesDistributor 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 AllowancesPromotional 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.
 20




---



##### Table of Contents



For the nine months ended September 30, 2005 and 2004, distributor and promotional
allowances were $1,050,300, or 9.7% of gross sales, and $1,343,300, or 10.7% of
gross sales, respectively.
    
    Damages and ReturnsIn the nine months ended September 30, 2005 and 2004, damages and returns were
charged against revenues based upon historical return rates. Actual damages and
returns are charged against the reserve when the product is returned, charges
deducted or a consumer deduction is received. On a periodic basis, actual charges
are compared to the reserve and, if required, the reserve rate is adjusted to
reflect new trends. For the nine months ended September 30, 2005 and 2004, damages
and returns charged against revenues were $167,600, or 1.5 % of gross sales, and
$218,400, or 1.7 % of gross sales, respectively.The following is a summary of the damages and returns reserve:
 Nine months ended
    
    
    Nine months endedSeptember 30, 2005
    
    
    September 30, 2004Beginning balance
    
    $
    55,067
    
    
    $
    -0-Provision for damages and returns
    
    
    167,600
    
    
    
    218,400Actual damages and returns during the period
    
    
    172,507
    
    
    
    179,760Ending balance
    
    $
    50,160
    
    
    $
    38,640
 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 3.3% of the past months sales
based upon historical run rates in order to properly match revenues and deductions.
    
    Cash DiscountsCash discounts are recorded as deducted by customers from remittances, as the
customer does not earn them until the customer pays according to terms.For the nine months ended September 30, 2005 and 2004, cash discounts were $167,600,
or 1.5 % of gross sales, and $218,400, or 1.7 % of gross sales, respectively.
    
    SlottingSlotting charges related to new distribution (either a new customer or a new product
introduced to an existing customer) are recorded as a prepaid expense as incurred
and amortized over 12 months as a reduction of revenues. Should a customer cease
purchasing from Naturade or discontinue the respective product line, the unamortized
slotting costs are charged against revenues at that time. There have been no
significant unamortized slotting charges charged against revenues in the periods
reported.For the nine months ended September 30, 2005 and 2004, slotting costs were $162,800,
or 1.5 % of gross sales, and $77,88, or 1.8 % of gross sales, respectively.
    
    Coupon and Rebate RedemptionCoupon and rebate costs are charged against revenues as redeemed. Historically,
Naturade has incurred insignificant redemption of its consumer coupons or rebates.For the nine months ended September 30, 2005 and 2004, coupon and rebate costs were
$2,600, and $6,000, or respectively.
 21




---



##### Table of Contents



Inventory Valuation
 Accounts Receivable and Allowances for Uncollectible Accounts
 Results of Operations
  Percent of Net Sales
    
    Percentage Dollar Increase (Decrease)Nine Months Ended September 30,
    
    Nine Months Ended September 30,2005
    
    2004
    
    2005
    
    2004Net sales
    
    
    100
    %
    
    
    100
    %
    
    
    (12
    %)
    
    
    (10
    %)Gross profit
    
    
    48
    %
    
    
    46
    %
    
    
    (8
    %)
    
    
    (11
    %)Selling, general and
administrative expenses
    
    
    61
    %
    
    
    52
    %
    
    
    0
    %
    
    
    (8
    %)Operating loss
    
    
    (13
    %)
    
    
    (6
    %)
    
    
    (83
    %)
    
    
    (22
    %)Loss before provision for
income taxes
    
    
    (17
    %)
    
    
    (8
    %)
    
    
    (77
    %)
    
    
    32
    %Provision for income taxes
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %
    
    
    0
    %Net loss
    
    
    (17
    %)
    
    
    (8
    %)
    
    
    (77
    %)
    
    
    32
    %
 Net Sales
    22




---



##### Table of Contents



Mass Market Net Sales.
 Health Food Net Sales.
 Channels of Distribution
  23




---



##### Table of Contents



Gross Profit
  Operating Costs and Expenses
  Interest Expense
  Liquidity and Capital Resources
   24




---



##### Table of Contents



25




---



##### Table of Contents



Impact of Contractual Obligations and Commercial Commitments
  Payments Due by PeriodContractual Obligations
    
    Total
    
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 YearsLong-term debt
    
    $
    6,242,361
    
    
    $
    3,283,711
    
    
    $
    1,616,305
    
    
    
    -0-
    
    
    
    -0-Operating leases
    
    
    428,859
    
    
    
    113,981
    
    
    $
    314,878
    
    
    
    -0-
    
    
    
    -0-Employment agreements (a)
    
    
    1,721,250
    
    
    
    389,250
    
    
    
    666,000
    
    
    
    666,000
    
    
    
    (a
    )Consulting agreements
    
    
    250,000
    
    
    
    250,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Total contractual cash obligations
    
    
    8,624,470
    
    
    
    4,036,942
    
    
    
    2,597,183
    
    
    
    666,000
    
    
    
    -0-Series C Convertible Redeemable
Preferred Stock
    
    
    21,000,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    21,000,000Total
    
    $
    29,624,470
    
    
    $
    4,036,942
    
    
    $
    2,597,183
    
    
    $
    666,000
    
    
    $
    21,000,000
 
 (a)
    
    Employment agreement for Chief Operating Officer/Chief Financial Officer and Executive
Vice President of Sales have indefinite terms. New Accounting Pronouncements
 Share Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees"
  Inventory Costs
 26




---



##### Table of Contents



Forward Looking Statements
  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.
 The Company may incur future losses which may affect its ability to continue as a going concern.
  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 .
  27




---



##### Table of Contents



The Companys revenues depend on the integration and continued revenues of acquired businesses.
  The Companys revenues depend on continued business from the Companys key customers.
  The Company depends on third party suppliers and manufacturers for its products.
  28




---



##### Table of Contents



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 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.
  Restrictions or requirements imposed by government regulation could result in material harm to the
Companys results of operations and financial condition.
   29




---



##### Table of Contents



The Companys competitors may develop products that are more effective or less costly.
  The Companys success depends on its ability to attract and retain qualified personnel.
  Expanding the Companys sales in the mass market resulted in less stable demand for the Companys
products.
  Certain stockholders have the ability to control the Company and have other substantial rights,
preferences and privileges.
  
    
    At September 30, 2005, the Principal Stockholders collectively owned 78.9% of
the Companys outstanding common stock, 100% of its outstanding Series C
Convertible Preferred Stock (the
 30




---



##### Table of Contents



Series C) and options and warrants to
acquire an additional 28.1% 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.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).
 31




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##### Table of Contents



o
    
    Laurus holds promissory notes convertible into an
aggregate of 1,900,000 shares of common stock at a price of $0.80 per
share.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 and convertible promissory notes. 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 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 and convertible promissory notes,
could depress the market price of the Companys common stock and impair its ability to raise
capital by selling its 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.
  32




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##### Table of Contents



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s future success depends on the Companys ability to develop and commercialize
products.
  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 change in control affected by the Companys recent recapitalization may restrict future use of
its tax loss carry forwards.
  The Company may not have sufficient resources to address product liability exposure.
  33




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##### Table of Contents



The dietary supplement industry as a whole is experiencing a decline in sales.
  Adverse publicity may affect the Companys ability to attract and retain distributors.
  The Company may not be able to protect its intellectual property which could enable other companies
to replicate its products.
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##### Table of Contents



New products are expensive to introduce and may not be successful.
  The Companys stock price may be subject to significant fluctuations.
  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.
    35




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##### Table of Contents



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.
  
 ITEM 3 . Quantitative and Qualitative Disclosures About Market Risk.
   
 ITEM 4 . Controls and Procedure
    36




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##### Table of Contents



PART II. Other Information
 
 ITEM 1. Legal Proceedings.
 NONE
 
 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
    
    The Company issued to Quincy (i) 30,972,345 shares of common stock, (ii) warrants to
purchase 14,000,000 shares of common stock at $0.80 per share, and (iii) 4,200,000 shares
of Series C, all in consideration of Quincy negotiating, and arranging the financing for,
the Companys acquisition of selected assets of Ageless, Symco and Symbiotics and
guaranteeing the payment of a portion of the purchase price of each such acquisition;
    
    The Company issued to Health Holdings (i) 12,600,000 shares of Series C and (ii) a
warrant to purchase 10,000,000 shares of common stock at a purchase price of $1.00 per
share and, in exchange therefor, Health Holdings surrendered for cancellation 41,054,267
shares of common stock; and
    
    The Company issued to Westgate 4,200,000 shares of Series C, entitling Westgate, at any
time after July 22, 2006, to convert such shares into one share of common stock at a
purchase price of $0.80 per share and, in exchange therefor, Westgate surrendered for
cancellation 13,540,723 shares of Series B Convertible Preferred Stock.These securities were issued to Quincy, Health Holdings and Westgate pursuant to the
Master Investment Agreement, dated as of July 22, 2005. See Note 4 to the Financial
Statements.On July 26, 2005, the Company issued the following equity securities directly to Laurus,
without the services of an underwriter, and without registration under the Securities
Act, in reliance on Section 4(2) of the Securities Act:
    
    $3,000,000 revolving note;
    
    $1,000,000 convertible term note, convertible into 1,250,000 shares of common stock at
$0.80 per share;
    
    $500,000 first minimum convertible borrowing note, convertible into 625,000 shares of
common stock at $0.80 per share;
    
    Warrant to purchase up to 1,500,000 shares of common stock at a purchase price of $0.80
per share; and
    
    Option 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 $0.0001
per share.
   37




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##### Table of Contents



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
 38




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##### Table of Contents



ITEM 6. Exhibits
  Exhibit No.
    
    Description3.1
    
    Certificate of Incorporation of Naturade, Inc., together
with amendments and Certificates of Designation relating
thereto, incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.3.2
    
    Certificate of Amendment to Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on December 20, 2001, incorporated by reference to
Exhibit 3.3 to the Companys Current Report on Form 8-K
filed on January 3, 2002.3.3
    
    Certificate of Designation of Series B Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on December 20, 2001, incorporated by
reference to Exhibit 3.5 to the Companys Current Report
on Form 8-K filed on January 3, 2002.3.4
    
    Certificate of Amendment to Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on December 28, 2001, incorporated by reference to
Exhibit 3.4 to the Companys Current Report on Form 8-K
filed on January 3, 2002.3.5
    
    Certificate of Elimination of Series A Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on January 3, 2002, incorporated by
reference to Exhibit 3.5 to the Companys Registration
Statement of Form SB-2 (File No. 333-127937) filed on
August 29, 2005.3.6
    
    Certificate of Amendment of Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on May 15, 2003, incorporated by reference to
Exhibit 3.6 to the Companys Registration Statement of
Form SB-2 (File No. 333-127937) filed on August 29, 2005 .3.7
    
    Certificate of Amendment of Certificate of Designation of
Series B Convertible Preferred Stock of Naturade, Inc.,
filed with the Delaware Secretary of State on May 15,
2003, incorporated by reference to Exhibit 3.7 to the
Companys Registration Statement of Form SB-2 (File No.
333-127937) filed on August 29, 2005 .3.8
    
    Certificate of Decrease of Series B Convertible Preferred
Stock of Naturade, Inc., filed with the Delaware Secretary
of State on July 28, 2005, incorporated by reference to
Exhibit 3.8 to the Companys Registration Statement of
Form SB-2 (File No. 333-127937) filed on August 29, 2005.3.9
    
    Certificate of Designation of Series C Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on July 28, 2005, incorporated by
reference to Exhibit 3.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.3.10
    
    Certificate of Elimination of Series B Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on July 28, 2005, incorporated by
reference to Exhibit 3.2 to the Companys Current Report
on Form 8-K filed on July 28, 2005.3.11
    
    Amended and Restated Bylaws of Naturade, Inc., as amended
December 7, 2001, incorporated by reference to Exhibit 3.6
to the Companys Current Report on Form 8-K filed on
January 3, 2002.4.1
    
    Form of certificate of common stock, par value $0.0001 per
share, incorporated by reference to Exhibit 3.8 to the
Companys Registration Statement of Form SB-2 (File No.
333-127937) filed on August 29, 2005.4.2
    
    Form of certificate of Series C Convertible Preferred
Stock, par value $0.0001 per share, incorporated by
reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.1
    
    Master Investment Agreement dated as of July 22, 2005, by
and among the Company, Health Holdings and Botanicals,
LLC, Westgate Equity Partners, L.P., Quincy Investments
Corp., Bill D. Stewart and David A. Weil, incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.
 39




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##### Table of Contents



Exhibit No.
    
    Description10.2
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Health Holdings and Botanicals, LLC to purchase
up to 10,000,000 shares of common stock at $1.00 per
share, incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on July 28,
2005.10.3
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Quincy Investments Corp. to purchase up to
7,000,000 shares of common stock at $0.80 per share,
incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on July 28, 2005.10.4
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Quincy Investments Corp. to purchase up to
7,000,000 shares of common stock at $1.02 per share,
incorporated by reference to Exhibit 10.4 to the Companys
Current Report on Form 8-K filed on July 28, 2005.10.5
    
    Registration Rights Agreement dated as of July 22, 2005,
by and among the Company, Health Holdings and Botanicals,
LLC, Westgate Equity Partners, L.P. and Quincy Investments
Corp., incorporated by reference to Exhibit 10.5 to the
Companys Current Report on Form 8-K filed on July 28,
2005.10.6
    
    Asset Purchase Agreement dated as of July 22, 2005, by and
among Quincy Investments Corp., Symco, Inc. and
Symbiotics, Inc., incorporated by reference to Exhibit
10.6 to the Companys Current Report on Form 8-K filed on
July 28, 2005.10.7
    
    Assignment and Assumption Agreement dated as of July 22,
2005, by and among the Company, Quincy Investments Corp.,
Symco, Inc. and Symbiotics, Inc., incorporated by
reference to Exhibit 10.7 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.8
    
    Asset Purchase Agreement dated as of July 27, 2005, by and
between Quincy Investments Corp. and The Ageless
Foundation, Inc., incorporated by reference to Exhibit
10.8 to the Companys Current Report on Form 8-K filed on
July 28, 2005.10.9
    
    Assignment and Assumption Agreement dated as of July 28,
2005, by and among the Company, Quincy Investments Corp.
and The Ageless Foundation, Inc., incorporated by
reference to Exhibit 10.9 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.10
    
    Security and Purchase Agreement, by and between the
Company and Laurus Master Fund, Ltd., dated July 26, 2005,
incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.11
    
    Common Stock Purchase Option dated as of July 26, 2005,
entitling Laurus Master Fund, Ltd. to purchase up to
8,721, 375 shares of common stock at $0.001 per share,
incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.12
    
    Common Stock Purchase Warrant dated as of July 26, 2005,
entitling Laurus Master Fund, Ltd. to purchase up to
1,500,000 shares of common stock at $0.80 per shares,
incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.13
    
    Secured Convertible Term Note in the amount of $1,000,000,
by and between the Company and Laurus Master Fund, Ltd.,
dated July 26, 2005, incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on
August 1, 2005.10.14
    
    Secured Revolving Note in the amount of $3,000,000, by and
between the Company and Laurus Master Fund, Ltd., dated
July 26, 2005, incorporated by reference to Exhibit 10.5
to the Companys Current Report on Form 8-K filed on
August 1, 2005.10.15
    
    Registration Rights Agreement dated as of July 26, 2005,
by and between the Company and Laurus Master Fund, Ltd.,
incorporated by reference to Exhibit 10.6 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.16
    
    Secured Convertible Minimum Borrowing Note in the amount
of $500,000, by and between the Company and Laurus Master
Fund, Ltd., dated July 26, 2005, incorporated by reference
to Exhibit 10.7 to the Companys Current Report on Form
8-K filed on August 1, 2005.10.17
    
    Promissory Note in the amount of $1,775, 687.46, dated
August 3, 2005, by Quincy Investments Corp. and the
Company payable to Symbiotics, Inc., incorporated by
reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on August 9, 2005.10.18
    
    Promissory Note in the amount of $648,234.00, dated August
5, 2005, by Quincy Investments
 40




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##### Table of Contents



Exhibit No.
    
    DescriptionCorp. and the Company
payable to The Ageless Foundation, Inc., incorporated by
reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on August 9, 2005.10.19
    
    Guaranty of Promissory Note dated as of August 3, 2005, by
Peter H. Pocklington for the benefit of each of Symco Inc.
and Symbiotics, Inc., incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
August 9, 2005.10.20
    
    Guaranty of Promissory Note dated as of August 5, 2005, by
Peter H. Pocklington for the benefit of The Ageless
Foundation, Inc., incorporated by reference to Exhibit
10.10 to the Companys Current Report on Form 8-K filed on
August 9, 2005.10.21
    
    Trademark License Agreement dated August 3, 2005, by and
among the Company, Symco, Inc. and Symbiotics, Inc.,
incorporated by reference to Exhibit 10.9 to the Companys
Current Report on Form 8-K filed on August 9, 2005.10.22
    
    Consulting Agreement dated August 30, 2005, between
Naturade, Inc. and Quincy Investment Corp., incorporated
by reference to Exhibit 1.01 to the Companys Current
Report on Form 8-K filed on September 9, 2005.31.1
    
    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 200231.2
    
    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 200232.1
    
    Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 41




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##### Table of Contents



SIGNATURES
  NATURADE, INC.(Registrant)DATE: November 14, 2005
    
    By
    
    /s/Bill D. StewartBill D. StewartChief Executive OfficerDATE: November 14, 2005
    
    By
    
    /s/Stephen M. KasprisinStephen M. KasprisinChief Financial Officer
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##### Table of Contents



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Certificate of Incorporation of Naturade, Inc., together
with amendments and Certificates of Designation relating
thereto, incorporated by reference to Exhibit 3.1 to the
Companys Annual Report on Form 10-K for the fiscal year
ended September 30, 1997.3.2
    
    Certificate of Amendment to Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on December 20, 2001, incorporated by reference to
Exhibit 3.3 to the Companys Current Report on Form 8-K
filed on January 3, 2002.3.3
    
    Certificate of Designation of Series B Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on December 20, 2001, incorporated by
reference to Exhibit 3.5 to the Companys Current Report
on Form 8-K filed on January 3, 2002.3.4
    
    Certificate of Amendment to Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on December 28, 2001, incorporated by reference to
Exhibit 3.4 to the Companys Current Report on Form 8-K
filed on January 3, 2002.3.5
    
    Certificate of Elimination of Series A Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on January 3, 2002, incorporated by
reference to Exhibit 3.5 to the Companys Registration
Statement of Form SB-2 (File No. 333-127937) filed on
August 29, 2005.3.6
    
    Certificate of Amendment of Certificate of Incorporation
of Naturade, Inc., filed with the Delaware Secretary of
State on May 15, 2003, incorporated by reference to
Exhibit 3.6 to the Companys Registration Statement of
Form SB-2 (File No. 333-127937) filed on August 29, 2005 .3.7
    
    Certificate of Amendment of Certificate of Designation of
Series B Convertible Preferred Stock of Naturade, Inc.,
filed with the Delaware Secretary of State on May 15,
2003, incorporated by reference to Exhibit 3.7 to the
Companys Registration Statement of Form SB-2 (File No.
333-127937) filed on August 29, 2005 .3.8
    
    Certificate of Decrease of Series B Convertible Preferred
Stock of Naturade, Inc., filed with the Delaware Secretary
of State on July 28, 2005, incorporated by reference to
Exhibit 3.8 to the Companys Registration Statement of
Form SB-2 (File No. 333-127937) filed on August 29, 2005.3.9
    
    Certificate of Designation of Series C Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on July 28, 2005, incorporated by
reference to Exhibit 3.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.3.10
    
    Certificate of Elimination of Series B Convertible
Preferred Stock of Naturade, Inc., filed with the Delaware
Secretary of State on July 28, 2005, incorporated by
reference to Exhibit 3.2 to the Companys Current Report
on Form 8-K filed on July 28, 2005.3.11
    
    Amended and Restated Bylaws of Naturade, Inc., as amended
December 7, 2001, incorporated by reference to Exhibit 3.6
to the Companys Current Report on Form 8-K filed on
January 3, 2002.4.1
    
    Form of certificate of common stock, par value $0.0001 per
share, incorporated by reference to Exhibit 3.8 to the
Companys Registration Statement of Form SB-2 (File No.
333-127937) filed on August 29, 2005.4.2
    
    Form of certificate of Series C Convertible Preferred
Stock, par value $0.0001 per share, incorporated by
reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.1
    
    Master Investment Agreement dated as of July 22, 2005, by
and among the Company, Health Holdings and Botanicals,
LLC, Westgate Equity Partners, L.P., Quincy Investments
Corp., Bill D. Stewart and David A. Weil, incorporated by
reference to Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.2
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Health Holdings and Botanicals, LLC to purchase
up to 10,000,000 shares of common stock at $1.00 per
share, incorporated by reference to Exhibit 10.2 to the
Companys Current Report on Form 8-K filed on July 28,
2005.
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##### Table of Contents



Exhibit No.
    
    Description10.3
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Quincy Investments Corp. to purchase up to
7,000,000 shares of common stock at $0.80 per share,
incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on July 28, 2005.10.4
    
    Common Stock Purchase Warrant dated as of July 22, 2005,
entitling Quincy Investments Corp. to purchase up to
7,000,000 shares of common stock at $1.02 per share,
incorporated by reference to Exhibit 10.4 to the Companys
Current Report on Form 8-K filed on July 28, 2005.10.5
    
    Registration Rights Agreement dated as of July 22, 2005,
by and among the Company, Health Holdings and Botanicals,
LLC, Westgate Equity Partners, L.P. and Quincy Investments
Corp., incorporated by reference to Exhibit 10.5 to the
Companys Current Report on Form 8-K filed on July 28,
2005.10.6
    
    Asset Purchase Agreement dated as of July 22, 2005, by and
among Quincy Investments Corp., Symco, Inc. and
Symbiotics, Inc., incorporated by reference to Exhibit
10.6 to the Companys Current Report on Form 8-K filed on
July 28, 2005.10.7
    
    Assignment and Assumption Agreement dated as of July 22,
2005, by and among the Company, Quincy Investments Corp.,
Symco, Inc. and Symbiotics, Inc., incorporated by
reference to Exhibit 10.7 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.8
    
    Asset Purchase Agreement dated as of July 27, 2005, by and
between Quincy Investments Corp. and The Ageless
Foundation, Inc., incorporated by reference to Exhibit
10.8 to the Companys Current Report on Form 8-K filed on
July 28, 2005.10.9
    
    Assignment and Assumption Agreement dated as of July 28,
2005, by and among the Company, Quincy Investments Corp.
and The Ageless Foundation, Inc., incorporated by
reference to Exhibit 10.9 to the Companys Current Report
on Form 8-K filed on July 28, 2005.10.10
    
    Security and Purchase Agreement, by and between the
Company and Laurus Master Fund, Ltd., dated July 26, 2005,
incorporated by reference to Exhibit 10.1 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.11
    
    Common Stock Purchase Option dated as of July 26, 2005,
entitling Laurus Master Fund, Ltd. to purchase up to
8,721, 375 shares of common stock at $0.001 per share,
incorporated by reference to Exhibit 10.2 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.12
    
    Common Stock Purchase Warrant dated as of July 26, 2005,
entitling Laurus Master Fund, Ltd. to purchase up to
1,500,000 shares of common stock at $0.80 per shares,
incorporated by reference to Exhibit 10.3 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.13
    
    Secured Convertible Term Note in the amount of $1,000,000,
by and between the Company and Laurus Master Fund, Ltd.,
dated July 26, 2005, incorporated by reference to Exhibit
10.4 to the Companys Current Report on Form 8-K filed on
August 1, 2005.10.14
    
    Secured Revolving Note in the amount of $3,000,000, by and
between the Company and Laurus Master Fund, Ltd., dated
July 26, 2005, incorporated by reference to Exhibit 10.5
to the Companys Current Report on Form 8-K filed on
August 1, 2005.10.15
    
    Registration Rights Agreement dated as of July 26, 2005,
by and between the Company and Laurus Master Fund, Ltd.,
incorporated by reference to Exhibit 10.6 to the Companys
Current Report on Form 8-K filed on August 1, 2005.10.16
    
    Secured Convertible Minimum Borrowing Note in the amount
of $500,000, by and between the Company and Laurus Master
Fund, Ltd., dated July 26, 2005, incorporated by reference
to Exhibit 10.7 to the Companys Current Report on Form
8-K filed on August 1, 2005.10.17
    
    Promissory Note in the amount of $1,775, 687.46, dated
August 3, 2005, by Quincy Investments Corp. and the
Company payable to Symbiotics, Inc., incorporated by
reference to Exhibit 4.1 to the Companys Current Report
on Form 8-K filed on August 9, 2005.10.18
    
    Promissory Note in the amount of $648,234.00, dated August
5, 2005, by Quincy Investments Corp. and the Company
payable to The Ageless Foundation, Inc., incorporated by
reference to Exhibit 4.2 to the Companys Current Report
on Form 8-K filed on August 9, 2005.
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##### Table of Contents



Exhibit No.
    
    Description10.19
    
    Guaranty of Promissory Note dated as of August 3, 2005, by
Peter H. Pocklington for the benefit of each of Symco Inc.
and Symbiotics, Inc., incorporated by reference to Exhibit
10.1 to the Companys Current Report on Form 8-K filed on
August 9, 2005.10.20
    
    Guaranty of Promissory Note dated as of August 5, 2005, by
Peter H. Pocklington for the benefit of The Ageless
Foundation, Inc., incorporated by reference to Exhibit
10.10 to the Companys Current Report on Form 8-K filed on
August 9, 2005.10.21
    
    Trademark License Agreement dated August 3, 2005, by and
among the Company, Symco, Inc. and Symbiotics, Inc.,
incorporated by reference to Exhibit 10.9 to the Companys
Current Report on Form 8-K filed on August 9, 2005.10.22
    
    Consulting Agreement dated August 30, 2005, between
Naturade, Inc. and Quincy Investment Corp., incorporated
by reference to Exhibit 1.01 to the Companys Current
Report on Form 8-K filed on September 9, 2005.31.1
    
    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 200231.2
    
    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 200232.1
    
    Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
 45