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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2001

or

|/ / | 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

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NATURADE, INC.(Exact name of registrant as specified in its charter)

Delaware(State or other jurisdiction of
incorporation or organization)

23-2442709(I. R. S. Employer Identification No.)14370 Myford Rd., Irvine, California(Address of principal executive offices)

92606(Zip Code)


(714) 573-4800(Registrant's telephone number, including area code)

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

The
number of shares outstanding of the registrant's common stock, as of August 1, 2001: 7,823,639.

Exhibit
Index on Page N/A

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FORM 10-Q  QUARTERLY REPORT  Quarter Ended June 30, 2001

TABLE OF CONTENTS

|           |         |                                                                                                                           |                                                                                       | PAGE NO.
|---------- | ------- | ------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------
|PART I:    |         | FINANCIAL INFORMATION                                                                                                     |                                                                                       |         
|           | Item 1. |                                                                                                                           | Financial Statements                                                                  |         
|           |         | Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000 (audited)                                            |                                                                                       | 3       
|           |         | Statements of Operations for the three and six month period ended June 30, 2001 (unaudited) and June 30, 2000 (unaudited) |                                                                                       | 4       
|           |         | Statements of Cash Flows for the six month period ended June 31, 2001 (unaudited) and June 31, 2000 (unaudited)           |                                                                                       | 5       
|           |         | Notes to Financial Statements                                                                                             |                                                                                       | 6       
|           | Item 2. |                                                                                                                           | Management's Discussion and Analysis of Financial Condition and Results of Operations |         
|           | Item 3. |                                                                                                                           | Quantitative and Qualitative Disclosures About Market Risk                            |         
|PART II:   |         | OTHER INFORMATION                                                                                                         |                                                                                       |         
|           | Item 1. |                                                                                                                           | Legal Proceedings                                                                     |         
|           | Item 2. |                                                                                                                           | Changes in Securities                                                                 |         
|           | Item 3. |                                                                                                                           | Defaults Upon Senior Securities                                                       |         
|           | Item 4. |                                                                                                                           | Submission of Matters to a Vote of Security Holders                                   |         
|           | Item 5. |                                                                                                                           | Other Information                                                                     |         
|           | Item 6. |                                                                                                                           | Exhibits and Reports on Form 8-K                                                      |         
|SIGNATURES |         |                                                                                                                           |                                                                                       | 19      

2

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NATURADE, INC.        Balance Sheets        As of June 30, 2001 and December 31, 2000

|                                                                                                                                                                |                                           | June 30, 2001 |                                             | December 31, 2000 |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------- | ------------------------------------------- | ----------------- | -
|
|ASSETS                                                                                                                                                          |                                           |               |                                             |                   |  
|Current assets:                                                                                                                                                 |                                           |               |                                             |                   |  
|                                                                                                                                                                | Cash and cash equivalents                 |               | $                                           | 54,892            |  
|                                                                                                                                                                | Accounts receivable, net                  |               |                                             | 1,589,250         |  
|                                                                                                                                                                | Inventories                               |               |                                             | 1,887,460         |  
|                                                                                                                                                                | Prepaid expenses and other current assets |               |                                             | 323,463           |  
|                                                                                                                                                                |                                           |               |                                             |                   |  
|                                                                                                                                                                |                                           |               | Total current assets                        |                   |  
|Property and equipment, net                                                                                                                                     |                                           |               | 325,170                                     |                   |  
|Other assets                                                                                                                                                    |                                           |               | 66,666                                      |                   |  
|                                                                                                                                                                |                                           |               |                                             |                   |  
|                                                                                                                                                                |                                           |               | Total assets                                |                   | $
|                                                                                                                                                                |                                           |               |                                             |                   |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                           |                                           |               |                                             |                   |  
|Current liabilities:                                                                                                                                            |                                           |               |                                             |                   |  
|                                                                                                                                                                | Accounts payable                          |               | $                                           | 2,534,325         |  
|                                                                                                                                                                | Accrued expenses                          |               |                                             | 580,499           |  
|                                                                                                                                                                | Current portion of long-term debt         |               |                                             | 1,736,701         |  
|                                                                                                                                                                |                                           |               |                                             |                   |  
|                                                                                                                                                                |                                           |               | Total current liabilities                   |                   |  
|Long-term debt, less current maturities                                                                                                                         |                                           |               | 5,076,160                                   |                   |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                   |                                           |               |                                             |                   |  
|STOCKHOLDERS' DEFICIT:                                                                                                                                          |                                           |               |                                             |                   |  
|Common stock, par value $0.0001 per share; authorized, 50,000,000 shares; issued and outstanding, 7,823,639 at June 30, 2001 and 7,347,389 at December 31, 2000 |                                           |               | 782                                         |                   |  
|Preferred stock, par value $0.0001 per share; authorized, 2,000,000 shares; issued and outstanding, 1,250,024                                                   |                                           |               | 125                                         |                   |  
|Additional paid-in capital                                                                                                                                      |                                           |               | 11,520,723                                  |                   |  
|Accumulated deficit                                                                                                                                             |                                           |               | (17,202,414                                 | )                 |  
|                                                                                                                                                                |                                           |               |                                             |                   |  
|                                                                                                                                                                |                                           |               | Total stockholders' deficit                 |                   |  
|                                                                                                                                                                |                                           |               |                                             |                   |  
|                                                                                                                                                                |                                           |               | Total liabilities and stockholders' deficit |                   | $
|                                                                                                                                                                |                                           |               |                                             |                   |  

See
accompanying notes to financial statements.

3

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NATURADE, INC        Statements of Operations for the Three Months  and Six Months Ended June 30, 2001 and 2000

|                                                                                          |                                              | Three Months
Ended
June 30, 2001   |           | Three Months
Ended
June 30, 2000 |           | Six Months
Ended
June 30, 2001 |           | Six Months
Ended
June 30, 2000 |           
|----------------------------------------------------------------------------------------- | -------------------------------------------- | ---------------------------------- | --------- | -------------------------------- | --------- | ------------------------------ | --------- | ------------------------------ | ----------
|
|Net sales                                                                                 |                                              | $                                  | 4,408,832 |                                  | $         | 3,672,249                      |           | $                              | 8,669,676 
|Cost of sales                                                                             |                                              |                                    | 2,327,601 |                                  |           | 1,863,344                      |           |                                | 4,531,329 
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Gross profit                                                                              |                                              |                                    | 2,081,231 |                                  |           | 1,808,905                      |           |                                | 4,138,347 
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Costs and expenses:                                                                       |                                              |                                    |           |                                  |           |                                |           |                                |           
|                                                                                          | Selling, general and administrative expenses |                                    |           | 2,649,160                        |           |                                | 2,125,607 |                                |           
|                                                                                          | Depreciation and amortization                |                                    |           | 24,120                           |           |                                | 39,984    |                                |           
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|                                                                                          |                                              | Total operating costs and expenses |           |                                  | 2,673,280 |                                |           | 2,165,591                      |           
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Operating loss                                                                            |                                              |                                    | (592,049  | )                                |           | (356,686                       | )         |                                | (1,085,714
|Other expense:                                                                            |                                              |                                    |           |                                  |           |                                |           |                                |           
|                                                                                          | Interest expense                             |                                    |           | 155,150                          |           |                                | 118,351   |                                |           
|                                                                                          | Other expense (income)                       |                                    |           | (4,537                           | )         |                                | 19,344    |                                |           
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Loss before provision for income taxes                                                    |                                              |                                    | (742,662  | )                                |           | (494,381                       | )         |                                | (1,379,675
|Provision for income taxes                                                                |                                              |                                    |          |                                  |           |                               |           |                                |          
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Net loss                                                                                  |                                              | $                                  | (742,662  | )                                | $         | (494,381                       | )         | $                              | (1,379,675
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Basic and Diluted Loss per share                                                          |                                              | $                                  | (0.10     | )                                | $         | (0.07                          | )         | $                              | (0.19     
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           
|Weighted Average Number of Shares used in Computation of Basic and Diluted Loss per Share |                                              |                                    | 7,441,592 |                                  |           | 7,347,389                      |           |                                | 7,394,491 
|                                                                                          |                                              |                                    |           |                                  |           |                                |           |                                |           

See
accompanying notes to financial statements

4

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NATURADE, INC        Statements of Cash Flows for the Six Months  Ended June 30, 2001 and June 30, 2000

|                                                  |                                                     | Six Months Ended
June 30, 2001                                     |                                                | Six Months Ended
June 30, 2000            |                                           
|------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------ | ---------------------------------------------- | ----------------------------------------- | ------------------------------------------
|
|Cash flows from operating activities:             |                                                     |                                                                    |                                                |                                           |                                           
|                                                  | Net loss                                            |                                                                    | $                                              | (1,379,675                                | )                                         
|                                                  |                                                     | Adjustments to reconcile net loss to                               |                                                |                                           |                                           
|                                                  |                                                     | net cash used in operating activities:                             |                                                |                                           |                                           
|                                                  |                                                     |                                                                    | Depreciation and amortization                  |                                           |                                           
|                                                  |                                                     |                                                                    | Provision for bad debt expense                 |                                           |                                           
|                                                  |                                                     |                                                                    | Provision for excess and obsolete inventories  |                                           |                                           
|                                                  |                                                     |                                                                    | Writeoff of debt discount for debt conversions |                                           |                                           
|                                                  |                                                     |                                                                    | Effect of stock options granted                |                                           |                                           
|                                                  |                                                     |                                                                    | Changes in assets and liabilities:             |                                           |                                           
|                                                  |                                                     |                                                                    |                                                | Accounts receivable                       |                                           
|                                                  |                                                     |                                                                    |                                                | Inventories                               |                                           
|                                                  |                                                     |                                                                    |                                                | Prepaid expenses and other current assets |                                           
|                                                  |                                                     |                                                                    |                                                | Other assets                              |                                           
|                                                  |                                                     |                                                                    |                                                | Accounts payable and accrued expenses     |                                           
|                                                  |                                                     |                                                                    |                                                |                                           |                                           
|                                                  |                                                     |                                                                    |                                                |                                           | Net cash used in operating activities:    
|Cash flows from investing activities:             |                                                     |                                                                    |                                                |                                           |                                           
|                                                  |                                                     | Purchase of property and equipment                                 |                                                |                                           | (106,242                                  
|                                                  |                                                     | Proceeds from sale of property and equipment                       |                                                |                                           |                                          
|                                                  |                                                     |                                                                    |                                                |                                           |                                           
|                                                  |                                                     |                                                                    |                                                |                                           | Net cash used in investing activities:    
|Cash flows from financing activities:             |                                                     |                                                                    |                                                |                                           |                                           
|                                                  | Net borrowings under line of credit                 |                                                                    |                                                | (104,813                                  | )                                         
|                                                  | Net borrowings under related party debt             |                                                                    |                                                | 191,004                                   |                                           
|                                                  | Payments of long-term debt, including capital lease |                                                                    |                                                | (16,181                                   | )                                         
|                                                  | Proceeds from issuance of debt to related party     |                                                                    |                                                |                                          |                                           
|                                                  |                                                     |                                                                    |                                                |                                           |                                           
|                                                  |                                                     |                                                                    |                                                |                                           | Net cash provided by financing activities:
|Net decrease in cash and cash equivalents         |                                                     |                                                                    | (147,756                                       | )                                         |                                           
|Cash and cash equivalents, beginning of period    |                                                     |                                                                    | 202,648                                        |                                           |                                           
|                                                  |                                                     |                                                                    |                                                |                                           |                                           
|Cash and cash equivalents, end of period          |                                                     | $                                                                  | 54,892                                         |                                           | $                                         
|                                                  |                                                     |                                                                    |                                                |                                           |                                           
|Supplemental Disclosures of Cash Flow Information |                                                     |                                                                    |                                                |                                           |                                           
|                                                  | Cash paid during the period for:                    |                                                                    |                                                |                                           |                                           
|                                                  |                                                     | Interest                                                           |                                                | $                                         | 104,871                                   
|                                                  |                                                     | Taxes                                                              |                                                |                                           | 800                                       
|                                                  | Non-cash financing activities:                      |                                                                    |                                                |                                           |                                           
|                                                  |                                                     | Conversion of notes and related accrued interest into common stock |                                                |                                           | 152,400                                   

See
accompanying notes to financial statements

5

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NATURADE, INC.        Notes to Financial Statements



June 30, 2001

December 31, 2000(Unaudited)

(Audited)Raw Materials

$
290,612

$
300,219Finished Goods


1,882,565


2,086,058Subtotal


2,173,177


2,386,277Less: Reserve for Excess and Obsolete Inventories


(285,717
)

(296,618
)$
1,887,460

$
2,116,659


Year

Amount2001 (July-December)

$
224,4042002


433,0262003


434,0212004


415,2662005


427,624Thereafter


283,056Total

$
2,217,397


6

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7

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|                                 |               | Distribution Channels |   |          
|-------------------------------- | ------------- | --------------------- | - | ---------
|
|Three months ended June 30, 2001 |               |                       |   |          
|                                 | Sales         |                       | $ | 2,143,366
|                                 | Cost of Sales |                       |   | 1,166,426
|                                 |               |                       |   |          
|                                 |               | Gross Profit          |   | $        
|                                 |               |                       |   |          
|Six months ended June 30, 2001   |               |                       |   |          
|                                 | Sales         |                       | $ | 4,508,495
|                                 | Cost of Sales |                       |   | 2,426,191
|                                 |               |                       |   |          
|                                 |               | Gross Profit          |   | $        
|                                 |               |                       |   |          
|Three months ended June 30, 2000 |               |                       |   |          
|                                 | Sales         |                       | $ | 2,807,918
|                                 | Cost of Sales |                       |   | 1,465,433
|                                 |               |                       |   |          
|                                 |               | Gross Profit          |   | $        
|                                 |               |                       |   |          
|Six months ended June 30, 2000   |               |                       |   |          
|                                 | Sales         |                       | $ | 5,259,745
|                                 | Cost of Sales |                       |   | 2,794,152
|                                 |               |                       |   |          
|                                 |               | Gross Profit          |   | $        
|                                 |               |                       |   |          



8

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|                                 |               | United States |   | International |           | Total
|-------------------------------- | ------------- | ------------- | - | ------------- | --------- | -----
|Three months ended June 30, 2001 |               |               |   |               |           |      
|                                 | Sales         |               | $ | 4,312,322     |           | $    
|                                 | Cost of Sales |               |   | 2,270,607     |           |      
|                                 |               |               |   |               |           |      
|                                 |               | Gross Profit  |   | $             | 2,041,715 |      
|                                 |               |               |   |               |           |      

|                                 |               | United States |   | International |           | Total
|-------------------------------- | ------------- | ------------- | - | ------------- | --------- | -----
|Six months ended June 30, 2001   |               |               |   |               |           |      
|                                 | Sales         |               | $ | 8,467,016     |           | $    
|                                 | Cost of Sales |               |   | 4,415,193     |           |      
|                                 |               |               |   |               |           |      
|                                 |               | Gross Profit  |   | $             | 4,051,823 |      
|                                 |               |               |   |               |           |      
|Three months ended June 30, 2000 |               |               |   |               |           |      
|                                 | Sales         |               | $ | 3,555,143     |           | $    
|                                 | Cost of Sales |               |   | 1,794,617     |           |      
|                                 |               |               |   |               |           |      
|                                 |               | Gross Profit  |   | $             | 1,760,526 |      
|                                 |               |               |   |               |           |      

|                               |               | United States |   | International |           | Total
|------------------------------ | ------------- | ------------- | - | ------------- | --------- | -----
|Six months ended June 30, 2000 |               |               |   |               |           |      
|                               | Sales         |               | $ | 6,802,867     |           | $    
|                               | Cost of Sales |               |   | 3,552,306     |           |      
|                               |               |               |   |               |           |      
|                               |               | Gross Profit  |   | $             | 3,250,561 |      
|                               |               |               |   |               |           |      



9

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

This discussion contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. 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 control of the Company. 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 period ended June 30, 2001 compared to the three and six month period ended June 30, 2000.

General

The Company is a branded nutraceuticals marketing company focused on high growth, innovative natural products that nourish the health and
well-being of consumers. The Company concentrates on the rapidly expanding soy foods category which expects to grow 20% per year reaching $6 Billion by 2005. The Company has
purposely avoided participating in certain categories which have experienced 20-25% declines per year from the late nineties such as the herbal segment. The Company's products include Naturade Total
Soy (NTS), a full line of nutritionally complete meal replacements available in several flavors of powders, ready-to-drink and bars, Naturade Soy protein boosters, Aloe Vera 80
health and beauty care products and other niche dietary supplements. The Company's products are sold in supermarkets (e.g., Kroger and Albertson's), drug stores (e.g., CVS and Rite-Aid),
mass merchants (e.g., Wal*Mart and Kmart), club stores (e.g., Sam's Clubs and Costco), natural supermarkets (e.g., Whole Foods and Wild Oats) and over 10,000 independent health food stores.

Results of Operations



Net sales for the three months ended June 30, 2001 increased $736,583, or 20%, to $4,408,832 from $3,672,249 for the three months ended June 30,
2000 primarily as a result of continued growth in the mass market due to expanded sales of the Company's NTS products, offset in part by softness in the health food market. Net sales for the six
months ended June 30, 2001 increased $1,610,893, or 23%, to $8,669,676 from $7,058,783 for the six months ended June 30, 2000 primarily as a result of (i) an increase in the
number of mass market customers and (ii) expanded sales of the Company's NTS products to existing mass market customers, partially offset in part by softness in the health food market.

For
the three months ended June 30, 2001, mass market net sales increased $1,401,135, or 162%, to $2,265,466 from $864,331 for the three months ended June 30, 2000. For
the six months ended June 30, 2001, mass market net sales increased $2,362,143, or 131%, to $4,161,181 from $1,799,038 for the six months ended June 30, 2000 primarily as a result of an
increase in the number of mass market customers for the three months ended March 31, 2001 and the subsequent expansion of sales of the Company's NTS products to these existing mass market
customers for the three months ended June 30, 2001. For the three months ended June 30, 2001, health food net sales decreased $664,552, or 24%, to $2,143,366 from $2,807,918 for the
three months ended June 30, 2000. For the six months ended June 30, 2001, health food net sales decreased $751,250, or 14%, to $4,508,495 from $5,259,745 for the six months ended
June 30, 2000 primarily due to a continued weakness in the health food market. The

10

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Company is addressing the continued downturn in the health food market by developing high value consumer coupons and other consumer-oriented promotional considerations.

For
the three months ended June 30, 2001, domestic net sales increased $757,179, or 21%, to $4,312,322 from $3,555,143 for the three months ended June 30, 2000. For the
three months ended June 30, 2001, international net sales decreased $20,596, or 18%, to $96,510 from $117,106 for the three months ended June 30, 2000. For the six months ended
June 30, 2001, domestic net sales increased $1,664,149, or 24%, to $8,467,016 from $6,802,867 for the six months ended June 30, 2000 primarily due to the above mentioned growth in the
mass market customer base and sales of NTS products to existing mass market customers. For the six months ended June 30, 2001, international net sales decreased $53,256, or 21%, to $202,660
from $255,916 for the six months ended June 30, 2000 as the Company continued to de-emphasize lower margin international business and concentrate on the more profitable domestic
business.

For
the three months ended June 30, 2001, the top 40 customers accounted for $4,251,300 or 96.4% of net sales with 14 mass market customers contributing $2,172,200 or 49.3% of
net sales, 24 health food customers contributing $1,814,200 or 41.1% of net sales, and two international customers contributing $264,900 or 6% of net sales. For the three months ended June 30,
2001, the Company continued its rollout of NTS powder products which contributed $1,767,522 or 40% of net sales. During the quarter, the Company's NTS Calcium 1000 powder sales reflected normal
sell-through distribution while the first quarter was favorably affected by initial pipetime distribution. Also during the second quarter, sales of the Company's NTS bars were down due to changes in
retail distribution patterns. The three months ended June 30, 2001 also saw the second complete quarter rollout of NTS ready-to-drink products with $729,698 or 16.6% of
net sales. Overall, for the three months ended June 30, 2001, the top 25 products represented $2,983,300 or 68% of net sales with sixteen NTS products contributing $2,169,800 or 49% of net
sales, seven protein powders contributing $772,700 or 18% of net sales, and two Aloe Vera products representing $40,800 or 1% of net sales.



Gross profit as a percentage of net sales for the three months ended June 30, 2001 decreased 2.1% to 47.2% of net sales from 49.3% for the three months
ended June 30, 2000 due to repackaging costs incurred to modify certain products, eliminating old product labels and expanded sales of private label products to one key customer which generally
carry a lower gross margin than branded products. This private label business accelerated during the three months ended June 30, 2001 from a small base during the three months ended
June 30, 2000. Gross profit as a percentage of net sales for the six months ended June 30, 2001 increased .2% to 47.7% of sales from 47.5% for the six months ended June 30, 2000
due to initial sales of NTS ready-to-drink and increased sales of other NTS products partially offset by the repackaging costs, eliminating product labels and the increase in
lower margin private label business described above.



Selling, general and administrative expenses for the three months ended June 30, 2001 increased $523,553 to $2,649,160, or 60.1% of net sales, from
$2,125,607, or 57.9% of net sales, for the three months ended June 30, 2000, an increase of 24.6%. Seventy percent of this increase or $364,383 was due to increases in brand expenses,
commissions and freight costs. Specifically, for the three months ended June 30, 2001, brand expenses, commissions and freight out costs totaled $1,338,902 or individually, $909,535, $170,861
and $258,506, respectively, compared to a total of $974,519 or individually, $597,471, $151,549 and $225,499, respectively, for the three months ended June 30, 2000.

By
itself, brand expenses account for $312,064 or 60% of the increase for the three months ended June 30, 2001. As a percent of net sales, brand expenses were 20.6% and 16.3%,
respectively, for the

11

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three months ended June 30, 2001 and 2000. The brand expense increase for the three months ended June 30, 2001 is due to increases in advertising expenses of $64,730, trade promotions of
$245,842, and consumer promotions of $25,492, partially offset by reductions in public relations, marketing research and product development costs of $24,000. These brand expenses increases are part
of the Company's strategy to promote the Company's expanded Naturade Total Soy product line under an umbrella concept of brand advertising in order to support the recently obtained mass market
distribution. Commissions and freight out costs as a percent of sales were 3.9% and 5.9%, respectively, for the three months ended June 30, 2001 compared to 4.1% and 6.1%, respectively, for the
three months ended June 30, 2000. The balance of the increase in selling, general and administrative costs of $159,170 for the three months ended June 30, 2001, is attributable to
additional general and administrative and marketing overhead costs, offset by a slight reduction in research and development overhead costs.



Interest expense for the three months ended June 30, 2001 increased $36,799 compared to the three months ended June 30, 2000 due to additional
borrowings under the Credit Agreement and Loan Agreement. See Note 5 and 6 to the Financial Statements.

Liquidity and Capital Resources

The Company's cash used by operating activities was $111,524 for the six months ended June 30, 2001 compared to cash used by operating activities of
$1,615,111 for the six months ended June 30, 2000. This improvement was largely due to faster accounts receivable collections for the six months ended June 30, 2001.

The
Company's working capital decreased from $226,869 at December 31, 2000 to ($996,460) at June 30, 2001. This decrease was largely due to the Company's operating
losses for the six months ended June 30, 2001.

Cash
used in investment activities during the six months ended June 30, 2001 was $106,242 compared to cash used in investing activities during the six months ended
June 30, 2000 of $18,445. This increase for the six months ended June 30, 2001 was largely due to the Company's investment in advanced hardware and software intended to improve the
Company's receiving and shipping operations through UPC bar code scanning which will drive down shipping costs, reduce errors and allow for additional operational cost reductions.

The
Company's cash provided by financing activities was $70,010 for the six months ended June 30, 2001 compared to cash provided by financing activities of $863,071 for the six
months ended June 30, 2000. The June 30, 2001 amount was the result of a decrease in borrowings under the Credit and Security Agreement, an increase in borrowings under the Credit
Agreement and the Loan Agreement, the conversion of part of the Loan Agreement Advances into shares of common stock of the Company and the normal, recurring repayment of certain small debt
obligations. See Notes 5, 6 and 7 to the Financial Statements.

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. As of June 30, 2001, the Company had an accumulated deficit of $17,202,414, a net working capital deficit of $996,460, a stockholders' capital deficiency of $5,680,784 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
Company expects to depend primarily on cash flow from operating activities, existing cash balances and financing arrangements to meet its liquidity needs. However, in order for
the Company's rollout of the NTS product line to be successful, the Company will require a large capital infusion to

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support mass market promotional requirements. Consequently, 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.

Recently Issued Statement of Financial Accounting Standards

In June 2001, the Financial Accounting Standards Board (FASB) finalized FASB Statements No. 141,Business
Combinations(Statement of Financial Accounting Standard (SFAS) 141),and No. 142,Goodwill and
Other Intangible Assets(SFAS 142).SFAS 141 requires the use of the purchase method of accounting and prohibits
the use of the pooling-of-interests method of accounting for business combinations initiated after June 30, 2001. SFAS 141 also requires that the Company
recognize acquired intangible assets apart from goodwill if the acquired intangible assets meet certain criteria. SFAS 141 applies to all business combinations initiated after June 30,
2001 and for purchase business combinations completed on or after July 1, 2001. It also requires, upon adoption of SFAS 142, that the Company reclassify the carrying amounts of
intangible assets and goodwill based on the criteria in SFAS 141.

SFAS 142
requires, among other things, that companies no longer amortize goodwill, but instead test goodwill for impairment at least annually. In addition, SFAS 142
requires that the Company identify
reporting units for the purposes of assessing potential future impairments of goodwill, reassess the useful lives of other existing recognized intangible assets, and cease amortization of intangible
assets with an indefinite useful life. An intangible asset with an indefinite useful life should be tested for impairment in accordance with the guidance in SFAS 142. SFAS 142 is
required to be applied in fiscal years beginning after December 15, 2001 to all goodwill and other intangible assets recognized at that date, regardless of when those assets were initially
recognized. SFAS 142 requires the Company to complete a transitional goodwill impairment test six months from the date of adoption. The Company is also required to reassess the useful lives of
other intangible assets within the first interim quarter after adoption of SFAS 142.

The
Company does not expect the adoption of SFAS 141 or SFAS 142 to have a material impact on the financial position, results of operations, or cash flows of the
Company.

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

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

In
March 2000, the FASB issued FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation, an interpretation of Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees ("FIN 44"). FIN 44 clarifies the application of APB 25 for the following: the definition of employee for the purposes of
applying APB 25; the criteria for determining whether a plan qualifies as a non-compensatory plan; the accounting consequence for various modifications to the terms of a previously fixed
stock option or award; and the accounting for an exchange of stock compensation awards in a business combination. The Company repriced options to purchase 381,000 shares of common stock in 1999. The
Company adopted FIN 44 effective July 1,

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2000 and such adoption did not have a material impact on the Company's financial statements. However, the repriced options are now accounted for as variable awards and future increases in the
Company's stock price may affect future operating results.

Risk Factors

The short and long-term success of the Company is subject to certain risks, many of which are substantial in nature. Stockholders and prospective
stockholders in the Company should consider carefully the following risk factors, in addition to other information contained herein.



The Company's success is dependent on its current financing as well as new financing to support its working capital requirements and fund its operating losses.
Starting in 2000, the Company embarked on a strategy to rollout the NTS product line which requires a high level of marketing expenditures. Although the Company is seeking additional third party
financing to fund this strategy, no assurance can be given that the Company will have access to additional funds or, if funds can be obtained, that the terms on which they can be obtained will be
satisfactory. In such event, the Company's business and results of operations, and its ability to continue as a going concern, will be materially adversely affected. See Financial Statements to the
Company's Form 10-K for the fiscal year ended December 31, 2000, Note 1Going Concern.



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

As
a result of the Company's efforts to comply with applicable statutes and regulations, the Company has from time to time reformulated, eliminated or relabeled certain of its
products and revised certain aspects of its sales, marketing and advertising programs. The Company may be subject in the future to additional laws or regulations administered by federal, state or
foreign regulatory authorities, the repeal or amendment of laws or regulations which the Company considers favorable, such as the Dietary Supplement Health and Education Act, or more stringent
interpretations of current laws or regulations. The Company is unable to predict the nature of such future laws, regulations, interpretations or applications, nor can the Company predict what effect
additional governmental regulations or administrative orders, when and if promulgated, would have on the Company's business in the future. Such future laws and regulations could, however, require the
reformulation of certain products to meet new standards, the recall or discontinuance of certain products that cannot be reformulated, the
imposition of additional recordkeeping requirements, expanded documentation of product efficacy, and expanded or modified labeling and scientific substantiation. Any or all of such requirements could
have a material adverse effect on the Company's results of operations and financial condition.



The Company currently is engaged in developing nutraceuticals, which are characterized by extensive research efforts and rapid technological progress and
change. New process developments are

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expected to continue at a rapid pace in both industry and academia. The Company's future success will depend on its ability to develop and commercialize its existing product candidates and to develop
new products. There can be no assurance that the Company will successfully complete the development of any of its existing product candidates or that any of its future products will be commercially
viable or achieve market acceptance. In addition, there can be no assurance that research and development and discoveries by others will not render some or all of the Company's programs or potential
product candidates uncompetitive or obsolete.



Since the Company outsourced its manufacturing requirements in 1999, the Company is significantly dependent on these third-party manufacturers. The use of
third party manufacturers and the resulting lack of direct control over the production of its products could result in the Company's failure to receive timely delivery of products of acceptable
quality. Although the Company believes that alternative manufacturing sources are available, the loss of one or more third party manufacturers could have a materially adverse effect on the Company's
results of operations until an alternative source is located and has commenced producing the Company's products.



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



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



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

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



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



The Company's success depends in part on its ability to obtain and maintain patent protection for its technologies and products, preserve its trade secrets,
and operate without infringing on the property rights of third parties. The Company's policy is to pursue registrations for all of the trademarks associated with its key products. The Company relies
on common law trademark rights to protect its unregistered trademarks as well as its trade dress rights. Common law trademark rights generally are limited to the geographic area in which the trademark
is actually used, while a United States federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the United States. The
Company intends to register its trademarks in certain foreign jurisdictions where the Company's products are sold. However, the protection available, if any, in such jurisdictions may not be as
extensive as the protection available to the Company in the United States.

Currently,
the Company has received over twenty United States trademark registrations as well as a California registration on one trademark. The Company also maintains trademark
registrations in over twelve foreign countries. To the extent the Company does not have patents on its products, another company may replicate one or more of the Company's products. Litigation may be
necessary to enforce the Company's patent and proprietary rights. Any such litigation could be very costly and could distract the Company's personnel. The Company can provide no assurance of a
favorable outcome of any
litigation proceeding. An unfavorable outcome in any proceeding could have a material adverse effect on the Company's business, financial condition and results of operations.

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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 to currently existing products as well as new formulations or configurations such as ready-to-drink and bars. While the Company conducts extensive market
research to determine consumer trends in both the mass and health food markets, there can be no assurance that the Company's new products will be accepted by consumers and retailers. 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.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of international purchases.
As a result, the Company bears the risk of exchange rate gains or losses.

The
Company's interest expense is sensitive to changes in the general level of U.S. interest rates. In this regard, changes in U.S. interest rates affect interest paid on the
Company's debt. The Company's line of credit is at a variable rate while the Company's Credit Agreement and Loan Agreement are at fixed interest rates.

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PART II. Other Information

ITEM 1. Legal Proceedings



ITEM 2. Changes in Securities



ITEM 3. Defaults upon Senior Securities



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



ITEM 5. Other Information



ITEM 6. Exhibits and Reports on Form 8-K



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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
hereunto duly authorized.

|                      |  | NATURADE, INC.
(Registrant)                                        
|--------------------- |  | -------------------------------------------------------------------
|DATE: August 14, 2001 |  | By /s/ Bill D. StewartBill D. Stewart
Chief Executive Officer      
|DATE: August 14, 2001 |  | By /s/ Lawrence J. BatinaLawrence J. Batina
Chief Financial Officer

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EXHIBIT INDEX

NO REQUIRED EXHIBITS

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