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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 March 31, 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

23-2442709(State or other jurisdiction of
incorporation or organization)

(I. R. S. Employer
Identification No.)14370 Myford Rd., Irvine, California

92606(Address of principal executive offices)

(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 / /

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 7,347,389 shares as of April 30, 2001.

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FORM 10-Q  QUARTERLY REPORT  Quarter Ended March 31, 2001

TABLE OF CONTENTS

|           |                       |    |                                                                                                                      |                                                                                       | Page No.
|---------- | --------------------- | -- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------
|PART I:    | FINANCIAL INFORMATION |    |                                                                                                                     
|           | Item 1.               |    |                                                                                                                      | Financial Statements                                                                  |         
|           |                       |    | Balance Sheets as of March 31, 2001
(unaudited) and December 31, 2000 (audited)                                      |                                                                                       | 3       
|           |                       |    | Statements of Operations for the three month periods ended
March 31, 2001 (unaudited) and March 31, 2000 (unaudited) |                                                                                       | 4       
|           |                       |    | Statements of Cash Flows for the three months ended
March 31, 2001 (unaudited) and March 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 |                       | 17

2

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

|                                                                                                                                                      |                                           | March 31, 2001                              |             | December 31, 2000 |           
|----------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------------- | ----------- | ----------------- | ----------
|
|ASSETS                                                                                                                                                |                                          
|Current assets:                                                                                                                                       |                                           |                                             |             |                   |           
|                                                                                                                                                      | Cash and cash equivalents                 |                                             | $           | 16,903            |           
|                                                                                                                                                      | Accounts receivable, net                  |                                             |             | 1,672,168         |           
|                                                                                                                                                      | Inventories, net                          |                                             |             | 2,040,836         |           
|                                                                                                                                                      | Prepaid expenses and other current assets |                                             |             | 443,584           |           
|                                                                                                                                                      |                                           |                                             |             |                   |           
|                                                                                                                                                      |                                           | Total current assets                        |             |                   | 4,173,491 
|Property and equipment, net                                                                                                                           |                                           |                                             | 328,414     |                   |           
|Other assets                                                                                                                                          |                                           |                                             | 67,620      |                   |           
|                                                                                                                                                      |                                           |                                             |             |                   |           
|                                                                                                                                                      |                                           | Total assets                                |             | $                 | 4,569,525 
|                                                                                                                                                      |                                           |                                             |             |                   |           
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                 |                                          
|Current liabilities:                                                                                                                                  |                                           |                                             |             |                   |           
|                                                                                                                                                      | Accounts payable                          |                                             | $           | 2,171,189         |           
|                                                                                                                                                      | Accrued expenses                          |                                             |             | 445,277           |           
|                                                                                                                                                      | Current portion of long-term debt         |                                             |             | 1,912,795         |           
|                                                                                                                                                      |                                           |                                             |             |                   |           
|                                                                                                                                                      |                                           | Total current liabilities                   |             |                   | 4,529,261 
|Long-term debt, less current maturities                                                                                                               |                                           |                                             | 5,140,230   |                   |           
|COMMITMENTS AND CONTINGENCIES                                                                                                                         |                                           |                                             |             |                   |           
|STOCKHOLDERS' DEFICIT:                                                                                                                                |                                           |                                             |             |                   |           
|Common stock, par value $0.0001 per share; authorized, 50,000,000 shares; issued and outstanding, 7,347,389 at March 31, 2001 and December 31, 2000   |                                           |                                             | 735         |                   |           
|Preferred stock, par value $0.0001 per share; authorized, 2,000,000 shares; issued and outstanding, 1,250,024 at March 31, 2001 and December 31, 2000 |                                           |                                             | 125         |                   |           
|Additional paid-in capital                                                                                                                            |                                           |                                             | 11,358,926  |                   |           
|Accumulated deficit                                                                                                                                   |                                           |                                             | (16,459,752 | )                 |           
|                                                                                                                                                      |                                           |                                             |             |                   |           
|                                                                                                                                                      |                                           | Total stockholders' deficit                 |             |                   | (5,099,966
|                                                                                                                                                      |                                           |                                             |             |                   |           
|                                                                                                                                                      |                                           | Total liabilities and stockholders' deficit |             | $                 | 4,569,525 
|                                                                                                                                                      |                                           |                                             |             |                   |           

See
accompanying notes to financial statements.

3

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NATURADE, INC    Statements of Operations for the Three Month Periods    Ended March 31, 2001 and March 31, 2000

|                                                         |                                              | Three
Months
Ended
March 31, 2001  |           | Three
Months
Ended
March 31, 2000 |          
|-------------------------------------------------------- | -------------------------------------------- | ---------------------------------- | --------- | --------------------------------- | ---------
|
|Net sales                                                |                                              | $                                  | 4,260,844 |                                   | $        
|Cost of sales                                            |                                              |                                    | 2,203,728 |                                   |          
|                                                         |                                              |                                    |           |                                   |          
|Gross profit                                             |                                              |                                    | 2,057,116 |                                   |          
|                                                         |                                              |                                    |           |                                   |          
|Costs and expenses:                                      |                                              |                                    |           |                                   |          
|                                                         | Selling, general and administrative expenses |                                    |           | 2,527,411                         |          
|                                                         | Depreciation and amortization                |                                    |           | 23,370                            |          
|                                                         |                                              |                                    |           |                                   |          
|                                                         |                                              | Total operating costs and expenses |           |                                   | 2,550,781
|                                                         |                                              |                                    |           |                                   |          
|Operating loss                                           |                                              |                                    | (493,665  | )                                 |          
|Other expense:                                           |                                              |                                    |           |                                   |          
|                                                         | Interest expense                             |                                    |           | 145,132                           |          
|                                                         | Other expense (income)                       |                                    |           | (1,784                            | )        
|                                                         |                                              |                                    |           |                                   |          
|Loss before provision for income taxes                   |                                              |                                    | (637,013  | )                                 |          
|Provision for income taxes                               |                                              |                                    |          |                                   |          
|                                                         |                                              |                                    |           |                                   |          
|Net loss                                                 |                                              | $                                  | (637,013  | )                                 | $        
|                                                         |                                              |                                    |           |                                   |          
|Basic and Diluted Loss per share                         |                                              | $                                  | (0.09     | )                                 | $        
|                                                         |                                              |                                    |           |                                   |          
|Weighted Average Number of Shares used in Computation of |                                              |                                    | 7,347,389 |                                   |          
|                                                         |                                              |                                    |           |                                   |          

See
accompanying notes to financial statements

4

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NATURADE, INC    Statements of Cash Flows for the Three Months    Ended March 31, 2001 and March 31, 2000

|                                                  |                                           | Three Months Ended
March 31, 2001          |          | Three Months Ended
March 31, 2000 |         
|------------------------------------------------- | ----------------------------------------- | ------------------------------------------ | -------- | --------------------------------- | --------
|Cash flows from operating activities:             |                                           |                                            |          |                                   |         
|Net loss                                          |                                           | $                                          | (637,013 | )                                 | $       
|Adjustments to reconcile net loss to              |                                           |                                            |          |                                   |         
|net cash used in operating activities:            |                                           |                                            |          |                                   |         
|Depreciation and amortization                     |                                           |                                            | 23,370   |                                   |         
|Provision for bad debt expense                    |                                           |                                            | 205      |                                   |         
|Provision for excess and obsolete inventories     |                                           |                                            | 16,099   |                                   |         
|Loss on disposition of property and equipment     |                                           |                                            |         |                                   |         
|Effect of stock options granted                   |                                           |                                            | 9,444    |                                   |         
|Changes in assets and liabilities:                |                                           |                                            |          |                                   |         
|                                                  | Accounts receivable                       |                                            |          | 809,435                           |         
|                                                  | Inventories                               |                                            |          | 59,725                            |         
|                                                  | Prepaid expenses and other current assets |                                            |          | (205,384                          | )       
|                                                  | Other assets                              |                                            |          | 16,466                            |         
|                                                  | Accounts payable and accrued expenses     |                                            |          | (352,900                          | )       
|                                                  |                                           |                                            |          |                                   |         
|                                                  |                                           | Net cash used in operating activities:     |          |                                   | (260,553
|Cash flows from investing activities:             |                                           |                                            |          |                                   |         
|Purchase of property and equipment                |                                           |                                            | (85,366  | )                                 |         
|Proceeds from sale of property and equipment      |                                           |                                            |         |                                   |         
|                                                  |                                           |                                            |          |                                   |         
|                                                  |                                           | Net cash used in investing activities:     |          |                                   | (85,366 
|Cash flows from financing activities:             |                                           |                                            |          |                                   |         
|Net borrowings under line of credit               |                                           |                                            | 70,128   |                                   |         
|Proceeds from issuance of debt to related parties |                                           |                                            | 98,296   |                                   |         
|Payments of long-term debt                        |                                           |                                            | (8,250   | )                                 |         
|Amortization of debt discount                     |                                           |                                            |         |                                   |         
|                                                  |                                           |                                            |          |                                   |         
|                                                  |                                           | Net cash provided by financing activities: |          |                                   | 160,174 
|Net decrease in cash and cash equivalents         |                                           |                                            | (185,745 | )                                 |         
|Cash and cash equivalents, beginning of period    |                                           |                                            | 202,648  |                                   |         
|                                                  |                                           |                                            |          |                                   |         
|Cash and cash equivalents, end of period          |                                           | $                                          | 16,903   |                                   | $       
|                                                  |                                           |                                            |          |                                   |         
|Supplemental Disclosures of Cash Flow Information |                                           |                                            |          |                                   |         
|Cash paid during the period for:                  |                                           |                                            |          |                                   |         
|Interest                                          |                                           | $                                          | 57,206   |                                   | $       
|Taxes                                             |                                           | $                                          | 0        |                                   | $       

See
accompanying notes to financial statements

5

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NATURADE, INC.    Notes to Financial Statements



March 31, 2001

December 31, 2000(Unaudited)

(Audited)Raw Materials

$
253,915

$
300,219Finished Goods


2,072,638


2,086,058Subtotal


2,326,553


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


(285,717
)

(269,618
)$
2,040,836

$
2,116,659


Year

Amount2001 (April-December)

$
343,8182002


432,7962003


431,0032004


415,2662005


427,624Thereafter


283,056Total

$
2,333,563


6

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7

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|                                  |               | Distribution Channels |   |          
|--------------------------------- | ------------- | --------------------- | - | ---------
|
|Three months ended March 31, 2001 |               |                       |   |          
|                                  | Sales         |                       | $ | 2,364,146
|                                  | Cost of Sales |                       |   | 1,259,741
|                                  |               |                       |   |          
|                                  |               | Gross Profit          |   | $        
|                                  |               |                       |   |          
|Three months ended March 31, 2000 |               |                       |   |          
|                                  | Sales         |                       | $ | 2,451,827
|                                  | Cost of Sales |                       |   | 1,328,719
|                                  |               |                       |   |          
|                                  |               | Gross Profit          |   | $        
|                                  |               |                       |   |          



|                                  |               | United States |   | International |           | Total
|--------------------------------- | ------------- | ------------- | - | ------------- | --------- | -----
|Three months ended March 31, 2001 |               |               |   |               |           |      
|                                  | Sales         |               | $ | 4,154,694     |           | $    
|                                  | Cost of Sales |               |   | 2,144,586     |           |      
|                                  |               |               |   |               |           |      
|                                  |               | Gross Profit  |   | $             | 2,010,108 |      
|                                  |               |               |   |               |           |      

|                                  |               | United States |   | International |           | Total
|--------------------------------- | ------------- | ------------- | - | ------------- | --------- | -----
|Three months ended March 31, 2000 |               |               |   |               |           |      
|                                  | Sales         |               | $ | 3,247,724     |           | $    
|                                  | Cost of Sales |               |   | 1,757,689     |           |      
|                                  |               |               |   |               |           |      
|                                  |               | Gross Profit  |   | $             | 1,490,035 |      
|                                  |               |               |   |               |           |      



8

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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 and 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 month period ended March 31, 2001 compared to the three month period ended March 31, 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'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 5,000 independent health food stores. The number of mass market outlets (supermarkets, drug stores, mass merchants and club stores) that carry the Company's
products has increased to over 28,000 at March 31, 2001 from approximately 15,000 at March 31, 2000.

Results of Operations



Total net sales for the three months ended March 31, 2001 increased $874,310, or 26%, to $4,260,844 from $3,386,534 for the three months ended
March 31, 2000 primarily as a result of (i) an increase in the number of mass market customers and (ii) the continued rollout of the Company's NTS products, offset in part by a
continued weakness in the health food market. For the three months ended March 31, 2001, mass market net sales increased $961,991, or 103%, to $1,896,698 from $934,707 for the three months
ended March 31, 2000. For the three months ended March 31, 2001, health food net sales decreased $87,681, or 4%, to $2,364,146 from $2,451,827 for the three months ended March 31,
2000. For the three months ended March 31, 2001, domestic net sales increased $906,970, or 28%, to $4,154,694 from $3,247,724 for the three months ended March 31, 2000. For the three
months ended March 31, 2001, international net sales decreased $32,660, or 24%, to $106,150 from $138,810 for the three months ended March 31, 2000.

For
the three months ended March 31, 2001, the top 40 customers accounted for $3,940,300 or 92.5% of net sales, with 24 health food customers contributing $2,151,100 or 50.5%
of net sales, 14 mass market customers contributing $1,733,300 or 40.7% of net sales, and two international customers contributing $55,900 or 1.3% of net sales. For the three months ended
March 31, 2001, the Company continued its rollout of NTS products, with twelve powder products contributing $1,142,400 or 26.8% of net sales. During the quarter, the Company continued its
launch of the NTS bars which contributed $239,300 or 5.6% and NTS Calcium 1000 with $326,600 or 7.7% of net sales. The three months ended March 31, 2001 also saw the first complete quarter
rollout of NTS ready-to-drink products with $584,900 or 13.7% of net sales. Overall, the top 25 products represented $2,845,300 or 66.8% of sales

9

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with fourteen NTS products contributing $2,000,000 or 46.9% of sales, seven protein powders contributing $590,500 or 13.9% of sales, and four Aloe Vera and other products representing $254,800 or 6%
of sales.

The
following table segments net sales for the three months ended March 31, 2001 and 2000 along product lines:

Net Sales by Product LineMarch 31, 2001

March 31, 2000$ (in 000's)

% of Total

$ (in 000's)

% of TotalNaturade Total SoyOriginal Shake Mix Powders

$
1,142.4

26.8
%
$
1,207.2

35.7
%Calcium 1000 Shake Mix Powders


326.6

7.7


0

0Ready-to-Drink


584.9

13.7


0

0Bars


239.3

5.6


41.9

1.2Subtotal Naturade Total Soy


2,293.2

53.8


1,249.1

36.9Protein Powders


1,071.2

25.1


1,369.9

40.4Aloe Vera, Cough & Cold and other


896.4

21.1


767.5

22.7Total All Products

$
4,260.8

100.0
%
$
3,386.5

100.0
%




Gross
profit as a percentage of net sales for the three months ended March 31, 2001 increased 2.7% to 48.3% of sales from 45.6% for the three months ended March 31,
2000. The increase was due to initial sales of NTS ready-to-drink products and a higher ratio of other NTS products for the three months ended March 31, 2001which have a
higher gross profit than many of the Company's other products.



Selling, general and administrative expenses for the three months ended March 31, 2001 increased $574,295 to $2,527,411 or 59.3% of net sales from
$1,953,116 or 57.7% of net sales for the three months ended March 31, 2000. Within selling, general and administrative expenses, for the three months ended March 31, 2001, brand
expenses, commissions and freight out costs totaled $1,309,346 or $892,601, 155,560 and $261,185, respectively, compared to a total of $802,518 or $445,478, $142,528 and $214,512, respectively, for
the three months ended March 31, 2000. This increase of $506,828 accounts for 88% of the total increase for the three months ended March 31, 2001. As a percent of net sales, brand
expenses were 20.9% and 13.2%, respectively, for the three months ended March 31, 2001 and 2000. This $447,123 increase in brand expenses for the three months ended March 31, 2001 is due
to increases in advertising expenses of $212,668, trade promotions of $233,650, and consumer promotions, public relations and other of $42,505, partially offset by reductions in product development
costs of $41,700. 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 new mass market distribution. Commissions and freight out costs as a percent of sales were 3.7% and 6.1%, respectively, for the three months ended
March 31, 2001 compared to 4.2% and 6.3%, respectively, for the three months ended March 31, 2000. The balance of the increase in selling, general and administrative costs of $67,467 for
the three months ended March 31, 2001, is attributable to additional general and administrative and marketing overhead costs, offset by slight reductions in research and development overhead
costs.

10

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Interest expense for the three months ended March 31, 2001 decreased $125,275 compared to the three months ended March 31, 2000 primarily due to
the conversion of $1.6 million of Health Holdings convertible debt in March 2000 into 1,997,717 shares of restricted common stock of the Company, thereby reducing overall interest costs
and amortization of the debt discount charges. See Note 4 to the Financial Statements.

Liquidity and Capital Resources

The Company used cash of $260,553 in operating activities in the three months ended March 31, 2001 compared to $1,102,726 for operating activities for
the three months ended March 31, 2000. This reduction in cash used in operating activities is primarily due to the large collection of Accounts Receivable for the three months ended
March 31, 2001 compared to the three months ended March 31, 2000.

The
Company's working capital decreased from $226,869 at December 31, 2000 to a working capital deficit of ($355,770) at March 31, 2001. This decrease was largely due to
the Company's operating losses for the three months ended March 31, 2001.

Cash
used in investment activities during the three months ended March 31, 2001 was $85,366 compared to cash used by investing activities during the three months ended
March 31, 2000 of $19,306.

The
Company's cash provided by financing activities was $160,174 for the three months ended March 31, 2001 compared to cash provided by financing activities of $238,975 for the
three months ended March 31, 2000. The March 31, 2001 amount was the result of an increase in borrowings under the Credit and Security Agreement, borrowings under the Credit Agreement
and borrowings under the Loan Agreement. 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. At March 31, 2001, the Company has an accumulated deficit of $16,459,752, a net working capital deficit of $355,770, a stockholders' capital deficiency of $5,099,966, has
incurred recurring net losses and was not in compliance with one of its debt covenants. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern.

The
Company believes that its existing cash balances and financing arrangements will provide it with sufficient funds to finance its operations during the next twelve months, provided
that Wells Fargo does not exercise its right to terminate, or demand immediate payment of all amounts outstanding under the Credit and Security Agreement. However, 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 Statements of Financial Accounting Standards

Statement of Financial Accounting Standard (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.

11

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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, 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.
Currently, the Company is not in technical compliance with the minimum net income covenant of the Credit and Security Agreement with Wells Fargo Business Credit which, if not waived by Wells Fargo
Business Credit, could result in termination of this agreement. See "Management's Discussion and Analysis of Financing Condition and Results of OperationsLiquidity and Capital Resources."
and Note 7 of Notes to Financial Statements. Although the Company is seeking additional third party financing, 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 ("FTC"). Among other matters, such regulation is concerned with statements and claims made in connection with
the packaging, labeling, marketing and advertising of the Company's products. The governmental agencies have a variety of processes and remedies available to them, including initiating investigations,
issuing warning letters and cease and desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizure, imposing civil penalties
and commencing criminal prosecution.

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

12

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authorities, the repeal or amendment of laws or regulations which the Company considers favorable, such as the Dietary Supplement Health and Education Act (DSHEA), 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 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.



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



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

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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.



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

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unregistered trademarks as well as its trade dress rights. Common law trademark rights generally are limited to the geographic area in which the 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.



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 assurances 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 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 that may result in the future as a result of this financing structure.

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

NONE

ITEM 2. Changes in Securities

NONE

ITEM 3. Defaults upon Senior Securities

NONE

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

NONE

ITEM 5. Other Information

NONE

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:  May 15, 2001 |  | By                         
|DATE:  May 15, 2001 |  | By                         

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