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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2002

or

|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number:33-7106-A

NATURADE, INC.(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 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 ý    No o

Indicate
the number of shares outstanding of the registrant's common stock, as of the latest practicable date: 43,813,494 shares as of April 30, 2002.

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FORM 10-Q    QUARTERLY REPORT    Quarter Ended March 31, 2002    TABLE OF CONTENTS

|           |         |                                                                                                                      |                                                                                       | PAGE NO.
|---------- | ------- | -------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | --------
|PART I:    |         | FINANCIAL INFORMATION                                                                                                |                                                                                       |         
|           | Item 1. |                                                                                                                      | Financial Statements                                                                  |         
|           |         | Balance Sheets as of March 31, 2002 (unaudited) and December 31, 2001 (audited)                                      |                                                                                       | 3       
|           |         | Statements of Operations for the three month periods ended March 31, 2002 (unaudited) and March 31, 2001 (unaudited) |                                                                                       | 4       
|           |         | Statements of Cash Flows for the three months ended March 31, 2002 (unaudited) and March 31, 2001 (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 |         | 23                                                                                                                  

2

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NATURADE, INC.        Balance Sheets        As of March 31, 2002 and December 31, 2001

|                                                                                                                                                                                                                         |                                                  | March 31, 2002 |                           | December 31, 2001 |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------ | -------------- | ------------------------- | ----------------- | -
|
|ASSETS                                                                                                                                                                                                                   |                                                  |                |                           |                   |  
|Current assets:                                                                                                                                                                                                          |                                                  |                |                           |                   |  
|                                                                                                                                                                                                                         | Cash and cash equivalents                        |                | $                         | 1,804,605         |  
|                                                                                                                                                                                                                         | Accounts receivable, net                         |                |                           | 1,700,549         |  
|                                                                                                                                                                                                                         | Inventories, net                                 |                |                           | 1,076,013         |  
|                                                                                                                                                                                                                         | Prepaid expenses and other current assets        |                |                           | 148,888           |  
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|                                                                                                                                                                                                                         |                                                  |                | Total current assets      |                   |  
|Property and equipment, net                                                                                                                                                                                              |                                                  |                | 284,100                   |                   |  
|Other assets                                                                                                                                                                                                             |                                                  |                | 68,763                    |                   |  
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|                                                                                                                                                                                                                         |                                                  |                | Total assets              |                   | $
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                    |                                                  |                |                           |                   |  
|Current liabilities:                                                                                                                                                                                                     |                                                  |                |                           |                   |  
|                                                                                                                                                                                                                         | Accounts payable                                 |                | $                         | 2,542,250         |  
|                                                                                                                                                                                                                         | Accrued expenses                                 |                |                           | 506,570           |  
|                                                                                                                                                                                                                         | Current portion of Note Payable to Related Party |                |                           | 50,000            |  
|                                                                                                                                                                                                                         | Current portion of long-term debt                |                |                           | 1,666,601         |  
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|                                                                                                                                                                                                                         |                                                  |                | Total current liabilities |                   |  
|Long-term portion of Notes Payable to Related Parties, less current maturities                                                                                                                                           |                                                  |                | 202,345                   |                   |  
|Long-term debt, less current maturities                                                                                                                                                                                  |                                                  |                | 60,203                    |                   |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                                                            |                                                  |                |                           |                   |  
|REDEEMABLE CONVERTIBLE PREFERRED STOCK                                                                                                                                                                                   |                                                  |                |                           |                   |  
|Redeemable convertible preferred stock, Series B, par value $0.0001 per share; authorized 50,000,000 shares; issued and outstanding, 13, 540,723 at March 31, 2002 ($2,000,000 redemption value), 0 at December 31,
2001 |                                                  |                | 1,812,898                 |                   |  
|WARRANT                                                                                                                                                                                                                  |                                                  |                | 500,000                   |                   |  
|STOCKHOLDERS' DEFICIT:                                                                                                                                                                                                   |                                                  |                |                           |                   |  
|Common stock, par value $0.0001 per share; authorized, 100,000,000 shares; issued and outstanding, 43,813,494 at
March 31, 2002 and 7,823,639 at December 31, 2001                                                       |                                                  |                | 4,382                     |                   |  
|Preferred stock, Series A, par value $0.0001 per share; authorized, 2,000,000 shares; issued and outstanding, 0 at
March 31, 2002 and 1,250,024 at December 31, 2001                                                     |                                                  |                | 0                         |                   |  
|Non-Voting Common stock, par value $0.0001 per share; authorized, 2,000,000 shares; issued and outstanding, 0 at
March 31, 2002 and 0 at December 31, 2001                                                               |                                                  |                | 0                         |                   |  
|Additional paid-in capital                                                                                                                                                                                               |                                                  |                | 18,953,372                |                   |  
|Accumulated deficit                                                                                                                                                                                                      |                                                  |                | (21,215,703               | )                 |  
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|Total stockholders' deficit                                                                                                                                                                                              |                                                  |                | (2,257,949                | )                 |  
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  
|Total liabilities and stockholders' deficit                                                                                                                                                                              |                                                  | $              | 5,082,918                 |                   | $
|                                                                                                                                                                                                                         |                                                  |                |                           |                   |  

3

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See accompanying notes to financial statements.

4

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NATURADE, INC        Statements of Operations for the Three Month Periods        Ended March 31, 2002 and March 31, 2001

|                                                                                          |                                              | Months
Three
Ended
March 31, 2002
(Unaudited) |            | Months
Three
Ended
March 31, 2001
(Unaudited) |          
|----------------------------------------------------------------------------------------- | -------------------------------------------- | --------------------------------------------- | ---------- | --------------------------------------------- | ---------
|Net sales                                                                                 |                                              | $                                             | 3,484,215  |                                               | $        
|Cost of sales                                                                             |                                              |                                               | 1,861,113  |                                               |          
|                                                                                          |                                              |                                               |            |                                               |          
|Gross profit                                                                              |                                              |                                               | 1,623,102  |                                               |          
|                                                                                          |                                              |                                               |            |                                               |          
|Costs and expenses:                                                                       |                                              |                                               |            |                                               |          
|                                                                                          | Selling, general and administrative expenses |                                               |            | 2,245,254                                     |          
|                                                                                          | Depreciation and amortization                |                                               |            | 23,263                                        |          
|                                                                                          |                                              |                                               |            |                                               |          
|                                                                                          |                                              | Total operating costs and expenses            |            |                                               | 2,268,517
|                                                                                          |                                              |                                               |            |                                               |          
|Operating loss                                                                            |                                              |                                               | (645,415   | )                                             |          
|Other expense:                                                                            |                                              |                                               |            |                                               |          
|                                                                                          | Interest expense                             |                                               |            | 31,792                                        |          
|                                                                                          | Other expense (income)                       |                                               |            | (11,396                                       | )        
|                                                                                          |                                              |                                               |            |                                               |          
|Loss before provision for income taxes                                                    |                                              |                                               | (665,811   | )                                             |          
|Provision for income taxes                                                                |                                              |                                               |           |                                               |          
|                                                                                          |                                              |                                               |            |                                               |          
|Net loss                                                                                  |                                              | $                                             | (665,811   | )                                             | $        
|Deemed Dividend                                                                           |                                              |                                               | (2,000,000 | )                                             |          
|                                                                                          |                                              |                                               |            |                                               |          
|Net loss applicable to common shares                                                      |                                              | $                                             | (2,665,811 | )                                             | $        
|                                                                                          |                                              |                                               |            |                                               |          
|Basic and Diluted Loss per share                                                          |                                              | $                                             | (0.06      | )                                             | $        
|                                                                                          |                                              |                                               |            |                                               |          
|Weighted Average Number of Shares used in Computation of Basic and Diluted Loss per Share |                                              |                                               | 43,813,494 |                                               |          
|                                                                                          |                                              |                                               |            |                                               |          

See
accompanying notes to financial statements

4

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NATURADE, INC        Statements of Cash Flows for the Three Months        Ended March 31, 2002 and March 31, 2001

|                                                                            |                                                                                               | Three Months Ended
March 31, 2002          |           | Three Months Ended
March 31, 2001 |          
|--------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | --------------------------------- | ---------
|Cash flows from operating activities:                                       |                                                                                               |                                            |           |                                   |          
|Net loss                                                                    |                                                                                               | $                                          | (665,811  | )                                 | $        
|Adjustments to reconcile net loss to net cash used in operating activities: |                                                                                               |                                            |           |                                   |          
|Depreciation and amortization                                               |                                                                                               |                                            | 23,262    |                                   |          
|Provision for bad debt expense                                              |                                                                                               |                                            | (473,222  | )                                 |          
|Provision for excess and obsolete inventories                               |                                                                                               |                                            | (273,796  | )                                 |          
|Expense for stock options, warrants and convertible debt                    |                                                                                               |                                            | 9,443     |                                   |          
|Changes in assets and liabilities:                                          |                                                                                               |                                            |           |                                   |          
|                                                                            | Accounts receivable                                                                           |                                            |           | 812,290                           |          
|                                                                            | Inventories                                                                                   |                                            |           | 376,302                           |          
|                                                                            | Prepaid expenses and other current assets                                                     |                                            |           | 208,958                           |          
|                                                                            | Other assets                                                                                  |                                            |           | (14,000                           | )        
|                                                                            | Accounts payable and accrued expenses                                                         |                                            |           | (439,074                          | )        
|                                                                            |                                                                                               |                                            |           |                                   |          
|                                                                            |                                                                                               | Net cash used in operating activities:     |           |                                   | (435,648 
|Cash flows from investing activities:                                       |                                                                                               |                                            |           |                                   |          
|Purchase of property and equipment                                          |                                                                                               |                                            |          |                                   |          
|                                                                            |                                                                                               |                                            |           |                                   |          
|                                                                            |                                                                                               | Net cash used in investing activities:     |           |                                   |         
|Cash flows from financing activities:                                       |                                                                                               |                                            |           |                                   |          
|Net borrowings under line of credit                                         |                                                                                               |                                            | (291,543  | )                                 |          
|Proceeds from issuance of debt to related parties                           |                                                                                               |                                            |          |                                   |          
|Payments of long-term debt                                                  |                                                                                               |                                            | (6,644    | )                                 |          
|Proceeds from issuance of equity                                            |                                                                                               |                                            | 2,483,052 |                                   |          
|                                                                            |                                                                                               |                                            |           |                                   |          
|                                                                            |                                                                                               | Net cash provided by financing activities: |           |                                   | 2,184,865
|Net increase (decrease) in cash and cash equivalents                        |                                                                                               |                                            | 1,749,217 |                                   |          
|Cash and cash equivalents, beginning of period                              |                                                                                               |                                            | 55,388    |                                   |          
|                                                                            |                                                                                               |                                            |           |                                   |          
|Cash and cash equivalents, end of period                                    |                                                                                               | $                                          | 1,804,605 |                                   | $        
|                                                                            |                                                                                               |                                            |           |                                   |          
|Supplemental Disclosures of Cash Flow Information                           |                                                                                               |                                            |           |                                   |          
|Cash paid during the period for:                                            |                                                                                               |                                            |           |                                   |          
|                                                                            | Interest                                                                                      |                                            | $         | 32,777                            |          
|                                                                            | Taxes                                                                                         |                                            | $         | 800                               |          
|Non-cash financing activities:                                              |                                                                                               |                                            |           |                                   |          
|                                                                            | Conversion of notes payable to related party to common stock                                  |                                            | $         | 5,315,702                         |          
|                                                                            | Surrender of preferred stock for cancellation without conversion in exchange for common stock |                                            | $         | 125                               |          
|                                                                            | Deemed dividend related to redeemable convertible preferred stock                             |                                            | $         | 2,000,000                         |          

See accompanying notes to financial statements

5

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NATURADE, INC.        Notes to Financial Statements



March 31,
2002

December 31,
2001(Unaudited)

(Audited)Raw Materials

$
170,575

$
195,351Finished Goods


989,560


1,341,086Subtotal


1,160,135


1,536,437Less: Reserve for Excess and Obsolete Inventories


(84,122
)

(357,918
)$
1,076,013

$
1,178,519


Year

Amount2002 (April-December)

$
320,5522003


434,0212004


414,3092005


427,6242006


283,056Total

$
1,879,562


6

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7

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8

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|                                  |               | Distribution Channels |   |          
|--------------------------------- | ------------- | --------------------- | - | ---------
|
|Three months ended March 31, 2002 |               |                       |   |          
|                                  | Sales         |                       | $ | 1,883,451
|                                  | Cost of Sales |                       |   | 996,502  
|                                  |               |                       |   |          
|                                  |               | Gross Profit          |   | $        
|                                  |               |                       |   |          
|Three months ended March 31, 2001 |               |                       |   |          
|                                  | Sales         |                       | $ | 2,258,979
|                                  | Cost of Sales |                       |   | 1,200,526
|                                  |               |                       |   |          
|                                  |               | Gross Profit          |   | $        
|                                  |               |                       |   |          



|                                  |               | United States |   | International |           | Total
|--------------------------------- | ------------- | ------------- | - | ------------- | --------- | -----
|Three months ended March 31, 2002 |               |               |   |               |           |      
|                                  | Sales         |               | $ | 3,415,618     |           | $    
|                                  | Cost of Sales |               |   | 1,815,616     |           |      
|                                  |               |               |   |               |           |      
|                                  |               | Gross Profit  |   | $             | 1,600,002 |      
|                                  |               |               |   |               |           |      
|Three months ended March 31, 2001 |               |               |   |               |           |      
|                                  | Sales         |               | $ | 4,154,694     |           | $    
|                                  | Cost of Sales |               |   | 2,144,586     |           |      
|                                  |               |               |   |               |           |      
|                                  |               | Gross Profit  |   | $             | 2,010,108 |      
|                                  |               |               |   |               |           |      



Major Customer Table

|               |  | Customer One |         | Customer Two |      | Customer Three |  
|-------------- |  | ------------ | ------- | ------------ | ---- | -------------- | -
|
|March 31, 2002 |  | $            | 659,500 |              | 18.9 | %              | $
|March 31, 2001 |  | $            | 604,300 |              | 14.2 | %              | $

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 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, 2002 ("1Q'02) compared to the three month ended March 31, 2001 ("1Q'01").

General

The Company is a branded natural products marketing company focused on high growth, innovative products designed to nourish the health and well-being
of consumers. The Company concentrates on the rapidly expanding soy food market which reached sales of almost $2.5 billion in 2000 and is expected to grow 15% to 20% per year reaching $5 to
$6 billion by 2005 according to Soyatech market research dated February 2001. The Company has purposely avoided the vitamin category which has been flat, while the herbal category has
experienced 15% to 25% declines per year since the late nineties. The Company's products include Naturade Total Soy, a full line of nutritionally complete meal replacements available in several
flavors of powders, ready-to-drink products 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, Fred Meyer, Safeway and Albertson's), mass merchants (e.g., Wal*Mart, Kmart and Target), club stores (e.g., Sam's Clubs and Costco), drug
stores (e.g., CVS, Eckerd and Rite-Aid), natural food supermarkets (e.g., Whole Foods and Wild Oats) and over 5,000 independent health food stores. Major trends occurring in 1Q'02
included:



On
January 2, 2002, the Company (i) sold Series B Convertible Preferred Stock and Warrants to Westgate for a total of $2.5 million, (ii) issued 36 million
shares of Common Stock in exchange for the cancellation of $5.3 million of outstanding debt and 1.3 million shares of outstanding Series A Convertible Preferred Stock and
(iii) amended its bank credit facility. The Series B Convertible Preferred Stock is convertible into 13.5 million shares of Common Stock (subject to adjustment) and bears
dividends at the rate of 10% per annum. The Warrants entitle the holder to purchase for $3.5 million additional shares of Series B Convertible Preferred Stock convertible into
33.6 million shares of Common Stock (subject to adjustment). In accordance with generally accepted accounting principles (GAAP), the Series B Convertible Preferred Stock has a beneficial
conversion feature of

10

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$2 million which was recorded as a deemed dividend. GAAP states that if a quoted market price exists then that price must be used as the fair market value for purposes of determining the
beneficial conversion feature without any adjustment for transferability restrictions, large block factors or time value discounts. Based on the market conditions and financial alternatives then in
existence, the Company believes that the share price determined in the Private Equity Transaction represents the fair market value of the Company's Common Stock at that time, given all the facts then
available. The net proceeds from the investment will be used by Naturade for working capital and general corporate purposes. For a more complete description of this transaction, see
Note 7Private Equity Transaction.

Results of Operations



Total net sales for 1Q'02 decreased $776,629, or 18%, to $3,484,215 from $4,260,844 for 1Q'01 primarily as a result of (i) slower new distribution growth
in the mass market, (ii) fewer new product
introductions as the Company concentrates on its core product lines and (iii) continued softness in the health food market.

Mass Market Net Sales.For 1Q'02, mass market net sales decreased $401,101, or 20%, to
$1,600,764 from $2,001,865 for 1Q'01 primarily as a result of a high level of nonrepeatable Naturade Total Soy new distribution in 1Q'01 compared to 1Q'02 which was partially offset by (1) Year
2001 new distribution sales converting into repeat (turn) business in 1Q'02 and (ii) minor Year 2002 new distribution sales to Safeway, Albertson's and Publix.

The
following table illustrates mass market net sales for 1Q'02 and 1Q'01:

Mass Market Net Sales  ($ in 000's)

|                 |  | Three Months Ended
March 31, |         | Change |  
|---------------- |  | ---------------------------- | ------- | ------ | -
|
|New Distribution |  | $                            | 563.0   |        | $
|Channel Shift    |  |                              | 114.8   |        |  
|Turn Business    |  |                              | 1,324.1 |        |  
|                 |  |                              |         |        |  
|Total            |  |                              | 2,001.9 |        |  

The
growth in the core turn business represents the conversion of Year 2001 new distribution sales into repeat business and targeted promotional activities. For 1Q'02, mass market turn
business net sales increased $123,600, or 9.3%, to $1,447,700 from $1,324,100 for 1Q'01. This channel shift results from certain mass market customers switching their buying patterns from purchasing
through health food distributors (classified as health food sales) to direct purchases (classified as mass market sales).

Health Food Net Sales.For 1Q'02, health food net sales decreased $375,528, or 16.6%, to
$1,883,451 from $2,258,979 for 1Q'01. This decrease was a result of continued softness in the health food channel, promotional timing differences from key distributors and discontinued products which
accounted for $97,500 of sales in 1Q'01. By factoring in the channel shift from the health food distributors to direct mass market purchases as shown in the above table and the lost 1Q'01 sales due to
the Company's decision to discontinue these products, a slightly improved picture emerges. For 1Q'02, core health food net sales are down 6% compared to 1Q'01.

On
a percent of net sales basis, the breakdown of sales between the mass market and health food channels for 1Q'02 virtually matched that of 1Q'01, in spite of the decline in new
distribution sales for

11

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1Q'02. For 1Q'02, the mass market net sales represented 45.9% of total net sales compared to 47% for 1Q'01.

For
1Q'02, domestic net sales decreased 739,076, or 17.8%, to $3,415,618 from $4,154,694 for 1Q'01 primarily due to the previously mentioned decline in new distribution mass market sales
and a softness in the health food market. For 1Q'02, international sales decreased $37,553, or 35.4%, to $68,597 from $106,150, as the Company continued to de-emphasize lower margin
international business and concentrated on the more profitable domestic business and Canadian business, which is classified as international.

For
1Q'02, the top 40 customers accounted for $3,310,500 or 95% of net sales, with 21 health food customers contributing $1,792,000 or 51.4% of net sales, 17 mass market customers
contributing $1,473,200 or 42.3% of net sales, and two international customers contributing $45,300 or 1.3% of net sales. For 1Q'02, the Company continued its rollout of NTS products, with twenty
powder products contributing $1,328,500 or 38.1% of net sales. During the quarter, the Company continued its launch of the NTS bars which contributed $126,900 or 3.7% and NTS
ready-to-drink products with $302,800 or 8.7% of net sales. Overall, the top 25 products represented $2,431,000 or 69.8% of sales, with fourteen NTS products contributing
$1,487,300 or 42.7% of sales, seven protein powders contributing $604,900 or 17.4% of sales, and four Aloe Vera and other products representing $338,800 or 9.7% of sales.



Gross profit as a percentage of net sales for 1Q'02 decreased 1.7% to 46.6% of sales from 48.3% for 1Q'01. The decrease was due to lower sales of NTS
ready-to-drink products, plus a lower ratio of other NTS products for 1Q'02, which have a higher gross margin than many of the Company's other products and to an additional
reserve for slow moving inventory.



Selling, general and administrative expenses ("S,G &A") for 1Q'02 decreased $282,157 to $2,245,254 or 64.4% of net sales from $2,527,411 or 59.3% of net
sales for 1Q'01. This decrease is primarily due to a $233,356 decrease in brand expenses and an $80,500 decrease in shipping costs for 1Q'02. As a percent of sales, brand expenses were 18.9% and 21%,
respectively, for 1Q'02 and 1Q'01. The decrease in brand expenses is primarily due to decreases in advertising of $206,097 and trade promotions of $27,246. This decrease in brand expenses is part of
the Company's strategy to control overall costs and match brand expenses with proven sales opportunities. While the decrease in shipping costs is partially due to the decline in sales, it is also due
to lower shipping costs as the Company negotiated lower shipping rates with freight carriers. Shipping costs as a percent of sales declined to 5.2% from 6.1%, respectively, for 1Q'02 and 1Q'01. These
S,G & A declines offset a $92,090 expense incurred in 1Q'02 to record the "In-the-Money" portion of the Company's Chief Executive Officer's stock options triggered by
their repricing as required in the Private Equity Transaction. This option repricing created a variable accounting issue per APB 25 and FIN 44. While this repricing has no cash impact on the Company,
under generally accepted accounting principles, an additional compensation expense must be recognized in the period incurred.



Interest expense for the 1Q'02 decreased $113,340 compared to 1Q'01 due to the conversion of $5.3 million of Health Holdings convertible debt in
January 2002 into 35,989,855 shares of Common Stock of the Company as part of the Private Equity Transaction, thereby reducing overall interest costs. See Note 7 to the Financial
Statements.

12

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Liquidity and Capital Resources

The Company used cash of $435,648 in operating activities in the three months ended March 31, 2002 compared to $260,553 for operating activities for the
three months ended March 31, 2001. This increase in cash used in operating activities is primarily due to the Company's operating losses which was partially offset by improved inventory control
for the three months ended March 31, 2002 compared to the three months ended March 31, 2001.

The
Company's working capital increased from ($1,864,116) at December 31, 2001 to ($35,336) at March 31, 2002. This increase was largely due to the investment of
$2.5 million from the Private Equity Transaction which offset the Company's operating losses for 1Q'02.

Cash
used in investment activities during the three months ended March 31, 2002 was $0 compared to cash used by investing activities during the three months ended March 31,
2001 of $85,366.

The
Company's cash provided by financing activities was $2,184,865 for the three months ended March 31, 2002 compared to cash provided by financing activities of $160,174 for the
three months ended March 31, 2001. The March 31, 2002 amount was the result of the $2.5 million from the Private Equity Transaction, conversion into equity of the Health Holdings
Credit Agreement and Loan Agreement debt, and a decrease in borrowings under the Credit and Security Agreement. See Notes 4, 5 and 7 to the Financial Statements.

As
of March 31, 2002, the Company was not in technical compliance with the minimum net income and minimum adjusted book net worth covenants of the Credit and Security Agreement
with Wells Fargo. The Company has notified Wells Fargo of the foregoing and is in discussions with Wells Fargo regarding a potential waiver of these covenants. However, there can be no assurance that
the Company will be successful in having these covenants waived. In such event, Wells Fargo would be entitled to exercise certain remedies under the Credit and Security Agreement including termination
of this agreement and foreclosure upon the collateral. Borrowings under the Credit and Security Agreement are collateralized by substantially all assets of the Company. For a description of the Credit
and Security Agreement, see Note 6 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, 2002, the Company has an accumulated deficit of $21,215,703, a net working capital deficit of $35,366, a stockholders' capital deficiency of $2,257,949, has incurred
recurring net losses and was not in compliance with two of its bank covenants. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The
Company 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 may seek 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

In October 2001, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) 144, Accounting for the Impairment
or Disposal of Long-Lived Assets.SFAS 144 requires that those long-lived assets be
measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations.

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Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 is effective for financial
statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The Company adopted this Statement as of January 1, 2002 and it had
no material impact on its financial statements.

In
August 2001, the FASB issued SFAS 143,Accounting for Asset Retirement Obligations.SFAS No. 143 requires the fair
value of a liability for an asset retirement obligation to be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs
are capitalized as part of the carrying amount of the long-lived asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the
adoption of this Statement will have no material impact on its financial statements.

In
June 2001, the FASB finalized SFAS 141,Business Combinations,and SFAS 142,Goodwill and
Other Intangible Assets.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 Derivative Instruments 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 embedded 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 133
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 No. 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,as Interpretation of Accounting Principles Board ("APB") Opinion No. 25,Accounting for Stock Issued to Employees("FIN 44"). FIN 44 clarifies
the application of APB No. 25 for the following: the definition of employee for purposes of applying APB No. 25; the criteria

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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 and 365,000 shares of Common Stock in
connection with the Private Equity Transaction. The Company adopted FIN 44 effective July 1, 2000 and such adoption did not have 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. Shareholders and prospective
shareholders in the Company should consider carefully the following risk factors, in addition to other information contained herein. This Form 10-Q contains forward-looking
statements which are subject to a variety of risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of
various factors, including those set forth below.



Naturade's independent accountants have qualified their opinion on the Company's financial statements, expressing substantial doubt concerning the Company's
ability to continue as a going concern. At March 31, 2002, the Company had an accumulated deficit of $21,215,703, a net working capital deficit of $35,366 and stockholders' capital deficiency
of $2,257,949. The Company anticipates that it will incur net losses for the immediate future and will need access to additional financing for working capital and to expand its business. Moreover, as
of March 31, 2002, the Company was in default of the minimum adjusted book net worth and minimum net income covenants in the Credit and Security Agreement with its principal lender and has not
received a written waiver of such default. Without a waiver of such defaults, or a modification of the Credit and Security Agreement, the lender could terminate the agreement and demand immediate
payment of the full amount of indebtedness. Management has taken a number of steps to address this situation, including the Private Equity Transaction completed on January 2, 2002 and efforts
to decrease operating losses by expanding sales and reducing costs. Nevertheless, the Company expects to incur operating losses for some time in the future and cannot give assurance that additional
financing will be available when needed or that it will obtain needed waivers or modifications of the Credit and Security Agreement. If unsuccessful in those efforts, Naturade could be forced to cease
operations and investors in Naturade's Common Stock could lose their entire investment.



The Company's three largest customers together account for 52% of sales revenue in 1Q'02. Two health food distributors accounted for 37% of total sales in 1Q'02
and one mass market customer, Wal*Mart and Sam's Club, represented approximately 15% of total sales in 1Q'02. The loss of such customers could have a material adverse effect on the Company's results
of operations. From time to time, major customers of Naturade have experienced financial difficulties. Naturade does not have long-term contracts with any of its customers and,
accordingly, there can be no assurance that any customer will continue to place orders with Naturade to the same extent it has in the past, or at all.



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. As
of March 31, 2002, the Company was

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not in compliance with the minimum net income and minimum adjusted book net worth covenants of the Credit and Security Agreement with Wells Fargo. Starting in 2000, the Company embarked on a strategy
to rollout the Naturade Total Soy product line to the mass market, which requires a high level of marketing expenditures. Although the Company obtained $2.5 million as part of the Private
Equity Transaction on January 2, 2002, as explained above and in Note 7 to the Financial Statements, there is no assurance that these proceeds will be sufficient to fund this strategy.
Further, 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.



The Company may seek to obtain new financing from various sources, including the sale of its securities. Future sales of Common Stock or securities convertible
into Common Stock at or below recent market prices could result in dilution of the Common Stock. In addition, the conversion of the 13.5 million shares of Series B Convertible Preferred
Stock originally sold to Westgate Equity Partners, L.P. ("Westgate"), for $2 million, together with conversion of the 33,641,548 shares of Series B Convertible Preferred Stock issuable
on exercise of warrants held by Westgate, which have an exercise price of approximately $0.104 per share (and, including the original cost of the warrant, a total consideration of approximately $0.119
per share), would also result in dilution of the Common Stock. The perceived risk of dilution may cause some of the Company's stockholders to sell their shares, which could further reduce the market
price of the Common Stock.



Naturade's business depends on the free flow of products and services through the channels of commerce. Recently, in response to terrorist activities and threats
aimed at the U.S., transportation, mail, financial and other services have been slowed or stopped altogether. Further delays or stoppages in transportation, mail, financial or other services could
have a material adverse effect on the Company's business, results of operations and financial condition. Furthermore, the Company may experience an increase in operating costs, such as costs for
transportation, insurance and security, as a result of the terrorist activities and potential activities. The Company may also experience delays in receiving payments from payers that have been
affected by terrorist activities and potential activities.
The U.S. economy in general is being adversely affected by the terrorist activities and potential activities and any economic downturn could adversely impact the Company's results of operations,
impair its ability to raise capital or otherwise adversely affect its ability to grow its business.



The Company's operations, properties and products are subject to regulation by various foreign, federal, state and local government entities and agencies,
including the U.S. Food and Drug Administration (FDA) and the 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 changes in applicable statutes and regulations, the Company has from time to time reformulated, eliminated or relabeled certain of its
products and revised certain aspects of its sales, marketing and advertising programs. The Company may be subject in the future to additional laws or regulations administered by federal, state, local
or foreign regulatory

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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 record keeping requirements,
expanded documentation of product efficacy, expanded or modified labeling and scientific substantiation, including health warnings or restrictions on benefits described for our products. 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 and costly 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.



The use of contract manufacturers and the resulting loss 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 sources of contract manufacturing services are available, the loss of one or more contract
manufacturers could have a material adverse effect on the Company's results of operations until an alternative source is located and has commenced producing the Company's products.

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. If the FDA were to begin regulating the manufacturing facilities for nutraceuticals, and if the manufacturing facilities used by the Company's 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.

In
addition, in accordance with the requirements of the DSHEA, the FDA has been in the process of developing a Good Manufacturing Practice Regulation applicable to manufacturers of
dietary supplements. The FDA recently stated that it expected to publish a proposed regulation for public comment sometime during the second half of 2002. However, there is no way to determine when
the FDA will actually publish this proposal, in what form it will appear, and when any such regulation will become final. When final regulations are promulgated, it may be necessary for Naturade to
review the qualifications of its third-party manufacturers and determine whether they satisfy the FDA's requirements. The potential exists for circumstances to arise which would require Naturade to
seek out alternate manufacturers who operate in compliance with the FDA's requirements.



The market for nutraceutical products is highly competitive. Many 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.

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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, the weather, transportation delays, the occurrence of chargebacks in excess of reserves and the timing of expenditures in
anticipation of increased sales and actions of competitors. Accordingly, a comparison of the Company's results of operations from period to period is not necessarily meaningful, and 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.

Naturade may not be able to identify suitable strategic partners to realize the Company's growth strategy.

In
addition to internal expansion of its existing business, Naturade has a strategy to expand its business externally by identifying compatible companies for strategic alliances and
strategic investments in Naturade. Naturade may not succeed in identifying these potential strategic partners or may be unable to conclude agreements with them. If so, Naturade's future growth may be
limited, and it may be unable to achieve profitability.



Naturade, traditionally a marketer for the health food market, has recently built a presence in the mass market. While yielding increased revenue, selling to the
mass market has also resulted in significant new costs and risks for Naturade. Mass market merchandise requires greater expenditures for branding. Compared to sales to health food distributors, the
aggregate volume of mass market

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orders can vary significantly from period to period and tends to be more sensitive to short term or local variations in market conditions. The instability can make planning difficult and can cause
unexpected reductions in sales, or in orders that exceed Naturade's short term capacity, in either case resulting in lost revenue. Failure to manage the costs and risks associated with the mass market
could cause material adverse harm to Naturade's business.



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



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 such products. The Company's ability to attract and retain distributors could be adversely affected by negative publicity relating to it or to other direct sales organizations or by
the announcement by any governmental agency of investigatory proceedings regarding the business practices of the Company or other direct sales organizations.



Our success depends in part on our ability to preserve our trade secrets and know-how, and operate without infringing on the property rights of third
parties. The Company does not have any patents, and as a result another company could replicate one or more of Naturade's products. The Company's policy is to pursue registrations for all of the
trademarks associated with its key products. The Company relies on common law trademark rights to protect its unregistered trademarks as well as its trade dress rights. Common law trademark rights
generally are limited to the geographic area in which the trademark is actually used, while a U.S. federal registration of a trademark enables the registrant to stop the unauthorized use of the
trademark by any third party anywhere in the U. S. 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 U.S.

Currently,
the Company has received over 19 U.S. trademarks as well as a California registration of one trademark. The Company also maintains trademark registrations in approximately 10
foreign countries. Because of its limited financial resources, the Company cannot in all cases exhaustively monitor the marketplace for trademark violations. It will evaluate and pursue potential
infringement on a case-by-case basis in accordance with its business needs and financial resources. If the Company is

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not aware of some infringing uses or elects not to pursue them, the value of its trademarks could be substantially weakened. If the Company takes action to enforce its property rights, litigation may
be necessary. Any such litigation could be very costly and could distract the Company's personnel. Due to limited financial resources, Naturade may be unable to pursue some litigation matters. In
matters it does pursue, Naturade can provide no assurance of a favorable outcome. 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. The Company experiences significant costs in
formulating new products, designing packaging and merchandising. While the Company conducts extensive market research to determine consumer trends in both the mass market and health food market, 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.



The market price of the Company's Common Stock is likely to be volatile and could be subject to significant fluctuations in response to the factors such as
quarterly variations in operating results, operating results which vary from the expectations of securities analysts and investors, changes in financial estimates, changes in market valuations of
competitors, announcements by the Company or its competitors of a material nature, loss of one or more customers, additions or departures of key personnel, future sales of Common Stock and stock
market price and volume fluctuations. Also, general political and economic conditions such as recession, or interest rate or currency rate fluctuations may adversely affect the market price of the
Company's Common Stock.



At March 31, 2002, Westgate Equity Partners, L.P. beneficially owned approximately 50.9% of the Company's Common Stock, Health Holdings beneficially owned
44.3% of the Company's Common Stock, and executive officers and directors of the Company as a group beneficially owned 96.4% of the Company's Common Stock. Shares "beneficially owned" include shares
that a person owns or has a right to acquire within 60 days, either directly or through affiliates. Accordingly, Westgate Equity
Partners, LLC and Health Holdings have the ability to control the outcome on all matters requiring stockholder approval, including, but not limited to, the election and removal of directors, any
merger, sale, consolidation or sale of substantially all of the assets of the Company, and to control the Company's management and affairs.

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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 exposure to market risk for changes in interest rates relates primarily to the
Company's long-term debt.

The
Company's long-term debt primarily consists of a $4.5 million line of credit originally entered into on January 27, 2000 and amended on December 20,
2001 and a $252,345 Loan Agreement with investors, after giving affect to the Health Holdings debt-to equity conversion on January 2, 2002 as part of the Private Equity Transaction
as described more fully in Note 7 to the Financial Statements. The $4 million Credit Agreement with the majority shareholder of the Company was converted into equity on January 2,
2002 as part of the Private Equity Transaction. The line of credit bears interest at prime rate plus 2%. The Loan Agreement bears interest at 8% per annum with due dates of September 11, 2002
for $50,000 and of August 2003 for the remaining balance. However, given the fixed interest rate on the Loan Agreement, interest rate changes generally will have no effect on the interest rates
under the Loan Agreement or on the Company's results of operations. Given the variable interest rate on the line of credit, the impact of interest rate changes on the line of credit could have a
material impact on the Company's results of operations. For 1Q'02, the interest expense on the line of credit was $25,593. If the interest rate on the line of credit for 1Q'02 had increased by one
percent to prime rate plus 3%, this would result in an interest expense of $29,385 for 1Q'02.

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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

As of March 31, 2002, the Company was not in technical compliance with the minimum net income and minimum adjusted book net worth covenants of the Credit
and Security Agreement with Wells Fargo. The Company has notified Wells Fargo of the foregoing and is in discussions with Wells Fargo regarding a potential waiver of these covenants. However, there
can be no assurance that the Company will be successful in having these covenants waived. In such event, Wells Fargo would be entitled to exercise certain remedies under the Credit and Security
Agreement including termination of this agreement and foreclosure upon the collateral. Borrowings under the Credit and Security Agreement are collateralized by substantially all assets of the Company.

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



On
January 3, 2002, the Company filed a Form 8-K reporting the Securities Purchase Agreement among Naturade, Inc., Westgate Equity Partners, L.P., and
Health Holdings & Botanicals, LLC, effective January 2, 2002.

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S I G N A T U R E S

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, 2002 |  | By                         
|DATE: May 15, 2002 |  | By                         

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