UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

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

For the fiscal year ended December 31, 2004

Commission File Number: 33-7106-A

NATURADE, INC.

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

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12 (g) of the Act:
None

     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 þ No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o No þ

     As of June 30, 2004, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of such Common Stock held by non-affiliates was $154,995 based on the average of the bid and asked price on that date.

     As of March 26, 2005, 44,533,886 shares of the registrant’s Common Stock were outstanding.

TABLE OF CONTENTS

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Forward Looking Information

     This Annual Report on Form 10-K contains forward-looking statements within the meaning of that term in the Private Securities Litigation Reform Act of 1995 (Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934). Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities Exchange Commission or otherwise. Statements contained herein that are not historical facts are forward-looking statements. In addition, the reader may identify forward-looking statements by the use of the words “anticipates,” “expects,” “intends,” “plans,” variations thereof and similar expressions. All such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

     Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Consequently, future events and actual results could differ materially from those set forth in, contemplated by, or underlying the forward-looking statements contained in this Annual Report. Statements in this Annual Report on Form 10-K, particularly in “Item 1. Business,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the “Notes to Financials Statements” describe certain factors that could contribute to or cause such differences, including, but not limited to, unanticipated developments in any one or more of the following areas: the fact that our accountants have expressed doubt about the Company’s ability to continue as a going concern, the Company’s expectation of further losses, the Company’s need for additional financing and access to borrowing, the Company’s dependence on key customers, the Company’s dependence on third-party manufacturers, government regulations that could affect the Company’s products, the Company’s ability to identify suitable strategic partners, competition, the Company’s dependence on key personnel, labeling or promotion risks associated with the mass market, the effect of closely controlled stock, the pace of technological change, possible interruptions in the Company’s business resulting from the U.S. Government’s response to terrorism, variability of quarterly results, product liability exposure, reduced sales in the dietary supplement industry, the effect of adverse publicity, the Company’s ability to protect the Company’s intellectual property, the rate of consumer acceptance of new product introductions, stock price volatility, and other risk factors which may be detailed from time to time in the Company’s Securities and Exchange Commission filings.

     Readers are cautioned not to place undue reliance on any forward-looking statement contained herein, which speak only as of the date hereof. The Company undertakes no obligation to update any these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.

NATURADE®, NATURADE TOTAL SOY®, THE DELICIOUS WAY TO GIVE HEART DISEASE THE SHAKE™, THE DELICIOUS CHOLESTEROL FIGHTER! ®, NATURADE 100% SOY™, NATURADE 100% WHEY™, NATURADE VEG™, NATURADE SOY-FREE VEG™, NATURADE MILK & EGG™, NATURADE N-R-G™, NATURADE PURE SOY™, DIET LEAN™, POWER SHAKE®, FEEL ALIVE®, RIBOTEIN™, REVIVEX™, HEAD START™ and EXPEC® are trademarks or service marks of Naturade, Inc.

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PART I

Item 1. Business

General

     Naturade, Inc. (the “Company” or “Naturade”) was founded in 1926. The Company is a leading marketer of scientifically supported natural products formulated to improve the health and well-being of consumers and sold to supermarkets, mass merchandisers, club stores and drug stores (collectively, the “mass market”), health food stores and natural food supermarkets (collectively, the “health food market”) and the military. The Company’s products are generally marketed under the trademarks Naturade®, Naturade Total Soy®, Diet Lean™, SportPharma® and ReVivex™. The Company also markets its products in the health food market and mass market in Canada and selectively in other international markets.

     Naturade is known for its expertise in soy protein based products, having pioneered the soy protein powder category in 1950. It has long held a leading market share of soy protein booster powders sold through health food distributors. In 1999, Naturade introduced its Naturade Total Soy® meal replacement powders and by 2000 had become a leading brand name in soy protein powders for all trade classes combined, capitalizing on the 1999 U.S. Food and Drug Administration (“FDA”) announcement of a heart disease health claim for soy protein.

     Weight loss is a major marketing focus for the Company encompassing its Naturade Total Soy® line of meal replacements for cholesterol reduction and weight management and its Naturade® line of protein boosters for low carbohydrate dieters. In 2003, the Company introduced Diet Lean™ carb blocker, a product to help block absorption of starch calories. In 2004, the Diet Lean™ line was extended with five additional Stock Keeping Units (“SKUs”) to broaden appeal to dieters regardless of the particular weight loss regimen they are following.

     Naturade anticipates growth in the joint health category based on new technology that offers greater relief than has previously been available. In October 2004, Naturade became the first company to offer products for sale in U.S. retail outlets with a new dietary supplement ingredient, Celadrin™. These products are marketed under a new brand name, ReVivex™. Clinical test results show that Celadrin™ offers the promise of faster relief than is currently available from other dietary supplement ingredients for promotion of joint health and mobility. Unlike, other joint health supplements, Celadrin™ works on muscles and tissues as well as joints.

     In addition, in 2004 Naturade introduced a topical analgesic under the ReVivex™ brand name which is targeted to the over 66 million arthritis pain sufferers.

     In 2004, the Company entered the sports nutrition segment of the market with the introduction of the SportPharma® line of sports nutrition products. This line is targeted to the sports enthusiasts who want an all-natural alternative. The SportPharma brand is licensed under an exclusive agreement for sales to health food stores and the natural food section of supermarkets.

     In order to focus its resources on its core soy powder brands and new products and to raise working capital, the Company sold its aloe vera brands in 2004. The aloe vera products were focused primarily on the natural health and beauty segment and it was determined they were outside the Company’s current strategic focus and were considered not to be a strategic area for the company to devote its resources to.

     The Company offers additional all-natural brands and product lines, including laxatives, digestive aids, cough/cold products, and provides private label products to a limited number of customers.

History and Recent Developments

     Until 1999, the Company focused on sales to health food stores and natural supermarkets. In 1999, Naturade entered the mass market with the introduction of its first line of meal replacement products, Naturade Total Soy®.

     In 1999, the U.S. Food and Drug Administration (“FDA”) authorized a heart health claim for soy protein which allows qualifying products to claim on their label “25 grams of soy protein daily, in a diet low in saturated fat and cholesterol, may reduce the risk of heart disease.” Naturade began shipping products that prominently featured this claim on the first day allowed by the FDA and believes that it has materially benefited from the FDA decision through increased shelf distribution and increased consumer trial. Naturade currently markets 26 different SKUs featuring this claim.

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     In 2002, Naturade broadened its focus to target the large and rapidly growing opportunity in weight loss. Initially, this was accomplished by repositioning its Naturade Total Soy® meal replacements under the slogan “reduce cholesterol and manage your weight.”

     In 2003, the weight loss focus was accelerated as the Company repositioned its long established line of high protein boosters to target dieters who were concerned about reducing carbohydrate intake. In 2003, the Company also introduced the Diet Lean™ brand name through the introduction of a white kidney bean extract ingredient shown in clinical studies to help people lose weight by blocking the absorption of starch calories. This line was extended in early 2004 with the introduction of two meal replacement powder SKUs and three additional dietary supplement SKUs, including Diet Lean™ Body Fat Regulator with Tonalin® brand CLA.

     In early 2004, Naturade made an aggressive effort to establish a significant position in the sports nutrition category with the introduction of 4 powder SKUs under the brand name SportPharma®. In addition to gaining placement in health food retailers throughout the U.S. and in the natural section of mass supermarkets, the company used SportPharma® to open distribution with GNC stores

     Anticipating growth in the joint health category based on new technology, Naturade introduced, in late 2004, a new line of products under the brand name ReVivex™. This launch built on the company’s expertise in gaining distribution in mass market and health food retailers. The ReVivex™ family of products includes three oral dietary supplement SKUs.

     ReVivex™ dietary supplements offer alternatives to competitive products currently available as the first brand sold in retail stores that are made with Celadrin®. Celadrin®, is a new dietary supplement ingredient, that cushions bones and joints to promote flexibility and mobility. Clinical test results published in the Journal of Rheumatology showed that an oral dosage of Celadrin® delivered benefits in just 30 days. This compares favorably to glucosamine that can take 6 to 8 weeks or longer to work. Celadrin® is further differentiated from glucosamine and other dietary supplement ingredients such as chondroitin, MSM or SAMe since it works on muscles and tissues as well as on joints.

     ReVivex™ Pain Relief Lotion is a menthol-based topical analgesic that works in 30 minutes or less to relieve pain. ReVivex™ lotion can be used for pain from arthritis or backache as well as by athletes or others who suffer pain from over exertion or injuries.

Business Strategy

     The mission of the Company is to market innovative natural products that nourish and improve the health and well being of consumers. Naturade focuses on building consumer brands that can be marketed in both the mass market and the health food market and for which there is strong scientific support of efficacy. Naturade’s management is committed to profitable growth through the following business strategies.

     Increase focus on weight loss

     Naturade is strongly focused on the growth potential of the weight loss category, including high consumer interest in low carbohydrate diets. More than ten human clinical studies demonstrate weight management benefits for soy protein as part of a reduced calorie diet including improved satiety (feeling of fullness), increased lean muscle mass and protection against oxidative stress (a particular concern to people involved in athletic performance). The Company’s new Diet Lean™ brand of products, which includes products that assist weight loss by helping to block the absorption of starch calories, offers a launching pad for new, complementary healthy weight loss products.

     Capitalize on health benefits of soy protein

     The Company believes significant growth potential exists in the soy protein foods category with over 50 clinical studies demonstrating that soy protein reduces cholesterol, while consumer awareness of this important benefit remains well below 50%. The FDA, the American Heart Association and the Mayo Clinic all support daily intake of 25 grams of soy protein as part of a diet low in saturated fat and cholesterol. In addition, FDA is currently reviewing a petition for a health claim for soy protein-based foods and reduced risk of breast, prostate, and colon cancer. The petition is based on evidence presented from 58 different studies.

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     Become a leader in all natural joint health and arthritis pain relief

     Naturade’s introduction of the ReVivex™ line is focused on providing safe, all natural ingredients backed by science as alternatives to current joint health products. ReVivex™ joint support products are the first products to market the dietary supplement ingredient Celadrin in major retail stores throughout the U.S. and the Company believes this market is currently in a growth stage.

     ReVivex™ Pain Relief Lotion, which contains the active ingredient menthol, works quickly to temporarily relieve joint, muscle and tissue pain from backache, sprains, strains and over exertion and even from arthritis.

     Excel in relationships with consumers and retailers

     The Company has used its expertise in consumer packaged goods to build a strong relationship with its retail customers. Naturade complements its broad sales and marketing efforts with programs focused on direct-to-consumer communication to generate trial use, cross-promote products and build brand loyalty.

     Focus resources on nutraceutical supplements

     The Company has elected to focus its resources on nutraceutical supplements. As a result, the Company sold its aloe vera brands in 2004 that were primarily targeted to the natural health and beauty segment. Because of numerous competitors the Company was not positioned to take full advantage of this segment.

     Pursue innovation through science-based new products

     Naturade continues to emphasize new products as a long-term growth strategy. These include further exploitation of soy protein’s demonstrated ability to lower cholesterol, support weight loss, reduce bone loss, reduce hot flashes and enhance performance. In addition future products will be released based on other promising health benefits verified by scientific investigations in the weight loss and joint health categories. The Company’s marketing and research and development departments spearhead new product development; overseeing product formulation, testing and sample production runs carried out by the Company’s third party manufacturers.

     Focus promotional spending to improve profitability by account

     The Company maintains account-by-account profit and loss budgets to improve the efficiency of promotional spending. The Company manages its spending plans based on each account’s potential, and then develops its promotional programs to optimize sales growth while limiting Naturade’s brand expense. The Company selectively pursues new distribution where initial investment in start-up costs has a strong expectation of delivering a near-term payback. Similarly, management has elected to exit accounts where minimum profit standards cannot be met. As a result, Naturade is currently selling to a consolidated U.S. account base of approximately 20,000 stores compared to approximately 11,000 in 2003 and 15,000 in 2002. Expansion into the Canadian market with a streamlined offering of best selling products is being pursued with the same targeted spending strategy.

     Identify and solicit strategic partners for growth

     The Company continues to focus on external growth making use of the resources of its major investors to help identify beneficial strategic alliances. The Company is currently engaged in a strategic alliance in natural sports nutrition products. The effort to identify additional funding in support of internal and external growth is ongoing.

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Industry

     Naturade has sought to position itself for long-term growth by designing products that address specific conditions where strong scientific evidence of tangible health benefits has created marketing opportunities. There are also a number of demographic trends that support the Company’s belief that the current growth for the categories in which it competes will be long-lived, including the following:

	•	During 2005, nearly 70 million, or nearly one in three adults, will suffer from arthritis or chronic joint symptoms according to the Arthritis Foundation. This number is up over 50% since 1998.
	•	Arthritis is the nation’s leading cause of disability among Americans over age 15.
	•	Baby boomers are now at prime risk for arthritis; more than half those affected are under age 65.
	•	64% of the U.S. population is classified as “overweight.”
	•	There is an increasing consumer awareness of weight loss and healthy eating due to an estimated 64% of the U.S. population being described as “overweight.”
	•	Heart disease remains as the number one killer of men and women in the U.S.
	•	100 million Americans have high cholesterol.
	•	Significant health risks are associated with obesity, including heart disease, high blood pressure and diabetes.
	•	A trend towards healthier, more active lifestyles continues.
	•	Preventative/alternative medicines and therapies are increasingly popular.
	•	Demand has increases for safe, all natural joint health and arthritis pain relief products to replace pharmaceutical products shown to have a high risk of side effects.
	•	An increasing number and credibility of scientific studies and clinical trials support the efficacy of non-drug health products.

     There can, however, be no assurance that these trends will continue or that they will result in greater sales revenue for the Company.

     Naturade competes in the overall market for natural, nutritional supplements. Nutrition Business Journal (“NBJ”), a San Diego-based research publication that specializes in this industry, reports that sales for the overall $58 billion “Nutrition” industry were up 7% in 2004 versus 2003. Naturade primarily competes in the $19 billion segment defined by NBJ as Supplements. The Supplement category, which is broken down as follows, grew 4% in 2004:

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     Weight loss continues to create ongoing front page news through the major media outlets. According to the Centers for Disease Control, two thirds of the U.S. population is overweight. Both the nature of the problem and the continuing news coverage support the perspective that demand for weight loss products will continue to increase for years to come.

     In addition to weight control, Naturade competes in the soyfoods market. In 2003, that category grew by 7.2% to an estimated $3.9 billion according to Spins/Soyatech. According to the report entitled “Soyfoods: The U.S. Market 2004,” soyfoods grew at a rate of more than 14% per year for the past 10 years, but slowed considerably since 2001. The report points out that shelf stable juices, functional drinks, soymilk and energy bars have been the growth categories while other segments have not performed as well.

     Most recently, Naturade has entered the joint health category which NBJ categorizes under the $20 billion supplement segment of the $63 billion Nutrition Industry. Overall, supplements grew 6% in 2003, led by 14% growth from specialty/other products, including supplements for joint health. The specialty/other segment is expected to grow at a compound annual rate of 9.5% through 2008. Joint Health supplements, including glucosamine, chondroitin, MSM and SAMe delivered sales of $946 million, according to NBJ, up 11% in 2003 versus 2002.

Brands & Product Lines

     Weight loss brands

     Naturade Total Soy® is the largest selling Naturade brand, positioned for weight loss and cholesterol reduction. It is distributed in virtually all of the retail outlets serviced by Naturade or its distributors. These products include shake mix powder products available in a variety of flavors in all natural and low carbohydrate formulation including original Naturade Total Soy® powder, Calcium Shake™ and Naturade Low Carb Dieters Shake®.

     First introduced in 1950, Naturade protein boosters are high protein, low carbohydrate powders offering consumers a range of protein choices. These powders are typically added to smoothies to make high protein drinks, but are also used to add protein to other foods prepared at home such as cereal, sauces or casseroles. The Company offers a broad selection of protein booster powders based on alternate protein sources, including Naturade 100% Soy™, Naturade Veg™, Naturade N-R-G™, Naturade 100% Whey™, Naturade Soy-Free Veg™ and Naturade Milk & Eggwhite™.

     Diet Lean™ is a new Naturade weight loss brand introduced in 2003/2004. Diet Lean offers four different dietary supplement SKUs plus 2 meal replacement powders that can be used to support any weight loss plan. The dietary supplement products are backed by scientific research in support of benefits such as blocking digestion of carbohydrates and stimulating metabolism to helping to reduce fat. These products include Diet Lean® Body Fat Regulator with CLA®, Diet Lean® Weight Loss Multivitamin, Diet Lean® Fiber Supplement and Diet Lean® Low Carb Dieters Shake. The introduction of this brand and the subsequent introduction of products focused on the low carb dieter addresses the needs of consumers who will no longer be able to purchase ephedra-based products and will be looking for safe and effective dietary supplements that will help them lose weight.

     Calcium Shake is a soy protein-based meal replacement for weight loss that is positioned to support bone health with the full daily value of 1000 mg of Calcium per serving.

     Soy protein-based products for heart health

     In 1999, the FDA authorized a heart health claim for soy protein. Naturade markets 26 different soy protein SKUs that qualify to carry the FDA approved claim that “25 grams of soy protein daily, in a diet low in saturated fat and cholesterol, may reduce the risk of heart disease.” These products accounted for approximately 53% of Naturade net sales in 2004. Naturade Total Soy® was the first soy protein powder brand in the U.S. to carry this claim on the front of retail package labels and differentiates itself from competitors by continuing to emphasize this life-saving health message on its packages as well as in its advertising and promotional messages as “the delicious cholesterol fighter®.” Naturade offers two soy protein-based nutritional supplement products positioned as energy enhancers, Power Shake® and Ribo-tein™, plus Naturade Pure Soy™, the only widely distributed meal replacement powder made with certified organic ingredients. In addition, three of the six low carbohydrate protein boosters are made with soy protein and carry the FDA heart health claim.

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     Joint health care products

     In late 2004, Naturade introduced ReVivex™, a line of joint health products that utilize Celadrin®, a proprietary compound that studies show offers benefits not found in glucosamine based products, currently the standard for natural joint health supplements. The active ingredient in Naturade’s ReVivex™ line, available in several oral (tablet) applications, has properties which cushions bones and joints to increase mobility and promote flexibility.

     Arthritis Pain Relief Products

     In 2004, Naturade introduced ReVivex™ Pain Relief Lotion. ReVivex™ lotion contains menthol and has demonstrated in clinical studies to temporarily relieve pain from arthritis, muscle soreness and backache in 30 minutes or less. ReVivex™ lotion expands the Company’s target market to over 66 million consumers who suffer from arthritis.

     Aloe vera-based products

     During 2004, the Company sold its Aloe vera brands for approximately $1.2 million in cash in order to raise working capital and focus its resources on meal replacements, diet products, sports nutrition and joint health care products. The aloe vera based products accounted for approximately 10%, of Naturade 2004 and 2003 net sales.

     Other products and private label

     The Company offers additional all-natural brands and product lines including sports nutrition powders, laxatives, digestive aids, cough/cold products and a healthy breakfast product (Head Start™) which, cumulatively, account for approximately 15% of 2004 net sales. These are distributed almost exclusively through independent health food stores and natural supermarkets. In addition, the Company provides private label products to a limited number of customers.

Competition

     In light of the 2004 withdrawal of Slim Fast’s soy protein powders, Naturade faces only one significant competitor in the mass market powder sector, Genisoy® from MLO Products, Inc. Many other companies have entered the category since 1999 but hold only small market shares, including, Twinlab, Amerifit, Kashi, Balance, EAS, Natrol, Rexall Sundown, Schiff (Weider) and Country Life (Hain). Naturade also competes with Genisoy® and Kashi in the health food segment where the Company believes that it holds the leading share of soy protein products positioned for weight loss and heart health. In the health food sector Naturade competes indirectly with Spiru-tein®, a brand from Nature’s Plus, Inc. Unlike Naturade Total Soy®, Spiru-tein® does not emphasize soy protein content in marketing its products and positions them as energy boosters rather than products for weight loss or cholesterol reduction. Spiru-tein® holds a substantial lead over Naturade’s entries in the energy category, Power Shake® and Ribo-tein™.

     Naturade was first to market with its Celadrin™ based brand, ReVivex™. However, the Company does not have exclusive rights to the active ingredient and it is possible that other companies will introduce Celadrin™ based products. ReVivex™ currently competes with a wide array of dietary supplement products for joint health. The market leader is the glucosamine based Osteo-BiFlex brand from NBTY (Rexall). Other competitors include Weider (Move Free), Pharmavite (Nature Made), Natrol, Arthritis Research Corporation (Flexamin), Contract Pharmacal Corporation (ArthX) and Nutramax Labs (Cosamin DS). These companies all offer glucosamine based product lines while most also offer alternate SKUs with MSM or SAMe. Weider has recently introduced a new product under the Lubriflex brand name which offers a novel joint health ingredient, hylauronic acid.

     ReVivex™ Pain Relief Lotion is a topical analgesic competing with numerous companies in this over-the-counter (“OTC”) drug category. Topical competitors include Naturopathic Labs (Joint-ritis), Pfizer (BenGay), Chattem (Capzasin, Icy Hot & Aspercreme) and Haw Par Healthcare Ltd. (Tiger Balm). Numerous small companies offer similar products for joint health and arthritis pain relief through health food stores.

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Sales, Marketing and Distribution

     In fiscal 2004, the breakdown of Naturade sales by channel was 46.1% to the mass market, 51.1% to the health food market and 2.8% in international channels. Naturade’s products are sold to both the health food market and the mass market using a sales management team augmented by independent brokers. Health food sales are primarily through distributors, while most mass market sales are direct to retailers. Naturade sales and distribution in Canada is also handled through distributors and brokers. The Company’s major customers include:

Major Customers by Channel

     Naturade’s direct sales force supervises broker sales organizations in the health food market and mass market. While headquarters sales calls are primarily the responsibility of Naturade’s sales management, over 76 health food broker personnel and an additional 35 mass market broker personnel carry out follow-up calls and retail activity. Naturade maintains brokerage agreements with its health food and mass market brokers throughout the U. S. These agreements have a term of one year and may be terminated on 30 days prior written notice by either party. In addition, these agreements grant the brokers exclusive territories to represent Naturade and receive commissions on sales generated in these territories. Brokers do not take title to the Company’s products.

     Naturade sells its products in the health food market through a network of 20 key distributors and approximately 15 smaller distributors, who together service approximately 5,000 retail health food stores and natural supermarkets in the United States. These distributors take title to the Company’s products, combining these products with other companies’ products to serve the health food stores in their geographic area. Ten of these key distributors are divisions of United Natural Foods, Inc. (UNFI), a national health food distributor, while seventeen other distributors are divisions of Tree of Life, Inc, another national health food distributor. Combined, these two principal health food distributors account for 31% of the Company’s total sales during fiscal 2004. Often the Company’s direct sales force, along with brokers, will solicit business from health food stores who then acquire the Company’s products from these distributors. While each of these national health food distributors is a corporate legal entity, their divisions independently make purchasing decisions on the Company’s products and are separately invoiced by the Company. Accordingly, in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company treats these divisions as separate customers for purposes of determining the top 40 customers. In 2004, Naturade broke distribution with GNC stores on several different brands. The Naturade direct sales force sells this account and product is shipped direct to GNC distribution points throughout the country.

     Mass market products are sold directly to mass market retailers or their designated distributors. One mass market customer, Wal-Mart, represented approximately 23% of Company total sales in 2004. While this mass market customer is part of a single corporate legal entity, its retail operations are independent operations, have separate buying departments and are separately invoiced by the Company. Thus, in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” the Company treats them as separate customers for purposes of determining the top 40 customers.

     In the second half of 2003, the Wal-Mart stores division, a top ten customer of the Company, revamped its weight loss shelving to make room for additional low carbohydrate products. In the process, they eliminated their entire soy protein powder offering including both Naturade and the major competitor, Slim Fast. The lost business accounted for approximately 6% of 2003 sales. Company management has focused on re-establishing distribution of the Company’s products in the Wal-Mart division and was successful in late 2004 with the introduction of the ReVivex™ line of joint health care products. The loss of any one of its major customers could have a material adverse effect on the Company.

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Third-Party Manufacturers

     The Company outsources all of its manufacturing and as a result, is significantly dependent on third-party manufacturers. Naturade currently contracts with third-party manufacturers who specialize in powder, liquid, tablet/capsule, bar and over-the counter drug (“OTC”) production. Naturade selects its third-party manufacturers based upon several criteria, including quality, capacity, location and cost. Under the direction of the Company’s product development team, these third-party manufacturers create product formulations and develop sample production runs of prototype products. Naturade requires that a certificate of analysis that indicates tested levels of key microbiological measures accompany every batch of product received from a third-party manufacturer.

Raw Material Supplies

     Due to outsourcing of production, Naturade has eliminated most of its raw material inventory. At December 31, 2004 raw material inventory approximated $204,000. This amount includes bottles, labels, corrugated boxes and shippers. The Company believes that the raw materials used by its third-party manufacturers are readily available from multiple supply sources. The Company has not experienced significant delays due to supply problems.

Quality Control

     The Company has established quality control standards for its third-party manufacturers, including lists of approved raw material suppliers, agreed upon production batch sizes, microbiological and other contaminant testing criteria, utilization of industry-specific independent laboratories for sample analysis and a formal incubation period for finished products, among other requirements.

Seasonal Fluctuations

     As the Naturade Total Soy® brand has emphasized weight loss in connection with its meal replacement products, sales have become somewhat more seasonal, affected by higher December and first quarter demand due to intense consumer interest in dieting and healthy lifestyle following the holiday season, with a softening of sales in the beginning of the fourth quarter. Because individual products have seasonal variations, as the Company’s product mix changes, the Company may experience more seasonality in the future. In addition, international sales tend to fluctuate depending upon economic conditions, seasonal patterns and cultural differences within each country.

Trademarks, Copyrights and Other Intellectual Property

     Naturade maintains registrations on 20 trademarks with the United States Patent and Trademark Office and has applied for four additional trademarks. Naturade also maintains trademark registrations for a variety of marks in approximately eleven foreign countries. In addition, Naturade holds other intellectual property rights. Federally registered trademarks have perpetual life, provided they are renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the marks. The Company regards its trademarks and other proprietary rights as valuable assets and believes that they have significant value in the marketing of its products. 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 infringements on a case-by-case basis in accordance with its business needs and financial resources. If the Company is not aware of some infringing uses or elects not to pursue them, the value of its trademarks could be substantially weakened. In 2004, the Company sold its aloe vera brands including the rights to the Aloe Vera80™ trademark.

Private Equity Transaction

     In January 2002, the Company (i) sold Series B Convertible Preferred Stock and Warrants to Westgate Equity Partners, L.P. (“Westgate”) for a total of $2.5 million, (ii) issued 36 million shares of Common 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, which were not exercised and expired on December 31, 2004, entitled the holder to purchase additional shares of Series B Convertible Preferred Stock convertible into 33.6 million shares of Common Stock (subject to adjustment) for $3.5 million.

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     In April 2003, the Company entered into a loan agreement (the “Loan Agreement”), with Health Holdings and Botanicals, LLC, a principal shareholder of the Company, and certain other lenders (the “Lender Group”), pursuant to which the Lender Group agreed to lend the Company $450,000 and subject to the discretion of the Lender Group, up to an additional $300,000. In 2004, the Company and the Lender group agreed to the Joinder of Bill D. Stewart, CEO of the Company, to the Loan Agreement as an additional lender and increased the maximum advance to $950,000. All advances under the Loan Agreement bear interest at the rate of 15% per annum, were originally due on December 31, 2004 and were in default on December 31, 2004, are secured by substantially all of the assets of the Company, and are subordinated to Company’s indebtedness to Wells Fargo Business Credit, Inc. (“Wells Fargo”). On January 16, 2005, the Lender Group extended the due date on the Loan Agreement to December 31, 2005.

     The net proceeds from the sale of Series B Convertible Preferred Stock and Warrants, and the advances under the Loan Agreement, have been used for the Company for working capital and general corporate purposes. For a more complete description of these transactions see Notes 4 and 5 of Notes to Financial Statements.

Regulatory Matters

     The Company’s products are subject to regulation by numerous governmental agencies, principally the U.S. Food and Drug Administration (the “FDA”). The Company’s products are also subject to regulation by the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency. Advertising of the Company’s products is subject to regulation by the U.S. Federal Trade Commission. Various state and local agencies, as well as each foreign country in which the Company distributes its products also regulate the Company’s products.

     Many Naturade products, including Naturade Total Soy® and protein powders, are food products that are not subject to regulation by the FDA’s drug regulations or the DSHEA of 1994. These food products are regulated under the general FDA food regulations and may use “structure/function” claims or health claims under appropriate circumstances, but unlike dietary supplements, are not required to carry a disclaimer regarding an FDA evaluation or disease. Effective October 26, 1999, the FDA approved a health claim for soy protein allowing the following product label claim:

     “25 grams of soy protein daily, in a diet low in saturated fat and cholesterol, may reduce the risk of heart disease.”

     To carry this claim, one serving of a product must deliver at least 6.25 grams of soy protein with no more than three grams of fat and no more than one gram of saturated fat. The Company is currently shipping products that carry this heart disease claim under the brand names of Naturade Total Soy®, Naturade 100% Soy™, Naturade Veg™, Naturade N-R-G™, and Power Shake®.

     The Company believes that its products currently are in substantial compliance with the latest regulations in product labeling, including food (Nutritional Labeling Education Act of 1991 or NLEA), dietary supplement (DSHEA), over-the-counter drug (OTC Monographs) and cosmetic packaging guidelines. In addition, the Company has implemented registration and compliance procedures as required by the recently enacted FDA Bioterrorism Act. The Company retains control of all labels in-house and manages label development and usage as an element of quality assurance. In addition, all formula specifications are developed under the direction of Naturade’s management.

Backlog

     Naturade typically does not carry significant backlog orders and generally maintains a sufficient supply of its products to meet customer demands. The Company’s policy is to ship product within seven days of the order being placed.

Product Research and Development

     The Company devotes substantial resources to new product development and reformulation. The Company initiates new product development efforts with third-party manufacturers who create product formulations, test and develop sample production runs of prototype products. Due to industry practice, the third-party manufacturers who then negotiate with the Company on final lot sizes and production costs often absorb these costs. Consequently, the Company’s direct expenses in this area do not reflect the full cost of product research and development.

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     Naturade’s direct product research and development expenses were $274,057, $216,185 and $210,985 in the fiscal years ended December 31, 2004, 2003 and 2002, respectively.

     The Company introduced a carbohydrate blocker in September 2003 under the brand name Diet Lean™. The active ingredient in the product is a white kidney bean extract developed by Pharmachem Labs and marketed under the brand name Phase 2®. Diet Lean Carb Blocker is intended to be the first in a series of products to target the weight loss category and to be marketed by Naturade under the Diet Lean name. In 2004, the Company introduced a body fat regulator incorporating Tenalin® brand Conjugated Linoleic Acid (CLA) that reduces the number of fat cells in the body. Diet Lean® Body Fat Regulator is intended to assists low carb dieters.

     Naturade introduced in late 2004, the ReVivex™ family of products including 3 oral SKUs containing Celadrin™. Celadrin™, a proprietary compound owned by an unrelated party, is a dietary supplement ingredient comprised of novel, targeted cetylated fatty acid esters, Celadrin™ enhances cell membranes throughout the body and restores fluids that cushions bones and joints to promote flexibility and mobility.

     Naturade also introduced ReVivex™ lotion in late 2004. Containing menthol, ReVivex™ lotion is an OTC product that is designed to temporarily relieve pain from arthritis, backache and injuries.

Employees

     As of December 31, 2004, Naturade employed 27 people, including four in administration, 11 in sales and marketing, two in product development, six in finance, accounting and information technology and four in warehouse and distribution. The Company considers its relations with its employees to be good.

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 Annual Report on Form 10-K 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.

Future losses and ability to continue as a going concern

     At December 31, 2004, the Company had an accumulated deficit of $22,023,470, a net working capital deficit of $1,859,320 and a stockholders’ capital deficiency of $3,031,547. The Company anticipates that it will incur net losses for the foreseeable future and will need access to additional financing for working capital and to expand its business. If unsuccessful in those efforts, Naturade could be forced to cease operations and investors in Naturade’s Common Stock could lose their entire investment. Based on this situation, the Company’s independent registered public accounting firm qualified their opinion on the Company’s December 31, 2004 financial statements by including an explanatory paragraph in which they expressed substantial doubt about the Company’s ability to continue as a going concern. The financial statements provided with this report have been prepared on the assumption that the Company will continue as a going concern and do not include material adjustments that would be necessary if it were to cease operation.

Dependence on current and ongoing financing

     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 December 31, 2004, the Company was in compliance with all loan covenants of its Credit Agreement however; it was in default of the payment provisions of the Investor Notes and the Loan Agreement. On January 26, 2005, the due date on the Loan Agreement was extended to December 31, 2005. On March 25, 2005, the payment provisions of the Investor Notes was amended to require a principal payment of $20,000 plus accrued interest on July 15, 2005 with the remaining principal of $92,345 plus accrued interest due December 31, 2005. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Notes 4 and 5 to the Financial Statements.

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Dependence on continued business from the Company’s key customers

     The Company’s three largest customers together account for 54% of sales revenue for the fiscal year ended December 31, 2004. One mass market customer represented approximately 23% of Naturade’s total sales, and two health food distributors accounted for 31% of total sales during the year ended December 31, 2004. The loss of any of these customers could have a material adverse effect on the Company’s results of operations. From time to time, major customers 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.

Dependence on third-party manufacturers

     The use of contract manufacturers and the resulting loss of direct control over production could result in the Company’s failure to receive timely delivery of products of acceptable quality. 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. The Company’s use of contract manufacturers could also reduce its gross profits if the manufacturers raise prices and management cannot find alternative, less costly sources or pass price increases on to customers.

     Although the Company requires that its contract manufacturers comply with the U.S. Food and Drug Administration (the “FDA”) manufacturing guidelines, Naturade cannot assure that these third-party companies will always act in accordance to these regulations. 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. Furthermore, 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.

Impact of government regulation

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

     Weight loss products are subject to increased regulatory scrutiny due to intensified campaigns by both FTC and FDA. FTC has specifically launched a nation-wide law enforcement sweep against companies making false weight-loss claims. This initiative was created to stop deceptive advertising, provide refunds to consumers harmed by unscrupulous weight-loss advertisers, encourage media outlets not to carry advertisements containing bogus weight-loss claims and to educate consumers to be on their guard against companies promising miraculous weight loss without diet or exercise. The FTC campaign identifies 7 specific claims that they consider suspect, including: “Lose weight without diet or exercise”; “Eat what you want and lose weight”; “Weight loss will be permanent” (even when the user stops using the product); “Block the absorption of fat or calories, and lose substantial weight”; “Safely lose more than three pounds per week for a period of more than four weeks”; “Substantial weight loss for all users”; and “Diet patches, creams, wraps, earrings and other products worn on the body or rubbed into the skin that cause substantial weight loss.” If the FDA and FTC move beyond their current focus and more closely scrutinize weight loss products in the retail marketplace, there can be no assurance that this change in focus would not have an adverse effect on the sale of Naturade products.

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

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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, The Company has a strategy to expand its business externally by identifying compatible companies for strategic alliances and strategic investments in The Company. The Company may not succeed in identifying these potential strategic partners or may be unable to conclude agreements with them. If so, The Company’s future growth may be limited, and it may be unable to achieve profitability.

Competition

     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 developed by the Company.

Future sales of equity securities could dilute the Company’s Common Stock

     The Company may seek to obtain new financing from various sources, including the sale of its securities. Future sales of Common Stock or securities convertible into Common Stock at or below recent market prices could result in dilution of the Common Stock. In addition, the potential conversion of the 13.5 million shares of Series B Convertible Preferred Stock sold to Westgate on January 2, 2002, for $2 million, has resulted 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.

Dependence on qualified personnel

     The Company’s success depends upon its ability to attract and retain qualified sales, marketing, scientific and executive management personnel. To commercialize its products and product candidates, 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.

Expanding the Company’s sales in the mass market resulted in less stable demand for the Company’s products.

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

Closely controlled stock

     At December 31, 2004, Westgate beneficially owned, if converted, approximately 24.1% of the Company’s Common Stock, Health Holdings beneficially owned 92.2% of the Company’s Common Stock, and executive officers and directors of the Company as a group beneficially owned 95.9% 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 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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Technological changes

          The Company currently is engaged in developing nutraceuticals, which are characterized by extensive and costly research and rapid technological progress and change. New process developments are expected to continue at a rapid pace in both industry and academia. The Company’s future success will depend on its ability to develop and commercialize its existing product candidates and to develop new products. There can be no assurance that 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, research and development and discoveries by others could render some or all of the Company’s programs or potential product candidates uncompetitive or obsolete.

The Company may face interruption of production and services due to increased security measures in response to terrorism

          The Company’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 terrorist activities. The Company may also experience delays in receiving payments from payers that have been affected by terrorist activities and potential terrorist activities. The U.S. economy in general is being adversely affected by the terrorist activities and potential terrorist 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.

Variability of quarterly results

          The Company has experienced, and expects to continue to experience, variations in its net sales and operating results from quarter to quarter. The Company believes that the factors that influence this variability of quarterly results include the timing of 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 exposure

          Product liability risk is inherent in the testing, manufacture, marketing and sale of the Company’s products and product candidates, and there can be no assurance that the Company will be able to avoid significant product liability exposure. The Company may be subject to various product liability claims, including, among others, that its products include inadequate instructions for use or inadequate warnings concerning possible side effects and interactions with other substances. 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 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 dietary supplement industry as a whole is experiencing a decline in sales

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

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Effect of adverse publicity

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

Intellectual property protection

          The Company’s success depends in part on its ability to preserve its trade secrets and know-how, and operate without infringing on the property rights of third parties. The Company does not have any patents, and as a result another company could replicate one or more of the Company’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 U.S. trademarks as well as a California registration on four trademarks. The Company also maintains trademark registrations in approximately eleven 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 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 intellectual property rights, litigation may be necessary. Any such litigation could be very costly and could distract the Company’s personnel. Due to limited financial resources, The Company may be unable to pursue some litigation matters. In matters it does pursue, the Company 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.

New products are expensive to introduce and may not be successful

          Each year, the Company introduces new products to meet consumer demands and counter competitive threats. These new products include product line extensions, such as new flavors of currently existing products, as well as new formulations or configurations, such as ready-to-drink products 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 consumers and retailers will accept the Company’s new products. In addition, there can be no assurance that once new products are initially distributed to mass market and health food retailers, there will be repeat orders for these new products. Furthermore, expensive introductory retailer charges for additional shelf space may negate any initial increase in sales.

Stock price

          Trading in the Company’s Common Stock is low in volume. The market price of the Company’s Common Stock is likely to be volatile and could be subject to significant fluctuations in response to factors such as quarterly variations in operating results, operating results which vary from the expectations of securities analysts and investors, changes in financial estimates, changes in market valuations of competitors, announcements by the Company or its competitors of a material nature, loss of one or more customers, additions or departures of key personnel, future sales of Common Stock and stock market price and volume fluctuations. 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.

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Internal Controls

          Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), Naturade will be required, beginning in its fiscal year 2006, to perform an evaluation of the Company’s internal control over financial reporting and have the Company’s independent registered public accounting firm test and evaluate the design and operating effectiveness of such internal controls and publicly attest to such evaluation. The Company has prepared an internal plan of action for compliance with the requirements of section 404, although as of the date of this filing, the Company has not yet completed its effectiveness evaluation. Although the Company believes its internal controls are operating effectively, the Company cannot guarantee that it will not have a material weakness as reported by the Company’s independent registered public accounting firm. If the Company fails to complete this evaluation in a timely manner, or if the Company’s independent registered public accounting firm cannot timely attest to the Company’s evaluation, the Company could be subject to regulatory scrutiny and a loss of public confidence in internal controls. In addition, any failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm the Company’s operating results or cause the Company to fail to meet its reporting obligations.

Item 2. Properties

          In December 1998, the Company signed a 7 1/2 year lease for a facility including new executive offices, sales and marketing offices and warehouse located in Irvine, California. This 50,000 square foot facility includes a 40,000 square foot finished goods warehouse area configured with a high-density steel rack and frame storage floor plan. This maximum cubic space utilization provides the Company with reasonably sufficient warehousing capacity for the term of the lease, specifically in light of the Company’s decision to outsource production, thereby eliminating the need for any manufacturing space. The rent expense related to this lease for fiscal year ended December 31, 2004 was $388,704. The lease agreement includes an approximate 9% rent increase after the second, fourth and sixth year of the lease period, with a 60-month extension after the initial lease term at the prevailing market rental rate. The Company has not begun an evaluation of alternative facilities to replace this facility at the end of its lease. The Company believes this facility is sufficient for its needs for the foreseeable future.

Item 3. Legal Proceedings

          From time to time, the Company is party to various claims and litigation that arise in the ordinary course of business. While any litigation contains an element of uncertainty, management believes that the ultimate outcome of any pending claims and litigation will not have a material effect on the Company’s results of operations or financial condition.

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

          None

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PART II

Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

          The Company’s Common Stock began trading on the over-the-counter securities market in the third quarter of 1991 under the symbol NRDC.OB. The over-the-counter market quotations reflect interdealer bid prices, without retail markup, markdown or commission, and may not necessarily represent actual transactions. The prices appearing below were obtained from the National Quotation Bureau.

          On March 24, 2005, the last reported price for the Company’s Common Stock was $0.05. Stockholders are urged to obtain current market quotations for the Company’s Common Stock.

Holders

To the best knowledge of the Company, the number of record holders of Common Stock as of December 31, 2004 was 508. According to information obtained by the Company, approximately 439 additional shareholders hold the Company’s Common Stock in “street name.”

Dividends

          The Company did not pay a cash dividend on its Common Stock during 2004 and 2003, and the Company does not anticipate paying any cash dividends in the foreseeable future. As of the date of this Annual Report on Form 10-K, the Company intends to follow a policy of retaining any future earnings to provide funds for the expansion of its business. The declaration and payment of cash dividends in the future will depend upon the Company’s earnings, financial condition, capital needs and other factors deemed relevant by the Board of Directors. The Company’s ability to pay dividends is limited by the provisions of Delaware law, by its Credit and Security Agreement with Wells Fargo Business Credit and under the Certificate of Designation of the Series B Convertible Preferred Stock.

Recent Sales of Unregistered Securities

None

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Item 6. Selected Financial Data

          The following tables summarize certain selected financial data for the periods presented and should be read in conjunction with the more detailed information and financial statements, including notes thereto, presented elsewhere herein.

STATEMENT OF OPERATIONS DATA

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BALANCE SHEET DATA

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

          The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with “Item 6. Selected Financial Data” and the financial statements and related notes attached to this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. The Company’s actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited, to those set forth under “Item 1. Business—Risk Factors Affecting the Company” and elsewhere in this report.

General

          The Company is a branded natural products marketing company focused on growth through innovative, scientifically supported products designed to nourish the health and well being of consumers. Naturade s. The Company primarily competes in the overall market for natural, nutritional supplements. Nutrition Business Journal (“NBJ”), a San Diego-based research publication that specializes in this industry, reports that sales for the overall $58 billion “Nutrition” industry were up 7% in 2004 versus 2003. Naturade primarily competes in the $19 billion segment defined by NBJ as Supplements, which grew 3.8% in 2004. In addition, the report points out that sales of supplements were growing at similar rates in both the mass market channel and health food / natural product stores at approximately 3.5%.

          Within the broad soy foods market, segments such as meal replacement drinks, soy milk and bars have outperformed other categories. With many brands entering the market and reduced spending by Slim Fast®, the soy protein powder category flattened in 2003. The Company’s products include Naturade Total Soy®, a full line of nutritionally complete meal replacements for weight loss and cholesterol reduction available in several flavors of powders, Naturade® protein powders, ReVivex™ healthy joint and arthritis pain relief products, Diet Lean® products focused on the low carb dieter, SportPharma® sports nutrition products and other niche dietary supplements. The Company’s products are sold in supermarkets (e.g., Kroger, Fred Meyer, Safeway, Albertson’s and Ahold), mass merchandisers (e.g., Wal-Mart and Shopko), club stores (e.g., Sam’s Clubs, Costco and BJ’s Wholesale), drug stores (e.g., American Drug and Snyder Drug), natural food supermarkets (e.g., Whole Foods and Wild Oats) and over 5,000 independent health food stores.

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Results of Operations

          The following table sets forth, for the periods indicated, the percentage which certain items in the statement of operations data bear to net sales and the percentage dollar increase (decrease) of such items from period to period.

Major trends that affected the Company’s results of operations in 2004

	•	Low carbohydrate trend driving consumers purchasing patterns throughout most of 2004 requiring the Company to modify certain product formulations to lower carbohydrate content
	•	General softness in grocery segment related to competition from Wal-Mart and Club stores moving consumers from historical purchasing patterns
	•	Brand support and promotional spending was focused on areas that provide a direct return to the company resulting in reduced promotional costs per dollar of revenue generated.

          2004 Compared to 2003

          Net Sales—Net sales for 2004 decreased $2,184,815, or 13.4%, to $14,141,481 from $16,326,296 for 2003 reflecting a general decline in sales of core protein powders related to low carb consumer trends in 2004. The decline in core protein powder purchasing by consumers resulted in the Company losing distribution to one key mass market customer and a reduction in promotional programs by a second key mass market customer in 2004. This combined for a $2,100,200 decline in revenues from 2003 or 96% of the total decline for the period. Domestic sales for 2004 decreased $2,344,751, or 14.6%, to $13,747,245 from $16,091,996 for 2003 principally due to the loss of distribution referred to above. International sales for 2004 increased $159,936, or 68.3%, to $394,237 from $234,300 for 2003.

          Mass market net sales for 2004 decreased $1,828,371, or 24.1%, to $6,921,198 from $8,749,569 for 2003. This decrease was primarily a result of the loss of distribution in the mass market described above. For 2004, the percentage of mass market net sales to the Company’s total net sales decreased to 48.9% as compared to 53.6% in 2003. For 2004, health food net sales decreased $356,444, or 4.7%, to $7,220,283 from $7,576,727 for 2003 primarily as a result of a reduction in core protein powder consumption related to low carb consumer trends during 2004. For 2004, the percentage of health food net sales to the Company’s total net sales increased to 51.1% as compared to 46.4% in 2003.

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          For 2004, the top 40 customers accounted for $12,946,000, or 91.6%, of net sales, with 21 health food customers contributing $6,326,100 or 44.7%, of net sales, 18 mass market customers contributing $6,528,900 or 46.2%, of net sales, and one international customer contributing $91,000, or 0.7%, of net sales. This compares to the top 40 customers accounting for $15,478,500, or 94.8%, of net sales, with 21 health food customers contributing $7,123,000, or 43.6%, of net sales, 17 mass market customers contributing $8,163,300 or 50.0%, of net sales, and two international customers contributing $192,200, or 1.2%, of net sales for 2003.

          For both periods, the Company considers the 10 divisions of one major health food distributor and the 17 divisions of a second major health food distributor as separate customers for purposes of this top 40 list, because of their ability to make independent purchasing decisions regarding the Company’s products. In addition, two divisions of a mass market customer are one corporate legal entity, however they operate independently with separate buying departments and, thus, the Company considers them separate customers for purposes of this top 40 list. This analysis differs from that shown in “Item 1. Business—General” in which the divisions of these three entities are combined under their corporate parent to reflect three major customers.

          For 2004, the top 40 products represented $10,767,900 or 76.1%, of net sales, with 15 Naturade Total Soy® products contributing $5,706,900 or 40.4%, of net sales, 12 protein powders contributing $3,059,000 or 21.6% of net sales, three ReVivex™ products contributing $605,100 or 4.3% of net sales, two Diet Lean™ products contributing $513,200 or 3.6% of net sales and eight aloe vera and other products representing $883,700, or 6.2%, of net sales. The aloe vera brands were sold in November of 2004 and represented approximately 10% of fiscal 2004 net sales. This compares to the top 40 products representing $12,965,100 or 79.4%, of net sales, with 19 Naturade Total Soy® products contributing $8,522,400, or 52.2%, of net sales, 11 protein powders contributing $2,910,800, or 17.8%, of net sales and 10 aloe vera and other products representing $1,513,900, or 9.4%, of net sales for 2003.

          Gross Margin—Gross profit as a percentage of sales for 2004 decreased to 44.8% from 46.9% in 2003. This decrease in gross profit percentage is primarily due to lower fixed cost absorption related to lower net sales partially offset by product costs reductions related to the change in third party manufacturers in the second quarter of 2004.

          Selling, General and Administrative Expenses—Selling, general and administrative expenses for the fiscal year ended December 31, 2004 decreased $666,468, or 8.5%, to $7,216,930, or 51.0% of net sales, from $7,883,398, or 48.3%, of net sales, for 2003. This decrease was principally related to a reduction in brand expenses executed by management to offset revenue reductions during the year. For 2004, brand expenses decreased $460,400, or 21.3%, compared to 2003, to $1,701,100 or 12.0% of net sales for 2004 from $2,161,500 or 13.2% of net sales for 2003. The Company’s focus on the support of retail programs that provide direct consumer consumption benefits has resulted in this decrease as a percent of sales. This decrease is coupled with a decrease of $206,068 in overhead expenses, principally related to lower freight expense of $185,500 and a decrease in commissions expense of $117,100 related to revenue reductions, partially offset by an increase in marketing $20,600, new product development $62,900 and administrative expenses of $13,032.

          Other Income (Expense)—Other income (expense) consists of two components, interest expense and other expense.

          Interest expense consists of bank and other interest related to notes as shown in Note 4 to the Financial Statements. For 2004, interest expense increased $115,803 to $305,265, or 2.2% of net sales, as compared to 2003 of $189,462, or 1.2% of net sales. This increase is principally related to an increase in the borrowing rate on the Company’s line of credit and interest on the Loan Agreement as more fully explained in Note 4 to the Financial Statements.

          The other expense category consists of unusual or non-recurring charges net of other income. For 2004 this other income was principally composed of a $1,055,647 gain on sale of the aloe vera brands, and a $500,000 gain on the expiration of warrants as more fully explained in Note 5 to the Financial Statements as compared to other income for 2003 of $7,948 for a net increase of $1,544,843.

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          2003 Compared to 2002

          Net Sales—Net sales for 2003 increased $1,909,945, or 13.2%, to $16,326,296 from $14,416,351 for 2002 reflecting a turnaround in the health food channel coupled with consistent growth in the mass market channel. Domestic sales for 2003 increased $1,897,937, or 13.4%, to $16,091,995 from $14,194,058 for 2002. International sales for 2002 increased $12,008, or 5.4%, to $234,301 from $222,293 for 2002.

          Mass market net sales for 2003 increased $1,699,351, or 24.1%, to $8,749,569 from $7,050,218 for 2002. This increase was primarily a result of an increase in turn distribution sales in 2003 as compared to 2002 coupled with an increase in club business in 2003. For 2003, the percentage of mass market net sales to the Company’s total net sales increased to 53.6%, as compared to 48.9% in 2002.

          For 2003, health food net sales increased $210,591, or 2.9%, to $7,576,727 from $7,366,133 for 2002 primarily as a result of the Company’s strong relationships with key health food distributors and retailers. These relationships have provided the Company with the ability to introduce new product SKUs into distribution and ultimately into retail. For 2003, the percentage of health food net sales to the Company’s total net sales decreased to 46.4% as compared to 51.1% in 2002.

          For 2003, the top 40 customers accounted for $15,478,500, or 94.8%, of net sales, with 21 health food customers contributing $7,123,000, or 43.6%, of net sales, 17 mass market customers contributing $8,163,300, or 50.0%, of net sales, and two international customers contributing $192,200, or 1.2%, of net sales. This compares to the top 40 customers accounting for $13,857,300, or 96.1%, of net sales, with 22 health food customers contributing $7,155,200, or 49.6%, of net sales, 17 mass market customers contributing $6,603,600, or 45.8%, of net sales, and one international customer contributing $98,500, or 0.7%, of net sales for 2002.

          For both periods, the Company considers the eight divisions of one major health food distributor and the seven divisions of a second major health food distributor as separate customers for purposes of this top 40 list, because of their ability to make independent purchasing decisions regarding the Company’s products. In addition, two divisions of a mass market customer are one corporate legal entity, however they operate independently with separate buying departments and, thus, the Company considers them separate customers for purposes of this top 40 list. This analysis differs from that shown in “Item 1. Business—General” in which the divisions of these three entities are combined under their corporate parent to reflect three major customers.

          For 2003, the top 40 products represented $12,965,100, or 79.4%, of net sales, with 19 Naturade Total Soy® products contributing $8,522,400, or 52.2%, of net sales, 11 protein powders contributing $2,910,800, or 17.8%, of net sales and 10 aloe vera and other products representing $1,513,900, or 9.4%, of net sales. This compares to the top 40 products representing $12,129,900, or 84.1%, of net sales, with 17 Naturade Total Soy® products contributing $7,555,700, or 52.4%, of net sales, 13 protein powders contributing $3,015,600, or 20.9%, of net sales and ten aloe vera and other products representing $1,558,600, or 10.8%, of net sales for 2002.

          Gross Margin—Gross profit as a percentage of sales for 2003 increased to 46.9% from 43.4% in 2002. This increase in gross profit percentage is primarily due to the reformulation of Naturade Total Soy® and several other products which resulted in a product costs decrease which more than offset small price increases implemented by a key supplier. In addition, increased efficiencies in distribution related to increased consistency of order flow resulting in lower product distribution costs.

          Selling, General and Administrative Expenses—Selling, general and administrative expenses for the fiscal year ended December 31, 2003 decreased $185,984, or 2.3%, to $7,886,398, or 48.3% of net sales, from $8,069,382, or 56.0%, of net sales, for 2002. For 2003, brand expenses decreased $52,100, or 2.4%, compared to 2002, to $2,161,500 or 13.2% of net sales for 2003 from $2,213,600, or 15.4% of net sales for 2002. The Company’s focus on the support of retail programs that provide direct consumer consumption benefits has resulted in this decrease as a percent of sales. This decrease is coupled with a decrease of $256,100 in overhead expenses, principally from manpower and consulting fee reductions partially offset by increases related to freight and commission expense of $95,200 and $37,700, respectively, resulting from increased sales volume.

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          Other Income (Expense)—Other income (expense) consists of two components, interest expense and other expense.

          Interest expense consists of bank and other interest related to notes as shown in Note 4 to the Financial Statements. For 2003, interest expense increased $75,982 to $189,462, or 1.2% of net sales, as compared to $113,480, or 0.8% of net sales in 2002. This increase is principally related to an increase in the borrowing rate on the Company’s line of credit and interest on the Loan Agreement as more fully explained in Note 4 to the Financial Statements.

          The other expense category consists of unusual or non-recurring charges net of other income. For 2003 this other income was $7,948 compared to other income for 2002 of $28,300 for a net decrease of $20,352.

          Liquidity and Capital Resources

          The Company’s sources of cash in 2004 came principally from operations supported by drawings on its line of credit from Wells Fargo and a Loan Agreement with a principal shareholder and other shareholders coupled with the sale of the aloe vera brand. Based on the current operating plan, the Company believes that its existing cash balances and financing arrangements will provide it with sufficient funds to finance its operations for at least the next twelve months. In the past, the Company has utilized both operating and capital lease financing for certain equipment used in our operations and expects to continue to selectively do so in the future. The Company may in the future require additional funds to support its working capital requirements or for other purposes, and may seek to raise such 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 favorable to the Company’s stockholders or us when we may require it.

          The Company’s credit facility consists of a three year Credit and Security Agreement (the “Credit Agreement”) with Wells Fargo Business Credit, Inc. (“Wells Fargo”), which allows for maximum borrowings of up to $3,500,000, based on certain percentages of eligible accounts receivable and inventories and pays interest at prime plus 4.5% per annum. Available borrowings under the Credit Agreement were $278,434 at December 31, 2004 and averaged $254,103 during 2004.

          The Company was in default on the payment of the Investor Notes of $112,345 at December 31, 2004. On March 25, 2005, the payment provisions of the Investor Notes was amended to require a principal payment of $20,000 plus accrued interest on July 15, 2005 with the remaining principal of $92,345 plus accrued interest due December 31, 2005.

          The financial statements accompanying this Annual Report on Form 10-K 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 December 31, 2004, the Company had an accumulated deficit of $22,023,470, a net working capital deficit of $1,859,320, a stockholders’ capital deficiency of $3,031,547, and has incurred recurring net losses. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. In addition, the Company’s independent certified public accountants have issued an opinion that substantial doubt exists as to the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from a negative outcome of this uncertainty.

          The Company used cash of $1,223,943 in operating activities in the year ended December 31, 2004, compared to a use of cash of $1,393,881 in operating activities for the year ended December 31, 2003. This decrease in cash used in operating activities is primarily due to an increase in the Company’s accounts payable of $963,443 principally related to new products purchased late in 2004 and a significant reduction in payables at the end of 2003 combined with a reduction in receivables of $1,053,299 principally related to lower fourth quarter sales partially offset by a increase in inventories related to new products of $833,103 compared to the same period in 2003.

          Net cash used by inventories was $614,284 for the year ended December 31, 2004 compared to net cash provided by inventories of $421,592 for the year ended December 31, 2003 primarily due to lower than normal sales in the fourth quarter of 2004 coupled with additional inventory required for new product introductions.

          Net cash provided by accounts receivable was $171,963 for the year ended December 31, 2004 compared to net cash used by accounts receivable of $906,336 for the same period of 2003, principally due to lower fourth quarter sales volume in 2004 as compared to sales volume in 2003. Customer terms have remained constant; however there is a slight increase in day’s sales outstanding due to extended terms granted for new product introductions.

          Net cash provided by accounts payable and accrued expenses was $394,365 for the year ended December 31, 2004 compared to net cash used of $569,068 the same period of 2003, principally due a higher level of accounts payable related to new products purchased late in the fourth quarter of 2004 with extended terms from vendors.

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          The provision for excess and obsolete inventory provided $59,197 for the year ended December 31, 2004 compared to $21,168 the same period of 2003 principally due to the discontinuance of ready-to-drink product in 2004.

          Net cash used by prepaid expenses was $115,307 for the year ended December 31, 2004 compared to net cash used in the same period of 2003 of $43,368. The increase in prepaid expenses in 2004 was principally due to slotting fees paid to introduce ReVivex™ in 2004, which are amortized over a 12-month period. The Company incurred minimal slotting fees in 2003 and they were expensed as incurred.

          The Company’s working capital deficit increased $69,838 from ($1,789,482) at December 31, 2003 to ($1,859,320) at December 31, 2004. This increase was largely due to increase in inventory and prepaid expenses coupled with a reduction in outstanding amounts under the Company’s credit facility offset by a decrease in receivables and an increase in borrowings on the Loan Agreement with certain shareholders.

          Cash provided by investment activities during the year ended December 31, 2004 was $1,228,420 compared to cash used of $9,716 for the year ended December 31, 2003. This increase is principally related to the net proceeds on the sale of the aloe vera brand in 2004.

          The Company’s cash provided by financing activities was $61,994 for the year ended December 31, 2004, compared to cash provided by financing activities of $825,117 for the same period of 2003. The source of cash in 2004 was the result of borrowings from related parties partially offset by borrowings under the Loan Agreement (described in Note 4).

Critical Accounting Policies and Use of Estimates

          The Company’s significant accounting policies are described in Note 1 of the Company’s Financial Statements for the year ended December 31, 2004, which have been prepared in accordance with accounting principles generally accepted in the United States. In preparing the financial statements, the Company is required to make estimates and judgments which affect the results of its operations and the reported value of assets and liabilities. Actual results may differ from these estimates. The Company believes that the following summarizes critical accounting policies which require significant judgments and estimates in the preparation of its financial statements.

          Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements,” requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) require management’s judgments regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of those fees. To satisfy the criteria, we: (1) input orders based upon receipt of a customer purchase order; (2) record revenue upon shipment of goods when risk of loss and title transfer under the Company’s arrangements with customers or otherwise complying with the terms of the purchase order; (3) confirm pricing through the customer purchase order and; (4) validate creditworthiness through past payment history, credit agency reports and other financial data. Other than through warranty rights, the Company’s customers do not have explicit or implicit rights of return. Should changes in conditions cause management to determine the revenue recognition criteria are not met for certain future transactions, such as a determination that an outstanding account receivable has become uncollectible, revenue recognized for any reporting period could be adversely affected.

          Inventory Valuation. Merchandise inventories are stated at the lower of cost (first-in, first-out basis) or market. The Company considers cost to include the direct cost of finished goods provided by co-packers as well as the cost of those components supplied to the co-packers. At each balance sheet date, we evaluate the Company’s ending inventories for excess quantities and obsolescence. This evaluation includes analyses of forecast sales levels by product and historical demand. We write off inventories that are considered obsolete. Remaining inventory balances are adjusted to approximate the lower of the Company’s cost or market value and result in a new cost basis in such inventory until sold. If future demand or market conditions are less favorable than the Company’s projections, additional inventory write-down may be required, and would be reflected in cost of sales in the period the revision is made.

          Accounts Receivable and Allowances for Uncollectible Accounts. Accounts receivable are unsecured, and we are at risk to the extent such amounts become uncollectible. Accounts receivable is stated net of applicable reserves for returns and allowances, billbacks and doubtful accounts. The Company regularly reviews and monitors individual account receivable balances to determine if the reserve amounts are appropriate and provides for an allowance for uncollectible accounts by considering historical customer buying patterns, invoice aging, specific promotions and seasonal factors.

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Impact of Contractual Obligations and Commercial Commitments

          The following summarizes the Company’s contractual obligations at December 31, 2004 and the effects such obligations are expected to have on liquidity and cash flow in future periods.

Impact of Inflation

          From time to time, the Company experiences price increases from third-party manufacturers and these increases cannot always be passed on to the Company’s customers. While these price increases have not had a material impact on the Company’s historical operations or profitability in the past, they could affect sales in the future.

New Accounting Pronouncements

          In December 2004, the FASB issued Statement of Financial Accounting Standard (“SFAS”) No. 123R “Share Based Payment.” This statement is a revision of SFAS Statement No. 123, “Accounting for Stock-Based Compensation” and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and its related implementation guidance. SFAS 123R addresses all forms of share based payment (“SBP”) awards including shares issued under employee stock purchase plans, stock options, restricted stock and stock appreciation rights. Under SFAS 123R, SBP awards result in a cost that will be measured at fair value on the awards’ grant date, based on the estimated number of awards that are expected to vest. Under this method, compensation expense is recognized for all share-based payments granted after July 1, 2005 and also for all awards granted prior to July 1, 2005 that remain unvested on the effective date. The adoption of this pronouncement will increase compensation expense under the modified prospective approach (e.g., the impact of outstanding grants which continue to vest plus future grants will result in more compensation expense relative to their previous approach under APB 25). The Company is still evaluating the amount of the increase to compensation expense.

          In November 2004, the FASB issued SFAS No. 151 “Inventory Costs” (SFAS 151). This statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). SFAS 151 requires that those items be recognized as current-period charges. In addition, this Statement requires that allocation of fixed production overheads to costs of conversion be based upon the normal capacity of the production facilities. The provisions of SFAS 151 are effective for inventory cost incurred in fiscal years beginning after June 15, 2005. As such, the Company is required to adopt these provisions at the beginning of fiscal 2006. The adoption of this pronouncement is not expected to have material effect on the Company’s financial statements.

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          In December 2004, the FASB issued Statement Accounting Standard (“SFAS”) No. 153 “Exchanges of Nonmonetary Assets.” This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this Statement are effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after December 16, 2004. The provisions of this Statement should be applied prospectively. The adoption of this pronouncement is not expected to have material effect on the Company’s financial statements.

          In October 2004, the American Jobs Creation Act of 2004 (Act) became effective in the U.S. Two provisions of the Act may impact the Company’s provision (benefit) for income taxes in future periods, namely those related to the Qualified Production Activities Deduction (QPA) and Foreign Earnings Repatriation (FER).

          The QPA will be effective for the Company’s U.S. federal tax return year beginning after December 31, 2004. In summary, the Act provides for a percentage deduction of earnings from qualified production activities, as defined, commencing with an initial deduction of 3 percent for tax years beginning in 2005 and increasing to 9 percent for tax years beginning after 2009, with the result that the Statutory federal tax rate currently applicable to the Company’s qualified production activities of 35 percent could be reduced initially to 33.95 percent and ultimately to 31.85 percent. However, the Act also provides for the phased elimination of the Extraterritorial Income Exclusion provisions of the Internal Revenue Code. Due to the interaction of the law provisions noted above as well as the particulars of the Company’s tax position, the ultimate effect of the QPA on the Company’s future provision (benefit) for income taxes has not been determined at this time. The FASB issued FASB Staff Position FAS 109-1, Application of FASB Statement No.109, Accounting for Income Taxes, to the Tax Deduction on Qualified Production Activities Provided by the American Jobs Creation Act of 2004, (FSP 109-1) in December 2004. FSP 109-1 requires that tax benefits resulting from the QPA should be recognized no earlier than the year in which they are reported in the entity’s tax return, and that there is to be no revaluation of recorded deferred tax assets and liabilities as would be the case had there been a change in an applicable statutory rate.

          The FER provision of the Act provides generally for a one-time 85 percent dividends received deduction for qualifying repatriations of foreign earnings to the U.S. Qualified repatriated funds must be reinvested in the U.S. in certain qualifying activities and expenditures, as defined by the Act. In December 2004, the FASB issued FASB Staff Position FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 (FSP 109-2). FSP 109-2 allows additional time for entities potentially impacted by the FER provision to determine whether any foreign earnings will be repatriated under said provisions. The Company has no foreign earnings at this time and accordingly, has not undertaken an evaluation of the application of the FER provision and any potential benefits of effecting repatriations under said provision. Numerous factors, including previous actual and deemed repatriations under federal tax law provisions, are factors impacting the availability of the FER provision to the Company and its potential benefit to the Company, if any. The Company will examine this issue prior to undertaking any operations resulting in foreign source earnings.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk

          In the normal course of business, the Company is exposed to a variety of risks including market risk associated with interest rate movements. 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 (i) $3.5 million line of credit with Wells Fargo originally entered into on January 27, 2000 and subsequently amended, with the latest amendment dated November 2, 2004, (i) $112,345 outstanding under Investor Notes with investors entered into on August 31, 2000 and (ii) $950,000 borrowed under a Loan Agreement with investors entered into on April 14, 2003. The line of credit bears interest at prime rate plus 4.5%. The Investor Notes bear interest at 15% per annum. Payment in full including accrued interest was due on December 31, 2004. The Company was in default on Investor Notes ad December 31, 2004. On March 25, 2005, the payment provisions of the Investor Notes was amended to require a principal payment of $20,000 plus accrued interest on July 15, 2005 with the remaining principal of $92,345 plus accrued interest due December 31, 2005. The Loan Agreement bears interest at 15% per annum with an original due date of December 31, 2004. The Company and the Lender Group have agreed to an extension of the payment date on the Loan Agreement to December 31, 2005.

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          Given the fixed interest rate on the Loan Agreements, interest rate changes generally will have no effect on the interest rates under the Loan Agreements or on the Company’s results of operations. However, given the variable interest rate on the line of credit, the impact of interest rate changes on the line of credit could have a material impact on the Company’s results of operations. For the fiscal year ended December 31, 2004, the interest expense on the line of credit was $177,876. If the interest rate on the line of credit were to increase by one percent, this would result in an interest expense of $213,451 for the fiscal year ended December 31, 2004.

Item 8. Financial Statements and Supplementary Data

          The Company’s financial statements and the notes thereto, and the Report of Independent Registered Public Accounting Firm, filed with this Annual Report on Form 10-K in a separate section, Part IV, as shown in the index under Item 15(a).

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

          None

Item 9A. Controls and Procedures

          The Company’s Chief Executive Officer, Bill D. Stewart, and Chief Financial Officer, Stephen M. Kasprisin, with the participation of the Company’s management, carried out an evaluation of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 15d-14(c). Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective in making known to them material information relating to the Company (including its consolidated subsidiaries) required to be included in this report.

          Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal control can occur because of human failures such a simple errors or mistakes or intentional circumvention of the established process.

          There was no change in the Company’s internal control over financial reporting, known to the Chief Executive Officer or the Chief Financial Officer that occurred during the last quarter of the fiscal year covered by the report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

          None

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PART III

Item 10. Directors and Executive Officers

          The names and ages of the directors and executive officers of the Company as of March 22, 2005, are as follows:

The directors serve until the next annual meeting of stockholders, or until their successors are elected.

Bill D. Stewart. Mr. Stewart served from 1989 to 1997 as President of The Thompson’s Minwax Company. Mr. Stewart served as Vice President of Sales with Thompson’s from 1986 to 1989. Prior to joining Thompson’s, Mr. Stewart served for 16 years with pharmaceutical company Richardson Vicks in various capacities.

Lionel P. Boissiere, Jr. During the past eight years, Mr. Boissiere has been an investor and advisor to middle market companies. From 1993 through 1995, he worked with Govett Ltd., and since 1995, Mr. Boissiere has been a Managing Member at Doyle & Boissiere LLC.

William B. Doyle, Jr. Since 1995, Mr. Doyle has served as a Managing Member of Doyle & Boissiere LLC. Prior to such time, Mr. Doyle was with Govett Ltd. Mr. Doyle is an investor and an advisor to middle market companies.

David A. Weil. Mr. Weil has been an investor and advisor to early stage companies during the past five years. Mr. Weil currently serves as co-Chief Executive Officer of two private companies. Mr. Weil holds engineering and law degrees from Washington University and an LLM degree from New York University.

Jay W. Brown. For the last five years, Mr. Brown has been a principal with Westgate Group, LLC, a related entity to Westgate Equity Partners, LLC. Prior to forming Westgate, Mr. Brown was a senior executive with the Ralston Purina Company, running several divisions of that multi-dimensional food and agribusiness company. From 1995 to 1998, Mr. Brown was President and Chief Executive Officer of Protein Technologies International, Inc., the world’s largest supplier of soy-based protein to the food and paper processing industries. Prior to that, Mr. Brown was Chairman and Chief Executive Officer of Continental Baking Company from 1984 to 1995 and President of Van Camp Seafood Company from 1983 to 1984.

Robert V. Vitale. Mr. Vitale is a principal with Westgate Group, LLC with primary responsibility for acquisitions and divestitures. From 1994 to 1996, Mr. Vitale was a Vice President of the Boatmen’s Capital Markets and of NationsBank (after NationsBank’s 1997 acquisition of Boatmen’s). At Boatmen’s, Mr. Vitale was responsible for corporate finance activities including private placements of senior and subordinated debt as well as multi-tiered bank debt financing. Previously, Mr. Vitale was a Senior Associate with KPMG Peat Marwick from 1988 to 1993 where he was responsible for merger and acquisition engagements. Mr. Vitale is a certified public accountant.

Stephen M. Kasprisin. Mr. Kasprisin served as Chief Financial Officer of Outsource Merchandising Corporation, a distributor of consumer products to grocery and drug stores, from 1999 to 2001. From 1989 to 1999, he served as Chief Financial Officer of Acorn Products, Inc., a public consumer products manufacturer. Mr. Kasprisin is a Certified Public Accountant and was on the audit staff of Coopers & Lybrand, now PriceWaterhouseCoopers, from 1976 to 1980. He has a Bachelor of Arts from Baldwin-Wallace College, with a major in Business Administration.

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Marwan Zreik. A Certified Clinical Nutritionist, Mr. Zreik joined Naturade in 1997 and is responsible for all aspects of the Company’s distribution, purchasing, customer service, research & development and quality control. He was previously Research Coordinator for Gero Vita International, Inc. and was a Research Assistant at the University of California, San Diego while attending school there. He received his BS degree in animal physiology and neuroscience from UC San Diego and an MS degree in physiology and biophysics from Georgetown University. He received his MBA from the University of Southern California in June of 2004.

     None of the directors or executive officers were selected pursuant to any arraignment or understanding, other than with the directors and executive officers of the Company acting within their capacity as such. There are no family relationships among directors or executive officers of the Company and no directorships are held by any director which has a class of securities registered pursuant to Section 12 of the Securities and Exchange Act of 1934, as amended (“the Exchange Act”), or subject to requirements of Section 15(d) of the Exchange Act or any company registered as an investment company under the Investment Company Act of 1940. Officers serve at the discretion of the Board.

Code of Ethics

     The Company has adopted a Code of Ethics applicable to the principal executive officer and senior financial executives, including the chief financial officer and the controller, as well as all employees of the Company. The Code of Ethics of the Company is available on request by writing to the Secretary of the Company.

Audit Committee

     The current members of the Audit Committee are composed of Lionel P. Boissiere, Jr., Robert V. Vitale and David Weil. The Company has determined that Robert V. Vitale qualifies as an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K. Each member of the Audit Committee is “independent” within the meaning of Rule 4200(a)(15) of the National Association of Securities Dealers.

Nominating Procedures and Criteria

     The Company does not have a nominating committee. The Board of Directors has determined that this is appropriate in light of the fact that the two principal stockholders of the Company have sufficient voting power to elect all of the directors of the Company and, like all stockholders of the Company, have the power to nominate candidates at meetings of stockholders. Each of the directors takes part in the nomination of candidates for election as directors at the annual meeting.

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Item 11. Executive Compensation

     The following table sets forth, as to the Chief Executive Officer and as to the two other most highly compensated officers whose compensation exceeded $100,000 during the last fiscal year (the “Named Executive Officers”), information concerning all cash and non-cash compensation awarded, earned or paid for services to the Company in all capacities for each of the three years ended December 31, 2004, 2003 and 2002.

Summary Compensation Table

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Options/SAR Grants In Last Fiscal Year

The following table sets forth common stock options issued to named executives during 2003:

Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR Values

The following table sets forth certain information as of December 31, 2004 with respect to all compensation plans under which equity securities of the Company may be issued.

Equity Compensation Plan Information

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Compensation of Directors

     Effective June 2002, all non-management directors except Messrs. Boissiere, Doyle, Brown and Vitale received directors’ fees of $3,000 for each meeting attended.

Employment Contracts, Termination of Employment and Change-In-Control Arrangements

     On February 18, 1998, the Company and Bill D. Stewart entered into an employment agreement under which the Company retained Mr. Stewart as Chief Executive Officer and a member of the Company’s Board of Directors for an initial term of 48 months. Under the employment agreement, as amended, Mr. Stewart receives an annual salary of $225,000, automobile lease payments and life insurance payable as directed by Mr. Stewart.

     On March 2, 1998, the Company granted to Mr. Stewart, pursuant to the Company’s 1998 Incentive Stock Option Plan, options to acquire up to 255,000 shares of Common Stock at $4.00 per share (the average closing bid price of the shares of Common Stock on the NASD OTC Bulletin Board as quoted by Bloomberg, LP for the five (5) day trading period ending on March 2, 1998). These options were repriced to 110% of the market price of the Common Stock on October 14, 1999 ($1.13). On February 1, 2000, the Company granted to Mr. Stewart, pursuant to the Company’s 1998 Incentive Stock Option Plan, options to acquire up to 60,000 shares of Common Stock at $0.875 per share (the closing bid price of the shares of Common Stock on the NASD OTC Bulletin Board, as quoted by Bloomberg, LP). Furthermore, on January 26, 2001, the Company granted to Mr. Stewart, pursuant to the Company’s 1998 Incentive Stock Option Plan, options to acquire up to 50,000 shares of Common Stock at $0.44 per share (the closing bid price of the shares of Common Stock on the NASD OTC Bulletin Board, as quoted by Bloomberg, LP). All options will vest in four equal portions on each of the first four anniversaries of the grant date, subject to any limitations on exercise contained in the 1998 Incentive Stock Option Plan and provided that the term of Mr. Stewart’s employment with the Company shall not have ended prior to such anniversary. In the event of any sale (including, pursuant to either a tender offer or a merger of the Company which results in the shareholders of the Company holding less than fifty percent (50%) of the stock of the surviving corporation) of the Company during such term, subject to certain limitations, all of Mr. Stewart’s options not then vested shall immediately vest.

     As part of the Private Equity Transaction on January 2, 2002, as described more fully in Note 5 to the Financial Statements and “Item 1. Business—Private Equity Transaction,” the employment agreement with Mr. Stewart was amended and restated to extend the term until December 31, 2003 and allow for the immediate vesting of options to purchase 365,000 shares of Common Stock, 297,500 of which would have vested by March 2, 2002, the four-year anniversary of the original employment agreement, at an exercise price reduced to $0.1477 per share, the purchase price in the Private Equity Transaction. The amended and restated employment agreement also reconfirmed the understanding that all options become fully vested in the event of any sale of the Company and extended the term of employment to December 31, 2003 which in turn, has been extended to December 31, 2005.

     In July 2003, Mr. Kasprisin, Chief Financial Officer, entered into an employment agreement with the Company that can be terminated without cause by either party upon 30 days’ notice. Mr. Kasprisin is entitled to severance equal to six month’s base pay should he be terminated without cause by the Company. Pursuant to the employment agreement, Mr. Kasprisin was entitled to a base salary of $160,000 per year and a bonus based upon his base salary. In addition, Mr. Kasprisin has been granted options to purchase up to 150,000 shares of Common Stock, which options vest in equal quarterly amounts on each of the first eight quarters of his employment. In June 2004, Mr. Kasprisin’s employment agreement was amended in connection with his promotion to Chief Operating Officer, increasing the base compensation to $178,000 per year, adding a vehicle allowance of $300 per month and granting options to purchase an additional 50,000 of Common Stock, which options vest in eight equal quarterly amounts.

     In June 2004, Mr. Zreik, Chief Operating Officer, was promoted to Executive Vice President of Sales. In connection therewith, Mr. Zreik entered into an employment agreement with the Company, which can be terminated without cause by either party upon 30 days’ notice. Mr. Zreik is entitled to severance equal to six month’s base pay should he be terminated without cause by the Company. Pursuant to the employment agreement, Mr. Zreik is entitled to a base salary of $160,000 per year, a vehicle allowance of $300 per month and a bonus based upon his base salary. In addition, Mr. Zreik has been granted options to purchase up to 50,000 shares of Common Stock, which options vest in eight equal quarterly amounts.

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Incentive Stock Option Plan

     In 1998, the Company adopted the 1998 Incentive Stock Option Plan (the “Incentive Plan”). The Incentive Plan provides for the issuance of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”). The purpose of the Incentive Plan is to enable the Company to attract, retain and motivate its employees by providing for performance-based benefits. At the 2000 annual stockholders’ meeting, the number of shares of the Company’s Common Stock that may be subject to awards granted under the Incentive Plan was increased to 850,000. At the 2001 annual stockholders’ meeting, the number was further increased to 2,000,000. As of December 31, 2004 options to purchase 1,543,500 shares of the Company’s Common Stock were outstanding under the Incentive Plan, of which options to purchase 1,146,375 shares (subject to adjustment to prevent dilution) had vested, and 369,000 shares were available for future awards under the Incentive Plan.

     The Incentive Plan is administered by a committee consisting of three members of the Board of Directors or administered by the full Board of Directors. The administrator has the power to construe and interpret the Incentive Plan and, subject to provisions of the Incentive Plan, to determine the persons to whom and the dates on which awards will be granted, the number of shares to be subject to each award, the times during the term of each award within which all or a portion of the award may be exercised, the exercise price, the type of consideration and other terms and conditions of the award. The exercise price of stock options under the Incentive Plan may not be less than the fair market value of the Common Stock subject to the option on the date of the option grant and in some cases may not be less that 110% of fair market value. The maximum term of the Incentive Plan is ten years, except that the Board may terminate the Incentive Plan earlier. The term of each individual award will depend upon the written agreement between the Company and the grantee setting forth the terms of the awards.

     In addition to options issued under the Incentive Stock Option Plan, options to purchase 87,500 shares of Common Stock have been issued to directors and a consultant of the Company under individual agreements.

401(k) Plan

     The Company maintains a 401(k) profit sharing plan (“401(k) Plan”) for the benefit of all employees who meet certain age and length of service requirements. The 401(k) Plan provides for Company matching contributions equal to 25% of each employee participant’s contribution not to exceed 6% of the employee participant’s compensation.

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REPORT OF THE MANAGEMENT COMPENSATION COMMITTEE

     The Report of the Management Compensation Committee of the Board of Directors shall not be deemed filed under the Securities Act of 1933, as amended or under the Securities Exchange Act of 1934, as amended.

     The Management Compensation Committee (the “Committee”) reviews and recommends to the Board of Directors the compensation and other terms and conditions of employment of the executive officers of the Company, as well as incentive plan guidelines for Company employees generally.

     The policies underlying the Committee’s compensation decisions are designed to attract and retain the best-qualified management personnel available. The Company compensates its executive officers primarily through salaries. The Company, at its discretion, may, as it has in other years, reward executive officers through bonus programs based on profitability and other objectively measurable performance factors. Additionally, the Company uses stock options to compensate its executives and other key employees.

     The compensation of the Chief Executive Officer is determined in accordance his employment agreement, which was negotiated between Mr. Stewart and the non-employee members of the Board of Directors. Mr. Stewart’s employment agreement is described above under the caption “Employment Contracts, Termination of Employment and Change-In-Control Arrangements.”

     In establishing executive compensation, the Committee evaluates individual performance as it affects overall Company performance with particular focus on an individual’s contribution to the realization of operating profits and the achievement of strategic business goals, including the timely development and introduction of products and the creation of markets in new geographic territories. The Committee further attempts to rationalize a particular executive’s compensation with that of other executive officers of the Company in an effort to distribute compensation fairly among the executive officers.

     Although the components of executive compensation (salary, bonus and option grants) are reviewed separately, compensation decisions are made based on a review of total compensation. The number of shares covered by option grants is determined in the context of this review.

     The Committee held one meeting during fiscal 2004 whereby stock options were granted to key management employees. There were no modifications to existing executive employment agreements, and no bonuses or extraordinary compensation was paid.

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Compensation Committee Interlocks and Insider Participation

  During 2004, Bill Stewart, William B. Doyle, Jr. and Jay W. Brown served on the Company’s Compensation Committee.

     Except for Mr. Stewart, none of the members of the Management Compensation Committee is or has been an employee of the Company.

          Mr. Doyle, who serves on the Management Compensation Committee, and Mr. Boissiere are managers and members of Doyle & Boissiere LLC (“D&B”). Under a Consulting Agreement between D&B and the Company, as long as affiliates of D&B own at least 25% of the outstanding equity interests of the Company, D&B will provide consulting services to the Company and receive a total annual fee of $300,000, payable quarterly. D&B has deferred receipt of $165,000 of its fees for fiscal 2002 for an indefinite period, and has permanently waived the payment of its entire consulting fee for fiscal 2003 and 2004 as services under the contract were not required or performed for these periods.

     Mr. Brown, who also serves on the Management Compensation Committee, and Mr. Vitale are managers and members of Westgate Group, LLC (“Westgate Group”), which is the general partner of Westgate. Under a Management Services Agreement between Westgate Group and the Company, as long as Westgate owns 10% or more of the voting stock of the Company, Mr. Vitale and Mr. Brown and two other principals of Westgate Group are to provide management services to the Company and the Company is to pay Westgate Group an annual fee of $100,000, payable quarterly. Westgate Group has agreed to permanently waive its fees for fiscal 2003 and 2004 as services under the contract were not required or performed for these periods.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The following table sets forth information regarding beneficial ownership, as of February 28, 2005, of the Company’s outstanding Common Stock by (i) any person who is known to the Company to be the beneficial owner of more than 5% of the Company’s voting securities, (ii) each director and each of the Named Executive Officers, and (iii) by the directors and executive officers of the Company as a group. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares of Common Stock subject to options or warrants held by that person that are currently exercisable or will become exercisable within 60 days are deemed outstanding but are not deemed to be outstanding as to any other person.

     The Company’s Series B Convertible Preferred Stock votes with the Common Stock on all matters presented to the stockholders, on as as-converted-to-Common Stock basis. Each share of Series B Convertible Preferred Stock is convertible into one share of Common Stock (subject to adjustment for antidilution), at any time at the option of the holder.

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Item 13. Certain Relationships and Related Transactions

     As of December 12, 1997 the Company entered into a Consulting Agreement with Doyle & Boissiere LLC (“D&B”), an affiliate of Health Holdings. Under the Consulting Agreement, as long as affiliates of D & B own at least 25% of the outstanding equity interests of the Company, D&B will provide consulting services to the Company and receive a total annual fee of $300,000, payable quarterly. D&B permanently waived the payment of this fee for all of 2004 and 2003 as services under the contract were not required or performed for these periods.

     On January 2, 2002, as part of the Private Equity Transaction, the Company entered into a Management Services Agreement with Westgate Group, LLC an affiliate of Westgate (“Westgate Group”). Under the Management Services Agreement, as long as Westgate owns 10% or more of the outstanding voting securities of the Company, four principals of Westgate Group provide management and consulting services to the Company and receive a total annual fee of $100,000, payable quarterly. The agreement extends until December 31, 2006, and is automatically renewed for one-year terms unless terminated by either party. The Westgate Group permanently waived the payment of this fee for 2004 and 2003 as services under the contract were not required for these periods.

     On April 14, 2003, the Company entered into a loan agreement (the “Loan Agreement”) with Health Holdings and Botanicals, LLC, a principal stockholder of the Company, and David A. Weil, a director and stockholder of the Company (the “Lender Group”), pursuant to which the Lender Group has agreed to lend the Company $450,000 and, subject to the discretion of the Lender Group, up to an additional $300,000. All advances under the Loan Agreement bear interest at the rate of 15% per annum, are due on December 31, 2004, are secured by substantially all of the assets of the Company, and are subordinated to the Company’s indebtedness to Wells Fargo. This due date was extended as discussed below. The advances under the Loan Agreement will be used for the Company for working capital and general corporate purposes. For a more complete description of this transaction, see “Item 1. Business – Loan Agreement.” In consideration of the extension of credit under the Loan Agreement, Wells Fargo waived all defaults of the Company as of December 31, 2002 under the Credit and Security Agreement dated as of February 27, 2000 and amended the agreement to, among other things, reduce the covenants regarding minimum net income and minimum book net worth and increased the interest rate.

     On April 14, 2004, the terms of the Loan Agreement were modified by the Joinder of Bill D. Stewart, the Chief Executive officer of the Company, as a member of the Lender Group, subject to all of the terms and conditions of the Loan Agreement, and the Lender Group advanced an additional $200,000, of which Bill D. Stewart advanced $100,000. Further, on May 3, 2004, the Lender Group advanced the Company an additional $100,000. Further, on August 16, 2004, advances allowed under the Loan Agreement were increased to a total of $950,000 and the Lender Group advanced an additional $200,000 to the Company. There are no additional amounts available to advance under the Loan Agreement. Proceeds of the advances have been used for working capital. On January 26, 2005, the terms of the Loan Agreement were modified to extend the due date to December 31, 2005.

     For a description of the amended bank credit facility, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources.”

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Item 14. Principal Accountant Fees and Services

The Company paid the following fees to BDO Seidman, LLP during fiscal years 2004 and 2003:

     The Audit Committee administers the Company’s engagement of BDO Seidman, LLP and pre-approves all audit and permissible non-audit services on a case-by-case basis. In approving non-audit services, the Audit Committee considers whether the engagement could compromise the independence of BDO Seidman, LLP, and whether for reasons of efficiency or convenience it is in the best interest of the Company to engage its independent auditor to perform the services. The audit committee has determined that performance by BDO Seidman, LLP of the non-audit services related to the fees on the table above did not affect their independence.

     The Audit Committee has not approved any non-audit services pursuant to Paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.

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PART IV

Item 15. Exhibits and Financial Statement Schedules

(a)	See the Index to Financial Statements on page F-1 for a list of financial statements filed as part of this report.
	Financial statement schedules have been omitted because they either are not applicable or the required information is shown in the Company’s financial statements or the related notes thereto.
(b)	Exhibits: The following is a list of exhibits filed as a part of this report:

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATURADE, INC.
Date: March 31, 2005	/s/ Bill D. Stewart
	Bill D. Stewart,
	Chief Executive Officer

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been duly signed below by the following persons on behalf of the registrant and in the capacities and dates indicated.

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NATURADE, INC.

INDEX OF FINANCIAL STATEMENTS

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of

Naturade, Inc.
Irvine, California

     We have audited the accompanying balance sheets of Naturade, Inc. (the “Company”) as of December 31, 2004 and 2003 and the related statements of operations, stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

     The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company’s recurring losses from operations, net working capital deficit and stockholders’ capital deficiency raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

F-2

NATURADE, INC.

Balance Sheets

See accompanying notes to financial statements.

F-3

NATURADE, INC

Statements of Operations for the Years Ended December 31, 2004, 2003 and 2002