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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q

Commission File Number: 33-7106-A

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

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

        Indicate the number of shares outstanding of the registrant's common stock, as of the latest practicable date: 44,533,886 shares as of October 31, 2002.

FORM 10-Q
QUARTERLY REPORT
Quarter Ended September 30, 2002

TABLE OF CONTENTS

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NATURADE, INC.

Balance Sheets

As of September 30, 2002 and December 31, 2001

See accompanying notes to financial statements.

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NATURADE, INC

Statements of Operations for the Three Months and
Nine Months Ended September 30, 2002 and September 30, 2001

See accompanying notes to financial statements

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NATURADE, INC

Statements of Cash Flows for the Nine Months
Ended September 30, 2002 and September 30, 2001

See accompanying notes to financial statements

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NATURADE, INC.

Notes to Financial Statements

        1.    The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

        The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year. In the opinion of management, the information contained in this report includes all adjustments necessary for a fair presentation of the results of operations for the periods presented. All such adjustments are of a normal recurring nature. These financial statements do not include all disclosures associated with the Company's audited financial statements which are included in the Company's Annual Report on Form 10-K for the year ended December 31, 2001 and, accordingly, should be read in conjunction with those statements. The financial data at December 31, 2001 are derived from those audited financial statements.

        2.    Inventories are stated at the lower of weighted average cost or market. Weighted average cost is determined on a first-in, first-out basis. Inventories at September 30, 2002 and December 31, 2001 consisted of the following:

        3.    The Company rents property and equipment under certain noncancellable operating leases expiring in various years through 2006. Future minimum commitments under operating leases as of September 30, 2002 are as follows:

        4.    Credit Agreement with Majority Shareholder—In August 1999, the Company entered into a Credit Agreement (the "Credit Agreement") with Health Holdings and Botanicals, LLC ("Health Holdings"), the majority stockholder of the Company. The Credit Agreement allowed for advances (the "Advances") of $4 million at an interest rate of 8% per annum with a due date of July 31, 2004. During the year ended December 31, 2001, Health Holdings agreed to convert interest earned from October 1,

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2000 to September 30, 2001 of $342,406 to the outstanding principal amount as a payment-in-kind, resulting in a balance at December 31, 2001 of $4,496,193. As part of the Private Equity Transaction on January 2, 2002 as described more fully in Note 7, Health Holdings converted into Common Stock all of the Company's Credit Agreement debt due to Health Holdings, plus accrued interest of $67,013 for a total debt conversion of $4,563,206.

        5.    Loan Agreement with Majority Shareholder and Other Investors—In August 2000, the Company entered into a Loan Agreement (the "Loan Agreement") with Health Holdings and other investors (the "Lender Group"). The Loan Agreement allowed for advances (the "Loan Advances") of up to $1.2 million at an interest rate of 8% per annum with due dates of September 11, 2002 for $50,000 and August 31, 2003 for the remaining balance outstanding. Interest only payments were to be required on a quarterly basis. The Loan Agreement further provided that the Lender Group could elect to convert all or any part of the Loan Advances into shares of the Company's Common Stock at a conversion price equal to the lower of (a) the average closing bid of the Company's Common Stock for the ten trading days prior to the making of a Loan Advance or (b) the average closing bid of the Company's Common Stock for the ten trading days prior to the date of receipt of notice of conversion. On June 13, 2001, two investors converted their total debt of $150,000 plus accrued interest of $2,400 into Common Stock, receiving a total of 476,250 shares of the Company's Common Stock based on the then fair market value of $0.32. As of December 31, 2001, the Company had borrowed $993,790 under this facility. Of this amount, $741,445 was debt owed to Health Holdings. As part of the Private Equity Transaction on January 2, 2002 as described more fully in Note 7, Health Holdings converted into Common Stock all of the Company's Loan Agreement debt due to Health Holdings, plus accrued interest of $11,051 for a total debt conversion of $752,496. On August 8, 2002, one investor (a member of the Board of Directors) converted his total debt of $50,000 which was due September 11, 2002 plus accrued interest of $427 into Common Stock, receiving a total of 720,392 shares of the Company's Common Stock based on the then fair market value of $0.07. As of September 30, 2002, the Company had borrowed $202,345 under this facility which is owed to an independent investor.

        6.    Line of Credit—On January 27, 2000, the Company entered into a three year Credit and Security Agreement with Wells Fargo Business Credit, Inc. ("Wells Fargo") that allows for maximum borrowings of up to $3,000,000, based on certain percentages of eligible accounts receivable and inventories as defined in the agreement. As more fully described in Note 7, Private Equity Transaction, on December 20, 2001, the terms of the Credit and Security Agreement were modified to include a waiver of the enforcement of existing defaults as of December 20, 2001, an increase in the credit available to the Company to a maximum of $4,500,000 with an inventory maximum subline of $2,000,000, an increase in the floating rate to the prime rate plus 2% and extension of the maturity date to December 31, 2003. Borrowings under the Credit and Security Agreement, which totaled $1,396,814 at September 30, 2002, are collateralized by substantially all assets of the Company. At September 30, 2002, the prime rate was 4.75% and the interest charge under the Credit and Security Agreement was 6.75%. The Credit and Security Agreement contains covenants which, among other things, require that certain financial ratios be met. On September 19, 2002, the Company and Wells Fargo amended certain terms of the Credit and Security Agreement. These amendments include easing the minimum net income and minimum book net worth covenants, requiring that the Company maintain certain minimum levels of cash and reducing the borrowing availability under the line of credit. The Company also obtained a waiver from Wells Fargo for the noncompliance at June 30, 2002.

        7.    Private Equity Transaction—On January 2, 2002, the Company privately sold 13,540,723 shares of Series B Convertible Preferred Stock (the "Shares") for $2 million, and warrants to purchase an additional 33,641,548 shares of Series B Convertible Preferred Stock at an aggregate exercise price of $3.5 million (the "Warrants"), for $500,000. The Shares and the Warrants were purchased by Westgate Equity Partners, L.P. ("Westgate"). The Series B Convertible Preferred Stock bears dividends at a rate of 10% per annum, which will accumulate and compound semi-annually if not paid in cash. On the

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seventh anniversary of its issuance, the Series B Convertible Preferred Stock will be automatically redeemed by the Company at the original issuance price plus accrued and unpaid dividends, provided the Company is legally able to do so. Two members of the Board of Directors of the Company will be elected exclusively by the holders of the Series B Convertible Preferred Stock voting as a separate class.

        The Company may redeem the Series B Convertible Preferred Stock at any time prior to December 31, 2004 if the Company receives a bona fide offer from a third party to invest equity capital in the Company and the holders of the Series B Convertible Preferred Stock do not make a Qualified Counter-Offer. A "Qualified Counter-Offer" is a written offer for an equity investment in the Company that will yield gross proceeds in excess of the third party's offer (but need not exceed $3,500,000), and which either (A) is accomplished through the exercise of some or all of the Warrants, or (B) will provide capital on the same or better terms as the third party offer.

        As part of this transaction, Health Holdings agreed to convert all of the Company's outstanding debt to Health Holdings, including accrued interest (approximately $5,316,000), and to surrender all of Health Holdings' Series A Convertible Preferred Stock (1,250,024 shares) for cancellation without conversion, in exchange for 35,989,855 shares of the Company's Common Stock. Furthermore, the warrants that Health Holdings holds to purchase up to 600,000 shares of Common Stock have been modified to be exercisable for Non-Voting Common Stock at an exercise price of $1 per share.

        As part of this transaction, the Company amended the Naturade Certificate of Incorporation by establishing Non-Voting Common Stock with a par value of $.0001 per share and an authorization to issue 2,000,000 shares. Non-Voting Common Stock valued at $47,500 and consisting of 117,284 shares were issued to a financial intermediary firm as part of their fees for assisting in this transaction. The holders of shares of Non-Voting Common Stock shall have no voting rights with respect to such Non-Voting Common Stock.

        As part of this transaction, the Company entered into a Management Services Agreement under which certain principals of Westgate or its affiliates will provide management and consulting services to the Company and amended and extended the employment agreement with the Company's CEO. Also, on December 20, 2001 as part of this transaction and effective on its completion, Wells Fargo agreed to modify the terms of its Credit and Security Agreement with the Company, to include waiving the enforcement of existing defaults, increasing the credit available to the Company to a maximum of $4,500,000, increasing the floating rate of interest to the prime rate plus 2% and extending the maturity date to December 31, 2003, as more fully described under Footnote 6.

        Under the terms of the Private Equity Transaction, if Westgate exercises the Warrants in full, Westgate would hold a total of 47,182,271 shares of Series B Convertible Preferred Stock which would be convertible into the same number of shares of Common Stock, or 51% of the Company's outstanding Common Stock on a fully diluted basis (subject to adjustment to prevent dilution). Furthermore, the Company has agreed not to issue additional voting securities without Westgate's consent, except on the exercise of outstanding options to purchase Common Stock.

        The net proceeds of the transactions are being used by the Company for working capital and general corporate purposes.

        8.    Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the Company's chief decision-maker, or decision-making group, in deciding how to allocate resources and in assessing performance.

        The Company's reportable operating segments include health food specialty stores and mass market categories. The Company does not allocate operating expenses to these segments, nor does it allocate specific assets to these segments. Therefore, segment information reported includes only sales, cost of sales and gross profit.

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        Operating segment data for the three and nine months ended September 30, 2002 and September 30, 2001 was as follows:

        During the three and nine months ended September 30, 2002 and 2001, the Company had sales to three customers in excess of 10% of the Company's total net sales as shown in the table below.

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

        This discussion contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements are inherently subject to risk and the Company can give no assurances that such expectations will prove to be correct. Such forward looking statements involve risks and uncertainties, and actual results could differ from those described herein. Future results are subject to numerous factors, many of which are beyond the control of the Company. Such risk factors include, without limitation, the risks set forth below under "Risk Factors." The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date hereof or to reflect the occurrence of unexpected events.

        All comparisons below are for the three and nine month periods ended September 30, 2002 compared to the three and nine month periods ended September 30, 2001.

General

        The Company is a branded natural products marketing company focused on high growth, innovative products designed to nourish the health and well-being of consumers. The Company concentrates on the rapidly expanding soy food market which reached sales of almost $2.5 billion in 2000 and is expected to grow 15% to 20% per year reaching $5 to $6 billion by 2005 according to Soyatech market research dated February 2001. The Company has purposely avoided the vitamin category which has been flat and the herbal category which has experienced 15% to 25% declines per year since the late nineties. The Company's products include Naturade Total Soy, a full line of nutritionally complete meal replacements available in several flavors of powders, ready-to-drink products and bars, Naturade Soy protein boosters, Aloe Vera 80 health and beauty care products and other niche dietary supplements. The Company's products are sold in supermarkets (e.g., Kroger, Fred Meyer, Safeway and Albertson's), mass merchants (e.g., Kmart and Target), club stores (e.g., Sam's Clubs, Costco and BJ's), drug stores (e.g., CVS, Eckerd and Rite-Aid), natural food supermarkets (e.g., Whole Foods and Wild Oats) and over 5,000 independent health food stores. Major trends occurring in the quarter ended September 30, 2002 included:

1)

Continued expansion of Naturade Total Soy distribution, which accounted for 58% of sales in the quarter;



2)

Initial distribution to the third largest club customer in the country;



3)

Decline in sales of some key mass market customers and health food distributors due to the continuing US economic softness since September 2001 as explained herein and a certain customer financial impairment; and



4)

Continued use of the proceeds from the raising of $2.5 million for operating purposes.

        On January 2, 2002, the Company (i) sold Series B Convertible Preferred Stock and Warrants to Westgate for a total of $2.5 million, (ii) issued 36 million shares of Common Stock in exchange for the cancellation of $5.3 million of outstanding debt and 1.3 million shares of outstanding Series A Convertible Preferred Stock and (iii) amended its bank credit facility. The Series B Convertible Preferred Stock is convertible into 13.5 million shares of Common Stock (subject to adjustment) and bears dividends at the rate of 10% per annum. The Warrants entitle the holder to purchase for $3.5 million additional shares of Series B Convertible Preferred Stock convertible into 33.6 million shares of Common Stock (subject to adjustment). The net proceeds from the investment are being used by Naturade for working capital and general corporate purposes. For a more complete description of this transaction, see Note 7—Private Equity Transaction.

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Results of Operations

Net Sales

        Total net sales for the quarter ended September 30, 2002 decreased $134,295, or 3.5%, to $3,676,706 from $3,811,001 for the same period of 2001 primarily as a result of (i) decline in sales to a main health food distributor and (ii) loss of distribution to a key mass market customer who has approved new distribution effective January 2003 partially offset by (iii) initial distribution to the third largest Club customer in the country. Total net sales for the first nine months of 2002 decreased $1,967,352, or 16%, to $10,513,325 from $12,480,677 for the same period of 2001 primarily as a result of (i) non-repeatable new distribution in 2001 as the Company completed it's sell-in of Naturade Total Soy to all major mass market customers and (ii) continued softness in the health food market.

        Mass Market Net Sales.    For the quarter ended September 30, 2002, mass market net sales increased $8,576, or .5%, to $1,897,056 from $1,888,480 for the same period in 2001 primarily as a result of initial distribution to the third largest Club customer in the country which offset the loss of distribution to another key mass market customer who has approved new distribution effective January 2003.

        The following table illustrates mass market net sales for the three and nine month periods ended September 30, 2002 compared to the three and nine month periods ended September 30, 2001:

Mass Market Net Sales
(dollars in thousand's)

        The slight increase in the core turn business is due to continued strong sales to Sam's Clubs and the conversion of 2001 distribution into 2002 repeat business. These sales gains were partially offset by a decline in Drug Store segment sales, soft K-Mart sales due to that company's bankruptcy restructuring efforts, and a 50% reduction in international sales (classified as mass market). For the quarter ended September 30, 2002, mass market turn business net sales increased $86,500, or 5.6%, to $1,635,000 from $1,548,500 for the same period of 2001. Distribution channel shift results from certain mass market customers switching their buying patterns from purchasing through health food distributors (classified as health food sales) to direct purchases (classified as mass market sales). The decline in distribution channel shift sales is due to the fact that most mass market customers who had formally purchased through health food distributors have completed the transition to direct purchasing.

        Health Food Net Sales.    For the quarter ended September 30, 2002, health food net sales decreased $142,871, or 7%, to $1,779,650 from $1,922,521 for the same period of 2001. This decrease was a result of softness in the one of the Company's main health food distributors partially offset by new product introductions. By factoring in the channel shift from the health food distributors to direct mass market purchases as shown in the above table (albeit reduced from a year earlier) and the lost sales in the third quarter due to the Company's decision to discontinue these products, a slightly improved picture emerges. By incorporating these mitigating factors, core health food net sales are down 5% for the quarter ended September 30, 2002, compared to the same period of 2001.

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        On a percent of net sales basis, the breakdown of sales between the mass market and health food channels for the quarter ended September 30, 2002 slightly emphasized the mass market channel when compared to the same period of 2001 with 52% of net sales from mass market and 48% from health food. For the first nine months of 2002 health food sales represented 53% of total sales, with mass market sales at 47%.

        For the quarter ended September 30, 2002, the top 40 customers accounted for $3,306,100 or 90% of net sales, comprised of 22 health food customers contributing $1,683,200 or 45.8% of net sales, 17 mass market customers contributing $1,605,700 or 43.7% of net sales, and one international customer contributing $17,200 or 0.5% of net sales. For the quarter ended September 30, 2002, the Company continued its reliance on NTS products, with twenty powder products contributing $1,726,100 or 46.9% of net sales. During the quarter, the Company continued selling NTS bars in select accounts, which contributed $53,400 or 1.5% and NTS ready-to-drink products with $339,600 or 9.2% of net sales. Overall, the top 25 products represented $2,671,000 or 72.7% of sales, with thirteen NTS products contributing $1,818,500 or 49.5% of sales, nine protein powders contributing $682,400 or 18.6% of sales, and three Aloe Vera and other products representing $170,100 or 4.6% of sales.

Gross Profit

        Gross profit as a percentage of net sales for the quarter ended September 30, 2002 increased 0.5% to 45.3% of sales from 44.8% for the same period of 2001. The increase was due to an additional reserve for slow moving inventory recorded in 2001 that was not repeated in 2002 partially offset by new product label set-up costs incurred in 2002. Since these costs are charged against cost of sales, the lower 2002 charges effectively increased gross profit for the quarter ended September 30, 2002.

Selling, General and Administrative Expenses

        Selling, general and administrative expenses for the quarter ended September 30, 2002 decreased $327,876 to $2,104,769 or 57.2% of net sales from $2,432,645 or 63.8% of net sales for the same period of 2001. This decrease is primarily due to a $197,443 decrease in brand expenses, a $52,662 decrease in general and administrative costs and a $30,679 decrease in warehouse operations which consist of personnel and supplies. As a percent of sales, brand expenses were 19.2% and 24.1%, respectively, for the quarter ended September 30, 2002 and the same period of 2001. The decrease in brand expenses is due to decreases in trade promotions of $121,103 and consumer promotions of $80,075, partially offset by a $7,449 increase in public relations. The decrease in trade and consumer promotions is due to the Company's efforts to align mass promotional costs more directly with proven sales opportunities. The decrease in general and administrative costs is due to a reduction in Board of Directors expenses and consulting costs.

Interest Expense

        Interest expense for the quarter ended September 30, 2002 decreased $113,772 compared to the same period of 2001 due to the conversion of $5.3 million of Health Holdings convertible debt in January 2002 into 35,989,855 shares of Common Stock of the Company as part of the Private Equity Transaction, which reduced overall interest costs. See Note 7 to the Financial Statements.

Liquidity and Capital Resources

        The Company used cash of $990,144 in operating activities in the nine months ended September 30, 2002 compared to $429,778 for operating activities for the nine months ended September 30, 2001. This increase in cash used in operating activities is primarily due to the Company's operating losses and reduction in accounts payable partially offset by improved accounts receivable

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collections for the nine months ended September 30, 2002 compared to the nine months ended September 30, 2001.

        The Company's working capital increased from a deficit of $1,864,116 at December 31, 2001 to a deficit of $1,390,625 at September 30, 2002. This increase was largely due to the investment of $2.5 million from the Private Equity Transaction, which offset the Company's operating losses for the nine months ended September 30, 2002.

        Cash used in investment activities during the quarter ended September 30, 2002 was $7,289 compared to cash used in investing activities during the same period of 2001 of $136,717.

        The Company's cash provided by financing activities was $1,759,174 for the nine months ended September 30, 2002 compared to cash provided by financing activities of $363,847 for the nine months ended September 30, 2001. The September 30, 2002 amount was the result of the $2.5 million from the Private Equity Transaction, the conversion into equity of the Health Holdings Credit Agreement and Loan Agreement debt, the conversion into equity of an individual investor's Loan Agreement debt and a decrease in borrowings under the Credit and Security Agreement. See Notes 4, 5 and 7 to the Financial Statements.

        As of September 30, 2002, the Company was in compliance with the minimum net income and minimum book net worth covenants of the Credit and Security Agreement with Wells Fargo as amended. Borrowings under the Credit and Security Agreement are collateralized by substantially all assets of the Company. For a description of the Credit and Security Agreement, see Note 6 to the Financial Statements.

        The accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At September 30, 2002, the Company has an accumulated deficit of $22,506,818, a negative working capital of $1,390,625 a stockholders' capital deficiency of $3,524,340 and has incurred recurring net losses. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

        The Company believes that its existing cash balances and financing arrangements will provide it with sufficient funds to finance its operations during the next twelve months, provided that Wells Fargo does not exercise its right to terminate, or demand immediate payment of all amounts outstanding under the Credit and Security Agreement. However, the Company may seek to raise additional funds through the sale of public or private equity or debt financings or from other sources. In addition, the Company is identifying compatible companies for strategic alliances and strategic investments. No assurance can be given that additional financing or that strategic alliances will be available in the future or that, if available, such financing or strategic alliances will be obtainable on terms acceptable to the Company or its stockholders.

        The Company's liquidity requirements arise from the need to provide working capital principally for inventory and accounts receivable. The Company's primary sources for working capital and capital expenditures are cash flow from operations, borrowings under the Company's bank and other credit facilities, sales of private equity, borrowings from principal shareholders and issuance of long-term debt.

        The Company's liquidity is dependent, in part, on customers paying according to the Company's terms. Any abnormal chargebacks or returns may affect the Company's source of short-term funding. The Company is also subject to market price changes. Any changes in credit terms given to major customers would have an impact on the Company's cash flow. Suppliers' credit is another major source of short-term financing and any adverse changes in their terms will have a negative impact on the Company's cash flow.

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        The following summarizes the Company's contractual obligations at September 30, 2002 and the effects such obligations are expected to have on liquidity and cash flow in future periods.

(1)

On January 2, 2009, the Company will be obligated to repurchase 13,540,723 shares of Series B Convertible Preferred Stock, if the shares have not been previously redeemed at the option of the Company or converted into Common Stock at the option of the holder, for the original purchase price of $2,000,000 plus any unpaid dividends. Dividends on the Series B Convertible Preferred Stock accrue at an annual rate of 10%, compounded semi-annually, and accumulate if unpaid. The Company will pay the repurchase price only to the extent funds are legally available. The Delaware General Corporation Law prohibits such payments if they result in the impairment of the capital of a corporation.

Critical Accounting Policies and Use of Estimates

        The Company's significant accounting policies are described in Note 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2001, which has 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. Sales are recognized upon shipment and passage of title. The Company accrues for estimated returns at the time of sale. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin 101, Revenue Recognition ("SAB 101"). SAB 101 summarizes certain of the SEC staff's views in applying generally accepted accounting principles to selected revenue recognition issues in financial statements. Implementation of SAB 101 was required by the fourth quarter of 2000. The implementation of SAB 101 did not have a material impact on the Company's financial condition or results of operations.

        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. The Company regularly reviews aged and excess inventories to determine if the carrying value of such inventories exceeds market value with a reserve recorded to reduce the carrying value to market value if necessary.

        Accounts Receivable Valuation. Accounts receivable is stated net of applicable reserves for returns and allowances, billbacks and doubtful accounts. The Company regularly reviews accounts receivable to determine if the reserve amounts are appropriate by considering historical customer buying patterns, invoice aging, specific promotions and seasonal factors.

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Recently Issued Statements of Financial Accounting Standards

        In June 2002, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force (EITF) Issue No. 94-3. The Company will adopt the provisions of SFAS No. 146 for restructuring activities initiated after December 31, 2002. SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability for an exit cost was recognized at the date of a company's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognition of future restructuring costs as well as the amount recognized.

        In May 2002, the FASB issued SFAS 145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections. SFAS 145 eliminates Statement 4 (and Statement 64, as it amends Statement 4), which required gains and losses from extinguishments of debt to be aggregated and, if material, classified as an extraordinary item, and thus, also the exception to applying Opinion 30 is eliminated as well. This statement is effective for years beginning after May 2002 for the provisions related to the rescission of Statements 4 and 64, and for all transactions entered into beginning May 2002 for the provision related to the amendment of Statement 13. The Company has not yet determined what impact the adoption of FAS 145 will have on its operations and financial position.

        In October 2001, the FASB issued SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS 144 requires that those long-lived assets be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. Therefore, discontinued operations will no longer be measured at net realizable value or include amounts for operating losses that have not yet occurred. SFAS 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, is to be applied prospectively. The Company adopted this Statement as of January 1, 2002 and it had no material impact on its financial statements.

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

Risk Factors

        The short and long-term success of the Company is subject to certain risks, many of which are substantial in nature. Shareholders and prospective shareholders in the Company should consider carefully the following risk factors, in addition to other information contained herein. This Form 10-Q contains forward-looking statements which are subject to a variety of risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth below.

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There is substantial doubt as to the Company's ability to continue as a going concern, and the Company will incur further losses

        Naturade's independent accountants have qualified their opinion on the Company's financial statements, expressing substantial doubt concerning the Company's ability to continue as a going concern. At September 30, 2002, the Company had an accumulated deficit of $22,506,818, a negative working capital of $1,390,625 and stockholders' capital deficiency of $3,524,340. The Company anticipates that it will incur net losses for the immediate future and will need access to additional financing for working capital and to expand its business. Management has taken a number of steps to address this situation, including the Private Equity Transaction completed on January 2, 2002 and efforts to decrease operating losses by expanding sales and reducing costs. Nevertheless, the Company expects to incur operating losses for some time in the future and cannot give assurance that additional financing will be available when needed or that it will obtain waivers or modifications of the Credit and Security Agreement, if needed. If unsuccessful in those efforts, Naturade could be forced to cease operations and investors in Naturade's Common Stock could lose their entire investment.

The Company depends on continued business from its key customers

        The Company's three largest customers together account for 45% of sales revenue in the quarter ended September 30, 2002. Two health food distributors accounted for 28.3% of total sales in the quarter and one mass market customer, Sam's Club and Wal*Mart, represented approximately 16.5% of total sales in the quarter. The loss of such customers could have a material adverse effect on the Company's results of operations. From time to time, major customers of Naturade have experienced financial difficulties. Naturade does not have long-term contracts with any of its customers and, accordingly, there can be no assurance that any customer will continue to place orders with Naturade to the same extent it has in the past, or at all.

The Company depends 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. Starting in 2000, the Company embarked on a strategy to rollout the Naturade Total Soy product line to the mass market, which requires a high level of marketing expenditures. Although the Company obtained $2.5 million as part of the Private Equity Transaction on January 2, 2002, as explained above and in Note 7 to the Financial Statements, there is no assurance that these proceeds will be sufficient to fund this strategy. Further, no assurance can be given that the Company will have access to additional funds or, if funds can be obtained, that the terms on which they can be obtained will be satisfactory. In such event, the Company's business and results of operations, and its ability to continue as a going concern, will be materially adversely affected.

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 further dilution of the Common Stock. In addition, the conversion of the 13.5 million shares of Series B Convertible Preferred Stock originally sold to Westgate Equity Partners, L.P. ("Westgate"), for $2 million, together with conversion of the 33,641,548 shares of Series B Convertible Preferred Stock issuable on exercise of warrants held by Westgate, which have an exercise price of approximately $0.104 per share (and, including the original cost of the warrant, a total consideration of approximately $0.119 per share), would also result in substantial 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.

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

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

Technological changes

        The Company currently is engaged in developing nutraceuticals, which are characterized by extensive and costly research efforts and rapid technological progress and change. New process developments are expected to continue at a rapid pace in both industry and academia. The Company's future success will depend on its ability to develop and commercialize its existing product candidates and to develop new products. There can be no assurance that the Company will successfully complete the development of any of its existing product candidates or that any of its future products will be commercially viable or achieve market acceptance. In addition, there can be no assurance that research and development and discoveries by others will not render some or all of the Company's programs or potential product candidates uncompetitive or obsolete.

Dependence on third-party manufacturers

        The use of contract manufacturers and the resulting loss of direct control over the production of its products could result in the Company's failure to receive timely delivery of products of acceptable quality. Although the Company believes that alternative sources of contract manufacturing services are available, the loss of one or more contract manufacturers could have a material adverse effect on the Company's results of operations until an alternative source is located and has commenced producing the Company's products.

        Although the FDA does not currently regulate manufacturing facilities for nutraceutical products, there can be no assurance that the FDA at some time in the future will not begin regulating these manufacturing facilities. If the FDA were to begin regulating the manufacturing facilities for nutraceuticals, and if the manufacturing facilities used by the Company's third-party manufacturers did

17

not meet those standards, the production of the Company's products could be delayed until the necessary modifications are made to comply with those standards or alternate manufacturers are located.

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

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 that may be developed by the Company.

Dependence on qualified personnel

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

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

Product liability 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

18

warnings concerning possible side effects and interactions with other substances. The Company currently maintains a general liability insurance policy and a product liability insurance policy. There can be no assurance that the Company will be able to maintain such insurance in sufficient amounts to protect the Company against such liabilities at a reasonable cost. Any future product liability claim against the Company could result in the Company paying substantial damages, which may not be covered by insurance and may have a material adverse effect on the business and financial condition of the Company.

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

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

Expanding the Company's sales in the mass market has increased branding costs and resulted in less stable demand for the Company's products.

        Naturade, traditionally a marketer for the health food market, has recently built a presence in the mass market. While yielding increased revenue, selling to the mass market has also resulted in significant new costs and risks for Naturade. Mass market merchandise requires greater expenditures for branding. Compared to sales to health food distributors, the aggregate volume of mass market orders can vary significantly from period to period and tends to be more sensitive to short term or local variations in market conditions. The instability can make planning difficult and can cause unexpected reductions in sales, or in orders that exceed Naturade's short term capacity, in either case resulting in lost revenue. Failure to manage the costs and risks associated with the mass market could cause material adverse harm to Naturade's business.

The dietary supplement industry as a whole is experiencing a decline in sales.

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

Effect of adverse publicity

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

19

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 Naturade's products. The Company's policy is to pursue registrations for all of the trademarks associated with its key products. The Company relies on common law trademark rights to protect its unregistered trademarks as well as its trade dress rights. Common law trademark rights generally are limited to the geographic area in which the trademark is actually used, while a U.S. federal registration of a trademark enables the registrant to stop the unauthorized use of the trademark by any third party anywhere in the U. S. The Company intends to register its trademarks in certain foreign jurisdictions where the Company's products are sold. However, the protection available, if any, in such jurisdictions may not be as extensive as the protection available to the Company in the U.S.

        Currently, the Company has received over 19 U.S. trademarks as well as a California registration of one trademark. The Company also maintains trademark registrations in approximately 10 foreign countries. Because of its limited financial resources, the Company cannot in all cases exhaustively monitor the marketplace for trademark violations. It will evaluate and pursue potential infringement on a case-by-case basis in accordance with its business needs and financial resources. If the Company is 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, Naturade may be unable to pursue some litigation matters. In matters it does pursue, Naturade can provide no assurance of a favorable outcome. An unfavorable outcome in any proceeding could have a material adverse effect on the Company's business, financial condition and results of operations.

Introduction of new products

        Each year, the Company introduces new products to meet consumer demands and counter competitive threats. These new products include product line extensions, such as new flavors to currently existing products, as well as new formulations or configurations, such as ready-to-drink and bars. The Company experiences significant costs in formulating new products, designing packaging and merchandising. While the Company conducts extensive market research to determine consumer trends in both the mass market and health food market, there can be no assurance that the Company's new products will be accepted by consumers and retailers. In addition, there can be no assurance that once new products are initially distributed to mass market and health food retailers, there will be repeat orders for these new products. Furthermore, expensive introductory retailer charges for additional shelf space may negate any initial increase in sales.

Stock Price

        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,

20

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.

Closely Controlled Stock

        At June 20, 2002, Westgate Equity Partners, L.P. beneficially owned approximately 50.4% of the Company's Common Stock, Health Holdings beneficially owned 43.9% of the Company's Common Stock, and executive officers and directors of the Company as a group beneficially owned 95.7% of the Company's Common Stock. Shares "beneficially owned" include shares that a person owns or has a right to acquire within 60 days, either directly or through affiliates. Accordingly, Westgate Equity Partners, LLC and Health Holdings have the ability to control the outcome on all matters requiring stockholder approval, including, but not limited to, the election and removal of directors, any merger, sale, consolidation or sale of substantially all of the assets of the Company, and to control the Company's management and affairs.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

        The Company's earnings are affected by fluctuations in the value of the U.S. dollar as compared to foreign currencies as a result of international purchases. As a result, the Company bears the risk of exchange rate gains or losses that may result in the future as a result of this financing structure. The Company's exposure to market risk for changes in interest rates relates primarily to the Company's long-term debt.

        The Company's long-term debt primarily consists of a $4.5 million line of credit originally entered into on January 27, 2000 and amended on December 20, 2001 and a $202,345 Loan Agreement with an investor, after giving affect to the Health Holdings debt-to equity conversion on January 2, 2002 as part of the Private Equity Transaction as described more fully in Note 7 to the Financial Statements and the individual investor debt-to-equity conversion on August 8, 2002 as described more fully in Note 5 to the Financial Statements. The $4 million Credit Agreement with the majority shareholder of the Company was converted into equity on January 2, 2002 as part of the Private Equity Transaction. The line of credit bears interest at prime rate plus 2%. The Loan Agreement bears interest at 8% per annum with due dates of August 31, 2003 for the remaining balance. However, given the fixed interest rate on the Loan Agreement, interest rate changes generally will have no effect on the interest rates under the Loan Agreement or on the Company's results of operations. Given the variable interest rate on the line of credit, the impact of interest rate changes on the line of credit could have a material impact on the Company's results of operations. For the quarter ended September 30, 2002, the interest expense on the line of credit was $19,100. If the interest rate on the line of credit for the quarter ended September 30, 2002 had increased by one percent to prime rate plus 3%, this would have resulted in the interest expense being $21,930 for the quarter.

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ITEM 4. Controls and Procedures

        Within the 90 days prior to the filing date of this report, the Chief Executive Officer and the Chief Financial Officer of the Company, 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 13a-14. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer believe that, as of the date of the evaluation, 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 as simple errors or mistakes or intentional circumvention of the established process.

        There were no significant changes in the Company's internal controls or in other factors that could significantly affect internal controls, known to the Chief Executive Officer or the Chief Financial Officer, subsequent to the date of the evaluation.

PART II. Other Information

ITEM 1. Legal Proceedings

        From time to time, the Company is involved in various routine legal proceedings incidental to the conduct of its business. Management does not believe that any of these legal proceedings will have a material adverse impact on the business, financial condition or results of operations of the Company, either due to the nature of the claims, or because management believes that such claims should not exceed the limits of the Company's insurance coverage.

ITEM 2. Changes in Securities and Use of Proceeds

        NONE

ITEM 3. Defaults upon Senior Securities

        NONE

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

        At the annual meeting of stockholders held on August 8, 2002, the following proposals were adopted by the margins indicated:

1.

To elect a Board of Directors to hold office until their successors are elected and qualified:

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2.

To ratify the appointment of BDO Seidman, LLP as the Company's independent certified public accountants for the year ended December 31, 2002:

ITEM 5. Other Information

        NONE

ITEM 6. Exhibits and Reports on Form 8-K

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S I G N A T U R E S

        Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned and hereunto duly authorized.

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CERTIFICATION

I, Bill D. Stewart, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Naturade, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design of operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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CERTIFICATION

I, Lawrence J. Batina, certify that:

1.

I have reviewed this quarterly report on Form 10-Q of Naturade, Inc.;

2.

Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.

Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c)

presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design of operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6.

The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

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QuickLinks

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

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

ITEM 4. Controls and Procedures
PART II. Other Information
ITEM 1. Legal Proceedings
ITEM 2. Changes in Securities and Use of Proceeds
ITEM 3. Defaults upon Senior Securities
ITEM 4. Submission of Matters to a Vote of Security Holders
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K