10-Q 1 v114494_10q.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

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

For the transition period from ____________to __________

Commission File Number: 33-7106-A

NATURADE, INC.

(Exact name of registrant as specified in its charter)

Delaware		23-2442709
(State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization)

2099 S. State College Blvd., Suite 210, Anaheim, CA		92806
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (714) 860-7600

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

As of May 15, 2008, 194,908,121 shares of the registrant’s Common Stock were issued and outstanding.

FORM 10-Q

QUARTERLY REPORT

Quarter Ended March 31, 2008

TABLE OF CONTENTS

		PAGE
PART I.. FINANCIAL INFORMATION

Item 1.	Financial Statements
	Condensed Balance Sheets as of March 31, 2008 (Unaudited) and December 31, 2007	3
	Condensed Statements of Operations for the three months ended March 31, 2008 and March 31, 2007 (Unaudited)	4
	Condensed Statements of Cash Flows for the three months ended March 31, 2008 and March 31, 2007 (Unaudited)	5
	Notes to Condensed Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	31
Item 4.	Submission of Matters to a Vote of Security Holders	31
Item 5.	Other Information	31
Item 6.	Exhibits	31

	SIGNATURES	31

	EXHIBITS AND CERTIFICATIONS

Part I. Financial Information

Item 1. Financial Statements

NATURADE, INC.

Condensed Balance Sheets

As of March 31, 2008 (Unaudited) and December 31, 2007

	March 31, 2008			December 31, 2007
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	32,477		$	274,733
Accounts receivable, net		730,192			740,046
Inventories, net		869,337			1,054,401
Prepaid expenses and other current assets		75,754			37,228
Total current assets		1,707,760			2,106,408
Property and equipment, net		3,968			4,350
Goodwill		1,693,830			1,693,830
Customer lists and trademarks, net		6,575,330			6,781,510
Deferred financing fees, net		82,851			171,542
Other assets		14,898			50,197
Total assets	$	10,078,637		$	10,807,837

LIABILITIES AND STOCKHOLDER’S EQUITY (DEFICIT)
Current liabilities:
Accounts payable	$	1,852,604		$	1,542,824
Accrued expenses		161,396			181,389
Revolving credit, net of debt discount of $338,426 at March 31, 2008, and $446,943, at December 31, 2007		537,875			702,504
Note payable related party		360,125			250,000
Current portion of long term debt, net of debt discount of $1,249,574 at March 31, 2008, and $1,362,781, at December 31, 2007		199,133			4,946
Total current liabilities		3,111,133			2,681,663
Long-term debt, less current maturities, net of debt discount of $1,096,864 at March 31, 2008 and $1,377,461, at December 31, 2007		2,717,429			2,674,805
Total liabilities		5,828,562			5,356,468

COMMITMENTS AND CONTINGENCIES

STOCKHOLDER’S EQUITY (DEFICIT):
Common stock, par value $0.0001 per share; authorized 250,000,000 shares at March 31, 2008 and December 31, 2007; issued/issuable and outstanding, 194,908,121 shares at March 31, 2008 and December 31, 2007		19,491			19,491
Additional paid in capital		6,033,575			6,033,575
Accumulated deficit		(1,802,991	)		(601,697	)
Total stockholder’s equity (deficit)		4,250,075			5,451,369	)
Total liabilities and stockholder’s equity (deficit)	$	10,078,637		$	10,807,837

See accompanying notes to condensed financial statements.

NATURADE, INC.
Condensed Statements of Operations for the Three Months
Ended March 31, 2008, and March 31, 2007 (Unaudited)

	Three Months			Three Months
	Ended			Ended
	Successor Company			Predecessor Company
	March 31, 2008			March 31, 2007
	(Unaudited)			(Unaudited)

Net sales	$	2,021,636		$	1,397,890
Cost of sales		1,340,723			897,575

Gross profit		680,913			500,315

Costs and expenses:
Selling, general and administrative expenses		962,160			1,414,403
Depreciation		382			4,711
Amortization		206,180			81,989
Total operating costs and expenses		1,168,722			1,501,103
Operating loss		(487,809	)		(1,000,788	)
Other income(expense):
Other expense		—			1,455
Reorganization income		—			2,172,645
Interest expense:
Interest expense		(122,475	)		(64,664	)
Amortization of deferred financing fees and debt discounts		(591,010	)		(214,895	)
Total other income (expense)		(713,485	)		1,894,540

(Loss) income before provision for income taxes		(1,201,294	)		893,752
Provision for income taxes		—			—
Net income (loss)	$	(1,201,294	)	$	893,752

Less:
Deemed Dividend-Series C	$	—		$	(690,000	)

Net (Loss) Income Attributable to Common Shareholders	$	(1,201,294	)	$	203,752

Earnings (loss) per share- basic	$	(0.01	)	$	0.01
Earnings (loss) per share-diluted	$	(0.01	)	$	0.00

Weighted Average Number of Shares used in Computation of
Earnings ( loss) per share- basic		194,908,121			43,332,733
Earnings ( loss) per share -diluted		194,908,121			51,816,253

See accompanying notes to condensed financial statements

Naturade, Inc.

Condensed Statements of Cash Flows for the Three Months

Ended March 31, 2008 and March 31, 2007 (unaudited)

	Three months			Three months
	Ended			Ended
	Successor Company			Predecessor Company
	March 31, 2008			March 31, 2007
	(Unaudited)			(Unaudited)
Cash flows from operating activities:
Net (loss) income	$	(1,201,294	)	$	893,752
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating activities:
Depreciation and amortization		206,562			86,700
Amortization of loan discounts and deferred financing fees		591,010			214,895
Changes in operating assets and liabilities:
Accounts receivable		9,854			348,461
Inventories		185,064			6,337
Prepaid expenses and other current assets		(38,526	)		(79,624	)
Other assets		35,299			(9,934	)
Liabilities subject to compromise		-0-			(2,598,310	)
Accounts payable and accrued liabilities		289,786			998,233
Net cash provided by (used in) operating activities		77,775			(139,490	)

Cash flows from investing activities:
Net cash used in investing activities		-0-			-0-

Cash flows from financing activities:
Repayments under the revolving credit line		(164,629	)		(309,702	)
Borrowings on note payable to related parties		110,125			-0-
Deferred financing fees		-0-			396,071
Repayments under term loan		(265,507	)		-0-
Net cash (used in) provided by financing activities		(320,011	)		86,369
Net decrease in cash and cash equivalents		(242,256	)		(53,121	)
Cash and cash equivalents, beginning of period		274,733			80,713
Cash and cash equivalents, end of period	$	32,477		$	27,592

Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest	$	79,742		$	64,664
Income taxes	$	-0-		$	-0-

Non-cash financing transactions:
Deemed dividend-Series C	$	-0-		$	690,000

See accompanying notes to condensed financial statements.

NATURADE, INC.

Notes to Condensed Financial Statements

(Unaudited)

1. ORGANIZATION AND BASIS OF PRESENTATION

Organization – Naturade, Inc., a Delaware corporation (the “Company” or “Naturade”), is a branded nutraceuticals marketing company focused on high growth, innovative natural products that are positioned to health conscious consumers. The Company’s products include low carbohydrate, high protein powders, nutritional supplements, joint health and arthritis pain relief products, and soy protein based powders. Its products are sold to the health food and mass market channels through distributors and directly to retailers in the United States and overseas.

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) 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 accompanying condensed balance sheet at March 31, 2008, and the condensed statements of operations and cash flows for the periods ended March 31, 2008 and 2007 are unaudited. Such financial statements have been prepared on the same basis as the Company's audited financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments necessary for a fair presentation of the financial position and results of operations for such periods. However, the accompanying financial statements for the period ended March 31, 2007, do not include any adjustments that may be required in connection with restructuring the Company under Chapter 11 of the Bankruptcy Code. These unaudited condensed financial statements should be read in conjunction with the December 31, 2007 audited financial statements included in the Company's Form 10-K as previously filed with the Securities and Exchange Commission on April 15, 2008, and subsequently amended on April 30, 2008.

Voluntary Reorganization under Chapter 11

On August 31, 2006 (the “Petition Date”), Naturade, the “Debtor”, filed a voluntary petition to reorganize its business under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). On October 30, 2007, the Bankruptcy Court confirmed the Debtor’s Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtor emerged from bankruptcy protection on November 9, 2007 (the “Effective Date”). On the Effective Date, Naturade implemented fresh-start reporting.

The Plan of Reorganization generally provided for the full payment or reinstatement of allowed administrative claims, priority claims and secured claims and the distribution of Redux Holdings, Inc. (majority owner) (“Redux”) equity to the Debtor’s creditors in satisfaction of allowed unsecured and deemed claims. The Plan received support from the Company’s creditors and shareholders as well as support from the Company’s lenders and the Company’s Unsecured Creditors Committee.

The confirmed plan provided for the following:

Allowed Secured Claims

On the Effective Date, all accrued interest, calculated at the non-default rate, fees, costs and charges owed under the terms of the Company’s Revolving Note Payable to Laurus Master Fund, Ltd (“Laurus”),, was added to the principal balance of the Revolving Note, and, on the Effective Date, the Company delivered to Laurus an amended and restated promissory note evidencing such loan amount (“Post-Confirmation Revolving Note”). The Post-Confirmation Revolving Note incorporated the provisions of the original Revolving Note Payable (see Note 3—Financing Agreement). The Post-Confirmation Revolving Note matures on January 1, 2010.

On the Effective Date, all accrued interest, calculated at the non-default rate, fees, costs and charges owed under the terms of the Company’s Term Note Payable to Laurus, was added to the principal balance of the Term Note, and, on the Effective Date, the Company shall deliver to Laurus an amended and restated promissory note (“Post-Confirmation Term Note”). The Post-Confirmation Term Note incorporated the provisions of the original term note (see Note 3—Financing Agreement). The Post-Confirmation Term Note matures on January 1, 2010.

In connection with the amended notes payable to Laurus, Laurus received 574,787 shares of Redux common stock (95% shareholder of the Company) and warrants to purchase an additional 700,000 shares of Redux common stock at $0.01 per share. The fair values of such amounts were recorded as debt discounts and are amortized over the expected term of the obligation (See Note 3—Financing Agreement).

On the Effective Date, in full satisfaction and discharge of an allowed secured claim, the Company issued a $1,361,000 note payable to a secured creditor. The note bears interest at a rate of 10% per annum. The note is payable as follows:

For a period of twenty-four full months from and after the Effective Date, the interest on the note shall not be paid, but shall be added to the principal balance of the note.

Commencing on the first day of the first fiscal quarter following the end of the twenty-fourth full month after the Effective Date, and continuing on the first day of each fiscal quarter thereafter, through and including the last fiscal quarter prior to the sixtieth full month following the Effective Date, the Company shall pay the interest which accrued during the prior fiscal quarter.

The note shall mature on the first day of the sixtieth full month following the Effective Date.

The Note shall be secured by liens encumbering all assets of the Company, with priority junior only to Laurus’s liens and any purchase money liens encumbering any equipment that may be acquired in the ordinary course by the Company after the Effective Date.

The note is convertible into shares of Redux common stock. The conversion rate is based upon 70% of the trailing six-month average trading price of Redux common stock. The note can be converted as follows: (i) in the first year following the Effective Date, three times the outstanding balance of the note (including any unpaid interest and chargeable costs); (ii) in the second year following the Effective Date, two times the outstanding note balance (including any unpaid interest and chargeable costs); and (iii) at anytime thereafter until the note is fully paid and satisfied, dollar-for-dollar based upon the outstanding balance of the note (including any unpaid interest and chargeable costs). The fair value of the beneficial conversion feature was recorded as a debt discount and is amortized over the life of the Note (see Note 3—Financing Agreement).

On the Effective Date, the Company delivered two notes to secured creditors in the aggregate amount of $237,226 in full settlement and discharge of their secured claims totaling $237,226. The notes bear interest at a rate of 10% per annum. The notes are payable as follows:

For a period of twenty-four full months from and after the Effective Date, the interest on the note shall not be paid, but shall be added to the principal balance of the notes.

The notes shall mature on the first day of the sixtieth full month following the Effective Date.

The Notes shall be secured by liens encumbering all assets of the Company, with priority junior only to Laurus’s liens and any purchase money liens encumbering any equipment that may be acquired in the ordinary course by the Company after the Effective Date.

The notes are convertible into shares of Redux common stock. The conversion rate is based upon 70% of the trailing six-month average trading price of Redux common stock. The notes can be converted as follows: (i) in the first year following the Effective Date, three times the outstanding balance of the note (including any unpaid interest and chargeable costs); (ii) in the second year following the Effective Date, two times the outstanding note balance (including any unpaid interest and chargeable costs); and (iii) at anytime thereafter until the note is fully paid and satisfied, dollar-for-dollar based upon the outstanding balance of the note (including any unpaid interest and chargeable costs). The fair value of the beneficial conversion feature was recorded as a debt discount and is amortized over the life of the Note (see Note 3—Financing Agreement).

Allowed Secured Claims for Taxes

Each creditor will receive cash installment payment of a value, as of the Effective Date, of its Allowed Secured Claim. The outstanding and unpaid amount of each Allowed Secured Claim shall bear interest, commencing on the Effective Date and continuing until such Allowed Secured Claim is paid in full, at the rate provided by Section 6621(a) of the Internal Revenue Code on the Effective Date. Payment of the Allowed Secured Claims shall commence on the later of the following dates: (a) the first day of the first full quarter following the Effective Date; or (b) the tenth business day after the entry of Final Order allowing the Secured Claim. Such payments shall continue on the first day of each quarter thereafter. On the Effective Date, the Company accrued $7,247 in settlement of the Secured Claims for Taxes.

Allowed Secured Claims- Related Parties

On the Effective Date, the Allowed Secured Administrative Claim of Redux in the amount of $133,381 was waived and contributed to the Company in the form of a capital contribution. On the Effective Date, the Allowed Secured Administrative Claim of One World Science, Inc., a company controlled by Redux, in the amount of $380,090 was contributed to the Company in the form of a capital contribution.

Allowed General Unsecured Claims

Creditors shall receive distributions of cash on their Allowed General Unsecured Claims as follows:

On the first-year anniversary of the Effective Date, the Company shall pay each Allowed General Unsecured Claim five percent (5.0%) of the amount of such Allowed General Unsecured Claim.

On the second-year anniversary of the Effective Date, the Company shall pay each Allowed General Unsecured Claim an additional five percent (5.0%) of the amount of such Allowed General Unsecured Claim.

On the third-year anniversary of the Effective Date, the Company shall pay each Allowed General Unsecured Claim an additional ten percent (10.0%) of the amount of such Allowed General Unsecured Claim.

On the fourth-year anniversary of the Effective Date, the Company shall pay each Allowed General Unsecured Claim an additional ten percent (10.0%) of the amount of such Allowed General Unsecured Claim.

The distributions to the Unsecured Creditors are unconditionally guaranteed by Redux.

Preferred Stock

Under the Plan, all preferred stock of the Company shall be canceled, and instead each holder of preferred stock shall be issued one (1) share of common stock in Redux for every thirty-four (34) shares of preferred stock held by such holder. Unless a longer period of time is agreed upon by the Company, the holder of the preferred stock, the shares of Redux common stock issuable under the Plan shall be subject to a lockup for a period of eighteen (18) months from the date of issuance of such stock, and the holders of such stock shall not be able to sell, pledge or hypothecate such stock for such eighteen (18) month period. After the expiration of the eighteen (18) month period following the issuance of such stock, sales of such stock shall be subject to Rule 144 of the Securities Act of 1933 and shall have a legend on each share certificate. On the Effective Date, the Company recognized a capital contribution of $740,000 from Redux based on the fair value of Redux common stock on the grant date.

Common Stock

Pursuant to the Plan, holders of common stock of the Company shall retain common stock in the reorganized Company equivalent to five percent (5%) of the issued and outstanding shares of common stock in the Reorganized Company as of the Effective Date.

Under the Plan, on the Effective Date, the Company was authorized to issue common stock to Redux equivalent to 95% of the issued and outstanding shares of common stock in the Reorganized Company as of the Effective Date.

On November 8, 2007, Redux Holdings, Inc, (“Redux”), the Company’s controlling shareholder, invested $1.2 million in Naturade, as required by the Plan and on November 9, 2007, the Plan became effective. A copy of the Plan is posted at www.naturade.com , under Investor Relations.

Cash Infusion After the Effective Date

Under the Plan, Redux was required to provide a $1.2 million cash infusion, of which $700,000 was paid to the administrative creditors, and most of the balance was allocated to the Company’s future working capital needs.

Fresh-Start Reporting

Upon emergence from its Chapter 11 proceedings on November 9, 2007, the Company adopted fresh-start reporting in accordance with SOP 90-7. The Company’s emergence from Chapter 11 resulted in a new reporting entity with no retained earnings or accumulated deficit. Accordingly, the Company’s financial statements on or after November 9, 2007 are not comparable to its pre-emergence financial statements because they are, in effect, those of a new entity.

Fresh-start reporting reflects the value of the Company as determined in the confirmed Plan of Reorganization. Under fresh - start reporting, the Company’s asset values are measured using fair value and are allocated in conformity with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). The excess of reorganization value over the fair value of net tangible and identifiable intangible assets and liabilities is recorded as goodwill. In addition, fresh - start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”).

The reorganization value of the Company was determined by management after considering various valuation methods and other factors, including (1) an analysis of the reorganized debt structure and Redux’s capital infusion; (ii) a comparison of the Company and its projected sales growth, competition and general economic conditions including discounted cash flow valuation methods. The estimates and assumptions made in this valuation are inherently subject to significant uncertainties and the resolution of contingencies beyond the reasonable control of management; accordingly, actual results could vary materially.

Going Concern– The Company emerged from bankruptcy under Chapter 11 of the U.S. Bankruptcy Code on November 9, 2007 and continuation as a going concern is contingent upon, among other things, the Company’s ability to (i) comply with the terms of the Plan; (ii) return to profitability; (iii) generate sufficient cash flows from operations; and (iv) obtain financing sources to meet the Company’s future obligations. These matters create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not reflect any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might result from the outcome of these uncertainties. The Company’s continuation as a going concern will depend on additional financing from Redux and additional investors, continuing tight management of cash and profitable operations and continuing to obtain favorable credit terms from vendors. Management expects that vendors will begin to extend further credit after the Company emerges from bankruptcy with refinancing, and that the Company will return to normal levels of customer order fill rates in the second quarter 2008 and be profitable with a lower overhead structure. Additionally, Company management has taken cost containment measures to reduce operating costs and improve financial performance.

As of December 31, 2007, the accompanying financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2008, the Company has an accumulated deficit of $1,802,991, a net working capital deficit of $1,403,373, stockholders’ capital of $4,250,075 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 relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern depends on its ability to generate sufficient cash flow to meet its obligations on a timely basis, to comply with the terms and covenants of its financing agreements, to obtain additional financing or refinancing as may be required and ultimately to attain successful operations.

2. INVENTORIES

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 March 31, 2008 and December 31, 2007 consisted of the following:

	March 31, 2008			December 31, 2007
	(Unaudited)

Raw Materials	$	40,772		$	63,875
Finished Goods		880,054			1,042,014
Subtotal		920,826			1,105,889
Less: Reserve for Excess and Obsolete Inventories		(51,489	)		(51,489	)
	$	869,337		$	1,054,401

3. FINANCING AGREEMENT

In July 2005, the Company obtained a $4,000,000 convertible financing facility from Laurus, consisting of a $3,000,000 revolving credit facility and a $1,000,000 term loan. In consideration of such financing facility, the Company issued to Laurus an option to purchase up to 8,721,375 shares of the Company’s common stock at $0.0001 per share and a warrant to purchase up to 1,500,000 shares of the Company’s common stock at $0.80 per share. The financing facility was amended on January 11, 2006, by among other things, increasing the term loan to $1,650,000 and eliminated the conversion features on the facility. The Company issued Laurus 1,050,000 shares of the Company’s common stock in consideration for this amendment.

Indebtedness under the revolving facility is based upon 35% of eligible inventory and 90% of eligible accounts receivable. The financing facility had a term of three years ending on July 26, 2008. As part of the Chapter 11 restructuring (See Note 1), Laurus agreed to extend the period for the repayment for the Term Loan to be repaid in equal monthly installments beginning the first day of the first full month following the Effective Date of the Plan through and including January 2010. The financing facility carries an interest rate of prime plus 2% per annum (7.25% at March 31, 2008), subject to certain reductions based upon growth of the Company’s stock price.

The Company is subject to certain reporting covenants (such as the timely filing of financial reports with the Securities and Exchange Commission, monthly financial reporting deadlines and collateral reporting), is required to obtain Laurus’ approval of certain actions (such as incurring additional indebtedness, making any distribution on or repurchasing any common stock or merging with or purchasing any assets of stock of any person) and has granted Laurus a right of first refusal with respect to certain future financings. Management believes the Company is in compliance with all covenants at March 31, 2008.

In consideration for entering into the Financing Agreement, the Company issued to Laurus, an option (the “Laurus Option”) and a warrant (the “Laurus Warrant”) to purchase shares of the Company’s common stock. The Laurus Option entitled the holder to purchase up to 8,721,375 shares of common stock, subject to certain limitations on the amount of common stock held by Laurus, at a purchase price of $0.001 per share at any time on or after July 26, 2005. The Laurus Warrant entitled the holder to purchase up to 1,500,000 shares of common stock at a purchase price of $0.80 per share at any time on or after July 26, 2005 through July 26, 2010. The number of shares of common stock issuable upon exercise of the Laurus Option and the Laurus Warrant was subject to adjustment to prevent dilution upon stock splits, stock dividends, and other events. The exercise price of the Laurus Option and the Laurus Warrant may be paid, at the option of Laurus, by the cancellation of indebtedness under the financing facility.

The Company paid to Laurus in cash a total of $193,500 in fees and expenses, existing of a “closing payment” of $156,000 and reimbursement of $37,500 of Laurus legal fees. Also in connection with the Laurus financing, the Company issued a warrant to Liberty Company Financial LLC (“Liberty”) for introducing the Company to Laurus (the “Liberty Warrant”). The Liberty Warrant entitled the holder to purchase up to 3,647,743 shares of common stock at a purchase price of $0.08 at any time on or after July 26, 2006 through July 26, 2011.

The value of the warrants and options issued to Laurus, using Black Scholes, equaled $786,036 and was composed of the value of the Laurus Option at $694,106 and the Laurus Warrant at $91,930 and was classified as a discount and is amortized as interest expense over 36 months using the interest method. Based on assessment of the terms of this exchange, the Company determined that there was no beneficial conversion feature of this exchange.

The value of the warrant issued to Liberty of $223,555 using the Black Scholes valuation model was capitalized as deferred finance fees and is amortized over 36 months using the interest method.

On January 11, 2006 the Company and Laurus amended the Financing Agreement, pursuant to which the parties:

Increased the term loan from $1,000,000, of which $909,000 was outstanding at January 11, 2006, to $1,650,000. Over advances totaling $650,000 were transferred from the Revolving Note to the Term Note with the remaining $91,000 utilized as a reduction of the amount outstanding under the Revolving Note.

Modified the payments on the Term Note from $30,000 per month beginning November 1, 2005 payable in shares of the Company’s common stock or $30,900 per month if paid in cash, to $50,000 per month in cash beginning April 1, 2006.

Eliminated the First Minimum Borrowing Note outstanding of $500,000.

Eliminated the ability of Laurus to convert the Term Note, the Revolving Note, and the Minimum Borrowing Notes into shares of the Company’s common stock.

Extended the term of the Financing Agreement from three years ending on July 26, 2008 to three years ending January 6, 2009.

Modified the prepayment provisions of the Revolving Note and the Term Note from an early payment fee of 35% of the loan amounts if paid prior to the termination date, to 5% if retired before January 6, 2007, 4% if retired prior to January 6, 2008 and 3% if retired prior to January 6, 2009.

In consideration for entering into the amendment, the Company issued to Laurus 1,050,000 shares of common stock.

The value of the shares issued to Laurus in consideration for the debt modification plus the remaining unamortized deferred financing fees are being amortized over the renewed term of the Financing Agreement.

On August 31, 2006, pursuant to the Company’s filing under Chapter 11 of the US Bankruptcy Code, Laurus and Redux agreed to cause the Company to do the following:

Laurus’ claim in the amount of $2,900,000 would be treated as fully secured and the liens granted Laurus pursuant to the Security and Purchase Agreement dated July 26, 2005 between Laurus and the Company (the “Financing Agreement”) would remain without modification.

Laurus would provide debtor in possession financing (“DIP”) pursuant to the terms and conditions of the financing agreement.

Interest would continue to accrue on the Term Loan pursuant the terms of the Financing Agreement however, payments would be suspended until the first day of the first full month after the Effective Date of the Chapter 11 filing.

The maturity date of the Term loan would be extended to January 6, 2010 and principal payments would commence on the first day of the first full month after the Effective Date of the Chapter 11 filing and be payable in equal monthly installments until the maturity date .

To the extent that the Laurus DIP financing and/or Naturade’s use of Laurus cash collateral was insufficient, Redux would be responsible for funding all payments needed to confirm the plan and for working capital of Naturade before and after confirmation.

Laurus supported the treatment of Laurus’ claims pursuant to Naturade’s Plan, and would cast a vote in favor of the confirmation of such Plan, provided that the treatment of Laurus’ claims pursuant to the Plan is materially the same as that set forth herein.

In addition, the Plan provided that Redux issue to Laurus, 574,784 shares of its common stock with an estimated fair value on the date of grant of $862,181 and 700,000 Redux common stock purchase warrants with an exercise price of $0.01 per share with an estimated fair value of $1,049,000 on the date of the grant. The estimated fair values of these instruments (aggregate value of $1,911,181) have been recorded as debt discounts and are amortized to interest expense over the expected life of the debt using the effective interest method.

As of the Effective Date, the following amounts were agreed to with Laurus:

	·	Revolving Loan for $838,937 due in 36 months with interest of prime plus 2%.
	·	Term Loan for $1,515,049 payable in 24 equal installments of $58,271 with interest equal to prime plus 2%
	·	Revolver Over advance of $674,023 payable in monthly principal installments of $12,000 per month starting January 2008 until June 2008; $15,000 per month in July and August 2008; $25,000 per month starting September 2008 until December 2008; $40,000 per month starting January 2009 until May 2009 and $45,000 per month starting June 2009 until November 2009 with a final payment of $2,023 in December 2009. Interest is payable at prime plus 2%.

At March 31, 2008, $876,301 was outstanding under the revolving facility; $1,281,965 was outstanding under the term loan and $638,023 was outstanding under the Revolver Over Advance. The loans are secured by all of the assets of the Company. The term loan is guaranteed by Peter H. Pocklington, a principal of Quincy, and a former director of the Company.

Loan Agreements – On April 14, 2003, the Company entered into a Loan Agreement (the “2003 Loan Agreement”) with Health Holdings and certain other lenders (the “2003 Lender Group”), pursuant to which the 2003 Lender Group agreed to lend the Company $450,000 and, subject to the discretion of the 2003 Lender Group, up to an additional $300,000. All advances under the 2003 Loan Agreement bore interest at the rate of 15% per annum, were secured by substantially all of the assets of the Company, and were subordinated to the Company’s indebtedness to Laurus. In consideration of the extension of credit under the 2003 Loan Agreement, Wells Fargo waived all defaults of the Company as of December 31, 2003 under the Credit Agreement.

In April 2006, the Company’s then principal shareholder, Quincy, loaned the Company $350,000. This loan is payable on demand and does not carry a stated interest charge. At March 31, 2008, $350,000 was outstanding on this unsecured loan and is accordingly included in amounts due unsecured creditors. There is no written agreement for this loan between Quincy and the Company.

On the effective date, the following amounts were payable under the Loan Agreement:

	·	Health Holdings - $1,361,000, due November 2012, with interest payable in installments starting January 2010, of 10% annually.
	·	Bill D. Stewart - $141,484, due November 2012, with interest payable in quarterly installments starting January 2010, of 10% annually.
	·	David A. Weil - $95,742, due November 2012, with interest payable in quarterly installments starting January 2010, of 10% annually.

Pursuant to the Plan, the obligations described above in the aggregate amount of $1,598,226 are convertible at the option of the creditors into common stock of Redux using 70% of the trailing six month average stock price. The amount convertible by the creditors shall be multiplied by three times the obligation if converted within the first year of the Effective Date, two times the obligation if converted between the first and second years after the Effective Date, and one time the obligation two years after the Effective Date. As a result of this conversion right contributed by Redux, the Company recognized a debt discount of $1,598,226 that is amortized into interest expense over the expected life of the obligation using the effective interest method.

Note with majority shareholder – On November 6, 2007, Redux Holdings purchased the Bankruptcy Claim from Ageless Foundation and Naomi Balcombe in the total amount of $1,248,234 for $240,000. That claim has a face value of $374,470 (30% of claim amount). On November 9, 2007, Redux Holdings assigned the note and Claim to Naturade, Inc.

Notes to Professionals – Note payable to professionals engaged in Chapter 11 filing totaling $300,000 on the Effective Date with interest accruing at 10% annually compounded monthly. Payments of $100,000 each are due in December 2008 and 2009 with a final payment of $178,147 in December 2010. This note is guaranteed by Redux. The Company is also contingently liable to the professionals in the event that the Company achieves defined sales targets or completes an equity raise.

Laurus Expenses – Laurus incurred $29,678 in legal expenses during the Bankruptcy proceeding. Naturade and Laurus agreed to fold that amount into the Term Loan; hence, the term loan increased by that amount.

Tax Notes – Notes payable to taxing authorities on the Effective Date of $7,247 payable in 20 quarterly principal payments of $362, beginning January, 2008, plus accrued interest of 6% annually.

Class 8 unsecured claims – Unsecured creditor claims at the Effective Date of $1,675,504 with a present value of $1,269,130, payable in annual installments of $279,251 on November 6, 2008, $279,251 on November 6, 2009, $558,501 on November 6, 2010 and $558,501 on November 6, 2011.

4. STOCK OPTIONS AND WARRANTS

Employee Stock Option Plan In February 1998, the Company adopted an Incentive Stock Option Plan (the “Plan”) to enable participating employees to acquire shares of the Company’s common stock. The Plan provided for the granting of incentive stock options up to an aggregate of 850,000 shares, as amended. In October 2001, the Company amended the Plan by increasing to 2,000,000 the number of shares of the Company’s common stock that may be subject to awards granted pursuant to the Plan. The actual number of incentive stock options that could be granted to employees was determined by the Compensation Committee based on the parameters set forth in the Plan. Under the terms of the Plan, incentive stock options could be granted at not less than 100% of the fair market value at the date of the grant (110% in the case of 10% shareholders). Incentive options granted under the Plan vested over a four-year period from the date of grant. As of November, 5, 2007, 81,000 incentive stock options under the Plan were outstanding at the weighted average exercise price per share of $0.13. These options were canceled on the Effective Date.

Director Stock Options – In October 1999, options to purchase 87,500 shares of common stock were granted to each of two then new board members at an exercise price of $1.03. These options expired on October 14, 2006.

Senior Management Options - On December 16, 2005, the Board of Directors (the “Board”) awarded Bill D. Stewart, the then Chief Executive Officer of the Company, an option to purchase 1,620,000 shares of common stock and Stephen M. Kasprisin, the then Chief Operating/Chief Financial Officer of the Company, an option to purchase 1,616,500 shares of common stock. The options had a seven year term, vested in equal quarterly increments over two years and were granted at an exercise price equal to the closing price of the Company’s common stock on December 16, 2005. The options were granted pursuant to the 1998 Incentive Stock Option Plan of the Company. Mr. Stewart and Mr. Kasprisin terminated their employment with the Company on August 30, 2006 pursuant with the change in control by Redux. All unexercised options under these senior management option grants expired upon their termination of employment.

There are no stock options outstanding at December 31, 2007, or March 31, 2008.

No options were granted for the year ended December 31, 2007, or the three months ended March 31, 2008.

Warrants – In consideration for entering into the Financing Agreement described in Note 3, the Company issued to Laurus, an option (the “Laurus Option”) and a warrant (the “Laurus Warrant”) to purchase shares of the Company’s common stock. The Laurus Option entitled the holder to purchase up to 8,721,375 shares of common stock, subject to certain limitations on the amount of common stock held by Laurus, at a purchase price of $0.001 per share at any time on or after July 26, 2005. The Laurus Warrant entitled the holder to purchase up to 1,500,000 shares of common stock at a purchase price of $0.80 per share at any time on or after July 26, 2005 through July 26, 2010. Redux acquired the Laurus Option and the Laurus Warrant on December 1, 2006.

On July 26, 2005, the Company issued to Liberty a warrant to purchase up to 3,647,743 shares of the Company’s common stock at a purchase price of $0.08 per share for introducing the Company to Laurus. Redux acquired Liberty’s warrant on November 16, 2006.

As of the Effective Date, all outstanding warrants were cancelled.

There are no warrants outstanding at December 31, 2007, or March 31, 2008.

5. SEGMENT REPORTING

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 chief decision maker is the Chief Executive Officer.

The Company has two reportable operating segments: health food specialty stores and mass market stores. 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.

Operating segment data for the three month periods ended March 31, 2008 and 2007 was as follows:

	Distribution Channels
	Health Food		Mass Market		Total
Three months ended March 31, 2008 (Successor Company)
Sales	$	1,026,725	$	994,911	$	2,021,636
Cost of sales		641,569		699,154		1,340,723
Gross profit	$	385,156	$	295,757	$	680,913
Three months ended March 31, 2007 (Predecessor Company)
Sales	$	886,344	$	511,546	$	1,397,890
Cost of sales		569,154		328,421		897,575
Gross profit	$	317,190	$	183,125		500,315

Sales are attributed to geographic areas based on the location of the entity to which the products were sold. Geographic segment data for the three month periods ended March 31, 2008 and 2007 was as follows:

	United States		International		Total
Three months ended March 31, 2008 (Successor Company)
Sales	$	1,912,476	$	109,160	$	2,021,636
Cost of sales		1,290,873		49,850		1,340,723
Gross profit	$	621,603	$	59,310	$	680,913
Three months ended March 31, 2007 (Predecessor Company)
Sales	$	1,243,493	$	154,397	$	1,397,890
Cost of sales		798,438		99,137		897,575
Gross profit	$	445,055	$	55,260	$	500,315

During the three months ended March 31, 2008 and 2007, the Company had sales to three customers whose purchases exceed 10% of the Company’s total net sales as shown in the table below.

	Major Customer Table
	Customer One				Customer Two				Customer Three
	Sales		Accounts Receivable Balance Quarter-end		Sales		Accounts Receivable Balance Quarter-end		Sales		Accounts Receivable Balance Quarter-end
Three Months ended March 31, 2008 (Successor Company)	$	653,809	$	393,491	$	351,518	$	62,075	$	153,413	$	74,580
Three Months ended March 31, 2007 (Predecessor Company)	$	248,972	$	145,787	$	217,754	$	150,230	$	90,250	$	36,200

6. GUARANTEES

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation Number (“FIN”) 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others-an interpretation of FASB Statements No. 5, 57 and 107 and rescission of FIN 34.” The following is a summary of the Company’s agreements that the Company has determined are within the scope of FIN 45.

Pursuant to its bylaws, the Company has agreed to indemnify the current officers and directors of the Company for certain events or occurrences arising as a result of an officer’s or director’s serving in such capacity. The term of the indemnification period is the officer’s or director’s lifetime. The maximum potential amount of future payments the Company could make under these indemnification agreements is unlimited. However, the Company has a directors’ and officers’ liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal and has no liability recorded for these agreements as of December 31, 2007 and March 31, 2008.

The Company enters into indemnification provisions under (i) its agreements with other companies in its ordinary course of business, typically business partners, contractors, customers and landlords and (ii) its agreements with investors. Under these provisions the Company generally agrees to indemnify and hold harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities or, in some cases, as a result of the indemnified party’s activities under the agreement. These indemnification provisions often include indemnifications relating to representations made by the Company with regard to intellectual property rights. These indemnification provisions generally survive the termination of the underlying agreement. In addition, in some cases, the Company has agreed to reimburse employees for certain expenses and to provide salary continuation during short-term disability. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. The Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the Company believes the estimated fair value of these provisions is minimal. Accordingly, the Company has no liabilities recorded for these agreements as of December 31, 2007 and March 31, 2008.

7. LEGAL PROCEEDINGS

While any litigation contains an element of uncertainty, management believes that the ultimate outcome of these claims and litigation will not have a material adverse effect on the Company’s results of operations or financial condition.

a) Naturade, Inc. v. Doyle & Boissiere, LLC; Health Holdings and Botanicals, LLC; Quincy Investments Corp .: Peter H. Pocklington: William B. Doyle, Jr.; Lionel P. Boissiere; and Does 1-70 ( Orange County Superior Court, State of California, Case No.: 07CC02752) , The lawsuit was filed on February 9, 2007. Health Holdings and Botanicals, LLC and Doyle & Boissiere, LLC, entered into a Global Settlement Agreement with Naturade in connection with the then pending Chapter 11 proceedings by which the parties compromised and agreed to terms relating to certain claims these defendants have against Naturade in the Chapter 11 proceedings. In exchange for these compromises and terms, Naturade agreed to dismiss Health Holdings and Botanicals, LLC and Doyle & Boissiere, LLC as well as defendants Lionel P. Boissiere and William B. Doyle from the litigation pending in Orange County Superior Court.

Naturade would like to dismiss Health Holdings and Botanicals, LLC and Doyle & Boissiere, LLC, but the Settlement Agreement requires a Motion for Good Faith Settlement so these Defendants are still in the Case for that limited purpose. In the meantime, Naturade will continue to pursue the litigation against Peter H. Pocklington and Quincy Investments Corp. until default, judgment, or other resolution of the case, and during the week of February 17, 2008, the court granted Naturade’s Motion for Leave to Amend the Complaint against the remaining defendants amending the complaint, with Redux interceding as a plaintiff against Quincy Investments Corp. and Peter H. Pocklington. Among the various causes of action by Redux will be Intentional Misrepresentation (Fraud).

b) Naturade, Inc. v. NBTY, Inc. d/b/a Omni-Pak Industries (United States Bankruptcy Court, Adversarial Case No.: SA07-1057RK) Filed on February 15, 2007. This litigation was being prosecuted on behalf of Naturade by the law firm of Winthrop Couchot, the Company’s bankruptcy attorneys. The nature of the lawsuit and the progress of the case is as follows:

On December 11, 2006, NBTY, Inc. (“NBTY”) filed proof of claim against Naturade’s bankruptcy estate alleging a general unsecured claim in the amount of $660,774 (‘NBTY Claim”). Naturade disputes the NBTY Claim, but has yet to file a formal objection to the NBTY Claim.

On February 15, 2007, Naturade filed a complaint against NBTY d/b/a/ Omni-Pak Industries seeking to avoid and recover approximately $191,481 of preferential transfers of property under Bankruptcy Code Section 547 and 550 (“NBTY Complaint”). On or about November 7, 2007, the case was settled and settlement payments were received.

c) Naturade, Inc. v. Yellow Transportation (United States Bankruptcy Court, Adversarial Case No.: SA07-1055RK). Filed on February 14, 2007, this litigation is being prosecuted on behalf of Naturade by the law firm of Winthrop Couchot, the Company’s bankruptcy attorneys. The nature of the lawsuit and the progress of the case are as follows:

On November 6, 2006, Yellow Transportation (“YT”) filed proof of claim against Naturade’s bankruptcy estate alleging a general unsecured claim in the amount of $60,337 (“YT Claim”). Naturade disputes the YT Claim, but has yet to file a formal objection to the YT Claim.

On February 14, 2007, Naturade filed a complaint against YT seeking to avoid and recover approximately $191,761 of preferential transfers of property under Bankruptcy Code Section 547 and 550. On or about November 7, 2007, case was settled and payments were received.

d) Naturade, Inc. v. United Parcel Service, Inc. (United States Bankruptcy Court, Adversarial Case No.: SA07-1056RK) Filed on February 14, 2007. On November 6, 2006, UPS filed a proof of claim asserting an unsecured claim in the amount of $11,998 (“UPS Claim”). On February 14, 2007, the Company filed a complaint against UPS to avoid and recover approximately $22,785 of preferential transfers of property under Bankruptcy Code Sections 547 and 550 (“UPS Complaint”). On April 9, 2007, the Company filed and served a motion seeking court approval of a settlement agreement with UPS that provides for UPS to pay the Company $3,500 and waive any and all other claims against the Company as consideration for the Company’s dismissal of the UPS Complaint with prejudice. The Court approved the settlement.

e) Claims and Other Bankruptcy Related Litigation: Objections to certain claims filed against the Company’s bankruptcy estate have been prosecuted by the Company which have resulted in the reduction or elimination of certain claims filed in the bankruptcy case.

The Company has fully accrued the amounts claimed in these suits as of December 31, 2007 and March 31, 2008.

8. SUBSEQUENT EVENT

On April 30, 2008, Health Holdings entered into an agreement with Redux, the principal shareholder of the Company, to assign its Note with the Company to Redux Holdings for shares of Redux common stock. The agreed price is equal to 4,363,983 shares of Redux common stock. As a result of this agreement, the Company’s note payable to Health Holdings in the amount of $1,361,000 has been assigned to Redux, and the Redux guarantee to Health Holdings of the Company's Note has been retired.

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

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

All comparisons below are for the three month period ended March 31, 2008 compared to the three month period ended March 31, 2007.

The Company

Naturade, Inc. (the “Company”) develops and markets branded natural products. The Company is focused on innovative products designed to nourish the health and well-being of consumers.

The Company competes primarily in the market for natural, nutritional supplements. 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;

Diet Lean® products focused on the low carb dieter;

Ageless Foundation Laboratories the Anti-Aging Company® anti-aging products;

Symbiotics® Colostrum products; and

Other niche dietary supplements.

The Company’s products are sold to the mass market and the health food market in the United States, Canada and selected international markets. The mass market consists of supermarkets, mass merchandisers, club stores and drug stores. The health food market consists of natural food supermarkets and over 5,000 independent health food stores.

The Company’s independent registered public accounting firm issued a going concern opinion on the Company’s December 31, 2007 financial statements by including an explanatory paragraph in which they expressed substantial doubt about its ability to continue as a going concern.

The Company was incorporated in 1986 under the laws of the state of Delaware. The Company’s principal executive offices are located at 2099 S. State College Blvd., Suite 210, Anaheim, CA 92806, and its telephone number is (714) 860-7600. The Company’s website is located at www.naturade.com .

Recent Developments

General

The Company is a branded natural products marketing company focused on growth through innovative products designed to nourish the health and well being of consumers. The Company competes in the overall market for natural, nutritional supplements primarily in the segment defined by Nutrition Business Journal (“NBJ”), a San Diego-based research publication that specializes in this industry, as Supplements.

Within the broad soy foods market, segments such as meal replacement drinks, soy milk and bars have outperformed other categories. 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, mass merchandisers, club stores, drug stores, natural food supermarkets and over 5,000 independent health food stores.

Chapter 11 Filing

On August 31, 2006, the Company filed a voluntary petition for protection and reorganization under Chapter 11 of the Bankruptcy Code in Bankruptcy Court. From the Petition Date until the Effective Date, the Company conducted its activities as a debtor-in-possession under the Bankruptcy Code.

The Company’s Plan of Reorganization, as modified (the “Plan”) was heard in Bankruptcy Court on October 30, 2007 and approved by the Bankruptcy Court, Santa Ana Division (Case No. SA 06-11493 RK). The Plan received support from the Company’s creditors and shareholders as well as support from the Company’s lenders and the Company’s Unsecured Creditors Committee. On November 8, 2007, Redux, the Company’s controlling shareholder, invested $1.2 million in Naturade, as required by the Plan and on November 9, 2007, the Plan became effective. A copy of the Plan is posted at www.naturade.com , under Investor Relations.

In addition to the $1.2 million cash infusion by Redux, of which $700,000 was paid to the administrative creditors, and most of the balance was allocated to the Company’s future working capital needs, the Plan included a comprehensive debt restructuring. The Plan also features an equity allocation in Redux and allows for the retention of an equity interest by existing shareholders in the Company. All Company Series C Preferred shares, along with its voting and control rights, all options, all warrants, and all registration rights, have been cancelled as required under the Plan. The Company issued to Redux enough shares of common stock to give Redux 95% equity and voting interest in the Company, with all remaining shareholders holding a total 5% equity interest in the Company. Pursuant to the U. S. Bankruptcy Code, and the Plan, the new common shares being issued to Redux will be exempt from the registration requirements of the securities laws. The common shares currently issued will retain their registered status.

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) applicable to a going concern, which assume that assets will be realized and liabilities are discharged in the normal course of business. As a result of the Chapter 11 Bankruptcy (see Note 1 to the Unaudited Condensed Financial Statements) such realization of assets and liquidation of liabilities was subject to uncertainty. For financial reporting purposes, those unsecured liabilities and obligations whose disposition is dependent on the outcome of the Chapter 11 Bankruptcy had been segregated and classified as liabilities subject to compromise in the December 31, 2006 balance sheet.

Financial accounting and reporting during a Chapter 11 Bankruptcy for an entity with the expectation of reorganizing is prescribed in Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code” (“SOP 90-7”). Accordingly, unsecured pre-petition liabilities, which are subject to settlement, were classified as liabilities subject to compromise in the December 31, 2006 balance sheet. In addition, the Company had reported all transactions (other than interest expense) directly related to the Chapter 11 Bankruptcy as reorganization items in its statement of operations for the period ended November 7, 2007 and the year ended December 31, 2006. SOP 90-7's definition of reorganization items excludes (1) interest expense and (2) transactions required to be reported as discontinued operations or extraordinary items in conformity with GAAP.

Voluntary Reorganization under Chapter 11

On October 30, 2007, the Bankruptcy Court confirmed the Debtor’s Fifth Amended Joint Plan of Reorganization Pursuant to Chapter 11 of the United States Bankruptcy Code (the “Plan of Reorganization”). The Plan of Reorganization became effective and the Debtor emerged from bankruptcy protection on November 9, 2007 (the “Effective Date”). On the Effective Date, Naturade implemented fresh-start reporting.

The confirmed plan provided for the following:

Allowed Secured Claims

For a period of twenty-four full months from and after the Effective Date, the interest on the note shall not be paid, but shall be added to the principal balance of the note.

The note shall mature on the first day of the sixtieth full month following the Effective Date.

The note is convertible into shares of Redux common stock. The conversion rate is based upon 70% of the trailing six-month average trading price of Redux common stock. The note can be converted as follows: (i) in the first year following the Effective Date, three times the outstanding balance of the note (including any unpaid interest and chargeable costs); (ii) in the second year following the Effective Date, two times the outstanding note balance (including any unpaid interest and chargeable costs); and (iii) at anytime thereafter until the note is fully paid and satisfied, dollar-for-dollar based upon the outstanding balance of the note (including any unpaid interest and chargeable costs). The fair market value of the beneficial conversion feature was recorded as a debt document and is amortized over the life of the Note (see Note 3—Financing Agreement).

For a period of twenty-four full months from and after the Effective Date, the interest on the note shall not be paid, but shall be added to the principal balance of the notes.

The notes shall mature on the first day of the sixtieth full month following the Effective Date.

The notes are convertible into shares of Redux common stock. The conversion rate is based upon 70% of the trailing six-month average trading price of Redux common stock. The notes can be converted as follows: (i) in the first year following the Effective Date, three times the outstanding balance of the note (including any unpaid interest and chargeable costs); (ii) in the second year following the Effective Date, two times the outstanding note balance (including any unpaid interest and chargeable costs); and (iii) at anytime thereafter until the note is fully paid and satisfied, dollar-for-dollar based upon the outstanding balance of the note (including any unpaid interest and chargeable costs). The fair value of the beneficial conversion feature was recorded as a debt document and is amortized over the life of the Note (see Note 3—Financing Agreement).

Allowed Secured Claims for Taxes

Allowed Secured Claims- Related Parties

Allowed General Unsecured Claims

Creditors shall receive distributions of cash on their Allowed General Unsecured Claims as follows:

On the first-year anniversary of the Effective Date, the Company shall pay each Allowed General Unsecured Claim five percent (5.0%) of the amount of such Allowed General Unsecured Claim.

The distributions to the Unsecured Creditors are unconditionally guaranteed by Redux.

Preferred Stock

Common Stock

Cash Infusion After the Effective Date

Fresh-Start Reporting

Fresh - start reporting reflects the value of the Company as determined in the confirmed Plan of Reorganization. Under fresh - start reporting, the Company’s asset values are measured using fair value and are allocated in conformity with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS 141”). The excess of reorganization value over the fair value of net tangible and identifiable intangible assets and liabilities is recorded as goodwill. In addition, fresh - start reporting also requires that all liabilities, other than deferred taxes, should be stated at fair value or at the present values of the amounts to be paid using appropriate market interest rates. Deferred taxes are determined in conformity with Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”).

On September 25, 2006, the Company's common stock was de-listed from the over-the-counter Bulletin Board. The Company regained its listing on the over-the-counter Bulletin Board on January 15, 2008, under the symbol NRDCQ.OB.

Critical Accounting Policies and Use of Estimates

In preparing the financial statements, the Company is required to make estimates and judgments that 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 the critical accounting policies that require significant judgments and estimates in the preparation of the Company’s financial statements.

Revenue Recognition . The Company recognizes revenue in accordance with SEC Staff Accounting Bulletin (“SAB”) No. 101, Revenue Recognition in Financial Statements , as amended by SAB No. 101A, No. 101B and No. 104. SAB No. 101 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, the Company: (1) inputs 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 comply 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 us 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.

The Company records revenues net of returns and allowances. Gross sales, which are defined as list price times units sold, include the following reductions for returns and allowances:

Distributor Allowances

Distributor allowances are provided to all distributors as a reduction from list price and are recorded as a reduction off the invoice at time of billing. Revenues and accounts receivable are recorded net of these allowances.

Promotional Allowances

Promotional allowances are related to specific promotions offered by Naturade related to in store promotions being offered by a retailer and distributor promotions being offered to retailers. In most cases, the promotion is designed to correspond with a similar consumer promotion being offered by the retailer, the cost of which is borne by the retailer. Promotional allowances are based upon purchases by the retailer or distributor during the promotional period and are deducted from the customer invoice at the time of billing. Revenues and accounts receivable are recorded net of these allowances. Shipments during the promotional period are not subject to return after the end of the promotional period.

For the three months ended March 31, 2008 and 2007, there were no distributor and promotional allowances.

Damages and Returns

In the three months ended March 31, 2008, and 2007, damages and returns were charged against revenues based upon historical return rates. Actual damages and returns are charged against the reserve when the product is returned, charges deducted or a consumer deduction is received. On a periodic basis, actual charges are compared to the reserve and, if required, the reserve rate is adjusted to reflect new trends. For the three months ended March 31, 2008 and 2007, damages and returns charged against revenues were $60,775, or 4.1% of gross sales, and $167,600, or 3.9% of gross sales, respectively. The increase as a percentage of sales is related principally to lower sales levels coupled with increased retailer returns related to the Company’s Chapter 11 filing.

The following is a summary of the unaudited damages and returns reserve:

	Three Months Ended March 31, 2008			Three Months Ended March 31, 2007
Beginning balance	$	20,518		$	736,985
Provision for damages and returns		(26,771	)		(57,892	)
Actual damages and returns during the period		21,290			60,775
Ending balance	$	15,037		$	618,318

Damages and returns are typically immaterial to the Company’s overall results. As the majority of returns represent consumer returns, which trail sales by about a month, the reserve has been set based upon specific review of potential returns which are higher than normal as a result of the Company’s Chapter 11 filing.

Cash Discounts

Cash discounts are recorded as deducted by customers from remittances, as the customer does not earn them until the customer pays according to terms.

For the three months ended March 31, 2008, and 2007, cash discounts were $29,499 or 1.4% of gross sales, and $24,907 or 1.5% of gross sales, respectively.

Slotting

Slotting charges related to new distribution (either a new customer or a new product introduced to an existing customer) are recorded as a prepaid expense as incurred and amortized over 12 months as a reduction of revenues. Should a customer cease purchasing from Naturade or discontinue the respective product line, the unamortized slotting costs are charged against revenues at that time. There have been no significant unamortized slotting charges charged against revenues in the periods reported.

For the three months ended March 31, 2008, and 2007, slotting costs were $146, and $9,771, or .6 % of gross sales, respectively.

Coupon and Rebate Redemption

Coupon and rebate costs are charged against revenues as redeemed. Historically, Naturade has incurred insignificant redemption of its consumer coupons or rebates.

For the three months ended March 31, 2008 and 2007, there were no coupon and rebate costs.

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, the Company evaluates its ending inventories for excess quantities and obsolescence. This evaluation includes analyses of forecast sales levels by product and historical demand. The Company writes off inventories that are considered obsolete. Remaining inventory balances are adjusted to approximate the lower of 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 the Company is at risk to the extent such amounts become uncollectible. Accounts receivable are stated net of applicable reserves for returns and allowances, bill backs and doubtful accounts. Management 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.

Share-Based Payments—Accounting for stock options, warrants and conversion rights primarily follows the provisions of SFAS No. 123R, Share-Based Payment, as well as EITF 96-18, Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services. SFAS 123R requires an entity to measure the cost of an award of equity instruments based on the grant-date fair value of the award. In general, that cost will be recognized over the period during which the recipient is required to provide service in exchange for the award. We use the Black-Scholes option pricing model to measure the fair value of stock options and warrants. This model requires significant estimates related to the award’s expected life and future stock price volatility of the underlying equity security.

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.

	Percent of Net Sales Three Months Ended March 31,						Percentage Dollar Increase (Decrease) Three Months Ended March 31,
	2008 Successor Company			2007 Predecessor Company			2008 Successor Company			2007 Predecessor Company
Net sales		100	%		100	%		45	%		(63	)%
Gross profit		34	%		36	%		36	%		(73	)%
Selling, general and administrative expenses		48	%		101	%		(32	)%		(31	)%
Depreciation & amortization.		10	%		6	%		60	%		(83	)%
Operating loss		(24	)%		(72	)%		(51	)%		124	%
Interest expense		35	%		20	%		155	%		(67	)%
Net Income (loss) before provision for income taxes		(59	)%		64	%		(234	)%		(169	)%
Provision for income taxes		0	%		0	%		0	%		0	%
Net Income (loss)		(59	)%		64	%		(234	)%		(169	)%

Major trends that affected the Company’s results of operations in 2008

The major trends affecting the Company’s results of operations in the three months ended March 31, 2008 included the following:

The Company’s filing for protection and subsequent exit from Chapter 11 Bankruptcy has had a negative effect on the Company’s ability to purchase inventory for the three months ended March 31, 2008. The Company believes this trend is likely to continue until the Company can provide its vendors with a record of timely payments.

The Company’s lack of sufficient cash to maintain proper inventory levels has had a negative effect on the Company’s revenues for the three months ended March 31, 2008. The Company believes this trend is likely to continue unless the Company obtains sufficient capital to bring inventory levels back to historical levels.

Net Sales

Net sales for the three months ended March 31, 2008 of $2,021,636 increased $623,746 or 44.6% as compared to net sales of $1,397,890 for the three months ended March 31, 2007. The increase in net sales for this period is due principally to the Company’s exit from Chapter 11 protection under the US Bankruptcy Code and the subsequent increase in credit terms and reliability of service levels.

Mass Market Net Sales. For the three months ended March 31, 2008, mass market revenues increased $483,365 or 94% to $994,911 from $511,546 for the three months ended March 31, 2007. The increase in net sales during the period is related to the increased inventory levels resulting from the Company’s emergence from Chapter 11 allowing the Company to secure reliable sources of product. This allowed the Company to increase its fill rates in the mass channel and consequently, increase revenues.

Health Food Net Sales. For the three months ended March 31, 2008, health food channel net sales increased $140,381 or16%, to $1,026,725 from $886,344 for the three months ended March 31, 2007. the increased inventory levels resulting from the Company’s emergence from Chapter 11 allowing the Company to secure reliable sources of product. This allowed the Company to increase its fill rates and consequently, increase revenues.

Channels of Distribution. On a percent of net sales basis, the breakdown of sales between the mass market and health food channels was 49% for the health food channel and 51 % for mass market channel for the three months periods ended March 31, 2008 as compared to 63% for the health food channel and 37% for the mass market channel, respectively, for the same period in 2007. The change in sales by channel is principally related to the effects of the Chapter 11 filing during the 3 months ended March 31, 2007 as compared to the same period in 2008. The mass channel requires high levels of order fill rates which resulted in more market share loss in this channel as a result of the uncertainty of continued service levels due to product sourcing issues.

For the three months ended March 31, 2008, domestic net sales increased $668,983 or 54%, to $1,912,476 from $1,243,493 for the three months ended March 31, 2007. The increase in domestic net sales is principally due to sales increases in the mass channel. For the three months ended March 31, 2008, international sales decreased $45,237 or 29% to $109,160 from $154,397. International sales for the both periods decreased principally due to the emphasis placed on improving the domestic market upon the emergence from Chapter 11 protection in November 2007.

Gross Profit

Gross profit for the three months ended March 31, 2008 increased $180,598 or 36% to $680,913 as compared to $500,315 for the same period in 2007. The increase for the period is principally a result of increased revenues for the period. Gross profit, as a percentage of sales decreased from 36% to 34% of net sales in the three month period ended March 31, 2008 compared to the three month period ended March 31, 2007, due to lower margins related to increased sales in the mass channel which traditionally have lower margins.

Operating Costs and Expenses

Operating costs and expenses for the three months ended March 31, 2008 decreased $332,381 or 22% to $1,168,722, or 58% of net sales, from $1,501,103, or 107% of net sales, for the same period in 2007. Operating expenses decreased both in gross dollars and as a percent of sales as a result of the Company’s continuing efforts to reduce costs to be in line with current revenue levels subsequent to the Company’s exit from Chapter 11.

Interest Expense

Interest expense for the three months ended March 31, 2008 increased $433,926 to $713,485 from $279,559 compared to the same period in 2007 principally due to an increase in the amortization of deferred financing fees and debt discounts of $376,115. The amortization is related to the recapitalization of the Company resulting from the Plan of reorganization effective November 2007. Deferred financing fees are amortized over the life of the related debt and debt discounts are amortizes over 36 months using the interest method. Total amortization of debt discounts and deferred financing fees totaled $591,010 for the three months ended March 31, 2008.

Net Loss

Net loss increased $2,095,047 to $1,201,294 for the three months ended March 31, 2008, as compared to a net income of $893,752, for the same period in 2007. In 2007, the Company had a one time gain of $2,172,645 related to the early extinguishment of debt.

Liquidity and Capital Resources

On August 31, 2006 (the “Petition Date”), the Company filed a voluntary petition for protection and reorganization (the “Chapter 11 Matter”) under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Central District of California (the “Bankruptcy Court”). Since the Petition Date until November 9, 2007, the Effective Date of the Company’s Reorganization Plan, the Company has conducted activities as a debtor-in-possession under the Bankruptcy Code.

The Company’s operating activities provided cash of $77,755 in the three ended March 31, 2008, compared to cash used of $139,490 from operating activities in the three months ended March 31, 2007. This increase in cash used from operating activities is primarily due to an increase in operating profits before interest expense related to debt discounts during the period.

Net cash provided by inventories was $185,064 for the three months ended March 31, 2008, compared with net cash used by inventories of $6,337 for the three months ended March 31, 2007. Increased shipments in the period combined with conservative buying patterns resulted in a reduction of inventory during the period.

Net cash provided by accounts receivable was $9,854 for the three month period ended March 31, 2008 compared to net cash used by accounts receivable of $348,461 for the same period of 2007, principally due increased sales during the three months ended March 31, 2008 versus the same period in 2007. General customer terms, receivable days outstanding and the Company’s collection policies have remained constant.

Net cash provided by accounts payable and accrued expenses was $289,786 for the three month period ended March 31, 2008 compared to net cash provided of $998,233 for the same period of 2007, principally due to an increase in accounts payable vendor days outstanding as a result of the Company’s cash position during the period.

The Company’s working capital deficit increased $828,118 from $575,255 at December 31, 2007, to $1,403,373 at March 31, 2008. This increase was largely due to a decrease in inventories of $185,064 related to increased sales during the period coupled with an increase in accounts payable of $309,780 and decrease in cash of $242,256 due to credit constraints on the Company partially offset by repayments of $164,629 on the revolving debt during the period.

The Company’s cash used in financing activities was $408,702 for the three months ended March 31, 2008, compared to cash provided by financing activities of $86,369 for the same period of 2007 principally due to repayments on the revolving credit line of $164,629 and long term debt of $354,198 in 2008 as compared to repayments of $309,702 on the credit line partially offset by additional deferred financing fess of $396,071 in 2007.

As of March 31, 2008, the Company was in compliance with all of the covenants of the Credit Agreement with Laurus.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. At March 31, 2008, the Company had a working capital deficit, an accumulated deficit of $1,802,991, and stockholders’ capital of $4,250,075. 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’s independent registered public accounting firm qualified their opinion on the Company’s December 31, 2007 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 Company’s liquidity would be adversely affected if the Company commits a default under the Financing Agreement and Laurus exercises its right to terminate, or demand immediate payment of all amounts outstanding under, the Financing Agreement as a result of a default. In addition, if the Company continues to incur declines in revenues, the Company could encounter a shortage in cash reserves required to meet current commitments. This could result in the Company being unable to obtain products necessary to fulfill customer orders. The Company and/or its principal shareholder are seeking to raise additional capital. No assurance can be given that additional financing will be available in the future or that, if available, such financing will be obtainable on terms acceptable to the Company or its stockholders.

Impact of Contractual Obligations and Commercial Commitments

The following summarizes the Company’s contractual obligations at March 31, 2008 and the effects such obligations are expected to have on liquidity and cash flow in future periods.

	Payments Due by Period
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Contractual Obligations
Laurus Term Loan (a)	$	1,312,411	$	768,960	$	543,451	$	-0-	$	-0-
Health Holdings Loan (a)		2,156,275		-0-		373,208		1,783,067		-0-
Redux Note(a)		360,125		360,125		-0-		-0-		-0-
Revolving Credit (a)		876,301		876,301		-0-		-0-		-0-
Laurus Pre Petition Revolver (a)		745,531		325,278		420,253		-0-		-0-
Wald Holdings Note (a)		151,687		-0-		26,254		125,433		-0-
Stewart Loan Agreement(a)		224,158		-0-		38,797		185,361		-0-
Notes Payable to Professionals (a)		378,147		100,000		278,147		-0-		-0-
Other Notes (a)		40,471		34,380		4,971		1,120		-0-
Operating leases		127,993		118,147		9,846		-0-		-0-
Unsecured Creditors		1,658,785		276,464		1,382,321		-0-		-0-
Total Contractual Cash Obligations	$	8,031,884	$	2,859,655	$	3,077,248	$	2,094,981	$	-0-

(a) Includes interest.

New Accounting Pronouncements

FASB Statement No. 157, Fair Value Measurements, has been issued by the Financial Accounting Standards Board (“FASB”). This new standard provides guidance for using fair value to measure assets and liabilities. Under Statement 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. In this standard, the FASB clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, Statement 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. The fair value hierarchy gives the highest priority to quoted prices in active markets and the lowest priority to unobservable data, for example, the reporting entity’s own data. Under the standard, fair value measurements would be separately disclosed by level within the fair value hierarchy. The provisions of Statement 157 were adopted by the Company on the Effective Date.

On February 15, 2007, the FASB issued FASB Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115. SFAS 159 permits an entity to choose to measure many financial instruments and certain other items at fair value. This option is available to all entities, including not-for-profit organizations. Most of the provisions in Statement 159 are elective; however, the amendment to FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, applies to all entities with available-for-sale and trading securities. Some requirements apply differently to entities that do not report net income. The fair value option established by Statement 159 permits all entities to choose to measure eligible items at fair value at specified election dates. A business entity will report unrealized gains and losses on items for which the fair value option has been elected in earnings (or another performance indicator if the business entity does not report earnings) at each subsequent reporting date.. The fair value option: ( a ) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; ( b ) is irrevocable (unless a new election date occurs); and ( c ) is applied only to entire instruments and not to portions of instruments. Statement 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007, and was effective for the Company on the Effective Date.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS 141(R)”). SFAS 141(R) replaces SFAS No. 141, “Business Combinations”, and is effective for the Company for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS 141(R) requires the new acquiring entity to recognize all assets acquired and liabilities assumed in the transactions, expense all direct transaction costs and account for the estimated fair value of contingent consideration. This standard establishes an acquisition-date fair value for acquired assets and liabilities and fully discloses to investors the financial effect the acquisition will have. This standard will not impact the Company’s present financial position, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (“SFAS 160”). SFAS 160 requires all entities to report minority interests in subsidiaries as equity in the financial statements, and requires that transactions between entities and noncontrolling interests be treated as equity. SFAS 160 is effective for the Company as of the beginning of fiscal year 2009. The Company is evaluating the impact of this pronouncement on the Company’s financial position, results of operations and cash flows.

Forward Looking Statements

Except for the historical information contained herein, the matters addressed in this Quarterly Report on Form 10-Q constitute “forward-looking statements.” Forward-looking statements may be identified by the use of the words “anticipates,” “expects,” “intends,” “plans,” and variations or similar expressions. These forward-looking statements are subject to a variety of risks and uncertainties, many of which are beyond the control of the Company, including those discussed below under “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q, which could cause actual results to differ materially from those anticipated by the Company’s management. In addition, the information set forth in the reports the Company files with the SEC from time to time, describe certain additional risks and uncertainties that could cause actual results to vary materially from the future results covered in such forward-looking statements. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which speak only as of the date of this report. The Company undertakes no obligation to update any of these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unexpected events.

ITEM 3 . Controls and Procedures.

DISCLOSURE CONTROLS AND PROCEDURES

As required by SEC Rule 13a-15 or Rule 15d-15, our Chief Executive/Principal Accounting Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing evaluation, we have concluded that our disclosure controls and procedures are not effective as of March 31, 2008, and that they do not allow for information required to be disclosed by the company in the reports that it files or submits under the Exchange Act to be recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Based on the foregoing, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective. Specifically, the Company material weaknesses in our internal control over financial reporting as described in Item 8A and 8A(T) in our annual report on Form 10-KSB filed with the SEC on April 15, 2008. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive/Principal Accounting Officer as appropriate to allow timely decisions regarding required disclosure.

Our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will necessarily prevent all fraud and material error. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving our objectives and our Chief Executive Officer/Principal Accounting Officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the internal control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events; and, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

INTERNAL CONTROL OVER FINANCIAL REPORTING

Pursuant to Rule 13a-15(d) or Rule 15d-15(d) of the Exchange Act, our management, with participation with the Company’s Chief Executive/Principal Accounting Officer, is responsible for evaluating any change in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act), that occurred during each of our fiscal quarters that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. Our internal controls framework is based on the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Based on the foregoing evaluation, the Company has concluded that there was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2008, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We continue to have the following material weaknesses in our internal control over financial reporting, as described in Item 8A and 8A(T) in our annual report on Form 10-KSB filed with the SEC on April 15, 2008..

The Company did not maintain effective controls to ensure there are adequate analysis, documentation, reconciliation, and review of accounting records and supporting data. The Company did not maintain effective controls over its financial reporting process. Specifically, the Company lacked policies, procedures, and controls for the preparation and review of the interim and annual financial statements and supporting schedules. This control deficiency contributed to the individual material weaknesses described below:

a) Certain control procedures were unable to be verified due to performance of the procedure not being sufficiently documented. As an example, some procedures requiring review of certain reports could not be verified due to there being no written notation on the report by the reviewer. Because we were unable to verify these procedures, we conclude that as of December 31, 2007 there were control deficiencies related to the preparation and review of our interim and annual financial statements, in particular with respect to certain account reconciliations, journal entries and spreadsheets, and the authorization of sales transactions and customer billing rates. While none of these control deficiencies resulted in audit adjustments to our 2007 interim or annual financial statements, they could result in a material misstatement to our interim or financial statements that would not be prevented or detected, and; therefore, we have determined that these control deficiencies constitute material weaknesses.

b) Certain of our personnel had access to various financial application programs and data that was beyond the requirements of their individual job responsibilities. While this control deficiency did not result in any audit adjustments to our 2007 interim or annual financial statements, it could result in a material misstatement to our interim or financial statements that would not be prevented or detected, and; therefore, we have determined that this control deficiency constitutes a material weakness.

c) The Company did not maintain effective control over certain spreadsheets utilized in the period end financial reporting process. Specifically, the Company lacked effective controls related to the completeness, accuracy, validity, and restricted access to spreadsheets related to: fixed assets, including accumulated depreciation; payroll reconciliations and related journal entries; revenue and accounts receivable. This control deficiency did not result in audit adjustments to the 2007 interim or annual financial statements.

d) The Company did not maintain effective controls over the authorization, completeness and accuracy of revenue and accounts receivable. Specifically the controls over the authorization, completeness and accuracy of (i) sales orders; (ii) customer billing adjustments including write-offs; and (iii) the approval and processing of customer payments, credits and other customer account applications. This control deficiency did not result in audit adjustments to the 2007 interim or annual financial statements. This control deficiency could result in a misstatement of revenue or accounts receivable that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

In summary with respect to the control deficiencies in a) through d) above could result in a material misstatement of the aforementioned accounts or disclosures that would result in a material misstatement to the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that each of the control deficiencies described in a) through d) above constitutes a material weakness.

The Company did not maintain effective controls over changes to critical financial reporting applications and over access to these applications and related data. Specifically, certain of the Company’s personnel had unrestricted access to various financial application programs and data beyond the requirements of their individual job responsibilities. Such access was beyond the requirements of their assigned responsibilities and was not appropriately monitored. This control deficiency did not result in audit adjustments to the 2007 interim or annual consolidated financial statements. However, this control deficiency could result in a material misstatement of significant accounts or disclosures, including those described above, that would result in a material misstatement to the Company’s interim or annual consolidated financial statements that would not be prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.

	3.	The Company does not maintain a sufficient level of IT personnel to execute general computing controls over our information technology structure, which include the implementation and assessment of information technology policies and procedures, related to change management, operations and security. This control deficiency did not result in an audit adjustment to the 2007 interim or annual financial statements, but could result in a material misstatement of significant accounts or disclosures, which would not have been prevented or detected. Accordingly, management has determined that this control deficiency constitutes a material weakness.
	4.	The Company did not maintain adequate segregation of duties within its critical financial reporting applications, the related modules and financial reporting processes. This control deficiency did not result in audit adjustments to the 2007 interim or annual financial statements. This control deficiency could result in a misstatement of balance sheet and income statement accounts, in the Company’s interim or annual financial statements that would not be prevented or detected. Accordingly, management has determined that these control deficiencies constitute a material weakness.

Remediation of Material Weaknesses

As of December 31, 2007, and March 31, 2008, there were control deficiencies which constitutes material weaknesses in our internal control over financial reporting. To the extent reasonably possible in our current financial condition, we will seek the advice of outside consultants and internal resources to implement additional internal controls.

In addition, we are taking steps to unify the financial reporting process with adequate review and approval procedures. We are in the initial planning phase of creating and implementing new information technology policies and procedures relating to general controls over operations, security and change management.

Through these steps, we believe we are addressing the deficiencies that affected our internal control over financial reporting as of December 31, 2007, and March 31, 2008. Because the remedial actions require hiring of additional personnel, upgrading certain of our information technology systems, and relying extensively on manual review and approval, the successful operation of these controls for at least several quarters may be required before management may be able to conclude that the material weaknesses have been remediated. We intend to continue to evaluate and strengthen our ICFR systems. These efforts require significant time and resources. If we are unable to establish adequate ICFR systems, we may encounter difficulties in the audit or review of our financial statements by our independent public accountants, which in turn may have a material adverse effect on our ability to prepare financial statements in accordance with GAAP and to comply with our SEC reporting obligations.

PART II. Other Information

ITEM 1. Legal Proceedings.

The Company has fully accrued the amounts claimed in these suits as of December 31, 2007, and March 31, 2008.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

NONE

ITEM 3. Defaults Upon Senior Equity Securities

NONE.

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

NONE

ITEM 5. Other Information

NONE

ITEM 6. Exhibits

(a) Exhibits

Exhibit Number	Document

**31.1	Certification Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32.1	Certification Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32	Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contracts or compensatory plan or arrangement.
**	Filed herewith.

SIGNATURES

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

	NATURADE, INC.
	(Registrant)

DATE: May 15, 2008	By	/s/ Adam Michelin
		Adam Michelin
		Chief Executive Officer

DATE: May 15, 2008	By	/s/ Adam Michelin
		Principal Accounting Officer

EXHIBIT INDEX

Exhibit Number	Document

**31.1	Certification Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32.1	Certification Pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

**32	Certification Pursuant to 18 U.S.C. 1350, Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*	Management contracts or compensatory plan or arrangement.
**	Filed herewith.