Pure World, Inc.

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Pure World, Inc.

376 Main Street
Bedminster, New Jersey 07921
U.S.A.
Telephone: (908) 234-9220
Fax: (908) 234-9355
Web site: http://www.pureworld.com

Public Company
Incorporated: 1983 as Computer Memories (Far East) Ltd.
Employees: 109
Sales: $37.1 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: PURW
NAIC: 325414 Biological Product (Except Diagnostic Manufacturing)

Pure World, Inc., is a Bedminster, New Jersey-based company that operates through subsidiary Pure World Botanicals, Inc. producing natural ingredients from plants, which are then sold to cosmetic, food and flavor, nutraceutical, and pharmaceutical customers to be manufactured into consumer products. The company employs three different proprietary technologies to derive its natural ingredients: extraction, which uses a solution of water or water mixed with alcohol to produce an extract that can be converted to a fluid, paste, or powder; purification, a value-added process that isolates desirable plant compounds; and granulation, an enhancing process for powdered substances. Pure World maintains a New Jersey manufacturing plant that it claims is the largest botanical extraction facility in North America, producing dozens of products, including Cascara Sagrada Bark, Wild Cherry Bark, Devil's Claw, Ginger Root, Ginseng, St. John's Wort, Ginko Biloba, Kava, and powdered Vitamin E. Pure World is a public company listed on the NASDAQ SmallCap Market.

The Founders Wed in the 1970s

Pure World was rescued from bankruptcy in 1995 by investors Paul and Natalie Koether, with Paul assuming the chairmanship and Natalie handling day-to-day responsibilities as president. Both of them, especially Natalie, had earned reputations as corporate raiders. She earned a law degree from the University of Pennsylvania in 1965, then after clerking for a judge became the only woman lawyer at a 145-person Philadelphia law firm, Morgan Lewis and Bockius. Her area of expertise was corporate law and she met Paul Koether, a New York stockbroker, while working on a stock deal. Their working relationship turned romantic and they were married in 1971.

In 1978 the Koethers launched their careers as corporate raiders, creating a limited partnership called Shamrock Associates, attracting scores of investors who each chipped in $100,000 and engaging in a practice known as greenmailing. In essence, greenmailers bought stock in what they considered were undervalued companies. They then approached management to inform them that they or a third party might seek to gain control of the company. When the price of the stock rose, due to the prospect of a hostile takeover, they sold their shares on the open market, but in many cases the company simply bought back the shares at a premium to eliminate the threat. With Natalie Koether the most visible partner, Shamrock started out by attempting to take over a real estate investment trust (REIT) called CL Assets. When the dust settled Shamrock sold back the shares to the REIT, realizing a 60 percent profit.

Shamrock focused its efforts on investments of $100 million and less. Over the course of a decade it targeted 40 companies, 12 of which paid the partnership to go away; the investment in many others paid off with a bump in the company's stock price. The amount of money under Shamrock's management increased from $1.2 million to $20 million. Notable successes included Dorsey Company, Tennessee maker of plastic containers and cargo trailers that paid a $1 premium over its stock's top price to retire more than 1 million shares; Scientific Computers, a Minnesota computer service company that bought back a third of its shares from Shamrock at a $2 premium; and Seaway Food Town Inc., an Ohio supermarket operator that paid $16.625 a share for 9 percent of its stock, which Shamrock had bought for less than $14 a share.

Corporate Lineage Dating to the Early 1990s

The Koethers made a run at Computer Memories, a California hard disk manufacturer, and unlike their other greenmail ventures they succeeded in taking over the company in 1988. It was Computer Memories, originally incorporated in 1983, that would one day become Pure World. After the Koethers took over, Computer Memories exited the manufacturing business, leaving a shell of a public company to serve as another investment vehicle for the couple. In June 1992 they paid $1 million in cash and another $500,000 in stock to acquire NorthCorp Realty Advisors, Inc., a Dallas-based firm providing asset management services to the commercial real estate industry. A month later Computer Memories changed its name to American Holdings Inc. In September 1993 American Holdings distributed about half of NorthCorp to stockholders and a year later sold its remaining interest for $1.5 million.

American Holdings invested in a Dallas REIT, American Industrial Properties (AIP), acquiring a 5 percent stake in 1993. Specializing in industrial properties and office buildings, AIP had gone public in 1985, enjoyed initial success, and then had begun to falter. According to Business News New Jersey, "Newspaper reports have called the REIT 'one of the worst performing of the breed.' " In 1993 AIP planned to reincorporate in Maryland, a move that the Koethers opposed, believing it would "entrench management and give the trust managers a blank check to recapitalize the trust." After this bid was rejected by shareholders, American Holdings increased its holdings and initiated a proxy fight to gain control of the REIT. In November 1994 at the company's annual meeting, the Koethers' slate of directors failed to receive the required two-thirds majority required for the election of non-incumbents. However, AIP's slate also failed to garner enough votes to win re-election. As a result, management remained in office and the matter was carried over to the next annual meeting, when again American Holdings was unable to secure enough votes to oust current management. Then in January 1996 the REIT filed a suit that accused Paul Koether of attempting to cut a deal with its lender, Manufacturers Life Insurance, a charge that Koether called ridiculous. The Koethers countersued, accusing AIP's management of illegally entrenching themselves and wasting the REIT's assets. Finally in November 1996 the two sides reached a settlement, with the agreement calling for AIP to pay $825,000 to Pure World as a reimbursement for costs incurred during the squabble and the Koethers agreeing to sell its stake in AIP.

While the AIP matter was playing out, American Holdings turned its attention to a new field: natural products. In November 1994 a bankruptcy court approved American Holdings' bid to acquire 80 percent of Dr. Madis Laboratories (DML), a South Hackensack, New Jersey-based manufacturer of botanical extracts. American Holdings outbid two European and three other American suitors. It would acquire the rest of DML in 1997. Founded as a family business in 1959, DML fell on hard times during the 1980s, due in part to a plant explosion that led to an expensive reconstruction. But the company also was unfocused, unable to tap into a specific customer base for its health and beauty products. DML filed for bankruptcy in 1988. A court-appointed trustee, Edward Bond, took over the running of the company in 1991. After four years he succeeded in getting the company back on its feet, paying off back taxes while coming to terms with creditors and paying them off. The next step was to find new owners who would not only bring new capital to the business but also supply it with purpose and vision. The Koethers' business plan, which won court approval, called for DML to move away from a commodity approach that simply produced botanical extracts and instead to make proprietary health and nutritional supplements.

American Holdings gained majority control of DML in January 1995 and several months later, in September, changed its name to something more suitable: Pure World, Inc. In was also in 1995 that the company found its first major herbal supplement, kava, produced from the root and stem of a South Pacific plant that was used to alleviate stress and anxiety. It was brought to the attention of Pure World by Chris Kilham, who first tried kava in a Massachusetts natural-food store in 1980 and became an untiring advocate of the supplement. According to the Wall Street Journal, he persuaded the Koethers "to send him to the republic of Vanatu in the South Pacific to line up a source of kava. Things must have gone well: He later became an honorary tribal chief there." As a result of Kilham's efforts, Pure World became one of the largest kava suppliers in the United States.

Pure World quickly introduced new products to spur growth. Sales grew from $6.2 million in 1995 to $6.6 million in 1996, while net income improved from $41,000 to $229,000. The company now began to add to its capabilities, in 1997 opening a laboratory to develop purified products such as ginko biloba and milk thistle, and to serve the needs of customers such as cosmetic companies, which needed purified botanicals to eliminate unwanted odor and color. Although it would take another couple of years before Pure World would see any significant sales from purified products, the company continued to experience a strong climb in sales, which soared to $10.8 million in 1997. Net income topped $2.3 million.

Pure World continued to invest in its facilities in 1998, upgrading the plant facilities and constructing a new 13,000-square-foot warehouse. The old warehouse located in Teterboro, New Jersey, was then renovated, and in March opened as a botanical powdering facility. The demand for nutraceuticals continued to grow in 1998, resulting in revenues of $23 million for the year and net income of nearly $5.7 million. But 1998 also would prove to be the high watermark for the company and the industry in general, as sales began to tail off in the first quarter of 1999.

Company Perspectives:

Bringing Science to Nature.

Declining Demand in the Late 1990s

Despite the addition of new products and powdering capabilities in 1999, Pure World experienced a dip in sales to $15 million. The company also wrote down some long-term investments, accounting for more than half of a $2.1 million loss. Demand for botanical extracts remained weak in 2000, but due to a large processing contract, Pure World was able to post revenues of $24.2 million. It still incurred a net loss of $1.6 million, and the processing order was a one-time sale, providing no momentum for 2001. The adverse impact on the economy of the terrorist attacks of September 11, 2001 placed a further damper on Pure World's business. At the end of the year, Pure World recorded sales of $18.4 million, and its net loss continued to grow to $2.9 million.

Pure World had been trading on the NASDAQ, but it was no longer able to meet minimum listing requirements, and in 2002 it received a delisting notice. The company then transferred its listing to the NASDAQ SmallCap Market. But Pure World continued to flounder in 2002, with sales slipping to $18.2 million and the company losing another $1.8 million. Business picked up in 2003, as sales improved to nearly $21.9 million and the company trimmed its net loss to $245,000. But 2003 also was marked by misfortune. Natalie Koether was forced to take a leave of absence due to an ongoing fight with heart disease. A few weeks later, in October 2003, she died at Columbia Presbyterian Hospital in New York City.

Paul Koether took over as Pure World's acting president, then in January 2004 he turned over the reins to Dr. Qun Yi Zheng, the company's chief operating officer. Zheng had come to Pure World in 1996 from Hauser Nutraceuticals, where as technical manager he developed innovative extraction and purification technologies. He became Pure World director of research and development and over the years assumed increasing administrative responsibilities, working closely with Natalie Koether. At the same time, the company announced that it had hired the Boston-based investment banking firm of Adam, Harkness & Hill to explore a possible merger or sale of the company.

Pure World received a number of feelers from potential buyers, but in the end the company allowed the engagement of Adams, Harkness & Hill to expire, electing instead to make a further attempt at growing the business in the belief that Pure World still held a great deal of potential. Paul Koether told the Newark Star-Ledger, "We're operating at a fraction of our capacity. It's like an airplane. At 50 percent capacity, it's operating at a loss. At 65 capacity, it's a different story. We're not realizing the full potential of what we have, given our marketing situation." In 2004 the company's commitment to research and development began to pay major dividends. One new product created sales of $18.2 million during the year, resulting in an increase in sales to $37 million and a return to profitability after six years, as the company recorded net income of $635,000. Strong numbers continued in 2005. Although it remained uncertain whether or not Pure World had turned a corner, there was no doubt that given its technical capabilities and strong research and development program it was well positioned to take advantage of any future opportunities.

Principal Subsidiaries

American Holdings, Inc.; Eco-Pure, Inc.; Pure World Botanicals, Inc.; Pure World Botanicals Powders, Inc.

Principal Competitors

GNC Corporation; Nature's Sunshine Products, Inc.; Triarco Industries, Inc.

Key Dates:

1983:: Computer Memories is incorporated.
1988:: Paul and Natalie Koether acquire the company.
1992:: The company name is changed to American Holdings Inc.
1995:: Dr. Madis Laboratories, Inc. is acquired and the name is changed to Pure World, Inc.
2003:: Natalie Koether dies.
2004:: Dr. Qun Yi Zheng is named president.