UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15701
NATURAL ALTERNATIVES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1007839
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1185 Linda Vista Drive, San Marcos, California 92069
(Address of principal executive offices)
(Zip Code)
(619) 744-7340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
5,297,375
(Number of shares of common stock of the registrant outstanding as of
January 31, 1996)
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31, June 30,
1995 1995
-------------- --------------
(Unaudited)
Current Assets:
Cash and cash equivalents $ 2,471,195 $ 2,526,839
Accounts receivable - less allowance for doubtful
accounts of $206,000 at December 31, 1995
and $215,000 at June 30, 1995 4,285,826 5,590,165
Inventory 6,859,086 5,229,585
Notes receivable - current portion 157,045 183,255
Deferred income taxes 164,000 326,000
Other current assets 995,279 867,085
------------- -------------
Total Current Assets $ 14,932,431 $ 14,722,929
------------- -------------
Property and equipment, at cost, less accumulated
depreciation and amortization of $4,093,000 at
December 31, 1995 and $3,698,000 at June 30, 1995 6,140,850 5,774,732
------------- -------------
Other Assets:
Investments 44,404 50,254
Notes receivable, less current portion 336,712 365,871
Other non-current assets 130,370 279,994
------------- -------------
Total Other Assets 511,486 696,119
------------- -------------
TOTAL ASSETS $ 21,584,767 $ 21,193,780
============= =============
(continued)
1
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31, June 30,
1995 1995
-------------- --------------
(Unaudited)
Current Liabilities:
Accounts payable $ 4,901,082 $ 4,974,845
Current installments of long-term debt 188,323 213,812
Current installments of capital lease obligations 22,150 20,786
Accrued compensation and employee benefits 230,495 528,704
Income taxes payable 26,075 738,075
Other current liabilities 54,544 39,475
------------- -------------
Total Current Liabilities 5,422,669 6,515,697
Deferred income taxes 290,000 285,000
Long-term debt, less current installments 934,175 1,043,179
Capital lease obligations, less current installments 56,715 71,649
------------- -------------
Total Liabilities 6,703,559 7,915,525
------------- -------------
Stockholders' Equity:
Preferred stock; $.01 par value; 500,000 shares
authorized; none issued or outstanding --- ---
Common stock; $.01 par value; 8,000,000 shares
authorized; issued and outstanding 5,297,375 at
December 31, 1995 and 5,257,875 at June 30, 1995 52,974 52,579
Additional paid-in capital 5,870,881 5,586,759
Retained earnings 9,003,062 7,678,776
Net unrealized losses on investments (45,709) (39,859)
------------- -------------
Total Stockholders' Equity 14,881,208 13,278,255
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,584,767 $ 21,193,780
============= =============
See accompanying notes to consolidated financial statements
2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
December 31,
-------------------------------
(Unaudited)
1995 1994
---- ----
REVENUE, net $ 11,753,954 $ 7,011,148
COST OF GOODS SOLD 8,853,416 5,100,547
------------- -------------
GROSS PROFIT 2,900,538 1,910,601
SELLING, GENERAL & ADMINISTRATIVE 1,685,162 1,449,132
------------- -------------
OPERATING INCOME 1,215,376 461,469
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 20,893 18,869
Interest expense (39,373) (27,769)
Other, net 12,500 (13,812)
------------- -------------
(5,980) (22,712)
------------- -------------
EARNINGS BEFORE INCOME TAXES 1,209,396 438,757
INCOME TAXES 474,000 197,000
------------- -------------
NET EARNINGS $ 735,396 $ 241,757
============= =============
NET EARNINGS PER COMMON SHARE:
Primary $ 0.13 $ 0.05
============= =============
Fully Diluted $ 0.13 $ 0.05
============= =============
See accompanying notes to consolidated financial statements
3
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended
December 31,
--------------------------------
(Unaudited)
1995 1994
---- ----
REVENUE, net $ 22,107,755 $ 12,884,895
COST OF GOODS SOLD 16,513,002 9,270,084
------------- -------------
GROSS PROFIT 5,594,753 3,614,811
SELLING, GENERAL & ADMINISTRATIVE 3,402,707 2,950,366
------------- -------------
OPERATING INCOME 2,192,046 664,445
------------- -------------
OTHER INCOME (EXPENSE):
Interest income 47,682 36,682
Interest expense (67,652) (52,707)
Other, net 15,210 (14,490)
------------- -------------
(4,760) (30,515)
------------- -------------
EARNINGS BEFORE INCOME TAXES 2,187,286 633,930
INCOME TAXES 863,000 282,000
------------- -------------
NET EARNINGS $ 1,324,286 $ 351,930
============= =============
NET EARNINGS PER COMMON SHARE:
Primary $ 0.24 $ 0.07
============= =============
Fully Diluted $ 0.24 $ 0.07
============= =============
See accompanying notes to consolidated financial statements
4
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Unaudited)
Additional Net
Common Stock Paid-in Retained Unrealized
Shares Amount Capital Earnings Losses Total
------------------- ----------- ----------- ---------- ------------
Balance at
June 30, 1995 5,257,875 $ 52,579 $ 5,586,759 $ 7,678,776 $ (39,859) $ 13,278,255
Issuance of common
stock for employee
stock options 39,500 395 192,122 --- --- 192,517
Income tax benefit from
employee stock options --- --- 92,000 --- --- 92,000
Net unrealized losses
on investments --- --- --- --- (5,850) (5,850)
Net earnings --- --- --- 1,324,286 --- 1,324,286
--------- -------- ----------- ----------- --------- ------------
Balance at
December 31, 1995 5,297,375 $ 52,974 $ 5,870,881 $ 9,003,062 $ (45,709) $ 14,881,208
========= ======== =========== =========== ========= ============
See accompanying notes to consolidated financial statements
5
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months
Ended December 31,
----------------------------
(Unaudited)
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,324,286 $ 351,930
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation and amortization 501,263 505,354
Tax benefit on option exercise 92,000 1,000
Bad debt expense 199,203 75,612
(Gain)/loss on disposal of assets (11,161) 16,300
Deferred income taxes 167,000 107,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,171,530 2,631,297
Inventory (1,629,501) (1,413,975)
Other assets 7,439 175,049
(Decrease) increase in:
Accounts payable (73,763) (1,253,193)
Accrued compensation and employee benefits (298,209) (62,141)
Income taxes payable (712,000) ---
Other current liabilities 15,069 24,661
------------ ------------
Net Cash Provided by Operating Activities 753,156 1,158,894
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 30,375 ---
Investments (15,838) ---
Proceeds from sale of property and equipment 55,338 45,000
Capital expenditures (920,103) (1,158,457)
Issuance of notes receivable (61,689) (19,050)
Repayment of notes receivable 58,663 37,336
------------ ------------
Net Cash Used in Investing Activities (853,254) (1,095,171)
------------ ------------
(continued)
6
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Six Months
Ended December 31,
----------------------------
(Unaudited)
1995 1994
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases $ (148,063) $ (71,562)
Borrowing on lines of credit --- 650,000
Payment on lines of credit --- (350,000)
Proceeds from issuance of common stock 192,517 2,440
------------ ------------
Net Cash Provided by Financing Activities 44,454 230,878
------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents (55,644) 294,601
Cash and Cash Equivalents at Beginning of Period 2,526,839 813,754
------------ ------------
Cash and Cash Equivalents at End of Period $ 2,471,195 $ 1,108,355
============ ============
See accompanying notes to consolidated financial statements
7
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim fi-
nancial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments,
consisting of a normal recurring nature considered necessary for a fair
presentation, have been included. It is suggested that these consolidated
financial statements be read in conjunction with the financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
year ended June 30, 1995. The results of operations for the periods ended
December 31, 1995 and 1994 are not necessarily indicative of the operating
results for the full year.
Certain amounts in prior period financial statements have been reclassified to
conform to the current period financial statements.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Pro-Lean, Inc. (formerly Sonergy, Inc.), CellLife
International, Inc. and CellLife Pharmaceuticals International, Inc. All
significant intercompany accounts and transactions have been eliminated.
NOTE 3 - INVENTORIES
Inventories are comprised of:
December 31, June 30,
1995 1995
------------ ------------
Raw materials $ 3,061,320 $ 2,419,083
Work in process 3,282,804 2,240,173
Finished goods 514,962 570,329
------------ ------------
$ 6,859,086 $ 5,229,585
============ ============
NOTE 4 - NET EARNINGS PER SHARE
Primary earnings per share is computed based upon the weighted average number
of shares outstanding during the period plus (in periods in which they have a
dilutive effect) the effect of common shares contingently issuable from stock
options. Fully diluted earnings per share reflect additional dilution rela-
ted to common stock equivalents due to the use of the market price at the end
of the period, when higher than the average price for the period.
(continued)
8
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NET EARNINGS PER SHARE (continued)
The weighted average number of shares outstanding and common stock equivalents
are as follows:
For the Three Months For the Six Months
Ended December 31, Ended December 31,
1995 1994 1995 1994
--- ---- ---- ----
Primary 5,616,895 5,257,875 5,576,927 5,257,856
Fully Diluted 5,616,895 5,257,875 5,576,927 5,257,856
NOTE 5 - MAJOR CUSTOMERS
The Company had substantial sales to three customers for the three months ended
December 31, 1995, 1994 and the six months ended December 31, 1995, and
substantial sales to four customers for the six months ended December 31, 1994.
The loss of any of these customers would have an adverse impact on the
Company's revenues and earnings in the short-term. Sales to these customers were
as follows:
Three Months Ended Six Months Ended
--------------------------------------------- ---------------------------------------------
December 31, 1995 December 31, 1994 December 31, 1995 December 31, 1994
--------------------- --------------------- --------------------- ---------------------
% of % of % of % of
Total Total Total Total Total Total Total Total
Industry Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue
- ------------- ----------- ------- ----------- ------- ----------- ------- ----------- -------
Cosmetics $ 561,521 5% $ 1,017,339 15% $ --- --- % $ 2,299,400 18%
Multi-level
Distribution 8,437,264 72% 3,718,423 53% 15,150,985 69% 6,907,478 54%
Weight Loss --- --- % 1,061,878 15% --- --- % 1,836,431 14%
----------- ------- ----------- ------- ----------- ------- ----------- -------
Totals $ 8,998,785 77% $ 5,797,640 83% $15,150,985 69% $ 11,043,309 86%
=========== ======= =========== ======= =========== ======= ============ =======
Accounts receivable from these customers totaled $2,730,734 and $2,846,669 at
December 31, 1995 and 1994, respectively.
9
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 1995 AND 1994
The Company's consolidated net revenues for the quarter ended December 31,
1995, amounted to $11.8 million, an increase of $4.8 million from the $7.0 mil-
lion generated during the quarter ended December 31, 1994. The 69% increase in
revenue is directly attributable to increases in sales from new and existing
customers. On an unconsolidated basis, Natural Alternatives reported revenues
of $11.2 million for the quarter ending December 31, 1995, compared to $6.5
million for the quarter ending December 31, 1994, a 72% increase. The
Company's wholly-owned subsidiaries Pro-Lean, Inc. (Pro-Lean) and CellLife
International, Inc. (CellLife) generated net revenues of $.3 million each, for
the quarter ending December 31, 1995, compared to $.2 million each for the
quarter ending December 31, 1994.
The Company's gross margins decreased to 24.7%, for the quarter ending
December 31, 1995, compared to 27.3% for the quarter ending December 31,
1994. Total gross profits increased by $1.0 million, or 51.8% as a result of
the 69% increase in sales. The decrease in margins and increase in gross
profits is directly attributable to the increased sales of lower margin
products. Consolidated selling, general and administrative expenses as a per-
centage of revenues were 14.3% for the quarter ended December 31, 1995, com-
pared to 20.7% for the quarter ending December 31, 1994, with the decrease being
attributable to both sales growth and more effective means of controlling fixed
and variable costs.
Net earnings for the quarter ended December 31, 1995, amounted to $.7 million,
a $.5 million increase from the $.2 million in net earnings produced for the
quarter ended December 31, 1994. The increase in net earnings was due primari-
ly to the 51.8% increase in gross profit and a decrease in selling, general and
administrative expenses as a percentage of sales, both noted above. Primary
earnings per share for the quarter ended December 31, 1995, was $.13
compared to $.05 for the quarter ended December 31, 1994. The increase was
due to the reasons discussed above and was only slightly impacted by the
increase in the Company's weighted average number of shares outstanding and
the dilutive effect of common stock equivalents on the current quarter.
On an unconsolidated basis for the quarter ending December 31, 1995, Natural
Alternatives reported net earnings of $.8 million compared to $.4 million for
the quarter ended December 31, 1994. Pro-Lean reported a net loss of $.1 mil-
lion for each of the quarters ended December 31, 1995 and 1994. CellLife re-
ported a break even position for each of the quarters ended December 31, 1995
and 1994.
10
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FIRST AND SECOND QUARTER OF FISCAL 1995 AND 1994
The Company's consolidated revenues for the six months ended December 31,
1995 amounted to $22.1 million compared to $12.9 million for the six months
ended December 31, 1994. The $9.2 million increase is primarily due to
increased sales to new and existing customers. Management believes this
positive trend should continue, as evidenced by the Company's relatively strong
backlog position as of January 31, 1996, although there can be no assurance this
trend will continue.
Gross profit margins decreased to 25.3% for the six months ended December 31,
1995 from 28.1% for the six months ended December 31, 1994. Net income for
the six months ended December 31, 1995 amounted to $1.3 million compared to
$.4 million for the six months ended December 31, 1994. Earnings per share for
the six months ended December 31, 1995 was $.24 compared to $.07 for the six
months ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has sufficient sources of funds to finance its ongoing
operations and meet its capital asset purchases, as well as future growth
through a combination of internally generated cash flow, revolving lines of
credit and equipment financing.
At December 31, 1995, the Company had working capital of $9,509,762
compared to $8,207,232 as of June 30, 1995. The working capital component
which represented the most significant increase was inventory with an offsetting
decrease in accounts receivable. Inventory levels at December 31, 1995,
compared to sales, increased moderately relative to historical levels, due
principally to broader stocking requirements to cover current manufacturing
requirements.
The Company has entered into an agreement with its two principal stockholders,
Marie A. LeDoux and Mark A. LeDoux, to acquire for $545,000, the offices and
production facilities which the Company is presently leasing from them. The
properties have been independently appraised at $580,000. The Company
expects to fund the acquisition through conventional mortgage financing and to
consummate the transaction during the third quarter.
The Company has revolving line of credit agreements permitting borrowing up to
$3,000,000, which are secured by business assets and bear interest at rates
ranging from the bank's prime rate to 1/2 percent over the bank's prime rate.
The lines of credit expire on December 1, 1996. As of December 31, 1995 and
June 30, 1995, there were no borrowing under these credit lines.
11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based in part on the
advice of counsel, the ultimate disposition of these matters will not have a
material adverse impact on the Company's consolidated financial position,
operations or cash flows.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed herewith:
11.1. Computation of per share earnings for the three months ended
December 31, 1995.
11.2. Computation of per share earnings for the six months ended December
31, 1995.
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the regis-
trant has duly caused this report to be signed on its behalf by the under-
signed, thereunto duly authorized.
NATURAL ALTERNATIVES INTERNATIONAL, INC.
:/s MARK A. LE DOUX Date: February 7, 1996
- -------------------------- ----------------
Mark A. Le Doux
President
:/s WILLIAM P. SPENCER Date: February 7, 1996
- -------------------------- ----------------
William P. Spencer
Executive Vice President
13
EXHIBIT 11.1
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Three Months Ended December 31, 1995
Primary Fully Diluted
Days Weighted Weighted
Out Average Average
stand- Shares Shares
From To ing Shares Outstanding Outstanding Outstanding
-------- -------- ---- --------- ----------- ------------- -----------
Beginning shares 10/01/95 12/31/95 92 5,279,875 5,279,875 5,279,875
Dilutive effect of common
stock equivalents:
At average price per share 10/01/95 12/31/95 92 1,001,000 326,966 326,966
At closing price per share n/a n/a
Exercise of employee stock options 11/09/95 12/31/95 53 15,000 8,641 8,641
Exercise of employee stock options 11/10/95 12/31/95 52 2,500 1,413 1,413
----------- -------------
Ending shares 5,616,895 5,616,895
=========== =============
Net Earnings $ 735,396 $ 735,396
=========== =============
Net Earnings Per Share $ 0.13 $ 0.13
=========== =============
EXHIBIT 11.2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Six Months Ended December 31, 1995
Primary Fully Diluted
Days Weighted Weighted
Out- Average Average
stand- Shares Shares
From To ing Shares Outsdanding Outstanding
-------- -------- ------ --------- ----------- -------------
Beginning shares 07/01/95 12/31/95 184 5,257,875 5,257,875 5,257,875
Dilutive effect of common
stock equivalents:
At average price per share 07/01/95 12/31/95 184 1,001,000 301,472 301,472
At closing price per share n/a n/a
Exercise of employee stock options 08/21/95 12/31/95 132 1,500 1,076 1,076
Exercise of employee stock options 09/19/95 12/31/95 103 20,500 11,476 11,476
Exercise of employee stock options 11/09/95 12/31/95 53 15,000 4,321 4,321
Exercise of employee stock options 11/10/95 12/31/95 52 2,500 707 707
--------- ------------
Ending shares 5,576,927 5,576,927
========= ============
Net Earnings $ 1,324,286 $ 1,324,286
=========== ============
Net Earnings Per Share $ 0.24 $ 0.24
5
3-MOS
JUN-30-1996
DEC-31-1995
2,471,195
0
4,491,826
206,000
6,859,086
14,932,431
10,233,850
4,093,000
21,584,767
5,422,669
0
52,974
0
0
14,828,234
14,881,208
11,753,954
11,753,954
8,853,416
8,853,416
12,500
199,203
39,373
1,209,396
474,000
735,396
0
0
0
735,396
.13
.13
