1
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 SEPTEMBER 30, 1996
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 incorporation or (I.R.S. Employer
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 ___
5,269,875
(Number of shares of common stock of the registrant outstanding as of October
31, 1996)
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30
1996 June 30
(Unaudited) 1996
------------ -----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,935,533 $ 1,887,427
Accounts receivable - less allowance for doubtful
accounts of $410,000 at September 30, 1996
and $319,000 at June 30, 1996 5,271,327 5,026,204
Accounts receivable - related party 660,490 932,490
Inventory 8,347,449 6,399,592
Notes receivable - current portion 174,979 157,155
Deferred income taxes 425,000 425,000
Deposits 337,043 100,513
Other current assets 957,864 781,754
----------- -----------
TOTAL CURRENT ASSETS 18,109,685 15,710,135
----------- -----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $4,928,000 at
September 30, 1996 and $4,641,640 at June 30, 1996 7,221,685 7,278,078
----------- -----------
OTHER ASSETS:
Investments 74,890 74,890
Notes receivable, less current portion 275,026 285,470
Other non-current assets 206,348 212,618
----------- -----------
TOTAL OTHER ASSETS 556,264 572,978
----------- -----------
TOTAL ASSETS $25,887,634 $23,561,191
=========== ===========
(continued)
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30
1996 June 30
(Unaudited) 1996
------------ ------------
CURRENT LIABILITIES:
Accounts payable $ 4,930,411 $ 3,658,897
Current installments of long-term debt 237,350 234,736
Current installments of capital lease obligations 23,454 22,860
Accrued compensation and employee benefits 218,309 280,340
Income taxes payable 644,387 520,246
Customer deposits 2,606 2,606
------------ ------------
TOTAL CURRENT LIABILITIES 6,056,517 4,719,685
Deferred income taxes 357,000 357,000
Long-term debt, less current installments 1,208,953 1,276,118
Capital lease obligations, less current installments 42,805 48,802
------------ ------------
TOTAL LIABILITIES 7,665,275 6,401,605
------------ ------------
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 5,375,875 at
September 30, 1996 and 5,351,875 at June 30, 1996 53,759 53,519
Additional paid-in capital 6,382,356 6,220,196
Retained earnings 11,801,466 10,901,093
Net unrealized losses on investments (15,222) (15,222)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 18,222,359 17,159,586
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 25,887,634 $ 23,561,191
============ ============
See accompanying notes to consolidated financial statements
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
September 30
--------------------------------
1996 1995
------------ ------------
Net sales $ 11,437,022 $ 10,353,801
Cost of goods sold 8,176,382 7,659,586
------------ ------------
GROSS PROFIT 3,260,640 2,694,215
Selling, general &
administrative expenses 1,747,915 1,717,545
------------ ------------
OPERATING INCOME 1,512,725 976,670
------------ ------------
Other income (expense):
Interest income 46,691 26,789
Interest expense (42,543) (28,279)
Other, net 1,500 2,710
------------ ------------
5,648 1,220
------------ ------------
EARNINGS BEFORE INCOME TAXES 1,518,373 977,890
Income taxes 618,000 389,000
------------ ------------
NET EARNINGS $ 900,373 $ 588,890
============ ============
NET EARNINGS PER COMMON SHARE: $ .16 $ .11
============ ============
See accompanying notes to consolidated financial statements
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Additional Net
Common Stock Paid-In Retained Unrealized
Gains
Shares Amount Capital Earnings (Losses) Total
--------- ------- ---------- ----------- ---------- -----------
Balance at
June 30, 1996 5,351,875 $53,519 $6,220,196 $10,901,093 $(15,222) $17,159,586
Issuance of common
stock upon exercise of
employee stock options 24,000 240 116,260 -- -- 116,500
Income tax benefit from
stock options exercised -- -- 45,900 -- -- 45,900
Net unrealized
gains on
investments -- -- -- -- -- --
Net earnings -- -- -- 900,373 -- 900,373
--------- ------- ---------- ----------- -------- -----------
Balance at
September 30, 1996 5,375,875 $53,759 $6,382,356 $11,801,466 $(15,222) $18,222,359
========= ======= ========== =========== ======== ===========
See accompanying notes to consolidated financial statements
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended September 30
---------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 900,373 $ 588,890
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Bad debt expense 96,621 47,000
Tax benefit on option exercise 45,900 48,500
Depreciation and amortization 293,026 249,157
Deferred income taxes -- 183,000
Gain on disposal of assets 1,500 (2,497)
Other (6,704) --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (63,273) 333,150
Inventory (1,947,857) (1,408,974)
Deposits (236,530) (23,090)
Other assets (176,012) (2,570)
(Decrease) increase in:
Accounts payable 1,271,514 (77,308)
Accrued compensation and employee benefits (62,031) (391,909)
Income taxes payable 124,141 (533,500)
Other current liabilities -- (2,097)
----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 240,668 (992,248)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 1,250 53,837
Proceeds from sale of investments -- 17,000
Capital expenditures (233,107) (246,194)
Investments -- (11,000)
Issuance of notes receivable (26,000) (21,502)
Repayment of notes receivable 18,749 25,429
----------- -----------
NET CASH (USED IN) INVESTING ACTIVITIES (239,108) (182,430)
----------- -----------
(continued)
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Three Months
Ended September 30
---------------------------
1996 1995
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases $ (69,954) $ (83,571)
Proceeds from issuance of common stock 116,500 107,250
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 46,546 23,679
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 48,106 (1,150,999)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,887,427 2,526,839
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,935,533 $ 1,375,840
=========== ===========
See accompanying notes to consolidated financial statements
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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
financial 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, 1996. The
results of operations for the periods ended September 30, 1996 and 1995 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:
September 30 June 30
1996 1996
------------ ----------
Raw materials $4,271,019 $2,865,438
Work in process 3,312,865 2,911,778
Finished goods 763,565 622,376
---------- ----------
$8,347,449 $6,399,592
========== ==========
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
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 the dilutive effects of common shares
contingently issuable from stock options. Fully diluted earnings per share
reflect additional dilution related 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. Common stock options and common stock purchase warrants are
excluded from the computation of net earnings per share if their effect is
anti-dilutive.
The weighted average number of shares outstanding and common stock equivalents
are as follows:
For the Three Months
Ended September 30
-------------------------
1996 1995
--------- ---------
Primary 5,653,956 5,539,187
Fully Diluted 5,653,956 5,593,334
NOTE 5 - STOCKHOLDERS' EQUITY
Effective June 5, 1992, the Company adopted the 1992 Incentive Stock Option Plan
(Plan) and reserved a total of 200,000 common shares for issuance to key
employees of the Company. The Plan provides that no option may be granted at an
exercise price less than the fair market value of the common share of the
Company on the date of grant. Effective December 9, 1994, the Shareholders
approved an amendment to the Plan, increasing the number of common shares that
may be granted thereunder from 200,000 to 500,000, to enable additional
officers, directors, and employees to participate in the Plan. On September 9,
1993, 200,000 shares were granted at the fair market value price of $4.875 per
share. As of September 30, 1996, 95,998 options had been exercised and 104,002
options are exercisable.
Also effective June 5, 1992, the Company adopted the 1992 Nonqualified Stock
Option Plan and reserved a total of 250,000 common shares for issuance to
officers, employees, and consultants of the Company. On September 9, 1993,
250,000 options were granted at the fair market value price of $4.875 per share.
As of September 30, 1996, 18,502 options had been exercised and 231,498 options
are exercisable.
Effective December 9, 1994, the Board of Directors approved the 1994
Nonqualified Stock Option Plan and reserved a total of 500,000 common shares for
issuance to officers, employees, and consultants of the Company. On January 24,
1995, 500,000 options were granted at the fair market value price of $4.625 per
share. As of September 30, 1996, 13,000 options had been exercised and 487,000
options are exercisable.
Effective January 24, 1995, 100,000 options were granted pursuant to a
consulting agreement at the fair market value price of $4.625 per share. No
options had been exercised as of September 30, 1996.
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - MAJOR CUSTOMERS
The Company had substantial sales to three and four customers for the three
months ended September 30, 1996 and 1995, respectively. 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
-------------------------------------------------
September 30, 1996 September 30, 1995
---------------------- ----------------------
Industry Segment Total % of Total Total % of Total
- ---------------- Revenue Revenue Revenue Revenue
---------- ---------- ---------- ----------
Weight Loss & Nutrition $ N.A. --% $1,078,030 10%
Multi-level Distribution 6,859,811 60% 6,328,131 61%
---------- -- ---------- --
Totals $6,859,811 60% $7,406,161 71%
========== == ========== ==
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1997 AND 1996
The Company's consolidated revenues for the quarter ending September 30, 1996,
amounted to $11.4 million, an increase of $1.1 million from the $10.4 million
generated during the quarter ending September 30, 1995. The 10% increase in
revenue is primarily attributable to moderate increases in sales primarily from
existing customers.
International sales for the quarter ending September 30, 1996, amounted to $.3
million compared to $.9 million for the quarter ending September 30, 1995. The
decrease is the result of a customer build-up of inventories prior to the start
of the current year quarter coupled with a restructuring of European ownership
for the same customer.
Gross margins were 28.5% for the quarter ending September 30, 1996, compared to
26.0% for the quarter ending September 30, 1995. The increase in margins was due
to an unusually high profit sales mix for the quarter ending September 30, 1996.
Gross profits increased in real dollars by $566,000, or 21.0% as a result of the
10% increase in sales and the increase in gross margins.
Selling, general and administrative expenses decreased moderately as a
percentage of revenues to 15.3% for the quarter ending September 30, 1996 from
16.6% for the quarter ending September 30, 1995. The decrease is attributable to
both sales growth and more effective means of controlling costs.
Net earnings for the quarter ending September 30, 1996, amounted to $.9 million,
a $.3 million increase from the $.6 million in net income produced for the
quarter ending September 30, 1995. The increase in net earnings was due
primarily to the 21.0% increase in gross profit, noted above, while selling,
general and administrative expenses increased by just 1.8%.
Earnings per share for the quarter ending September 30, 1996, was $.16 compared
to $.11 for the quarter ending September 30, 1995. 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.
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of $12,053,000 compared
to $10,990,000 as of June 30, 1996. The working capital items which represented
the most significant increases were inventory, which increased by $1.9 million
and accounts payable, which increased by $1.3 million. Inventory levels at
September 30, 1996, compared to sales, increased moderately relative to
historical levels, due principally to build-ups in anticipation of price
increases and broader raw material stocking requirements to cover additional
products for new and existing customers.
The Company has purchase commitments approximating $500,000 for additional
production equipment which is expected to be placed in service in the second
quarter. The Company will also be expending approximately $200,000 in the second
quarter for leasehold improvements to expand its production facilities. These
expenditures are expected to be funded from a combination of cash flow from
operating activities and draws on the Company's lines of credit.
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. The Company has revolving line of credit
agreements permitting borrowings up to $3,000,000, which are secured by the
Company's receivables, inventory, equipment, and vehicles and bear interest at
the bank's prime rate. The bank's prime rate at September 30, 1996 was 8.25%. Of
the lines of credit, $1,000,000 expires on December 5, 1996 and $2,000,000
expires on December 5, 1997; management expects such lines to be renewed in the
normal course of business. As of September 30, 1996 and June 30, 1996, there
were no borrowings under these credit lines.
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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:
11.0. Computation of weighted average number common shares outstanding.
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1996.
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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.
NATURAL ALTERNATIVES INTERNATIONAL, INC.
MARK A. LE DOUX Date: November 13, 1996
- -----------------
Mark A. Le Doux
President
WILLIAM P. SPENCER Date: November 13, 1996
- -------------------
William P. Spencer
Executive Vice President
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EXHIBIT 11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Three Months Ended September 30, 1996
Primary Fully Diluted
Days Weighted Weighted
Outstanding Out- Average Average
----------- stand- Shares Shares
From To ing Shares Outstanding Outstanding
-------- -------- ------ --------- ---------- -------------
Beginning shares 07/01/96 09/30/96 92 5,351,875 5,351,875 5,351,875
Dilutive effect of common
stock equivalents:
At average price per share 284,722
At closing price per share 284,722
Exercise of employee stock
options 07/05/96 09/30/96 88 5,000 4,783 4,783
Exercise of employee stock
options 07/22/96 09/30/96 71 4,000 3,087 3,087
Exercise of employee stock
options 07/25/96 09/30/96 68 6,000 4,435 4,435
Exercise of employee stock
options 08/07/96 09/30/96 55 4,000 2,392 2,392
Exercise of employee stock
options 08/13/96 09/30/96 49 5,000 2,663 2,663
--------- ---------- ----------
Ending shares 5,375,875 5,653,956 5,653,956
Net Earnings $ 900,373 $ 900,373
========== ==========
Net Earnings Per Share $ .16 $ .16
========== ==========
(Continued)
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EXHIBIT 11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (continued)
(unaudited)
For the Three Months Ended September 30, 1995
Primary Fully Diluted
Days Weighted Weighted
Outstanding Out- Average Average
----------- stand- Shares Shares
From To ing Shares Outstanding Outstanding
-------- -------- ------ --------- ----------- -------------
Beginning shares 07/01/95 09/30/95 92 5,257,875 5,257,875 5,257,875
Dilutive effect of common
stock equivalents:
At average price per share 278,209
At closing price per share 332,356
Exercise of employee stock
options 08/21/95 09/30/95 40 1,500 652 652
Exercise of employee stock
options 09/20/95 09/30/95 11 20, 500 2,451 2,451
--------- ---------- ----------
Ending shares 5,279,875 5,539,187 5,593,334
Net Earnings $ 588,890 $ 588,890
========== ==========
Net Earnings Per Share $ .11 $ .11
========== ==========
16
5
3-MOS
JUN-30-1997
JUL-01-1996
SEP-30-1996
1,935,533
0
5,681,327
410,000
8,347,449
18,109,685
12,149,685
4,928,000
25,887,634
6,056,517
1,208,953
0
0
53,759
18,168,600
25,887,634
11,437,022
11,437,022
8,176,382
1,747,915
0
90,000
42,543
1,518,373
618,000
900,373
0
0
0
900,373
.16
.16
