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 MARCH 31, 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
--- ---
5,298,375
(Number of shares of common stock of the registrant outstanding as of
April 30, 1996)
2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 1,693,554 $ 2,526,839
Accounts receivable - less allowance for doubtful
accounts of $282,000 at March 31, 1996
and $215,000 at June 30, 1995 5,333,171 5,590,165
Inventory 8,142,416 5,229,585
Notes receivable - current portion 159,951 183,255
Deferred income taxes 258,000 326,000
Other current assets 768,878 867,085
----------- -----------
TOTAL CURRENT ASSETS 16,355,970 14,722,929
----------- -----------
PROPERTY AND EQUIPMENT, at cost, less accumulated
depreciation and amortization of $4,357,000 at
March 31, 1996 and $3,698,000 at June 30, 1995 6,080,570 5,774,732
----------- -----------
OTHER ASSETS:
Investments 52,483 50,254
Notes receivable, less current portion 311,445 365,871
Other non-current assets 218,582 279,994
----------- -----------
TOTAL OTHER ASSETS 582,510 696,119
----------- -----------
TOTAL ASSETS $23,019,050 $21,193,780
=========== ===========
(continued)
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3
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 4,848,456 $ 4,974,845
Current installments of long-term debt 198,401 213,812
Current installments of capital lease obligations 22,610 20,786
Accrued compensation and employee benefits 168,661 528,704
Income taxes payable 527,021 738,075
Other current liabilities 58,959 39,475
----------- -----------
TOTAL CURRENT LIABILITIES 5,824,108 6,515,697
Deferred income taxes 357,000 285,000
Long-term debt, less current installments 883,875 1,043,179
Capital lease obligations, less current installments 54,498 71,649
----------- -----------
TOTAL LIABILITIES 7,119,481 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 5,298,375 at
March 31, 1996 and 5,257,875 at June 30, 1995 52,984 52,579
Additional paid-in capital 5,875,751 5,586,759
Retained earnings 10,008,464 7,678,776
Net unrealized losses on investments (37,630) (39,859)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 15,899,569 13,278,255
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $23,019,050 $21,193,780
=========== ===========
See accompanying notes to consolidated financial statements
2
4
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended
March 31,
-------------------------------
(Unaudited)
1996 1995
----------- -----------
REVENUE, net $12,782,137 $10,287,529
COST OF GOODS SOLD 9,329,320 7,565,083
----------- -----------
GROSS PROFIT 3,452,817 2,722,446
SELLING, GENERAL & ADMINISTRATIVE 1,763,861 1,707,682
----------- -----------
OPERATING INCOME 1,688,956 1,014,764
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 21,090 26,038
Interest expense (48,861) (35,465)
Other, net 17,217 112,745
----------- -----------
(10,554) 103,318
----------- -----------
EARNINGS BEFORE INCOME TAXES 1,678,402 1,118,082
INCOME TAXES 673,000 469,000
----------- -----------
NET EARNINGS $ 1,005,402 $ 649,082
=========== ===========
NET EARNINGS PER COMMON SHARE:
Primary $ .18 $ .12
=========== ===========
Fully Diluted $ .18 $ .12
=========== ===========
See accompanying notes to consolidated financial statements
3
5
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Nine Months Ended
March 31,
-------------------------------
(Unaudited)
1996 1995
----------- -----------
REVENUE, net $34,889,892 $23,172,424
COST OF GOODS SOLD 25,842,322 16,835,167
----------- -----------
GROSS PROFIT 9,047,570 6,337,257
SELLING, GENERAL & ADMINISTRATIVE 5,166,568 4,658,048
----------- -----------
OPERATING INCOME 3,881,002 1,679,209
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 68,771 62,720
Interest expense (116,514) (88,172)
Other, net 32,429 98,255
----------- -----------
(15,314) 72,803
----------- -----------
EARNINGS BEFORE INCOME TAXES 3,865,688 1,752,012
INCOME TAXES 1,536,000 751,000
----------- -----------
NET EARNINGS $ 2,329,688 $ 1,001,012
=========== ===========
NET EARNINGS PER COMMON SHARE:
Primary $ .42 $ .17
=========== ===========
Fully Diluted $ .42 $ .17
=========== ===========
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
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 40,500 405 196,992 --- --- 197,397
Income tax benefit from
employee stock options --- --- 92,000 --- --- 92,000
Net unrealized gains
(losses) on
investments --- --- --- --- 2,229 2,229
Net earnings --- --- --- 2,329,688 --- 2,329,688
--------- ------- ---------- ----------- -------- -----------
Balance at
March 31, 1996 5,298,375 $52,984 $5,875,751 $10,008,464 $(37,630) $15,899,569
========= ======= ========== =========== ======== ===========
See accompanying notes to consolidated financial statements
5
7
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Ended March 31,
------------------------------
(Unaudited)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 2,329,688 $ 1,001,012
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 775,783 772,835
Tax benefit on option exercise 92,000 1,000
Bad debt expense 292,203 108,612
(Gain) loss on disposal of assets 11,038 16,300
(Gain) loss on disposal of investments (39,120) ---
Deferred income taxes 140,000 240,000
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 31,185 122,163
Inventory (2,912,831) (2,269,171)
Prepaid income taxes --- (81,075)
Deposits 25,086 74,168
Other assets 109,628 (147,084)
(Decrease) increase in:
Accounts payable (126,388) 1,260,661
Accrued compensation and employee benefits (360,043) 25,598
Accrued income taxes (211,054) 481,075
Other current liabilities 19,484 (3,136)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 176,659 1,602,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 50,120 ---
Investments (35,582) (22,500)
Proceeds from sale of property and equipment 55,337 45,000
Capital expenditures (1,129,852) (1,496,320)
Issuance of notes receivable (65,489) (25,750)
Collections against notes receivable 94,580 52,989
----------- -----------
NET CASH (USED) BY INVESTING ACTIVITIES (1,030,886) (1,446,581)
----------- -----------
(continued)
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NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Nine Months
Ended March 31,
----------------------------
(Unaudited)
1996 1995
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (Decrease) In:
Payments on long-term debt and capital leases $ (176,455) $(147,733)
Borrowing on lines of credit --- 650,000
Payment on lines of credit --- (500,000)
Proceeds from option exercise 197,397 2,440
----------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,942 4,707
----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (833,285) 161,084
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,526,839 813,754
----------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,693,554 $ 974,838
=========== =========
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, 1995. The
results of operations for the periods ended March 31, 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:
March 31, June 30,
1996 1995
---------- ----------
Raw materials $3,803,238 $2,419,083
Work in process 3,399,350 2,240,173
Finished goods 939,828 570,329
---------- ----------
$8,142,416 $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 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.
(continued)
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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 Nine Months
Ended March 31, Ended March 31,
--------------- ---------------
1996 1995 1996 1995
---- ---- ---- ----
Primary 5,607,120 5,573,516 5,586,692 5,824,399
Fully Diluted 5,626,263 5,606,109 5,611,387 5,831,214
NOTE 5 - MAJOR CUSTOMERS
The Company had substantial sales to three customers for the three months ended
March 31, 1996, to two customers for the nine months ended March 31, 1996, and
to four customers for the three months and nine months ended March 31, 1995. 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 Nine Months Ended
-------------------- ------------------
March 31, 1996 March 31, 1995 March 31, 1996 March 31, 1995
-------------- -------------- -------------- --------------
% of % of % of % of
Total Total Total Total Total Total Total Total
Industry Revenue Revenue Revenue Revenue Revenue Revenue Revenue Revenue
-------- ------- ------- ------- ------- ------- ------- ------- -------
Multi-level $8,107,961 63% $7,369,473 72% $21,017,518 60% $16,445,792 71%
Distribution
Weight Loss 1,744,896 14% 780,294 7% NA ---% 2,616,724 11%
---------- --- ---------- -- ----------- --- ----------- --
Totals $9,852,857 77% $8,149,767 79% $21,017,518 60% $19,062,516 82%
========== === ========== === =========== === =========== ==
Accounts receivable from these customers totaled $2,251,862 and $3,958,671 at
March 31, 1996 and 1995, respectively.
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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
THIRD QUARTER OF FISCAL 1996 AND 1995
The Company's consolidated revenues for the quarter ending March 31, 1996,
reached approximately $12.8 million, an increase of 24% compared to the $10.3
million generated during the quarter ending March 31, 1995. The increase was due
to the addition of new clients, combined to a lessor extent with an increase in
sales to existing customers.
The Company's gross margins for the quarter remained virtually unchanged: 27.0%
for the quarter ending March 31, 1996, compared to 26.5% for the quarter ending
March 31, 1995. Selling, general and administrative expenses as a percentage of
revenues were 14.4% during the quarter ending March 31, 1996, compared to 16.6%
for the quarter ending March 31, 1995, with the relative improvement being
directly attributable to revenue growth.
Net earnings for the quarter ending March 31, 1996, amounted to $1.0 million, an
increase of $.4 million, or 54.9% over the quarter ending March 31, 1995. The
increase was primarily due to revenue growth. Earnings per share for the quarter
ending March 31, 1996, was $.18 compared to $.12 for the quarter ending March
31, 1995.
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12
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FIRST THREE QUARTERS OF FISCAL 1996 AND 1995
The Company's consolidated revenues for the nine months ending March 31, 1996
reached $34.9 million compared to $23.2 million for the same period ending March
31, 1995. The addition of new clients and an increase in sales orders from
existing customers combined for the growth of 50.4% in revenues for the nine
month period.
Gross profit margins for the Company showed a moderate decline from 27.3% for
the nine month period ending March 31, 1995 to 25.9% for the nine months ending
March 31, 1996. Net earnings for the nine months ending March 31, 1996, amounted
to approximately $2.3 million compared to $1.0 million for the nine months
ending March 31, 1995. Earnings per share for the nine months ending March 31,
1996, amounted to $.42 compared to $.17 for the comparable nine month period
ending March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has sufficient sources of funds to finance its ongoing
operations and to 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 March 31, 1996, the Company had working capital of $10,531,862 compared to
$8,207,232 as of June 30, 1995. The working capital component which represented
the most significant increase was inventory. Inventory levels at March 31, 1996,
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 in the early part of the fourth 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, 1997. As of March 31, 1996 and June
30, 1995, there was no borrowing under these credit lines.
11
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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:
11.1. Computation of per share earnings for the three months ended March
31, 1996.
11.2. Computation of per share earnings for the nine months ended March 31,
1996.
(b) No reports on Form 8-K were filed during the quarter ended March 31, 1996.
12
14
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.
:/S/ MARK A. LE DOUX DATE: May 14, 1996
- --------------------- ---------------------------
Mark A. Le Doux
President
:/S/ WILLIAM P. SPENCER DATE: May 14, 1996
- ----------------------- ---------------------------
William P. Spencer
Executive Vice President
13
1
EXHIBIT 11.1
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Three Months Ended March 31, 1996
----------------------------------------- Primary Fully Diluted
Days Weighted Weighted
Out- Average Average
Outstanding stand- Shares Shares
From To ing Shares Outstanding Outstanding
---- -- --- ------ ----------- -----------
Beginning shares 1/01/96 3/31/96 91 5,297,375 5,297,375 5,297,375
Dilutive effect of common
stock equivalents:
At average price per share 1/01/96 3/31/96 91 1,000,000 309,679 309,679
At closing price per share n/a n/a
Exercise of employee stock 3/25/96 3/31/96 6 1,000 66 66
---------- ----------
options
Ending shares 5,607,120 5,607,120
========== ==========
Net Earnings $1,005,402 $1,005,402
========== ==========
Net Earnings Per Share $ .18 $ .18
========== ==========
14
1
EXHIBIT 11.2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
For the Nine Months Ended March 31, 1996
---------------------------------------- Primary Fully Diluted
Days Weighted Weighted
Out- Average Average
Outstanding stand- Shares Shares
From To ing Shares Outstanding Outstanding
---- -- --- ------ ----------- -----------
Beginning shares 07/01/95 3/31/96 275 5,257,875 5,257,875 5,257,875
Dilutive effect of common
stock equivalents:
At average price per share 07/01/95 3/31/96 275 1,000,000 304,026 304,026
At closing price per share n/a n/a
Exercise of employee stock
options 08/21/95 3/31/96 223 1,500 1,216 1,216
Exercise of employee stock
options 09/19/95 3/31/96 194 20,500 14,462 14,462
Exercise of employee stock
options 11/09/95 3/31/96 143 15,000 7,800 7,800
Exercise of employee stock
options 11/10/95 3/31/96 142 2,500 1,291 1,291
Exercise of employee stock
options 3/25/96 3/31/96 6 1,000 22 22
---------- ----------
Ending shares 5,586,692 5,586,692
========== ==========
Net Earnings $2,329,688 $2,329,688
========== ==========
Net Earnings Per Share $ .42 $ .42
========== ==========
15
5
1
9-MOS
JUN-30-1996
JUL-01-1995
MAR-31-1996
1,163,554
57,320
5,615,171
(282,000)
8,142,416
16,355,970
10,437,570
4,357,000
23,019,050
5,824,108
1,082,276
52,984
0
0
15,846,585
23,019,050
34,889,892
34,889,892
25,842,322
31,008,890
15,314
153,000
116,514
3,865,688
1,536,000
2,329,688
0
0
0
2,329,688
.42
.42
