Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________

FORM 10-Q

  

QUARTERLY REPORT

pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

  

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2018

 

000-15701

(Commission file number)

_____________________________________

NATURAL ALTERNATIVES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	84-1007839
(State of incorporation)	(IRS Employer Identification No.)
1535 Faraday Ave Carlsbad, CA 92008	(760) 736-7700
(Address of principal executive offices)	(Registrant’s telephone number)

 

Indicate by check mark whether NAI (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 NAI was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes     ☐  No

 

Indicate by check mark whether NAI has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that NAI was required to submit and post such files).    ☒  Yes     ☐  No

 

Indicate by check mark whether NAI is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.

 

Large accelerated filer	☐	Accelerated filer	☐	Emerging Growth Company	☐
Non-accelerated filer	☐	Smaller reporting company	☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether NAI is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No

 

As of November 13, 2018, 7,570,871 shares of NAI's common stock were outstanding, net of 1,105,806 treasury shares.

 

 

TABLE OF CONTENTS

 

		Page
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		1
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income and Comprehensive Income	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 4.	Controls and Procedures	20
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3.	Defaults Upon Senior Securities	21
Item 5.	Other Information	21
Item 6.	Exhibits	22
SIGNATURES		23

 

 

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

 

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. These include opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, beliefs, or other statements that are not statements of historical fact. Words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” “forecasts,” or “projects,” or the negative or other variation of such words, and similar expressions may each identify a statement as a forward-looking statement. Any statements contained herein that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism about our future operating results, are forward-looking statements. Forward-looking statements in this report may include statements about:

 

•

future financial and operating results, including projections of net sales, revenue, income or loss, net income or loss per share, profit margins, expenditures, liquidity, and other financial items;

•

our ability to maintain or increase our patent and trademark licensing revenues;

•

our ability to develop market acceptance for and increase sales of new products, develop relationships with new customers and maintain or improve existing customer relationships;

•

future levels of our revenue concentration risk;

•

our ability to protect our intellectual property;

•

future economic and political conditions, including implementation of new or increased tariffs;

•

our ability to improve operating efficiencies, manage costs and business risks and improve or maintain profitability;

•

currency exchange rates, their effect on our results of operations, including amounts that we may reclassify as earnings, the availability of foreign exchange facilities, our ability to effectively hedge against foreign exchange risks and the extent to which we may seek to hedge against such risks;

•

the outcome of currently pending litigation, regulatory and tax matters, the costs associated with such matters and the effect of such matters on our business and results of operations;

•

sources and availability of raw materials, including the limited number of suppliers of beta-alanine meeting our quality requirements;

•

inventory levels, including the adequacy of raw material and other inventory levels to meet future customer demand;

•

the future adequacy and intended use of our facilities;

•

potential manufacturing and distribution channels, product returns, and product recalls;

•

future customer orders;

•

the impact of external factors on our business and results of operations, especially variations in our quarterly net sales from seasonal and other factors;

•

our ability to operate within the standards set by the U.S. Food and Drug Administration’s (FDA) Good Manufacturing Practices;

•

our ability to successfully expand our operations, including outside the United States (U.S.);

•

the adequacy of our financial reserves and allowances;

•

the sufficiency of our available cash, cash equivalents, and potential cash flows from our operations to fund our working capital and capital expenditure needs through the next 12 months and longer;

•

the impact of accounting pronouncements and our adoption of certain accounting guidance; and

•

other assumptions described in this report underlying or relating to any forward-looking statements.

 

Forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that are or may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 1A of Part II and elsewhere in this report, as well as in other reports and documents we file with the United States Securities and Exchange Commission (SEC).

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.     FINANCIAL STATEMENTS

 

NATURAL ALTERNATIVES INTERNATIONAL, INC.

 

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NATURAL ALTERNATIVES INTERNATIONAL, INC.

 

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except share and per share data)

(Unaudited)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NATURAL ALTERNATIVES INTERNATIONAL, INC.

 

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share data)

(Unaudited)

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

(UNAUDITED)

 

 

 

ITEM 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis is intended to help you understand our financial condition and results of operations for the three months ended September 30, 2018. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this report, as well as the risk factors and other information included in our 2018 Annual Report and other reports and documents we file with the SEC. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors.

 

Executive Overview

 

The following overview does not address all of the matters covered in the other sections of this Item 2 or other items in this report or contain all of the information that may be important to our stockholders or the investing public. You should read this overview in conjunction with the other sections of this Item 2 and this report.

 

Our primary business activity is providing private label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. Historically, our revenue has been largely dependent on sales to two or three private label contract manufacturing customers and subject to variations in the timing of such customers’ orders, which in turn is impacted by such customers’ internal marketing programs, supply chain management, entry into new markets, new product introductions, the demand for such customers’ products, and general industry and economic conditions. Our revenue also includes raw material sales and royalty and licensing revenue generated from our patent estate pursuant to license and supply agreements with third parties for the distribution and use of the ingredient known as beta-alanine sold under our CarnoSyn® and SR CarnoSyn® trademarks.

 

A cornerstone of our business strategy is to achieve long-term growth and profitability and to diversify our sales base. We have sought and expect to continue to seek to diversify our sales by developing relationships with additional, quality-oriented, private label contract manufacturing customers, and commercializing our patent estate through sales of beta-alanine under our Carnosyn® and SR Carnosyn® trade names, contract manufacturing, and license agreements.

 

During the first three months of fiscal 2019, our net sales were 30% higher than in the first three months of fiscal 2018. Private label contract manufacturing sales increased 40% due primarily to the sale of new products to existing customers and higher volumes of current products to existing customers located primarily in U.S., Asian, Australia, and European markets. The increase in sales included shipment of new products and increased sales of existing products to our largest customer under our previously announced expanded relationship. Revenue concentration risk for our largest private label contract manufacturing customer as a percentage of our total net sales increased to 58% for the three months ended September 30, 2018 compared to 47% for the three months ended September 30, 2018. We expect our annualized fiscal 2019 revenue concentration for this customer to be consistent with fiscal 2018.

 

During the first three months of fiscal 2019, CarnoSyn® beta-alanine revenue decreased 7% to $5.4 million as compared to $5.9 million for the first three months of fiscal 2018. The decrease in beta-alanine revenue was primarily due to lower average material sales prices.

 

To protect our CarnoSyn® business and its underlying patent estate, we incurred litigation and patent compliance expenses of approximately $618,000 during the first quarter of fiscal 2019 and $972,000 during the comparable period in fiscal 2018. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR Carnosyn® trademark, maintenance of our patent rights, the availability of the raw material beta-alanine when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, the ability to further commercialize our existing patents, and the continued compliance by third parties with our license agreements and patent and trademark rights.

 

 

During the remainder of fiscal 2019, we plan to continue our focus on:

 

•

Leveraging our state-of-the-art, certified facilities to increase the value of the goods and services we provide to our highly valued private-label contract manufacturing customers, and assist us in developing relationships with additional quality oriented customers;

 

•

Expanding the commercialization of our beta-alanine patent estate through raw material sales, developing a market for our sustained release form of beta-alanine marketed under our SR Carnosyn® trademark, new contract manufacturing opportunities, license agreements and protecting our proprietary rights; and

 

•

Improving operational efficiencies and managing costs and business risks to improve profitability.

 

Critical Accounting Policies and Estimates

 

The preparation of our financial statements requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies we believe are important to the portrayal of our financial condition and results of operations. These policies require the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in such estimates or assumptions.

 

Our critical accounting policies are discussed under Item 7 of our 2018 Annual Report and recent accounting pronouncements are discussed under Item A to our Notes to Condensed Consolidated Financial Statements contained in this Quarterly Report

 

In the three months ended September 30, 2018, there were changes to the application of critical accounting policies previously disclosed in our most recent Annual Report on Form 10-K related to the adoption of ASU 2014-09 on July 1, 2018, as described below.

 

Revenue Recognition

 

Revenue is recognized at the point in time that our performance obligation is fulfilled, and control of the ordered products is transferred to the customer. Generally, this occurs when the product is shipped, or in some cases, when the product is delivered to the customer. Refer to Revenue Recognition in Note A, "Basis of Presentation and Summary of Significant Accounting Policies," in this Quarterly Report, for additional information.

 

 

 

Results of Operations

 

The results of our operations for the three months ended September 30 were as follows (dollars in thousands):

 

		Three Months Ended
		September 30, 2018								September 30, 2017								Increase (Decrease)
Private-label contract manufacturing		$	31,087				85	%		$	22,222				79	%		$	8,865				40	%
Patent and trademark licensing			5,445				15	%			5,852				21	%			(407	)			(7	)%
Total net sales			36,532				100	%			28,074				100	%			8,458				30	%
Cost of goods sold			29,369				80	%			21,704				77	%			7,665				35	%
Gross profit			7,163				20	%			6,370				23	%			793				12	%
Selling, general & administrative expenses			4,439				12	%			4,487				16	%			(48	)			(1	)%
Income from operations			2,724				7	%			1,883				7	%			841				45	%
Other income, net			497				1	%			108				0	%			389				360	%
Income before income taxes			3,221				9	%			1,991				7	%			1,230				62	%
Provision for income taxes			662				2	%			557				2	%			105				19	%
Net income		$	2,559				7	%		$	1,434				5	%		$	1,125				78	%

 

Private label contract manufacturing sales increased 40% due primarily to the sale of new products to existing customers and higher volumes of current products to existing customers located primarily in U.S., Asian, Australian, and European markets. The increase in sales included shipment of new products and increased sales of existing products to our largest customer under our previously announced expanded relationship.

 

Net sales from our patent and trademark licensing segment decreased 7% during the first quarter of fiscal 2019. The decrease in beta-alanine raw material sales was primarily due to lower average material sales prices.

 

The change in gross profit margin for the three months ended September 30, 2018, was as follows:

 

		Percentage Change
Contract manufacturing (1)			0.1
Patent and trademark licensing (2)			(3.2	)
Total change in gross profit margin			(3.1	)

 

 

1

Private-label contract manufacturing gross profit margin contribution increased 0.1 percentage points during the first quarter of fiscal 2019 as compared to the comparable period in fiscal 2018. The increase in gross profit as a percentage of sales is primarily due to a marginal decrease in per unit manufacturing costs.

 

2

During the first quarter of fiscal 2019, patent and trademark licensing gross profit margin contribution decreased 3.2 percentage points primarily due to decreased raw material sales and decreased royalty income as a percentage of total consolidated net sales which decreases were partially offset by favorable raw material costs.

 

 

Selling, general and administrative expenses decreased $48,000, or 1%, during the first quarter of fiscal 2019 primarily due to lower legal, marketing, and advertising costs associated with our patent and trademark licensing segment partially offset by increased employee compensation and consulting costs.

 

 

Other income, net increased $389,000 during the first quarter of fiscal 2019 as compared to the same period in the prior fiscal year primarily due to favorable interest income associated with our foreign currency hedge contracts.

 

Our income tax expense increased $105,000 during the first quarter of fiscal 2019 as compared to the same period in the prior fiscal year. The increase was primarily due to the higher pre-tax income in the first quarter of fiscal 2019 as compared to the comparable prior year period partially offset by a lower effective tax rate.

 

Liquidity and Capital Resources

 

Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of borrowings under our credit facility. Net cash provided by operating activities was $4.7 million for the three months ended September 30, 2018 compared to net cash provided by operating activities of $2.3 million in the comparable quarter last year.

 

At September 30, 2018, changes in accounts receivable, consisting of amounts due from our private label contract manufacturing customers and our patent and trademark licensing activities, provided $1.9 million in cash compared to using $799,000 of cash in the comparable prior year quarter. The increase in cash provided by accounts receivable during the quarter ended September 30, 2018 primarily resulted from timing and amount of sales and the related collections. Days sales outstanding was 34 days during the three months ended September 30, 2018 as compared to 29 days for the prior year period.

 

Changes in inventory used $1.4 million in cash during the three months ended September 30, 2018 compared to using $5.3 million in the comparable prior year quarter. The change in cash used by inventory during the quarter ended September 30, 2018 was primarily related to the timing of sales and new order activity. Changes in accounts payable and accrued liabilities provided $471,000 in cash during the three months ended September 30, 2018 compared to providing $5.8 million during the three months ended September 30, 2017. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.

 

Cash used in investing activities in the three months ended September 30, 2018 was $777,000 compared to $2.5 million in the comparable quarter last year. The primary reason for the change was due to the conversion of $1.5 million of accounts receivable into a note receivable during the first quarter of fiscal 2018 with no similar activity in the first quarter of fiscal 2019. In addition, we made capital equipment purchases of $796,000 in the three months ended September 30, 2018 as compared to capital equipment purchases of $956,000 in the three months ended September 30, 2017. Capital expenditures during fiscal 2019 and fiscal 2018 were primarily for manufacturing equipment used in our Vista, California and Manno, Switzerland facilities. At September 30, 2018 and June 30, 2018, on a consolidated basis, we had no outstanding balances due in connection with our loan facility.

 

 

 

During the three months ending September 30, 2018, we were in compliance with all of the financial and other covenants required under the Credit Agreement.  Refer to Note E, "Debt," in this Quarterly Report, for terms of Credit Agreement and additional information.

 

As of September 30, 2018, we had $27.6 million in cash and cash equivalents and $10.0 million available under our credit facilities. We believe our available cash, cash equivalents and potential cash flows from operations will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.

 

Off-Balance Sheet Arrangements

 

As of September 30, 2018, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.

 

Recent Accounting Pronouncements

 

Recent accounting pronouncements are discussed in the notes to our consolidated financial statements included under Item 1 of this report. Other than those pronouncements, we are not aware of any other pronouncements that materially affect our financial position or results of operations.

 

 

ITEM 4.     CONTROLS AND PROCEDURES

 

We maintain certain disclosure controls and procedures as defined under the Securities Exchange Act of 1934. They are designed to help ensure that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, in a manner that allows for timely decisions regarding required disclosures; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934 and within the time periods specified by the SEC.

 

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer (principal financial and accounting officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2018. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for their intended purpose described above as of September 30, 2018.

 

On July 1, 2018, we adopted Topic 606 (see Note 1). We implemented internal controls to ensure we adequately evaluate our contracts and properly assess the impact of the new accounting standards on our condensed consolidated financial statements. Although adoption of the new revenue standard had no material impact on July 1, 2018 retained earnings or financial statement activity for the quarter ended September 30, 2018, and is not expected to have a material impact on our ongoing financial statements, we implemented changes to our business processes related to revenue recognition and the control activities within them. The changes included training within management, as well as new processes for ongoing contract review and monitoring to ensure completeness and accuracy of the information for new disclosures.

 

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterly period ended September 30, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

There were no other changes to our internal control over financial reporting during the quarterly period ended September 30, 2018 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, product liability, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. While unfavorable outcomes are possible, based on available information, we generally do not believe the resolution of these matters, even if unfavorable, will result in a material adverse effect on our business, consolidated financial condition, or results of operations. However, a settlement payment or unfavorable outcome could adversely impact our results of operations. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes we do not expect.

 

As of November 13, 2018, neither NAI nor its subsidiary were a party to any material pending legal proceeding nor was any of our property the subject of any material pending legal proceeding. We are currently involved in several matters in the ordinary course of our business, each of which is related to enforcing our intellectual property rights.

 

There is no assurance NAI will prevail in these litigation matters or in similar proceedings it may initiate or that litigation expenses will not be greater than anticipated.

 

ITEM 1A. RISK FACTORS

 

When evaluating our business and future prospects you should carefully consider the risks described under Item 1A of our 2018 Annual Report, as well as the other information in our 2018 Annual Report, this report and other reports and documents we file with the SEC. If any of the identified risks actually occur, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline, and you could lose all or a portion of the value of your investment in our common stock.

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Repurchases

 

During the quarter ended September 30, 2018, we did not repurchase any shares of our common stock under any stock repurchase plans.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 5. OTHER INFORMATION

 

 

None.

 

 

ITEM 6.      EXHIBITS

 

The following exhibit index shows those exhibits filed with this report and those incorporated by reference:

 

EXHIBIT INDEX

Exhibit Number		Description		Incorporated By Reference To
3(i)		Amended and Restated Certificate of Incorporation of Natural Alternatives International, Inc. filed with the Delaware Secretary of State on January 14, 2005		Exhibit 3(i) of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, filed with the commission on February 14, 2005
3(ii)		Amended and Restated By-laws of Natural Alternatives International, Inc. dated as of February 9, 2009		Exhibit 3(ii) of NAI’s Current Report on Form 8-K dated February 9, 2009, filed with the commission on February 13, 2009
4(i)		Form of NAI’s Common Stock Certificate		Exhibit 4(i) of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the commission on September 8, 2005
10.01		First Amendment to Amended and Restated Employment Agreement, by and between NAI and Mark A. LeDoux, effective July 1, 2018		Filed herewith
10.02		First Amendment to Amended and Restated Employment Agreement, by and between NAI and Kenneth E. Wolf, effective July 1, 2018		Filed herewith
10.03		Second Amendment to Employment Agreement, by and between NAI and Michael E. Fortin, effective July 1, 2018		Filed herewith
10.04		Lease of Facilities in Manno, Switzerland between NAIE and Mr. Silvio Tarchini dated October 19, 2018		Filed herewith
10.05		Lease of Parking Places in Manno, Switzerland between NAIE and Mr. Silvio Tarchini dated October 19, 2018		Filed herewith
10.06		Lease of Facilities in Manno, Switzerland between NAIE and Sofinol SA dated November 5, 2018		Filed herewith
10.07		First Amendment to Loan Agreement with Kaged Muscle LLC, dated September 30, 2018		Exhibit 10.53 of NAI’s Current Report on Form 8-K dated October 2, 2018, filed with the commission on October 2, 2018.
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer		Filed herewith
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer		Filed herewith
32		Section 1350 Certification		Filed herewith
101.INS		XBRL Instance Document		Filed herewith
101.SCH		XBRL Taxonomy Extension Schema Document		Filed herewith
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document		Filed herewith
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document		Filed herewith
101.LAB		XBRL Taxonomy Extension Label Linkbase Document		Filed herewith
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document		Filed herewith

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, Natural Alternatives International, Inc., the registrant, has duly caused this report to be signed on its behalf by the undersigned, duly authorized officers.

 

 

Date: November 13, 2018

 

	NATURAL ALTERNATIVES INTERNATIONAL, INC.
	By:	/s/ Mark A. LeDoux
		Mark A. LeDoux, Chief Executive Officer
		(principal executive officer)
	By:	/s/ Michael E. Fortin
		Michael E. Fortin, Chief Financial Officer
		(principal financial and accounting officer)

 

23

Exhibit 10.01

 

First Amendment to

Amended and restated EMPLOYMENT AGREEMENT

 

This First Amendment (“Amendment”) to the Amended and Restated Employment Agreement by and between Natural Alternatives International, Inc., a Delaware corporation (“Company”), and Mark LeDoux (“Employee”), dated effective as of October 1, 2015 (“Agreement”), is made and entered into effective as of July 1, 2018. Unless otherwise defined herein, capitalized terms shall have the meanings given them in the Agreement.

 

1.      Pursuant to Section 4(a) of the Agreement, Employee’s base salary is hereby increased to Four Hundred Twenty-Five Thousand dollars ($425,000) per year effective as of July 1, 2018.

 

2.     Except as set forth herein, all other terms and conditions of the Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of September 20, 2018.

 

 

EMPLOYEE

 

 

/s/ Mark A. LeDoux                              

Mark A. LeDoux

 

 

COMPANY

 

Natural Alternatives International, Inc.,

a Delaware corporation

 

 

/s/ Kenneth E. Wolf                              

Kenneth E. Wolf, President

 

Exhibit 10.02

 

First Amendment to

Amended and restated EMPLOYMENT AGREEMENT

 

This First Amendment (“Amendment”) to the Amended and Restated Employment Agreement by and between Natural Alternatives International, Inc., a Delaware corporation (“Company”), and Kenneth E. Wolf (“Employee”), dated effective as of October 1, 2015 (“Agreement”), is made and entered into effective as of July 1, 2018. Unless otherwise defined herein, capitalized terms shall have the meanings given them in the Agreement.

 

1.      Pursuant to Section 4(a) of the Agreement, Employee’s base salary is hereby increased to Four Hundred Thousand dollars ($400,000) per year.

 

2.     Except as set forth herein, all other terms and conditions of the Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of September 20, 2018.

 

 

EMPLOYEE

 

 

/s/ Kenneth E. Wolf                     

Kenneth E. Wolf

 

 

COMPANY

 

Natural Alternatives International, Inc.,

a Delaware corporation

 

 

/s/ Mark LeDoux                    

Mark LeDoux, Chief Executive Officer

 

Exhibit 10.03

 

Second Amendment to

EMPLOYMENT AGREEMENT

 

This Second Amendment (“Amendment”) to the Employment Agreement by and between Natural Alternatives International, Inc., a Delaware corporation (“Company”), and Michael E. Fortin (“Employee”), dated effective as of October 1, 2015, and previously amended effective September 1, 2016 (“Agreement”), is made and entered into effective as of July 1, 2018. Unless otherwise defined herein, capitalized terms shall have the meanings given them in the Agreement.

 

1.      Pursuant to Section 4(a) of the Agreement, Employee’s base salary is hereby increased to Two Hundred Twenty-Five Thousand dollars ($225,000) per year.

 

2.     Except as set forth herein, all other terms and conditions of the Agreement shall remain in full force and effect.

 

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of September 20, 2018.

 

 

EMPLOYEE

 

 

/s/ Michael E. Fortin                    

Michael E. Fortin

 

 

COMPANY

 

Natural Alternatives International, Inc.,

a Delaware corporation

 

 

/s/ Kenneth E. Wolf                    

Kenneth E. Wolf, President

 

 

TARCHINI REAL ESTATE SA - Manno, Centro Galleria 3, further mentioned as landlord and represented by Mrs. Alessandra Tarchini Marra and Mrs Giorgia Tarchini Gygax (VAT # CHE-100.072.922)

 

 

 

 

and

 

 

 

 

NAIE NATURAL ALTERNATIVES INTERNATIONAL EUROPE SA –

 

Manno,

 

Centro Galleria 1, further mentioned as tenant, represented by Mr. Mark

 

LeDoux and Mr. Fausto Petrini (VAT # CHE-105.013.401)

 

 

 

 

enter the following

 

 

 

 

LEASE CONTRACT

 

 

 

 

1.

 

TARCHINI      REAL      ESTATE     SA     –     Manno,      lease     to      NAIE      NATURAL ALTERNATIVES INTERNATIONAL EUROPE SA – Manno a surface of

 

8'153.39 sqm, located in the building Centro Galleria 1, Map 433 in Manno, ground and first floors

 

 

2.

 

The leased surface is highlighted in yellow in the attached layouts, the areas are identified as # 1, 2, 4, 5, 6, 7, 8, 10, 11, 12, 13, 15, 16, 17, 18, 22, 25, and 31.

 

 

3.

 

The tenant will use the areas as offices, laboratory, warehouse and production, in agreement with the current regulations.

 

 

4.

 

The lease is effective as of July 01, 2019 for a 5-year duration having a binding expiry on June 30, 2024. Nonetheless, if none of the parties will terminate the lease on maturity by means of a written registered letter to

 

address to the landlord one year ahead, the lease shall be considered renewed for a further period of one year.

 

 

 

 

LEASE

 

 

 

 

5.

 

The yearly lease is fixed at CHF 1’250’000.- (one million two hundred fifty thousand/00 Swiss francs) VAT excluded, property expenses included, payable in advance with quarterly settlements on January 01, April 01, July

01 and October 01 of every year.

 

 

Overdue settlements of the quarterly lease portions will be increased by an interest rate of 7% (seven percent).

Upon 1 month delay of the lease portion payments, the landlord has the faculty to initiate a legal recovery, being the present contract an acknowledgement of indebtedness as per article 82 – LEF (National Law on Failure & Insolvency).

 

 

6.

 

The existing deposit # 550557-10 of CHF 45’103.70 executed on May 07, 2003 in favor of the landlord at the Credit Suisse bank guarantees any subsequent duty deriving from the present contract.

 

 

 

 

LEASE INDEXING

 

 

7.

 

The lease is index-linked. It will be yearly adjusted to the national cost of living index with one-month notice.

Contract initial index: 336.20.

 

The first adjustment may occur on July 01, 2020.

 

 

8.

 

In the event the tenant, for whatever reason, would not leave the leased areas at the contract termination date or at any extended date settled by the judge, the tenant already agrees to pay to the landlord a lease equivalent to

 

150% of the last lease for the months the tenant will occupy the areas,

 

against the landlord’s will.

 

 

9.

 

All costs for lightening, power or whatever energy used in the leased areas

 

are at the tenant’s expenses.

 

 

10.

 

The lease includes the property expenses, as well as administration costs, routine maintenance and operating expenses of the shared utilities.

 

 

The following expenses, costs or taxes are included in the lease:

 

 

-     Heating and air conditioning of the offices

 

-     Shared spaces lightening and powering

 

-     Shared spaces drinkable water

 

-     Sewage and cleansing

 

-     Gardening and maintenance of the shared areas

 

-     Snow removal

 

-     Cleaning of the shared spaces.

 

 

 

 

In the event the tenant’s activity would cause a high usage of heating or any other utility, causing an increase in cost above the average, such costs will be at the tenant’s expenses.

 

 

Beside the above mentioned expenses, the property expenses include all expenses as stated in the “Catef” lease contract (Camera Ticinese dell’Economia Fondaria = Tessin Association of the real estate owners).

 

 

11.

 

The landlord will insure the building against fire, whilst the tenant will insure his properties stored in the leased areas against fire, water damages, natural events etc.

 

MODIFICATIONS INTO THE LEASED AREAS

 

12.

 

The tenant is allowed to modify the leased areas at his own expenses and whereas those modifications are necessary to his specific activity, previous written agreement by the landlord.

 

 

13.

 

Upon lease contract termination, the leasehold improvements to walls and building will remain the property of the landlord, with no obligation of refunding from his side, in the event such modifications cannot be removed without causing damages to the structure.

 

 

14.

 

The tenant will pay all costs such as electrical connections to the existing central heating, power system, phone lines already installed in the leased areas. The RASI certifications and all future controls to the electrical system, as legally stated, are at his costs as well (Low tension regulations – OIBT).

 

 

 

 

All electric connections or installations in building Galleria 1 must be carried out by contractors hired by Tarchini Real Estate SA.

 

 

The phone connections will be ruled by a separate contract between the landlord and tenant. The tenant is not allowed to use external phone, fax, telex lines if not connected to the Alcatel main switchboard.

 

 

Parking signals, logos, signs will be placed by the company SPM S.A. and costs invoiced to the tenant. It is forbidden to place any type of panel, commercial, logo without prior approval by the landlord.

 

DISPUTE AND LITIGATION

 

 

15.

 

Governing Law for any dispute, where not regulated by the present contract, is the Pretura di Lugano (Court of Lugano).

 

 

 

 

16.

 

This contract is undersigned in two originals, one for each party.

 

 

 

 

IN WITNESS WHEREOF, Manno, September 03, 2018

 

 

 

 

The Landlord :     The Tenant :

 

 

TARCHINI REAL ESTATE SA     NAIE NATURAL ALTERNATIVES INT. EUROPE SA

 

 

 

 

/s/ Alessanda Tarchini Marra                           /s/ Mark LeDoux

---------------------------------------     ---------------------------------------------

 

 

/s/ Giorgia Tarchini Gygax                            /s/ Kenneth Wolf

---------------------------------------     ---------------------------------------------

 

 

 

 

TECHNICAL DESCRIPTION OF THE LEASED AREAS

 

NAIE NATURAL ALTERNATIVES INTERNATIONAL EUROPE SA BUILDING : Centro Galleria 1 – Manno

 

FLOOR : Ground and first

 

 

REFERENCES : # 1, 2, 4, 5 ,6, 7, 8, 10, 11, 12, 13, 15, 16, 17, 18, 22, 25, 31

 

 

FINISHES :

 

 

The areas are let in their present state, except for the warehouse inner walls that the landlord will dismantle at his expenses.

 

Manno, September 03, 2018

 

 

 

1. PARTIES

 

 

Landlord: TARCHINI REAL ESTATE SA – Manno

 

Via Cantonale - Centro Galleria 3 (VAT # CHE-100.072.922)

further mentioned as landlord and represented by Mrs. Alessandra Tarchini Marra and

 

Mrs Giorgia Tarchini Gygax

 

 

Tenant : NAIE NATURAL ALTERNATIVES INTERNATIONAL EUROPE SA – Manno, Via Cantonale - Centro Galleria 1

(VAT # CHE-105.013.401)

 

further mentioned as tenant, represented by Mr. Mark LeDoux and Mr. Fausto Petrini

 

 

2. LEASE OBJECT

 

 

Location: Manno Municipality, Map 433, building Centro Galleria 1

 

n. 16 indoor parking places identified as # 71, 72, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86,

 

87, 88, 89 and n. 39 outdoor parking places identified as # 101, 102, 103, 104, 125, 126, 127,

 

128, 129, 130, 141, 142, 143, 144, 145, 146, 147, 148, 149, 150, 151, 152, 154, 155, 156, 157,

 

158, 159, 164, 165, 166, 230, 231, 232, 233, 234, 235, 236, 237, as highlighted in yellow in the attached layouts.

 

 

3. LEASE TERM

 

 

The lease is effective as of July 01, 2019 having a binding expiry on June 30, 2020. Nonetheless, the tenant has the faculty to renew the present contract for additional 1 (one) year, by means of a written registered letter to address to the landlord six months ahead.

 

 

4. LEASE AMOUNT

 

 

The yearly lease is fixed at CHF 58’680.- (fifty eight thousand six hundred eighty/00

 

Swiss francs), + the yearly connection tax of CHF 48’180.- (forty eight thousand one hundred eighty/00 Swiss francs), for a total amount of 106’860.- (one hundred six thousand eight hundred sixty/00 Swiss francs) VAT excluded, payable in advance with quarterly settlements.

 

4.a

 

 

This contract cancels and replaces all the current lease contracts between Tarchini real estate Sa and NAIE SA and specifically the lease concerning 10 external parking spaces dated 27 February 2017, the lease concerning 2 internal parking lots dated 29 January

2016 and the lease re. 2 internal parking lots dated 30 December 2014, within the building

 

Galleria 1, in Manno.

 

 

5. CONNECTION TAX

 

 

The tenant acknowledges that the State Council has submitted to the High Council the note 7139 dated November 4, 2015 as a review of the Law on Public Transport dated December 6, 1994. The note provides for the introduction of the connection tax against the landlords.

 

 

On June 5, 2016 the cantonal vote has decreed the approval of the connection tax, effective August 2016.

 

 

In the light of the above, the Tenant acknowledges that the rent for each parking place increases of CHF 73.-/month from August 1, 2016 as the above mentioned tax repayment.

 

 

6. FLP – Lugano Rail Project

 

 

The tenant claims to be informed of the content of the above mentioned project concerning the construction of a tram railway, published on the Official Journal 99/2017 dated December 12, 2017.

In particular, the Tenant knows that the project provides for the partial expropriation of Maps # 818, 819, 822, 841 and 885 in Manno and that viability and accessibility might change and the parking places might be reduced.

In this respect, the Tenant should not claim any allowance and/or compensation against the Landlord for any modification of the leased property and for any possible inconvenience or impediment arising under the subject project.

 

 

7. MISCELLANEOUS

 

 

Failing Landlord’s written consensus, it is prohibited for the Tenant to:

 

 

–     Partially or totally sublet or transfer the lease to any third party;

 

–

Use the parking garage electricity for different purposes than regular lighting;

 

–     Wash/carry out any maintenance works inside the building boundary.

 

 

 

The Landlord declines any responsibility for any damage or accident the vehicles might face.

The Tenant is bound to respect the Fire Department provisions. The vehicles shall be parked facing the wall.

It is forbidden to leave the car running in the parking lot

 

The Tenants shall leave/arrive the most quietly and silently, especially by night. Governing Law for any dispute, where not regulated by the present contract, is the Pretura di Lugano (Court of Lugano).

 

The parties agree on the content of this Lease contract. IN WITNESS WHEREOF,

Manno, September 10, 2018

 

 

 

The Landlord :     The Tenant :

 

 

TARCHINI REAL ESTATE SA     NAIE NATURAL ALTERNATIVES INT. EUROPE SA

 

 

 

 

 

/s/ Alessanda Tarchini Marra                           /s/ Mark LeDoux

---------------------------------------     ---------------------------------------------

 

 

/s/ Giorgia Tarchini Gygax                            /s/ Kenneth Wolf

---------------------------------------     ---------------------------------------------

 

 

 

EDIFICAZIONE AL MAPP. 433 - MANNO

GALLERIA 1 - PIANO TERRENO

TARCHINI REAL ESTATE SA - Centro Galleria 3 - 6928 Manno

 

 

 

 

 

 

 

Rental Agreement for Commercial Premises

 

 

 

 

 

Property:

Via Cantonale 8, 6928 Manno TI

 

 

Owner / Landlord

 

Sofinol SA

Via Cantonale 8

6928 Manno TI

 

(hereinafter referred to as Landlord)

 

 

 

 

 

 

 

 

 

 

Type of property: Industry/trade

Start of rental period: 01/01/2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tenant

NAIE Natural Alternatives

International Europe SA

Centro Galleria 1

Via Cantonale 4

6928 Manno TI

 

(hereinafter referred to as Tenant)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Multiple tenants shall be jointly and severally liable for the obligations arising from this Rental Agreement.

 

 

 

Table of Contents

 

1     Rental objects/ rent/ ancillary costs     3

 

1.2     Basis of the rental fee     3

 

1.3     Value added tax (VAT)     3

 

2     Intended purpose     4

 

3     Start of the Rental Period, duration of the Rental Period, extension and termination     4

 

5     Ancillary costs     4

 

6     Default interest     5

 

7     Handover, defects     5

 

8     Use of the Rental Property     5

 

10     Security deposit     6

 

11     Original condition and tenant improvements     6

 

11.2     Maintenance of tenant improvements     6

 

11.3     At the Start of the Rental Period     7

 

11.4     During the Rental Period     7

 

11.5     Fulfilment of officially ordered or statutory requirements     7

 

11.6     Consideration of third-party interests     7

 

12     Securing of Tenant Improvements     8

 

13     Minor maintenance     8

 

14     Common areas     8

 

15     Cleaning     8

 

16     Restoring the original condition at the end of the Tenancy     8

 

17     Company signs, illuminated advertising, advertising, antenna systems     9

 

18     Subletting/ Transfer of Tenancy     9

 

22     Right of retention     10

 

23     Key handover     10

 

24     Landlord's right of access     10

 

25     Amendments to the Agreement     10

 

26     Duty to provide information     11

 

27     Severability clause     11

 

28     Jurisdiction/applicable law     11

 

29     Issue of the Rental Agreement     11

 

30     Integral part of the Rental Agreement     11

 

 

 

 

 

 

1

Rental objects/ rent/ ancillary costs

 

1.1

Description of the property, areas, rent

 

The Landlord shall rent out the rooms and areas to the Tenant in the aforementioned property, the location and size of which are marked on the enclosed layout plans, forming an integral part of this agreement (hereinafter referred to as Rental Agreement or Agreement). The original state and condition of the rental property, hereinafter referred to as "basic construction" are specified in the upgrading description, which also forms an integral part of this Agreement.

Property	Floor	Reference number	m2/ number	Price per m2/lot	Francs per year	Francs per month
Ex-SABO	ground floor 2nd upper floor 3rd upper floor		785 785 1,300	80.00 80.00 80.00	62,800.00 62,800.00 104,000.00	5,233.35 5,233.35 8,666.65

Parking spaces outside			14	70.00	11,760.00	980.00
Total fixed net rent					241,360.00	20,113.35

 

 

The rent is fixed during the rental period (i.e. no stepped or index-linked rent). The rent is payable in advance on the 1st day of the month. For IT-reasons, the amounts p.a. are partially rounded up or down.

 

 

 

The aforementioned areas are indicative approximate values and may differ from the actual areas. Any deviations have no influence on the fixed net annual rent.

 

 

 

1.2

Basis of the rental fee

 

 

 

Mortgage  interest rate:	1.5%		As of 02/06/2018
National index of consumer  prices:	Base year 2015	As of 31/08/2018	101.8 points
Cost increases considered:			As of 31/08/2018

 

 

 

 

 

1.3

Value added tax (VAT)

 

The Landlord, who is obligated to pay tax, has made use of the option of disclosing VAT on the rent and any ancillary costs. The VAT is shown in accordance with the law. This option shall be exercised during the agreed contractual period. By signing the Rental Agreement, the Tenant confirms that the rented objects will not be used exclusively for residential purposes.

 

VAT will be levied at the statutory rate on the agreed rent and any ancillary costs

(see calculation of rent at the VAT rate valid at the time the Agreement was drawn up). If the VAT rate changes, the Landlord is entitled to notify the Tenant of the resulting rent adjustment in the legally prescribed form -currently by means of an official form- at the time the new VAT rate comes into force.

 

If the option is cancelled during the contractual period for reasons for which the Tenant is responsible (e.g. due to exclusive use for residential purposes), the Landlord is entitled to pass on to the Tenant any self-consumption tax owed by the changes of use.

 

 

2

Intended purpose

 

The rental property shall be made available to the Tenant for the following use:

●

Commercial / warehouse

●

Truck access ramps

The rental property may only be used for the contractually agreed purpose. Significant extensions, restrictions and/or changes to the purpose are only permitted upon the prior written consent of the Landlord.

 

If the rental property is used for other purposes without the consent of the Landlord, the Landlord is entitled to terminate the Rental Agreement at any time subject to a notice period of 60 (sixty) days, provided that the Tenant does not use the rented object again within one month in conformity with the Agreement after a one-time written reminder.

 

3

Start of the Rental Period, duration of the Rental Period, extension and termination

 

 

3.1

Start of the Rental Period

 

The rental period starts on 01/01/2019 and the rent is due from this date, provided the agreed floor bearing capacity (in kg/m2) of the individual areas/floors have been confirmed in accordance with section 8. 

 

Should the handover take place before the start of the rental period, in particular for the completion of the tenant's improvements, risk and peril shall pass to the Tenant upon handover.

 

The rental property shall be handed over to the Tenant in accordance with the floor plans of 24/01/2007 in good working order (according to Annex 1).

The Landlord shall hand over the rental property to the Tenant in the contractually agreed state, in accordance with section 7. In particular, the water leakage from the ceiling and the damaged doors on the top floor must be repaired before the start to the rental period at the Landlord's expense.

 

3.2

Rental Period

 

The rental is limited in time and automatically ends on 31/12/2023 (Art. 255 para. 2 OR [Swiss Code of Obligations]) without the need of notice. During this 5-year period, the Tenant has a right to terminate the rental in advance twice a year with a 12 months' notice, as of 30/06 and 31/12. Starting from 01/01/2024, the Agreement is transferred to an indefinite tenancy, which can be terminated twice a year by both the Tenant and the Landlord with a 12 months' notice, as of 30/06 and 31/12.

 

4     Fixed Rent     

 

The fixed rent for the rental property shall amount to CHF 241,360.00 net per year (cf. section 1), irrespective of any deviations in area.

 

5     Ancillary costs

 

 

The basic rent does not include the following ancillary costs, which must be paid in addition to the rent and shall be billed separately twice annually:

 

•

Electricity

 

•

Service subscriptions, maintenance agreements and individual maintenance of lifts, escalators, paging system, hoisting platforms, façade lifts, gates, flat roof, pumps, emergency power systems, delivery facilities, roller shutters

 

•

Water

 

•

Waste water

 

The right to adjust changing costs and expenses associated with the operation of the property as outlined above (ancillary costs), which are introduced as the result of changed circumstances or legal regulations during the rental period, remains reserved; in such a case down payments may also be adjusted.

 

The Landlord shall determine the distribution key. If costs are not incurred or only partially incurred in one or other rental object, this shall be duly accounted for in the distribution key.

 

The settlement of ancillary costs shall be deemed approved unless the Tenant raises an objection in writing to the Landlord or his representative within 30 days of receipt. The Tenant is entitled to inspect the detailed invoice and the associated documents in their original form at the Landlord or his representative or have them inspected by an authorised representative.

 

Subsequent claims must be settled within 30 days of receipt of the invoice. Refunds must be made within the same period.

Expenses and costs, which exclusively concern the operation of the rented property, must also be borne by the Tenant, even if they are charged to the Landlord. Clearance of snow and ice on the main access roads and ramps for the trucks during working days shall be guaranteed at the expense of the Landlord.

 

The Landlord is always entitled to order the installation of a separate water sub-meter at the expense of the Tenant.

 

 

 

The costs for water, telephone, fax, modem, TV charges etc., which are charged directly to the Tenant must be paid directly by the Tenant. Electricity will be charged to the Tenant by the Landlord.

 

 

6

Default interest

 

In the event of delayed payment, the Landlord shall charge the Tenant 5 % (p.a.) interest on arrears on the amount owed from the invoice expiry date. The right to charge any expenses (dunning fees) shall remain reserved.

 

 

7

Handover, defects

The Landlord shall hand over the rental property to the Tenant in good working order. The parties sign a jointly recorded handover protocol. -If the handover date falls on a Saturday, Sunday or a officially recognised public holiday at the location of the property, the handover shall take place on the next working day until 12:00 noon without entitlement to a rent reduction.

 

The Landlord shall record any defects in the handover in the protocol in writing. If there are other defects in addition to those listed in the protocol. the Tenant must assert complaints in writing within 14 days of discovery. Otherwise the rental property as a whole shall be deemed to have been taken over in a good condition in accordance with the Agreement

 

8

Use of the Rental Property

 

If the Tenant intends to bring very heavy objects (machines, safes etc.) or equipment that can cause noise or vibrations (e.g. air-conditioning systems etc.) into the rental property, the written consent of the Landlord must be obtained in advance in order to clarify the necessary bearing capacity of the floors or possible effects for other rental properties. In each case, the Tenant is obliged to take all necessary and appropriate measures to prevent sound transmissions and vibrations. In this context, Colliers International Zurich AG will have a study carried out by an external engineer by November 2018 to confirm the floor bearing capacity (in kg/m²) of the individual areas/floors The Tenant shall be liable for all consequences in connection with a breach of this obligation, in particular for all justified claims of other tenants (reduction of rent and compensation for damages in accordance with Art. 259d and 259e OR) or neighbours and is obligated to participate in proceedings in the event of a dispute upon notification of a dispute and to conduct this, at the request of the Landlord, in his own name and at his own risk - also with regard to the consequences in terms of costs and compensation.

 

Access to the building etc. as well as passage or other free spaces may not be used for storing objects and goods of any kind. Vehicles may only be parked in the designated, rented parking spots. Refuse of any kind may only be stored at the locations specified by the Landlord and in compliance with the law.

 

The Landlord is entitled to co-use the shafts that run through the rental property and any subsequently constructed shafts, as well as all other shafts, which can be (co-)used by the Tenant for all kinds of supply and return lines. The Tenant is then also entitled to use the shafts present in the rental property for supply and return lines to the extent the available capacities permit this. If he wishes to make use of them, he must obtain prior written consent of the Landlord.

 

10

Security deposit

 

The Tenant undertakes to pay an amount of CHF 57,400.00 in cash (Art. 257e para. 1 OR) as security deposit for all claims of the Landlord under the present Rental Agreement (rent payments, damages in the event of early termination of the Agreement, claims due to damage to the rented property or external wear and tear or for other reasons) and to pay these to a first-class Swiss bank. This security deposit is pledged in favour of any claims by the Landlord.

 

The cash deposit must be paid before the rental object is handed over. In case of omission, the Landlord shall be entitled to refuse handover.

 

Upon transfer of the Rental Agreement, the Landlord may demand that the security deposit for covering the risk of the rent is increased if he could otherwise refuse the required consent.

 

 

11

Original condition and tenant improvements

 

 

11.1

Differentiation of the original condition and tenant improvements

 

The agreed net rent constitutes the adequate quid pro quo for the extended rental property as indicated (=basic construction). Extensions to the rental property beyond the basic extensions are regarded as tenant improvements. Any existing extensions by a previous tenant are deemed to have been carried out by the Tenant and are therefore part of the tenant improvements. In any case, all costs of the construction of the Tenant’s improvements shall be borne exclusively by the Tenant.

 

11.2

Maintenance of tenant improvements

 

Maintenance and replacement of all types of improvements are not part of the basic construction, i.e. the tenant’s improvements, are the exclusive responsibility of the Tenant, even if they are firmly connected to the building and the Landlord has financed the tenant’s improvements in whole or in part; the corresponding costs shall be borne by the tenant. At the Landlord's first request, the Tenant is obligated to perform maintenance and repair work on the Tenant improvements if the condition thereof threatens to damage the rental property or other parts of the

rental property or the outer appearance of the rental property.

 

The parties agree that the above agreed obligations have been adequately considered when determining the rental fee and therefore do not have a detrimental effect on the Tenant.

 

 

11.3

At the Start of the Rental Period

 

The Landlord shall permit the Tenant to perform tenant improvements in accordance with the construction specification present at the time the Agreement is signed and the Tenant’s corresponding plans at the Tenant's expense.

 

The Tenant undertakes to provide the Landlord with a complete, updated set of the relevant execution plans unsolicited and free of charge after completion of the tenant's improvements.

 

With respect to these approved tenant improvements, the Landlord reserves the right to demand that the original condition be restored in full or in part at the end of the Agreement. The Tenant shall waive any claim for compensation in the event that the restoration of the original condition of the rental property at the time of termination of the Agreement is not or only partially demanded, even if the tenant improvements remaining in the rental property embody an added value.

 

11.4

During the Rental Period

 

If the Tenant intends to perform tenant improvements in or on the rental property during the rental period, he shall obtain the written consent of the Landlord before beginning such work.

 

 

The Landlord is entitled to refuse his consent without specifying reasons or to grant it subject to the condition that the costs of the tenant improvements are secured before the construction work is performed. If the consent is granted, it shall be deemed agreed that

 

•

the right to demand that the original condition or the condition prior to the performance of the tenant improvements be properly restored at the end of the Tenancy is reserved,

 

•

that the Tenant shall waive any compensation upon termination of the Agreement in the event that the Landlord does not demand the restoration of the original condition or the condition existing prior to the completion of the tenant improvements, even if the tenant improvements could embody added value.

 

11.5

Fulfilment of officially ordered or statutory requirements

 

If the approval of tenant improvements depends on compliance with official orders or legal requirements, which require additional structural or other measures, e.g. for fire-protection, safety, ecological or other reasons (additional escape doors, sprinkler systems, fire alarm systems, use of ecologically prescribed facilities and materials, disposal of hazardous equipment or materials, such as asbestos, etc.), all associated costs shall be borne exclusively by the Tenant. Upon termination of the Agreement, the Landlord shall not owe any compensation even if the corresponding measures are not reversed.

 

In the event of interventions in the general parts of the building, in particular in the structural design, installations and the building envelope, the Landlord shall have the right to specify planners and/or contractors/products/systems as a prerequisite for the approval of such measures.

 

 

Connection fees for water, electricity, sewerage, etc. as well as premium adjustments of the progressive building insurance, which are attributable to tenant improvements, shall be charged proportionally

to the Tenant.

 

11.6

Consideration of third-party interests

 

The Tenant undertakes to have any tenant improvements performed in accordance with the applicable construction regulations and to monitor the performance in a professional manner. The statics of the building may not be affected. The Tenant must ensure that the defined maximum floor load is not exceeded. Upon request, an engineering report must be submitted to the Landlord together with the application for approval.

 

While work is performed on the tenant improvements, the interests of other tenants or users of the rental property must be taken into consideration to the greatest extent possible. Even in the case of careful and considerate execution of corresponding work, the Tenant shall be liable for any claims raised by other tenants or third parties (proportionate reduction of the rent or compensation) to the extent that such claims are rightfully asserted, with reference to the relevant legal provisions, and undertakes to participate in any legal dispute initiated in this respect vis-à-vis the Landlord upon notification of a dispute and to assume the legal dispute at his own risk and at his own expense at the corresponding request of the Landlord.

 

 

12

Securing of Tenant Improvements

 

The Landlord can make the approval of Tenant improvements dependent on the Tenant's corresponding security deposits.

 

The Tenant shall ensure that no tradesmen's liens are registered for the Tenant

improvements. If this still happens, the Tenant must ensure that these liens are cancelled immediately at his own expense; the corresponding obligation already exists at the stage of the provisional (precautionary) registration of each tradesmen’s lien. If the Tenant violates these obligations, this constitutes a breach of the Agreement, which entitles the Landlord to the extraordinary termination of the Agreement after expiry of a subsequent deadline which is set in writing. In any case, the Tenant shall be liable vis-à-vis the Landlord for the damage incurred.

 

For every construction project, the Tenant must take out builder's liability insurance.

 

 

 

 

13

Minor maintenance

 

Maintenance and minor repairs to the rental property fall under the Tenant’s responsibility up to an amount of 1 % of the annual net rent, but not exceeding CHF 2,413.60 per repair and individual case.

 

 

14

Common areas

 

The term "common areas" describes all areas and spaces, which are not exclusively used by a single tenant, but are collectively available for use by all tenants and/or customers of the property. The common areas in particular include stairs, delivery zones, ramps, and surrounding areas.

 

In general, the Tenant may not use such common areas for his own purposes. Any storage of goods, packaging materials, etc. as well as any handling of goods within the common areas is also expressly prohibited. Exceptions, which can only be permitted in individual cases and therefore for a limited time, require the express written consent of the Landlord.

 

15

Cleaning

 

The Tenant is obliged to clean the rental properties, including the corresponding toilet facilities, at his own expense.

 

16

Restoring the original condition at the end of the Tenancy

 

The Landlord has the right to request that at the time of return of the rental unit, the Tenant restores all improvements at the Tenant's own expense in whole or in part in a professional manner and that the Tenant restores the rental unit to its original condition at the Tenant's own expense.

 

If the Landlord refrains in full or in part from demanding the removal of tenant improvements, they or the corresponding portion thereof, which does not have to be removed, shall be transferred to the property of the Landlord without compensation. In this case, the Tenant has no right to take away or dismantle the tenant extensions or part thereof.

 

17

Company signs, illuminated advertising, advertising, antenna systems

 

The façade parts shall not be rented out. Company and advertising signs, billboards, display cases, antenna systems, etc. may only be installed with the written consent by the Landlord and only at certain points on the building as specified by the Landlord. For this purpose, an additional rent is levied, which will be determined on a case-by-case basis at the time the advertising is approved. The approval of the Landlord includes the size, rent, colour, shape, material and allocation of the respective advertising. The Tenant shall assume operation and cleaning costs. In the event maintenance is performed on parts of the building, the Tenant has to disassemble/reinstall the advertising at his own expense. If advertising is removed, any damages must be repaired and the façade surface must be adapted to the other building components by means of suitable measures (cleaning/paintwork).

 

The Tenant shall obtain any required official approvals at his own expense. The Tenant shall also pay for any connection costs and electricity consumption.

 

Where in a property the advertising is done according to a uniform concept, the Tenant undertakes to adapt his advertising to this concept. He shall bear the resulting costs.

 

 

18

Subletting/ Transfer of Tenancy

 

Subletting is only permitted with the written consent of the Landlord, whereby the Tenant must notify the Landlord of the intended contractual conditions as well as personal details of the sub-tenant. The Landlord must be provided with a copy of the sublease agreement. In all other respects, Art. 262 OR. shall apply.

 

The transfer of the Rental Agreement to a third party requires the written consent of the Landlord. The terms of the transfer must be submitted to the Landlord requesting his consent together with an excerpt from the commercial register, an excerpt from the debt collection register and the annual reports of the new tenant for the past three full fiscal years. If any of these documents are missing, the Landlord shall be entitled to refuse his consent to the transfer without further ado. The agreement of "key money" (or similar compensation for the transfer of the Rental Agreement without adequate quid pro quo) is not permitted. If such compensation is agreed, this shall entitle the Landlord to refuse his consent to the transfer. If the Landlord learns at a later stage that such compensation has been agreed and/or paid, this shall constitute an important reason for the extraordinary dissolution of the Agreement with the current Tenant pursuant to Art. 266g OR, whereby the Landlord is entitled to assert the damage caused by the Tenant or his legal successor. In all other respects, Art. 263 OR. applies.

 

19     Premature dissolution of the Agreement     

 

The Landlord may prematurely terminate the Rental Agreement in compliance with the legal periods in addition to the reasons expressly provided for by law if one of the following events occurs:

•

if the rental property is used for a purpose other than the intended one.

•

if the Tenant, his employees or agents breach e.g. cardinal contractual obligations. when transferring the rental property to a third party and/or subletting etc. without the Landlord’s prior written consent.

•

if tradesmen's liens are registered in connection with the Tenant improvements.

 

If the contractual relationship is terminated by extraordinary termination on the part of the Landlord, the Tenant shall be liable for the resulting damage to the Landlord, which includes in particular the total loss of rent up to the first possible termination date of the rental relationship, as well as costs and expenses incurred in connection with the search for a successor tenant (advertisement costs, etc.).

 

20

Return

 

Upon termination of the Rental Agreement, the rental property must be properly vacated

and returned in a clean condition in accordance with the Agreement, including all keys, badges, etc. by 12h00 on the last day of the notice period. If this day falls on a Saturday, Sunday or an officially recognised public holiday at the location of the rental property, the return must take place on the next working day by 12h00 noon latest.

 

 

21

Risk of damage

 

The Landlord shall insure the rental property against damage and natural hazards, not including furnishings and installations.

 

The Tenant undertakes to take out liability insurance with coverage of at least CHF 5.0 million.

 

Further insurances such as water damage to furnishings, operations interruption insurances (fire/water), all damages in connection with glass breakage of display windows, mirrors, glass doors and windows including advertising and illuminated advertising are, if necessary, solely the responsibility of the Tenant.

 

 

22

Right of retention

 

The Tenant’s right of retention on the furnishings and furniture of the Tenant, pursuant to 268 OR. takes precedence over all third-party claims. The Tenant confirms that the furnishings he has brought into the rental property are his own and that no reservation of title of a third party is entered in the register for any inventory item.

 

 

23

Key handover

 

When the rental property is handed over, a list of the keys / badges and the like, which are handed over to the tenant, is created. The Tenant will receive a number of keys / badges. Additional keys/badges may only be made by the Tenant at his own expense and with the written consent of the Landlord.

 

 

On the day the rental property is returned, the Tenant must hand over all keys/badges to the Landlord, including those, which he had made at his own expense. In the event of loss, the Tenant must inform the Landlord. In this case, the Landlord is entitled to replace the locks, keys and badges at Tenant's expense.

 

 

24

Landlord's right of access

 

The Landlord or her representatives are entitled to exercise their right of ownership in order to perform the inspections of the property required for the repairs, maintenance, controls and renovations, subject to a 48 hours advance notice. In justified cases (fire, burglary, emergencies, reduction of damages), the notice requirement shall be omitted.

 

If the Tenant intends to leave the rental property unused for a prolonged period, he shall be obligated to designate a person, who will provide the keys and inform the Landlord or the administration accordingly. The duty of use as per this Agreement shall remain reserved. The keys can also be handed over to the Landlord in a sealed envelope.

 

25

Amendments to the Agreement

 

Amendments and supplements to this Rental Agreement require written form for their validity. This also applies to the repeal of this written form requirement.

 

 

26

Duty to provide information

 

The Tenant is obligated to immediately report to the Landlord all changes of a legal and financial nature which significantly affect the structure of the company (substantial changes in the shareholder structure, company takeover, merger, incorporation into a holding structure or similar). All documents requested by the Landlord must be provided free of charge.

 

The Tenant is furthermore obligated to notify the Landlord of any change to the corporate form, the company name or a limitation of liability.

 

 

27

Severability clause

 

The invalidity or unenforceability of individual provisions of this Agreement shall not affect the legal validity of the Agreement as a whole. In place of the ineffective provision, a provision must be agreed which corresponds to or comes as close as possible to the original legal and economic objective of the parties bona fide.

 

 

28

Jurisdiction/applicable law

 

The parties agree that the competent courts at the location of the property shall have jurisdiction. This Rental Agreement is subject to Swiss Law.

 

 

29

Issue of the Rental Agreement

 

The above Rental Agreement shall be drafted and signed in two identical copies

and only becomes legally valid upon signature by both parties.

30

Integral part of the Rental Agreement

 

The following documents constitute integral parts of this Rental Agreement and are attached to it:

 

•

Annex 1: Floor plans, dated 24/01/2007

 

Lugano, 28/09/2018

 

 

 

 

The Landlord:	The Tenant:
Sofinol SA	NAIE Natural Alternatives International Europe SA
/s/ Pierre Giannoni   ---------------------------------------	/s/ Mark LeDoux                            -----------------------------------------
	/s/ Fausto Petrini                           -----------------------------------------

 

 

                                             

       

 

 

 

 

 

                                 

     

 

 

                 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 31.1

 

Certification of Chief Executive Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

 

I, Mark A. LeDoux, Chief Executive Officer of Natural Alternatives International, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Natural Alternatives International, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 13, 2018

 

/s/ Mark A. LeDoux

Mark A. LeDoux, Chief Executive Officer

 

 

 

 

 

 

Exhibit 31.2

 

Certification of Chief Financial Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

 

I, Michael Fortin, Chief Financial Officer of Natural Alternatives International, Inc., certify that:

 

1. I have reviewed this Quarterly Report on Form 10-Q of Natural Alternatives International, Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: November 13, 2018

 

/s/ Michael E. Fortin

Michael E. Fortin, Chief Financial Officer

 

 

 

 

 

 

Exhibit 32

 

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Natural Alternatives International, Inc., a Delaware corporation, does hereby certify, to such officer’s knowledge, that the Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018 of Natural Alternatives International, Inc. fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) and that information contained in such report fairly presents, in all material respects, the financial condition and results of operations of Natural Alternatives International, Inc.

 

Date: November 13, 2018		/s/ Mark A. LeDoux
		Mark A. LeDoux, Chief Executive Officer
Date: November 13, 2018		/s/ Michael E. Fortin
		Michael E. Fortin, Chief Financial Officer

 

The foregoing certification is furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.