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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(Mark one)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO ______
COMMISSION FILE NO: 000-24567
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NATROL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3560780
------------------------------- -------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
21411 PRAIRIE STREET
CHATSWORTH, CALIFORNIA 91311
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(818) 739-6000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY A 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding as of November 1,2000
----- ----------------------------------
Common stock, $0.01 par value 13,023,075
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PART 1 FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
NATROL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except for share and per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------------------- -----------------------
ASSETS (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,513 $ 485
Accounts receivable, net of allowances of
$460 and $503 at September 30, 2000
and December 31, 1999, respectively 13,191 14,533
Inventories 14,356 15,061
Deferred taxes 1,076 1,076
Income taxes receivable 2,758 -
Prepaid expenses and other current assets 2,341 1,028
-------------------------- -----------------------
Total current assets 37,235 32,183
Property and equipment:
Building and improvements 15,574 15,456
Machinery and equipment 5,525 5,287
Furniture and office equipment 1,824 1,655
-------------------------- -----------------------
22,923 22,398
Accumulated depreciation (3,863) (2,870)
-------------------------- -----------------------
19,060 19,528
Goodwill, net of accumulated amortization of
$3,573 and $1,863 at September 30,
2000 and December 31, 1999, respectively 37,833 39,543
Other assets 87 98
-------------------------- -----------------------
TOTAL ASSETS $ 94,215 $ 91,352
========================== =======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 9,300 $ 1,800
Accounts payable 7,804 7,826
Accrued expenses 1,347 899
Accrued payroll and related liabilities 1,063 1,688
Income taxes payable - 182
Current portion of long-term debt 251 161
-------------------------- -----------------------
Total current liabilities 19,765 12,556
Deferred income taxes, non-current 110 110
Long-term debt, less current portion 8,437 8,700
Stockholders' equity:
Common stock 136 135
Additional paid in capital 61,770 61,334
Retained earnings 6,878 9,071
-------------------------- -----------------------
68,784 70,540
Shares held in treasury, at cost (2,327) -
Receivable from stockholder (554) (554)
-------------------------- -----------------------
Total stockholders' equity 65,903 69,986
-------------------------- -----------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 94,215 $ 91,352
========================== =======================
</TABLE>
See accompanying notes
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NATROL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except for share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
------------------- ------------------- ------------------- ------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 22,283 $ 21,174 $ 69,061 $ 56,874
Cost of goods sold 12,109 10,175 38,829 27,123
------------------- ------------------- ------------------- ------------------
Gross profit 10,174 10,999 30,232 29,751
Selling and marketing expenses 7,652 5,081 24,038 13,885
General and administrative expenses 2,926 2,027 8,560 6,061
------------------- ------------------- ------------------- ------------------
Total operating expenses 10,578 7,108 32,598 19,946
------------------- ------------------- ------------------- ------------------
Operating income (loss) (404) 3,891 (2,366) 9,805
Interest income 27 252 70 723
Interest expense (463) (47) (1,069) (82)
------------------- ------------------- ------------------- ------------------
Income (loss) before income
tax provision (840) 4,096 (3,365) 10,446
Income tax provision (benefit) (319) 1,557 (1,172) 3,987
------------------- ------------------- ------------------- ------------------
Net income (loss) $ (521) $ 2,539 $ (2,193) $ 6,459
=================== =================== =================== ==================
Basic earnings (loss) per
share $ (0.04) $ 0.19 $ (0.16) $ 0.49
Diluted earnings (loss) per
share $ (0.04) $ 0.19 $ (0.16) $ 0.47
Weighted average shares
outstanding - basic 13,112,295 13,340,495 13,305,898 13,319,203
Weighted average shares
outstanding - diluted 13,112,295 13,652,060 13,305,898 13,661,457
</TABLE>
See accompanying notes
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NATROL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except for share and per share amounts)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEP 30
2000 1999
------------------ -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (2,193) $ 6,459
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 993 790
Amortization of goodwill 1,710 705
Provision for bad debts (42) 115
Shares issued for services 126 -
Changes in operating assets and liabilities:
Accounts receivable 1,384 (3,371)
Inventories 705 981
Income taxes receivable/payable (2,940) (386)
Prepaid expenses and other current assets (1,313) (316)
Accounts payable (22) (1,806)
Accrued expenses 448 575
Accrued payroll and related liabilities (625) 692
------------------ -------------------
Net cash provided by (used in) operating activities (1,769) 4,438
INVESTING ACTIVITIES
Purchases of marketable securities - (39,173)
Sales of marketable securities - 34,579
Purchases of property and equipment (525) (1,797)
Other assets 11 (16)
------------------ -------------------
Net cash used in investing activities (514) (6,407)
FINANCING ACTIVITIES
Proceeds from line of credit borrowings 7,500 -
Repayments on long-term debt (173) (32)
Purchases of treasury shares (2,327) -
Proceeds from stock purchase plan 47 62
Proceeds from exercise of stock options 264 54
Proceeds from long-term debt - 3,501
Capitalized loan fees - (50)
------------------ -------------------
Net cash provided by financing activities 5,311 3,535
------------------ -------------------
Net increase in cash and cash equivalents 3,028 1,566
Cash and cash equivalents, beginning of period 485 559
------------------ -------------------
Cash and cash equivalents, end of period $ 3,513 $ 2,125
================== ===================
</TABLE>
See accompanying notes
4
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NATROL, INC.
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated financial
statements include all necessary adjustments (consisting of normal recurring
accruals) and present fairly the consolidated financial position of Natrol, Inc.
and its subsidiaries (collectively, the "Company" or "Natrol") as of September
30, 2000, and the results of its operations for the three and nine months ended
September 30, 2000 and 1999 and cash flows for the nine months ended September
30, 2000 and 1999, in conformity with generally accepted accounting principles
for the interim financial information applied on a consistent basis. The results
of operations for the three months and nine months ended September 30, 2000 are
not necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures which are normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. These financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in Natrol's December 31, 1999 audited consolidated financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 1999 as filed with the Securities and Exchange Commission (file number
000-24567).
Certain reclassifications have been made to the December 31, 1999 and September
30, 1999 balances so they would be comparable to the current period
presentation.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
--------------------------
<S> <C> <C>
Raw material and packaging supplies $ 6,138 $ 6,440
Finished goods 8,218 8,621
--------------------------
$ 14,356 $ 15,061
==========================
</TABLE>
3. COMPREHENSIVE INCOME
The Company's comprehensive income items are not material at September 30, 2000
and 1999, respectively, or December 31, 1999, and therefore no disclosures have
been made.
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4. EARNINGS PER SHARE
The Company calculates earnings per share in accordance with SFAS No. 128
"Earnings per share". Basic earnings per share has been computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share has been computed by dividing net income by the weighted
average of securities or other contracts to issue Common Stock as if these
securities were exercised or converted to Common Stock. Common Stock equivalent
shares from stock options representing 1,195,900 shares have been excluded from
the computation of diluted earnings per share because the effect would be
antidilutive.
5. STOCKHOLDERS' EQUITY
STOCK OPTIONS
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does not
require, companies to record compensation cost for stock-based employee
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees." Please refer to Natrol's prospectus dated July 22, 1998 with the
Securities and Exchange Commission for detail on the Company's Amended and
Restated 1996 Stock Option and Grant Plan ("the Stock Option Plan") and the
related disclosures. During the three months ended September 30, 2000, 450,000
options were granted.
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Information contained or incorporated by reference in this quarterly report on
Form 10-Q and in other SEC filings by the Company contains "forward looking
statements." The Company is including this statement for the express purpose of
availing itself of protections of the safe harbor provided by the Private
Securities Litigation Reform Act of 1995 with respect to all such forward
looking statements. Examples of forward looking statements include, but are not
limited to, the use of forward-looking terminology such as "believes,"
"expects," "may," "will," "should", "intend", "estimate", "assume", "plan" or
"anticipates" or the negative thereof, other variations thereon, or comparable
terminology, or by discussions of strategy that predict or indicate future
events or trends or that are not historical facts. The Company cannot assure the
future results or outcome of the matters described in these statements; rather,
these statements merely reflect its current expectations of the approximate
outcome of the matter discussed. The Company does not undertake to update any
such statements at any time in the future.
The Company's ability to predict results or the effect of certain events on the
Company's operating results is inherently uncertain. Forward-looking statements
should not be relied on since they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the Company's control.
These risks, uncertainties and other factors may cause actual results,
performance or achievements to differ materially from the anticipated future
results, performance or achievements expressed or implied by such
forward-looking statements. Therefore, the Company wishes to caution each reader
of this report
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to carefully consider the following factors and certain other factors discussed
herein and in other past reports, including but not limited to the Company's
annual report on Form 10-K for the year ended December 31, 1999, which is filed
with the Securities and Exchange Commission. The factors discussed herein and
contained in that Form 10-K may not be exhaustive. Therefore, the factors
contained in that Form 10-K should be read together with other reports and
documents that are filed by the Company with the SEC from time to time,
including this quarterly report on Form 10-Q, which may supplement, modify,
supersede or update those factors.
Factors that could cause or contribute to the Company's actual results differing
materially from those discussed herein or for the Company's stock price to be
affected adversely include, but are not limited to: (i) industry trends,
including a general downturn or slowing of the growth of the dietary supplement
industry which has occurred during the past year and may continue, (ii)
increased competition from current competitors and new market entrants, (iii)
adverse publicity regarding the dietary supplement industry or the Company's
products, (iv) the Company's dependence upon its ability to develop new
products,(v) an increase in returns of the Company's products sold in past
years, (vi) the Company's ability to gain or expand distribution within new or
existing accounts and new or existing channels of trade, (vii) adverse changes
in government regulation, (viii) exposure to product liability claims,(ix)
dependence on significant customers, (x) the Company's ability to keep and
attract key management employees, (xi) the Company's inability to manage growth
and execute its business plan, (xii) the Company's ability to consummate future
acquisitions and its ability to integrate acquired businesses, including without
limitation Prolab Nutrition, Inc. ("Prolab"), acquired in October, 1999, and to
retain key personnel associated with any acquisition, (xiii) the absence of
clinical trials for many of the Company's products, (xiv) the Company's
inability to obtain raw materials that are in short supply, (xv) sales and
earnings volatility, (xvi) the Company's ability to manufacture its products
efficiently, (xvii) the Company's ability to manage inventory or sell its
inventory before such inventory becomes outdated, (xviii) the Company
experiencing a high rate of product returns, (xix) the Company's reliance on
independent brokers to sell its products, (xx) the inability of the Company to
protect its intellectual property, (xxi) control of the Company by principal
shareholders, (xxii) the possible sale of large amounts of stock by controlling
shareholders, (xxiii) volatility in the stock markets, (xxiv) a general downturn
in the national economy as a whole, and (xxv) continued market acceptance of
Natrol supplements, Laci Le Beau teas, Prolab's sports nutrition products, and
Essentially Pure Ingredients' raw material products.
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE RESPONSE TO
PART I, ITEM 1 OF THIS REPORT.
THREE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
NET SALES. Sales are recognized at the time product is shipped. Net sales are
net of discounts, allowances, and estimated returns and credits. Net sales
increased 5.2%, or $1.1 million, to $22.3 million for the three months ended
September 30, 2000 from $21.2 million for the three months ended September 30,
1999. Net sales during the quarter were adversely affected by a high level of
returns, similar to those experienced during the second quarter of the year.
Returns were due to slow retail sales of some of the Company's products as well
as weak industry trends in general which have resulted in major chain drug store
and mass market retailers adjusting inventory levels for the vitamins, minerals
and supplements as a category of trade. We believe that it is likely that these
adverse trends in
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the industry will likely continue to adversely affect our results and
profitability through the end of 2000 and perhaps into 2001. Net sales were also
affected by a $1.8 million reduction in private label business as compared to
the third quarter of 1999. The Company's private label business increased
sharply during the last three quarters of 1999 due to business from one direct
marketing firm which the Company considers a non-recurring event. Private label
sales, without giving effect to the non-recurring business from the direct
marketing firm, were in line with the Company's past historical performance.
This direct marketing firm accounted for $1.1 million, $1.9 million and $1.2
million of the Company's private label business in the second, third and fourth
quarters of 1999 respectively. Partially offsetting these negative effects to
net sales were $6.0 million of net sales generated by the Company's Prolab
sports nutrition subsidiary which was acquired in October 1999. The Natrol brand
continued to suffer during the quarter from a decline in the Company's herbal
category caused primarily by a decline in the sales of two products, Gingko
Biloba and St. John's Wort. These products received substantial national media
attention during 1998. During 1999, sales of these products began to decline
industry wide. Sales of these products have declined in each of the last five
quarters. Offsetting the decline in the herbal category and private label sales
were increases in sales from the Company's other products including the
Company's joint care products, in particular MSM and Cetylpure products.
GROSS PROFIT. Gross profit decreased 7.5%, or $825,000, to $10.2 million for the
three months ended September 30, 2000 from $11.0 million for the three months
ended September 30, 1999. Gross margin decreased to 45.7% for the three months
ended September 30, 2000 from 52.0% for the three months ended September 30,
1999. Gross margin declined due to excessive returns, inventory adjustments, and
the makeup of the Company's business. In particular, gross margin from Prolab
products are in the 35% to 40% range, which is less than the historical gross
margin of the Company's other business. In addition, returns during the quarter
reduced net sales without reducing the cost of goods sold thereby further
decreasing gross margin.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses consist primarily
of advertising and promotional expenses, cost of distribution, and related
payroll expenses and commissions. Selling and marketing expenses increased
50.6%, or $2.6 million, to $7.7 million for the three months ended September 30,
2000 from $5.1 million for the three months ended September 30, 1999. The
increase was primarily due to an increase in sales incentives and promotional
programs with retailers designed to secure shelf space and to increase sales to
consumers in response to adverse industry trends. Of the total $2.6 million
increase, $1.3 million was attributable to the Prolab division.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses consist
primarily of personnel costs related to general management functions, finance,
accounting and information systems, research and development expenses, as well
as professional fees related to legal, audit and tax matters and depreciation
and amortization. General and administrative expenses increased 44.4%, or
$899,000, to $2.9 million for the three months ended September 30, 2000 from
$2.0 million for the three months ended September 30, 1999. This increase was
primarily attributable to building the infrastructure to support and manage the
Company's growth, including its Prolab, Inc. sports nutrition division acquired
in October 1999, with corresponding increases in payroll and depreciation.
Additional administrative expenses attributable to the acquisition of Prolab
amounted to approximately $700,000 inclusive of goodwill of $335,000 in the
quarter.
INTEREST INCOME. Interest income decreased $225,000 to $27,000 for the three
months ended September 30, 2000 from $252,000 for the three months ended
September 30, 1999. The decrease was the result of lower average cash balances
as a result of the use of approximately $29.0 million of cash to complete the
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purchase of Prolab in October 1999.
INTEREST EXPENSE. Interest expense increased from $47,000 for the three months
ended September 30, 1999 to $463,000 for the three months ended September 30,
2000. The increase was due to mortgage debt incurred during the last three
quarters of 1999 to purchase the Company's 80,000 sq. ft. headquarters facility
as well as a 132,000 sq. ft. shipping facility and to interest payments made on
the Company's short-term borrowings from its line of credit.
INCOME TAX PROVISION. The Company's effective tax rate was 38.0% during the
three months ended September 30, 2000 and the three months ended September 30,
1999. Due to the Company's net loss for the three months ended September 30,
2000, the Company recorded an income tax benefit for the quarter.
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND SEPTEMBER 30, 1999
NET SALES. Net sales increased 21.4%, or $12.2 million, to $69.1 million for the
nine months ended September 30, 2000 from $56.9 million for the nine months
ended September 30, 1999. Net sales during the period were affected by returns
of product during the year 2000 which were substantially in excess of historical
returns. Net sales were also affected by a $3.2 million reduction in private
label business as compared to the first nine months of 1999. The Company's
private label business increased sharply during 1999 due to business from one
direct marketing firm which the Company considers a non-recurring event. Private
label sales, without the non-recurring business from the direct marketing firm,
were in line with the Company's past historical performance. Offsetting those
decreases were $18.0 million of the Company's net sales attributable to sales
from the Company's Prolab, Inc. sports nutrition division which was acquired in
October 1999. The Natrol brand continued to suffer during the first nine months
from a decline in the Company's herbal category caused primarily by a decline in
the sales of Gingko Biloba and St. John's Wort. Sales of these products have
declined in each of the last five quarters. Offsetting the decline in the herbal
category and private label sales were increases in sales from the Company's
other products with the largest growth segment being the Company's joint care
products, in particular MSM and Cetylpure products.
GROSS PROFIT. Gross profit increased 1.6%, or $481,000, to $30.2 million for the
nine months ended September 30, 2000 from $29.8 million for the nine months
ended September 30, 1999. Gross margin decreased to 43.8% for the nine months
ended September 30, 2000 from 52.3% for the nine months ended September 30,
1999. Gross margin declined due to excessive returns, inventory adjustments, and
the makeup of the Company's business. IN particular, gross margin from Prolab
products are in the 35% to 40% range which is less than the historical gross
margin of the Company's other business. Approximately $18.0 million of the
Company's net sales was generated from the Company's lower margin Prolab sports
nutrition business. In addition, returns during the period reduced net sales
without reducing the cost of goods sold thereby further decreasing gross margin.
SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased 73.1%,
or $10.2 million, to $24.0 million for the nine months ended September 30, 2000
from $13.9 million for the nine months ended September 30, 1999. The increase
was primarily due to an increase in sales incentives and promotional programs
with retailers designed to secure shelf space, increase sales to consumers and
to offset adverse industry trends. Of the total $10.2 million increase, $3.7
million was attributable to the Prolab division.
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GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 41.2%, or $2.5 million, to $8.6 million for the nine months ended
September 30, 2000 from $6.1 million for the nine months ended September 30,
1999. This increase was primarily attributable to building the infrastructure to
support and manage the Company's growth, including its Prolab, Inc. sports
nutrition division acquired in October 1999, with corresponding increases in
payroll and depreciation. Additional administrative expenses attributable to the
acquisition of Prolab amounted to approximately $2.2 million inclusive of
goodwill of $1.0 million in the period.
INTEREST INCOME. Interest income decreased $653,000 to $70,000 for the nine
months ended September 30, 2000 from $723,000 for the nine months ended
September 30, 1999. The decrease is the result of lower average cash balances as
a result of the use of approximately $29.0 million of cash to complete the
purchase of Prolab in October 1999.
INTEREST EXPENSE. Interest expense increased to $1.1 million for the nine months
ended September 30, 2000 from $82,000 for the nine months ended September 30,
1999. The increase was due to mortgage debt incurred during the last three
quarters of 1999 to finance the purchase of the Company's 80,000 sq. ft.
headquarters facility as well as a 132,000 sq. ft. shipping facility and to
interest payments made on the Company's short-term borrowings from its line of
credit.
INCOME TAX PROVISION. The Company's effective tax rate was reduced to 34.8% in
the nine months ended September 30, 2000 from 38.2% in the nine months ended
September 30, 1999. Due to the Company's net loss for the nine months ended
September 30, 2000, the Company recorded an income tax benefit for the period.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, the Company had working capital of $17.5 million, as
compared to $19.6 million in working capital at December 31, 1999. The decrease
was primarily due to a decrease in accounts receivable and inventories and an
increase in borrowings on the Company's credit facility offset by an increase in
income taxes receivable and prepaid expenses and a decrease in payables and
other accrued expenses.
Net cash used by operating activities was $1.8 million for the nine months ended
September 30, 2000 as compared to $4.4 million of cash provided by operating
activities during the nine months ended September 30, 1999. The decrease in cash
provided by operating activities was primarily due to a net loss of $2.2 million
for the period, an increase in income taxes receivable of $2.9 million, an
increase of other prepaid expenses of $1.3 million and a decrease of accounts
payable, accrued expenses and accrued payroll of $199,000. Offsetting these uses
of cash were depreciation of $993,000, amortization of goodwill of $1.7 million,
a decrease in accounts receivable of $1.4 million, a decrease in inventories of
$705,000, and the exchange of shares of the Company's stock for services
provided of $126,000.
Net cash used in investing activities was $514,000 for the nine months ended
September 30, 2000 and $6.4 million during the nine months ended September 30,
1999. During the first nine months of 2000, the Company invested $525,000 in new
plant, property and equipment which was offset by a reduction in other assets.
During the first nine months of 1999, the Company invested $1.8 million in new
plant, property and equipment. In addition, net changes in marketable securities
amounted to a net investment of $4.6 million during the first nine months of
1999.
Cash provided by financing activities during the nine months ended September 30,
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2000 was $5.3 million as opposed to the nine months ended September 30, 1999
when financing activities provided $3.5 million in cash. Net cash provided by
financing activities during the nine months ended September 30, 2000 consisted
of $7.5 million from the Company's line of credit, $264,000 the Company received
from the exercise of employee stock options and $47,000 received from the
Company's employee stock purchase plan. These proceeds were offset by the
Company's repurchase of $2.3 million of stock which it has classified as
treasury shares and $173,000 of repayments of its long-term debt. Net cash
provided by financing activities during the nine months ended September 30, 1999
consisted of $3.5 million received as a result of the mortgaging of the
Company's headquarters facility located in Chatsworth, California as well as
$116,000 from the sale of stock to employees pursuant to the Company's Stock
Purchase Plan and the exercise of stock options by certain employees. The
Company recorded $50,000 of capitalized loan fees in conjunction with the
financing of its headquarters building.
The Company's cash balance at September 30, 2000 was approximately $3.5 million.
The Company believes that this amount, together with cash generated from
operations and the cash availability from its line of credit, will be sufficient
to fund its anticipated working capital needs and capital expenditures (other
than financing necessary to complete future acquisitions, if any) for at least
the next 12 months. Future acquisitions, if any, would likely require funding
with future borrowings. Future borrowings may include covenants restricting the
Company's ability to issue dividends or to make additional acquisitions. There
can be no assurance that attractive acquisition opportunities will be available
to the Company or will be available at prices and upon such other terms that are
attractive to the Company. The Company regularly evaluates the potential
acquisition of other businesses, products and product lines and may hold
discussions regarding such potential acquisitions. As a general rule, the
Company will publicly announce such acquisitions only after a definitive
agreement has been signed. The Company currently has no commitments or
agreements with respect to any acquisition. In addition, in order to meet its
long-term liquidity needs or consummate future acquisitions, the Company may be
required to incur additional indebtedness or issue additional equity and debt
securities, subject to market and other conditions. There can be no assurance
that such additional financing will be available on terms acceptable to the
Company or at all. The failure to raise the funds necessary to finance its
future cash requirements or consummate future acquisitions could adversely
affect the Company's ability to pursue its strategy and could negatively affect
its operations in future periods.
IMPACT OF INFLATION
Generally, inflation has not had a material impact on the Company's historical
operations or profitability.
ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements. The Company is exposed to market
risk related to change in interest rates. The Company's long-term debt is at low
fixed rates and its credit facility borrowings are at variable rates and
therefore the Company does not believe it is subject to significant interest
rate risk.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) No current reports on Form 8-K were filed by the Company during the
quarter for which this report is filed.
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<PAGE>
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.
NATROL, INC.
Date: 11/13/00 By: /s/ ELLIOTT BALBERT
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Chairman, President and Chief Executive Officer
Date: 11/13/00 By: /s/ DENNIS R. JOLICOEUR
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Chief Financial Officer and Executive
Vice President
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