<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15701
NATURAL ALTERNATIVES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 84-1007839
(State of other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1185 LINDA VISTA DRIVE, SAN MARCOS, CALIFORNIA 92069
(Address of principal executive offices)
(Zip Code)
(760) 744-7340
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ ------
5,431,764
(Number of shares of common stock of the registrant outstanding as of
October 30, 1997)
1
<PAGE> 2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
----------- -----------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 2,006,149 $ 3,469,739
Accounts receivable - less allowance for doubtful
accounts of $232,000 at September 30, 1997 and
$231,000 at June 30,1997 5,662,922 6,990,121
Accounts receivable, related party - less allowance
for doubtful accounts of $775,000 at September 30
and June 30,1997 -- --
Inventory 7,071,082 5,690,850
Tax refund receivable 45,209 842,209
Notes receivable - current portion 234,627 235,613
Deferred income taxes 851,000 851,000
Deposits 219,089 322,269
Other current assets 802,045 456,178
----------- -----------
Total Current Assets 16,892,123 18,857,979
----------- -----------
Property and equipment, net 9,120,463 8,259,705
----------- -----------
Other Assets:
Investments 58,862 58,862
Notes receivable, less current portion 256,373 261,697
Other noncurrent assets, net 290,110 290,932
----------- -----------
Total Other Assets 605,345 611,491
----------- -----------
TOTAL ASSETS $26,617,931 $27,729,175
=========== ===========
</TABLE>
2
<PAGE> 3
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
------------ ------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 5,303,885 $ 6,907,998
Current installments of long-term debt 175,359 164,266
Current installments of capital lease obligations 26,220 25,189
Accrued compensation and employee benefits 255,245 321,337
------------ ------------
Total Current Liabilities 5,760,709 7,418,790
Deferred income taxes 487,000 487,000
Long-term debt, less current installments 1,047,565 1,100,285
Capital lease obligations, less current installments 15,000 23,613
------------ ------------
Total Liabilities 7,310,274 9,029,688
------------ ------------
Stockholders' Equity:
Preferred stock; $.01 par value; 500,000 shares
authorized; none issued or outstanding -- --
Common stock; $.01 par value; 8,000,000 shares
authorized; issued and outstanding 5,431,764 at
September 30, 1997 and 5,429,764 at June 30, 1997 54,318 54,298
Additional paid-in capital 6,685,156 6,675,426
Retained earnings 12,619,433 12,021,013
Net unrealized losses on investments (51,250) (51,250)
------------ ------------
Total Stockholders' Equity 19,307,657 18,699,487
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 26,617,931 $ 27,729,175
============ ============
</TABLE>
3
<PAGE> 4
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 12,032,576 $ 11,437,022
Cost of goods sold 8,871,222 8,176,382
------------ ------------
GROSS PROFIT 3,161,354 3,260,640
Selling, general &
administrative expenses 2,206,644 1,747,915
------------ ------------
INCOME FROM OPERATIONS 954,710 1,512,725
------------ ------------
Other income (expense):
Interest income 35,800 46,691
Interest expense (30,090) (42,543)
Other, net -- 1,500
------------ ------------
5,710 5,648
------------ ------------
EARNINGS BEFORE
INCOME TAXES 960,420 1,518,373
Income taxes 362,000 618,000
------------ ------------
NET EARNINGS $ 598,420 $ 900,373
============ ============
NET EARNINGS PER COMMON SHARE:
Primary and fully diluted $ 0.11 $ 0.16
============ ============
</TABLE>
4
<PAGE> 5
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Net
Unrealized
Additional Gains
Common Stock Paid-in Retained (Losses) on
Shares Amount Capital Earnings Investments Total
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 5,429,764 $ 54,298 $ 6,675,426 $12,021,013 $ (51,250) $18,699,487
Issuance of common
stock upon exercise of
employee stock options 2,000 20 9,730 -- -- 9,750
Net earnings -- -- 598,420 -- 598,420
--------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 1997 5,431,764 $ 54,318 $ 6,685,156 $12,619,433 $ (51,250) $19,307,657
========= =========== =========== =========== =========== ===========
</TABLE>
5
<PAGE> 6
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended September 30
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 598,420 $ 900,373
Adjustments to reconcile net
earnings to net cash provided by
operating activities:
Bad debt expense 90,000 96,621
Tax benefit on option exercise 0 45,900
Depreciation and amortization 346,234 293,026
Loss on disposal of assets 0 1,500
Other (5,585) (6,704)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 1,237,199 (63,273)
Inventory (1,380,232) (1,947,857)
Deposits 103,180 (236,530)
Tax refund receivable 797,000 --
Other assets (345,044) (176,012)
(Decrease) increase in:
Accounts payable (1,604,113) 1,271,514
Accrued compensation and employee benefits (66,092) (62,031)
Income taxes payable -- 124,141
----------- -----------
Net Cash Provided by Operating Activities (229,033) 240,668
----------- -----------
</TABLE>
(Continued)
6
<PAGE> 7
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ -- $ 1,250
Capital expenditures (1,206,991) (233,107)
Issuance of notes receivable (4,625) (26,000)
Repayment of notes receivable 16,518 18,749
----------- -----------
Net Cash Used in Investing Activities (1,195,098) (239,108)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (49,209) (69,954)
Issuance of common stock 9,750 116,500
----------- -----------
Net Cash Provided by (Used in) Financing Activities (39,459) 46,546
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (1,463,590) 48,106
Cash and Cash Equivalents at Beginning of Period 3,469,739 1,887,427
----------- -----------
Cash and Cash Equivalents at End of Period $ 2,006,149 $ 1,935,533
=========== ===========
</TABLE>
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments, consisting of a normal recurring
nature considered necessary for a fair presentation, have been included. It is
suggested that these consolidated financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's annual
report on Form 10-K for the year ended June 30, 1997. The results of operations
for the periods ended September 30, 1997 and 1996 are not necessarily indicative
of the operating results for the full year.
Certain amounts in prior period financial statements have been reclassified to
conform to the current period financial statements.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Millennium Health International, Inc. (formerly
Pro-Lean, Inc. and prior to that Sonergy, Inc.), CellLife International, Inc.
and CellLife Pharmaceuticals International, Inc. all of which had been
administered and operated out of the Company's facilities. During fiscal 1997,
the assets and liabilities of each of the subsidiaries were transferred to the
Company and their operations were assumed by the Company. All significant
intercompany accounts and transactions for the three months ended September 30,
1996 have been eliminated.
NOTE 3 - INVENTORIES
Inventories are comprised of:
<TABLE>
<CAPTION>
September 30 June 30
1997 1997
---------- ----------
<S> <C> <C>
Raw materials $3,255,526 $2,747,451
Work in progress 3,291,898 2,598,430
Finished goods 523,658 344,969
---------- ----------
$7,071,082 $5,690,850
========== ==========
</TABLE>
8
<PAGE> 9
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - NET EARNINGS PER SHARE
Primary earnings per share is computed based upon the weighted average number of
shares outstanding during the period plus the dilutive effects of common shares
contingently issuable from stock options. Fully diluted earnings per share
reflect additional dilution related to common stock equivalents due to the use
of the market price at the end of the period, when higher than the average price
for the period. Common stock options and common stock purchase warrants are
excluded from the computation of net earnings per share if their effect is
anti-dilutive.
The weighted average number of shares outstanding and common stock equivalents
are as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30
1997 1996
--------- ---------
<S> <C> <C>
Primary and fully diluted 5,675,789 5,653,956
</TABLE>
NOTE 5 - STOCKHOLDERS' EQUITY
Effective June 5, 1992, the Company adopted the 1992 Incentive Stock Option Plan
for which 500,000 common shares have been reserved for issuance to officers,
directors, and key employees of the Company. The plan provides that no option
may be granted at an exercise price less than the fair market value of the
common stock of the Company on the date of grant. On September 9, 1993, 200,000
options were granted at the fair market value price of $4.875 per share.
Also effective June 5, 1992, the Company adopted the 1992 Nonqualified Stock
Option Plan and reserved a total of 250,000 common shares for issuance to
officers, employees, and consultants of the Company. On September 9, 1993,
250,000 options were granted at the fair market value price of $4.875 per share.
Effective December 9, 1994, the Board of Directors approved the 1994
Nonqualified Stock Option Plan for which 500,000 common shares were reserved for
issuance to officers, employees, and consultants of the Company. On January 24,
1995, 500,000 options were granted at the fair market value price of $4.625 per
share.
All stock options under each of the plans have five-year terms and all options
became fully vested one year after their grant date.
(continued)
9
<PAGE> 10
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - STOCKHOLDERS' EQUITY (continued)
Stock option activity during the periods indicated is summarized below:
<TABLE>
<CAPTION>
1992 1992 1994
Incentive Nonqualified Nonqualified
Plan Plan Plan
------- ------- -------
<S> <C> <C> <C>
Outstanding and exercisable at June 30, 1997 93,169 220,942 451,500
Granted at $4.625 per share -- -- --
Exercised -- 2,000 --
------- ------- -------
Outstanding and exercisable at September 30, 1997 93,169 218,942 451,500
======= ======= =======
Weighted-average exercise price, June 30, 1997
and June 30, 1996 $ 4.875 $ 4.875 $ 4.625
Weighted-average remaining contractual life One Year One Year Three Years
Available for grant at September 30, 1997 300,000 --- ---
======= ======= =======
</TABLE>
Effective January 24, 1995, 100,000 options were granted pursuant to a
consulting agreement at the fair market value price of $4.625 per share. On
September 20, 1996, 45,000 options were granted pursuant to a consulting
agreement at prices ranging from $9.00 to $15.00 per share. None of these
options had been exercised as of September 30, 1997.
NOTE 6 - PENSION PLAN
Effective January 1, 1997, the Company adopted a defined benefit pension plan
(the "Plan") covering substantially all of its employees. The benefits are based
on years of service and the employee's compensation during the five years before
retirement. The Company will make annual contributions to the Plan equal to the
maximum amount that can be deducted for income tax purposes. For the three
months ended September 30, 1997, the estimated current service cost (normal
cost) and the amortized portion of the unfunded estimated accrued liability for
prior service cost, using a 30-year funding period, amounted to $79,000. This
amount has been accrued in the current period.
10
<PAGE> 11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7 - MAJOR CUSTOMERS
The Company had substantial sales to five separate customers during one or more
of the periods shown in the following table. The loss of any of these customers
could have an adverse impact on the Company's revenues and earnings in the
short-term. Sales by customer, representing 10% or more of the respective
period's total sales, are shown below by industry segment.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996
------------------------ -------------------------
Sales by Sales by
Industry Segment Customer %(a) Customer %(a)
- --------------------------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C>
Multi-level Distribution:
Customer 1 $4,763,331 40% $2,637,830 23%
Customer 2 2,023,937 17% 2,740,933 24%
Customer 3 1,370,156 11% 1,481,048 13%
Customer 4 (b) 1,351,063 12%
Customer 5 1,253,346 10% (b)
---------- --- ---------- ---
$9,410,770 78% $8,210,874 72%
========== === ========== ===
</TABLE>
(a) Percent of total sales (b) Sales for the period were less than 10% of total
sales.
11
<PAGE> 12
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
projected in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in this section and those discussed in the Company's Annual Report on Form 10-K.
RESULTS OF OPERATIONS
FIRST QUARTER OF FISCAL 1998 AND 1997
The Company's consolidated net sales for the quarter ended September 30, 1997,
amounted to $12.0 million, an increase of $.6 million over the $11.4 million
generated during the quarter ended September 30, 1996. The 5% increase in sales
is primarily attributable to the ramping up of the Company's new tablet
manufacturing facility, which helped boost sales in Asia, and sales to new
customers. International sales for the quarter ended September 30, 1997,
amounted to $3.6 million compared to $.3 million for the quarter ended September
30, 1996. The increases in sales from international and new customer business
were partially offset by decreased sales to certain other customers.
Gross profit margins were 26.3% for the quarter ended September 30, 1997,
compared to 28.5% for the quarter ended September 30, 1996. The decrease in
margins was due to cost increases incurred in the fourth quarter of fiscal 1997
for certain raw materials and for subcontracted packaging.
Selling, general and administrative expenses increased as a percentage of
revenues to 18.3% for the quarter ended September 30, 1997 from 15.3% for the
quarter ended September 30, 1996. The increase of $459,000 was primarily due to
expenses associated with the employee pension plan, which was adopted on January
1, 1997, and higher depreciation and other start-up expenses connected with the
new tablet manufacturing facility.
Net earnings for the quarter ended September 30, 1997, amounted to $.6 million,
a $.3 million decrease from the $.9 million in net earnings produced for the
quarter ended September 30, 1996. The decrease in net earnings was due primarily
to the decline in gross profit margins and the increase in selling, general and
administrative expenses discussed above.
Earnings per share for the quarter ended September 30, 1997, was $.11 compared
to $.16 for the quarter ended September 30, 1996. The decrease was due to the
reasons discussed above.
12
<PAGE> 13
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, the Company had working capital of $11,298,000 compared
to $11,439,000 as of June 30, 1997. Decreases in cash and cash equivalents and
accounts receivable were offset by an increase in inventories and a decrease in
accounts payable. Inventory levels at September 30, 1997, compared to sales,
increased moderately relative to historical levels, due principally to increased
stocking for fulfillment of an increased sales order backlog.
The Company has purchase commitments approximating $600,000 for additional
production equipment that is expected to be placed in service in the second
quarter of fiscal 1998. These expenditures are expected to be funded from cash
flow from operating activities.
The Company believes it has sufficient sources of funds to finance its ongoing
operations and meet its capital asset purchases, as well as future growth
through a combination of internally generated cash flow, revolving lines of
credit and equipment financing. The Company has revolving line of credit
agreements permitting borrowings up to $3,000,000, which are secured by the
Company's receivables, inventory, equipment, and vehicles and bear interest at
the bank's prime rate. The bank's prime rate at September 30, 1997 was 8.5%. The
lines of credit expire on December 5, 1997; management expects such lines to be
renewed in the normal course of business. The company had no borrowings at
September 30, 1997, or at June 30, 1997, under these credit lines.
13
<PAGE> 14
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, based in part on the
advice of counsel, the ultimate disposition of these matters will not have a
material adverse impact on the Company's consolidated financial position,
operations or cash flows.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: The following exhibits are filed herewith:
11.0. Computation of weighted average common shares outstanding.
27.0. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended September 30,
1997.
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NATURAL ALTERNATIVES INTERNATIONAL, INC.
MARK A. LE DOUX Date: November 12, 1997
- -------------------------------
Mark A. Le Doux
Chief Executive Officer
WILLIAM P. SPENCER Date: November 12, 1997
- -------------------------------
William P. Spencer
President
15
<PAGE> 1
EXHIBIT 11
NATURAL ALTERNATIVES INTERNATIONAL, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
Primary and
Fully Diluted
Weighted
Average Shares
From To Days Outstanding Shares Outstanding
---- -- ---------------- ------ --------------
<S> <C> <C> <C> <C> <C>
For the Three Months Ended September 30, 1997:
Beginning shares 07/01/97 09/30/97 92 5,429,764 5,429,764
Exercise of employee stock options, by date: 08/08/97 09/30/97 53 2,000 1,152
Dilutive effect of common
stock equivalents:
866,611 stock options at
average price per share n/a 244,873
--------- ---------
Ending shares 5,431,764 5,675,789
========= =========
Net earnings $598,420
Net earnings per share $0.11
=========
For the Three Months Ended September 30, 1996:
Beginning shares 07/01/96 09/30/96 92 5,351,875 5,351,875
Exercise of employee stock options, by date: 07/05/96 09/30/96 88 5,000 4,783
07/22/96 09/30/96 71 4,000 3,087
07/25/96 09/30/96 68 6,000 4,435
08/07/96 09/30/96 55 4,000 2,391
08/13/96 09/30/96 49 5,000 2,663
Dilutive effect of common
stock equivalents:
922,500 stock options at
average price per share n/a 284,722
--------- ---------
Ending shares 5,375,875 5,653,956
========= =========
Net earnings $900,373
Net earnings per share $0.16
=========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the unaudited
consolidated financial statements for the quarter ended September 30, 1997, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,006,149
<SECURITIES> 0
<RECEIVABLES> 6,669,922
<ALLOWANCES> 1,007,000
<INVENTORY> 7,071,082
<CURRENT-ASSETS> 16,892,123
<PP&E> 15,312,236
<DEPRECIATION> 6,191,773
<TOTAL-ASSETS> 26,617,931
<CURRENT-LIABILITIES> 5,760,709
<BONDS> 1,047,565
0
0
<COMMON> 54,318
<OTHER-SE> 19,263,339
<TOTAL-LIABILITY-AND-EQUITY> 26,617,931
<SALES> 12,032,576
<TOTAL-REVENUES> 12,032,576
<CGS> 8,871,222
<TOTAL-COSTS> 11,077,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 30,090
<INCOME-PRETAX> 960,420
<INCOME-TAX> 362,000
<INCOME-CONTINUING> 598,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598,420
<EPS-PRIMARY> 0.11
<EPS-DILUTED> 0.11
</TABLE>
