<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 December 31, 1998
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 (I.R.S. Employer
incorporation 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
--- ---
6,053,507
(Number of shares of common stock of the registrant outstanding as of
January 31, 1999)
1
<PAGE> 2
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,142,382 $ 4,714,212
Accounts receivable - less allowance for
doubtful accounts of $704,000 at
December 31, 1998 and
$1,073,000 at June 30, 1998 8,767,091 12,558,731
Inventories 9,011,139 11,504,936
Tax Refund Receivable 171,260 --
Notes receivable - current portion 393,397 399,307
Prepaid expenses 878,475 594,054
Deferred income taxes 854,000 854,000
Deposits 670,501 641,573
Other current assets 683,385 229,308
----------- -----------
Total Current Assets 27,571,630 31,496,121
----------- -----------
Property and equipment, net 12,941,574 10,531,865
----------- -----------
Other Assets:
Investments 52,215 61,971
Notes receivable, less current portion 150,072 160,273
Other noncurrent assets, net 981,725 737,049
----------- -----------
Total Other Assets 1,184,012 959,293
----------- -----------
TOTAL ASSETS $41,697,216 $42,987,279
=========== ===========
</TABLE>
(continued)
2
<PAGE> 3
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
------------ ------------
(unaudited)
<S> <C> <C>
Current Liabilities:
Accounts payable $ 8,773,955 $ 12,301,859
Current installments of long-term debt 48,452 46,501
Current installments of capital lease obligation 9,536 23,542
Income taxes payable -- 378,055
Accrued compensation and employee benefits 242,819 438,242
------------ ------------
Total Current Liabilities 9,074,762 13,188,199
Deferred income taxes 500,000 500,000
Long-term debt, less current installments 952,615 977,375
Long-term pension liability 662,564 662,564
------------ ------------
Total Liabilities 11,189,941 15,328,138
------------ ------------
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 5,889,375 at
December 31, 1998 and 5,768,209 at June 30, 1998 58,894 57,682
Additional paid-in capital 10,840,312 9,756,822
Retained earnings 19,795,177 17,892,778
Less common stock in treasury, 13,000 shares
at December 31, 1998, at cost (133,120) --
Accumulated other comprehensive income (53,988) (48,141)
------------ ------------
$ 30,507,275 $ 27,659,141
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,697,216 $ 42,987,279
============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE> 4
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
December 31 December 31
-------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 17,317,129 $ 16,297,341 $ 34,302,931 $ 28,329,917
Cost of goods sold 14,051,710 11,854,780 26,383,403 20,726,002
------------ ------------ ------------ ------------
GROSS PROFIT 3,265,419 4,442,561 7,919,528 7,603,915
Selling, general &
administrative expenses 2,641,756 2,185,333 4,814,871 4,391,977
------------ ------------ ------------ ------------
INCOME FROM OPERATIONS 623,663 2,257,228 3,104,657 3,211,938
------------ ------------ ------------ ------------
Other income (expense):
Interest income 38,000 55,268 97,677 91,068
Interest expense (22,035) (28,296) (43,935) (58,386)
Other, net -- (52,177) -- (52,177)
------------ ------------ ------------ ------------
15,965 (25,205) 53,742 (19,495)
------------ ------------ ------------ ------------
EARNINGS BEFORE
INCOME TAXES 639,628 2,232,023 3,158,399 3,192,443
Income taxes 257,000 869,000 1,256,000 1,231,000
------------ ------------ ------------ ------------
NET EARNINGS $ 382,628 $ 1,363,023 $ 1,902,399 $ 1,961,443
============ ============ ============ ============
NET EARNINGS PER COMMON SHARE:
Basic $ 0.06 $ 0.25 $ 0.32 $ 0.36
============ ============ ============ ============
Diluted $ 0.06 $ 0.24 $ 0.31 $ 0.35
============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited financial statements.
4
<PAGE> 5
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
-------------------- Paid-in Retained Treasury Comprehensive
Shares Amount Capital Earnings Stock Income Total
--------- ------- ----------- ----------- -------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1998 5,768,209 $57,682 $ 9,756,822 $17,892,778 -- ($48,141) $ 27,659,141
Issuance of common stock
upon exercise of employee
stock options 121,166 1,212 644,176 -- -- -- 512,268
Income tax benefit from
stock options exercised -- -- 439,314 -- -- -- 439,314
Treasury Stock purchased -- -- -- -- (133,120) -- (133,120)
Net unrealized loss on
investments -- -- -- -- -- (5,847) (5,847)
Net earnings -- -- -- 1,902,399 -- -- 1,902,399
--------- ------- ----------- ----------- -------- -------- ------------
Balance, December 31, 1998 5,889,375 $58,894 $10,840,312 $19,795,177 ($133,120) ($53,988) $ 30,507,275
========= ======= =========== =========== ======== ======== ============
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE> 6
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended December 31
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 1,902,399 $ 1,961,443
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Bad debt provision 155,000 180,000
Tax benefit on option exercise 439,314 51,500
Depreciation and amortization 818,052 721,536
(Gain) loss on disposal of assets -- 52,177
Other (3,827) (14,206)
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 3,636,640 31,361
Inventories 2,493,797 (2,494,784)
Tax refund receivable (171,260) 842,209
Prepaid expenses (284,421) (293,523)
Deposits (28,928) 243,926
Prepaid income taxes -- (51,845)
Other assets -- 21,029
(Decrease) increase in:
Accounts payable (3,520,584) 461,435
Income taxes payable (378,055) --
Accrued compensation and employee benefits (195,423) (136,271)
----------- -----------
Net Cash Provided by Operating Activities $ 4,862,704 $ 1,575,987
</TABLE>
(continued)
6
<PAGE> 7
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended December 31
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment $ -- $ 65,000
Capital expenditures (3,227,763) (1,840,129)
Issuance of notes receivable (22,000) (4,625)
Repayment of notes receivable 38,529 47,337
Other assets (698,753) --
----------- -----------
Net Cash Used in Investing Activities ($3,909,985) ($1,732,417)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital leases (36,815) (231,017)
Issuance of common stock 645,388 203,000
Payments to acquire treasury stock (133,120) --
----------- -----------
Net Cash Provided by Financing Activities $ 475,453 ($ 28,017)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents $ 1,428,170 ($ 184,447)
Cash and Cash Equivalents at Beginning of Period 4,714,212 3,469,739
----------- -----------
Cash and Cash Equivalents at End of Period
$ 6,142,382 $ 3,285,292
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the six months for:
Interest 41,993 43,780
Income Taxes 1,196,000 764,000
</TABLE>
See accompanying notes to unaudited financial statements.
7
<PAGE> 8
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED 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, 1998. The results of operations
for the periods ended December 31, 1998 and 1997 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 - INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
----------- -----------
<S> <C> <C>
Raw materials $ 5,560,586 $ 7,049,954
Work in progress 2,693,508 3,971,315
Finished goods 757,045 483,667
----------- -----------
$ 9,011,139 $11,504,936
=========== ===========
</TABLE>
NOTE 3 - Comprehensive Net Income
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income " (SFAS 130) in the first quarter of fiscal year
1999. SFAS 130 establishes new standards for the reporting and presentation of
comprehensive income and its components. Comprehensive net income presented
below includes net unrealized gains (losses) on investments.
<TABLE>
<CAPTION>
For the three months For the six months
ended December 31, ended December 31,
-------------------- ----------------------
1998 1997 1998 1997
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net Earnings 382,628 1,363,023 1,902,399 1,961,443
Unrealized gain (loss) on investment 1,900 -- (5,847) --
------- --------- --------- ---------
Comprehensive income 384,528 1,363,023 1,896,552 1,961,443
======= ========= ========= =========
</TABLE>
8
<PAGE> 9
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 4 - NET EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares
outstanding during the period, and diluted earnings per share is computed using
the additional dilutive effect of all dilutive securities. The dilutive impact
of stock options and warrants account for the additional weighted average shares
of common stock outstanding for the Company's diluted earnings per share
computation. Basic and diluted earnings per share have been calculated as
follows:
<TABLE>
<CAPTION>
For the three months ended December 31 For the six months ended December 31
------------------------------------- --------------------------------
1998 1997 1998 1997
----------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net earnings - Numerator for basic
and diluted earnings per share --
income available to common
shareholders $ 382,628 $1,363,023 $1,902,399 $1,961,443
========== ========== ========== ==========
DENOMINATOR:
Denominator for basic
earnings per share - weighted
average shares 5,893,483 5,442,644 5,862,209 5,438,780
Effect of dilutive securities -
employee stock options 145,751 239,781 261,091 229,374
---------- ---------- ---------- ----------
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 6,039,234 5,682,425 6,123,300 5,668,154
========== ========== ========== ==========
Basic earnings per share $ 0.06 $ 0.25 $ 0.32 $ 0.36
Diluted earnings per share $ 0.06 $ 0.24 $ 0.31 $ 0.35
</TABLE>
9
<PAGE> 10
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 5 - MAJOR CUSTOMERS
The Company had substantial sales to four 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 net sales, are shown below by industry segment.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, 1998 December 31, 1997 December 31, 1998 December 31, 1997
------------------------- ---------------------- ----------------------- -------------------------
Sales by Sales by Sales by Sales by
Industry Segment Customer %(a) Customer %(a) Customer %(a) Customer %(a)
- ------------------- ----------------- ---- ----------------- ---- ----------------- ----- ------------------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Multi-level
Distribution:
Customer 1 $ 6,349,330 37% $ 6,203,914 38% $11,315,833 33% $10,967,245 39%
Customer 2 2,772,874 16% 3,402,785 21% 6,236,362 18% 5,426,722 19%
Customer 3 (b) 1,551,380 10% (b) 2,921,536 10%
----------- -- ----------- -- ----------- -- ----------- --
9,122,204 53% 11,158,079 69% 17,552,195 51% 19,315,503 68%
Retail Distribution:
Customer 4 4,654,776 27% (b) 7,577,485 22% (b)
----------- -- ----------- -- ----------- -- ----------- --
$13,776,980 80% $11,158,079 69% $25,129,680 73% $19,315,503 68%
=========== == =========== == =========== == =========== ==
</TABLE>
(a) Percent of total net sales.
(b) Net sales for the period were less than 10% of total net sales.
10
<PAGE> 11
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
including the future levels of corporate expenses, effects of management
changes, ability to obtain facility licenses to manufacture pharmaceutical
products, trends in financial performance (such as growth in sales and
earnings), timely development and acceptance of new nutritional supplement
products, anticipated costs and expenses associated with new facilities and
additional equipment, the ability to effectively diversify the Company's
channels of distribution and increase value-added content to its products, the
ability to timely act upon opportunities that add revenues and enhance margins,
the maintenance and diversification of relationships with clients, the impact
of competitive products and pricing, the impact of government regulations, and
other risks including those detailed from time-to-time in the company's SEC
reports, including the reports on Form 10-K for fiscal years ended June 30,
1998.
These forward-looking statements represent the company's judgment as of the date
of this release. The Company disclaims, however, any intent or obligation to
update these forward-looking statements
RESULTS OF OPERATIONS
SECOND QUARTER OF FISCAL 1999 AND 1998
Net sales increased 6.3% or approximately $1.0 million to approximately $17.3
million for the quarter ended December 31, 1998, from approximately $16.3
million for the quarter ended December 31, 1997. The increase was attributed to
increased sales to existing customers.
Sales of products into international markets increased 27.9% to approximately
$5.5 million for the quarter ended December 31, 1998, from approximately $4.3
million for the quarter ended December 31, 1997. The increase is primarily the
result of existing customers expanding into Asian and European markets.
Gross profit margins were 18.9% for the quarter ended December 31, 1998,
compared to 27.3% for the quarter ended December 31, 1997. The decrease in
margins was due primarily to honoring sales obligations with materials that
exceeded original cost parameters, liquidating excess inventories of slow moving
items at or below cost, and inventory write-downs.
Selling, general and administrative expenses increased as a percentage of
sales to 15.3% for the quarter ended December 31, 1998 from 13.4% for the
quarter ended December 31, 1997. The increase is due primarily to consulting and
other fees related to changes in the Company's management structure, and costs
associated with upgrading the company's financial and manufacturing information
systems.
Income from operations decreased 72.4% to approximately $0.6 million for the
quarter ended December 31, 1998, from approximately $2.3 million for the quarter
ended December 31, 1997. This was due primarily to an approximate $1.2 million
decrease in gross profit and an approximate $0.5 million increase in selling,
general and administrative expenses.
Net earnings decreased 71.9% or approximately $1.0 million to approximately $0.4
million for the quarter ended December 31, 1998 from approximately $1.4 for the
quarter ended December 31, 1997. The decrease in net earnings was due primarily
to lower gross profit margins and increased operating expenses.
Diluted earnings per share decreased 75% for the quarter ended December 31, 1998
to $.06 from $.24 for the quarter ended December 31, 1997.
11
<PAGE> 12
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1997
Net sales increased 21.1% or approximately $6.0 million to approximately $34.3
million for the six months ended December 31, 1998, from approximately $28.3
million for the six months ended December 31, 1997. The Company added several
new customers subsequent to the first quarter of fiscal 1998 and sales to these
customers, in addition to increased sales to certain existing customers through
their international distribution channels, was the primary reason for the
increase.
Sales of products into international markets increased 34.3% to approximately
$10.7 million for the six months ended December 31, 1998, from approximately
$8.0 million for the six months ended December 31, 1997. The increase is
primarily the result of existing customers expanding into Asian and European
markets.
Gross profit margins were 23.1% for the six months ended December 31, 1998,
compared to 26.8% for the six months ending December 31, 1997. The decrease in
margins was due primarily to honoring sales obligations with materials that
exceeded original cost parameters, liquidating excess inventories of slow moving
items at or below cost, and inventory write-downs.
Selling, general and administrative expenses decreased as a percentage of
sales to 14.0% for the six months ended December 31, 1998 from 15.5% for the
six months ending December 31, 1997. While selling, general and administrative
expenses increased, in absolute dollars, to approximately $4.8 million, the
dollar increase was at a lower rate relative to the increase in sales noted
above.
Income from operations decreased 3.3% to approximately $3.1 million for the six
months ended December 31, 1998, from approximately $3.2 million for the six
months ended December 31, 1997. This was due primarily to an approximate $0.4
million increase in operating expenses and lower gross profit margins.
Net earnings decreased 3.0% or $0.1 million to approximately $1.9 million for
the six months ended December 31, 1998 from approximately $2.0 for the six
months ended December 31, 1997. The decrease in net earnings was due primarily
to increased operating expenses.
Diluted earnings per share decreased 11.4% for the six months ended December 31,
1998 to $.31 from $.35 for the six months ended December 31, 1997.
YEAR 2000 ISSUES
Most computer databases, as well as embedded microprocessors in computer systems
and industrial equipment, have been programmed to use a two-digit number to
represent the year. Computer programs that recognize a date using "00" as the
year 1900 rather than the year 2000 could result in errors or system failures.
Accordingly, all companies must analyze their systems and make the necessary
changes to ensure that automated processes will correctly distinguish between
years before and after the year 2000.
During the quarter ended December 31, 1998, the Company began the implementation
of a new financial and manufacturing software system which, in management's
judgment, is Year 2000 compliant and will support the Company's continued growth
and expansion. The Company expects to implement its new computer systems during
the fourth quarter of its 1999 fiscal year, and the Company will continue to
assess the potential for Year 2000 problems with embedded microprocessors in its
production equipment. The Company estimates that it will have incurred
approximately $1 million in costs, of which approximately $100,000 will be
charged directly to operating expenses, by the end of its 1999 fiscal year to
replace its financial and manufacturing software systems and to remediate or
replace embedded microprocessors in its production equipment. This amount will
be funded from internally generated cash flows.
12
<PAGE> 13
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company has received some preliminary information concerning the Year 2000
readiness of some of its vendors of goods and services. It expects to engage in
discussions with its most significant vendors during 1999 in an attempt to
determine the extent to which the Company is vulnerable to those vendors'
possible failure to become Year 2000 ready. Furthermore, a reasonably likely
worse case scenario would be if one or more of the Company's most significant
vendors of goods and services, or the suppliers of the Company's necessary
energy, telecommunications and transportation needs, experienced a material
disruption in business and this caused the Company to experience a material
disruption in business. Such a disruption could have a material adverse effect
on the results of operations, liquidity and financial condition of the Company.
The Company is currently developing contingency plans to address unavoided or
unavoidable Year 2000 risks and expects to create such a plan during the balance
of calendar year 1999.
If some or all of the Company's remediated or replaced internal computer systems
fail to correctly distinguish between years before and after the year 2000, or
if any software applications or embedded microprocessors critical to the
Company's operations are overlooked in the assessment or implementation phases,
there could be a material adverse effect on the Company's results of operations,
liquidity and financial condition of a magnitude which the Company has not yet
fully analyzed.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had working capital of approximately $18.5
million and borrowings available under revolving lines of credit of $3.0
million. As of December 31, 1998, there were no borrowings under these lines.
For the six months ended December 31, 1998, net cash provided by operating
activities was approximately $4.9 million compared to net cash provided by
operating activities of approximately $1.6 million for the six months ended
December 31, 1997. This increase of approximately $3.3 million was due primarily
to decreases in accounts receivable and inventories, partially offset by a
decrease in accounts payable. Current maturities of long-term debt and capital
leases at December 31, 1998 amounted to approximately $58,000 which the Company
expects to pay out of working capital.
The Company has revolving line of credit agreements permitting borrowings up to
$3.0 million, which are secured by the Company's receivables, inventory,
equipment, and vehicles and bear interest at the bank's prime rate. The present
loan agreement with the bank contains financial covenants concerning limitations
on maintenance of debt, certain financial ratio's and other matters, for all of
which the Company is in full compliance as of February 12, 1999. The lines of
credit expire on January 19, 2000; management expects such lines to be renewed
in the normal course of business.
Capital expenditures for the six months ended December 31, 1998 amounted to
approximately $3.2 million. These expenditures were made primarily in connection
with the building improvements in progress at the Company's new headquarters
building and its new warehouse and blending facility, and includes the purchase
of encapsulation and other production equipment to expand the Company's output
capacity. The Company anticipates capital expenditures of approximately $6.5
million during fiscal 1999. These expenditures are expected to be paid from a
combination of cash holdings, net cash provided by operating activities in
fiscal 1999, borrowings under the Company's lines of credit with its bank, and
anticipated long term debt or equity financing. If these financing alternatives
become unavailable, the Company may be required to defer or restrict certain
commercial activities or delay or eliminate expenditures for certain of its
potential products and/or markets. The Company is currently assessing the
feasibility of long term use of the headquarter facility and are evaluating
options for an alternative use of the facility.
13
<PAGE> 14
NATURAL ALTERNATIVES INTERNATIONAL, INC.
PART I - FINANCIAL INFORMATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." This Statement standardizes
the disclosure requirements for pensions and other postretirement benefits,
requires additional information on changes in the benefit obligations and fair
values of plan assets and eliminates certain disclosures. Restatement of
disclosures for earlier periods is required. The Company will adopt this
Statement in its financial statements for the year ending June 30, 1999.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the manner in which public
business enterprises report information about operating segments and also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. These statements are effective for years
beginning after December 15, 1997. The Company does not expect that the adoption
of SFAS Nos. 131 and 132 will result in disclosures that will be materially
different from those presently included in its financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to risks relating to changes in interest rates and stock
market fluctuations.
At December 31, 1998, the Company maintains a portion of its cash and cash
equivalents in financial instruments with original maturities of three months or
less. These financial instruments, principally comprised of government backed
money market funds, are subject to interest rate risk and will decline in value
if interest rates increase. The Company also maintains an investment portfolio
containing common stocks that are subject to market risk. The Company has not
used derivative financial instruments in its investment portfolio.
14
<PAGE> 15
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:
27.0. Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1998.
15
<PAGE> 16
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: February 12, 1998
- -------------------------
Mark A. Le Doux
Chief Executive Officer
Assistant Treasurer
16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 6,142,382
<SECURITIES> 0
<RECEIVABLES> 9,471,091
<ALLOWANCES> 704,000
<INVENTORY> 9,011,139
<CURRENT-ASSETS> 27,571,630
<PP&E> 20,975,754
<DEPRECIATION> 8,034,180
<TOTAL-ASSETS> 41,697,216
<CURRENT-LIABILITIES> 9,074,762
<BONDS> 952,615
0
0
<COMMON> 58,894
<OTHER-SE> 30,448,381
<TOTAL-LIABILITY-AND-EQUITY> 41,697,216
<SALES> 34,302,931
<TOTAL-REVENUES> 34,302,931
<CGS> 26,383,403
<TOTAL-COSTS> 31,198,274
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 90,000
<INTEREST-EXPENSE> 43,935
<INCOME-PRETAX> 3,158,399
<INCOME-TAX> 1,256,000
<INCOME-CONTINUING> 1,902,399
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,902,399
<EPS-PRIMARY> 0.32<F1>
<EPS-DILUTED> 0.31
<FN>
<F1>FOR THE PURPOSE OF THIS EXHIBIT, PRIMARY MEANS BASIC
</FN>
</TABLE>
