NATURAL ALTERNATIVES INTERNATIONAL INC - 10-Q Quarterly Report

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 March 31, 2003

Commission file number 0-15701

NATURAL ALTERNATIVES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)


Delaware		84-1007839
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1185 Linda Vista Drive San Marcos, California 92069		(760) 744-7340
(Address of principal executive offices, including zip code)		(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 o

At May 13, 2003, the registrant had 5,815,132 outstanding shares of common stock, $.01 par value, net of 272,400 treasury shares.

Part I. Financial Information
Item 1. Financial Statements

Natural Alternatives International, Inc.
Consolidated Balance Sheets
(Dollars in thousands, except share data)


			March 31, 2003			June 30, 2002

			(Unaudited)
Assets
Current assets:
	Cash and cash equivalents		$	4,218		$	640
	Restricted cash			—			1,500
	Accounts receivable, net of allowance for doubtful accounts of $32 at March 31, 2003 and $105 at June 30, 2002			4,508			3,536
	Inventories, net			8,474			7,871
	Income tax refund receivable			—			701
	Prepaid expenses			864			271
	Deposits			244			168
	Other current assets			82			165

		Total current assets		18,390			14,852

Property and equipment, net				11,248			12,439

Other assets:
	Related parties notes receivable			47			118
	Other, net			127			101

		Total other assets		174			219

		Total assets	$	29,812		$	27,510

Liabilities and Stockholders’ Equity
Current liabilities:
	Accounts payable		$	4,098		$	4,112
	Accrued liabilities			1,101			815
	Accrued compensation and employee benefits			676			482
	Income taxes payable			152			131
	Current portion of long-term debt			569			587

		Total current liabilities		6,596			6,127
Long-term debt, less current portion				2,529			1,576
Long-term pension liability				135			199

		Total liabilities		9,260			7,902

Commitments and contingencies
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 6,087,532 shares at March 31, 2003 and 6,073,179 shares at June 30, 2002			61			61
	Additional paid-in capital			11,448			11,362
	Retained earnings			10,346			9,488
	Treasury stock, at cost, 272,400 shares at March 31, 2003 and June 30, 2002			(1,303	)		(1,303	)

		Total stockholders’ equity		20,552			19,608

		Total liabilities and stockholders’ equity	$	29,812		$	27,510

See accompanying notes to consolidated condensed financial statements.

Natural Alternatives International, Inc.
Consolidated Statements of Operations and Comprehensive Income
(Dollars in thousands, except per share data)
(Unaudited)


		Three months ended March 31,						Nine months ended March 31,

		2003			2002			2003			2002

Net sales		$	13,755		$	12,843		$	39,901		$	35,385
Cost of goods sold			10,468			9,956			30,367			27,768

Gross profit			3,287			2,887			9,534			7,617
Selling, general & administrative expenses			3,076			2,946			8,665			7,861

Income (loss) from operations			211			(59	)		869			(244	)

Other income (expense):
	Interest income		25			2			53			9
	Interest expense		(56	)		(159	)		(208	)		(510	)
	Foreign exchange gain (loss)		13			(2	)		(4	)		(39	)
	Proceeds from vitamin antitrust litigation		—			1,000			225			1,000
	Other, net		(15	)		(2	)		(56	)		12

			(33	)		839			10			472

Income before income taxes			178			780			879			228
Provision for income taxes			6			21			21			63

Net income		$	172		$	759		$	858		$	165

Net income per common share:
	Basic	$	0.03		$	0.13		$	0.15		$	0.03

	Diluted	$	0.03		$	0.13		$	0.14		$	0.03

Weighted average common shares outstanding:
	Basic shares		5,814,258			5,794,613			5,807,143			5,788,608
	Diluted shares		6,061,391			5,795,833			6,004,304			5,789,015

See accompanying notes to consolidated condensed financial statements.

Natural Alternatives International, Inc.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)


			Nine months ended March 31,

			2003			2002

Cash flows from operating activities
Net income			$	858		$	165
Adjustments to reconcile net income to net cash provided by operating activities:
	Provision for uncollectible accounts receivable			(75	)		(134	)
	Depreciation and amortization			1,830			1,795
	Stock based compensation			56			3
	Pension expense, net of contributions			(64	)		2
	Loss (gain) on disposal of asset			4			(46	)
	Loss on investments			—			43
	Foreign exchange loss on foreign debt			—			39
	Changes in operating assets and liabilities:
		Accounts receivable		(897	)		(33	)
		Inventories		(603	)		(2,539	)
		Tax refund receivable		701			—
		Prepaid expenses		(593	)		(160	)
		Other assets		(19	)		(136	)
		Accounts payable and accrued liabilities		293			1,879
		Accrued compensation and employee benefits		194			159

Net cash provided by operating activities				1,685			1,037

Cash flows from investing activities
	Capital expenditures			(752	)		(924	)
	Proceeds from sale of property and equipment			109			80
	Repayment of notes receivable			71			330
	Issuance of notes receivable			—			(15	)
	Other assets			—			1

Net cash used in investing activities				(572	)		(528	)

Cash flows from financing activities
	Net borrowing on lines of credit			—			1,094
	Borrowings on long-term debt			2,500			—
	Payments on long-term debt			(1,565	)		(1,506	)
	Decrease in restricted cash			1,500			—
	Proceeds from issuance of common stock			30			18

Net cash provided by (used in) financing activities				2,465			(394	)

Net increase in cash and cash equivalents				3,578			115
	Cash and cash equivalents at beginning of period			640			499

	Cash and cash equivalents at end of period		$	4,218		$	614

Supplemental disclosures of cash flow information
	Cash paid during the year for interest		$	208		$	510

See accompanying notes to consolidated condensed financial statements.

NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

The consolidated financial statements include the accounts of Natural Alternatives International, Inc. and its wholly owned subsidiary, Natural Alternatives International Europe, S.A. (“NAIE”), (the “Company”) and have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures herein are adequate to make the information presented not misleading. The Company suggests that these unaudited consolidated financial statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K. In preparing the consolidated financial statements, management is required to make certain estimates and assumptions that may affect the reported amounts of assets, liabilities, revenues and expenses during the reporting periods. Actual results may differ from such estimates. In the opinion of the Company, all adjustments necessary to present fairly the information in the following unaudited consolidated condensed financial statements of the Company have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Inventories

Inventories are recorded at the lower of cost (first in, first out) or market (net realizable value). Inventories were as follows (dollars in thousands):


	March 31, 2003		June 30, 2002

Raw materials	$	3,681	$	4,631
Work in progress		3,234		1,754
Finished goods		1,559		1,486

	$	8,474	$	7,871

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Property and equipment were as follows (dollars in thousands):


	Life Used for Depreciation	March 31, 2003		June 30, 2002

Land	NA	$	393	$	393
Building and building improvements	5 - 39 years		3,288		3,279
Machinery and equipment	3 - 15 years		15,399		15,517
Office equipment and furniture	5 - 7 years		4,158		4,054
Vehicles	3 years