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NAI(NAII) - 2021 Q3 - Quarterly Report
2021-05-13 20:15
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021 000-15701 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of princ ...
NAI(NAII) - 2021 Q2 - Quarterly Report
2021-02-09 21:15
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT (Exact name of registrant as specified in its charter) Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of principal executive offices) (Registrant's telephone number) | Securities registered pursuant to Section 12(b) of the Act: | | | | --- | --- | --- | | Title of Each Class | Trading Symbol(s) | Name ...
NAI(NAII) - 2021 Q1 - Quarterly Report
2020-11-10 21:17
PART I [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited Q1 FY2021 financial statements show increased assets and net income, with reduced operating cash flow due to working capital needs [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The balance sheets detail the company's financial position, showing an increase in total assets and liabilities Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 | June 30, 2020 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $27,366 | $30,478 | | Inventories, net | $35,165 | $27,972 | | Total current assets | $86,410 | $79,024 | | Total assets | $128,556 | $120,203 | | **Liabilities & Equity** | | | | Accounts payable | $17,769 | $12,509 | | Lines of credit – current | $10,000 | $10,000 | | Total current liabilities | $37,133 | $27,806 | | Total liabilities | $57,425 | $48,828 | | Total stockholders' equity | $71,131 | $71,375 | | Total liabilities and stockholders' equity | $128,556 | $120,203 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) The income statements reflect a significant increase in net sales and net income for the quarter Condensed Consolidated Statement of Income (in thousands, except per share data) | Metric | Q1 FY2021 (ended Sep 30, 2020) | Q1 FY2020 (ended Sep 30, 2019) | | :--- | :--- | :--- | | Net sales | $39,726 | $29,195 | | Gross profit | $6,005 | $4,384 | | Income (loss) from operations | $2,085 | $(55) | | Net income | $2,258 | $96 | | Basic EPS | $0.35 | $0.01 | | Diluted EPS | $0.35 | $0.01 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Stockholders' equity slightly decreased due to stock repurchases and unrealized losses, despite net income - Total stockholders' equity slightly decreased from **$71.4 million** at June 30, 2020, to **$71.1 million** at September 30, 2020, primarily due to a **$1.7 million** repurchase of common stock and a **$1.1 million** unrealized loss on derivative instruments, which offset the **$2.3 million** in net income for the period[13](index=13&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash flows show a significant decrease in operating cash, leading to an overall net decrease in cash Condensed Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2020 | Three Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $110 | $4,593 | | Net cash used in investing activities | $(1,479) | $(1,118) | | Net cash used in financing activities | $(1,743) | $(15) | | Net (decrease) increase in cash | $(3,112) | $3,460 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Key notes detail revenue streams, customer concentration, tax rates, and stock repurchase activities - Beta-alanine (CarnoSyn®) related raw material sales and royalty/licensing income was **$2.7 million** for the quarter, down from **$3.2 million** in the prior-year period[33](index=33&type=chunk) - The company has significant customer concentration, with one customer accounting for **60%** of net sales (**$24.0 million**) in the quarter ended Sep 30, 2020, up from **49%** in the prior year period[64](index=64&type=chunk)[104](index=104&type=chunk) Net Sales by Business Segment (in thousands) | Segment | Q1 FY2021 (ended Sep 30, 2020) | Q1 FY2020 (ended Sep 30, 2019) | | :--- | :--- | :--- | | Private-label contract manufacturing | $37,047 | $26,009 | | Patent and trademark licensing | $2,679 | $3,186 | | **Total Net Sales** | **$39,726** | **$29,195** | - The company's effective tax rate was **(28.0)%** for the quarter, primarily due to a discrete tax benefit related to the CARES Act and new Treasury regulations regarding GILTI[77](index=77&type=chunk)[79](index=79&type=chunk)[80](index=80&type=chunk) - On September 18, 2020, the Board authorized a **$2.0 million** increase to the stock repurchase plan, bringing the total authorization to **$12.0 million**, and during the quarter, the company repurchased **235,390 shares** for **$1.7 million**[85](index=85&type=chunk)[86](index=86&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 FY2021 sales growth, segment performance, and provides a positive fiscal 2021 outlook - The COVID-19 pandemic has positively impacted sales, particularly for immune and wellness products, and as a precautionary measure, the company withdrew **$10 million** from its credit facility to ensure liquidity[101](index=101&type=chunk)[102](index=102&type=chunk)[104](index=104&type=chunk) Results of Operations Summary (in thousands) | Metric | Q1 FY2021 | Q1 FY2020 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $39,726 | $29,195 | 36% | | Gross profit | $6,005 | $4,384 | 37% | | SG&A expenses | $3,920 | $4,439 | (12)% | | Income (loss) from operations | $2,085 | $(55) | 3,891% | | Net income | $2,258 | $96 | 2,252% | - Private-label contract manufacturing sales increased **42%** due to higher sales to the largest customer, including a new product, and sales to other new and existing customers[103](index=103&type=chunk)[115](index=115&type=chunk) - Patent and trademark licensing (CarnoSyn® beta-alanine) sales decreased **16%** due to some customers switching to generic beta-alanine and the negative impact of COVID-19 on the sports nutrition industry[105](index=105&type=chunk)[116](index=116&type=chunk) - The company expects annualized fiscal 2021 net sales to increase between **30% to 50%** compared to fiscal 2020, with an anticipated operating income of **5% to 7%** of net sales[109](index=109&type=chunk) - Net cash from operating activities was only **$0.1 million**, a significant decrease from **$4.6 million** in the prior-year period, primarily due to a **$7.2 million** increase in inventory to support anticipated sales[121](index=121&type=chunk)[123](index=123&type=chunk) [Item 4. Controls and Procedures](index=30&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls were effective with no material changes to internal controls during the quarter - Based on an evaluation as of September 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[132](index=132&type=chunk) - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[133](index=133&type=chunk) PART II [Item 1. Legal Proceedings](index=31&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings as of November 10, 2020 - The company is not a party to any material pending legal proceedings as of November 10, 2020[137](index=137&type=chunk) [Item 1A. Risk Factors](index=31&type=section&id=Item%201A.%20Risk%20Factors) Investors are directed to review risk factors detailed in the company's 2020 Annual Report on Form 10-K - Investors are advised to review the risk factors detailed in the company's 2020 Annual Report on Form 10-K[138](index=138&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=31&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reported no unregistered equity sales and detailed common stock repurchases during the quarter Common Stock Repurchases (Q1 FY2021) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2020 | 7,931 | $6.94 | | August 2020 | 216,492 | $7.37 | | September 2020 | 10,967 | $8.07 | | **Total** | **235,390** | **N/A** | - As of September 30, 2020, approximately **$1.96 million** remained available for future repurchases under the company's stock repurchase program[140](index=140&type=chunk) [Item 3. Defaults Upon Senior Securities](index=31&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) No defaults upon senior securities were reported for the period - None[141](index=141&type=chunk) [Item 5. Other Information](index=31&type=section&id=Item%205.%20Other%20Information) No other material information was reported for the period - None[142](index=142&type=chunk)[143](index=143&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the report, including CEO/CFO certifications and XBRL data files - Exhibits filed with this report include CEO and CFO certifications (Rule 13a-14(a)/15d-14(a) and Section 1350) and XBRL Interactive Data Files[145](index=145&type=chunk)
NAI(NAII) - 2020 Q4 - Annual Report
2020-09-21 20:28
Table of Contents Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2020 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) 000-15701 1535 Faraday Ave Carlsbad, CA 92008 (760) 744-7700 (Address of principal exec ...
NAI(NAII) - 2020 Q3 - Quarterly Report
2020-05-14 20:17
[Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) The report contains forward-looking statements regarding future events and financial performance, subject to various risks and uncertainties - Forward-looking statements address future financial results, patent licensing, new product acceptance, and operational efficiency, subject to risks and uncertainties including COVID-19 impact[8](index=8&type=chunk)[9](index=9&type=chunk) [PART I FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Unaudited condensed consolidated financial statements show a decrease in stockholders' equity and a net loss for Q3 FY2020, driven by lower sales and uncollectible accounts [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$118.4 million** due to lease assets and cash, while total liabilities rose to **$47.6 million** from lease liabilities and credit draw, decreasing equity to **$70.7 million** Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2020 | June 30, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $33,315 | $25,040 | | Total current assets | $76,988 | $71,386 | | Operating lease right-of-use assets | $18,881 | $— | | **Total assets** | **$118,355** | **$93,490** | | **Liabilities & Equity** | | | | Line of credit – current | $10,000 | $— | | Total current liabilities | $25,805 | $14,250 | | Long-term liability – operating leases | $19,230 | $— | | **Total liabilities** | **$47,606** | **$17,406** | | **Total stockholders' equity** | **$70,749** | **$76,084** | [Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20%28Loss%29%20Income%20and%20Comprehensive%20%28Loss%29%20Income) The company reported a **net loss of $4.0 million** for Q3 2020, a significant decline from prior year's net income, driven by **28% lower net sales** and a **$3.3 million provision for uncollectible accounts** Key Income Statement Data (in thousands, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $25,482 | $35,455 | $83,780 | $108,030 | | Gross profit | $2,894 | $6,327 | $12,339 | $19,926 | | (Loss) income from operations | $(4,223) | $1,835 | $(3,580) | $6,766 | | Net (loss) income | $(4,015) | $1,994 | $(3,443) | $6,734 | | Diluted EPS | $(0.61) | $0.27 | $(0.51) | $0.95 | - The quarterly loss was significantly impacted by a **$3.28 million provision for uncollectible accounts receivable**[12](index=12&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased to **$70.7 million** due to a **$3.4 million net loss** and **$3.5 million in common stock repurchases** - The company repurchased **423,676 shares** of common stock for **$3.5 million** during the nine months ended March 31, 2020[17](index=17&type=chunk) - A **net loss of $3.4 million** for the nine-month period directly reduced retained earnings[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations was **$5.2 million**, while financing activities provided **$6.5 million** from a **$10.0 million credit draw**, leading to an **$8.3 million increase in cash** to **$33.3 million** Cash Flow Summary (Nine Months Ended March 31, in thousands) | Cash Flow Activity | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,164 | $7,580 | | Net cash used in investing activities | $(3,407) | $(2,630) | | Net cash provided by (used in) financing activities | $6,518 | $(903) | | **Net increase in cash and cash equivalents** | **$8,275** | **$4,047** | | **Cash and cash equivalents at end of period** | **$33,315** | **$27,660** | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail accounting policies, including ASC 842 adoption, revenue recognition, segment performance, customer dependency, debt, and COVID-19 impact, notably a **$3.3 million reserve** for a terminated customer's receivables - Adoption of ASC 842 (Leases) resulted in **$20.7 million** in right-of-use assets and **$20.9 million** in lease liabilities on the balance sheet[48](index=48&type=chunk)[49](index=49&type=chunk) - A **$3.3 million reserve** for accounts receivable and **$1.0 million** for inventory was established due to the termination of the Kaged Muscle customer relationship[43](index=43&type=chunk)[66](index=66&type=chunk) - The company drew **$10 million** from its credit facility as a precautionary liquidity measure due to COVID-19 uncertainty[62](index=62&type=chunk) - **Two major customers** represented **65.5%** of gross accounts receivable as of March 31, 2020[65](index=65&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes a **22% net sales decrease** to a **38% decline** in sales to its largest customer and a **24% drop** in licensing revenue, alongside a **$4.3 million reserve** for a terminated customer and a **$10 million credit draw** due to COVID-19 [Executive Overview and Business Strategy](index=26&type=section&id=Executive%20Overview%20and%20Business%20Strategy) The company focuses on private-label contract manufacturing and CarnoSyn® beta-alanine patent licensing, with a strategy to diversify customers, commercialize patents, and improve operational efficiencies - The primary business involves **private-label contract manufacturing** for the nutritional supplement industry[100](index=100&type=chunk) - Key revenue streams include raw material sales and **licensing of CarnoSyn® and SR CarnoSyn® beta-alanine trademarks and patents**[100](index=100&type=chunk) - Strategic focus includes **diversifying the sales base**, expanding **beta-alanine patent commercialization**, and **improving operational efficiencies**[101](index=101&type=chunk)[116](index=116&type=chunk) [Impact of COVID-19 on Our Business](index=26&type=section&id=Impact%20of%20COVID-19%20on%20Our%20Business) The COVID-19 pandemic creates significant uncertainty, with potential impacts on supply chains, employee availability, and customer demand, leading to a **$10 million credit facility withdrawal** - Facilities in the US and Europe continue to operate as **essential and critical manufacturers**[102](index=102&type=chunk) - Potential risks include **limitations on suppliers, employees, carriers, and customer operations**[105](index=105&type=chunk) - The company withdrew **$10 million** from its credit facility as a precautionary liquidity measure due to the pandemic[103](index=103&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) Q3 2020 saw **total net sales fall 28% to $25.5 million**, resulting in a **54% gross profit decline** and a **$4.2 million operating loss**, driven by sales drops and a **$3.3 million bad debt expense** Results of Operations Summary (Three Months Ended March 31, in thousands) | Metric | 2020 | 2019 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $25,482 | $35,455 | (28)% | | Gross profit | $2,894 | $6,327 | (54)% | | Gross profit % | 11.4% | 17.8% | - | | SG&A expenses | $7,117 | $4,492 | 58% | | (Loss) income from operations | $(4,223) | $1,835 | (330)% | | Net (loss) income | $(4,015) | $1,994 | (301)% | - SG&A expenses increased primarily due to a **$3.3 million bad debt expense** for a former customer's receivable[121](index=121&type=chunk) - The contract manufacturing gross profit margin declined due to a **$4.3 million total reserve** for a former customer's receivables and inventory[126](index=126&type=chunk) [Liquidity and Capital Resources](index=30&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations and a credit facility, with **$33.3 million in cash** and **$5.2 million from operations**, supplemented by a **$10.0 million credit draw** for COVID-19 precautions - Cash and cash equivalents totaled **$33.3 million** as of March 31, 2020[132](index=132&type=chunk) - Net cash provided by operating activities was **$5.2 million** for the nine months ended March 31, 2020, a decrease from the prior year[124](index=124&type=chunk) - A **$10.0 million balance** was outstanding on the loan facility as of March 31, 2020, drawn as a precautionary measure[130](index=130&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=32&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Natural Alternatives International, Inc. is exempt from providing this disclosure - The company is not required to provide Item 3 disclosure due to its qualification as a **smaller reporting company**[135](index=135&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of March 31, 2020[137](index=137&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter[138](index=138&type=chunk) [PART II OTHER INFORMATION](index=33&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, with no material pending cases as of May 14, 2020, and no expected material adverse effects - The company engages in various claims and legal proceedings in the ordinary course of business[140](index=140&type=chunk) - As of May 14, 2020, no material pending legal proceedings involved the company or its subsidiary NAIE[141](index=141&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) The COVID-19 pandemic is a significant risk factor, causing supply chain disruptions and creating uncertainty regarding its full impact on operational and financial performance - The **COVID-19 pandemic** is a significant risk factor, impacting global economic conditions and potentially affecting company operations and business[143](index=143&type=chunk) - The duration and financial impact of pandemic-related disruptions remain **uncertain** and cannot be reasonably estimated[143](index=143&type=chunk)[144](index=144&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell unregistered equity securities but repurchased **210,832 shares** of common stock for **$1.8 million** during Q3 2020 under its repurchase plan Purchases of Equity Securities (Q3 2020) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2020 | 180,238 | $8.80 | | Feb 2020 | — | — | | Mar 2020 | 30,594 | $6.47 | | **Total** | **210,832** | **-** | [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported[148](index=148&type=chunk) [Item 4. Mine Safety Disclosures](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company's operations - This item is **not applicable** to the company[149](index=149&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) No other information is required to be reported under this item - No other information is reported for this item[150](index=150&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes **certifications from the CEO and CFO** as required by Rule 13a-14(a)/15d-14(a)[152](index=152&type=chunk) - **XBRL Instance Documents** and related taxonomy files are filed with this report[152](index=152&type=chunk)
NAI(NAII) - 2020 Q2 - Quarterly Report
2020-02-11 21:16
```markdown [Filing Information](index=1&type=section&id=Filing%20Information) This section provides essential company identification details, filing compliance status, and key stock information Company Details | Detail | Value | | :--- | :--- | | Exact name of registrant | NATURAL ALTERNATIVES INTERNATIONAL, INC. | | State of incorporation | Delaware | | IRS Employer Identification No. | 84-1007839 | | Address of principal executive offices | 1535 Faraday Ave, Carlsbad, CA 92008 | | Registrant's telephone number | (760) 736-7700 | | Trading Symbol | NAII | | Exchange on Which Registered | Nasdaq Stock Market | - The company has filed all required reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and has been subject to such filing requirements for the past 90 days. It has also submitted electronically every Interactive Data File required by Rule 405 of Regulation S-T during the preceding 12 months[2](index=2&type=chunk) - NAI is classified as a **Smaller reporting company**[2](index=2&type=chunk) - As of **February 11, 2020**, **6,875,166 shares** of NAI's common stock were outstanding, net of **1,981,511 treasury shares**[2](index=2&type=chunk) [Special Note About Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) This section outlines the nature of forward-looking statements, emphasizing the inherent risks and uncertainties that could cause actual results to differ materially - Forward-looking statements reflect current views about future events and financial performance based on certain assumptions, including opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, and beliefs[6](index=6&type=chunk) - Caution should be taken not to place undue reliance on forward-looking statements, as they are subject to certain events, risks, and uncertainties that are or may be outside of the company's control[7](index=7&type=chunk) - Key factors that could cause actual results to differ materially include future financial and operating results, ability to maintain patent and trademark licensing revenues, market acceptance of new products, revenue concentration risk, intellectual property protection, economic conditions, operating efficiencies, currency exchange rates, litigation outcomes, raw material availability, inventory levels, facility adequacy, customer orders, external factors, FDA GMP compliance, international expansion, financial reserves, and accounting pronouncements[7](index=7&type=chunk) [Part I - Financial Information](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) This part presents the company's financial information, including statements and management's discussion and analysis [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of Natural Alternatives International, Inc. for the period ended December 31, 2019, including balance sheets, statements of income and comprehensive income, stockholders' equity, cash flows, and detailed notes explaining significant accounting policies and specific financial line items [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (In thousands) | | December 31, 2019 (Unaudited) | June 30, 2019 | | :--- | :--- | :--- | | Cash and cash equivalents | $26,900 | $25,040 | | Accounts receivable, net | $14,227 | $15,964 | | Inventories, net | $22,650 | $26,003 | | Total current assets | $68,522 | $71,386 | | Property and equipment, net | $20,613 | $21,085 | | Operating lease right-of-use assets | $19,523 | $— | | Total assets | $109,521 | $93,490 | | Accounts payable | $5,437 | $8,634 | | Total current liabilities | $11,202 | $14,250 | | Long-term liability – operating leases | $19,742 | $— | | Total liabilities | $33,401 | $17,406 | | Total stockholders' equity | $76,120 | $76,084 | | Total liabilities and stockholders' equity | $109,521 | $93,490 | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) This section provides a detailed overview of the company's revenues, expenses, and profitability over specific periods Condensed Consolidated Statements of Income and Comprehensive Income (In thousands, except per share data) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $29,103 | $36,043 | $58,298 | $72,575 | | Gross profit | $5,061 | $6,436 | $9,445 | $13,599 | | Income from operations | $698 | $2,207 | $643 | $4,931 | | Net income | $476 | $2,181 | $572 | $4,740 | | Comprehensive (loss) income | $(427) | $3,033 | $56 | $5,975 | | Basic net income per common share | $0.07 | $0.32 | $0.08 | $0.70 | | Diluted net income per common share | $0.07 | $0.31 | $0.08 | $0.68 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in the company's equity, including common stock, retained earnings, and comprehensive income Condensed Consolidated Statements of Stockholders' Equity (Three-Month Period Ended December 31, 2019) | | Balance, Sep 30, 2019 | Issuance of stock | Compensation expense | Repurchase of stock | Unrealized loss | Net income | Balance, Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock Shares | 8,851,677 | 5,000 | — | — | — | — | 8,856,677 | | Common Stock Amount | $87 | $— | $— | $— | $— | $— | $87 | | Additional Paid-in Capital | $26,713 | $— | $459 | $— | $— | $— | $27,172 | | Retained Earnings | $58,024 | $— | $— | $— | $— | $476 | $58,500 | | Treasury Stock Shares | 1,643,322 | — | — | 157,951 | — | — | 1,801,273 | | Treasury Stock Amount | $(7,970) | $— | $— | $(1,317) | $— | $— | $(9,287) | | Accumulated Other Comprehensive Income (Loss) | $551 | $— | $— | $— | $(903) | $— | $(352) | | Total | $77,405 | $— | $459 | $(1,317) | $(903) | $476 | $76,120 | Condensed Consolidated Statements of Stockholders' Equity (Six-Month Period Ended December 31, 2019) | | Balance, Jun 30, 2019 | Issuance of stock | Compensation expense | Repurchase of stock | Forfeiture of stock | Cumulative-effect adjustment | Reclassification | Unrealized loss | Net income | Balance, Dec 31, 2019 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Common Stock Shares | 8,851,677 | 5,000 | — | — | — | — | — | — | — | 8,856,677 | | Common Stock Amount | $87 | $— | $— | $— | $— | $— | $— | $— | $— | $87 | | Additional Paid-in Capital | $26,280 | $— | $892 | $— | — | — | — | — | — | $27,172 | | Retained Earnings | $57,380 | $— | $— | $— | — | $420 | $128 | $— | $572 | $58,500 | | Treasury Stock Shares | 1,626,605 | — | — | 159,668 | 15,000 | — | — | — | — | 1,801,273 | | Treasury Stock Amount | $(7,955) | $— | $— | $(1,332) | $— | $— | $— | $— | $— | $(9,287) | | Accumulated Other Comprehensive Income (Loss) | $292 | $— | $— | $— | — | — | $(128) | $(516) | $— | $(352) | | Total | $76,084 | $— | $892 | $(1,332) | $— | $420 | $(128) | $(516) | $572 | $76,120 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net income | $572 | $4,740 | | Depreciation and amortization | $1,966 | $1,597 | | Non-cash compensation | $892 | $809 | | Net cash provided by operating activities | $4,808 | $8,187 | | Purchases of property and equipment | $(1,633) | $(2,662) | | Proceeds from collection of notes receivable | $— | $1,500 | | Net cash used in investing activities | $(1,616) | $(1,143) | | Repurchase of common stock | $(1,332) | $(430) | | Net cash used in financing activities | $(1,332) | $(392) | | Net increase in cash and cash equivalents | $1,860 | $6,652 | | Cash and cash equivalents at end of period | $26,900 | $30,265 | | Cash paid for Interest | $11 | $7 | | Cash paid for Taxes | $18 | $733 | | Unrealized (loss) gain from derivative instruments, net of tax | $(516) | $1,235 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, estimates, and specific line items presented in the financial statements [A. Basis of Presentation and Summary of Significant Accounting Policies](index=10&type=section&id=A.%20Basis%20of%20Presentation%20and%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the accounting principles and policies used in preparing the financial statements, including revenue recognition and equity compensation - The interim unaudited condensed consolidated financial statements are prepared in accordance with Form 10-Q and U.S. GAAP, with certain information condensed or omitted. All necessary adjustments for fair presentation have been included and are of a normal, recurring nature[21](index=21&type=chunk) Net Income per Common Share (In thousands, except per share data) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net income | $476 | $2,181 | $572 | $4,740 | | Basic weighted average common shares outstanding | 6,795 | 6,808 | 6,818 | 6,786 | | Dilutive effect of stock options and restricted stock | 91 | 191 | 117 | 196 | | Diluted weighted average common shares outstanding | 6,886 | 6,999 | 6,935 | 6,982 | | Basic net income per common share | $0.07 | $0.32 | $0.08 | $0.70 | | Diluted net income per common share | $0.07 | $0.31 | $0.08 | $0.68 | - Revenue is recognized based on a five-step model, measured as the net amount of consideration expected, including estimates for early payment discounts and volume rebates, and recognized when control of ordered products is transferred to the customer[25](index=25&type=chunk)[26](index=26&type=chunk)[28](index=28&type=chunk) - The Exclusive Manufacturing Agreement with Juice Plus+ was amended and extended through **August 6, 2025**, with Juice Plus+ returning **400,000 restricted shares** in exchange for an annual cash sales discount[33](index=33&type=chunk) Sales Discounts (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Cash Sales Discount | $395 | $— | $790 | $— | | Non-cash Sales Discount | $— | $245 | $— | $490 | - The company owns U.S. patents and foreign patent applications related to beta-alanine, marketed under CarnoSyn® and SR CarnoSyn® trade names, generating raw material sales and royalty/licensing income[34](index=34&type=chunk) Beta-Alanine Revenue & Expense (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Beta-alanine raw material sales and royalty/licensing income | $4,300 | $4,400 | $7,500 | $9,800 | | Royalty expense | $192 | $178 | $359 | $441 | - The KM Loan Agreement with Kaged Muscle was paid in full before its amended maturity date, resulting in no interest income recognized from this note during the three or six months ended **December 31, 2019**[35](index=35&type=chunk) - The 2009 equity incentive plan expired and a new 2019 Plan was approved, allowing for various stock-based awards. **5,000 restricted stock shares** were granted to a new management team member during the three and six months ended **December 31, 2019**[36](index=36&type=chunk)[38](index=38&type=chunk) Stock-Based Compensation Expense (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Stock based compensation expense | $459 | $400 | $892 | $809 | - Derivative forward exchange contracts are classified as **Level 2 assets**, with their fair value determined by obtaining pricing from banks. No financial assets or liabilities were classified as Level 1 or Level 3 as of **December 31, 2019**, or **June 30, 2019**[40](index=40&type=chunk) Fair Value of Forward Exchange Contracts (In millions) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | Net asset of forward exchange contracts | $1.6 | $2.3 | [B. Inventories, net](index=14&type=section&id=B.%20Inventories%2C%20net) This section details the composition and valuation of the company's inventory, including raw materials, work in progress, and finished goods Inventories, net (In thousands) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | Raw materials | $14,228 | $18,322 | | Work in progress | $2,696 | $3,785 | | Finished goods | $6,255 | $5,002 | | Reserve | $(529) | $(1,106) | | Total Inventories, net | $22,650 | $26,003 | - The inventory reserve for the first generation SR CarnoSyn® powder decreased from **$686,000** at **June 30, 2019**, to **$39,000** at **December 31, 2019**[41](index=41&type=chunk) [C. Property and Equipment](index=14&type=section&id=C.%20Property%20and%20Equipment) This section presents the company's fixed assets, net of accumulated depreciation and amortization Property and Equipment, net (In thousands) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | Total property and equipment | $59,121 | $58,117 | | Less: accumulated depreciation and amortization | $(38,508) | $(37,032) | | Property and equipment, net | $20,613 | $21,085 | [D. Other Comprehensive (Loss) Income](index=14&type=section&id=D.%20Other%20Comprehensive%20(Loss)%20Income) This section reports items of comprehensive income or loss that are not included in net income, such as unrealized gains or losses Net Current Period OCI/OCL (In thousands) | | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net current period OCI/OCL | $(903) | $(644) | $852 | $1,235 | | Ending Balance | $(352) | $(352) | $657 | $657 | - The adoption of ASU 2018-02 on **July 1, 2019**, allowed for a reclassification of **$128,000** of gains from accumulated other comprehensive income (OCI) to retained earnings for stranded tax effects from the 2017 Tax Cuts and Jobs Act[44](index=44&type=chunk) [E. Leases](index=16&type=section&id=E.%20Leases) This section details the company's lease accounting policies and the impact of new lease accounting standards on the financial statements - On **July 1, 2019**, the company adopted FASB ASC Topic 842, Leases, which requires the recognition of right-of-use assets and related operating and finance lease liabilities on the balance sheet[45](index=45&type=chunk) Impact of ASC 842 Adoption on Balance Sheet (In thousands) | | As Reported June 30, 2019 | Adoption of ASC 842 Increase (Decrease) | Balance of July 1, 2019 | | :--- | :--- | :--- | :--- | | Operating lease right-of-use assets | $— | $20,774 | $20,774 | | Total assets | $93,490 | $20,774 | $114,264 | | Deferred rent | $543 | $(543) | $— | | Long-term liability – Operating leases | $— | $20,897 | $20,897 | | Retained earnings | $57,380 | $420 | $57,800 | | Total liabilities and equity | $93,490 | $20,774 | $114,264 | - The adoption of ASC 842 had a substantial impact on the balance sheet by recognizing operating lease right-of-use assets and liabilities, but no material difference in the results of operations[45](index=45&type=chunk)[46](index=46&type=chunk) [F. Debt](index=18&type=section&id=F.%20Debt) This section provides information on the company's debt arrangements, credit facilities, and compliance with financial covenants - The credit facility with Wells Fargo Bank, N.A. was amended on **July 1, 2019**, extending the maturity for the working line of credit to **November 1, 2022**, with an available credit line of up to **$10.0 million**[57](index=57&type=chunk) - The company was in compliance with all financial and other covenants required under the Credit Agreement as of **December 31, 2019**[58](index=58&type=chunk) - No working capital line of credit or long-term debt was outstanding during the three months ended **December 31, 2019**[60](index=60&type=chunk) Available Credit Facilities (In millions) | | December 31, 2019 | | :--- | :--- | | Available under credit facilities | $10.0 | [G. Economic Dependency](index=18&type=section&id=G.%20Economic%20Dependency) This section highlights the company's reliance on major customers and suppliers, and the associated concentration risks - The company has substantial net sales to a few customers, and the loss of any of these customers or a significant decline in sales could materially impact net sales and net income[61](index=61&type=chunk) Net Sales to Major Customers (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Customer 1 | $12,422 | $17,750 | $26,776 | $38,827 | | Customer 2 | $5,539 | $6,196 | $9,509 | $9,926 | | Customer 3 | (a) | $3,890 | (a) | (a) | | Total (major customers) | $17,961 | $27,836 | $36,285 | $48,753 | - The company relies on a limited number of raw material suppliers, particularly for beta-alanine, and the loss of any of these suppliers could materially impact net sales and net income[62](index=62&type=chunk) Raw Material Purchases from Major Suppliers (Dollars in thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Supplier 1 | $1,734 | (a) | $3,227 | $4,472 | | Supplier 2 | (a) | $1,866 | (a) | (a) | | Total (major suppliers) | $1,734 | $1,866 | $3,227 | $4,472 | - Credit risk for accounts receivable is concentrated with three largest customers, whose balances collectively represented **77.1%** of gross accounts receivable at **December 31, 2019**[63](index=63&type=chunk) [H. Segment Information](index=20&type=section&id=H.%20Segment%20Information) This section provides financial data for the company's operating segments and geographic regions, including net sales and income from operations - The company operates in two segments: private-label contract manufacturing and patent and trademark licensing, with performance evaluated based on net sales and income/loss from operations before certain corporate expenses[64](index=64&type=chunk)[65](index=65&type=chunk) Net Sales by Segment (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing | $24,831 | $31,660 | $50,841 | $62,747 | | Patent and trademark licensing | $4,272 | $4,383 | $7,457 | $9,828 | | Total Net Sales | $29,103 | $36,043 | $58,298 | $72,575 | Income from Operations by Segment (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing | $1,697 | $2,853 | $3,312 | $5,999 | | Patent and trademark licensing | $842 | $1,475 | $1,054 | $3,276 | | Income from operations of reportable segments | $2,539 | $4,328 | $4,366 | $9,275 | | Corporate expenses not allocated to segments | $(1,841) | $(2,121) | $(3,723) | $(4,344) | | Total Income from Operations | $698 | $2,207 | $643 | $4,931 | Total Assets by Segment (In thousands) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | Private-label contract manufacturing | $89,666 | $74,431 | | Patent and trademark licensing | $19,855 | $19,059 | | Total Assets | $109,521 | $93,490 | Net Sales by Geographic Region (In thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | United States | $17,591 | $18,549 | $35,776 | $36,195 | | Markets outside of the United States | $11,512 | $17,494 | $22,522 | $36,380 | | Total | $29,103 | $36,043 | $58,298 | $72,575 | - Products manufactured by the Swiss subsidiary (NAIE) accounted for **91%** of net sales in markets outside the U.S. for the three months ended **December 31, 2019**, and **90%** for the six months ended **December 31, 2019**[67](index=67&type=chunk) Long-Lived Assets by Geographic Region (In thousands) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | United States | $22,303 | $10,977 | | Europe | $17,833 | $10,108 | | Total Long-Lived Assets | $40,136 | $21,085 | Total Assets by Geographic Region (In thousands) | | December 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | | United States | $61,620 | $54,785 | | Europe | $47,901 | $38,705 | | Total Assets | $109,521 | $93,490 | Capital Expenditures by Geographic Region (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | United States | $578 | $708 | | Europe | $1,055 | $1,954 | | Total Capital Expenditures | $1,633 | $2,662 | [I. Income Taxes](index=22&type=section&id=I.%20Income%20Taxes) This section details the company's income tax provisions, effective tax rates, and factors influencing tax expense Effective Tax Rates | | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Effective tax rate | 17.0% | 17.8% | 20.7% | 20.6% | - The effective tax rates differ from the U.S. federal statutory rate primarily due to research and development credits and the favorable impact of foreign earnings taxed at less than the U.S. statutory rate[71](index=71&type=chunk) - No significant discrete tax items or changes to the valuation allowance for deferred tax assets occurred during the three or six months ended **December 31, 2019**[72](index=72&type=chunk)[73](index=73&type=chunk) - The company's tax years for fiscal year ended **June 30, 2016** and forward are subject to examination by U.S. tax authorities, and fiscal years ended **June 30, 2018** and forward by Swiss tax authorities[75](index=75&type=chunk) [J. Treasury Stock](index=24&type=section&id=J.%20Treasury%20Stock) This section outlines the company's stock repurchase programs and the impact on outstanding shares and stockholders' equity - The Board of Directors authorized a total of **$7.0 million** under the stock repurchase plan as of **December 31, 2019**, which was increased by **$2.0 million** to **$9.0 million** on **January 8, 2020**[77](index=77&type=chunk) Common Stock Repurchases | | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Shares repurchased | 150,307 | 151,338 | 36,949 | N/A | | Total cost (in thousands) | $1,300 | $1,332 | $358 | $430 | Shares Acquired from Employees (In thousands) | | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Shares acquired from employees | 7,644 | 8,330 | 6,864 | 7,538 | | Total cost (in thousands) | $66 | $73 | $66 | $72 | [K. Derivatives and Hedging](index=24&type=section&id=K.%20Derivatives%20and%20Hedging) This section describes the company's use of derivative instruments for hedging foreign exchange risks and their fair value - The company uses foreign exchange forward contracts, designated as cash flow hedges, to protect against foreign exchange risks from forecasted product sales denominated in foreign currencies, with contracts expected to settle through **August 2021**[80](index=80&type=chunk)[81](index=81&type=chunk) Notional Amount of Foreign Exchange Contracts (In millions) | | December 31, 2019 | | :--- | :--- | | Notional amount of foreign exchange contracts | $40.5 (EUR 34.2) | - As of **December 31, 2019**, a net gain of approximately **$276,000** related to derivative instruments designated as cash flow hedges was recorded in OCI, with **$305,000** expected to be reclassified into earnings in the **next 12 months**[84](index=84&type=chunk) Fair Value of Cash Flow Hedges (In thousands) | | December 31, 2019 | | :--- | :--- | | Fair value of cash flow hedges (asset) | $1,600 | - The adoption of ASU No. 2017-12 on **July 1, 2019**, changed the presentation of forward point amortization, which is now included as a component of net revenues, whereas it was previously included in other income[87](index=87&type=chunk) Forward Point Amortization (In thousands) | | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | :--- | :--- | | Included in Net Sales | $261 | $498 | $— | $— | | Included in Other Income | $— | $— | $464 | $951 | [L. Contingencies](index=25&type=section&id=L.%20Contingencies) This section addresses potential future obligations or gains arising from past events, including legal proceedings - The company is involved in various investigations, claims, and legal proceedings in the ordinary course of business, including intellectual property, product liability, and employment matters[88](index=88&type=chunk) - Based on available information, management does not currently believe the resolution of these matters will result in a **material adverse effect** on the business, consolidated financial condition, or results of operations, though unfavorable outcomes are possible[88](index=88&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition and operational results for the three and six months ended December 31, 2019, highlighting key business activities, strategic initiatives, and factors influencing financial performance, including sales trends, profitability, and liquidity [Executive Overview](index=26&type=section&id=Executive%20Overview) This section provides a high-level summary of the company's business, strategy, and key financial and operational highlights - The primary business involves private-label contract manufacturing of nutritional supplements and health care products, complemented by raw material sales and royalty/licensing revenue from beta-alanine (CarnoSyn® and SR CarnoSyn®)[92](index=92&type=chunk) - The business strategy focuses on achieving long-term growth, profitability, and diversifying the sales base by developing relationships with additional private-label customers and commercializing the patent estate[93](index=93&type=chunk) Net Sales and Revenue Decline (Six Months Ended Dec 31, 2019 vs 2018) | Metric | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | % Change | | :--- | :--- | :--- | :--- | | Total net sales | $58.3 million | $72.6 million | (20)% | | Private-label contract manufacturing sales | N/A | N/A | (19)% | | CarnoSyn® beta-alanine revenue | $7.5 million | $9.8 million | (24)% | Revenue Concentration for Largest Private-Label Customer | Metric | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Revenue concentration for largest private-label customer (% of total net sales) | 46% | 55% | - The decline in beta-alanine revenue was primarily due to decreased material shipments, market and seasonal factors, lower average sales prices, customers discontinuing CarnoSyn® for generic beta-alanine, and lower overall consumer demand[95](index=95&type=chunk) - The company received **New Dietary Ingredient (NDI) status** from the FDA for CarnoSyn® beta-alanine, strengthening its market position and enabling enforcement against non-compliant generic beta-alanine[96](index=96&type=chunk) - A favorable ruling from the U.S. Court of Appeals for the Federal Circuit vindicated the company's patents as '**patent eligible**' under existing law[97](index=97&type=chunk) - Japan's Ministry of Health, Labor, and Welfare officially approved beta-alanine for sale in Japanese food markets, opening a new market for CarnoSyn® beta-alanine, with first orders shipped in **Q4 fiscal 2019**[98](index=98&type=chunk) - The company continues to invest in research and development for its SR CarnoSyn® sustained release delivery system, targeting the growing Wellness and Healthy Aging markets[99](index=99&type=chunk) Litigation and Patent Compliance Expenses (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Litigation and patent compliance expenses | $1,400 | $958 | - For the second half of **fiscal 2020**, sales to the largest contract manufacturing customer are expected to decline **20% to 25%**, and CarnoSyn® beta-alanine revenue is expected to be comparable to the prior year, leading to an expected consolidated **fiscal 2020** revenue decline of **10% to 15%** compared to the prior fiscal year[101](index=101&type=chunk) - Consolidated operating income for the remainder of **fiscal 2020** is expected to be **flat to slightly favorable** compared to the same period in **fiscal 2019**, driven by continued litigation, SR CarnoSyn® marketing, decreased sales from the largest customer, lower Euro exchange rates, and Japan market expansion[104](index=104&type=chunk)[107](index=107&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section discusses the significant judgments and assumptions made by management in preparing the financial statements - The preparation of financial statements requires significant management judgment, estimates, and assumptions based on historical experience, industry standards, and reasonable circumstances[105](index=105&type=chunk) - Actual results could differ from these estimates under different assumptions or conditions, potentially leading to an adverse effect on the company's financial condition and results of operations[105](index=105&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including sales, gross profit, operating expenses, and net income Consolidated Results of Operations (Dollars in thousands) | | Three Months Ended Dec 31, 2019 | Three Months Ended Dec 31, 2018 | % Change (3M) | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | % Change (6M) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing net sales | $24,831 | $31,660 | (22)% | $50,841 | $62,746 | (19)% | | Patent and trademark licensing net sales | $4,272 | $4,383 | (3)% | $7,457 | $9,829 | (24)% | | Total net sales | $29,103 | $36,043 | (19)% | $58,298 | $72,575 | (20)% | | Cost of goods sold | $24,042 | $29,607 | (19)% | $48,853 | $58,976 | (17)% | | Gross profit | $5,061 | $6,436 | (21)% | $9,445 | $13,599 | (31)% | | Gross profit % | 17.4% | 17.9% | | 16.2% | 18.7% | | | Selling, general and administrative expenses | $4,363 | $4,229 | 3% | $8,802 | $8,668 | 2% | | % of net sales (SG&A) | 15.0% | 11.7% | | 15.1% | 11.9% | | | Income from operations | $698 | $2,207 | (68)% | $643 | $4,931 | (87)% | | % of net sales (Operating Income) | 2.4% | 6.1% | | 1.1% | 6.8% | | | Total other (loss) income | $(124) | $543 | (123)% | $53 | $1,040 | (95)% | | Income before income taxes | $574 | $2,750 | (79)% | $695 | $5,971 | (88)% | | % of net sales (Income before taxes) | 2.0% | 7.6% | | 1.2% | 8.2% | | | Provision for income taxes | $98 | $569 | (83)% | $124 | $1,231 | (90)% | | Net income | $476 | $2,181 | (78)% | $572 | $4,740 | (88)% | | % of net sales (Net Income) | 1.6% | 6.1% | | 1.0% | 6.5% | | - Private-label contract manufacturing net sales decreased by **22%** for the three months and **19%** for the six months ended **December 31, 2019**, primarily due to lower sales to the largest customer[108](index=108&type=chunk) - Patent and trademark licensing net sales decreased by **3%** for the three months and **24%** for the six months ended **December 31, 2019**, mainly due to decreased material shipments, market/seasonal factors, lower average sales prices, and customers switching to generic beta-alanine[109](index=109&type=chunk) Change in Gross Profit Margin | Change in Gross Profit Margin | Three Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2019 | | :--- | :--- | :--- | | Contract manufacturing | (1.2)% | (1.5)% | | Patent and trademark licensing | 0.7% | (1.0)% | | Total change in gross profit margin | (0.5)% | (2.5)% | - Selling, general and administrative expenses increased by **3%** for the three months and **2%** for the six months ended **December 31, 2019**, primarily due to an increase in legal expenses associated with the patents and trademarks licensing business[112](index=112&type=chunk) - Other income, net, decreased significantly due to the reclassification of forward point amortization from cash flow hedge instruments to net revenues, following the adoption of ASU No. 2017-12[113](index=113&type=chunk) - Income tax expense decreased by **83%** for the three months and **90%** for the six months ended **December 31, 2019**, primarily due to the decrease in income before taxes[114](index=114&type=chunk) [Liquidity and Capital Resources](index=31&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's ability to generate and manage cash, including operating, investing, and financing activities Net Cash Provided by Operating Activities (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,808 | $8,187 | - Cash provided by accounts receivable increased due to timing of sales and collections, despite Days Sales Outstanding increasing to **48 days** from **36 days** in the prior year period[117](index=117&type=chunk) - Cash provided by inventories significantly increased due to the timing of sales and new order activity[118](index=118&type=chunk) - Cash used in accounts payable and accrued liabilities increased due to the timing of inventory receipts and payments[118](index=118&type=chunk) Net Cash Used in Investing Activities (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash used in investing activities | $(1,616) | $(1,143) | - The change in investing activities was primarily due to the collection of a note receivable in the prior year and a decrease in capital equipment purchases in the current year[119](index=119&type=chunk) Net Cash Used in Financing Activities (In thousands) | | Six Months Ended Dec 31, 2019 | Six Months Ended Dec 31, 2018 | | :--- | :--- | :--- | | Net cash used in financing activities | $(1,332) | $(392) | - The change in financing activities was primarily due to increased repurchases of common stock[120](index=120&type=chunk) - The company was in compliance with all financial and other covenants required under the Credit Agreement during the six months ended **December 31, 2019**[121](index=121&type=chunk) Cash and Available Credit (In millions) | | December 31, 2019 | | :--- | :--- | | Cash and cash equivalents | $26.9 | | Available under credit facilities | $10.0 | - Management believes that available cash, cash equivalents, and potential cash flows from operations will be sufficient to fund current working capital needs and capital expenditures for at least the **next 12 months**[122](index=122&type=chunk) [Off-Balance Sheet Arrangements](index=31&type=section&id=Off-Balance%20Sheet%20Arrangements) This section discloses any material off-balance sheet transactions or obligations that could impact the company's financial position - As of **December 31, 2019**, the company did not have any off-balance sheet debt or other material off-balance sheet arrangements[123](index=123&type=chunk) [Recent Accounting Pronouncements](index=31&type=section&id=Recent%20Accounting%20Pronouncements) This section discusses the impact of newly adopted or pending accounting standards on the company's financial statements - Other than the pronouncements discussed in the notes to the consolidated financial statements (Item 1), management is not aware of any other recent accounting pronouncements that materially affect the company's financial position or results of operations[124](index=124&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) As a smaller reporting company, Natural Alternatives International, Inc. is not required to provide quantitative and qualitative disclosures about market risk in this Quarterly Report - As a **Smaller reporting company**, NAI is not required to provide quantitative and qualitative disclosures about market risk in this Quarterly Report[125](index=125&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of December 31, 2019, concluding they were effective - Management, with the participation of the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of **December 31, 2019**, and concluded they were **effective**[127](index=127&type=chunk)[128](index=128&type=chunk) - There were no material changes in the company's internal control over financial reporting during the quarterly period ended **December 31, 2019**[129](index=129&type=chunk) [Part II - Other Information](index=33&type=section&id=PART%20II%20OTHER%20INFORMATION) This part contains other required information, including legal proceedings, risk factors, and exhibits [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, primarily related to intellectual property rights enforcement, which arise in the ordinary course of business. While unfavorable outcomes are possible, management does not currently believe these matters will have a material adverse effect on the business or financial condition - The company is involved in various investigations, claims, and legal proceedings in the ordinary course of business, including matters related to intellectual property rights enforcement[131](index=131&type=chunk)[132](index=132&type=chunk) - As of **February 11, 2020**, neither NAI nor its Swiss subsidiary (NAIE) were a party to any material pending legal proceeding[132](index=132&type=chunk) - While unfavorable outcomes are possible, management currently does not believe the resolution of these matters will result in a **material adverse effect** on the business, consolidated financial condition, or results of operations[131](index=131&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) Investors are advised to carefully consider the risks outlined in the company's 2019 Annual Report on Form 10-K, as well as other filings, as these factors could seriously harm the business, financial condition, and results of operations - Investors should carefully consider the risks described under Item 1A of the 2019 Annual Report, as well as other information in this Report and other SEC filings[133](index=133&type=chunk) - If any identified risks occur, the company's business, financial condition, and results of operations could be seriously harmed, potentially leading to a decline in the market price of common stock[133](index=133&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of equity securities during the reported periods. It repurchased common stock under a publicly announced plan, with details provided for the three months ended December 31, 2019 - The company did not sell any unregistered equity securities for the three or six month periods ended **December 31, 2019** and **December 31, 2018**[134](index=134&type=chunk) Common Stock Repurchases (Three Months Ended Dec 31, 2019) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (as of Dec 31, 2019) (in thousands) | | :--- | :--- | :--- | :--- | :--- | | October 1, 2019 to October 31, 2019 | 38,397 | $8.88 | 38,397 | — | | November 1, 2019 to November 31, 2019 | 7,232 | $8.03 | 7,232 | — | | December 1, 2019 to December 31, 2019 | 104,678 | $8.14 | 104,678 | — | | Total | 150,307 | | 150,307 | $747 | [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[136](index=136&type=chunk) [Item 4. Mine Safety Disclosures](index=34&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[137](index=137&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this period - No other information was reported[138](index=138&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q report, including organizational documents, stock certificates, certifications, and XBRL taxonomy documents, indicating whether they are filed herewith or incorporated by reference - The exhibit index includes corporate organizational documents (Amended and Restated Certificate of Incorporation, By-laws), Common Stock Certificate form, Rule 13a-14(a)/15d-14(a) Certifications of CEO and CFO, Section 1350 Certification, and various XBRL taxonomy documents[139](index=139&type=chunk) [Signatures](index=36&type=section&id=SIGNATURES) This section confirms the official signing and submission of the report by authorized company officers - The report was duly signed on **February 11, 2020**, by Mark A. LeDoux, Chief Executive Officer, and Michael E. Fortin, Chief Financial Officer, on behalf of Natural Alternatives International, Inc[140](index=140&type=chunk)[141](index=141&type=chunk)[142](index=142&type=chunk) ```
NAI(NAII) - 2020 Q1 - Quarterly Report
2019-11-14 21:21
000-15701 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of p ...
NAI(NAII) - 2019 Q4 - Annual Report
2019-09-24 20:16
Table of Contents FORM 10-K ANNUAL REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2019 000-15701 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-1007839 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 744-7700 (Address of principal exec ...
NAI(NAII) - 2019 Q3 - Quarterly Report
2019-05-09 20:16
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019 000-15701 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of princ ...
NAI(NAII) - 2019 Q2 - Quarterly Report
2019-02-12 21:15
Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2018 000-15701 (Commission file number) NATURAL ALTERNATIVES INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 84-1007839 (State of incorporation) (IRS Employer Identification No.) 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of pr ...