NAI(NAII) - 2021 Q1 - Quarterly Report

PART I Item 1. Financial Statements 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 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 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 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] Condensed Consolidated Statements of Cash Flows 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 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] - 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][104] 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][79][80] - 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][86] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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][102][104] 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][115] - 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][116] - 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] - 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][123] Item 4. Controls and Procedures 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] - 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] PART II Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported for the period - None[141] Item 5. Other Information No other material information was reported for the period - None[142][143] Item 6. Exhibits 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]