N A T U R A L A L T E R N A T I V E S I N T E R N A T I O N A L 1 9 9 9 A N N U A L R E P O R T
Dear Shareholders
Mark A. Le Doux
Nineteen years ago I started this company with the vision to research, design and develop
nutritional supplements that would act as natural alternatives to drugs. My reasons for doing this
are easily understandable. Over the last century we have seen one drug after another come to the
marketplace, designed to cure a variety of ills. While several wonder drugs have been developed,
such as antibiotics, we still need to seek ways to deal with the root causes
of many diseases and not merely treat the symptoms. In the case of
antibiotics, indiscriminate use of these magnificent drugs has led to
serious problems, and the bacteria we once sought to destroy have
become resistant. In fact, every drug found in the Physician’s Desk
Reference and the U. S. Pharmacopoeia has the potential for significant
side effects or adverse reactions. It appears as if the vision I first
articulated in 1980 is of greater value today than ever before.
In the ensuing years, NAI has engaged in the research, development
and production of over 1,000 natural product formulations designed
Senior Executives
Douglas Flaker
Vice President,
Sales & Marketing
David Lough
Executive Vice President
David Shunick
Vice President of Operations
Dr. John Wise
Vice President,
Science & Technology
to enhance human health. We have participated in a host of clinical evaluations demonstrating the
efficacy of nutritional supplements in promoting proper immune function, healthy lipid metabolism
and bioavailability, many of which have been published in peer-reviewed medical and scientific
journals. NAI has continued to seek ways to enhance our quality systems, as well as those required
by the Food and Drug Administration for nutritional supplements. We meet or exceed all current
Good Manufacturing Practices (GMP) requirements for food manufacturing establishments. NAI
believes that our efforts toward achieving leadership status in the nutritional supplement field are
bearing significant fruit and will pay dividends now and in the future. Fiscal Year 1999 marked
a trying time, not only for NAI but for the industry at large. Anticipated growth caused many
companies to increase their production capacities and inventories. When this growth did not
materialize, some significant challenges were presented. In response to these challenges the NAI Board of Directors
made tactical changes in management, revalued inventories, and re-evaluated plans for corporate facility expansion.
These difficult but necessary changes will enable us to enter the next decade with renewed focus and direction.
This year was a time of significant transition for NAI. We initiated ambitious projects that we believe will provide
significant growth in revenue and profitability for upcoming fiscal years. NAI recognized the need to consolidate many
small warehouses of raw materials into a single, state-of-the-art GMP warehouse. This new facility is located in Vista,
California, where material will be received, tested, quarantined and either released or rejected following proper quality
procedures. In addition, we embarked on international expansion of NAI, opening a new encapsulation, compression
and packaging facility in Lugano, Switzerland. We designed our European
facility in conformance with Swiss and international GMP requirements.
Natural Alternatives International Europe, S.A., was created to service the
needs of our burgeoning client demands in Europe. Swiss-made products
enjoy considerable appeal in this market, and tariffs are reduced or
eliminated on sales within the European Community. Our new facility in
Lugano celebrated its grand opening simultaneously with the grand opening
of our facility in Vista on September 9, 1999. In order to effectively chart
a course for the future, one needs to learn from the past. The field of natural
medicine has never been more promising and NAI is positioned to meet a
future where demographic, clinical and scientific trends converge, creating significant demand for natural products.
When I formed this company, it was with sincere belief in the concept that Hippocrates, the father of modern medicine,
expounded when he said, ‘Let your food be your medicine.’ As we enter a new decade, a new century and a new
millennium, NAI is prepared to meet the needs of millions of people around the world who are concerned with
maintaining and enhancing their health with intelligent nutritional support. I appreciate your support and pledge to
keep NAI on course to achieve this mission.
Sincerely,
Mark A. Le Doux
Founder, President and CEO
Marketing & Account Management
Kathleen Primes, Tom Gardner,
Kate Marshall, Nicole Hagaman,
Anna Doane
Graphic Design,
Product Development & Planning
Theresa Abbott, Sharon Rhodes,
Jandra Thomas, Bruce Moore,
Gina Reynoso, Sanpetto Ohsawa,
Issmene Medina, Alan Huffington,
Brad Knudsen, Peggy Gardner,
Tom Riddle, Philip Tinsman
(not pictured)
Purchasing, Quality
Control & Warehouse
Lee Harris, Marc Parent, Victoria
Koller, Danielle Willenborg,
Joseph Gallegos, Damon Battista,
Kerry Michel, Hugh Mann,
Jennifer Gordon (not pictured)
The People Who
Make it Happen
Natural Alternatives International enjoys a long history as a leader
in the field of nutritional science. The individuals who collectively
make up our company are key to maintaining that record of success.
We would like to focus our attention on the people working behind
the scenes, whose professional spirit and sense of commitment
have enabled NAI to uphold its reputation for quality products
formulated with scientific integrity for the last nineteen years.
Responsible for the development of strategic new business
opportunities, the Marketing Team interacts with potential clients,
informing the marketplace of NAI's leadership position and
technical capabilities. By utilizing various marketing initiatives such
as trade shows, professional associations and targeted sales efforts,
potential clients and channels of distribution are identified. Our
Account Management Team provides professional customer service
support to new and existing relationships. With over fifty years of
collective experience in the nutritional field our Account Managers
are extremely knowledgeable in the areas of supplement design,
manufacturing, packaging, distribution, international product
registration and regulatory compliance. Our Graphics Design
Department consults with clients and Account Managers when
creating label design and keeps current regarding changes in labeling
laws and requirements.Through interaction with various
departments, the Product Development Group designs new products
and formulas which are researched, tested and piloted before being
presented to the prospective client. Utilizing scientific research and clinical studies, our team of physicians and scientists
design customized nutritional products supported by verified scientific rationale. Maintaining production efficiency
and high productivity is the goal of the Planning Group. Using the recently implemented BaaN "ERP" system our
planners have a state-of-the-art tool to manage all aspects of production scheduling, raw material delivery, packaging
coordination, and shipment tracking. These tools enable the company to achieve greater capacity utilization with a
high degree of predictability.The effectiveness of our manufacturing process is further enhanced by the personnel in
our Purchasing Department, where agents negotiate competitive prices on raw materials from locations around the
world. Raw materials are purchased and delivered to our newly completed warehouse in Vista, California, where
Quality Control Inspectors perform rigorous tests to ensure the quality, purity and potency of all materials. After
Production
Elias Lagunas, Alejandra
Valencia, Lina Yanchulova,
Gonzalo Ortiz, Charlie Smith,
Janis Donis, Bill Isles,
James Larsen, Scott Phillips,
Jan Wilson (not pictured),
Eduardo Perea (not pictured)
Laboratory
Dr. Zimin Liu, Jeff Abrahamian,
Dr. Joseph Mann, Eileen
Colorina, Elizabeth Tolbert,
Stephanie Knudsen
(not pictured)
testing and quarantine procedures are
completed, the materials are released to our
Warehouse Staff, who utilize the latest
scanner and bar coding technology to assure
proper inventory control and product
retrieval. Recent expansion of our weighing
and blending facilities in Vista have increased
our annual material blending capacity to
more than 3 million kilos per year. The
material is blended and then transported
to San Marcos, California, where our
Production Staff supervises the encapsulation
and compression machinery, producing
capsules or tablets to exacting standards that adhere to customer specifications. Our production capacity exceeds
10 million capsules and 11 million tablets each day.To ensure the highest quality of finished goods, our Laboratory
Staff continuously monitors the output of the production facility. All products manufactured by NAI are meticulously
examined for weight, ingredient homogeneity, color standardization and content levels. Tablets are tested for hardness,
thickness, dissolution and integrity. The laboratories at NAI have been equipped with highly advanced U.S.
Pharmacopoeia-approved equipment. Formulations of vitamins, minerals and herbs at NAI are assayed by batch,
ensuring the potency and purity of each product.The Finance & IS
Looking Ahead
Departments support the organization in critical areas, providing expert
guidance in accounting and information systems administration. In fiscal
Natural Alternatives International will be
1999 NAI implemented a powerful information technology system to
focusing on several key areas of development
manage production and finance. This system provides complete
over the year ahead. Developing the
functionality in process manufacturing, quality control, and financial
infrastructure to support future growth is
management. It also includes multi-company, multi-language, and multi-
essential to achieving the goals of
currency support, providing a competitive advantage and the ability to
geographically expanding facilities, diversifying
channels of distribution, and increasing
manufacturing capacity. On September 9,
1999, we celebrated the grand opening of
a new manufacturing facility in Lugano,
Switzerland as well as the new Vista, California
warehouse and blending facility. We also
Finance & IS
Human Resources & Administration
Elena Ortiz, Peggy Gardner, Chuck
Judy Little, Pat Hammond,
recently announced the opening of our first
Youde, Denise Pillette, Patrick Zatorski,
Joanne Gonzales, Sandy Ziegler,
Diana Davis, Mike Leonard (not
Jo Phillippe, Donna Peterson,
pictured), Steve Baert (not pictured)
Terry Doane (not pictured)
meet the needs of a growing enterprise. Meeting the staffing needs of
a growing company is of critical importance to the success of any business.
sales office in Tokyo, Japan. Geographic
expansion of our facilities has facilitated the
ease with which we are able to provide our
customers around the world with high quality
products. NAI is working to diversify and
Recruiting, training and developing a skilled and professional work force
expand the channels through which we service
is the task of our Human Resources Department. We are fortunate to have
clients and will continue to do so over the
a dedicated and experienced group of people managing this important
upcoming year. We are entering several new
function. The Administrative Group acts as a liaison between clients,
channels including direct mail, eCommerce and
vendors and staff and takes care of details that are essential in maintaining
several joint venture partnerships. Development
an efficient organization. Their skilled efforts contribute greatly to keeping
of these areas will be important to NAI’s future
our business running smoothly and efficiently. We are very appreciative
growth as the market for nutritional supplements
of the enthusiastic spirit all employees of NAI bring to their positions.
continues to grow worldwide.
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, 1999 Commission file number 0-15701
NATURAL ALTERNATIVES INTERNATIONAL, INC.
Incorporated in Delaware
1185 Linda Vista Drive, San Marcos, California
92069
(760) 744-7340
84-1007839
(I.R.S. Employer
Identification No.)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock - $.01 par value Nasdaq Stock Market
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is not
contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form
10-K. [ ]
The aggregate market value of 3,429,077 shares of voting stock held by non-affiliates (assuming for this
purpose that all officers and directors, and affiliates of directors, are affiliates) of the Registrant was
approximately $16,074,000 based on the closing sale price as of September 22, 1999.
At September 22, 1999, the Registrant had outstanding 5,759,875 shares of Common Stock, $.01 par value.
Documents Incorporated by Reference
NONE
ITEM 1.BUSINESS
PART I
Natural Alternatives International, Inc. and its subsidiaries (referred to collectively herein as the “Company”)
is engaged in the formulation and production of encapsulated and tablet vitamins and related nutrients
including phytochemicals derived from botanicals and foods. The Company provides clinical studies
assessment, assistance with international product registration, packaging and delivery system design,
customer-specific nutritional product formulation and a host of other marketing related services for its
clients. The Company seeks to further its customers' objectives by assisting them in expanding their market
share through a variety of special programs and services. There are no fees charged or revenues
generated from these marketing related services, which are generally provided before orders for product
are obtained.
Management believes its technically advanced facilities, laboratory and quality control capabilities are a
major factor in solidifying existing customer relationships and adding new customers. The recognized
standards for manufacturing nutritional products should, in the opinion of management, assist the Company
in serving its present and future customers. The United States Pharmacopeia compendia (USP) contain
specifications for vitamin and mineral supplements. This USP monograph has long been the basis for
determining the strength, quality, purity, packaging and labeling of drugs and related articles. The Company
currently has the technical and quality control expertise to conform to all aspects of USP specifications.
Conformance with USP specifications allows the Company to use the USP designation on products
manufactured for its customers, which have the USP designation.
The Company’s growth strategy is to introduce new products, attract and retain preferred customers, and
enter new markets. The Company believes that it can successfully implement this growth strategy by
continuing to capitalize on its operating strengths: science-based products; a strong research and
development program; in-house manufacturing; and an experienced management team.
RECENT MANAGEMENT CHANGES
The Company experienced a significant change in its management during fiscal 1999. Mark LeDoux,
founder and CEO of the Company, assumed the role of President in January 1999. David Lough was
appointed Executive Vice President with responsibility for all corporate operations. Douglas E. Flaker was
appointed Vice President of Marketing, Business Development and Strategic Planning. David K. Shunick
was appointed Vice President of Operations.
William P. Spencer, who served as a Director, President and Chief Financial Officer of the Company, and
Jane Schlosberg, formerly Director of Marketing and Corporate Relations are no longer employed by the
Company. Mr. Spencer resigned as a director of the Company on June 29, 1999.
PRODUCTS AND MANUFACTURING
The Company is engaged in the research, design and manufacture of nutritional supplements for others
engaged in commerce in a variety of distribution channels – both domestic and international. The Company
purchases raw materials in bulk from qualified vendors, and, after quality control testing, encapsulates or
compresses them into solid dosage forms of either chewable wafers or tablets. The Company utilizes
contract manufacturers, in accordance with the Company’s specifications and standards, to package the
product for shipment.
RESEARCH AND DEVELOPMENT
The primary emphasis of the Company’s research and development activities is the development of new
products and enhancement of existing products. In addition, the Company continuously produces pilot or
sample runs of products to ensure stability or efficacy and to determine ingredient interaction and
prospective customer acceptance. The Company has implemented stringent quality control procedures to
verify that all products comply with established specifications and standards. Research of this type is a part
of the operating expenses incurred by the Company, and the associated costs have not been significant.
2
PART I
ITEM 1.BUSINESS (continued)
COMPETITION AND BUSINESS RISKS
The Company’s products are sold in domestic and foreign markets in competition with other companies.
The vitamin and nutritional supplement industry is highly competitive, and competition continues to
increase. Competition for the sale of vitamins and supplements comes from many sources, including
companies which sell vitamins to supermarkets, large chain discount retailers, drug store chains and
independent drug stores, health food stores, pharmaceutical companies and others which sell to
wholesalers, mail order vendors and network marketing companies. The Company does not believe it is
possible to accurately estimate the number or size of its many competitors since the vitamin industry is
largely privately held.
The Company believes that competition among manufacturers of vitamin and supplement products is
based, among other things, on price, timely delivery, product quality, safety, availability, product innovation
and assistance in marketing and customer service. The competitive position of the Company will also
depend upon continued acceptance of its products, its ability to attract and retain qualified personnel, future
governmental regulations affecting vitamins and nutritional supplements, and publication of vitamin product
safety and efficacy studies by the government and authoritative health and medical authorities.
The Company's operations are subject to the risks normally associated with manufacturing vitamins and
nutritional products, including shortage of certain raw materials and damage to property or injury to
persons.
SOURCE AND AVAILABILITY OF RAW MATERIALS
Raw materials used in the Company’s products consist of nutrient powders, empty gelatin capsules, and
necessary components for packaging and distribution of finished vitamin and nutritional supplement
products. The nutrient powders and the empty gelatin capsules are purchased from manufacturers in the
United States, including foreign entities, some of which have operations in the United States. To date, the
Company has not experienced any difficulty in obtaining adequate sources of supply. Although there can
be no assurance that the Company will continue to be able to obtain adequate sources in the future, the
Company believes that it will be able to do so.
MAJOR CUSTOMERS
Nu Skin International, NSA International and Pharmavite together represented 71% of the Company's sales
for the year ended June 30, 1999. Loss of any of these customers could have an adverse impact on the
Company's revenues and earnings until the Company could replace these sales. If the Company was
unable to replace the sales to any of these customers, it would have a material adverse impact on the
business and operations of the Company. No other customer represented 10% or more of the Company's
sales for the year ended June 30, 1999.
EMPLOYEES
The Company employs 121 individuals, with five employed in executive positions, eleven in the area of
research, laboratory and quality control, eleven in sales and marketing, while the remaining employees are
engaged in production and administration. The Company has never experienced a work stoppage, and
none of its employees are currently represented by a union or any other form of collective bargaining unit.
The Company believes its relations with its employees are excellent.
3
PART I
ITEM 1.BUSINESS (continued)
GOVERNMENT REGULATION
The formulation, manufacturing, packaging, labeling, advertising and distribution of the Company's
products are subject to regulation by one or more federal agencies, including the Federal Drug
Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission
(CPSC), the United States Department of Agriculture (DOA) and the Environmental Protection Agency
(EPA). These activities are also regulated by various agencies of the states and localities in which the
Company's products are sold, including without limitation the California Department of Health Services,
Food and Drug branch. The FDA in particular regulates the advertising, labeling and sales of vitamin and
mineral supplements and may take regulatory action concerning medical claims, misleading or untruthful
advertising, and product safety issues. These regulations include the FDA's Good Manufacturing Practices
(GMPs) for foods. Detailed dietary supplement GMPs have been proposed but no regulations have been
adopted. Additional regulations for the implementation of the Dietary Supplement Health and Education Act
of 1994 (DSHEA) requirements for dietary supplement labeling were adopted.
The Company may be subject, from time to time, to additional laws or regulations administered by the FDA
or other Federal, State or foreign regulatory authorities, or more stringent interpretations of current laws or
regulations in the future. The Company is unable to predict the nature of such future laws, regulations,
interpretations or applications, nor can it predict what effect additional governmental regulations or
administrative orders, when and if promulgated, would have on its business in the future. They could,
however, require the Company to: reformulate certain products to meet new standards; recall or
discontinue certain products not able to be reformulated; expand documentation of the properties of certain
products; expand or provide different labeling and scientific substantiation; or, impose additional
recordkeeping requirements. Any or all such requirements could have a material adverse effect on the
Company's results of operations and financial position.
ITEM 2.PROPERTIES
The Company's corporate and manufacturing facilities consist of approximately 123,000 square feet and
are located in San Marcos and Vista, California. Of this space, the Company owns approximately 29,500
square feet and leases the remaining space. Approximately 68,000 square feet is used for production
related activities, 35,000 square feet is used for warehousing, 5,000 square feet is used for laboratory and
product development, and 15,000 square feet is used for offices.
In August 1997, the Company entered into a 15-year lease agreement under which the lessor was to
construct a build-to-suit 82,000 square foot office and manufacturing facility in Carlsbad, California. In
March 1999, the Company made the decision to sublease, and not occupy, the partially completed facility.
In the third quarter of fiscal 1999, the Company recorded a $2.3 million charge for impairment of leasehold
assets and an accrual of $2.7 million representing the present value of the excess of future lease payments
over estimated sub-lease income. The Company is seeking tenants for the facility.
The Company entered into two new lease agreements during fiscal year 1999 for two adjacent buildings
located in Vista, California. The facilities are leased from an unaffiliated third party and consist of a total of
approximately 74,000 square feet. The lease for the first building commenced in August 1998 under a 5-
year lease agreement and consists of approximately 54,000 square feet to be utilized as a warehousing
and blending facility. The lease for the second building commenced in March 1999 under a 3.5-year lease
agreement for the rental of approximately 20,000 square feet to be utilized as a warehouse and packaging
facility. The consolidation of warehousing space is expected to increase operating efficiencies to allow the
Company to meet demand for its products. The Company will continue to utilize its facilities in San Marcos
for production.
4
PART I
ITEM 3.LEGAL PROCEEDINGS
The Company is involved in various claims and legal actions arising in the ordinary course of business. In
the opinion of management, after consultation with its legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the Company’s consolidated financial position, results of
operations or liquidity.
ITEM 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
5
PART II
ITEM 5.
MATTERS
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
The Company’s common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market
under the Symbol: NAII. The common stock of the Company had previously been traded on the American
Stock Exchange (AMEX) since November 17, 1992, under the stock symbol NAI. The table below sets forth
the high and low sales prices of the Company’s stock for fiscal 1999 and 1998.
First Quarter Ended September 30, 1998
Second Quarter Ended December 31, 1998
Third Quarter Ended March 31, 1999
Fourth Quarter Ended June 30, 1999
First Quarter Ended September 30, 1997
Second Quarter Ended December 31, 1997
Third Quarter Ended March 31, 1998
Fourth Quarter Ended June 30, 1998
High
$26.625
$15.063
$14.000
$5.125
$9.750
$10.813
$22.500
$24.500
Low
$12.125
$9.125
$4.188
$3.125
$7.000
$7.250
$17.625
$16.000
As of June 30, 1999, the approximate number of holders of common stock was 4,000.
The Company has never paid a dividend on its common stock. It is the Company's present policy to retain
all earnings to provide funds for the future growth of the Company.
6
ITEM 6.SELECTED FINANCIAL DATA
PART II
Five-Year Summary
(Not Covered by Independent Auditors’ Report)
____________________________________________________________________________________
Year Ended June 30
1999
1998
1997
1996
1995
Net Sales
$57,429,898
$67,894,305
$49,444,221
$47,621,804
$37,388,254
Income (Loss) from Operations ($4,937,345)
$9,622,478
$1,815,072
$5,263,376
$3,637,522
Net Earnings (Loss)
($2,923,340)
$5,871,765
$1,119,920
$3,222,317
$2,028,059
Net Earnings (Loss) Per
Common Share:
Basic
Diluted
($0.50)
($0.50)
$1.06
$1.00
$0.21
$0.20
$0.61
$0.58
$0.39
$0.37
Current Assets
$23,240,014
$30,642,121
$18,857,979
$15,710,135
$14,722,929
Total Assets
$38,596,023
$42,987,279
$28,108,756
$23,561,191
$21,193,780
Long-Term Debt and Capital
Lease Obligations, Less
Current Installments
$926,864
$977,375
$1,123,898
$1,324,920
$1,114,828
Stockholders' Equity
$25,090,460
$27,659,141
$18,699,487
$17,159,586
$13,278,255
7
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PART II
This Form 10-K contains certain “forward-looking statements” as such term is defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission in its rules,
regulations and releases. These statements represent the Company’s expectations or beliefs, including,
but not limited to, statements concerning future financial and operating results, anticipated growth in
revenues and profit margins, improvements in management personnel, the impact of European operations,
and the utilization of inventories and facilities, statements concerning industry performance, the Company’s
operations, economic performance, financial condition, growth and acquisition strategies, margins and
growth in sales of the Company’s products. For this purpose, any statements contained in this Report that
are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the
generality of the foregoing, words such as “may”, “will”, “expect”, “believe”, “anticipate”, “intend”, “could”,
“estimate” or “continue” or the negative or other variations thereof or comparable terminology are intended
to identify forward-looking statements. These statements by their nature involve substantial risks and
uncertainties, certain of which are beyond the Company’s control, and actual results may differ materially
depending on a variety of important factors, including uncertainty related to government regulation, the
effect of adverse publicity, litigation, the centralized location of the Company’s manufacturing operations,
availability of raw materials, risks associated with international operations, competition, product liability
claims, volatility of stock price and those factors described in this and other Company filings with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Net sales decreased 15.4% or $10.5 million to $57.4 million in fiscal 1999 from $67.9 million in 1998.
Management believes the decrease in sales is attributable to increased product and price competition in
the nutritional supplement market as well as increased competition for new distributors. In addition, sales
growth was negatively impacted by the reduction in market demand for several herbal products, resulting in
depressed market prices. The Company expects competition to remain strong for the foreseeable future.
Sales of products by our customers into international markets increased 18.8% to $17.7 million in 1999
from $14.9 million in 1998. The increase is primarily the result of existing customers continued expansion
into Asian and European markets through their international distribution channels. Management believes
that the expansion into international markets should continue and net sales to these markets should
increase as a percentage of total net sales.
For the year ended June 30, 1999, the Company experienced an increase in cost of goods sold, as a
percentage of sales, to 78.4% compared to 72.4% for the prior year. The increase was primarily due to
liquidation of excess or slow moving inventories at or below cost and inventory write-downs to net
realizable values, caused by depressed market prices due to reduced industry demand. The increase in
cost of goods sold resulted in a reduction of gross profit margins to 21.6% in fiscal 1999 compared to
27.6% in fiscal 1998.
Selling, general and administrative expenses increased as a percentage of net sales to 21.4% in 1999 from
13.4% in 1998, increasing in absolute dollars to $12.3 million in fiscal 1999 from $9.1 million in 1998. The
percentage increase was due primarily to the fixed nature of selling, general and administrative expenses
and the decrease in net sales as noted above. The increase in absolute dollars was due to: upgrades in
systems and computers related to Y2K compliance; expenses related to management restructuring; and
higher rents in connection with entering into additional leases for new blending, warehousing and
packaging facilities. Additionally, professional fees increased because of increased activity in seeking
additional manufacturing agreements.
8
(continued)
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
PART II
OF OPERATIONS (continued)
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998 (continued)
The Company recorded charges related to a lease obligation of approximately $5,000,000 during the fiscal
year ended June 30, 1999. The expense relates to the Company’s decision to sublease, and not occupy, a
partially completed office and manufacturing facility in Carlsbad, California. In the third quarter of fiscal
1999, the Company recorded a $2.3 million charge for impairment of leasehold assets and an accrual of
$2.7 million representing the present value of the excess of future lease payments over estimated sub-
lease income. The Company is seeking tenants for the facility.
The Company’s loss from operations was approximately $4.9 million compared to income from operations
of $9.6 million in 1998. This was due to an approximate $6.3 million decrease in gross profit, approximately
$3.2 million increase in selling, general and administrative expenses, and the approximate $5 million
provision for loss on lease obligation and other expense.
The Company incurred a net loss for fiscal 1999 of approximately $2.9 million compared to net income of
$5.9 million in fiscal 1998. This loss was due to the reasons described above. Diluted loss per common
share was ($.50) in fiscal 1999 compared to diluted earnings per common share of $1.00 in 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
Net sales increased 37.3% or $18.5 million to $67.9 million in fiscal 1998. The Company added several
new customers in the latter part of fiscal 1997 and sales to these and other new customers was the primary
reason for the increase. A decrease in sales to certain existing customers was offset by increases in
international sales to other existing customers through their international distribution channels.
Sales of products into international markets increased to $14.9 million in 1998 from $1.9 million in 1997.
The increase was primarily the result of existing customers expanding into Asian and European markets.
Income from operations increased 430% to $9.6 million in 1998. This was due to a $8.3 million increase in
gross profit offset by a $.5 million increase in selling, general and administrative expenses.
Gross profit margins were 27.6% and 21.1% in fiscal 1998 and 1997, respectively. The 1997 gross profit
margin was substantially below historical margins because of the following factors: shifts in product sales
mix toward lower profit margin products, rising costs of certain raw materials, increased costs for
subcontracted packaging, change in ownership of a customer that resulted in a substantial write-off of
packaging materials, and the write-off of raw materials that became obsolete because of customer
discontinuance of certain products. The 1998 gross profit margin was slightly higher than historical margins
experienced before 1997. The increase is principally due to negotiated raw material savings and improved
manufacturing cost efficiencies.
Selling, general and administrative expenses decreased as a percentage of sales to 13.4% in 1998 from
17.4% in 1997, while increasing in absolute dollars to approximately $9.1 million in fiscal 1998 from $8.6
million in 1997. The majority of this increase in selling, general and administrative expenses is due to an
increase in employee benefits expense which increased because the defined benefit pension plan adopted
as of January 1, 1997 was in effect for a full year in 1998. Additionally, professional fees increased in part
because of increased activity in the registration of foreign products. These increases in selling, general and
administrative expenses were partially offset by a decline in bad debt expense, which was attributable to a
related party customer write-off in fiscal 1997, and a decline in royalty expense because the Company’s
agreement with the United States Olympic Committee expired in March 1997.
Net other income (expense) was approximately $44,000 in fiscal 1998 compared approximately $25,000 in
fiscal 1997.
9
PART II
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
FISCAL 1998 COMPARED TO FISCAL 1997 (continued)
Net earnings increased by 424% or $4.8 million to $5.9 million in fiscal 1998. This increase was due
primarily to the reasons given above and was partially offset by a higher effective income tax rate. The
higher effective income tax rate, from 39.1% in 1997 to 39.3% in 1998, was the result of a smaller
investment credit applicable to California franchise taxes.
Diluted earnings per share increased 400% to $1.00 per share in 1998 from $.20 per share in 1997.
YEAR 2000 ISSUES
The year 2000 issue ("Year 2000 Issue") is the result of computer programs being written using two digits
rather than four digits to represent the year and affects both information technology (IT) and non-IT
systems. Thus, computer software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in system failures or miscalculations causing disruptions of operations, including
among others, a temporary inability to process certain data or engage in similar normal business activities.
STATUS: The Company's plan to resolve the Year 2000 Issue involved four phases: assessment,
remediation, testing and implementation. The Company completed its assessment of its IT systems and
implemented its new computer software system during the fourth quarter of its 1999 fiscal year. The
manufacturer represents this system as Year 2000 compliant. The Company also completed its
assessment of non-IT systems, most of which are equipment used in production. Systems identified as not
being Year 2000 compliant were brought into compliance by upgrading either the software or hardware.
The Company fully implemented these upgrades by the end of its 1999 fiscal year. The Company has
determined that its production equipment and alarm, heating, and air-conditioning systems will not be
affected by the Year 2000.
The Company’s computer staff has queried its significant suppliers, vendors and other outside parties and
none of the responses received thus far have indicated any significant deficiencies. The Company will
continue to monitor their Year 2000 compliance status, but has no means of ensuring that suppliers,
vendors and other outside parties will be Year 2000 ready. The Company’s most likely worst case scenario
is the inability of suppliers, vendors and other outside parties (including the government) to complete their
Year 2000 resolution process in a timely fashion, which could materially impact the Company. The effect of
non-compliance by suppliers, vendors and outside parties is not determinable.
COSTS: The Company incurred approximately $1 million in costs, of which approximately $150,000 was
charged directly to expense in the1999 fiscal year to replace its financial and manufacturing software
systems and to remediate or replace embedded microprocessors in its production equipment. The
Company funded its costs from current funds available from operations. If, however, additional
unanticipated costs are incurred, this could have a material adverse effect on the Company's business,
results of operations and financial condition.
RISKS: While management of the Company believes it effectively implemented its program to resolve the
Year 2000 Issue in a timely manner, as noted above, disruptions in the economy generally resulting from
Year 2000 Issues could also materially adversely effect the Company. The Company is unable to estimate
if it has any potential liability or potential lost revenue at this time. There can be no assurance that the
Company will not discover Year 2000 compliance issues that will have a material adverse effect on the
Company's business, results of operations and financial condition.
10
PART II
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital and capital expenditure requirements, including
funding for expansion of operations, mainly through net cash provided by operating activities. In addition,
the Company has utilized revolving lines of credit and equipment financing and leases. Management plans
to pursue additional financing during its fiscal year 2000 to provide the resources necessary to meet
currently anticipated funding requirements. There can be no assurance such financing will be available or if
it is, on what terms, and if obtained, that it will be adequate to provide resources necessary to meet current
requirements.
At June 30, 1999, the Company had working capital of $14,098,000 and borrowings available under
revolving lines of credit of $3,000,000. As of June 30, 1999, there were no borrowings under these lines.
In 1999, net cash provided by operating activities was approximately $3,148,000 compared to
approximately $3,330,000 for 1998. The net loss was offset by the cumulative effect of a provision for loss
on a lease obligation, a decrease in accounts receivable, and a decrease in inventories less the cumulative
effect of an increase in deferred income taxes, an increase in tax refund receivable, and a decrease in
accounts payable. Current maturities of long-term debt amounted to $50,000, which the Company expects
to pay out of working capital.
The Company has revolving lines of credit permitting borrowings up to $3,000,000, which are secured by
the Company’s receivables, inventory, equipment, and vehicles and bear interest at the bank’s prime rate.
These agreements contain financial covenants concerning limitations on maintenance of debt, certain
financial ratios and other matters. The lines of credit expire on January 19, 2000; management expects
such lines to be renewed in the normal course of business. The Company received a waiver for certain
debt covenants for which it was not compliant as of June 30, 1999.
Capital expenditures for 1999 amounted to approximately $5.7 million. These expenditures relate to
building improvements for the Company’s new warehouse and blending facility, the purchase of production
and packaging equipment to expand the Company's output capacity, and leasehold improvements in the
Carlsbad facility, which were written off in the third quarter. The Company anticipates capital expenditures
of approximately $5.4 million during fiscal 2000. These expenditures are expected to be paid from a
combination of cash holdings, net cash provided by operating activities in fiscal 2000, borrowings under the
Company's lines of credit with its bank, and anticipated additional financings. 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.
New Accounting Pronouncements
In June 1999, the Company adopted 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. Prior
years have been restated to conform to the new standard.
In fiscal 1999, the Company adopted Statements of Financial Accounting Standards No. 130, “Reporting
Comprehensive Income” (“SFAS 130”) and No. 131, “Disclosures about Segments of an Enterprise and
Related Information” (“SFAS 131”). SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components in the financial statements. 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.
11
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
PART II
New Accounting Pronouncements (continued)
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and reporting standards
requiring that derivative instruments be recorded in the balance sheet as either an asset or liability
measured at its fair value and that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended, is effective for fiscal years
beginning after June 15, 2000. The adoption of this Statement will not have a material effect on the
Company's consolidated financial statements as the Company does not currently hold any derivative or
hedging instruments.
In April, 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP")
98-5, "Reporting on the Cost of Start-up Activities." This Statement requires that all start-up activities,
including organizational costs, be expensed as incurred. The Company adopted SOP98-5 for the year
ended June 30, 1999. The effects of adopting this SOP did not have a material impact on consolidated
financial position, results of operations or liquidity.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to risks relating to changes in interest rates and stock market fluctuations. At
June 30, 1999, 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 a short-term investment portfolio containing common stocks
that are subject to market risk. The Company has not used derivative financial instruments in its investment
portfolio. The Company believes that its investment in market-risk-sensitive instruments is not material.
Market rate risk related to Long Term Debt is diminimus due to the fixed interest rate and fixed payment
structure of the debt.
RISK FACTORS
Government Regulation
The manufacturing, processing, formulation, packaging, labeling and advertising of the Company’s
products are subject to regulation by one or more federal agencies, including the United States Food and
Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety
Commission, the United States Department of Agriculture, the United States Postal Service, the United
States Environmental Protection Agency and the Occupational Safety and Health Administration. These
activities are also regulated by various agencies of the states and localities in which the Company’s
products are sold. In particular, the FDA regulates the safety, labeling and distribution of dietary
supplements, including vitamins, minerals, herbs food, OTC and prescription drugs and cosmetics. The
regulations that are promulgated by the FDA relating to the manufacturing process are known as food
products. In addition, the FTC has overlapping jurisdiction with the FDA to regulate the labeling, promotion
and advertising of vitamins, OTC drugs, cosmetics and foods.
The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) was enacted on October 25, 1994.
DSHEA amends the Federal Food, Drug and Cosmetic Act by defining dietary supplements which include
vitamins, minerals, nutritional supplements and herbs, as a new category of food separate from
conventional food. DSHEA provides a regulatory framework to ensure safe, quality dietary supplements
and the dissemination of accurate information about such products. Under DSHEA, the FDA is generally
prohibited from regulating the active ingredients in dietary supplements as drugs unless product claims,
such as claims that a product may heal, mitigate, cure or prevent an illness, disease or malady, trigger drug
status.
12
RISK FACTORS (continued)
PART II
DSHEA provides for specific nutritional labeling requirements for dietary supplements and the FDA’s final
regulations require that all dietary supplements must be labeled in compliance with the regulations by no
later than March 23, 1999. DSHEA permits substantiated, truthful and non-misleading statements of
nutritional support to be made in labeling, such as statements describing general well-being resulting from
consumption of a dietary ingredient or the role of a nutrient or dietary ingredient in affecting or maintaining
a structure or function of the body. The Company anticipates the FDA will finalize CGMPs that are specific
to dietary supplements and require at least some of the quality control provisions contained in the CGMPs
for drugs. The Company currently manufactures its vitamins and nutritional supplement products in
compliance with the applicable food CGMPs.
The FDA has finalized some of its regulations, including those relating to nutritional labeling requirements.
The FDA also has under development additional regulations to implement DSHEA. Final labeling
regulations may require expanded or different labeling for the Company’s vitamin and nutritional products.
The Company cannot determine what effect such regulations, when fully implemented, will have on its
business in the future. Such regulations could, among other things, require the recall, reformulation or
discontinuance of certain products, additional recordkeeping, warnings, notification procedures and
expanded documentation of the properties of certain products or scientific substantiation regarding
ingredients, product claims, safety or efficacy. Failure to comply with applicable FDA requirements can
result in sanctions being imposed on the Company or the manufacturers of its products, including warning
letters, fines, product recalls and seizures.
Governmental regulations in foreign countries where the Company plans to commence or expand sales
may prevent or delay entry into a market or prevent or delay the introduction, or require the reformulation
of, certain of the Company’s products. In addition, the Company cannot predict whether new domestic or
foreign legislation regulating its activities will be enacted. Such new legislation could have a material
adverse effect on the Company.
Effect of Adverse Publicity
The Company’s products consist of vitamins, minerals, herbs and other ingredients that the Company
regards as safe when taken as suggested by the Company. In addition, various scientific studies have
suggested the ingredients in some of the Company’s products may involve health benefits. The Company
believes the growth in the vitamin product business of the last several years may be based on material
media attention and various scientific research suggesting potential health benefits for the consumption of
certain vitamin products. The Company is highly dependent upon its customers’ and consumers’ perception
of the overall integrity of its business, as well as the safety and quality of its products and similar products
distributed by other companies which may not adhere to the same quality standards as the Company. The
Company could be adversely affected if any of the Company’s products or any similar products distributed
by other companies should prove or be asserted to be harmful to consumers or should scientific studies
provide unfavorable findings regarding the effectiveness of products similar to those produced by the
Company.
Centralized Location of Manufacturing Operations
The Company currently manufactures the vast majority of its products at its manufacturing facilities in San
Marcos, California. Accordingly, any event resulting in the slowdown or stoppage of the Company’s
manufacturing operations or distribution facilities in San Marcos could have a material adverse effect on the
Company. The Company maintains business interruption insurance. There can be no assurance, however,
that such insurance will continue to be available at a reasonable cost or, if available, will be adequate to
cover any losses that may be incurred from an interruption in the Company’s manufacturing and distribution
operations.
13
RISK FACTORS (continued)
PART II
Reliance on Certain Customers and Certain Products
In fiscal 1999, NuSkin International, NSA International and Pharmavite accounted for approximately 71% of
the Company’s sales. Each of the Company’s other major customers accounted for less than 10% of the
Company’s sales for fiscal 1999. If one or more of the Company’s major customers substantially reduced
their volume of purchases from the Company, or if consumer’s purchases of vitamins were substantially
reduced, the Company’s results of operations could be materially adversely affected.
Distribution and Management of Operations
In fiscal 1999, the Company leased and initiated development of two additional facilities comprising 74,000
square feet in Vista, California, to be used as warehousing, mixing, blending and packaging facilities. The
Company also elected to sublease and not occupy an 82,000 square foot building in Carlsbad, California
developed specifically for the Company. In addition, the Company organized a European subsidiary that
leased and developed a 15,000 square foot manufacturing facility in Lugano, Switzerland. During fiscal
1999, the Company also implemented an entirely new software system to manage its materials and
manufacturing operations. While the Company believes that these activities will increase the Company’s
manufacturing and distribution capabilities, there can be no assurance the expected operating
improvements will be realized or that these efforts will result in improved sales profit margins or earnings. A
significant, unexpected disruption during the implementation of these systems and facilities could have a
material adverse effect on the Company’s results of operations.
Potential for Increased Competition
The market for the Company’s products is highly competitive. The Company competes with other vitamin
product and OTC pharmaceuticals manufacturers. Among other factors, competition among these
manufacturers is based upon price. If one or more manufacturers significantly reduce their prices in an
effort to gain market share, the Company’s results of operations or market position could be adversely
affected. Certain of the Company’s competitors, particularly manufacturers of nationally advertised brand
name products, are larger and have resources substantially greater than those of the Company. Much
speculation has also been made about the potential for increased participation in these markets by major
international pharmaceutical companies. In the future, one or more of these companies could seek to
compete more directly with the Company by manufacturing and distributing their own or others products or
by significantly lowering the prices of their national brand products.
The Company sells substantially all of its vitamin products to customers who sell and distribute the
products. Although the Company does not currently participate significantly in other channels such as
health food stores, direct mail, internet sales and direct sales, the Company may expand its operations and
its products may face competition from such alternative channels as more customers utilize these channels
of distribution to obtain vitamin products.
Reliance on Certain Suppliers; Availability and Cost of Purchased Materials
The Company purchases from third party suppliers raw materials and certain products that the Company
does not manufacture. Although the Company currently has supply arrangements with several suppliers of
these ingredients and products, and the Company’s purchased materials are generally available from
numerous sources; an unexpected interruption of supply could materially adversely affect the Company’s
results of operations.
14
RISK FACTORS (continued)
Exposure to Product Liability Claims
PART II
The Company, like other retailers, distributors and manufacturers of products that are ingested, faces a risk
of exposure to product liability claims in the event that, among other things, the use of its products results in
injury. The Company maintains product liability coverage in the amount of $25 million, including primary
product liability and excess liability coverage with deductibles of $25,000 per claim. There can be no
assurance product liability insurance will continue to be available at an economically reasonable cost or
that the Company’s insurance will be adequate to cover liability the Company incurs in respect to product
liability claims. See also “Item 3. Legal Proceedings and Product Liability.”
Reliance on Key Management
The operation of the Company requires managerial and operational expertise. The Company does not
have long term employment contracts with any of its executives. If, for any reason, key personnel do not
continue to be active in the Company management, operations could be adversely affected.
Risks Associated with International Markets
The Company’s growth may be dependent in part upon its ability to expand its operations and those of its
customers into new markets, including international markets. The Company may experience difficulty
entering new international markets due to greater regulatory barriers, the necessity of adapting to new
regulatory systems and problems related to entering new markets with different cultural bases and political
systems. Operating in international markets exposes the Company to certain risks, including, among other
things, (1) changes in or interpretations of foreign import, currency transfer and other restrictions and
regulations that among other things may limit the Company’s ability to sell certain products or repatriate
profits to the United States, (2) exposure to currency fluctuations, (3) the potential imposition of trade or
foreign exchange restrictions or increased tariffs, and (4) economic and political instability. As the
Company continues to expand its international operations, these and other risks associated with
international operations are likely to increase.
Litigation Involving Products Containing Certain Raw Materials
There can be no assurance that the Company will not be named in actions in the future seeking damages
for alleged personal injuries resulting from the ingestion of certain products, and result in the Company
becoming a defendant in multiple actions and such an event could have a material adverse impact on the
Company.
Concentration of Ownership; Certain Anti-Takeover Considerations
The Company’s directors and executive officers beneficially own approximately 27% of the outstanding
Common Stock. Accordingly, these shareholders will continue to have the ability to substantially influence
the management, policies and business operations of the Company. The Company’s Board of Directors
has the authority to approve the issuance of 5,000,000 shares of preferred stock and to fix the rights,
preferences, privileges and restrictions, including voting rights, of those shares without any further vote or
action by the Company’s shareholders. The rights of the holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future.
Certain provisions of Delaware law, as well as the issuance of preferred stock, and other "anti-takeover"
provisions in the Company’s Articles and Bylaws, could delay or inhibit the removal of incumbent directors
and could delay, defer, make more difficult or prevent a merger, tender offer or proxy contest, or any
change in control involving the Company, as well as the removal of management, even if such events
would be beneficial to the interests of the Company’s shareholders, and may limit the price certain
investors may be willing to pay in the future for shares of Common Stock.
15
RISK FACTORS (continued)
Volatility of Stock Price
PART II
The Company’s stock price has experienced significant volatility over the past two fiscal years. Moreover,
the stock market has from time to time experienced extreme price and volume fluctuations that may be
unrelated to the operating performance of particular companies. Market conditions in the vitamin and
nutritional supplement industry and factors such as announcements of new products by the Company, its
competitors or third parties, and changes in earnings estimates by analysts, may have a significant effect
on the price of the Common Stock.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data as required by this item are set forth on pages 19
through 43.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is included under the caption “Directors and Executive Officers of the
Registrant” in the Registrant’s Proxy Statement for the 1999 Annual Meeting of Stockholders and is
incorporated herein by reference.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this item is included under the caption “Executive Compensation” in the
Registrant’s Proxy Statement for the 1999 Annual Meeting of Stockholders and is incorporated herein by
reference.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption “Security Ownership of Certain
Beneficial Owners and Management” in the Registrant’s Proxy Statement for the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption “Certain Relationships and Related
Transactions” in the Registrant’s Proxy Statement for the 1999 Annual Meeting of Stockholders and is
incorporated herein by reference.
17
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The financial statements listed in the accompanying index to consolidated financial statements are filed as
part of this report.
2. Financial Statement Schedules
The financial statement schedule listed in the accompanying index to the consolidated financial statements
is filed as part of this annual report. Schedules not included have been omitted because they are not
applicable or the information required is included in the financial statements and notes thereto.
(b) Exhibits
Exhibit 23
Exhibit 27
Re: Consent of KPMG LLP
Financial Data Schedule
(c) Reports Form 8-K
Not Applicable
18
NATURAL ALTERNATIVES INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
JUNE 30, 1999
Independent Auditors' Report ................................................................................................................... 20
Consolidated Balance Sheets as of June 30, 1999 and 1998.................................................................... 21
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended June 30, 1999, 1998 and 1997 .................................................................................. 23
Consolidated Statements of Stockholders' Equity for the years ended June 30, 1999, 1998 and 1997 ...... 24
Consolidated Statements of Cash Flows for the years ended June 30, 1999, 1998 and 1997.................... 25
Notes to Consolidated Financial Statements............................................................................................. 27
Schedule II - Valuation and Qualifying Accounts for the years ended June 30, 1999, 1998 and 1997 ........ 43
19
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
NATURAL ALTERNATIVES INTERNATIONAL, INC.:
We have audited the consolidated financial statements of Natural Alternatives International, Inc. and
subsidiaries as listed in the accompanying index. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Natural Alternatives International, Inc. and subsidiaries as of
June 30, 1999 and 1998, and the consolidated results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when considered in relation to the
basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
San Diego, California
September 10, 1999
KPMG LLP
20
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1999 AND 1998
ASSETS
Current Assets:
Cash and cash equivalents
Accounts receivable - less allowance for doubtful
accounts of $472,000 at June 30, 1999 and
$1,073,000 at June 30, 1998 (Notes F and M)
Inventories (Notes C and F)
Income tax refund receivable (Note I)
Notes receivable - current portion (Note L)
Prepaid expenses
Deposits
Other current assets
June 30
1999
June 30
1998
$1,062,894
$4,714,212
7,515,320
9,875,961
2,229,260
127,037
370,918
1,265,061
793,563
12,558,731
11,504,936
-
399,307
399,341
641,573
424,021
Total Current Assets
23,240,014
30,642,121
Property and equipment, net (Notes D, F, G, H, and L)
12,274,065
10,531,865
Other Assets:
Deferred income taxes (Note I)
Investments (Note E)
Notes receivable, less current portion (Note L)
Other noncurrent assets, net
1,979,000
383,515
650,617
68,812
854,000
61,971
443,088
454,234
Total Other Assets
3,081,944
1,813,293
TOTAL ASSETS
$38,596,023
$42,987,279
(continued)
21
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS (continued)
JUNE 30, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30
1999
June 30
1998
Current Liabilities:
Accounts payable
Current installments of long-term debt (Note G)
Current installments of capital lease obligation (Note H)
Income taxes payable (Note I)
Accrued compensation and employee benefits
$8,305,333
50,486
-
-
786,306
$12,301,859
46,501
23,542
378,055
438,242
Total Current Liabilities
9,142,125
13,188,199
Deferred income taxes (Note I)
Long-term debt, less current installments (Note G)
Accrual for loss on lease obligation and other (Note L)
Long-term pension liability (Note J)
593,000
926,864
2,433,526
410,048
500,000
977,375
-
662,564
Total Liabilities
13,505,563
15,328,138
Stockholders' Equity (Note K):
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 6,002,375 at
June 30, 1999 and 5,768,209 at June 30, 1998
Additional paid-in capital
Retained earnings
Treasury stock, at cost, 212,500 shares at
June 30, 1999
Accumulated other comprehensive loss (Note E)
Total Stockholders' Equity
Commitments and contingencies (Notes L and N)
-
-
60,024
11,236,812
14,969,438
(1,116,250)
(59,564)
25,090,460
57,682
9,756,822
17,892,778
-
(48,141)
27,659,141
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$38,596,023
$42,987,279
See accompanying notes to consolidated financial statements.
22
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Net sales
Cost of goods sold
GROSS PROFIT
Selling, general &
administrative expenses
1999
1998
1997
$57,429,898
$67,894,305
$49,444,221
45,010,301
49,157,717
39,019,224
12,419,597
18,736,588
10,424,997
12,309,275
9,114,110
8,609,925
Provision for loss on lease obligation
5,047,667
-
-
INCOME (LOSS) FROM OPERATIONS
(4,937,345)
9,622,478
1,815,072
Other income (expense):
Interest income
Interest expense
Other, net
185,128
(85,158)
15,035
194,781
(110,337)
(40,157)
163,368
(147,373)
8,853
115,005
44,287
24,848
EARNINGS (LOSS) BEFORE
INCOME TAXES
(4,822,340)
9,666,765
1,839,920
Provision for income taxes (benefit) (Note I)
(1,899,000)
3,795,000
720,000
NET EARNINGS (LOSS)
(2,923,340)
5,871,765
1,119,920
Unrealized gain (loss) on investments
(11,423)
3,109
(36,028)
Comprehensive Income (loss)
($2,934,763)
$5,874,874
$1,083,892
NET EARNINGS (LOSS) PER COMMON SHARE:
Basic
Diluted
$
(0.50)
$
1.06
$
0.21
$
(0.50)
$
1.00
$
0.20
See accompanying notes to consolidated financial statements.
23
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Retained
Earnings
Treasury
Comprehensive
Stock
Income (Loss)
Total
Balance, June 30, 1996
5,351,875
$53,519
$6,220,196
$10,901,093
$
-
$
(15,222)
$17,159,586
Issuance of common
stock upon exercise of
employee stock options
77,889
779
369,630
Income tax benefit from
stock options exercised
Net unrealized loss on
investments
Net earnings
-
-
-
-
-
-
85,600
-
-
-
-
-
1,119,920
Balance, June 30, 1997
5,429,764
54,298
6,675,426
12,021,013
Issuance of common
stock upon exercise of
employee stock options
338,445
3,384
1,646,202
Income tax benefit from
stock options exercised
Net unrealized gains on
investments
Net earnings
-
-
-
-
-
-
1,435,194
-
-
-
-
-
5,871,765
Balance, June 30, 1998
5,768,209
57,682
9,756,822
17,892,778
Issuance of common
stock upon exercise of
stock options
Income tax benefit from
stock options exercised
Treasury stock purchased
Net unrealized loss on
investments
Net loss
Balance, June 30, 1999
234,166
2,342
1,105,676
-
-
-
-
-
-
-
-
374,314
-
-
-
-
-
-
-
(2,923,340)
-
-
-
-
-
-
-
-
-
-
-
-
(1,116,250)
-
-
370,409
85,600
(36,028)
(36,028)
-
1,119,920
(51,250)
18,699,487
-
-
1,649,586
1,435,194
3,109
3,109
-
5,871,765
(48,141)
27,659,141
-
-
-
1,108,018
374,314
(1,116,250)
-
-
(11,423)
(11,423)
-
(2,923,340)
6,002,375
$60,024
$11,236,812
$14,969,438
($1,116,250)
$
(59,564)
$25,090,460
See accompanying notes to consolidated financial statements.
24
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)
($2,923,340)
$5,871,765
$1,119,920
1999
1998
1997
Adjustments to reconcile net earnings (loss) to net
cash provided by operating activities:
Bad debt provision
Write-off of notes receivable
Tax benefit on option exercise
Depreciation and amortization
Deferred income taxes
Pension expense, net of contributions
Loss on disposal of assets
Loss on investments
Provision for loss on lease obligation,
net of amounts paid
Other
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable
Inventories
Tax refund receivable
Prepaid expenses
Deposits
(Decrease) increase in:
Accounts payable
Income taxes payable
Accrued compensation and employee benefits
Customer deposits
566,537
353,017
374,314
1,637,837
(1,032,000)
162,649
4,634
675
360,000
-
1,435,194
1,515,402
10,000
88,839
54,727
-
725,000
-
85,600
1,276,355
(296,000)
158,560
3,601
-
4,739,193
9,764
-
(36,808)
-
(18,105)
4,476,874
1,628,975
(2,229,260)
28,423
(623,488)
(3,996,526)
(378,055)
348,064
-
(6,028,610)
(5,814,086)
842,209
(189,155)
(319,304)
5,044,941
378,055
116,905
-
(1,747,544)
708,742
(842,209)
107,812
(221,756)
2,785,720
(520,246)
40,997
(2,606)
Net Cash Provided by Operating Activities
$3,148,287
$3,330,074
$3,363,841
(continued)
25
NATURAL ALTERNATIVES INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
CASH FLOWS FROM INVESTING ACTIVITIES:
1999
1998
1997
Proceeds from sale of property and equipment
Proceeds from sale of investments
Capital expenditures
Issuance of notes receivable
Repayment of notes receivable
Investment purchases
Other assets
10,000
$
225
(5,700,338)
(640,748)
342,708
(333,867)
(399,285)
65,000
$
-
(3,474,569)
(4,625)
142,966
-
(198,024)
$
10,000
-
(2,236,165)
(183,909)
109,262
(20,000)
438,037
Net Cash Used in Investing Activities
(6,721,305)
(3,469,252)
(1,882,775)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on lines of credit
Payments on lines of credit
Payments on long-term debt and capital leases
Issuance of common stock
Treasury stock acquisitions
700,000
(700,000)
(70,068)
1,108,018
(1,116,250)
-
-
(265,935)
1,649,586
-
443,959
(443,959)
(269,163)
370,409
-
Net Cash Provided by Financing Activities
(78,300)
1,383,651
101,246
Net Increase (Decrease) in Cash and Cash Equivalents
(3,651,318)
1,244,473
1,582,312
Cash and Cash Equivalents at Beginning of Year
4,714,212
3,469,739
1,887,427
Cash and Cash Equivalents at End of Year
$
1,062,894
$
4,714,212
$
3,469,739
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest
Income taxes
Disclosure of non-cash activities:
Net unrealized gains (losses) on investments
Fixed asset purchases in accounts payable
Issuance of note receivable for payment of
account receivable
Write-off of notes receivable through the
allowance for doubtful accounts
$
84,494
1,196,000
$
99,602
1,494,000
$
147,373
2,289,959
$
(11,423)
-
$
3,109
432,720
$
(36,028)
-
-
-
100,000
-
-
15,504
See accompanying notes to consolidated financial statements.
26
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Natural Alternatives International, Inc., (the Company) manufactures vitamins, micronutrients and related
nutritional supplements, and provides innovative private-label products for specialized corporate,
institutional and commercial accounts worldwide. The Company operates as a single business segment.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned
subsidiary, NAIE Natural Alternatives International Europe, SA. All significant intercompany accounts and
transactions have been eliminated.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when
purchased to be cash equivalents. The carrying amount reported in the balance sheet for cash and cash
equivalents approximates its fair value.
Inventories
Inventories are recorded at the lower of cost (first-in, first-out) or market (net realizable value). Such costs
include raw materials, labor and production overhead.
Property and Equipment
Property and equipment are stated at cost. Property and equipment under capital leases are recorded at
the lower of fair market value or the present value of future minimum lease payments and are amortized
using the straight-line method over the shorter of the estimated useful life of the asset or the lease term.
Depreciation of property and equipment is provided using the straight-line method over their estimated
useful lives, generally ranging from 3 to 39 years. Leasehold improvements are amortized using the
straight-line method over the shorter of the life of the improvement or the remaining term of the lease.
Maintenance and repairs are expensed as incurred. Significant expenditures that increase useful lives are
capitalized.
Impairment of Long-Lived Assets
The Company accounts for its long-lived assets in accordance with SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This Statement requires
that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the
assets exceed the fair value of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. In 1999, the Company recorded a $2.3 million charge for the
impairment of certain assets. See Note L for discussion.
(continued
27
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments
The Company accounts for its investments in accordance with Statement of Financial Accounting
Standards (“SFAS”) No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The
Company’s investments, which consist of equity securities, are classified as available for sale and are
carried at fair value, with unrealized gains and losses excluded from net earnings and included in
Accumulated Other Comprehensive Loss.
Revenue Recognition
Revenue from sales of product, and related cost of products sold, is recognized upon shipment of product
at which time title passes to the customer. Customers generally do not have the right to return product
unless damaged or defective.
Cost of Goods Sold
Cost of goods sold includes raw material, labor and overhead.
Marketing Costs
In order to attract and retain its customer base, the Company provides a wide range of marketing services
to its customers. The Company does not generate fees or revenues from these services and the related
costs are expensed as incurred.
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with SFAS No.
109 “Accounting for Income Taxes.” Under this method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations
in the period that includes the enactment date.
Stock Option Plans
The Company accounts for its stock-based employee compensation for stock options using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", and related interpretations, as allowed under SFAS 123. Accordingly, compensation cost is
measured as the excess, if any, of the fair value of the Company's stock at the date of the grant over the
price the employee must pay to acquire the stock.
Fair Value of Financial Instruments
The carrying amounts of certain of the Company's financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, investments, and accounts approximates fair value due
to the relatively short maturity of such instruments. The carrying amounts for long-term debt approximate
fair value as the interest rates and terms are substantially similar to rates and terms that could be obtained
currently for similar instruments.
(continued)
28
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
Management of the Company has made a number of estimates and assumptions relating to the reporting
of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to
prepare these consolidated financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
Net Earnings (Loss) per Share
The Company computes net earnings (loss) per share in accordance with Statement of Financial
Accounting Standards No. 128, “Earnings Per Share” (“SFAS 128”). This statement requires the
presentation of basic earnings (loss) per share, computed using the weighted average number of shares
outstanding during the period, and diluted earnings (loss) per share, computed using the additional dilutive
effect of all dilutive securities. The dilutive impact of stock options account for the additional weighted
average shares of common stock outstanding for the Company’s diluted earnings (loss) per share
computation. Basic and diluted earnings (loss) per share have been calculated as follows:
For the Years Ended June 30, 1999, 1998, and 1997
1999
1998
1997
Numerator:
Net earnings (loss) - Numerator for
basic and diluted earnings (loss) per
share - earnings (loss) available to
common shareholders
Denominator:
Denominator for basic earnings
(loss) per share - weighted
average shares
Effect of dilutive securities -
employee stock options
Denominator for diluted earnings
(loss) per share - adjusted weighted
average shares with assumed
conversions
($2,923,340)
$
5,871,765
$
1,119,920
5,868,159
5,544,337
5,395,438
-
322,303
197,638
5,868,159
5,866,640
5,593,076
Basic earnings (loss) per share
$
(0.50)
$
1.06
$
0.21
Diluted earnings (loss) per share
$
(0.50)
$
1.00
$
0.20
Options totaling 142,147 shares were excluded from the calculation of diluted earnings (loss) per share for
the year ended June 30, 1999 as the effect of their inclusion would be anti-dilutive.
(continued)
29
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Concentrations of Credit Risk
Financial instruments that subject the Company to concentrations of credit risk consist primarily of cash
and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with
highly rated financial institutions. Credit risk with respect to receivables is concentrated with the Company’s
three largest customers (see Note M). These three customers’ receivable balances collectively represent
55% of gross accounts receivable at June 30, 1999 and 57% at June 30, 1998. Concentrations of credit
risk related to the remaining accounts receivable balance are limited due to the number of customers
comprising the Company’s remaining customer base.
Reclassifications
Certain amounts in prior years’ consolidated financial statements have been reclassified to conform to the
1999 presentation.
B. INTERNATIONAL SUBSIDIARY
On January 22, 1999, NAIE Natural Alternatives International Europe, SA was incorporated as a wholly-
owned subsidiary of the Company, which is based in Switzerland. Operations are expected to commence
in the first quarter of fiscal 2000.
C. INVENTORIES
Inventories are comprised of the following at June 30:
Raw materials
Work in progress
Finished goods
1999
$6,722,040
269,961
2,883,960
$9,875,961
1998
$7,049,954
3,971,315
483,667
$11,504,936
30
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at June 30:
Land
Building and building improvements
Machinery and equipment
Office equipment and furniture
Equipment under capital leases
Vehicles
Leasehold improvements
Total property and equipment
Less accumulated depreciation and amortization
Property and equipment, net
Life Used For
Depreciation
NA
5 - 39 years
3 - 15 years
5 to 7 years
5 Years
3 years
5 to 39 years
1999
1998
$392,600
3,232,805
12,784,168
2,549,478
-
178,837
1,842,313
$392,600
3,140,655
10,077,375
2,304,243
516,362
42,684
1,274,076
20,980,201
(8,706,136)
17,747,995
(7,216,130)
$12,274,065
$10,531,865
At June 30, 1998 accumulated depreciation and amortization includes $477,532 of amortization of
equipment under capital leases.
E. INVESTMENTS
Investments consist of marketable securities. Securities held at June 30, 1999 and 1998 are considered
"available for sale securities." Securities are valued at $383,515 and $61,971 as of June 30, 1999 and
1998. The security portfolio includes gross unrealized losses, net of tax, of $59,564 and $48,141 at June
30, 1999 and 1998.
F. LINE OF CREDIT AGREEMENTS
The Company has revolving lines of credit agreements permitting borrowings up to $3,000,000, which are
secured by the Company’s receivables, inventories, equipment, and vehicles and bear interest at the
bank's prime rate, which was 7.75% at June 30, 1999. Advances against the revolving lines of credit cannot
exceed 70% of eligible receivables. These agreements contain financial covenants concerning limitations
on maintenance of debt, certain financial ratios and other matters. The lines of credit expire on January 19,
2000; management expects such lines to be renewed in the normal course of business. There were no
amounts outstanding under these credit agreements at June 30, 1999 and 1998, respectively. The
Company received a waiver for certain debt covenants for which it was not compliant as of June 30, 1999.
31
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
G. LONG-TERM DEBT
Long-term debt consisted of the following as of June 30:
Note payable to bank, secured by building, interest at 8.25%
principal and interest payments of $10,769 monthly, due
2011
Less current installments
Long-term debt, less current installments
1999
1998
$977,350
$1,023,876
(50,486)
(46,501)
$926,864
$977,375
Aggregate amounts of long-term debt maturities as of June 30, 1999 are as follows:
2000
2001
2002
2003
2004
Thereafter
$
50,486
54,812
59,509
64,608
60,145
687,790
$
977,350
H. CAPITAL LEASE OBLIGATION
The Company leased certain equipment under a capital lease, which expired in fiscal year 1999. The
present value of the future minimum capital lease payments as of June 30 are as follows:
Capital lease payable to AT&T Credit Corporation,
secured by phone system, interest at 13%,
principal and interest in monthly installments of
$2,504. Lease expired May 1999.
Less amount representing interest
Present value of net minimum lease payments
Less current installments
1999
1998
$
-
$24,964
-
-
-
(1,422)
23,542
(23,542)
Capital lease obligations - less current installments
$
-
$
-
32
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I.
INCOME TAXES
Income taxes (benefit) for the year ended June 30 consist of the following:
Current:
Federal
State
Deferred:
Federal
State
1999
1998
1997
($857,000)
(10,000)
$3,104,000
681,000
$850,000
166,000
(867,000)
3,785,000
1,016,000
(689,000)
(343,000)
8,500
1,500
(215,000)
(81,000)
(1,032,000)
10,000
(296,000)
Income taxes (benefit)
($1,899,000)
$3,795,000
$720,000
The provision (benefit) for deferred income taxes for the year ended June 30 consists of the following:
Accrual for loss on lease obligation
Accelerated depreciation and
amortization for tax purposes
Increase in valuation allowance
Inventories
Bad debt expense
Accrued vacation expense
Customer deposits
State income taxes
Other, net
Net operating loss carryforward
1999
1998
1997
$
(971,000)
$
-
$
-
93,000
-
(106,000)
(245,000)
7,000
-
232,000
14,000
(56,000)
13,000
-
(24,000)
238,000
1,000
-
(207,000)
(11,000)
-
95,000
2,000
(131,000)
(309,000)
(15,000)
(1,000)
63,000
-
-
($1,032,000)
$10,000
($296,000)
(continued)
33
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I.
INCOME TAXES (continued)
Net deferred tax assets and deferred tax liabilities as of June 30 are as follows:
Deferred tax assets:
Accrual for loss on lease obligation
Allowance for doubtful accounts
Accrued vacation expense
Investment loss carryforward
State income taxes
Allowance for inventories
Other, net
Net operating loss carryforward
1999
1998
$
971,000
443,000
46,000
36,000
-
463,000
-
56,000
$
-
198,000
53,000
36,000
232,000
357,000
14,000
-
Total gross deferred tax assets
Less valuation allowance
2,015,000
36,000
890,000
36,000
Net deferred tax assets
1,979,000
854,000
Deferred tax liabilities:
Accumulated depreciation and amortization
593,000
500,000
Net deferred tax asset
$1,386,000
$354,000
The valuation allowance for deferred tax assets was $36,000 at June 30, 1999 and 1998. In assessing the
realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. Management considers, among other things,
the scheduled reversal of deferred tax liabilities, projected future taxable income, and other planning
strategies. In making this assessment, management believes it is more likely than not that the Company
will realize the benefit of the deferred tax asset, net of the existing valuation allowance, at June 30, 1999
and 1998.
(continued)
34
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
I. INCOME TAXES (continued)
A reconciliation of income taxes computed by applying the statutory federal income tax rate of 34% to
earnings before income taxes for the year ended June 30 is as follows:
1999
1998
1997
Income taxes (benefit) computed at
statutory federal income tax rate
State income taxes (benefit), net of federal
income tax benefit (expense)
Increase in valuation allowance
Expenses not deductible for tax purposes
Other
($1,640,000)
$3,286,700
$626,000
(220,000)
-
32,000
(71,000)
451,000
-
35,000
22,300
56,000
2,000
31,000
5,000
Income taxes (benefit) as reported
($1,899,000)
$3,795,000
$720,000
Effective tax rate
39.4%
39.3%
39.1%
J. EMPLOYEE BENEFIT PLANS
The Company has a profit sharing plan pursuant to Section 401(k) of the Internal Revenue Code, whereby
participants may contribute a percentage of compensation, but not in excess of the maximum allowed
under the Code. All employees with twelve months and at least one thousand hours of service during the
twelve-month period are eligible to participate in the plan. The Company may make contributions at the
discretion of its Board of Directors. The Company contributed and expensed $167,218, $146,277, and
$114,206 in 1999, 1998 and 1997, respectively.
The Company has a "Cafeteria Plan" pursuant to Section 125 of the Internal Revenue Code, whereby
health care benefits are provided for active employees through insurance companies. Substantially all
active full-time employees are eligible for these benefits. The Company recognizes the cost of providing
these benefits by expensing the annual premiums, which are based on benefits paid during the year. The
premiums expensed for these benefits totaled $365,613, $241,815, and $228,805 for 1999, 1998 and
1997, respectively.
The Company sponsors a defined benefit pension plan (the “Plan”), which provides retirement benefits to
employees based generally on years of service and compensation during the last five years before
retirement. Effective June 21, 1999, the Company adopted an amendment to freeze benefit accruals of the
participants of the Plan, resulting in the recognition of $97,606 of net curtailment gains in 1999. The gain
resulted from the net decrease of the Company’s benefit obligation. At June 30, 1999, the estimated
amortized portion of the unfunded estimated accrued liability for prior service cost, using a 30-year funding
period, amounted to $410,048. This amount has been accrued in the current period. The Company’s policy
is to fund the net pension cost accrued. However, the Company would not contribute an amount less than
the minimum funding requirements of the Employee Retirement Income Security Act of 1974 or more than
the maximum tax-deductible amount.
(continued)
35
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. EMPLOYEE BENEFIT PLANS (continued)
Disclosure of Funded Status
The following table sets forth the Plan’s funded status and amount recognized in the Company’s
consolidated balance sheets at June 30, after the effect of curtailment:
1999
1998
Change in Benefit Obligation
Benefit obligation at beginning of year
Service cost
Interest cost
Plan participant contributions
Actuarial (gain)/loss
Benefits paid
Effect of curtailment
Benefit obligation at end of year
Change in Plan Assets
Fair value of plan assets at beginning of year
Actual return on plan assets
Employer contributions
Plan participant contributions
Benefits paid
Fair value of plan assets at end of year
Reconciliation of Funded Status
Funded status (under)/over funded
Unrecognized net actuarial (gain)/loss
Unrecognized transition (asset)/obligation
Unrecognized prior service cost
(Accrued)/Prepaid benefit cost
Additional Minimum Liability Disclosures
Accrued benefit liability
Intangible asset
Other comprehensive income, not adjusted
$
$
2,084,109
527,319
124,216
-
165,610
0
(1,722,023)
1,179,231
1,207,944
268,815
84,171
-
530,572
(7,393)
-
2,084,109
$
$
$
313,750
18,812
436,621
-
-
769,183
$
$
(410,048)
-
-
-
(410,048)
$
-
$
5,368
315,775
-
(7,393)
313,750
$
$
(1,770,359)
529,132
-
993,828
(247,399)
$
$
-
$
-
$
$
(662,564)
415,165
for applicable income tax
$
-
$
-
(continued)
36
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
J. EMPLOYEE BENEFIT PLANS (continued)
Net Periodic Benefit Cost
The Net Periodic Benefit Cost for the fiscal years ending June 30 includes the following components:
Components of Net Periodic Benefit Cost
Service cost
Interest cost
Expected return on Plan Assets
Recognized net actuarial (gain)/loss
Amortization of transition (asset)/obligation
Amortization of prior service cost
Effect of special events (curtailment)
Net periodic benefit cost
1999
1998
$527,319
124,216
(32,078)
18,110
-
59,309
(97,606)
$599,270
$268,815
84,171
(7,681)
-
-
59,309
-
$404,614
Assumption and Method Disclosures
Discount rate
Expected long term rate of return
1999
1998
6.00%
7.50%
6.00%
7.50%
Weighted average rate of compensation increase
N/A
N/A
Amortization method
Straight-line
Straight-line
K. STOCKHOLDERS' EQUITY
Treasury Stock
In February 1999, the Board of Directors approved a repurchase program of up to 500,000 shares of the
Company’s common stock. As of June 30, 1999, 199,500 shares had been repurchased under this
repurchase approval. In addition, the Company repurchased 13,000 from an officer of the Company,
bringing the aggregate amount of repurchases to 212,500 shares of common stock for a total, net of broker
fees, of $1,116,250.
Employee Stock Option Plans
Effective June 5, 1992, the Company adopted the 1992 Incentive Stock Option Plan for which 500,000
common shares have been reserved for issuance to officers, directors, and key employees of the
Company. The plan provides that no option may be granted at an exercise price less than the fair market
value of the common stock of the Company on the date of grant. On September 9, 1993, 200,000 options
were granted with an exercise price equal to the fair market value price of $4.875 per share. On January
21, 1998, 300,000 options were granted with an exercise price equal to the fair market value price of
$10.50 per share. During 1999, 188,250 of these options were forfeited, and on May 10, 1999 an additional
70,000 options were granted with an exercise price equal to the fair market value price of $3.78 per share.
(continued)
37
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. STOCKHOLDERS' EQUITY (continued)
Also effective June 5, 1992, the Company adopted the 1992 Nonqualified Stock Option Plan and reserved
a total of 250,000 common shares for issuance to officers, employees, and consultants of the Company.
On September 9, 1993, 250,000 options were granted with an exercise price equal to the fair market value
price of $4.875 per share. All remaining options under this plan were exercised as of June 30, 1999.
Effective December 9, 1994, the Board of Directors approved the 1994 Nonqualified Stock Option Plan for
which 500,000 common shares were reserved for issuance to officers, employees, and consultants of the
Company. On January 24, 1995, 500,000 options were granted with an exercise price equal to the fair
market value price of $4.625 per share. During fiscal 1999, 125,000 of the unexercised options were
forfeited.
All stock options under each of the plans have five-year terms and all options become fully vested within
three years of their grant date.
Stock option activity during the periods indicated is summarized below:
Outstanding at June 30, 1996
Exercised
Outstanding at June 30, 1997
Exercised
Granted
Outstanding and exercisable at June 30, 1998
Exercised
Forfeited
Granted
Outstanding and exercisable at June 30, 1999
Weighted-average exercise price:
June 30, 1999
June 30, 1998
1992
Incentive
Plan
1992
Nonqualified
Plan
1994
Nonqualified
Plan
124,002
27,833
96,169
57,778
300,000
338,391
38,391
188,250
70,000
181,750
233,498
12,556
220,942
159,333
-
61,609
61,609
-
-
-
489,000
37,500
451,500
121,334
-
330,166
34,166
125,000
-
171,000
$
$
7.91
9.86
$
-
$
4.88
$
$
4.63
4.63
Weighted-average remaining contractual life in years
Available for grant at June 30, 1999
4.25
118,250
-
-
0.5
-
The fair value of the option grants was estimated on the date of grant using the Black-Scholes option-
pricing model with the following assumptions for fiscal 1999: risk-free interest rate equal to 5.90% at the
grant date; dividend yield of zero; expected life of three years; and volatility of 62.1%. The weighted
average fair value of options granted during fiscal year 1999 was $1.74. The assumptions used for fiscal
1998 are as follows: risk-free interest rate equal to 5.33% at the grant date; dividend yield of zero; expected
life of three years; and volatility of 53.4%. The weighted average fair value of options granted during fiscal
year 1998 was $4.27.
(continued)
38
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
K. STOCKHOLDERS' EQUITY (continued)
On May 10, 1999, the Board of Directors adopted the 1999 Omnibus Equity Incentive Plan (“1999Plan”)
and reserved for issuance thereunder 500,000 shares of common stock for officers, directors, employees
and consultants of the Company. The 1999 Plan is subject to shareholder approval which is currently
scheduled to be requested at the Annual Meeting of Shareholders on December 6, 1999. No options have
been granted under the 1999 Plan.
1999
1998
Net earnings (loss), as reported
Pro forma net earnings (loss)
($2,923,340)
($3,311,091)
$
$
5,871,765
5,700,965
Basic earnings (loss) per share, as reported
Pro forma basic earnings (loss) per share
$
$
(0.50)
(0.56)
$
$
1.06
1.03
Diluted earnings (loss) per share, as reported
Pro forma diluted earnings (loss) per share
$
$
(0.50)
(0.56)
$
$
1.00
0.97
The Company applies APB Opinion No. 25 in accounting for its Plans and, accordingly, no compensation
cost has been recognized for its stock option grants to employees in the financial statements. Had the
Company determined compensation cost based on the fair value at the grant date for its stock options
under SFAS No. 123, the Company’s net earnings (loss) would have been the pro forma amounts indicated
below:
Proforma net earnings (loss) reflect only options granted in fiscal years 1999 and 1998 as there were no
options granted by the Company during fiscal year 1997 or 1996. The full impact of calculating
compensation cost for stock options under Statement No. 123 is not reflected in the proforma net earnings
(loss) amounts presented above because compensation cost is reflected over the options’ vesting period
and compensation cost for options granted prior to July 1, 1995 is not considered.
Other Stock Options
On January 24, 1995, the Board of Directors granted 100,000 options with an exercise price of $4.625 in
exchange for consulting services and reserved 100,000 common shares. The options were exercised in
January 1999.
On March 14, 1997, 45,000 options were granted pursuant to a consulting agreement at prices ranging
from $9.00 to $15.00 per share. Consulting expense incurred as a result of these options was $84,000 for
the year ended June 30, 1997. None of the options were exercised and all had expired as of June 30,
1999.
L. COMMITMENTS AND RELATED PARTY TRANSACTIONS
The Company leases part of its main facilities under leases that are classified as noncancelable operating
leases. In August 1997, the Company entered into a 15-year lease agreement under which the lessor was
to construct a build-to-suit office and manufacturing facility in Carlsbad, California. Monthly lease payments
commenced in November, 1998, at $103,000 per month and are subject to annual inflation adjustments. In
March 1999, the Company made the decision to sublease, and not occupy, the partially completed facility.
In the third quarter of 1999, the Company recorded a $2.3 million charge for impairment of leasehold
assets and an accrual of $2.7 million representing the present value of the excess of future lease payments
over estimated sub-lease income. The Company has an option to acquire the facility during the sixth year
of the lease.
(continued)
39
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. COMMITMENTS AND RELATED PARTY TRANSACTIONS (continued)
The Company entered into two lease agreements during fiscal year 1999 for adjacent buildings located in
Vista, California. The facilities are leased from an unaffiliated third party and consist of a total of
approximately 74,000 square feet. The lease for the first building commenced in August 1998 under a 5-
year lease agreement and consists of approximately 54,000 square feet to be utilized as a warehousing
and blending facility. The lease for the second building commenced in March 1999 under a 3.5-year lease
agreement for the rental of approximately 20,000 square feet to be utilized as a packaging facility.
Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all
noncancelable operating leases, including the leases agreements referred to above, (with initial or
remaining lease terms in excess of one year) are set forth below:
2000
2001
2002
2003
2004
Thereafter
$1,838,618
1,832,931
1,817,001
1,850,836
1,491,810
15,438,588
$24,269,784
Rental expense totaled $419,254, $193,018, and $169,079 for the years ended June 30, 1999, 1998 and
1997, respectively.
During 1997, the Company had sales of $14,812 to a company in which a key employee and beneficial
owner of 1% of the stock of the Company was formerly the president and part owner. At June 30, 1997, the
amount receivable from this company was $775,302, which was fully reserved because the Company had
determined the account to be doubtful of collection. The Company recovered $263,400 in the year ended
June 30, 1998 and $511,902 was written off in the year ended June 30, 1999.
The Company entered into an agreement with the father-in-law and mother-in-law of the Chief Executive
Officer of the Company in December 1991, which provides commissions on sales to a particular customer.
The agreement will expire in December 2001. The commission equals 5% of sales, and is capped at
$25,000 per calendar quarter, effective January 1, 1993. Amounts paid under this agreement were
$100,000 for each of the years ended June 30, 1999, 1998 and 1997. There were no amounts owed under
the agreement at June 30, 1999 or 1998.
During fiscal year 1993, the Company entered into an agreement with an unrelated party that required
future minimum royalty payments over the term of the contract, which expired December 31, 1996.
Amounts paid under this agreement were $154,728 for the year ended June 30, 1997.
Included in notes receivable are notes with the Chief Executive Officer, the Vice President of Science and
Technology, the Vice President of Marketing, Business Development and Strategic Management, and the
Vice President of Operations. During fiscal 1999, the Company made 6% interest-bearing loans, secured
by Company stock, for $20,000 each to the Vice President of Science and Technology, the Vice President
of Marketing, Business Development and Strategic Management, and the Vice President of Operations.
The balances of these notes as of June 30, including accrued interest, are shown below:
Chief Executive Officer
Vice President of Science and Technology
Vice President of Marketing, Business
Development and Strategic Management
Vice President of Operations
1999
1998
$63,208
79,036
$84,685
52,538
20,143
20,143
-
-
40
(continued)
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
L. COMMITMENTS AND RELATED PARTY TRANSACTIONS (continued)
In addition, during the year ended June 30, 1999, the Company made a 5-1/2% interest-bearing loan to the
Executive Vice President in the amount of $250,000. The loan, including accrued interest, was repaid in
February 1999.
During the year ended June 30, 1999, the Company made noninterest-bearing loans to the Chairman of
the Board and the former President in the amount of $50,000 and $6,901, respectively. Amounts owed on
these loans, which are secured by proceeds from life insurance policies on their respective lives, were
$250,000 and $200,000 for the Chairman of the Board and $0 and $82,815 for the former President at
June 30, 1999 and 1998, respectively.
M. ECONOMIC DEPENDENCY
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
year’s total sales, are shown below:
Customer
Customer 1
Customer 2
Customer 3
Customer 4
1999
Sales by
Customer
$18,389,660
13,392,763
(b)
9,382,527
1998
Sales by
Customer
%(a)
1997
Sales by
Customer
%(a)
32% $24,914,144
11,659,906
23%
(b)
(b)
16%
37% $17,934,985
6,851,560
17%
5,936,477
(b)
%(a)
36%
14%
12%
41,164,950
71%
36,574,050
54%
30,723,022
62%
(a) Percent of total sales (b) Sales for the year were less than 10% of total sales.
Accounts receivable from these customers totaled $4,396,947 and $7,834,849 at June 30, 1999
and 1998, respectively.
N. CONTINGENCIES
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 effect on the Company’s consolidated financial position, results of
operations or liquidity.
41
NATURAL ALTERNATIVES INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
O. QUARTERLY DATA (unaudited)
The following is a summary of unaudited quarterly data:
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
Year Ended June 30, 1999
Net sales
Gross profit
Net earnings (loss)
$16,985,802
4,654,109
1,519,771
$17,317,129
3,265,419
382,628
$13,122,768
1,890,817
(4,320,762)
$10,004,199
2,609,252
(504,977)
$57,429,898
$12,419,597
($2,923,340)
Net earnings (loss)
per common share:
Basic
Diluted
Net sales
Gross profit
Net earnings
Net earnings per
common share:
Basic
Diluted
0.26
0.25
0.06
0.06
(0.73)
(0.73)
(0.09)
(0.09)
(0.50)
(0.50)
Year Ended June 30, 1998
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
$12,032,576
3,161,354
598,420
$16,297,341
4,442,561
1,363,023
$18,960,255
5,223,250
1,823,729
$20,604,133
5,909,423
2,086,593
$67,894,305
18,736,588
5,871,765
$
$
0.11
0.11
$
$
0.25
0.24
$
$
0.33
0.31
$
$
0.36
0.34
$
$
1.06
1.00
42
NATURAL ALTERNATIVES INTERNATIONAL, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
SCHEDULE II
Allowance for doubtful
accounts
Balance at
beginning of
period
Provision
Deductions*
Balance at
end of period
Year ended June 30, 1999
$1,073,000
$567,000
$1,168,000
$472,000
Year ended June 30, 1998
$1,006,000
$360,000
$293,000
$1,073,000
Year ended June 30, 1997
$319,000
$725,000
$38,000
$1,006,000
* Accounts written off
See accompanying independent auditors report.
43
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
Date: September 27, 1999 By: /Mark A. Ledoux/ .
(Mark A. LeDoux, Chief Executive Officer, President and
Assistant Treasurer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/Marie A. LeDoux/
(Marie A. LeDoux)
Chairperson of the Board,
Secretary, and Director
September 27, 1999
/Mark A. LeDoux/
(Mark A. LeDoux)
Chief Executive Officer,
September 27, 1999
President, Assistant Treasurer, and
Director
/David Lough/
(David Lough)
Executive Vice President
September 27, 1999
/William R. Kellas/
(William R. Kellas)
/Lee G. Weldon/
(Lee G. Weldon)
/J. Scott Schmidt/
(J. Scott Schmidt)
September 27, 1999
September 27, 1999
September 27, 1999
Director
Director
Director
44
Independent Accountants’ Consent
Exhibit 23
The Board of Directors
Natural Alternatives International, Inc.:
We consent to incorporation by reference in the registration statement (No. 33-00947) on Form S-8 of
Natural Alternatives International, Inc. of our report dated September 10, 1999, relating to the consolidated
balance sheets of Natural Alternatives International, Inc. and subsidiaries as of June 30, 1999 and 1998,
and the related consolidated statements of operations and comprehensive income (loss), stockholders’
equity, and cash flows for each of the years in the three-year period ended June 30, 1999, and the related
financial statement schedule, which report appears in the June 30, 1999, annual report on Form 10-K of
Natural Alternatives International, Inc.
San Diego, California
September 27, 1999
KPMG LLP
45
BOARD OF DIRECTORS
INDEPENDENT AUDITORS
Marie A.Le Doux
Chairman of the Board
Mark A. Le Doux
Director
and President and
Chief Executive Officer
Natural Alternatives
International
William R. Kellas, Ph.D
Director
and President
Center for Advanced
Medicine
Lee G. Weldon
Director
and President
Nature’s Apothecary, Inc.
J. Scott Schmidt
Director
and Management
Consultant
CORPORATE INFORMATION
Corporate Headquarters
1185 Linda Vista Drive
San Marcos, CA 92069
Tel 760/744.7340
Fax 760/744.9589
http://www.nai-online.com
TRANSFER AGENT
Raymond Torres, Jr.
Chase Mellon Shareholder
400 South Hope Street,
4th Floor
Los Angeles, CA 90071
Tel 213/553.9724
Fax 213/553.9735
www.cmssonline.com
KPMG Peat Marwick LLP
Certified Public Accountants
750 B Street
San Diego, CA 92101
LEGAL COUNSEL
Fisher Thurber LLP
4225 Executive Square
La Jolla, CA 92037
STOCKHOLDER INQUIRIES
Please direct inquiries
to the following:
INVESTOR RELATIONS
Natural Alternatives
International
1185 Linda Vista Drive
San Marcos, CA 92069
Tel 760/744.7340
E-mail: info@nai-online.com
http://www.nai-online.com
STOCK LISTING
NASDAQ: NAII
ANNUAL MEETING
The Annual Meeting of
Shareholders will be held
at the Quail’s Inn Hotel
Conference Center, 1025
La Bonita Drive, San
Marcos, California, on
Monday, December 6,
1999, at 1:00 p.m.
Board of Directors
Mark Le Doux, Lee Weldon,
Dr. William R. Kellas, Ph.D,
J. Scott Schmidt, Marie Le Doux
www.nai-online.com
NAI’s updated website,
re-launched in September, 1999.
NAI Asia Pacific
592-2 Obacho
Aoba-Ku Yokohama City
Kanagawa-Ken, Japan
Corporate Headquarters
1185 Linda Vista Drive
San Marcos, CA 92069
NAI Europe
Centro Galleria 1
6928 Manno
Switzerland
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