Natural Alternatives International records steep sales decline in Q3

Natural Alternatives International records steep sales decline in Q3

Natural Alternatives International, Inc. announced net income of $181,000 or$0.03 per diluted share on net sales from continuing operations of $13.4 million for the quarter ended March 31, 2011. 

Natural Alternatives International, Inc. ("NAI") (Nasdaq: NAII), a leading formulator, manufacturer and marketer of customized nutritional supplements, announced net income of $181,000 or$0.03 per diluted share on net sales from continuing operations of $13.4 million for the quarter ended March 31, 2011.  

Net sales from continuing operations during the quarter ended March 31, 2011 decreased $3.6 million from $17.0 million reported in the comparable prior year period. This decline was primarily related to reduced sales to our two largest customers partially offset by new product sales to new and other existing customers and increased royalty income associated with our CarnoSyn® beta-alanine license program. During the third quarter of fiscal 2011, CarnoSyn® beta-alanine royalty revenue totaled $720,000 representing a 195% increase over the comparable prior year period. Our revenue concentration risk for our two largest customers decreased to 76% as a percentage of our total sales from continuing operations for the three months ended March 31, 2011 compared to 81% for the corresponding period in fiscal 2010.

Operating income from continuing operations decreased to $258,000 for the third quarter of fiscal 2011 as compared to $837,000 in the comparable prior year quarter. The recent quarter decline in operating income from continuing operations was primarily attributable to lower sales. Selling, general and administrative expenses from continuing operations remained relatively flat in total during the third quarter as reductions in employee compensation, auditing and consulting expenses were offset by increased litigation costs as compared to the corresponding prior year period.  

For the quarter ended March 31, 2011, contract manufacturing sales declined $3.5 million or 21.3% from the comparable quarter last year due primarily to lower sales volumes from our two largest customers. Net sales from our branded products totaled $431,000 for the third quarter of fiscal 2011 compared to $536,000 for the prior year period. This decrease was associated with the continued softening of our Pathway to Healing® product line sales.  

Net income from continuing operations in the third quarter of fiscal 2011 was $181,000 or $0.03 per diluted share compared to net income of $1.9 million or $0.27 per diluted share in the third quarter of fiscal 2010. Net income from continuing operations for the quarter ended March 31, 2010 included a $1.2 tax benefit resulting from a tax loss recognized as a result of the write-off of our tax basis in our wholly-owned subsidiary formerly known as Real Health Laboratories.  

As of March 31, 2011, NAI had cash and cash equivalents of $11.9 million and working capital of $21.5 million compared to$8.5 million and $18.4 million, respectively, as of June 30, 2010. As of March 31, 2011, we had $5.0 million available under our working capital line of credit.

Mark A. LeDoux, Chief Executive Officer, stated, "Our efforts to expand our contract manufacturing footprint have been demonstrating positive results for both our U.S. and Swiss manufacturing facilities and we remain hopeful of new business opportunities materializing through these strategic efforts. We also have continued to prosecute our patent interests in our CarnoSyn® branded beta-alanine, which has been experiencing increased acceptance as an exciting ingredient in a myriad of products in the industry. The costs of patent prosecution, including new patent applications to enhance our six currently issued U.S. patents and additional international patents, exceeded $16,000 in the period. Additionally, we believe the litigation efforts we have deployed to police unauthorized use of our patent estate will yield positive results for years to come. The costs of patent infringement suits exceeded $487,000 in the period just ended. While there have been some significant supply interruptions in the manufacturing of beta-alanine from the leading producer caused by the massive earthquake in Japan in March, we believe that producer's facility will be back online in the current quarter, allowing us to meet the burgeoning demands of our licensees later this quarter and for the foreseeable future."

NAI, headquartered in San Marcos, California, is a leading formulator, manufacturer and marketer of nutritional supplements and provides strategic partnering services to its customers. Our comprehensive partnership approach offers a wide range of innovative nutritional products and services to our clients including scientific research, clinical studies, proprietary ingredients, customer-specific nutritional product formulation, product testing and evaluation, marketing management and support, packaging and delivery system design, regulatory review and international product registration assistance. For more information about NAI, visit http://www.nai-online.com.

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