1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-19487
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NSA INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1387102
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4260 East Raines Road, Memphis, Tennessee 38118
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(Address of principal executive offices) (Zip Code)
(901) 541-1223
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed since last
report)
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.
/X/ Yes / / No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
4,858,156 shares of $.05 par value common stock were outstanding at
January 31, 1996.
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
NSA International, Inc. and Subsidiaries:
Consolidated Balance Sheets as of January 31, 1996 (unaudited)
(restated) and April 30, 1995
Consolidated Statements of Operations for the Three Month and Nine
Month Periods Ended January 31, 1996 and 1995 (unaudited) (restated)
Consolidated Statements of Shareholders' Equity for the Nine Month
Periods Ended January 31, 1996 and 1995 (unaudited) (restated)
Consolidated Statements of Cash Flows for the Nine Month Periods Ended
January 31, 1996 and 1995 (unaudited) (restated)
Notes to Consolidated Financial Statements
3
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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(RESTATED)
JANUARY 31, APRIL 30,
ASSETS 1996 1995
CURRENT ASSETS:
Cash and cash equivalents $10,400,284 $15,603,316
Short-term investments 614,123 521,345
Receivables, net 1,470,530 2,024,956
Refundable income taxes 2,750,848 3,054,484
Inventories 10,076,358 12,830,628
Deferred income taxes 148,000 148,000
Note receivable - short-term 500,000
Other current assets 969,326 1,766,798
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Total current assets 26,429,469 36,449,527
PROPERTY AND EQUIPMENT, At cost:
Leasehold improvements 610,243 372,662
Manufacturing equipment 716,721 714,755
Office furniture and equipment 3,158,014 3,131,918
Transportation equipment 181,390 215,761
Data processing equipment 2,064,665 2,244,194
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Total 6,731,033 6,679,290
Less accumulated depreciation and amortization (3,651,457) (3,089,044)
----------- -----------
Property and equipment, net 3,079,576 3,590,246
NOTE RECEIVABLE - LONG-TERM 4,000,000 4,000,000
OTHER ASSETS 544,581 603,999
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TOTAL ASSETS $34,053,626 $44,643,772
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts due to NSA, Inc. $ 9,150,894 $ 9,310,467
Accounts payable, trade 1,414,042 2,365,016
Accrued sales commissions and allowances 943,819 1,448,432
Accrued compensation and expenses 5,438,716 6,416,241
Accrued sales returns 1,433,946 1,785,608
Advance payments by dealers/distributors 260,261 379,396
Income taxes payable 883,058 1,256,135
Other current liabilities 391,498 361,873
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Total current liabilities 19,916,234 23,323,168
DEFERRED INCOME TAXES 345,000 345,000
OTHER LIABILITIES 1,058,662 58,662
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $.05 par value, 100,000,000 shares authorized, 4,858,156
outstanding at January 31, 1996 and April 30, 1995 242,908 242,908
Additional paid-in capital 21,196,916 21,197,616
Deficit (8,706,094) (523,582)
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Total shareholders' equity 12,733,730 20,916,942
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $34,053,626 $44,643,772
=========== ===========
See notes to consolidated financial statements.
4
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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(RESTATED)
THREE MONTHS NINE MONTHS
ENDED JANUARY 31, ENDED JANUARY 31,
----------------------------- -------------------------------
1996 1995 1996 1995
NET REVENUES:
Net sales $18,002,102 $23,991,067 $56,782,187 $74,254,897
Dealer fee income 339,457 470,147 1,575,041 1,731,715
Revolving credit fee income 6,355 14,453 44,561 52,410
----------- ----------- ----------- -----------
Total 18,347,914 24,475,667 58,401,789 76,039,022
COSTS AND EXPENSES:
Dealer/distributor commissions and allowances (7,303,187) (10,698,063) (22,529,520) (33,101,705)
Cost of products sold (6,589,760) (8,204,548) (21,358,733) (24,139,741)
Operating expenses (6,962,292) (7,485,626) (21,763,874) (21,582,792)
Interest income 148,026 51,480 572,056 243,811
Interest expense (4,894) (6,511) (52,266)
Licensing and management fees to National Safety
Associates, Inc. (349,021) (568,158) (1,074,891) (1,786,131)
Restructuring costs (700,000) (700,000)
Other income (expense), net (32,794) 82,819 (273,999) 1,168,052
----------- ----------- ----------- -----------
Total (21,089,028) (27,526,990) (66,435,472) (79,950,772)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (2,741,114) (3,051,323) (8,033,683) (3,911,750)
INCOME TAX BENEFIT (EXPENSE) 6,441 391,815 (148,829) 599,044
----------- ----------- ----------- -----------
NET LOSS $(2,734,673) $(2,659,508) $(8,182,512) $(3,312,706)
=========== =========== =========== ===========
LOSS PER COMMON SHARE $ (0.56) $(0.55) $ (1.68) $(0.68)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 4,858,156 4,857,656 4,858,156 4,857,749
TRANSACTIONS WITH NATIONAL SAFETY
ASSOCIATES, INC. INCLUDED IN THE ABOVE:
Net sales to National Safety Associates, Inc. $ 2,700,000 $ 2,782,000 $ 8,788,000 $ 6,473,000
Cost of products sold (purchased from National Safety
Associates, Inc.) 492,185 754,334 960,840 2,351,585
See notes to consolidated financial statements.
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NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTH PERIODS ENDED JANUARY 31, 1996 AND 1995 (UNAUDITED)
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COMMON STOCK ADDITIONAL RETAINED
NUMBER PAID-IN EARNINGS
OF SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
1995
BALANCE AT APRIL 30, 1994 4,858,456 $242,923 $21,199,751 $ 4,217,883 $25,660,557
Repurchase of common stock and warrants (800) (40) (1,673) (1,713)
Net loss (3,312,706) (3,312,706)
- - - ----------- -----------
BALANCE AT JANUARY 31, 1995 4,857,656 $242,883 $21,198,078 $ 905,177 $22,346,138
========= ======== =========== =========== ===========
1996
BALANCE AT APRIL 30, 1995 4,858,156 $242,908 $21,197,616 $ (523,582) $20,916,942
Repurchase of warrants (700) (700)
Net loss (restated) (8,182,512) (8,182,512)
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BALANCE AT JANUARY 31, 1996 4,858,156 $242,908 $21,196,916 $(8,706,094) $12,733,730
=========== ======== =========== =========== ===========
See notes to consolidated financial
6
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTH PERIODS ENDED JANUARY 31, 1996 AND 1995 (UNAUDITED)
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(RESTATED)
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,182,512) $ (3,312,706)
Adjustments to reconcile net loss to net cash used by operations:
Gain on sales of educational products and property and equipment (17,134) (99,577)
Depreciation and amortization 705,176 1,151,703
Change in deferred income taxes 1,230
Restructuring costs 700,000
Changes in assets and liabilities, net of effects of sale of educational products:
Receivables, net 554,426 (1,184,411)
Inventories 2,754,270 359,372
Other current and noncurrent assets 856,890 106,104
Accounts payable, trade (950,974) (1,318,225)
Accrued sales returns (351,662) (501,076)
Other accrued expenses (1,482,138) (1,350,349)
Income taxes payable/refundable (69,441) (487,807)
Other liabilities 910,491 (374,400)
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Net cash used in operating activities (5,272,608) (6,310,142)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments (607,978) (344,985)
Sales of short-term investments 515,200
Proceeds from collection of notes receivable 500,000
Purchase of property and equipment (301,038) (1,017,832)
Proceeds from sales of property and equipment 123,665 454,353
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Net cash provided by (used in) investing activities 229,849 (908,464)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of common stock and warrants (700) (1,713)
Payments on long-term debt (247,864)
Advances from (repayments to) National Safety Associates, Inc. (159,573) (4,295,874)
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Net cash used in financing activities (160,273) (4,545,451)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,203,032) (11,764,057)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 15,603,316 20,081,363
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CASH AND CASH EQUIVALENTS, END OF PERIOD $10,400,284 $ 8,317,306
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest $ 29,000 $ 52,266
Income taxes 218,270 6,580
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
See discussion of non-cash financing activities in Note 4.
See notes to consolidated financial statements.
7
NSA INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTH PERIODS ENDED JANUARY 31, 1996 AND 1995 (UNAUDITED) (RESTATED)
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1. FINANCIAL STATEMENT PRESENTATION
The consolidated balance sheet as of January 31, 1996, the consolidated
statements of operations for the three month and nine month periods ended
January 31, 1996 and 1995, and the consolidated statements of
shareholders' equity and cash flows for the nine month periods ended
January 31, 1996 and 1995 have been prepared by the Company, without
audit. It is management's opinion that these statements include all
adjustments, consisting only of normal recurring adjustments, necessary
to present fairly the financial position, results of operations, and cash
flows as of January 31, 1996 and for all periods presented. The results
for the periods presented are not necessarily indicative of the results
that may be expected for the full year.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested
that these consolidated financial statements be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K, previously filed with the
Securities and Exchange Commission.
2. LOSS PER SHARE
Amounts shown as loss per share have been computed by dividing net loss
applicable to common shareholders by the weighted average number of
common shares outstanding.
3. INVENTORIES
Inventories consisted of the following:
JANUARY 31, 1996 APRIL 30, 1995
Raw materials $ 5,484,029 $ 6,122,208
Finished goods 6,512,311 8,218,954
Accessories 2,580,178 2,814,019
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Total at cost 14,576,518 17,155,181
Reserve for excess and obsolete inventory (4,500,160) (4,324,553)
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Total $10,076,358 $12,830,628
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4. SALE OF EDUCATIONAL PRODUCTS TO NSA, INC.
On July 21, 1994, the Company completed the sale of its exclusive rights
and inventory in Wings, an educational product, and The Knowledge
Network, an educational catalog product, to NSA, Inc. The total purchase
price of $5,500,000 was determined based upon an independent valuation.
NSA, Inc. assumed a $1.1 million note payable and the remainder of the
purchase price was settled as a reduction of the amounts due to NSA, Inc.
The transaction resulted in a gain, after income tax, of $62,000.
8
5. ABANDONMENT OF U.K. LEASE
The company leases office space in the U.K. under a non-cancelable
operating lease expiring in 2016. In October 1995 the Company abandoned
the location and signed a sublease agreement with an unrelated party. A
loss of $1,000,000 has been recognized in the second quarter which
represents the excess of future rent expense over sublease income
discounted at 8%.
These financial statements have been restated to reflect the $1,000,000
loss in the second quarter described above. The effect of the restatement
is as follows:
NINE MONTHS ENDED
JANUARY 31, 1996
Net loss as previously reported $7,182,512
Net loss as restated 8,182,512
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion should be read in conjunction with the
Consolidated Financial Statements and the discussion of NSA International,
Inc.'s (the "Company") business and other detailed information appearing
elsewhere herein. All information is based on the Company's fiscal quarter and
nine months ended January 31.
RESULTS OF OPERATIONS
Net Revenues
Third Quarter Nine Months
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1996 Change 1995 1996 Change 1995
---- ------ ---- ---- ------ ----
(Dollars In Thousands)
Net Revenues $18,348 (25.04)% $24,476 $58,401 (23.20)% $76,039
Cost and Expenses 21,089 (23.39)% 27,527 66,435 (16.91)% 79,951
Percentage of net revenues 114.94% 112.47% 112.04% 105.14%
Net income (loss) (2,735) (2,660) (8,183) (3,313)
Earnings (loss) per share $ (.56) $ (.55) $(1.68) $ (.68)
The Company's 1996 third quarter revenues were approximately the same as
its 1996 second quarter revenues. The Company's direct selling operations
continued to experience declining revenues for its 1996 third quarter and first
nine months compared to the 1995 revenues for the corresponding periods.
The Company's management is currently reviewing all of its direct selling
strategies and operations which are now in place. Certain expense and cost
controls have already been implemented and should reduce operating expenses in
the next fiscal year. Additionally, the Company is in the process of
implementing certain additional expense and cost control strategies designed to
reduce operating expenses.
The success of these strategies is dependent on dealer and distributor
acceptance and their ability and continued commitment to market the Company's
products.
COST AND EXPENSES
Third Quarter Nine Months
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1996 Change 1995 1996 Change 1995
---- ------ ---- ---- ------ ----
(Dollars In Thousands)
Dealer/Distributor commissions $7,303 (31.73)% $10,698 $22,530 (31.94)% $33,102
and allowances
Percentage of net revenues 39.80% 43.71% 38.58% 43.53%
Cost of products sold 6,590 (19.68)% 8,205 21,359 (11.52)% 24,140
Percentage of net revenues 35.92% 33.52% 36.57% 31.75%
The decrease in dealer/distributor commissions and allowances, as a
percentage of net revenues, reflects a shift in the sales mix from commission
sales to non-commission sales.
The cost of sales as a percentage of net revenues increased as a result
of increased sales of the Juice Plus+ product line and decreased sales of the
air and water product line. The Company's marginal profit on the Juice Plus+
product line is less than its marginal profit on its air and water product
line.
10
Third Quarter Nine Months
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1996 Change 1995 1996 Change 1995
---- ------ ---- ---- ------ ----
(Dollars In Thousands)
Operating Expenses $6,963 (6.99)% $7,486 $21,764 0.84% $21,583
Percentage of net revenues 37.95% 30.59% 37.27% 28.38%
The decrease in the 1996 third quarter operating expenses reflects the
Company's sale of the manufacturing operation and closing of the Company's
Mexican direct selling subsidiary.
The increase in operating expenses, as a percentage of net revenues,
resulted primarily from costs incurred by the Company's expansion into Italy
and the ongoing administrative and operating costs experienced primarily in
Europe coupled with the Company's decline in net revenues between the quarter
and nine months ended January 31, 1996 compared to the same periods ended
January 31, 1995. The increase in operating expenses for the first nine months
also reflects the $1,000,000 loss recognized in the second quarter which
represents the excess of future rent expense over sublease income discounted at
8% from the abandonment of the office space formerly leased by the Company in
the U.K. under a non-cancelable operating lease expiring in 2016 which has been
subleased to an unrelated third party.
Third Quarter Nine Months
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1996 Change 1995 1996 Change 1995
---- ------ ---- ---- ------ ----
(Dollars In Thousands)
Interest Income $148 184.62% $52 $572 134.43% $244
Interest Expense 0 (100.00)% 5 7 (86.54)% 52
The increase in interest income in the 1996 first nine months and third
quarter reflects interest earned on notes receivable obtained in the sale of
the manufacturing operations. The decrease in interest expense resulted from
debt reduction by the Company.
Third Quarter Nine Months
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1996 Change 1995 1996 Change 1995
---- ------ ---- ---- ------ ----
(Dollars In Thousands)
Licensing and management $349 (38.56)% $568 $1,075 (39.81)% $1,786
fees to NSA, Inc.
Percentage of net revenues 1.90% 2.32% 1.84% 2.35%
The Company's licensing fee has decreased in the 1996 third quarter and
the first nine months as a result of the shift in the product sales mix to
products on which NSA, Inc. does not receive a licensing fee.
The decreases in management fees for the 1996 first nine months and third
quarter reflect a reduction of administrative expenses incurred by NSA, Inc. on
the Company's behalf due to the Company's sale of the manufacturing operation
and the closing of the Company's Mexican direct selling subsidiary.
11
Third Quarter Nine Months
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1996 1995 1996 1995
---- ---- ---- ----
(Dollars In Thousands)
Restructuring Costs 0 $700 0 $700
Percentage of net revenues 2.86% .92%
During the 1995 third quarter, the Company charged $700,000 for expenses
to be incurred in closing the Company's Mexican direct selling subsidiary.
Third Quarter Nine Months
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1996 1995 1996 1995
---- ---- ---- ----
(Dollars In Thousands)
Other income (expense) $(33) $83 $(274) $1,168
Percentage of net revenues (.17)% .34% (.47)% 1.54%
The 1996 first nine months change in other income (expense) is primarily
attributed to approximately $300,000 of foreign currency hedging losses. In the
first nine months of 1995 the Company recorded a gain of approximately
$1,000,000 in foreign currency hedging.
BENEFIT (PROVISION) FOR INCOME TAXES
Third Quarter Nine Months
---------------------------------- --------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars In Thousands)
Benefit (provision) for $6 $392 $(149) $599
income taxes
Effective tax rate .22% 12.84% (2.12)% 15.31%
The low effective tax rate for the 1996 first nine months and third
quarter reflects losses incurred by European direct selling subsidiaries for
which the Company was not able to recognize a tax benefit.
NET INCOME (LOSS)
Third Quarter Nine Months
---------------------------------- --------------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars In Thousands)
Net Income (loss) $(2,735) $(2,660) $(8,183) $(3,313)
Earnings (loss) per share $(.56) $(.55) ($1.68) $(.68)
FUTURE OUTLOOK
Management is continuing to implement strategies which are intended to
increase revenues and improve long-term operating performance. Additional steps
to increase revenues include the review of the Company's entire direct selling
strategies, improving core products, and the modification of the marketing plan
to encourage the concentration on core products by the dealer/distributors and
to accelerate the initial promotion of new dealers within the commission
structure. Additionally, the Company is considering alternative methods of
distribution in order to expand available markets for its products and increase
revenues without resulting in the increased operating costs the Company has
experienced in its traditional market expansion activities. One such
alternative is the expansion of the Company's exclusive master distributorship
program by creating additional relationships with third party distributors
similar to the Company's relationship with its far east distributor.
12
The Company is continuing to implement cost containment measures intended
to improve operating performance. These measures, along with the Company's new
market expansion strategies, are intended to have a long-term favorable effects
on results of operations. However, the Company's multi-level distribution
networks and the alternative distribution methods are highly competitive and
are subject to a number of uncertainties which may affect revenues and results
from operations. The success of these strategies and changes will be dependent
on traditional dealer/distributor acceptance and their ability and continued
commitment to market the Company's products and the success of the Company's
market expansion activities. Management believes that those changes coupled
with changing economic conditions, both domestically and internationally, may
continue to adversely effect short-term operating results.
LIQUIDITY AND CAPITAL RESOURCES
Third Quarter
----------------------------------
1996 1995
---- ----
(Dollars in thousands)
Cash and cash equivalents $10,400 $8,317
Short-term investments 614 820
Working capital 6,513 15,507
Cash provided (used) by operating activities (5,273) (6,310)
Cash provided (used) by investing activities 230 (908)
Cash (used) by financing activities (160) (4,545)
The Company has sufficient cash on hand to finance current operations and
does not anticipate requiring additional funding in excess of the current cash
balances and cash flow generated from operations. If required, management
believes additional funding will be available from financial institutions or
NSA at satisfactory terms.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (Section 249.308 OF THIS CHAPTER).
(a) Exhibits.
None.
(b) Reports on Form 8-K.
None.
14
SIGNATURES
Pursuant to the requirements 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.
NSA INTERNATIONAL, INC.
Date: July 24, 1996 By: /s/ Stan C. Turk
------------------------------------
Stan C. Turk,
Chief Financial Officer