NATURAL ALTERNATIVES
INTERNATIONAL, INC.
CUSTOM CONTRACT MANUFACTURING
OF SUPPLEMENTS SINCE 1980
2024 ANNUAL REPORT
Chairman’s Letter to Stockholders
Dear Fellow Stockholders,
The performance of your company over the past fiscal year has been underwhelming, to say the least.
Circumstances and business conditions far beyond our control or ability to predict combined in such a way as to
render our results short of our plans and aspirations. Several key factors transpired that led to such under
achievement, with many of them directly related to consumer fatigue and economic headwinds. The amount of
inflation that was experienced globally, combined with the constriction of monetary credit by central banks, and
increases in everything from insurance premiums to occupancy costs has adversely impacted not only your
company but our industry as a whole. During the past 12 months we closed a brand new facility due to collapse of
demand for one of our significant customers, laying off over 60 people, only to restart it later in the fiscal year with
limited throughput from the same customer. Consumer activity in other parts of the globe has been muted by
other pressures outside our scope of influence. Legacy business models that relied on certain selling techniques
generating income for distributors have been under duress given the ‘gig’ economy which rewards business
behavior in a timelier manner. Companies are reconfiguring their economic models to address the appetites of
new generations of consumers who are more transactional with greater speed and efficiency.
There are signs of recovery, however. According to a recent article published in Nutra Ingredients dated October
4, 2024, “… in a recent analysis published in The Lancet, more than half of the world’s population consumes
inadequate levels of micronutrients essential to health, including calcium, iron and vitamins C and E.” The research
here clearly favors a resurgence in our industry, and once financial conditions loosen and consumers can see inflation
begin to meaningfully subside, it is our belief that our industry will once again return to significant growth – and NAI
plans to be a major participant in that growth.
The advent of the adoption of drug therapies in the treatment of diabetes and obesity have also dramatically changed
the landscape of our industry. Our research teams and clients are collaborating on release of products in the
supplement category to compliment, and synergize the effects of these pharmaceutical agents, and to assure
effective metabolic support post administration of these drugs.
We recently introduced our groundbreaking new product called TriBsyn™, which is a carnosine boosting ingredient
that utilizes CarnoSyn® beta‐alanine and other patent‐pending ingredients combined with proprietary technology to
increase beta‐alanine bioavailability and absorption, while effectively eliminating the common paresthesia sensation
associated with efficacious dosages of beta‐alanine. We are actively promoting this product in healthy aging and
fortified, and medical foods applications based on the benefits of delivering cognitive, metabolic and sarcopenia
fighting benefits to an enormous demographic globally.
We continue to garner new customer relationships both domestically and internationally, through competitive pricing
and demonstrated quality. Sales cycles are lengthy in building lasting relationships, and with a resurgent consumer
globally and continued exposure of the needs for nutrient supplementation in various forms, we remain committed
to utilizing our state‐of‐the‐art facilities to generate profitable growth for our shareholders and our clientele.
Sincerely,
Mark A. LeDoux
Chairman of the Board of Directors
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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, 2024
or
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to .
000-15701
(Commission file number)
NATURAL ALTERNATIVES INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
84-1007839
(State of incorporation)
(IRS Employer Identification No.)
1535 Faraday Ave
Carlsbad, CA 92008
(760) 736-7700
(Address of principal executive offices)
(Registrant’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of exchange on which registered
Common Stock, $0.01 par value per share
Nasdaq Global Market
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share
NAII
Nasdaq Stock Market
Indicate by check mark if Natural Alternatives International, Inc. (NAI) is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of
1933. ☐ Yes ☒ No
Indicate by check mark if NAI is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934. ☐ Yes ☒ No
Indicate by check mark whether NAI (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 NAI was required to file such reports), and (2) has been subject to such filing requirements for the past
90 days. ☒ Yes ☐ No
Indicate by check mark whether NAI has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T during the preceding 12 months (or for such shorter period that NAI was required to submit such files). ☒ Yes ☐ 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 NAI’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. ☐
Indicate by check mark whether NAI is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging
growth company.
Large accelerated filer ☐
Accelerated filer ☐
Emerging Growth Company ☐
Non-accelerated filer ☒
Smaller reporting company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new
or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control
over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued
its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the
filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received
by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether NAI is a shell company (as defined in Rule 12b-2 of the Exchange Act): ☐ Yes ☒ No
The aggregate market value of NAI’s common stock held by non-affiliates of NAI as of the last business day of NAI’s most recently completed second
fiscal quarter (December 31, 2023) was approximately $39,760,000 (based on the closing sale price of $6.53 reported by Nasdaq on December 31, 2023).
As of September 27, 2024, 6,198,778 shares of NAI’s common stock were outstanding, net of 3,282,128 treasury shares.
DOCUMENTS INCORPORATED BY REFERENCE
Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K incorporates by reference portions of NAI’s definitive proxy statement, to be filed on or before
October 28, 2024, for its Annual Meeting of Stockholders to be held December 6, 2024.
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(i)
TABLE OF CONTENTS
Page
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS ......................................................................
1
PART I
Item 1.
Business ...........................................................................................................................................................
2
Item 1A. Risk Factors .....................................................................................................................................................
10
Item 1C. Cybersecurity ...................................................................................................................................................
19
Item 2.
Properties .........................................................................................................................................................
20
Item 3.
Legal Proceedings ...........................................................................................................................................
20
Item 4.
Mine Safety Disclosures ..................................................................................................................................
20
PART II
Item 5.
Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...
21
Item 6.
Selected Financial Data ...................................................................................................................................
21
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ..........................
22
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .........................................................................
26
Item 8.
Financial Statements and Supplementary Data ................................................................................................
27
Report of Independent Registered Public Accounting Firm (PCAOB ID 200) ...............................................
27
Consolidated Financial Statements ..................................................................................................................
29
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........................
55
Item 9A. Controls and Procedures ..................................................................................................................................
55
Item 9B. Other Information ............................................................................................................................................
55
PART III
Item 10.
Directors, Executive Officers and Corporate Governance ...............................................................................
56
Item 11.
Executive Compensation .................................................................................................................................
56
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ........
56
Item 13.
Certain Relationships and Related Transactions, and Director Independence .................................................
56
Item 14.
Principal Accountant Fees and Services ..........................................................................................................
56
PART IV
Item 15.
Exhibits and Financial Statement Schedules ...................................................................................................
57
SIGNATURES ................................................................................................................................................................
60
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1
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the
Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current views about future events and
financial performance based on certain assumptions. They include opinions, forecasts, intentions, plans, goals, projections,
guidance, expectations, beliefs, or other statements that are not statements of historical fact. Words such as “may,” “will,”
“should,” “could,” “would,” “expect,” “plan,” “believe,” “anticipate,” “intend,” “estimate,” “approximate,” “predict,”
“forecast,” “project,”, “future”, or “likely”, or the negative or other variation of such words, and similar expressions may
identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial
performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other
characterizations of future events or circumstances, including statements expressing general optimism or pessimism about
future operating results, are forward-looking statements. Forward-looking statements in this report may include statements
about:
•
our ability to develop market acceptance for and increase sales of new products, develop relationships with new
customers and maintain or improve existing customer relationships;
•
future financial and operating results, including projections of net sales, revenue, income or loss, net income or loss
per share, profit margins, expenditures, liquidity, and other financial items;
•
the sufficiency of our available cash, cash equivalents, and potential cash flows from our operations to fund our
working capital and capital expenditure needs through the next 12 months and longer;
•
the future adequacy and intended use of our facilities;
•
future customer orders and the timing thereof;
•
our ability to price our products to achieve profit margin targets, especially in the current volatile raw material and
labor environment;
•
our ability to maintain or increase our patent and trademark licensing revenues;
•
our ability to improve operating efficiencies, manage costs and business risks, and improve or maintain profitability;
•
sources, availability and quality of raw materials, including the limited number of suppliers of beta-alanine meeting
our quality requirements;
•
our ability to attract and retain sufficient labor to successfully execute our business strategies and achieve our goals
and objectives;
•
inventory levels, including the adequacy of quality raw material and other inventory levels to meet future customer
demand;
•
our ability to protect our intellectual property;
•
future economic and political conditions;
•
currency exchange rates and their effect on our results of operations (including amounts that we may reclassify as
earnings), the availability of foreign exchange facilities, our ability to effectively hedge against foreign exchange
risks and the extent to which we may seek to hedge against such risks;
•
the outcome of litigation, regulatory and tax matters we may become involved in, the costs associated with such
matters and the effect of such matters on our business and results of operations;
•
potential manufacturing and distribution channels, product returns, and potential product recalls;
•
the impact of external factors on our business and results of operations, especially, for example, variations in
quarterly net sales from seasonal and other external factors;
•
our ability to operate within the standards set by the U.S. Food and Drug Administration’s (FDA) Good
Manufacturing Practices (GMPs);
•
the adequacy of our financial reserves and allowances;
•
the impact of accounting pronouncements and our adoption of certain accounting guidance; and
•
other assumptions described in this Report underlying or relating to any forward-looking statements.
The forward-looking statements in this Report speak only as of the date of this Report based on information available to us
at that time and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking
statements are subject to certain future events, risks, and uncertainties that are or may be outside of our control. When
considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements
in this Report as they identify certain important factors that could cause actual results to differ materially from those expressed
in, or implied by, the forward-looking statements. These factors include, among others, the risks described under Item 1A of
Part I and elsewhere in this report, as well as in other reports and documents we have filed and will file with the United States
Securities and Exchange Commission (SEC).
2
PART I
ITEM 1. BUSINESS
General
Our vision is to enrich the world through the best of nutrition.
We are a leading formulator, manufacturer and marketer of nutritional supplements. Our comprehensive strategic partnerships
with our customers allow us to offer a wide range of innovative nutritional products and services to such customers 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.
As our primary business activity, we provide private-label contract manufacturing services to companies that market and
distribute vitamins, minerals, herbal and other nutritional supplements, as well as other health care products, to consumers
both within and outside the U.S. We also own a patent estate related to the raw material ingredient known as beta-alanine,
which is primarily commercialized through the direct sale of this raw material and supply agreements with third parties for
the distribution and use of this raw material under our CarnoSyn®, SR CarnoSyn® and TriBsyn™ trademarks. We also sell a
branded version of our SR CarnoSyn® tablet product under a brand we created called SustainedRx® and a product named
Perfect Synergy®. We also have SR CarnoSyn® Wellness tablet products – Complete Vision Support and Complete Memory
Support. These products are being offered both as business-to-business private label products and direct to the consumer
through Amazon and our own direct to consumer website.
History
Originally founded in 1980, Natural Alternatives International, Inc. (NAI) reorganized as a Delaware corporation in 1989.
Our principal executive offices are located at 1535 Faraday Ave, Carlsbad, CA 92008. Our primary U.S. manufacturing
facility is located approximately three miles away in Vista, California. We also have another manufacturing and warehousing
facility located approximately one mile away from our executive offices in Carlsbad, California.
In January 1999, we formed our wholly owned subsidiary Natural Alternatives International Europe S.A. (NAIE), a Swiss
corporation based in Manno, Switzerland. In September 1999, NAIE opened its manufacturing facility in Manno,
Switzerland, which has grown over the ensuing years and currently possesses manufacturing capabilities in encapsulation,
powders, tablets, finished goods packaging, quality control, laboratory testing, warehousing, distribution and administration.
In 1997, we licensed certain patent rights related to instant-release beta-alanine and have since expanded this patent estate by
applying for and obtaining patents to include sustained-release beta-alanine. We sell these products under our trademarks
CarnoSyn® and SR CarnoSyn®. As part of our business strategy, we have sought to commercialize our CarnoSyn® patent
estate through contract manufacturing, royalty and license agreements, and further patent estate expansion. We recently
expanded our licensed product offerings with patent applications associated with a new form of CarnoSyn® beta-alanine
trademarked as TriBsyn™. We directly sell CarnoSyn®, SR CarnoSyn®, and TriBsyn™ and license our related patent and
trademark rights to others for use in or with their products.
Unless the context requires otherwise, all references in this report to the “Company,” “NAI,” “we,” “our,” and “us” refer to
Natural Alternatives International, Inc. and, as applicable NAIE.
Overview of our Facilities and Operations
Our U.S.-based operations are located in Vista and Carlsbad, California and include manufacturing and distribution, sales
and marketing, in-house formulation, laboratory, and other research and development services. Our Vista manufacturing
facilities are certified by the Therapeutic Goods Administration (TGA) of Australia after its audit of our GMP’s. TGA
evaluates new therapeutic products, prepares standards, develops testing methods and conducts testing programs to ensure
that products are high in quality, safe and effective. TGA also conducts a range of assessment and monitoring activities
including audits of the manufacturing practices of companies who export and sell products to Australia. TGA certification
enables us to manufacture products for export into countries that have signed the Pharmaceutical Inspection Convention,
which include most European countries as well as several Pacific Rim countries. TGA certifications are generally reviewed
every eighteen to thirty-six months. During August 2022, TGA completed an inspection of our Vista, California facility and
quality systems for compliance with GMP, and issued a renewed GMP certification valid through August 12, 2025.
3
Our Vista, California facilities have also been awarded GMP registration annually since October 2002 by NSF International
(NSF) through the NSF Dietary Supplements Certification Program and received “GMP for Sport” NSF Certified registration
on February 16, 2009. GMP requirements are regulatory standards and guidelines setting forth necessary processes,
procedures and documentation for manufacturers in an effort to assure the products produced by that manufacturer have the
identity, strength, composition, quality and purity represented. The NSF Certified for Sport program focuses on minimizing
the risk that a dietary supplement or sports nutrition product contains banned substances and was developed due to growing
demand from athletes and coaches concerned about banned substances in sports supplements. The program focuses primarily
on manufacturing and sourcing processes, while embedding preventative measures throughout. NAI’s participation in the
program allows us to produce products bearing the NSF Sport logo.
Our Vista, California operations are also certified by Health Canada as compliant with the GMP requirements outlined in
Part 3 of the Canadian Natural Health Products Regulations. Health Canada is the department of the Canadian government
with responsibility for national public health. Health Canada has initiated work to modernize its regulatory system for food
and health products. Health Canada plays an active role in ensuring access to safe and effective drugs and health products
while giving high priority to public safety and strives to provide information needed to make good choices and informed
decisions regarding one’s health. NAI was issued its initial certification by Health Canada in December 2011 and maintains
renewal in compliance with the Natural and Non-prescription Health Products Directorate. This approval demonstrates
another level of regulatory compliance by NAI, and may also ease the approval process for our customers who import
products into Canada.
Our Vista, California facility is also certified as an Organic Processor and Handler by Natural Food Certifiers (NFC). This
certification demonstrates our facility meets the USDA National Organic Program standards and allows our contract
manufacturing and packaging services to include products labeled as Organic. The certification requires annual renewal and
was last renewed in April 2023. We are registered with the State of California, Department of Public Health Food and Drug
Branch as an organic processor. Additionally, we are certified by various Rabbinical and Halal authorities to produce Kosher
and Halal certified products. These certifications guarantee the manufacturing facility and processes for, and the ingredients
of, certified products have been reviewed and found to be in compliance with the strict dietary laws of the respective Jewish
and Muslim communities.
In April 2021, NAI became the first company to meet new safety and benchmarking standards created by the Supplement
Safety & Compliance Initiative (SSCI). The SSCI is an industry-driven initiative led by retailers to provide a harmonized
benchmark to recognize various safety standards throughout the entire dietary supplement supply chain. Patterned after the
Global Food Safety Initiative (GFSI), which has been very successful in implementation across the grocery marketplace and
food retail sectors, the program is focused on improved traceability and identification protocols to provide maximum safety
for end users. SSCI key objectives include creating effective global systems to ensure traceability, transparency, and quality
in the supply chain; reducing risks by ensuring equivalence between safety management systems’ and driving global change
through benchmarking of domestic and international quality standards. NAI’s SSCI certification was last renewed in July
2023.
In August 2021, NAI acquired a new manufacturing and warehouse facility in Carlsbad, California and retrofitted the facility
to become a dedicated high-volume powder blending and packaging facility while also providing additional raw material
storage capacity. The state-of-the-art facility commenced full operations in April 2023 and was added to the NFC Organic
certification at that time. We continue to evaluate which of the above referenced additional certifications will be advantageous
for this new facility based on the types of products and customers we plan to service out of this facility.
NAIE operates a manufacturing, warehousing, packaging and distribution facility in Manno, Switzerland. In January 2004,
NAIE obtained a pharmaceutical license from the Swissmedic Authority of Bern, Switzerland to process pharmaceuticals for
packaging, import, export and sale within Switzerland and other countries. In March 2007, following the expansion of NAIE’s
manufacturing facilities to include powder filling capabilities, NAIE obtained an additional pharmaceutical license from the
Swissmedic Authority certifying that NAIE’s expanded facilities conform to their GMPs. In January 2013, following an
additional upgrade of NAIE’s manufacturing facilities to include the manufacture of pharmaceuticals, NAIE obtained an
additional pharmaceutical approval from the Swissmedic Authority certifying that NAIE’s upgraded facilities conform to
GMP. The plan is subject to periodic inspections by the Swissmedic to verify compliance and maintain validity of the GMP
certification. NAIE’s most recent Swissmedic inspection was conducted in July 2024. In addition, NAIE obtained FSSC
22000 certification in May 2024 following a successful food safety audit of its operations. We believe these licenses,
certifications and NAIE’s manufacturing capabilities help strengthen our relationships with existing customers and improve
our ability to develop relationships with new customers.
4
In March 2019, the Japanese Minister of Health, Labor, and Welfare approved beta-alanine for use in Japanese food products.
We have partnered with Shimizu Chemical Corporation of Hiroshima Japan to provide exclusive distribution of our
CarnoSyn® and SR CarnoSyn® beta-alanine in Japan.
Business Strategy
Our goals are to achieve long-term growth and profitability and to diversify our sales base. To accomplish these goals, we
have sought, and intend to continue to seek, to do the following:
•
leverage our state-of-the-art, California and Swiss facilities to increase the value of the goods and services we
provide to our highly valued private-label contract manufacturing customers and to assist in developing
relationships with additional quality oriented customers;
•
expand the commercialization of our beta-alanine patent estate through raw material sales, further development of
the Wellness and Healthy Aging distribution channel through sales of our sustained release form of beta-alanine
marketed under our SR CarnoSyn® trademark and our newly launched TriBsyn™ product offering, exploiting new
contract manufacturing opportunities, introduction of private-label branded products, and license and royalty
agreements while protecting our proprietary rights; and
•
improve operational efficiencies and manage costs and business risks to improve profitability.
Overall, we believe there is an opportunity to enhance consumer confidence in the quality of our customer’s nutritional
supplements and their adherence to label claims through education provided by direct sales and direct-to-consumer marketing
programs. We believe our GMP and TGA certified manufacturing operations, science-based product formulations, peer-
reviewed clinical studies and regulatory expertise collectively provide us with a sustainable competitive advantage and
provide our customers with a high degree of confidence in the products we manufacture.
While today’s consumer may have access to a variety of information, we believe many consumers remain uneducated about
nutrition and nutritional supplementation, uncertain about the relevance or reliability of the information available to them, or
confused about conflicting claims or information. We believe this state of the market creates a significant opportunity for the
direct sales marketing channel. The direct sales marketing channel has proved, and we believe will continue to prove, to be a
highly effective method for marketing high-quality nutritional supplements because it allows associates or other individuals
to educate consumers on the benefits of science-based nutritional supplements. Some of our largest customers operate in the
direct sales marketing channel. Thus, the majority of our business has relied primarily on the effectiveness of our customers
in this marketing channel.
We also believe there is significant opportunity with the commercialization of our patent estate through the introduction of
our existing patented ingredients into additional markets and the introduction of new beta-alanine product offerings.
Currently, a majority of our sales of CarnoSyn® are to companies that operate in the sports nutrition channel and are focused
on products containing the instant release form of beta-alanine. We believe there are several other markets and distribution
channels that represent growth opportunities for the distribution of our SR CarnoSyn® and TriBsyn™ product offerings. We
believe SR CarnoSyn® is a superior delivery system of CarnoSyn® beta-alanine based on its sustained release profile that
allows for increased daily dosing and improved muscle retention of carnosine. However, this product offering is limited to
solid dose tablet offerings, which limits the potential for customization of the product by our target customers. With the recent
introduction of our new product called TriBsyn™, we believe we now have a product that will allow us to better penetrate
the Wellness and Healthy Aging channel. This groundbreaking new product is a carnosine booster that utilizes CarnoSyn®
beta-alanine and other patent-pending technology to increase beta-alanine bioavailability and absorption while effectively
eliminating beta-alanine related paresthesia. This product is available as a raw material powder, which allows formulation
flexibility for our customers. The elimination of paresthesia while maintaining efficacy of dosage creates a new opportunity
to reach segments of the market that to-date have been untapped, including older adults, vegetarians, and vegans. In addition,
we also sell three versions of our own branded SR CarnoSyn® tablet products under a brand called Sustained RX®. These
products are offered as both business-to-business private label products and direct to consumers through Amazon and our
own direct to consumer website. These product offerings are condition-specific tablet products that include SR CarnoSyn®
as the primary ingredient along with other science-backed ingredients that strengthen the claims and marketing around the
product and are more recognizable to the consumer. We are also working on several other innovations that could lead to new
patentable products for CarnoSyn® Brands in the future. Our patents related to instant release beta-alanine extend through
2026 and our patents for SR CarnoSyn® extend through 2036.
5
We believe our comprehensive approach to customer service is unique within our industry. We believe this comprehensive
approach, together with our commitment to high quality, product development and manufacturing capabilities, will provide
the means to implement our strategies and achieve our goals. There can be no assurance, however, that we will successfully
implement any of our business strategies or that we will increase or diversify our sales, successfully commercialize our patent
estate, or improve our overall financial results.
Products, Principal Markets and Methods of Distribution
Our primary business activity is to provide private-label contract manufacturing services to companies that market and
distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers
both within and outside the U.S. Our private-label contract manufacturing customers include companies that market
nutritional supplements through direct sales marketing channels, direct to consumer ecommerce channels, and retail stores.
We manufacture products in a variety of forms, including capsules, tablets, chewable wafers, and powders to accommodate
a variety of our customer’s preferences.
We provide strategic partnering services to our private-label contract manufacturing customers that include but are not limited
to the following:
•
customized product formulation;
•
clinical study design and support;
•
manufacturing;
•
marketing support;
•
international regulatory and label law compliance;
•
international product registration; and
•
packaging in multiple formats and labeling design.
We also seek to commercialize our patent and trademarks through the direct distribution and sale of CarnoSyn®, SR
CarnoSyn®, TriBsyn™, new contract manufacturing opportunities, and various license, royalty, and similar arrangements.
For the last two fiscal years ended June 30, our net sales were derived from the following (in thousands):
2024
2023
$
%
$
%
Private-label Contract Manufacturing .................................. $
105,358
93 $
145,294
94
Patent and Trademark Licensing ..........................................
8,438
7
8,721
6
Total Net Sales ..................................................................... $
113,796
100 $
154,015
100
Research and Development
We are committed to quality research and development. We focus on the development of new science-based products and
the improvement of existing products. We periodically test and validate products we manufacture to help ensure their stability,
potency, efficacy and safety. We maintain quality control procedures to verify that products we manufacture comply with
applicable specifications and standards established by the FDA and other regulatory agencies. We also both direct and
participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits
of an ingredient or a product and provide scientific support for product claims and marketing initiatives. We believe our
commitment to research and development, as well as to our facilities and strategic alliances with our suppliers and customers,
allow us to effectively identify, develop and market high-quality and innovative products.
As part of the services we provide to our private-label contract manufacturing customers, we may perform certain research
and development activities related to the development or improvement of their products. Our customers are usually charged
for our services but are often reimbursed for these costs if their products are ultimately commercialized and manufactured by
NAI. Research and development costs, including costs associated with international regulatory compliance services we
provide to our customers, are expensed as incurred.
Our research and development expenses for the fiscal year ended June 30, 2024 were $1.9 million, compared to $2.1
million for the fiscal year ended June 30, 2023.
6
Sources and Availability of Raw Materials
We use many raw materials in our operations including powders, excipients, empty capsules, and components for packaging
and distributing our finished products. In addition, the commercialization of our beta-alanine patents and trademarks depends
on the availability of the raw material beta-alanine. We conduct identity testing for all raw materials we purchase and, on a
predetermined testing protocol basis we evaluate raw materials to ensure their quality, purity and potency before we use them
in our or our customer’s products. We typically buy raw materials in bulk from qualified vendors located both within and
outside the U.S.
Like many companies and industries, we experienced challenges within our supply chain as a result of the effects of the
COVID-19 pandemic. In particular, we encountered difficulties related to the supply of raw materials and packaging
components. These challenges were driven by, but were not limited to, increased demand for certain ingredients with a limited
supply, our supplier’s inability to meet demand due to capacity constraints, and increased lead times associated with
constrained transportation availability. While these impacts have lessened over the past couple of years, there continues to be
significant pricing pressures and supply chain challenges associated with various raw materials and packaging components
and we continue to manage these circumstances by working closely with our customers and suppliers. Additionally, there
still remains uncertainty related to existing and potentially increased tariffs. Throughout fiscal 2025, we expect upward
pricing pressures for raw materials, packaging components, and other costs will continue as a result of limited supplies of
various ingredients and the impact of inflationary factors, including higher labor and transportation costs, and the potential
levy of tariffs on goods we import from overseas, including beta-alanine.
Over the past year, sourcing of raw materials for our business has also been impacted by various geo-political issues, including
the Ukraine-Russia and Israel-Hamas conflicts. These conflicts have impacted the availability and pricing of certain raw
materials that we purchase along with impacts to lead times associated with materials brought in by ocean freight. We have
actively worked with our customers to identify alternative sources of these materials, which has mostly mitigated the impact
of these issues.
Customers
We have three private-label contract manufacturing customers that each individually represent more than 10% of our
consolidated net sales. The loss of any of these customers could result in a significant negative impact to our financial position
and results of operations. We continue to focus on obtaining new private-label contract manufacturing customers to reduce
the risks associated with deriving a significant portion of our sales from a limited number of customers.
On August 16, 2023, we announced the temporary closure of our new high-speed powder processing facility in Carlsbad,
California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand.
As a result of this temporary closure, we furloughed a majority of the employees that worked in that facility starting in early
October 2023. We reopened this facility in May 2024 based on new orders received from this customer.
Competition
We compete with other manufacturers, distributors and marketers of vitamins, minerals, plant extracts, and other nutritional
supplements both within and outside the U.S. The nutritional supplement industry is highly fragmented and competition for
the sale of nutritional supplements comes from many sources. These products are sold primarily through retailers (drug store
chains, supermarkets, and mass market discount retailers), ecommerce, health and natural food stores, and direct sales
channels (network marketing and internet sales).
We believe private-label contract manufacturing competition in our industry is based on, among other things, customized
services offered, product quality and safety, innovation, price and customer service. We believe we compete favorably with
other companies because of our ability to provide comprehensive solutions for customers, our certified manufacturing
operations, our commitment to quality and safety, and our research and development activities.
Our future competitive position for private-label contract manufacturing and patent and trademark licensing will likely
depend on, but not be limited to, the following:
•
growing acceptance of our products by new and current customers and by consumers;
•
our ability to protect our proprietary rights in our patent estate and the continued validity of such patents;
7
•
our ability to successfully expand our product offerings related to our patent and trademark estate;
•
our ability to maintain adequate inventory levels to meet our customer’s demands;
•
our ability to continue to manufacture high quality products at competitive prices;
•
our ability to attract and retain qualified personnel;
•
the effect of any future governmental regulations on our products and business;
•
the results of, and publicity from, product safety and performance studies performed by governments and other
research institutions;
•
continued growth of the global nutrition industry; and
•
our ability to respond to changes within the industry and consumer demand, financially and otherwise.
The nutritional supplement industry is highly competitive, and we expect the level of competition to remain high over the
near term. We do not have sufficient information to accurately estimate the total number or size of our competitors.
Government Regulation
Our business is subject to varying degrees of regulation by a number of government authorities in the U.S., including the
FDA, the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the U.S. Department of Agriculture,
and the Environmental Protection Agency. Various state and local agencies in areas where we operate and in which our
products are sold also regulate our business, such as the California Department of Health Services, Food and Drug Branch.
The areas of our business regulated by both these, and other authorities include, among others:
•
product claims and advertising;
•
product labels;
•
product ingredients;
•
how we manufacture, package, distribute, import, export, sell and store our products; and
•
our classification as an essential business and our right to continue operations during government shutdowns.
The FDA, in particular, regulates the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and
sale of vitamins and other nutritional supplements in the U.S., while the FTC regulates marketing and advertising claims.
Under FDA rules, companies that manufacture, package, label, distribute or hold nutritional supplements are required to meet
certain GMP’s to ensure such products are of the quality specified and are properly packaged and labeled. We are committed
to meeting or exceeding the standards set by the FDA and believe we are currently operating within the FDA mandated GMP.
The FDA also regulates the labeling and marketing of dietary supplements and nutritional products, including the following:
•
the identification of dietary supplements or nutritional products and their nutrition and ingredient labeling;
•
requirements related to the wording used for claims about nutrients, health claims, and statements of nutritional
support;
•
labeling requirements for dietary supplements or nutritional products for which “high potency” and
“antioxidant” claims are made;
•
notification procedures for statements on dietary supplements or nutritional products; and
•
premarket notification procedures for new dietary ingredients in nutritional supplements.
8
The Dietary Supplement Health and Education Act of 1994 (DSHEA) revised the provisions of the Federal Food, Drug and
Cosmetic Act concerning the composition and labeling of dietary supplements and re-defined dietary supplements to include
vitamins, minerals, herbs, amino acids and other dietary substances. DSHEA generally provides a regulatory framework to
help ensure safe, quality dietary supplements and the dissemination of accurate information about such products. The FDA
is generally prohibited from regulating active ingredients in dietary supplements as drugs unless product claims about such
supplements trigger regulatory status, such as claims that a product may heal, mitigate, cure or prevent an illness, disease or
malady.
In December 2006, the Dietary Supplement and Nonprescription Drug Consumer Protection Act (the “2006 Act”) was passed,
and further revised the provisions of the Federal Food, Drug and Cosmetic Act. Under the 2006 Act, manufacturers, packers
or distributors whose name appears on the product label of a dietary supplement or nonprescription drug are required to
include contact information on the product label for consumers to use in reporting adverse events associated with the product’s
use and to notify the FDA of any serious adverse event report. Events reported to the FDA are not considered an admission
from a company that its product caused or contributed to the reported event. We believe we are in compliance with the 2006
Act, and we are committed to meeting or exceeding the requirements of the 2006 Act.
We are also subject to a variety of other regulations in the U.S., including those relating to health, safety, bioterrorism, taxes,
labor, employment, import and export, the environment and intellectual property. All of these regulations require significant
financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite
our best efforts to do so or that being in compliance will not become prohibitively costly to our business.
Our operations outside the U.S. are similarly regulated by various agencies and entities in the countries in which we operate
and in which our products are sold. The regulations of these countries may conflict with those in the U.S. and may vary from
country to country. The sale of our products in certain European countries is subject to the rules and regulations of the
European Union, which may be interpreted differently among the countries within the European Union. In other markets
outside the U.S., we may be required to obtain approvals, licenses or certifications from a country’s Ministry of Health or
comparable agency before we or our customers begin operations or the marketing of products in that country. Approvals or
licenses may be conditioned on reformulation of our or our customer’s products for a particular market or may be unavailable
for certain products or product ingredients. These regulations may limit our or our customer’s ability to enter, or continue to
operate in certain markets outside the U.S. As with the costs of regulatory compliance in the U.S., foreign regulations require
significant financial and operational resources to ensure compliance, and we cannot provide assurances we will always be in
compliance despite our best efforts to do so or that being in compliance will not become prohibitively costly to our business.
Our failure to maintain regulatory compliance within and outside the U.S. could impact our ability to sell our products and
thus, adversely impact our financial position and results of operations.
Intellectual Property
Trademarks. We have developed and use trademarks in our business, particularly relating to corporate, brand and product
names. We own 51 registered trademarks; including 11 registrations in the U.S. Eight of these U.S. registrations are
incontestable. Federal registration of a trademark in the United States affords the owner nationwide exclusive trademark
rights to the registered mark and the ability to prevent subsequent users from using the same or similar mark. However, to
the extent any other business operator has acquired trademark rights in a mark by its consistent use of such mark in connection
with similar goods or services in a particular geographic area, the nationwide rights conferred by federal registration can be
subject to that user’s prior established non-statutory (“common law”) rights in that geographic area. In addition, rights in a
registered mark are dependent upon the continued use of the mark in connection with the goods and/or services set forth in
the registration.
We have 40 foreign registered trademarks covering 40 countries including registrations for CarnoSyn®, SR CarnoSyn® or
TriBsyn™ in Australia, Brazil, Canada, China, Hong Kong, Cuba, the European Union, Israel, Japan, Mexico, New Zealand,
South Korea, Switzerland and the United Kingdom. Our registered trademarks include CarnoSyn® and the SR CarnoSyn®
logos in Switzerland. We also claim common law ownership and protection of certain trademarks based upon our continued
use of the tradenames. In some countries, such as the United States, common law can provide protection of a name or mark
within the particular geographic area in which it is continually and deliberately used.
We believe our registered trademarks and our tradenames constitute valuable assets adding to the recognition of our products
and services in the marketplace. These and other proprietary rights have been and may continue to be important in enabling
us to compete; however, we cannot provide assurances our current or future trademark applications will be granted, or our
current trademark registrations will be maintained.
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Trade Secrets. We own certain intellectual property, including trade secrets, which we seek to protect, in part, through
confidentiality agreements with employees and other parties. We regard our proprietary technology, trade secrets, trademarks
and similar intellectual property as critical to our success, and we rely on a combination of trade secrets, contract, patent,
copyright and trademark law (including established but non-statutory law) to establish and protect the rights in our products
and technology. The laws of certain foreign countries may not protect our intellectual property rights to the same extent as
the laws of the U.S.
Patents and Patent Licenses. We currently own 9 U.S. patents and 8 corresponding non-U.S. patents registered in countries
throughout North America, Europe and Asia. We also have one pending U.S. application. All of these patents and patent
rights relate to the ingredient known as beta-alanine. Certain of these patents were assigned to NAI and we make certain
ongoing royalty payments to the prior owners of the patents. The royalty payments and licenses are expected to continue until
the expiration of the patents. We also sell beta-alanine and license our patent and trademark rights related to beta-alanine.
Some of our patents extend as far as through 2036.
Licensing, royalties, raw material sales, and revenues we have received associated with the sale and licensing of beta-alanine
under the CarnoSyn® and SR CarnoSyn® trade names were primarily related to the direct sale of the raw material beta-alanine
and totaled $8.4 million in fiscal 2024. We incurred intellectual property litigation and patent compliance expenses of
approximately $0.2 million during fiscal 2024 primarily in connection with our efforts to procure and protect our proprietary
rights and patent estate. We expect to continue to incur these types of litigation and compliance expenses during fiscal 2025.
Employees
As of June 30, 2024, we employed 227 full-time employees in the U.S., 3 of whom are executive officers of the Company.
Of the remaining full-time employees, 47 were employed in research, laboratory and quality control, 13 in sales and
marketing, and 164 in manufacturing and administration. From time to time we use temporary personnel to help us meet
shorter-term operating requirements. These positions typically are in manufacturing and manufacturing support. As of June
30, 2024, we had 7 temporary personnel in the U.S.
As of June 30, 2024, NAIE employed an additional 69 full-time employees and 7 temporary employees. Most of these
positions were in the areas of manufacturing and manufacturing support.
Our employees are not represented by a collective bargaining agreement, and we have not experienced any work stoppages
as a result of labor disputes. We believe our relationship with our employees is good. We cannot assure this will continue in
the future.
Seasonality
In addition to general economic factors, we are impacted by seasonal factors and trends, such as major cultural events and
vacation patterns. We manufacture and sell products to customers that operate in many different countries throughout the
world and these seasonal factors vary by region. Although we believe the impact of seasonality on our consolidated results
of operations is minimal, our quarterly results may vary significantly in the future due to the timing of private-label contract
manufacturing and CarnoSyn®, SR CarnoSyn®, and TriBysn™ beta-alanine raw material orders. Future revenue trends may
not follow historical patterns. The market price of our common stock may be adversely affected by these seasonal factors.
Financial Information about Our Business Segments and Geographic Areas
Our operations are comprised of two reportable segments:
•
Private-label contract manufacturing, in which we primarily provide manufacturing services to companies that
market and distribute nutritional supplements and other health care products.
•
Royalty, licensing, and raw material sales associated with the sale and license of beta-alanine under our
CarnoSyn®, SR CarnoSyn® and TriBsyn™ trademarks.
Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe,
Australia, Asia, Mexico, and Canada. Our primary markets outside the U.S. are Europe and Asia. Our patent and trademark
licensing activities are primarily based in the U.S.
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For additional financial information, including financial information about our business segment and geographic areas, please
see the consolidated financial statements and accompanying notes to the consolidated financial statements included under
Item 8 of this report.
Our activities in markets outside the U.S. are subject to political, economic and other risks in the countries in which our
products are sold and in which we operate. For more information about these and other risks, please see Item 1A in this report.
ITEM 1A. RISK FACTORS
When evaluating our business and future prospects, you should carefully review and consider the risks described below in
conjunction with other information in this report and in other reports and documents we file with the SEC. The risks and
uncertainties described below are not the only ones we face. Additional material risks and uncertainties, not presently known
to us, or that we currently see as immaterial, may also occur or become material. If any of the following risks or any additional
risks and uncertainties actually occur or become material, our business, financial condition and results of operations could
be seriously harmed. In that event, the market price of our common stock could decline, and our stockholders could lose all
or a portion of the value of their investment in our common stock.
Risks Related to the Company’s Industry and Business
A significant or prolonged economic downturn, could have, a material adverse effect on our results of operations.
Our results of operations are affected by the level of business activity of our customers and licensees, which in turn are
affected by the level of consumer demand for their products. A significant or prolonged economic downturn may adversely
affect the disposable income of many consumers and may lower demand for the products we produce for our private-label
contract manufacturing customers and products sold or manufactured by others using our licensed patent rights. Any decline
in economic conditions in the U.S. and the various foreign markets in which our customers operate could negatively impact
our customers’ businesses and our operations. A significant decline in consumer demand and the level of business activity of
our customers, even if only due in part to general economic conditions, could have a material adverse effect on our revenues
and profit margins.
Risks related to global economic instability, including global supply chain issues, inflation and fuel and energy costs may
affect the Company's business.
In February 2022, armed conflict escalated between Russia and Ukraine. Management is monitoring the conflict in Ukraine
and any broader economic effects from the crisis. Although Russia and Ukraine did not account for any of our net sales in
FY 2024 or FY 2023, economic sanctions and export control measures by the U.S. and European Union against Russia have
resulted in increased volatility in the availability and prices of raw materials that are produced in that region. There are further
concerns regarding continued supply chain disruptions, consumer purchasing and consumption behavior, increases in global
shipping expenses, greater volatility in foreign exchange and interest rates, increased energy costs, and other unforeseen
business disruptions due to the current global geopolitical tensions, including relating to Ukraine. Additionally, escalation by
Russia in Ukraine or elsewhere in Europe could adversely affect our European operations. We will continue to evaluate
impacts of the conflict on our customers, suppliers, employees, and operations.
In October 2023, armed conflict escalated between Israel and Hamas. Management is monitoring the conflict in Israel and
Gaza and any broader economic effects from the crisis. Israel accounts for a small portion of our global net sales, but we also
source multiple raw materials that come from Israel. While we do not anticipate this conflict will have a significant impact
on our net sales, we have been communicating with our customers and suppliers who may be impacted by this conflict, and
we are evaluating options for alternative ingredient sources and/or holding safety stock of impacted materials to limit the
effect this conflict may have on our ability to obtain the ingredients sourced from this region.
These conflicts have created market uncertainty and volatility recently and this has negatively affected many industries,
including the dietary supplement industry. Global financial conditions remain subject to sudden and rapid destabilizations in
response to economic shocks. A slowdown in the financial markets or other economic conditions including but not limited to
global supply chain issues, inflation, fuel and energy costs, lack of available credit, the state of the financial markets, interest
rates and tax rates, may adversely affect our growth. Future economic shocks may be precipitated by a number of causes,
including a continued rise in the price of oil and other commodities, the volatility of raw material prices, geopolitical
instability, terrorism, pandemics, the devaluation and volatility of global stock markets and natural disasters. Any sudden or
rapid destabilization of global economic conditions could adversely impact our ability to obtain equity or debt financing in
the future on terms favorable to us or at all. In such an event, our operations and financial condition could be adversely
impacted.
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Prices and availability of commodities consumed or used in connection with raw materials we purchase or the operation of
our manufacturing facilities, such as natural gas, diesel, oil and electricity, also fluctuate, and these fluctuations affect the
costs of operations. These fluctuations can be unpredictable, can occur over short periods of time and may have a material
adverse impact on our operating costs or the timing and costs of various projects. Over the past several years, the United
States, and many other countries, have experienced significant volatility related to inflationary factors. These factors have
impacted all aspects of manufacturing operations, including increased costs of labor, utilities, materials, supplies, etc. While
we continue to evaluate cost reduction opportunities, including working with both suppliers and customers, to attempt to
mitigate the impact of these higher operational costs, there can be no assurance our efforts will result in an offset of such
increases or when inflation will return to more reasonable levels.
Our industry is highly competitive, and we may be unable to continue to compete effectively. Increased competition could
adversely affect our financial condition.
The market for our products, and those of our customers, is highly competitive. Some of our competitors are larger than we
are and have greater financial resources and broader name recognition than we do. Our competitors may be able to devote
greater resources to research and development, marketing and other activities that could provide them with a competitive
advantage. Our market has relatively low entry barriers and is highly sensitive to the introduction of new products that may
rapidly capture significant market share. Our competitors may not stress the level of quality we provide and could manufacture
with a lower level of quality at lower costs. Our competitors are largely private and not subject to the same disclosure
requirements as a publicly traded company. If consumers do not perceive higher quality as worth a higher price, our revenue
could suffer. Increased competition could result in price reductions, reduced profit margins or loss of market share, any of
which could have a material adverse effect on our financial condition and results of operations. There can be no assurance
we will be able to compete effectively in this intensely competitive environment.
Our business is subject to the effects of adverse publicity, which could negatively affect our sales and revenues.
Our business can be affected by adverse publicity or negative public perception about us, our competitors, our customers, our
products, or our industry and competitors generally. Adverse publicity may include publicity about the nutritional
supplements industry generally, the efficacy, safety and quality of nutritional supplements and other health care products or
ingredients in general or our products or ingredients specifically, and regulatory investigations, regardless of whether these
investigations involve us or the business practices or products of our competitors, or our customers. Any adverse publicity or
negative public perception could have a material adverse effect on our business, financial condition and results of operations.
Our business, financial condition and results of operations could be adversely affected if any of our products or any similar
products distributed by other companies are alleged to be or are proved to be harmful to consumers or to have unanticipated
and unwanted health consequences.
Risks Related to Operations, Manufacturing, and Technology
If we are unable to attract and retain qualified management personnel, and key manufacturing personnel, our business
may suffer.
Our executive officers and other management personnel are primarily responsible for managing our day-to-day operations.
We believe our success depends largely on our ability to attract, retain and motivate highly qualified management and key
manufacturing personnel. Competition for qualified individuals can be intense and has been increasing in recent years. We
may not be able to hire additional qualified personnel in a timely manner or on terms that would not substantially increase
our costs. Any inability to retain a skilled professional management team and manufacturing team could adversely affect our
ability to successfully execute our business strategies and achieve our goals and objectives.
Our manufacturing and third party fulfillment activities are subject to certain risks.
We manufacture the majority of our products at our manufacturing facilities in California and Switzerland. As a result, we
are dependent on the uninterrupted and efficient operation of these facilities. Our manufacturing operations, including those
of our suppliers, are subject to power failures, blackouts, border shutdowns, telecommunications failures, computer viruses,
cybersecurity vulnerabilities, human error, breakdown, failure or substandard performance of our facilities, our equipment,
the improper installation or operation of equipment, terrorism, pandemics (e.g. COVID-19), natural or other disasters,
intentional acts of violence, and the need to comply with the requirements or directives of governmental agencies, including
but not limited to the FDA. In addition, we may in the future determine to expand or relocate our facilities, which may result
in slowdowns or delays in our operations. While we have implemented and regularly evaluate various emergency,
contingency and disaster recovery plans and we maintain business interruption insurance, there can be no assurance the
occurrence of these or any other operational problems at our facilities in California or Switzerland would not have a material
12
adverse effect on our business, financial condition and results of operations. Furthermore, there can be no assurance our
contingency plans will prove to be adequate or successful if needed or our insurance will continue to be available at a
reasonable cost or, if available, will be adequate to cover any losses that we may incur from an interruption in our
manufacturing and distribution operations. We recently opened a new warehouse and distribution facility in Carlsbad,
California, and converted it into a dedicated high-volume powder blending and packaging facility while also providing
additional raw material storage capacity. There can be no assurance we will be successful in obtaining additional facility
certifications that may be necessary to attract new customers or that we will obtain sufficient business through our on-going
sales efforts to effectively utilize the facility and our investment therein.
We outsource our beta-alanine fulfillment and distribution activities as well as certain manufacturing activities. The operation
of the third party service provider’s facilities is subject to the interruption risk and other risks similar to those described above
for our facilities and there can be no assurance these interruptions or any other operational problem at such third party’s
facilities would not have a material adverse effect on our business, financial condition and results of operations.
If we or our private-label contract manufacturing customers expand into additional markets outside the U.S. or our or
their sales in markets outside the U.S. increase, our business could become increasingly subject to political, economic,
regulatory and other risks in those markets, which could adversely affect our business.
Our future growth may depend, in part, on our ability and the ability of our private-label contract manufacturing customers,
to expand into additional markets outside the U.S. or to improve sales in markets outside the U.S. There can be no assurance
we or such customers will be able to expand in existing markets outside the U.S. or enter new markets on a timely basis, or
that new markets outside the U.S. will be profitable. There are significant regulatory and legal barriers in markets outside the
U.S. that must be overcome to enter and operate in such markets. We are subject to the burden of complying with a wide
variety of national and local laws, including multiple and possibly overlapping or conflicting laws. We may also experience
difficulties adapting to new cultures, business customs and legal systems. Our sales and operations outside the U.S. are subject
to political, economic and social uncertainties including, among others:
•
import and export controls;
•
custom duties and tariffs;
•
government regulations and laws;
•
coordination of geographically separated locations;
•
absence in some jurisdictions of effective laws to protect our intellectual property rights;
•
changes in currency exchange rates;
•
economic and political instability; and
•
currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate
profits to the U.S.
Any changes related to these, and other factors could adversely affect our business, profitability and growth prospects. If we
or our customers expand into additional markets outside the U.S. or improve sales in markets outside the U.S., these and other
risks associated with operations outside the U.S. will likely increase.
The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion
could adversely affect the results of our operations.
We buy our raw materials from a limited number of suppliers. During fiscal 2024 and fiscal 2023, one of our suppliers
represented more than 10% of our total raw material purchases. Additionally, we currently purchase all of our beta-alanine
for our CarnoSyn®, SR CarnoSyn® and TriBsyn™ products from a single manufacturer located in Japan. Any disruption in
their ability to source materials for or produce the amounts of beta-alanine needed to meet our requirements could have an
adverse effect on our business.
13
The loss of any of our major suppliers or of any supplier who provides us materials that are hard to obtain elsewhere at the
same quality could adversely affect our business operations. Although we believe we could establish alternate sources for
most of our raw materials, any delay in locating and establishing relationships with other sources could result in shortages of
products we manufacture from such raw materials, with a resulting loss of sales and customers. In certain situations, we may
be required to alter our products or with our customer’s consent to substitute different materials from alternative sources.
A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for those materials. We
have experienced increases in various raw material costs, transportation costs and the cost of petroleum-based raw materials
and packaging supplies used in our business. Increasing pricing pressures on raw materials and other products have continued
throughout fiscal 2024 as a result of limited supplies of various ingredients, and related inflationary factors, including higher
labor and transportation costs. We expect these upward pressures to continue through fiscal 2025. Although we may be able
to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices
sufficiently or quickly enough to offset the negative effects such cost increases could have on our results of operations or
financial condition.
There can be no assurance suppliers will provide the quality raw materials needed by us in the quantities requested or at a
price we are willing to pay. Because we do not control the actual production of these raw materials, we are also subject to
delays caused by interruption in production of materials including but not limited to those resulting from conditions outside
of our control, such as pandemics, weather, transportation interruptions, labor shortages, strikes, terrorism, natural disasters,
and other catastrophic events.
In addition, our efforts to maintain or increase sales of CarnoSyn®, SR CarnoSyn® and TriBsyn™ are substantially dependent
on the availability of the raw material beta-alanine and sales of beta-alanine or products incorporating beta-alanine. The
availability of beta-alanine, and thus sales of such raw material and products using such material, could be negatively
impacted by any shortages, interruptions and similar events described above, which could in turn adversely affect the amount
of revenue and profit margin we earn from the sale of beta-alanine.
Risks Related to Customer Concentration
Because we derive a significant portion of our revenues from a limited number of customers, our revenues would be
adversely affected by the loss of a major customer or a significant change in their business, personnel or the timing or
amount of their sales to their customers and their orders from us.
We have in the past and expect to continue to derive a significant portion of our revenues from a relatively limited number
of customers. During the fiscal year ended June 30, 2024, sales to our three largest customers were approximately 68% of
our consolidated net sales. We cannot predict with any certainty if sales to these customers will increase or decrease in the
future.
On August 16, 2023, we announced the temporary closure of our new high-speed powder processing facility in Carlsbad,
California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand.
We reopened this facility in May 2024 based on new orders received from this customer but there can be no certainty that
this, or any other customer, will not experience similar circumstances that require them to reduce or discontinue orders in the
future.
The loss of one of our largest customers, or other major customers, a significant decline in sales to any of our largest
customers, a significant change in their business model or personnel, or in their ability to make payments when due, could
materially and adversely affect our financial condition and results of operations. The timing of our customers’ orders is
impacted by, among other factors, their marketing programs, their customer demand, seasonality, their raw material suppliers
we are sometimes required to use, their supply chain management, their entry into new markets and their new product
introductions, all of which are outside of our control. All of these attributes have had and are expected to have a significant
impact on our business in the future.
Our future growth and stability depends, in part, on our ability to diversify our sales. Our efforts to establish new sales
from both existing customers and new customers could require significant initial investments, which may or may not result
in higher overall sales and improved financial results.
Our business strategy depends in large part on our ability to develop new product sales from both current and new customer
relationships. These activities often require a significant up-front investment including, among others, customized
formulations, compliance with different regulatory schemes, product registrations, package design, product testing, pilot
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production runs, and the build-up of initial inventory. We may experience significant delays from the time we increase our
operating expenses and make investments in inventory (incur additional related carrying costs) until the time we generate net
sales from new products or customers, and it is possible after incurring such expenditures we may not generate material
revenue from new products or customers. If we incur significant expenses and investments in inventory we are not able to
recover, and we are not able to compensate for those expenses, our operating results would be adversely affected.
We currently derive significant revenues and income from sales of beta-alanine and from licensing our patents. Our ability
to maintain or grow our sales of beta-alanine and license revenue from our other patents is contingent on our ability to
defend our patents, and commercialize the sale of beta-alanine under our instant release CarnoSyn® patents and
trademark, our sustained release SR CarnoSyn® patents and trademark, and our new TriBsyn™ trademark, and any
patents we may seek related to TriBysn™.
We own multiple patents and trademarks related to the use of beta-alanine in food and nutritional supplements. A majority
of our revenue and income from this segment is currently derived from activity related to licensing our patents and other
intellectual property associated with instant release beta-alanine, sold under our trade name CarnoSyn®. We have
one patent for this version of CarnoSyn®, which expires in 2026. Our patent and trademark licensing revenue decreased from
$8.7 million in fiscal 2023 to $8.4 million in fiscal 2024 in part due to increased volume rebates partially offset by increased
royalty income. There is no assurance we will be successful maintaining our historical CarnoSyn® instant release beta-alanine
sales levels or growing future sales volumes with our remaining CarnoSyn® instant release patent estate. If we are not
successful it could have a material adverse effect on our business, results of operations, and financial condition.
We believe SR CarnoSyn® and TriBsyn™ are superior delivery systems for CarnoSyn® beta-alanine as they allow for
increased daily dosing, improved muscle retention and bioavailability of carnosine. Our patents related to SR CarnoSyn®
extend through 2036, and we currently have patents pending for TriBsyn™ and believe the introduction of SR CarnoSyn®
beta-alanine and TriBsyn™ are an important step in the further commercialization of our patent estate. There can be no
assurance we will be successful in getting the market to accept these new forms of beta-alanine or that we will be successful
launching new products utilizing SR CarnoSyn® or TriBsyn™ beta-alanine.
Risks Related to Regulations
Our products and manufacturing activities are subject to extensive government regulation, which could limit or prevent
the sale of our products in some markets and could increase our costs.
The manufacturing, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to
regulation by numerous national and local governmental agencies in the U.S. and in other countries. For example, we are
required to comply with certain GMP’s and incur costs associated with the audit and certification of our facilities. Failure to
comply with governmental regulations may result in, among other things, injunctions, product withdrawals, recalls, product
seizures, fines, and criminal prosecutions. Any action of this type by a governmental agency could materially adversely affect
our ability to successfully market our products and services. In addition, if such governmental agency has reason to believe
the law is being violated (for example, if it believes we do not possess adequate substantiation for product claims), it can
initiate an enforcement action. Governmental agency enforcement could result in orders requiring, among other things, limits
on advertising, consumer redress, divestiture of assets, rescission of contracts, and such other relief as may be deemed
necessary. Violation of these orders could result in substantial financial or other penalties. Any action by a governmental
agency could materially adversely affect our ability and our customers’ ability to successfully market and continue selling
the products involved.
Before commencing operations or marketing our products in markets outside the U.S., we are routinely required to obtain
approvals, licenses, or certifications from a country’s ministry of health or comparable agency. Approvals or licensing may
be conditioned on reformulation of products or even may be unavailable with respect to certain products or product
ingredients. We must also comply with product labeling and packaging regulations that vary from country to country.
Furthermore, the regulations of these countries may conflict with those in the U.S. and with each other. The sale of our
products in certain European countries is subject to the rules and regulations of the European Union, which may be interpreted
differently among the countries within the European Union. The cost of complying with these various and potentially
conflicting regulations can be substantial and could adversely affect our results of operations.
During the recent COVID-19 pandemic, our operations were subject to additional laws and regulations imposed by federal,
state, and local governments primarily related to the ability of our employees to come to work and the safety measures that
needed to be in place in order for our facilities to remain operational. While we already had robust quality standards and
procedures, we had to constantly monitor these new regulations and implement additional procedures where necessary,
including at times temperature checks, additional cleaning procedures, allowing administrative personnel to work remotely,
15
etc. Recurrence of pandemic related regulations, or new or expanded regulations, or the reinstatement of pandemic
conditions, including any inability to continue qualifying as an essential business in the event of future government-imposed
lockdowns, could adversely affect our results of operations.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect
additional governmental regulations, when and if adopted, would have on our business. They could include new or revised
requirements or restrictions related to the safe operation of our facilities due to the pandemic, or for the reformulation of
certain products to meet new standards, the recall or discontinuance of certain products, additional compliance costs or record
keeping requirements, expanded or different labeling, and additional scientific substantiation. Any or all of these requirements
could have a material adverse effect on our operations.
Possible new tariffs on imported goods from China and elsewhere could adversely affect our business operations.
In recent years, the United States has implemented increased tariffs on a wide range of goods and materials imported from
China and other governments. These goods and materials may include products, applications, and ingredients we or our
customers require for their products, including beta-alanine. Our ability to maintain or increase CarnoSyn® sales and licensing
revenue depends on the availability of the raw material beta-alanine. China and other governments responded to the
implementation of tariffs by the United States by imposing their own tariffs on certain American products. Continuing or
increased tariffs could have a material adverse effect on our customer’s businesses, the availability of beta-alanine, and the
cost of other raw materials we use in our customer’s products. While it is difficult to predict whether or how existing and
additional potential tariffs will be imposed, or how tariffs will impact our business, we believe the imposition of additional
tariffs by the U.S. or other governments on products we or our customers offer for sale, or ingredients we use in the products
we manufacture could adversely impact our offerings and our customers, and could have an adverse impact on the availability
of raw materials we purchase including beta-alanine from Japan.
Such results could adversely impact our ability to license our patents and trademarks, our ability to sell beta-alanine, and our
customers’ ability to compete in the marketplace, resulting in reduced demand for our products, and products we manufacture
for our customers. Additional tariffs imposed by any government on beta-alanine could have an adverse impact on the price
we have to pay for beta-alanine and the availability of beta-alanine. Any of these events could have a material adverse effect
on our business and results of operations.
Risks Related to Litigation
We could be exposed to product liability claims or other litigation, which may be costly and could materially adversely
affect our operations.
We could face financial liability due to product liability claims if the use of our products results in significant loss or injury.
Additionally, the manufacture and sale of our products involves risk of injury to consumers from tampering by unauthorized
third parties or product contamination. We could be exposed to future product liability claims that include, among others,
assertions that: our products contain contaminants; we provide consumers with inadequate instructions about product use; or
we provide inadequate warning about side effects or interactions of our products with other substances. Even if we were to
prevail in any such claims, the cost of litigation and settlement could be significant.
We maintain product liability insurance coverage, including primary product liability and excess liability coverage. While
we expect to be able to continue our product liability insurance, there can be no assurance we will be able to continue such
insurance coverage, or such insurance coverage will be adequate to cover any liability we may incur, or our insurance policies
will continue to be available at a cost similar to our cost today, or even an economically reasonable cost.
Additionally, it is possible one or more of our insurers could exclude from our coverage certain ingredients used in our
products. In such event, we may have to stop using those ingredients or rely on indemnification or similar arrangements with
our customers who wish to continue to include those ingredients in their products. A substantial increase in our product
liability risk or the loss of customers or product lines, or the failure of a customer to honor indemnification agreements could
each have a material adverse effect on our results of operations and financial condition.
16
We may continue to incur significant costs in the course of creating and defending our intellectual property. We may be
unable to protect our intellectual property rights or may inadvertently infringe on the intellectual property rights of others.
We possess and may possess in the future certain proprietary technology, trade secrets, trademarks, trade names, licenses,
patents, and similar intellectual property. We may continue to incur significant patent and trademark litigation costs associated
with creating and defending our intellectual property. During fiscal 2024, we incurred approximately $0.2 million in patent
litigation and prosecution expense and expect these expenses to be between $0.1 million and $0.3 million during fiscal 2025.
There is no assurance we will be able to create new intellectual property, protect our existing intellectual property adequately
or that our intellectual property rights will be upheld. If as we have been in the past, we are again subject to legal proceedings
seeking to invalidate our patent rights, such proceedings or the success of the efforts thereby could have a material adverse
impact upon our financial condition and results of operations. Furthermore, the laws of certain foreign countries may not
protect our intellectual property rights to the same extent as do the laws of the U.S. Additional litigation in the U.S. or abroad
may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of
others or to defend against claims of infringement. Such litigation, even if ultimately determined in our favor, could result in
substantial additional costs and diversion of resources and could have a material adverse effect on our business, results of
operations and financial condition. If infringement claims are asserted against us, we may seek to obtain a license to use the
claiming third party’s intellectual property rights. There can be no assurance such a license would be available at all or
available on terms acceptable or favorable to us.
Risks Related to Insider Ownership and Corporate Structure
If certain provisions of our Certificate of Incorporation, Bylaws and Delaware law are triggered, the market for our shares
may decrease.
Certain provisions in our Certificate of Incorporation, Bylaws and Delaware corporate law may discourage unsolicited
proposals to acquire our business, even if such proposals would benefit our stockholders. Those provisions include one that
authorizes our Board of Directors, without stockholder approval, to issue up to 500,000 shares of preferred stock having such
rights, preferences, and privileges, including voting rights, as the Board of Directors designates. The rights of our common
stockholders 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. Any or all of these provisions could delay, deter or prevent a takeover of our company and could lower
the price investors are willing to pay for our common stock and the number of investors willing to own our common stock.
Collectively, our officers and directors own a significant amount of our common stock, giving them influence over
corporate transactions and other matters and potentially limiting the influence of other stockholders on important policy
and management issues.
Our officers and directors, together with their families and affiliates, beneficially owned approximately 21% of our
outstanding shares of common stock as of June 30, 2024. Approximately 16% of the outstanding shares of common stock are
beneficially owned by Mark LeDoux, and his family and affiliates. Mr. LeDoux is our Chief Executive Officer and Chairman
of the Board. As a result, our officers and directors, and in particular Mr. LeDoux, could influence such business matters as
the election of directors and approval of significant corporate transactions.
Various transactions could be delayed, deferred, or prevented without the approval of stockholders, including the following:
•
transactions resulting in a change in control;
•
mergers and acquisitions;
•
tender offers;
•
election of directors; and
•
proxy contests.
There can be no assurance that conflicts of interest will not arise with respect to the officers and directors who own shares of
our common stock or that conflicts will be resolved in a manner favorable to the Company or our other stockholders.
17
Risks Related to Future Acquisitions
We may pursue acquisitions of other companies that, if not successful, could adversely affect our business, financial
condition and results of operations.
We may pursue acquisitions of companies we believe could complement or expand our business, augment our market
coverage, provide us with important relationships or otherwise offer us growth opportunities. Acquisitions involve numerous
risks, including the following:
•
potential difficulties related to integrating the products, personnel and operations of an acquired company;
•
failure to operate efficiently as a combined organization utilizing common information and communication systems,
operating procedures, financial controls and human resources practices;
•
diverting management’s attention from other daily operations of the business;
•
entering markets in which we have no or limited prior direct experience and where competitors in such markets
have more experience and stronger market positions;
•
potential loss of key employees of an acquired company;
•
potential inability to achieve cost savings and other potential benefits expected from the acquisition;
•
an uncertain sales and earnings stream from an acquired company; and
•
potential impairment charges, which may be significant, against goodwill and purchased intangible assets acquired
in an acquisition due to changes in conditions and circumstances that occur after the acquisition, many of which
may be outside of our control.
There can be no assurance that acquisitions we may pursue will be successful. If we pursue an acquisition but are not
successful in completing it, or if we complete an acquisition but are not successful integrating an acquired company’s
employees, products or operations, our business, financial position or results of operations could be adversely affected.
General Risk Factors
We expect our operating results will vary. Fluctuations in our operating results may adversely affect the share price of
our common stock.
Our net sales decreased during fiscal 2024 as compared to fiscal 2023, and there can be no assurance our net sales will
improve in the near term, or we will earn a profit in any given year. We experienced a net loss in fiscal 2024 and may incur
losses in the future. Our operating results may fluctuate from year to year and/or from quarter to quarter due to various factors
including differences related to the timing of revenues and expenses for financial reporting purposes and other factors
described in this report. At times, these fluctuations may be significant. We currently anticipate we will experience a net loss
in the first half of fiscal 2025, net income in the second half of fiscal 2025, and we will break-even or have a slight profit for
the full year in fiscal 2025. Fluctuations in our operating results may adversely affect the share price of our common stock.
Our stock price could fluctuate significantly.
Stock prices in general can be volatile and ours is no different. The trading price of our stock may fluctuate in response to the
following, as well as other, factors including but not limited to factors outside of our control:
•
broad market fluctuations and general economic and/or political conditions;
•
fluctuations in our financial results;
•
relatively low trading volumes;
18
•
future offerings of our common stock or other securities;
•
the general condition of the nutritional supplement industry;
•
increased competition;
•
regulatory action;
•
adverse publicity;
•
manipulative or illegal trading practices by third parties; and
•
our and our customers’ and suppliers’ products and other public announcements.
The market for our stock has historically experienced significant price and volume fluctuations. There can be no assurance
that an active market in our stock will continue to exist or that the price of our common stock will not decline. Our future
operating results may be below the expectations of securities analysts and investors. If this were to occur, the price of our
common stock could decline, perhaps substantially.
From time to time our shares may be listed for trading on one or more foreign exchanges, with or without our prior knowledge
or consent. Certain foreign exchanges may have less stringent listing requirements, rules and enforcement procedures than
the Nasdaq Global Market or other markets in the U.S., and this may increase the potential for manipulative trading practices
to occur on such foreign exchanges. These practices, or the perception by investors that such practices could occur, may
increase the volatility of our stock price or result in a decline in our stock price, which in some cases could be significant.
We may not be able to raise additional capital or obtain additional financing if needed.
It is possible our cash from operations could become insufficient to meet our working capital needs and/or to implement our
business strategies. In such an event, there can be no assurance our existing line of credit would be sufficient to meet our
working capital needs. Furthermore, if we fail to maintain certain loan covenants, we may no longer have access to our credit
line. Under the terms of our credit facility, there are limits on our ability to create, incur or assume additional indebtedness
without the approval of our lender. Our credit line terminates in May 2025 and there is no guarantee we will be able to extend
or renew this credit line on favorable terms or at all.
We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to
refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional
funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences
and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative
to our earnings or to our equity capitalization, requiring us to pay additional interest expenses and potentially lowering our
credit ratings. At any given time, it could be difficult for us to raise capital due to a variety of factors, some of which may be
outside of our control, including a tightening of credit markets, overall poor performance of stock markets, and/or an
economic slowdown in the U.S. or other countries, or in the businesses of our customers. There is no assurance we would be
able to market such security issuances on favorable terms, or at all, in which case, if we did not have any alternate funds we
might not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities,
respond to competitive pressures or meet unanticipated customer requirements.
Our inability to raise additional capital or to obtain additional financing if needed could negatively affect our ability to
implement our business strategies and meet our goals. This, in turn, could adversely affect our financial condition and results
of operations.
19
ITEM 1C. CYBERSECURITY
Risk Management and Strategy
As part of our overall enterprise risk management function, we have implemented and currently maintain various information
security processes designed to identify, assess and manage material risks related to information technology, including
cybersecurity threats to our critical computer networks, third-party hosted services, and our critical data, (“Information
Systems”). Our Information Systems risk management process evaluates and mitigates cybersecurity risks in alignment with
our business objectives and operational needs.
We periodically engage third-party consultants and service providers to obtain an independent assessment regarding internal
efforts to prevent threats on our Information Systems. Continuous vigilance over safeguarding the Company’s Information
Systems have resulted in our current approach and these assessments are shared with our Audit Committee.
Technology
To mitigate the occurrence of an incident as defined by the Company’s formal documentation, which classifies and defines
the properties of potential threats, the Company has in place a host of defenses which include, but are not limited to, the use
of gateway consoles in all our global locations, limited access to key Information Systems from in-office networks or VPN
with multi-factor authentication by means of a third-party mobile identity management tool to limit access to authorized
users.
Process
Internally to manage potential cybersecurity threats, we have established an Incident Response Plan that is designed to control
the workflow of a reported incident. This plan formalizes incidence response stages such that reporting, identification, scope,
response, and recovery are executed in a timely manner and identifies the order and coordination of internal and external
communication. In addition, the Company addresses crisis management and business continuity with respect to Information
Systems to ensure reliable redundancy and recovery of backed-up databases.
Management is not aware of any material security breaches on its Information Systems and risks from cybersecurity threats
have not previously materially affected us. Because certain of our vendors have experienced cyberattacks in the past and the
threat and development of cyberattacks is continuous, it is impossible to say with certainty whether the Company’s efforts
will prevail in a coordinated attack on its Information Systems. We currently do not expect the risks from cybersecurity
threats are reasonably likely to materially affect us, including our business, strategy, results of operations or financial
condition. For additional information about cybersecurity risks, see Item 1A. “Risk Factors.”
Governance
Role of the Board
The Audit Committee of our Board of Directors (the “Board”) has the responsibility for the oversight of risk management,
including those risks related to cybersecurity. The Board holds strategic planning sessions with senior management to discuss
strategies, key challenges, risks and opportunities for mitigation. The involvement of our Board in setting our business
strategy is a key part of its oversight of risk management, its assessment of management’s appetite for risk, and its
determination of what constitutes an appropriate level of risk for us. Our senior management attends meetings of our Board
and its committees on a quarterly basis, and as otherwise needed, and are available to address any questions or concerns
raised by our Board on risk management and any other matters.
Role of Management
Our senior management, with the oversight of the Board, is responsible for the day-to-day management of the material risks
the Company faces, including those related to cybersecurity. We believe it is important to work at all levels of the Company’s
hierarchy to manage cybersecurity risks and threats. Therefore, all users must use an online IT ticketing system, which is
monitored around the clock, to report any incidences. Qualified individuals in IT determine what resources to allocate to each
case and escalation of an incident, if deemed necessary. The Systems Administrators and IT Director, who has more than 17
years of experience with the Company, communicates on a day-to-day basis with the Chief Financial Officer and
President/Chief Operating Officer who would bring any material cybersecurity issues to the attention of the Company’s Chief
Executive Officer and the Board.
20
ITEM 2. PROPERTIES
This table summarizes our facilities as of June 30, 2024. We believe our facilities are adequate to meet our operating
requirements for the foreseeable future.
Lease
Location
Nature of Use
Square
Feet
How
Held
Expiration
Date
Vista, CA USA(1),(2) Manufacturing, warehousing, packaging and distribution 162,000 Leased
August 2034
Manno, Switzerland(3) Manufacturing, warehousing, packaging and distribution 95,990 Leased December 2032
Manno, Switzerland(4) Warehousing
30,892 Leased December 2025
Carlsbad, CA USA(5) Corporate headquarters
20,981 Owned
N/A
Carlsbad, CA USA(6) Powder filling, packaging, distribution and storage
67,453 Owned
N/A
(1) This facility is used by NAI for its private-label contract manufacturing segment.
(2) At this facility we use approximately 93,000 square feet for production, 60,000 square feet for warehousing and 9,000
square feet for administrative functions. In July 2023, NAI executed an extension to the lease covering this facility
effective April 1, 2024 and extends the lease through August 31, 2034.
(3) This facility is used by NAIE in connection with our private-label contract manufacturing segment. In May 2022, NAIE
executed an extension to the lease covering this facility that is effective January 1, 2023 and extends the lease through
December 31, 2032.
(4) This facility is used by NAIE for additional warehouse storage.
(5) We purchased our Carlsbad, California corporate headquarters in March 2016.
(6) We acquired this facility in August 2021 and retrofitted it into a dedicated high-volume powder blending and packaging
facility with supplementary raw material storage. This facility became operational in April 2023; however, it
was temporarily closed in October 2023 due to a significant reduction in customer orders and subsequently reopened in
May 2024 to meet current capacity needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary
course of our business. These matters may relate to intellectual property, product liability, employment, tax, regulation,
contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if
such claims are without merit, could result in the expenditure of significant financial and managerial resources. While
unfavorable outcomes are possible, based on available information, we generally do not believe the resolution of these
matters, even if unfavorable, will result in a material adverse effect on our business, consolidated financial condition, or
results of operations. Our evaluation of the likely impact of these actions could change in the future and we could have
unfavorable outcomes we do not expect. An unexpected settlement expense or an unexpected unfavorable outcome of a matter
could adversely impact our results of operations.
As of September 27, 2024, neither NAI nor NAIE were a party to any material pending legal proceeding nor was any of our
property the subject of any material pending legal proceeding. We are currently involved in several matters in the ordinary
course of our business.
There is no assurance NAI will prevail in any litigation matters or that litigation expenses will not be greater than anticipated.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
21
PART II
ITEM 5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the Nasdaq Global Market under the symbol “NAII.” Below are the high and low sales prices
of our common stock as reported on the Nasdaq Global Market for each quarter of the fiscal years ended June 30, 2024 and
2023:
Fiscal 2024
Fiscal 2023
High
Low
High
Low
First Quarter ................................................................. $
7.62 $
5.06 $
12.60 $
8.38
Second Quarter ............................................................. $
7.37 $
5.78 $
9.84 $
7.04
Third Quarter ................................................................ $
6.98 $
5.65 $
10.12 $
7.95
Fourth Quarter .............................................................. $
7.26 $
6.00 $
9.44 $
6.97
Holders
As of September 25, 2024, there were 177 stockholders of record of our common stock. On that same date, the last sales price
of our common stock as reported on NASDAQ was $6.54 per share.
Dividends
We have never paid a dividend on our common stock, and we do not intend to pay a dividend in the foreseeable future. Our
current policy is to retain all earnings to provide funds for operations and future growth. Additionally, under the terms of our
credit facility, we are precluded from paying a dividend while such facility is in place without a waiver from our lender.
Recent Sales of Unregistered Securities
During the fiscal year ended June 30, 2024, we did not sell any unregistered securities.
Repurchases
During the fiscal year ended June 30, 2024, we did not repurchase any shares of our common stock other than shares acquired
from employees in exchange for our paying their withholding requirements upon vesting of restricted stock.
Equity Compensation Plan Information
The following table sets forth information regarding outstanding options and shares reserved for future issuance under our
existing equity compensation plans as of June 30, 2024:
Number of
Shares
Remaining
Available
Weighted-
for Future
Number of
Average
Issuance
Shares to be
Exercise
Under Equity
Issued Upon
Price of
Compensation
Exercise of
Outstanding
Plans (Excluding
Outstanding
Options,
Shares
Options,
Warrants,
Reflected in
Warrants,
and
Column
Plan Category
and Rights
Rights
(a))
(a)
(b)
(c)
Equity compensation plans approved by stockholders ...........
— $
—
182,877
Equity compensation plans not approved by stockholders .....
N/A
N/A
N/A
Total .......................................................................................
— $
—
182,877
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report.
22
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The following discussion and analysis is intended to help you understand our financial condition and results of operations as
of June 30, 2024 and 2023 and for each of the last two fiscal years then ended. You should read the following discussion and
analysis together with our audited consolidated financial statements and the notes to the consolidated financial statements
included under Item 8 in this report. Our future financial condition and results of operations will vary from our historical
financial condition and results of operations described below based on a variety of factors. You should carefully review the
risks described under Item 1A and elsewhere in this report, which identify certain important factors that could cause our
future financial condition and results of operations to vary.
Executive Overview
The following overview does not address all of the matters covered in the other sections of this Item 7 or other items in this
report or contain all of the information that may be important to our stockholders or the investing public. You should read
this overview in conjunction with the other sections of this Item 7, the financial statements and accompanying notes, and this
report.
Our primary business activity is providing private-label contract manufacturing services to companies that market and
distribute vitamins, minerals, herbs and other nutritional supplements, as well as other health care products, to consumers
both within and outside the U.S. Historically, our revenue has been largely dependent on sales to two or three private-label
contract manufacturing customers and subject to variations in the timing of such customers’ orders, which in turn is impacted
by such customers’ internal marketing programs, supply chain management, entry into new markets, new product
introductions, the demand for such customers’ products, and general industry and economic conditions. Our revenue also
includes raw material sales, royalty and licensing revenue generated from our patent estate pursuant to license and supply
agreements with third parties for the distribution and use of the ingredient known as beta-alanine sold under our CarnoSyn®
and SR CarnoSyn® trademarks.
A cornerstone of our business strategy is to achieve long-term growth and profitability and to diversify our sales base. We
have sought and expect to continue to seek to diversify our sales by developing relationships with additional, quality-oriented,
private-label contract manufacturing customers, and commercializing our patent estate through sales of beta-alanine under
our CarnoSyn® and SR CarnoSyn® trade names, royalties from license agreements, and potentially additional contract
manufacturing opportunities with licensees.
During fiscal 2024, our consolidated net sales were 26% lower than in fiscal 2023. Private-label contract manufacturing sales
decreased 27% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce
excess on-hand inventory, partially offset by increased shipments from other existing customers and shipments to new
customers. Sales were also negatively impacted by Euro to USD exchange rates. Our foreign currency exchange rates as
applied to sales denominated in Euro decreased to a weighted average of 1.09 EUR/USD in fiscal 2024 compared to a
weighted average of 1.13 EUR/USD in fiscal 2023. Revenue concentration from our largest private-label contract
manufacturing customer as a percentage of our total net sales was 42% in fiscal 2024, and revenue concentration from our
largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2023 was 40%.
During fiscal 2024, patent and trademark licensing revenue decreased 3% to $8.4 million as compared to $8.7 million for
fiscal 2023. The decrease in patent and trademark licensing revenue was primarily due to increased volume rebates partially
offset by increased royalty income.
We continue to invest in research and development for the expansion of our CarnoSyn® product offerings. We believe SR
CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets but acceptance of
this product offering has been limited as we only offer this product in tablet form. In August 2024, we announced our new
product called TriBsyn™. We believe TriBsyn™ may allow us to better penetrate the Wellness and Healthy Aging channel.
This groundbreaking new product is a carnosine booster that utilizes CarnoSyn® beta-alanine and other patent-pending
technology to increase beta-alanine bioavailability and absorption while effectively eliminating beta-alanine related
paresthesia. This product is available as a raw material powder, which allows formulation flexibility for our customers. The
elimination of paresthesia while maintaining efficacy of dosage creates a new opportunity to reach segments of the market
that to date have been untapped, including older adults, vegetarians, and vegans. We believe our efforts to refine our
formulations and product offerings will be positively received and result in significant opportunity for increased sales of our
patented products. We are also working on several additional innovations that could lead to new patentable products for
CarnoSyn® Brands in the future.
23
To protect and grow our CarnoSyn® product offerings, we incurred litigation and patent compliance expenses of
approximately $0.2 million during fiscal 2024 and $0.2 million during fiscal 2023. Our legal expense associated with our
CarnoSyn® business has remained low as we have no active litigation, and the current run-rate of expenses is primarily related
to maintenance of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and
licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine
marketed under our SR CarnoSyn® trademark and our new TriBsyn™ product, maintain our patent rights, the availability
and the cost of the raw material when and in the amounts needed, the ability to expand distribution of beta-alanine to new
and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and
other intellectual property rights. During fiscal 2025, we will continue our sales and marketing activities to consumers,
customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits
of utilizing CarnoSyn®, SR CarnoSyn® and TriBsyn™ beta-alanine products.
We experienced a loss during fiscal 2024 that was primarily due to a slowdown across our private-label contract
manufacturing segment. On August 16, 2023, we announced the temporary closure of our high-speed powder processing
facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance
supply and demand. We reopened this facility in May 2024. Although our overall sales forecast for fiscal 2025 includes a
significant increase in sales as compared to fiscal 2024, we currently anticipate we will experience a net loss in the first half
of fiscal 2025, net income in the second half of fiscal 2025, and we will break-even or have a slight profit for the full fiscal
2025 year.
During fiscal 2025, we plan to continue our focus on:
•
Leveraging our state-of-the-art, certified facilities to increase the value of the goods and services we provide to our
highly valued private-label contract manufacturing customers, and assist us in developing relationships with
additional quality-oriented customers;
•
Expanding the commercialization of our beta-alanine patent estate through raw material sales, developing a new
sales distribution channel under the Wellness and Healthy Aging category for our sustained release form of beta-
alanine marketed under our SR CarnoSyn® trademark, developing a market for our new TriBsyn™ beta-alanine
product, exploiting new contract manufacturing opportunities, license and royalty agreements, and protecting our
proprietary rights; and
•
Improving operational efficiencies and managing costs and business risks to improve profitability.
Discussion of Critical Accounting Estimates
We have identified the following as our most critical accounting estimates, which are those that are most important to the
portrayal of our financial condition and results, and that require management’s most subjective and complex judgments.
Information regarding our other significant accounting estimates and policies are disclosed in Note A, Organization and
Summary of Significant Accounting Policies, of the notes to the consolidated financial statements.
Revenue Recognition — Revenue is measured as the net amount of consideration expected to be received in exchange for
fulfilling one or more performance obligations. For certain contracts with volume rebates, our estimates of future sales used
to assess the volume rebate estimates are subject to a high degree of judgement and may differ from actual sales due to,
among other things, changes in customer orders and raw material availability.
24
Results of Operations
The following table sets forth selected consolidated operating results for each of the last two fiscal years, presented as a
percentage of net sales (dollars in thousands).
Fiscal Year Ended
June 30, 2024
June 30, 2023
Increase (Decrease)
Private-label contract
manufacturing ........................... $
105,358
93% $
145,294
94% $
(39,936)
(27)%
Patent and trademark licensing .....
8,438
7%
8,721
6%
(283)
(3)%
Total net sales ...............................
113,796
100%
154,015
100%
(40,219)
(26)%
Cost of goods sold ........................
106,931
94%
135,857
88%
(28,926)
(21)%
Gross profit ...................................
6,865
6%
18,158
12%
(11,293)
(62)%
Selling, general & administrative
expenses ....................................
15,399
14%
13,445
9%
1,954
15%
(Loss) income from operations .....
(8,534)
(7)%
4,713
3%
(13,247)
(281)%
Other loss, net ...............................
(930)
(1)%
(1,158)
(1)%
228
(20)%
(Loss) income before income
taxes ..........................................
(9,464)
(8)%
3,555
2%
(13,019)
(366)%
Provision for income taxes ...........
(2,247)
(2)%
1,033
1%
(3,280)
(318)%
Net (loss) income ......................... $
(7,217)
(6)% $
2,522
2% $
(9,739)
(386)%
Private-label contract manufacturing sales decreased 27% primarily due to reduced orders from several of our larger
customers associated with their continued efforts to reduce excess on-hand inventory, partially offset by increased shipments
to other existing customers and shipments to new customers. Sales were also negatively impacted by Euro to USD exchange
rates. Our foreign currency exchange rates as applied to sales denominated in Euro decreased to a weighted average of
1.09 EUR/USD in fiscal 2024 compared to a weighted average of 1.13 EUR/USD in fiscal 2023. Revenue concentration from
our largest private-label contract manufacturing customer as a percentage of our total net sales was 42% in fiscal 2024, and
revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in
fiscal 2023 was 40%.
Net sales from our patent and trademark licensing segment decreased 3% during fiscal 2024. The decrease in patent and
trademark licensing revenue was primarily due to increased volume rebates partially offset by increased royalty income.
The change in gross profit margin for the year ended June 30, 2024, was as follows:
Percentage
Change
Contract manufacturing(1) ........................................................................................................................
(6.9)
Patent and trademark licensing(2) .............................................................................................................
1.1
Total change in gross profit margin ...........................................................................................................
(5.8)
1
Private-label contract manufacturing gross profit margin contribution decreased 6.9 percentage points in fiscal 2024 as
compared to fiscal 2023. The decrease in gross profit as a percentage of sales for private-label contract manufacturing
is primarily due to unfavorable sales mix, lower sales, and increased per unit manufacturing costs. Per unit manufacturing
costs were negatively impacted by reduced sales resulting in our fixed costs being allocated over fewer production units
and carrying costs of our Carlsbad, California manufacturing plant that was closed beginning in October of fiscal 2024
and not re-opened until May of fiscal 2024, increased costs associated with higher labor rates, and increased rent and
utility costs.
2
During fiscal 2024, patent and trademark licensing gross profit margin contribution increased 1.1 percentage points as
compared to fiscal 2023. The increase in margin contribution during the year ended June 30, 2024 was primarily due to
increased patent and trademark licensing net sales in total as a percentage of total consolidated net sales, as patent and
trademark licensing historically provides higher profit margins than our private-label contract manufacturing business.
25
Selling, general and administrative expenses increased $2.0 million, or 15% to $15.4 million in fiscal 2024 as compared to
$13.5 million in fiscal 2023. Our fiscal 2023 expense included a $1.3 million benefit recorded related to our Employee
Retention Tax Credit filing and a $1.4 million bad debt recovery associated with a settlement we agreed to with a former
customer whose balance was written-off in a prior year while fiscal 2024 did not include any such items. Excluding the non-
recurring items, the remainder of selling, general and administrative expenses decreased in fiscal 2024 as compared to fiscal
2023 primarily due to a decrease in advertising, promotion, and sales commission expenses.
Other loss, net, decreased $0.2 million during fiscal 2024 as compared to fiscal 2023. The decrease is primarily associated to
an increase in interest income and a decrease in interest expense related to reduced usage of our line of credit in fiscal 2024.
We recorded an income tax benefit of $2.2 million during fiscal 2024 as compared to tax expense of $1.0 million in fiscal
2023. The change in our income tax provision between fiscal 2024 and 2023 is primarily driven by our pre-tax income
changing from income in fiscal 2023 to a loss in fiscal 2024, which was partially offset by a lower effective tax rate. The
decrease in the effective tax rate was primarily driven by decreases in Global Low-Taxed Intangible Income associated with
our Swiss operations and changes in apportionment allocation of income to state jurisdictions offset by an increase in available
business credits in the U.S.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of
borrowings under our credit facilities. Net cash used in operating activities was $1.5 million in fiscal 2024 compared to net
cash provided by operating activities of $7.0 million in fiscal 2023.
At June 30, 2024, changes in accounts receivable used $9.8 million in cash compared to providing $11.8 million in fiscal
2023. The increase in cash used by accounts receivable during fiscal 2024 primarily resulted from timing of sales and the
related collections. Days sales outstanding increased to 38 days during fiscal 2024 compared to 29 days during fiscal 2023,
primarily due to customer sales mix and timing of sales and the related collections.
Inventory provided $5.4 million in cash during fiscal 2024 compared to providing $2.8 million in fiscal 2023. The change in
cash activity from inventory was primarily related to the difference in the amount and timing of orders and anticipated sales
in fiscal year 2024 as compared to fiscal year 2023. Changes in accounts payable and accrued liabilities provided $5.4
million in cash during fiscal 2024 compared to using $8.6 million during fiscal 2023. The change in cash flow activity related
to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.
Cash used in investing activities in fiscal 2024 was $3.0 million compared to $13.5 million in fiscal 2023. The primary reason
for this change is due to reduced capital expenditures. Fiscal 2023 included residual capital improvement expenditures
associated with our new manufacturing and warehouse facility in Carlsbad, California that was completed in fiscal 2023.
Capital expenditures in fiscal 2024 included normal expenditures to support equipment and activities in our facilities in
California and Switzerland.
Cash provided in financing activities in fiscal 2024 was $2.9 million, compared to $1.8 million used in fiscal 2023. The
change in financing activities includes $3.4 million of outstanding short-term borrowing on our line of credit in fiscal
2024 offset by a reduction of stock repurchase activity which totaled $0.2 million in 2024 as compared to $1.5 million in
fiscal 2023.
At June 30, 2024, we had $12.0 million of borrowing capacity on our credit facility of which we had outstanding borrowings
of $3.4 million. We also owed $9.2 million on a term loan that was borrowed as part of the purchase of our new Carlsbad,
California manufacturing facility in August 2021. At June 30, 2023 we had no outstanding balances due and $20.0 million
available in connection with our line of credit. We also owed $9.5 million on a term loan that was borrowed as part of the
purchase of our new Carlsbad, California manufacturing facility in August 2021.
At June 30, 2024, we were in compliance with the financial and other covenants as modified by the Fourth Amendment to
our credit facility.
26
As of June 30, 2024, we had $12.0 million in cash and cash equivalents which was held by NAIE. Overall, we believe our
available cash, cash equivalents, potential cash flows from operations, and our line of credit will be sufficient to fund our
current working capital needs and capital expenditures through at least the next 12 months. We anticipate we will not be able
to comply with all of the covenants required under the modified Credit Agreement in the first half of fiscal 2025. We have
advised our lender and are currently negotiating a potential revised line of credit. There can be no assurance we will be able
to successfully complete the negotiation of a revised credit facility, or what the differences in amount, cost and other factors
may be. Please see Note F in Item 8 of this report for terms of our current modified line of credit.
Off-Balance Sheet Arrangements
As of June 30, 2024, we did not have any significant off-balance sheet debt nor did we have any transactions, arrangements,
obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons, in each
case that have or are reasonably likely to have a material current or future effect on our financial condition, changes in
financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of
revenue or expenses material to investors.
Inflation
During fiscal 2024, we experienced continued price increases for product raw material, and other increased operational costs
related to inflationary pressure though to a lesser degree than in fiscal 2023. We currently believe increasing raw material
and product cost pricing pressures will continue throughout fiscal 2025 as a result of limited supplies of various ingredients,
the effects of higher labor and transportation costs, interest rates, and global fuel and energy costs. We anticipate current
inflation rates will have a negative impact on our fiscal 2025 operations, and we are monitoring the drivers and working with
suppliers and customers to mitigate the impact on our results.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included under Note A in the notes to our consolidated financial
statements which are included under Item 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide Item 7A disclosure in this Annual Report.
27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Natural Alternatives International, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Natural Alternatives International, Inc. (the “Company”)
as of June 30, 2024 and 2023, and the related consolidated statements of operations and comprehensive (loss) income,
stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2024, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2024 and 2023, and
the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm
registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit
of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal
control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable
basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of this critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition—Refer to Note A to the Consolidated Financial Statements
Critical Audit Matter Description
The Company recognizes revenue upon transfer of control of promised products to customers in an amount that reflects the
consideration the Company expects to receive in exchange for those products. The Company is a party to certain customer
supply contracts that contain unique, customer-specific terms and conditions that result in variable consideration. For such
contracts, significant interpretation may be required to determine the contract terms, estimated amounts and timing of
recognition of variable consideration. Variable consideration includes volume-related and other discounts and pricing
concessions.
28
Our assessment of management’s evaluation of the above referenced matter related to proper revenue recognition is
significant to our audit because the amounts may potentially be material to the consolidated financial statements, the
assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in
this area is complex.
How the Critical Audit Matter Was Addressed in the Audit
Our principal audit procedures related to the Company’s revenue recognition for customer contracts that include variable
consideration included the following:
●
We evaluated the appropriateness of management’s revenue recognition policies.
●
We tested the mathematical accuracy of management’s calculations of revenue, including variable consideration,
and the associated timing of revenue recognized in the consolidated financial statements.
●
We identified customer contracts with variable consideration and performed the following procedures:
o
Obtained and read contracts and other source documents for each selection.
o
Tested management’s identification and treatment of the key contract terms, including performance obligations
and variable consideration.
o
Evaluated the appropriateness of management's application of the Company’s accounting policies, along with
their use of estimates, in the determination of revenue recognition in the proper amounts.
/s/ HASKELL & WHITE LLP
We have served as the Company’s auditor since 2014.
Irvine, California
September 27, 2024
29
Natural Alternatives International, Inc.
Consolidated Balance Sheets
As of June 30
(Dollars in thousands, except share and per share data)
2024
2023
Assets
Current assets:
Cash and cash equivalents ........................................................................................ $
11,981 $
13,604
Accounts receivable – less allowance for credit losses of $0 at June 30, 2024
sand $23 at June 30, 2023 .....................................................................................
16,891
7,022
Inventories, net .........................................................................................................
24,249
29,694
Income tax receivable ..............................................................................................
—
305
Forward contracts .....................................................................................................
492
390
Prepaids and other current assets..............................................................................
7,997
5,995
Total current assets ........................................................................................
61,610
57,010
Property and equipment, net ............................................................................................
52,211
53,841
Operating lease right-of-use assets ..................................................................................
43,537
20,369
Deferred tax asset, net – noncurrent ................................................................................
3,170
355
Other noncurrent assets, net ............................................................................................
1,814
2,577
Total assets .................................................................................................... $
162,342 $
134,152
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable ..................................................................................................... $
12,740 $
7,778
Accrued liabilities ....................................................................................................
2,847
2,409
Accrued compensation and employee benefits ........................................................
2,090
2,246
Customer deposits ....................................................................................................
302
317
Short-term liability – operating leases ......................................................................
1,194
2,448
Forward contracts .....................................................................................................
91
—
Income taxes payable ...............................................................................................
505
374
Mortgage note payable, current portion ...................................................................
296
312
Line of credit – current .............................................................................................
3,400
—
Total current liabilities ..................................................................................
23,465
15,884
Long-term liability – operating leases .............................................................................
46,468
18,965
Long-term pension liability .............................................................................................
141
339
Mortgage note payable, net of current portion ................................................................
8,933
9,205
Income taxes payable, noncurrent ...................................................................................
740
987
Total liabilities ...............................................................................................
79,747
45,380
Commitments and contingencies (Notes D, F, H, J and M)
Stockholders’ equity:
Preferred stock; $.01 par value; 500,000 shares authorized; none issued or
outstanding ...........................................................................................................
—
—
Common stock; $.01 par value; 20,000,000 shares authorized at June 30, 2024
and June 30, 2023, issued and outstanding (net of treasury shares) 6,200,185 at
June 30, 2024 and 6,073,813 at June 30, 2023 .....................................................
93
91
Additional paid-in capital .........................................................................................
32,634
31,436
Retained earnings .....................................................................................................
72,966
80,183
Treasury stock, at cost, 3,280,721 shares at June 30, 2024 and 3,240,593 at
June 30, 2023 ........................................................................................................
(23,076)
(22,855 )
Accumulated other comprehensive loss ...................................................................
(22)
(83 )
Total stockholders’ equity .............................................................................
82,595
88,772
Total liabilities and stockholders’ equity ....................................................... $
162,342 $
134,152
See accompanying notes to consolidated financial statements.
30
Natural Alternatives International, Inc.
Consolidated Statements of Operations and Comprehensive (Loss) Income
For the Years Ended June 30
(Dollars in thousands, except share and per share data)
2024
2023
Net sales .......................................................................................................................... $
113,796 $
154,015
Cost of goods sold ...........................................................................................................
106,931
135,857
Gross profit ......................................................................................................................
6,865
18,158
Selling, general and administrative expenses ..................................................................
15,399
14,869
Recoveries of uncollectible accounts receivable .............................................................
—
(1,424 )
(Loss) income from operations ........................................................................................
(8,534)
4,713
Other income (expense):
Interest income .........................................................................................................
176
33
Interest expense ........................................................................................................
(361)
(451 )
Foreign exchange loss ..............................................................................................
(652)
(658 )
Other, net ..................................................................................................................
(93)
(82 )
Total other expense .........................................................................................................
(930)
(1,158 )
(Loss) income before income taxes .................................................................................
(9,464)
3,555
(Benefit) provision for income taxes ...............................................................................
(2,247)
1,033
Net (loss) income ............................................................................................................ $
(7,217) $
2,522
Change in minimum pension liability, net of tax ............................................................ $
102 $
64
Unrealized loss resulting from change in fair value of derivative instruments, net of
tax ................................................................................................................................
(41)
(1,846 )
Comprehensive (loss) income ......................................................................................... $
(7,156) $
740
Net (loss) income per common share:
Basic ......................................................................................................................... $
(1.23) $
0.43
Diluted ...................................................................................................................... $
(1.23) $
0.43
Weighted average common shares outstanding:
Basic .........................................................................................................................
5,870,974
5,863,083
Diluted ......................................................................................................................
5,870,974
5,877,559
See accompanying notes to consolidated financial statements.
31
Natural Alternatives International, Inc.
Consolidated Statements of Stockholders’ Equity
For the Years Ended June 30
(Dollars in thousands)
Accumulated
Additional
Other
Common Stock Paid-in Retained
Treasury Stock Comprehensive
Shares Amount Capital Earnings Shares Amount Income (Loss) Total
Balance, June 30, 2022 ....................... 9,191,406 $
89 $
30,423 $ 77,661 3,061,795 $(21,352 ) $
1,699 $ 88,520
Issuance of common stock for
restricted stock grants ..................... 123,000
2
(2)
—
—
—
—
—
Compensation expense related to
stock compensation plans ...............
—
—
1,015
—
—
—
— 1,015
Repurchase of common stock ............
—
—
—
— 164,399 (1,503 )
— (1,503)
Forfeiture of restricted stock ..............
—
—
—
—
14,399
—
—
—
Change in minimum pension liability,
net of tax ........................................
—
—
—
—
—
—
64
64
Unrealized loss resulting from
change in fair value of derivative
instruments, net of tax ....................
—
—
—
—
—
—
(1,846) (1,846)
Net income .........................................
—
—
—
2,522
—
—
— 2,522
Balance, June 30, 2023 ....................... 9,314,406 $
91 $
31,436 $ 80,183 3,240,593 $(22,855 ) $
(83) $ 88,772
Issuance of common stock for
restricted stock grants ..................... 166,500
2
(2)
—
—
—
—
—
Compensation expense related to
stock compensation plans ...............
—
—
1,200
—
—
—
— 1,200
Repurchase of common stock ............
—
—
—
—
37,128
(221 )
—
(221)
Forfeiture of restricted stock ..............
—
—
—
—
3,000
—
—
—
Change in minimum pension liability,
net of tax ........................................
—
—
—
—
—
—
102
102
Unrealized loss resulting from change
in fair value of derivative
instruments, net of tax ....................
—
—
—
—
—
—
(41)
(41)
Net loss ..............................................
—
—
—
(7,217)
—
—
— (7,217)
Balance, June 30, 2024 ....................... 9,480,906 $
93 $
32,634 $ 72,966 3,280,721 $(23,076 ) $
(22) $ 82,595
See accompanying notes to consolidated financial statements.
32
Natural Alternatives International, Inc.
Consolidated Statements of Cash Flows
For the Years Ended June 30
(in thousands)
2024
2023
Cash flows from operating activities
Net (loss) income ............................................................................................................ $
(7,217) $
2,522
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating
activities:
Recoveries of uncollectible accounts receivable ......................................................
—
(1,424 )
Depreciation and amortization .................................................................................
4,647
4,250
Deferred income taxes ..............................................................................................
(2,907)
(974 )
Non-cash lease expenses ..........................................................................................
6,083
2,831
Non-cash compensation ...........................................................................................
1,200
1,015
Pension expense, net of contributions ......................................................................
46
81
Gain on disposal of assets ........................................................................................
—
(51 )
Changes in operating assets and liabilities:
Accounts receivable .................................................................................................
(9,869)
11,823
Inventories ................................................................................................................
5,445
2,781
Operating lease liabilities .........................................................................................
(3,003)
(2,134 )
Prepaids and other assets ..........................................................................................
(1,597)
(4,362 )
Accounts payable and accrued liabilities .................................................................
5,387
(8,606 )
Forward contracts .....................................................................................................
372
863
Income taxes ............................................................................................................
189
(169 )
Accrued compensation and employee benefits ........................................................
(273)
(1,427 )
Net cash (used in) provided by operating activities .........................................................
(1,497)
7,019
Cash flows from investing activities
Purchases of property and equipment ..............................................................................
(3,017)
(13,524 )
Proceeds from sale of property and equipment ...............................................................
—
57
Net cash used in investing activities ................................................................................
(3,017)
(13,467 )
Cash flows from financing activities
Borrowings on line of credit ............................................................................................
3,400
—
Repurchase of common stock ..........................................................................................
(221)
(1,503 )
Payments on long-term debt ............................................................................................
(288)
(278 )
Net cash provided by (used in) financing activities .........................................................
2,891
(1,781 )
Net decrease in cash and cash equivalents ......................................................................
(1,623)
(8,229 )
Cash and cash equivalents at beginning of year ..............................................................
13,604
21,833
Cash and cash equivalents at end of year ........................................................................ $
11,981 $
13,604
Supplemental disclosures of cash flow information
Cash paid during the year for:
Income taxes ............................................................................................................ $
463 $
1,842
Interest ...................................................................................................................... $
285 $
802
See accompanying notes to consolidated financial statements.
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Summary of Significant Accounting Policies
Organization
We provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs,
and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We
also seek to commercialize our patent and trademark estate related to the ingredient known as beta-alanine sold under our
CarnoSyn®, SR CarnoSyn® trademarks, and recently announced TriBsyn™ tradename through direct raw material sales and
various license and similar arrangements.
Subsidiaries
On January 22, 1999, Natural Alternatives International Europe S.A., a Swiss Corporation (NAIE) was formed as our wholly-
owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened a manufacturing facility and currently
possesses manufacturing capability in encapsulation, powders, tablets, finished goods packaging, quality control laboratory
testing, warehousing, distribution and administration.
Principles of Consolidation
The consolidated financial statements include the accounts of Natural Alternatives International, Inc. (NAI) and our wholly-
owned subsidiary, NAIE. All intercompany accounts and transactions have been eliminated. The functional currency of
NAIE, our foreign subsidiary, is the U.S. Dollar. Certain accounts of NAIE have been translated at either current or historical
exchange rates, as appropriate, with gains and losses included in the consolidated statements of operations.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit
Losses on Financial Instruments.” ASU 2016-13 introduced a novel approach to assessing impairments known as the "current
expected credit loss model" or "CECL." Unlike the previous standard, which focused on incurred losses, CECL centers on
anticipated losses. Under this framework, organizations are obligated to acknowledge an allowance corresponding to their
estimate of expected credit losses. The CECL model is applicable to a wide range of financial instruments, including debt
instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. We adopted
ASU 2016-13 effective July 1, 2023. The adoption of ASU 2016-13 did not materially impact our results of operations or our
financial statement presentation or related disclosures.
Recently Issued Accounting and Regulatory Pronouncements
In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, "Disclosure Improvements - Codification
Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative". ASU 2023-06 clarifies or improves
disclosure and presentation requirements on various disclosure areas, including the statement of cash flows, earnings per
share, debt, equity, and derivatives. The amendments will align the requirements in the FASB Accounting Standards
Codification (ASC) with the SEC’s regulations. The amendments in this ASU will be effective on the date the related
disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will not be effective if the SEC has not
removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. As we are currently subject to
these SEC requirements, this ASU is not expected to have a material impact on our Consolidated Financial Statements or
related disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment
Disclosures". This amendment improves reportable segment disclosure requirements, primarily through enhanced disclosures
about significant segment expenses. The amendments in ASU 2023-07 are effective for fiscal years beginning after December
15, 2023, with early adoption permitted. This ASU will be adopted in our fiscal 2025. We are currently evaluating the impact
of this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures".
The amendments in this update address investor requests for more transparency about income tax information through
improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This
update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in
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ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU will
be adopted in our first quarter of fiscal 2026. We are currently evaluating the impact of this standard; however, we do not
expect it to have a material impact on our Consolidated Financial Statements.
In March 2024, the SEC adopted rules under SEC Release No. 33-11275, "The Enhancement and Standardization of Climate-
Related Disclosures for Investors", which require a registrant to disclose information in annual reports and registration
statements about climate-related risks that are reasonably likely to have a material impact on its business, results of operations,
or financial condition. The information would include disclosure of a registrant's greenhouse gas emissions. In addition,
certain disclosures related to severe weather events and other natural conditions will be required in a registrant’s audited
financial statements. Annual disclosure requirements would be effective for the Company as early as the fiscal year beginning
July 1, 2027. However, in April 2024, the SEC voluntarily stayed the final rules pending certain legal challenges. It is presently
unclear what the nature and scope of these requirements may be when and if the stay is lifted. We are evaluating the impact
these anticipated types of rules may have on our record keeping and disclosures.
Employee Retention Tax Credit
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax
provisions and other stimulus measures, including the Employee Retention Tax Credit (“ERTC”). The Taxpayer Certainty
and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended the availability of the ERTC. Under
these expanded measures, we determined during fiscal 2023 that we qualified for the ERTC for the first three quarters of
calendar 2021 and filed amended payroll tax returns that are expected to result in a net refund of $3.5 million. Although we
don’t anticipate receiving the funds related to these amended returns until sometime in fiscal 2025, we recorded a receivable
and recognized a benefit for this amount in our Consolidated Statements of Operations and Comprehensive Income in fiscal
2023 by applying the loss recovery model as codified by Accounting Standards Codification (“ASC”) section 450
“Contingencies” that indicates that an asset related to a recovery should be recognized when the recovery is determined to be
probable. We recorded this benefit as a reduction to our payroll tax expense in the fiscal year 2023 with $2.2 million of the
benefit offsetting cost of goods sold and $1.3 million offsetting selling, general and administrative expenses.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit
price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants at the measurement date. We use a three-level hierarchy for inputs used in measuring fair value that maximizes
the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when
available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market
data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that
market participants would use in pricing the asset or liability and are developed based on the best information available under
the circumstances.
The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by
Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to
access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. The approximate fair value
of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to
the short-term nature of these items. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models
for which all significant inputs are observable or can be corroborated, either directly or indirectly by observable market data.
Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market
activity for the asset or liability. These include certain pricing models, discounted cash flow methodologies and similar
techniques that use significant unobservable inputs.
Except for cash and cash equivalents, as of June 30, 2024 and June 30, 2023, we did not have any financial assets or liabilities
classified as Level 1. We classify derivative forward exchange contracts as Level 2 assets and liabilities. The fair values were
determined by obtaining pricing from our bank.
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Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands):
June 30,
June 30,
2024
2023
Interest Swap – Other Current Assets ..................................................................... $
111 $
—
Euro Forward Contract– Current Assets .................................................................
492
250
Swiss Franc Forward Contract – Current Assets .....................................................
—
140
Total Derivative Contracts – Current Assets ...........................................................
603
390
Interest Swap – Other Noncurrent Assets ................................................................
—
532
Euro Forward Contract– Other Noncurrent Assets .................................................
78
15
Total Derivative Contracts – Other Noncurrent Assets ...........................................
78
547
Swiss Franc Forward Contract – Current Liabilities ...............................................
(91 )
—
Total Derivative Contracts – Current Liabilities .....................................................
(91 )
—
Fair Value Net Asset – all Derivative Contracts ..................................................... $
590 $
937
We also classify any outstanding line of credit and term loan balance as a Level 2 liability, as the fair value is based on inputs
that can be derived from information available in publicly quoted markets. As of June 30, 2024, we had $3.4 million
outstanding on our line of credit and $9.2 million outstanding on our term loan. As of June 30, 2023, we had no balance
outstanding on our line of credit and $9.5 million outstanding on our term loan. As of June 30, 2024, and June 30, 2023, we
did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between these
levels during fiscal 2023 or fiscal 2024.
Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and expected
future customer credit-worthiness. An allowance for estimated credit losses is maintained based on, but not limited
to, historical collection experience, current customer financial condition, current and future economic and market conditions,
and age of receivables to identify any customer credit issues. We monitor our expected collections regularly and adjust the
allowance for credit loss accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable
is uncollectible, we record the respective amount as a charge against allowance for credit losses. To date, such credit
loss reserves, in the aggregate, have been adequate to cover collection losses.
In December 2022, we entered into an agreement to settle the remaining outstanding balance with a former customer whose
accounts receivable balance was fully reserved in March 2020. As of the date of the agreement, the remaining amount due
from this customer was $3.4 million dollars and as part of the settlement, we agreed to a reduced amount of $1.4 million.
This reduced amount was paid based on an agreed upon payment schedule and if all payments are made as agreed the entire
balance will be considered paid in full. As of June 30, 2023, the former customer had made all scheduled payments totaling
$850,000, and we adjusted our accounts receivable reserve along with the corresponding accounts receivable balance such
that the amount in excess of the settlement amount was written-off and the reserve associated with the unpaid portion of the
settlement was no longer reserved for as of June 30, 2023. All remaining scheduled payments were received during fiscal
2024 and there are no outstanding amounts due from this former customer as of June 30, 2024.
Inventories
We operate primarily as a private-label contract manufacturer. We make products based upon anticipated demand or
following receipt of customer specific purchase orders. From time to time, we make inventory for private-label contract
manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or
canceled at the customer’s request. We value inventory at the lower of cost (first-in, first-out) or net realizable value on an
item-by-item basis, including costs for raw materials, labor and manufacturing overhead. We establish reserves equal to all
or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered.
This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and
obsolete inventory. Once we establish an inventory reserve in a fiscal period, the reduced inventory value is maintained until
the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or net realizable
value, management considers such factors as the amount of inventory on hand, the estimated time required to sell such
inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and
36
expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its
net realizable value.
Property and Equipment
We state property and equipment at cost. Depreciation of property and equipment is provided using the straight-line method
over their estimated useful lives, generally ranging from 1 to 39 years. We amortize leasehold improvements using the
straight-line method over the shorter of the useful life of the improvement or the term of the lease. Maintenance and repairs
are expensed as incurred. Significant expenditures that increase economic useful lives of property or equipment are capitalized
and expensed over the useful life of such expenditure.
Impairment of Long-Lived Assets
We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate
that the carrying amount of an asset may not be recovered. 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 exceeds 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. During fiscal 2024 and 2023, we recognized no impairment losses.
Derivative Financial Instruments
We may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our
forecasted sales denominated in Euros, our long-term lease liability denominated in Swiss Francs and our exposure to interest
rate fluctuations related to our term-note with Wells Fargo.
We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts. To the extent we use
derivative financial instruments that meet the relevant criteria, we account for them as cash flow hedges. Foreign exchange
derivative instruments that do not meet the criteria for cash flow hedge accounting are marked-to-market through the
Consolidated Statements of Operations and Comprehensive (Loss) Income. Historically, our cash flow derivative instruments
related to our Euro sales have met the criteria for hedge accounting, while our derivative instruments related to our long-term
lease liability have not.
We recognize any unrealized gains and losses associated with derivative instruments accounted for as cash flow hedges in
income in the period in which the underlying hedged transaction is realized. To the extent the derivative instrument is deemed
ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2024, we held derivative
contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted
sales of products at prices denominated in currencies other than the U.S. Dollar, which is primarily the Euro. As of June 30,
2024, the notional amounts of our foreign exchange contracts were $34.0 million (€30.8 million). These contracts will mature
over the next 15 months.
As of June 30, 2024, we held foreign currency contracts not designated as cash flow hedges primarily to protect against
changes in valuation of our long-term lease liability. As of June 30, 2024, the notional amounts of our foreign currency
contracts not designated as cash flow hedges were $11.9 million (CHF 10.5 million). These contracts will mature in the first
quarter of fiscal year 2025.
We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable
interest rate of 1.80% above the SOFR rolling 30-day average. To manage our exposure to this variable rate, on August 23,
2021, we entered into a floored interest rate swap that fixes our all-in rate on this loan to 2.4% for the first three years of the
term loan.
Defined Benefit Pension Plan
We formerly sponsored a defined benefit pension plan. Effective June 21, 1999, we adopted an amendment to freeze benefit
accruals to the participants. The plan obligation and related assets of the plan are presented in the notes to the consolidated
financial statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued based upon
third party market quotations. Independent actuaries, through the use of a number of assumptions, determine plan obligations
and annual pension expense. Key assumptions in measuring the plan obligations include the discount rate and estimated
future return on plan assets. In determining the discount rate, we use an average long-term bond yield. Asset returns are based
on the historical returns of multiple asset classes to develop a risk free rate of return and risk premiums for each asset class.
37
The overall rate for each asset class was developed by combining a long-term inflation component, the risk free rate of return
and the associated risk premium. A weighted average rate is developed based on the overall rates and the plan’s asset
allocation.
Revenue Recognition
We record revenue based on a five-step model which includes: (1) identifying a contract with a customer; (2) identifying the
performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price among the
performance obligations; and (5) recognizing revenue as each of the various performance obligations are satisfied.
Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling one or more
performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to
be received and revenue recognized includes estimates of variable consideration, including estimates for early payment
discounts, volume rebates, and contractual discounts. Such estimates are calculated using historical averages adjusted for any
expected changes due to current business conditions and experience. We review and update these estimates at the end of each
reporting period and the impact of any adjustments are recognized in the period the adjustments are identified. In assessing
whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay the
amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, which
is typically 30 days from the invoice date. Invoices are generally issued on the date of transfer of control of the products
ordered to the customer.
Revenue is recognized at the point in time that each of our performance obligations is fulfilled, and control of the ordered
products is transferred to the customer. This transfer occurs when the product is shipped, or in some cases, when the product
is delivered to the customer. We recognize revenue in certain circumstances before delivery to the customer has occurred
(commonly referred to as bill-and-hold transactions). Products sold under bill-and-hold arrangements are recorded as revenue
when risk of ownership has been transferred to the customer, but the product has not shipped due to a substantive reason,
typically at the customer’s request. The product must be separately identified as belonging to the customer, ready for physical
transfer to the customer, and we cannot have the ability to redirect the product to another customer.
We provide early payment discounts to certain customers. Based on historical payment trends, we expect that these customers
will take advantage of these early payment discounts. The cost of these discounts is reported as a reduction to the transaction
price. If the actual discounts differ from those estimated, the difference is also reported as a change in the transaction price.
We require prepayment from certain customers. We record any payments received in advance of contracts fulfillment as a
contract liability and classified as customer deposits on the consolidated balance sheet.
Contract liabilities and revenue recognized were as follows (in thousands):
June 30, 2023
Additions
Revenue
Recognized
Customer
Refunds
June 30, 2024
Contract Liabilities
(Customer Deposits) ..................... $
317 $
2,500 $
(2,515 ) $
— $
302
June 30, 2022
Additions
Revenue
Recognized
Customer
Refunds
June 30, 2023
Contract Liabilities
(Customer Deposits) ..................... $
140 $
317 $
(137 ) $
(3 ) $
317
Except for product defects, no right of return exists on the sale of our products. We estimate returns based on historical
experience and recognize a returns liability for any estimated returns. As of June 30, 2024, we have $0 in our returns reserve.
We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and
patent rights relate to the ingredient known as beta-alanine marketed and sold under our CarnoSyn® and SR CarnoSyn® trade
marks and our TriBysn™ tradename. We recorded beta-alanine raw material sales and royalty and licensing income as a
component of revenue in the amount of $8.4 million during fiscal 2024 and $8.7 million during fiscal 2023. These royalty
income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired
its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $0.3
million during fiscal 2024 and $0.3 million during fiscal 2023.
38
Cost of Goods Sold
Cost of goods sold includes raw material, labor, manufacturing overhead, royalty expense, shipping, and customer related
research and development costs.
Shipping and Handling Costs
We include fees earned on the shipment of our products to customers in sales and include costs incurred on the shipment of
product to customers in costs of goods sold.
Research and Development Costs
As part of the services we provide to our private-label contract manufacturing customers, we may perform, but are not
obligated to perform, certain research and development activities related to the development or improvement of their products.
While our customers typically do not pay directly for this service, the cost of this service is included as a component of the
price we charge to manufacture and deliver their products. We also direct and participate in clinical research studies, often in
collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for
product claims and marketing initiatives.
Research and development costs are expensed when incurred. Our research and development expenses for the last two fiscal
years ended June 30 were $1.9 million for fiscal 2024 and $2.1 million for fiscal 2023. These costs are included in selling,
general and administrative expenses and cost of goods sold.
Advertising Costs
We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed
advertising costs in the amount of $0.3 million during the fiscal year ended June 30, 2024 and $0.7 million during fiscal 2023.
These costs are included in selling, general and administrative expenses.
Income Taxes
To determine our annual provision for income taxes, we use an estimated annual effective tax rate that is based on annual
income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject. We
recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.
We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be
realized. 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 ultimately be realized based on whether future taxable income will be
generated during the periods in which those temporary differences become deductible. During the year ended June 30, 2024,
there was no change to our valuation allowance.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured and
recorded using enacted tax rates for each of the jurisdictions in which we operate, and adjusted using the 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 income or expense in the period that
includes the enactment date.
We account for uncertain tax positions using the more-likely-than-not recognition threshold. It is our policy to establish
reserves based on management’s assessment of exposure for certain positions taken in previously filed tax returns that may
become payable upon audit by tax authorities. Our tax reserves are analyzed quarterly, and adjustments are made as events
occur that we believe warrant adjustments to the reserves. Our practice is to recognize interest and/or penalties related to
income tax matters in income tax expense. As of June 30, 2024 and June 30, 2023, we did not record any tax liabilities for
uncertain tax positions.
Stock-Based Compensation
We had an omnibus equity incentive plan that was approved by our Board of Directors effective October 15, 2009, and
approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009 (the "2009 Plan"). The
2009 Plan expired on October 15, 2019. The Board of Directors approved a new omnibus equity incentive plan that became
effective January 1, 2021 (the “2020 Plan”), which was approved by our stockholders at the Annual Meeting of Stockholders
39
on December 4, 2020. Under the 2020 Plan, we may grant nonqualified and incentive stock options, restricted stock grants,
restricted stock units, stock appreciation rights, and other stock-based awards to employees, non-employee directors and
consultants.
We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The
Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. Option valuation models require the use of highly subjective assumptions. Black-
Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as
we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on
the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in
the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted
stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair
value of our stock awards to expense over the related vesting periods.
We recognize forfeitures as they occur.
Use of Estimates
Our management 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 U.S. generally accepted accounting principles (GAAP). Actual results could differ from those estimates and
our assumptions may prove to be inaccurate.
Net (Loss) Income per Common Share
We compute basic net (loss) income per common share using the weighted average number of common shares outstanding
during the year, and diluted net income per common share using the additional dilutive effect of all dilutive securities. The
dilutive impact of stock options and restricted shares account for the additional weighted average shares of common stock
outstanding for our diluted net income per common share computation. We calculated basic and diluted net (loss) income per
common share as follows (in thousands, except per share data):
For the Years Ended June 30,
2024
2023
Numerator
Net (loss) income ........................................................................................................ $
(7,217) $
2,522
Denominator
Basic weighted average common shares outstanding ..................................................
5,871
5,863
Dilutive effect of stock options and restricted stock shares.........................................
—
14
Diluted weighted average common shares outstanding ...............................................
5,871
5,878
Basic net (loss) income per common share ................................................................. $
(1.23) $
0.43
Diluted net (loss) income per common share .............................................................. $
(1.23) $
0.43
We exclude the impact of restricted stock from the calculation of diluted net loss per common share in periods where we have
a net loss or when their inclusion would be antidilutive. During the year ended June 30, 2024, we excluded 232,574 shares
of unvested restricted stock. For the year ended June 30, 2023 we excluded restricted stock totaling 60,497, as their impact
would have been anti-dilutive.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and
accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect
to receivables is primarily concentrated with our three largest customers, whose receivable balances collectively represented
72.6% of gross accounts receivable at June 30, 2024 and 47.4% at June 30, 2023.
Additionally, amounts due related to our beta-alanine raw material sales were 4.4% of gross accounts receivable at June 30,
2024 and 21.4% of gross accounts receivable at June 30, 2023. Concentrations of credit risk related to the remaining accounts
receivable balances are limited due to the number of customers comprising our remaining customer base.
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B. Inventories
Inventories, net, consisted of the following at June 30 (in thousands):
2024
2023
Raw materials .................................................................................................................. $
18,489 $
20,946
Work in progress .............................................................................................................
3,362
4,504
Finished goods.................................................................................................................
3,038
4,928
Reserves ..........................................................................................................................
(640)
(684 )
$
24,249 $
29,694
C. Property and Equipment
Property and equipment consisted of the following at June 30 (dollars in thousands):
Depreciable
Life
In Years
2024
2023
Land ...........................................................................................
NA
$
8,940 $
8,940
Building and building improvements .........................................
7 – 39
24,723
24,712
Machinery and equipment ..........................................................
3 – 12
43,631
41,460
Office equipment and furniture ..................................................
3 – 5
6,765
6,522
Vehicles ......................................................................................
3
237
227
Leasehold improvements ............................................................
1 – 20
23,223
22,641
Total property and equipment ....................................................
107,519
104,502
Less: accumulated depreciation and amortization ......................
(55,308)
(50,661)
Property and equipment, net .......................................................
$
52,211 $
53,841
Depreciation and amortization expense was approximately $4.6 million in fiscal 2024 and $4.3 million in fiscal 2023.
D. Leases
We currently lease our Vista, California and Lugano, Switzerland product manufacturing and support facilities. At the
inception of a contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the
contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit
from the use of the asset throughout the period of the contract, and (3) whether we have the right to direct the use of the asset
during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based
on its relative stand-alone price to determine the lease payments.
On July 18, 2023, we entered into a Fourth Amendment to the Lease of our Vista, California manufacturing facility. The
Fourth Amendment extends the term of the Lease by an additional ten years and five months commencing April 1, 2024. The
amended lease covering two buildings and approximately 162,000 square feet will result in an increase in base rent to $1.50
per square foot, after five free months of base rent beginning at the commencement of the extended term. NAI intends to
construct substantial improvements to the facilities including but not limited to installation of an approximately $2.3 million
solar electrical generating system on both buildings, and other substantial improvements. Pursuant to the Fourth Amendment,
the Landlord will reimburse NAI for up to $1.1 million of these tenant improvements to the buildings. Our lease liability and
right of use asset were both increased by approximately $25.9 million as a result of this lease extension effective on the date
that the Fourth Amendment was executed.
On January 26, 2024, we exercised the early termination of an apartment lease in Lugano, Switzerland. The early termination
reduced the lease term by 9 years and 8 months thus ending on April 30, 2024. Our lease liability and right of use asset were
both decreased by approximately $0.3 million as a result of the early termination of the lease agreement. On January 22, 2024,
we entered into a lease for a new apartment in Lugano, Switzerland. This lease is for an initial term of 27 months beginning
April 1, 2024 and ending on June 30, 2026.
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Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the
following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option
to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life
of the asset, or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease
is classified as an operating lease if it does not meet any of these criteria. Substantially all our operating leases are comprised
of payments for the use of manufacturing and office space. We have no leases classified as finance leases. As of June 30,
2024, the weighted average remaining lease term for our operating leases was 9.5 years. The weighted average discount rate
for our operating leases was 5.92%. As of June 30, 2023, the weighted average remaining lease term for our operating leases
was 5.3 years and the weighted average discount rate was 4.12%. The lease discount rate is determined as the rate of interest
that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments
in a similar economic environment.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset
represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease
payments under the lease.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus
any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-
of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments,
discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental
borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured
incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease
payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and
payments for early termination options unless it is reasonably certain the lease will not be terminated early. Certain leases
contain escalation clauses. Fixed escalation clauses are included in our calculation of right-of-use assets and operating lease
liabilities. Escalation clauses based on the CPI (Consumer Price Index) are not included in our calculation of right-of-use
assets and operating lease liabilities because they cannot be readily determined.
Some of our manufacturing leases contain variable lease payments, including payments based on an index or rate. Variable
lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and
separated into lease and non-lease components based on the initial amount stated in the lease or standalone selling prices.
Lease components are included in the measurement of the initial lease liability. Additional payments based on the change in
an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and
insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.
Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage
commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease
payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists
of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an
amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months
or less. The effect of short-term leases on our right-of-use asset, lease liability, and the short-term lease cost for the years
ended June 30, 2024 and 2023 was not material.
Other information related to leases was as follows (in thousands) for the year ended June 30,
Supplemental Cash Flows Information
2024
2023
Cash paid for amounts included in the measurement of operating lease liabilities ......... $
2,966 $
3,291
Net increase in operating lease liabilities and right-of-use assets due to lease
remeasurement .............................................................................................................
25,692
906
42
E. Other Comprehensive (Loss) Income
Other comprehensive (loss) income (“OCL” and “OCI”) consisted of the following at June 30 (dollars in thousands):
Year Ended June 30, 2024
Unrealized Unrealized
Gains
Gains
(Losses)
(Losses)
Defined
on
on
Benefit
Cash Flow
Swap
Pension Plan
Hedges
Derivative
Total
Balance as of June 30, 2023 ..................................... $
(380) $
(110 ) $
407 $
(83)
OCI/OCL before reclassifications ............................
88
538
(422)
204
Amounts reclassified from OCI ...............................
39
(92 )
—
(53)
Tax effect of OCI activity ........................................
(25)
(164 )
99
(90)
Net current period OCI/OCL ....................................
102
282
(323)
61
Balance as of June 30, 2024 ..................................... $
(278) $
172 $
84 $
(22)
Year Ended June 30, 2023
Unrealized Unrealized
Gains
Gains
(Losses)
(Losses)
Defined
on
on
Benefit
Cash Flow
Swap
Pension Plan
Hedges
Derivative
Total
Balance as of June 30, 2022 ..................................... $
(444) $
1,795 $
348 $
1,699
OCI/OCL before reclassifications ............................
8
538
79
625
Amounts reclassified from OCI ...............................
78
(3,086)
—
(3,008)
Tax effect of OCI activity ........................................
(22)
643
(20)
601
Net current period OCI/OCL ....................................
64
(1,905)
59
(1,782)
Balance as of June 30, 2023 ..................................... $
(380) $
(110) $
407 $
(83)
F. Debt
On May 24, 2021, we entered into a renewed credit facility with Wells Fargo Bank, N.A (“Wells Fargo”) to extend the
maturity of our working line of credit from November 1, 2022 to May 24, 2024. That credit facility provided total lending
capacity of up to $20.0 million and allowed us to use the credit facility for working capital as well as potential acquisitions.
On August 18, 2021, we entered into an amendment of that credit facility with Wells Fargo. The amended credit facility
added a $10.0 million term loan to the existing $20.0 million credit facility and permitted us to use the $10.0 million term
loan as part of the $17.5 million purchase consideration for the acquisition of our new manufacturing and warehouse property
in Carlsbad, California. The amended credit agreement also increased the allowed capital expenditures from $10.0 million to
$15.0 million for fiscal 2022, (exclusive of the amount paid for the acquisition of the new Carlsbad property noted above).
In addition, the revised credit notes reflected a change in the interest rate reference from London Interbank Offered
Rate (LIBOR) to Secured Overnight Financing Rate (SOFR). The Credit Agreement was amended and a new Revolving Line
of Credit Note and Security Agreement were entered into. A Term Note and real property security documents were added to
secure the Term Note by the Carlsbad property.
Subsequently we entered into a Second and Third Amendment that changed certain limits on our use of the line of credit.
43
On December 31, 2023, we were not in compliance with certain financial covenants, including those related to net income
requirements and the fixed charge coverage ratio. On February 13, 2024, we entered into a fourth amendment to our credit
facility with Wells Fargo that waived all prior instances of non-compliance, decreased our total borrowing capacity on the
line of credit to $12.5 million, increased the interest rate on borrowings under the line of credit to 2.25% from 1.29% above
the daily simple SOFR rate, modified our continuing compliance requirements, and reduced the uses we can fund with the
line of credit. Under the terms of the amended Credit Agreement, our new borrowing eligibility requirements including
maintaining (i) a ratio of total liabilities to tangible net worth of not greater than 1.50 to 1.0 at any time; (ii) limits our losses
to a decreasing amount over the next three quarters, with net income after taxes of not less than $1.00 by September 30, 2024;
(iii) a rolling four-quarter fixed charge coverage ratio not less than 1.25 to 1.0 as of December 31, 2024 and each quarter
thereafter. The Fourth Amendment includes a limitation on the amount of capital expenditures that can be made in a given
fiscal year, with such limitation set at $6.5 million, requires us to suspend share repurchase and dividend activity, and includes
an availability reserve of 10% that will be in place until we return to profitability. Any amounts outstanding under the line of
credit bear interest at a fixed or fluctuating interest rate as elected by us from time to time. Any amounts outstanding under
the line of credit must be paid in full on or before the maturity date which remains at May 23, 2025. Amounts outstanding
that are subject to a fluctuating interest rate may be prepaid at any time without penalty. Amounts outstanding that are subject
to a fixed interest rate may be prepaid at any time in minimum amounts of $100,000, subject to a prepayment fee equal to the
sum of the discounted monthly differences between payment under a fixed rate versus payment under the variable rate for
each month from the month of prepayment through the month in which the then applicable fixed rate term matures. There is
an unused commitment fee of 0.25% required as part of the line of credit, and an origination fee of 1% which we paid upon
execution of the Fourth Amendment.
The Term Note used as part of the purchase consideration of our powder processing and warehouse property in Carlsbad,
California referenced above, was for the original principal amount of $10.0 million, and is a seven-year term note with
payments fully amortized based on a twenty-five year assumed term. Installment payments under this loan commenced
October 1, 2021 and continue through August 1, 2028 with a final installment consisting of all remaining amounts due to be
paid in full on September 1, 2028. Amounts outstanding on this note during the term of the agreement bear interest equal to
1.8% above the SOFR rolling 30-day average. In connection with our term loan, we entered into an interest rate swap with
Wells Fargo that effectively fixes our interest rate on our term loan at 2.4% for the first three years of the term of the note.
Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general
intangibles, inventory, equipment and fixtures. We also have credit approval with Wells Fargo Bank, which allows us to
hedge foreign currency exposures up to 30 months in the future. We also have credit approval with Bank of America which
allows us to hedge foreign currency exposures up to 24 months in the future.
During fiscal year 2024, no interest expense was capitalized to building improvements as our facility in Carlsbad, California
was placed into service in April 2023. As of June 30, 2023, we capitalized $198,000 of interest expense to building
improvements.
As of June 30, 2024, we had $9.2 million outstanding under the Term Note used August 2021 for the purchase of our Carlsbad,
California powder processing and warehouse property. The future debt payments under the Term Note are as follows (in
thousands):
2025
2026
2027
2028
2029
Total
Future Debt Payments ......... $
296 $
305 $
315 $
325 $
7,988 $
9,229
On June 30, 2024, we were in compliance with all of the financial and other covenants required under the Amended Credit
Agreement. We anticipate we will not be able to comply with all of the covenants required under the Amended Credit
Agreement in the first half of fiscal 2025. We have advised the lender and are currently negotiating a potential revised credit
facility or waiver. There can be no assurance we will be able to successfully complete the negotiation of a revised credit
facility, or what the differences in amount, cost and other factors may be.
As of June 30, 2024, we had $3.4 million outstanding on our credit facility with Wells Fargo Bank. Our available borrowing
capacity under the amended terms of our amended credit facility was $12.0 million as of June 30, 2024.
44
G. Income Taxes
During fiscal 2024, we recorded U.S.-based domestic tax benefit of $2.2 million and negligible foreign tax benefit. During
fiscal 2023, we recorded U.S.-based domestic tax expense of $0.8 million and foreign tax expense of $0.2 million.
The following is a geographical breakdown of (loss) income before income taxes (in thousands):
2024
2023
United States ........................................................................................................ $
(9,046) $
2,588
Foreign .................................................................................................................
(418)
967
Total (loss) income before income taxes ..................................................................... $
(9,464) $
3,555
The (benefit) provision for income taxes for the years ended June 30 consisted of the following (in thousands):
2024
2023
Current:
Federal .................................................................................................................. $
(55) $
843
State ......................................................................................................................
41
211
Foreign .................................................................................................................
66
221
52
1,275
Deferred:
Federal ..................................................................................................................
(2,007)
(246)
State ......................................................................................................................
(223)
4
Foreign .................................................................................................................
(69)
—
(2,299)
(242)
Total (benefit) provision for income taxes .................................................................. $
(2,247) $
1,033
Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):
2024
2023
Deferred tax assets:
Inventory capitalization ........................................................................................ $
279 $
220
Inventory reserves ................................................................................................
148
164
Lease liability .......................................................................................................
8,497
2,018
Net operating loss carry forward ..........................................................................
1,505
433
Accrued compensation .........................................................................................
140
166
Capitalized research and experimentation ............................................................
694
412
Accrued contingent fee ........................................................................................
207
219
Stock-based compensation ...................................................................................
129
81
Forward contracts .................................................................................................
—
56
Tax credit carry forward .......................................................................................
682
229
Pension liability ....................................................................................................
67
103
Other, net ..............................................................................................................
215
88
Total gross deferred tax assets .....................................................................................
12,563
4,189
Deferred tax liabilities:
Withholding taxes ................................................................................................
(134)
(401)
Fixed assets ..........................................................................................................
(1,485)
(1,451)
Forward contracts .................................................................................................
(54)
—
Lease asset ............................................................................................................
(7,694)
(1,951)
Other, net ..............................................................................................................
(26)
(31)
Deferred tax liabilities ..........................................................................................
(9,393)
(3,834)
Net deferred tax assets ................................................................................................. $
3,170 $
355
45
As of June 30, 2024, the Company had U.S. federal net operating loss carryforwards of $4.6 million which may be carried
forward indefinitely. The Company has state net operating loss carryforwards of $6.6 million, which, if unutilized, will begin
to expire beginning in fiscal year 2031. The Company also has foreign net operating loss carryforwards of $0.3 million,
which, if unutilized, will begin to expire in fiscal year 2031. The Company has federal and state tax credits of $0.8 million,
which, if unutilized, will begin to expire in fiscal year 2041.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating
loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change
during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years
ended June 30, 2024 and June 30, 2023.
We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June
30, 2019 and forward are subject to examination by the U.S. tax authorities. Our tax years for the fiscal years ended June 30,
2018 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30,
2023 and forward are subject to assessment by the Swiss tax authorities.
NAIE’s effective tax rate for the fiscal year ended June 30, 2024 for Swiss federal, cantonal and communal taxes is
approximately 1%. This rate is lower than our historical effective rate for NAIE because NAIE recognized a pre-tax loss and
the calculated benefit for the year was mostly offset by a capital tax that is calculated based on net equity regardless of whether
the company recognized a profit or not.
As part of the Tax Cuts and Jobs Act of 2017 (the Tax Act), we were required to recognize a one-time deemed repatriation
transition tax during the fiscal year ended June 30, 2018 based on our total post-1986 earnings and profits (E&P) from our
Swiss subsidiary, NAIE. This accumulated E&P amount has historically been considered permanently reinvested thereby
allowing us to defer recognizing any U.S. income tax on the amount. We no longer consider undistributed foreign earnings
from NAIE as of December 31, 2017 as indefinitely reinvested. We consider earnings accumulated subsequent to December
31, 2017 as indefinitely reinvested.
For tax years commencing on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017, also eliminates the ability to
immediately deduct research and development costs. Instead, taxpayers are mandated to capitalize these expenses and
amortize them over five years for research conducted within the United States and 15 years for research conducted abroad,
as stipulated in IRC Section 174. There is ongoing consideration in Congress for legislation that may revoke or postpone this
capitalization and amortization requirement; however, there is no guarantee that this provision will undergo repeal or any
other form of modification. Should this requirement remain unchanged, it will result in a reduction of our tax deduction for
research and development expenses in the forthcoming years. During fiscal 2024, NAIE declared a dividend of $5.4 million
to NAI, which was paid in the first quarter of fiscal 2025. During fiscal 2023, NAIE declared and paid dividends to NAI in
the amount of $14.7 million. These amounts are part of the undistributed earnings that we recorded a one-time deemed
repatriation transition tax on in fiscal 2018 and therefore we did not recognize any additional tax on these dividends. However,
as part of these dividends, we were required to pay a 5% Swiss withholding tax totaling $0.3 million in fiscal 2024 and $0.7
million in fiscal 2023 which were also accrued for as part of the implementation of the Tax Act in fiscal 2018.
A reconciliation of our income tax (benefit) provision computed by applying the statutory federal income tax rate of 21% for
fiscal 2024 and for fiscal 2023 to net (loss) income before income taxes for the year ended June 30 is as follows (dollars in
thousands):
2024
2023
Income taxes computed at statutory federal income tax rate ....................................... $
(2,033) $
749
State income taxes, net of federal income tax expense ...............................................
(215)
90
Permanent differences .................................................................................................
(20)
8
Foreign tax rate differential .........................................................................................
131
18
Tax credits ...................................................................................................................
(170)
(347)
Stock based compensation ...........................................................................................
93
61
Global intangible low-taxed income (GILTI) .............................................................
—
355
Return to provision - differences .................................................................................
(33)
99
Income tax (benefit) provision as reported .................................................................. $
(2,247) $
1,033
Effective tax rate .........................................................................................................
(23.7)%
29.1%
We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.
46
H. Employee Benefit Plans
401(k) Plan
We have a profit-sharing plan pursuant to Section 401(k) of the Code, whereby participants may contribute a percentage of
compensation not in excess of the maximum allowed under the Code. Effective January 1, 2022, all employees are eligible
to participate in the plan the first of the month following 30 days of employment. Also effective, January 1, 2022, we match
100% of the first 5% of a participant’s compensation contributed to the plan under the 401(k) plan. The total contributions
under the plan charged to income from operations totaled $0.6 million for fiscal 2024 and $0.7 million for fiscal 2023.
Additionally, we have a discretionary profit-sharing plan pursuant to Section 401(k) of the Code, whereby we may contribute
an additional percentage of compensation. Employees are not required to contribute to the plan to receive the discretionary
profit-sharing contribution. We did not make any discretionary profit-sharing contributions in fiscal 2024 or in fiscal 2023.
We have a “Cafeteria Plan” pursuant to Section 125 of the Code, whereby health care benefits are provided for active
employees through insurance companies. Substantially all active full-time employees are eligible for these benefits. We
recognize the cost of providing these benefits by expensing the annual premiums, which are based on benefits paid during
the year. The premiums expensed to results from operations for these benefits totaled $1.4 million for the fiscal year ended
June 30, 2024 and $1.7 million for the fiscal year ended June 30, 2023.
Deferred Compensation Plan
Effective July 16, 2020, the Board of Directors approved and adopted a Non-Qualified Incentive Plan (the “Incentive Plan”).
Pursuant to the Incentive Plan, the Human Resources Committee and the Board of Directors may make deferred cash
payments or other cash awards (“Awards”) to directors, officers, employees and eligible consultants of NAI, (“Participants”).
These Awards are made subject to conditions precedent that must be met before NAI is obligated to make the payment. The
purpose of the Incentive Plan is to enhance the long-term stockholder value of NAI by providing the Human Resources
Committee and the Board of Directors the ability to make deferred cash payments or other cash awards to encourage
Participants to serve NAI or to remain in the service of NAI, or to assist NAI to achieve results determined by the Human
Resources Committee or the Board of Directors to be in NAI's best interest.
The Incentive Plan authorizes the Human Resources Committee or the Board of Directors to grant to, and administer,
unsecured and deferred cash Awards to Participants and to subject each Award to whatever conditions are determined
appropriate by the Human Resources Committee or the Board of Directors. The terms of each Award, including the amount
and any conditions that must be met to be entitled to payment of the Award are set forth in an Award Agreement between
each Participant and NAI. The Incentive Plan provides the Board of Directors with the discretion to set aside assets to fund
the Incentive Plan although that has not been done to date.
During the year ended June 30, 2024, we granted a total of $0.9 million in deferred cash awards to members of our Board of
Directors and certain key members of our management team. During the year ended June 30, 2023, we granted a total of $0.6
million in deferred cash awards to members of our Board of Directors and certain key members of our management team.
Each deferred cash award provides for three equal cash payments to the applicable Participant to be paid on the one year, two
year, and three year anniversaries of the date of the grant of such Awards, (the “Award Date”); provided on the date of each
payment (the “Payment Date”), the Participant has been since the Award Date, and continues to be through the Payment Date,
a member of our Board of Directors or an employee of NAI. In the event a Participant ceases to be an employee of NAI or a
member of our Board of Directors prior to any Payment Date, no further payments shall be made in connection with the
Award.
Defined Benefit Pension Plan
We formerly sponsored a defined benefit pension 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, we adopted an
amendment to freeze benefit accruals to the participants. Annually, we contribute an amount not less than the minimum
funding requirements of the Employee Retirement Income Security Act of 1974 nor more than the maximum tax-deductible
amount.
47
Disclosure of Funded Status
The following table sets forth the defined benefit pension plan’s funded status and amount recognized in our consolidated
balance sheets at June 30 (in thousands):
2024
2023
Change in Benefit Obligation:
Benefit obligation at beginning of year ................................................................... $
1,364 $
1,438
Interest cost ..............................................................................................................
49
46
Actuarial loss ...........................................................................................................
(39)
(29)
Benefits paid ............................................................................................................
—
(91)
Benefit obligation at end of year ................................................................................. $
1,374 $
1,364
Change in Plan Assets:
Fair value of plan assets at beginning of year .......................................................... $
1,025 $
1,094
Actual return on plan assets .....................................................................................
91
22
Employer contributions ...............................................................................................
116
—
Benefits paid ............................................................................................................
—
(91)
Fair value of plan assets at end of year ........................................................................ $
1,232 $
1,025
Reconciliation of Funded Status:
Difference between benefit obligation and fair value of plan assets ........................ $
(142) $
(339)
Unrecognized net actuarial loss in accumulated other comprehensive income .......
282
409
Net amount recognized ................................................................................................ $
140 $
70
Projected benefit obligation ......................................................................................... $
1,374 $
1,364
Accumulated benefit obligation .................................................................................. $
1,374 $
1,364
Fair value of plan assets .............................................................................................. $
1,232 $
1,025
The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension
plan was 5.28% for the year ended June 30, 2024 and 4.89% during the year ended June 30, 2023.
Net Periodic Benefit Cost
The components included in the defined benefit pension plan’s net periodic benefit expense for the fiscal years ended June 30
were as follows (in thousands):
2024
2023
Interest cost .............................................................................................................. $
49 $
46
Expected return on plan assets .................................................................................
(42)
(42)
Recognized actuarial loss .........................................................................................
39
50
Settlement loss .........................................................................................................
-
27
Net periodic benefit expense ....................................................................................... $
46 $
81
In the fiscal year ended June 30, 2024, we contributed $0.1 million to our defined benefit pension plan, and in the fiscal
year ended June 30, 2023, we did not contribute to the plan.
The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income
(loss) (in thousands):
2024
2023
Net loss ................................................................................................................. $
(88) $
(8)
Settlement loss .....................................................................................................
—
(28)
Amortization of net loss .......................................................................................
(39)
(50)
Total recognized in other comprehensive loss ............................................................ $
(127) $
(86)
Total recognized in net periodic benefit cost and other comprehensive loss ............... $
(81) $
(5)
The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive
income into net periodic benefit cost over the next fiscal year is approximately $24,000. We do not have any transition
obligations or prior service costs recorded in accumulated other comprehensive income.
48
The following benefit payments are expected to be paid (in thousands):
2025 ............................................................................................................................................................. $
1,009
2026 .............................................................................................................................................................
13
2027 .............................................................................................................................................................
101
2028 .............................................................................................................................................................
29
2029 .............................................................................................................................................................
32
2030-2034 ...................................................................................................................................................
199
Total benefit payments expected to be paid ................................................................................................ $
1,383
The weighted-average rates used for the years ended June 30 in determining the defined benefit pension plan’s net pension
costs, were as follows:
2024
2023
Discount rate ...............................................................................................................
5.28%
4.89%
Expected long-term rate of return ................................................................................
6.70%
6.24%
Compensation increase rate .........................................................................................
N/A
N/A
Our expected rate of return is determined based on a methodology that considers historical returns of multiple classes analyzed
to develop a risk-free real rate of return and risk premiums for each asset class. The overall rate for each asset class was
developed by combining a long-term inflation component, the risk-free real rate of return, and the associated risk premium.
A weighted average rate was developed based on those overall rates and the target asset allocation of the plan.
Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were
as follows:
Target
2024
2023
Allocation
Equity securities ..........................................................................
72%
64%
53%
Debt securities .............................................................................
14%
14%
41%
Commodities ...............................................................................
0%
12%
4%
Cash alternatives .........................................................................
14%
10%
2%
100%
100%
100%
The underlying basis of the investment strategy of our defined benefit pension plan is to ensure that pension funds are
available to meet the plan’s benefit obligations when due. Our investment strategy is a long-term risk controlled approach
using diversified investment options with relatively minimal exposure to volatile investment options like derivatives.
The fair values by asset category of our defined benefit pension plan at June 30, 2024 were as follows (in thousands):
Quoted
Prices in
Active
Markets for Significant Significant
Identical Observable Unobservable
Assets
Inputs
Inputs
Total
(Level 1) (Level 2)
(Level 3)
Equity securities(1) .............................................................. $
889 $
889 $
— $
—
Debt securities(2) ................................................................. $
173 $
173 $
— $
—
Cash alternatives(3) .............................................................. $
170 $
170 $
— $
—
Total ........................................................................... $
1,232 $
1,232 $
— $
—
(1) This category is comprised of publicly traded funds of which 72% are U.S. large-cap funds, 24% emerging market
funds, and 4% non-U.S. developed market funds.
(2) This category is comprised of publicly traded funds, of which 77% are U.S. fixed income funds and 23% are corporate
fixed income funds.
(3) This category is comprised of money market funds.
49
I. Stockholders’ Equity
Treasury Stock
On September 18, 2020, the Board of Directors authorized a $2.0 million increase to our stock repurchase plan (“Repurchase
Plan”), thus bringing the total authorized repurchase amount to $12.0 million. On March 12, 2021, the Board of Directors
authorized an additional $3.0 million increase to the Repurchase Plan, thus bringing the total authorized repurchase amount
to $15.0 million. On January 14, 2022, the Board of Directors authorized an additional $3.0 million increase to the Repurchase
Plan, thus bringing the total authorized repurchase amount to $18.0 million. Under the Repurchase Plan, we may, from time
to time, purchase shares of our common stock, depending upon market conditions, in open market or privately negotiated
transactions. The Fourth Amendment to the Credit Agreement with Wells Fargo effective February 13, 2024, currently
prohibits most stock repurchases (see Note F). As a result, until that restriction is modified or removed, we do not intend to
purchase our shares other than our longstanding practice of purchasing shares from our employees in exchange for paying
the employees’ withholding tax requirements upon vesting of restricted stock held by the employee.
Treasury Stock repurchases for the year ended June 30, 2024 were as follows:
Shares
Average Cost
Total Cost
(in thousands)
Shares purchased under Repurchase Plan ....................................
— $
— $
—
Shares acquired from employees for restricted stock vesting .......
37,128
5.96
221
Total .............................................................................................
37,128
$
221
Treasury Stock repurchases for the year ended June 30, 2023 were as follows:
Shares
Average Cost
Total Cost
(in thousands)
Shares purchased under Repurchase Plan ....................................
140,812 $
9.19 $
1,294
Shares acquired from employees for restricted stock vesting .......
23,587
8.86
209
Total .............................................................................................
164,399
$
1,503
Treasury stock repurchase costs include commissions and fees.
Shares acquired from employees for restricted stock vesting were returned to us by the related employees and in return we
paid each employee’s required tax withholding resulting from the vesting of restricted shares. The valuation of the shares
acquired and thereby the number of shares returned to us was calculated based on the closing share price on the date the
shares vested.
Stock Incentive Plans
For the years ended June 30, 2024 and June 30, 2023, the Company had no stock options outstanding.
Restricted stock activity for the year ended June 30, 2024 was as follows:
Weighted
Number of
Average Grant
Shares –
Date Fair
2020 Plan
Value
Nonvested at June 30, 2023 .........................................................................................
223,682 $
10.39
Granted .................................................................................................................
166,500 $
6.09
Vested ..................................................................................................................
(104,075) $
11.39
Forfeited ...............................................................................................................
(3,000) $
9.59
Nonvested at June 30, 2024 .........................................................................................
283,107 $
7.50
Available for grant at June 30, 2024 ...........................................................................
182,877
50
Restricted stock activity for the year ended June 30, 2023 was as follows:
Weighted
Number of
Average Grant
Shares –
Date Fair
2009 Plan
Value
Nonvested at June 30, 2022 .........................................................................................
1,666 $
8.50
Granted .................................................................................................................
— $
—
Vested ..................................................................................................................
(1,666) $
8.50
Forfeited ...............................................................................................................
— $
—
Nonvested at June 30, 2023 .........................................................................................
— $
—
Available for grant at June 30, 2023 ...........................................................................
—
Weighted
Number of
Average Grant
Shares –
Date Fair
2020 Plan
Value
Nonvested at June 30, 2022 .........................................................................................
186,227 $
12.56
Granted .................................................................................................................
123,000 $
8.79
Vested ..................................................................................................................
(71,146) $
13.04
Forfeited ...............................................................................................................
(14,399) $
11.69
Nonvested at June 30, 2023 .........................................................................................
223,682 $
10.39
Available for grant at June 30, 2023 ...........................................................................
349,377
Restricted stock grants, granted to members of our Board of Directors and certain key members of our management team,
vest over a period of years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the right
to receive dividends, if declared by our Board of Directors, is forfeitable until the shares become vested. The total remaining
unrecognized compensation cost related to unvested restricted stock shares amounted to $1.7 million at June 30, 2024 and
the weighted average remaining requisite service period of unvested restricted stock shares was 2.1 years.
J. Commitments
We lease a total of approximately 162,000 square feet at our manufacturing facility in Vista, California from an unaffiliated
third party under a non-cancelable operating lease. On July 31, 2013, we executed a third amendment to the lease for our
manufacturing facility in Vista, California. As a result of this amendment, our facility lease had been extended through March
2024. On July 18, 2023, we entered into a fourth amendment to the lease of our Vista, California manufacturing facility. The
fourth amendment extends the term of the lease by an additional ten years and five months commencing April 1, 2024 and
includes an option to extend the lease through August 31, 2039.
NAIE leases facility space in Manno, Switzerland from two unaffiliated third parties. The leased spaces total approximately
125,000 square feet. We primarily use the facilities for manufacturing, packaging, warehousing and distributing nutritional
supplement products for the European and Asian marketplaces. On July 1, 2019, NAIE extended the lease on its main
manufacturing facility for an additional five years through June 30, 2024. On May 4, 2022, NAIE further extended the lease
on its main manufacturing facility for a new term of ten years effective January 1, 2023 with a new expiration date of
December 31, 2032, with an option to extend one year.
On November 5, 2018, NAIE entered into a lease with Sofinol SA for approximately 2,870 square meters of commercial
warehouse space in a building located on the property adjacent to the leasehold for the primary existing NAIE facility in
Manno, Switzerland. NAIE uses the space primarily for raw material storage. The lease is for an initial five-year term
commencing on January 1, 2019 and NAIE can terminate the lease with 12 months advance notice given on June 30th or
December 31st each year of the initial term. At the end of the initial term the lease transfers to an indefinite tenancy at the
same rental rate terminable by NAIE or the landlord upon 12 months' advance notice. This initial term of this lease ends on
December 31, 2024 and as of June 30, 2024, we have not provided notification of terminating this lease, so the term
automatically extended to December 31, 2025.
51
On January 26, 2024, we exercised the early termination of an apartment lease in Lugano, Switzerland. The early termination
reduced the lease term by 9 years and 8 months thus ending on April 30, 2024. Our lease liability and Right of Use asset were
both decreased by approximately $0.3 million as a result of the early termination of the lease agreement. On January 22, 2024,
we entered into a lease for a new apartment in Lugano, Switzerland. This lease is for an initial term of 27 months beginning
April 1, 2024 and ending on June 30, 2026.
Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all non-cancelable operating
leases with initial or remaining lease terms in excess of one year, including the lease agreements referred to above, are set
forth below as of June 30, 2024 (in thousands):
There-
2025
2026
2027
2028
2029
after Total
Gross minimum rental commitments ... $
4,182 $
4,617 $
4,554 $
4,682 $
4,814 $ 24,918 $ 47,767
Rental expense totaled $5.4 million for the fiscal year ended June 30, 2024 and $3.3 million for the fiscal year ended June
30, 2023.
K. Economic Dependency
We had substantial net sales to certain customers during the fiscal years ended June 30 shown in the following table. The loss
of any of these customers, or a significant decline in sales or the growth rate of sales to these customers, or in their ability to
make payments when due, could have a material adverse impact on our net sales and net operating results. Net sales to any
one customer representing 10% or more of the respective year’s consolidated net sales were as follows (dollars in thousands):
Fiscal 2024
Fiscal 2023
Customer 1 .................................................................................................................. $
48,055 $
48,066
Customer 2 ..................................................................................................................
16,312
61,646
Customer 3 ..................................................................................................................
12,941
(a)
$
77,308 $
109,712
(a) Sales were less than 10% of the respective period’s consolidated net sales.
Accounts receivable from these customers totaled $12.3 million at June 30, 2024 and $1.8 million at June 30, 2023.
We buy certain products, including beta-alanine, from a single supplier. The loss of this supplier or other raw material
suppliers could have a material adverse impact on our net sales and net income. Raw material purchases from any one supplier
representing 10% or more of the respective period’s total raw material purchases were as follows (dollars in thousands):
Year ended June 30,
2024
2023
% of Total
% of Total
Raw Material
Raw
Raw Material
Raw
Purchases by
Material Purchases by
Material
Supplier
Purchases
Supplier
Purchases
Supplier 1 ..................................................................... $
11,624
23% $
11,487
13 %
$
11,624
23% $
11,487
13 %
L. Derivatives and Hedging
We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to forecasted
product sales denominated in foreign currencies and to other transactions of NAIE, our foreign subsidiary. As part of our
overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we may use
foreign exchange contracts in the form of forward contracts. There can be no guarantee any such contracts, to the extent we
enter into such contracts, will be effective hedges against our foreign currency exchange risk.
During the year ended June 30, 2024 and prior, we entered into forward contracts designated as cash flow hedges primarily
to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies
other than the U.S. dollar. These contracts are expected to be settled through September 2025. For derivative instruments that
52
are designated and qualify as cash flow hedges, we record the effective portion of the gain or loss on the derivative in
accumulated other comprehensive income (OCI) as a separate component of stockholders’ equity and subsequently reclassify
these amounts into earnings in the period during which the hedged transaction is recognized in earnings.
For foreign currency contracts designated as cash flow hedges, hedge effectiveness is measured using the spot rate. Changes
in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as
revenue. We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in
the hedged item as well as ensuring the assumptions we made at hedge inception have not materially changed. No hedging
relationships were terminated as a result of ineffective hedging for the years ended June 30, 2024 and June 30, 2023.
We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis.
As of June 30, 2024, the notional amounts of our foreign exchange contracts accounted for as cash flow hedges were $34.0
million (€30.8 million). As of June 30, 2024, a net gain of approximately $0.2 million offset by approximately $0.1 million
of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. As of June 30, 2023,
a net loss of approximately $0.2 million, offset by approximately $0.1 million of deferred taxes, related to derivative
instruments designated as cash flow hedges was recorded in OCI. It is expected that $0.2 million of the gross gain as of June
30, 2024, will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted
transactions.
During the year ended June 30, 2024, we recognized $0.8 million of net gains in OCI and reclassified $0.4 million of gains
and forward point amortization from OCI to Net Sales. During the year ended June 30, 2023, we recognized $0.5 million of
net gains in OCI and reclassified $3.1 million of gains and forward point amortization from OCI to Net Sales.
For foreign currency contracts not designated as cash flow hedges, changes in the fair value of the hedge are recorded directly
to foreign exchange gain or loss in other income in an effort to offset the change in valuation of the underlying hedged item.
During the year ended June 30, 2024, we entered into forward contracts in order to hedge foreign exchange risk associated
with our lease liability at NAIE, which is denominated in Swiss Francs (CHF). As of June 30, 2024, the notional amounts of
our foreign exchange contracts not designated as cash flow hedges were approximately $11.9 million (CHF 10.5 million).
We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable
interest rate of 1.80% above the SOFR rolling 30-day average. To manage our exposure to this variable rate, on August 23,
2021, we entered into a floored interest rate swap that fixes our all-in rate on this loan to 2.4% for the first three years of the
term loan. Fluctuations in the relation of our contractual swap rate to current market rates are recorded as an asset or liability
with an offset to OCI at the end of each reporting period. Interest expense is adjusted for the difference between the actual
SOFR spread and the swap contractual rate such that our effective interest expense for each period is equal to our hedged rate
of 2.4%.
M. Contingencies
From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary
course of our business. These matters may relate to product liability, employment, intellectual property, tax, regulation,
contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if
such claims are without merit, could result in the expenditure of significant financial and managerial resources. While
unfavorable outcomes are possible, based on available information, we generally do not believe the resolution of these matters
will result in a material adverse effect on our business, consolidated financial condition, or results of operations and the price
of our common stock. However, a settlement payment or unfavorable outcome could adversely impact our results of
operations. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable
outcomes we do not expect.
Israel-Hamas War
In October 2023, armed conflict escalated between Israel and Hamas. Management is monitoring the conflict in Israel and
Gaza and any broader economic effects from the crisis. Israel accounts for a small portion of our global net sales, but we also
source multiple raw materials that come from Israel. While we do not anticipate this conflict will have a significant impact
on our net sales, we are currently communicating with the customers and suppliers that may be impacted by this conflict, and
we are evaluating options for alternative ingredient sources and/or holding safety stock of impacted materials to limit the
effect this conflict may have on our ability to obtain the ingredients sourced from this region. There are further concerns
regarding consumer purchasing and consumption behavior, increases in global shipping expenses, greater volatility in foreign
53
exchange and interest rates, and other unforeseen business disruptions due to the current global geopolitical tensions,
including and relating to this conflict between Israel and Hamas and the continued conflict in Ukraine. We will continue to
evaluate impacts of these conflicts on our customers, suppliers, employees, and operations.
N. Segment Information
Our business consists of two segments for financial reporting purposes. The two segments are identified as (i) private-label
contract manufacturing, which primarily relates to the provision of private-label contract manufacturing services to
companies that market and distribute nutritional supplements and other health care products, and (ii) patent and trademark
licensing, which primarily includes direct raw material sales and royalty income from our license and supply agreements
associated with the sale and use of beta-alanine under our CarnoSyn® and SR CarnoSyn® trade names.
We evaluate performance based on a number of factors. The primary performance measures for each segment are net sales
and income or loss from operations before corporate allocations. Operating income or loss for each segment does not include
corporate general and administrative expenses, interest expense and other miscellaneous income and expense items.
Corporate general and administrative expenses include, but are not limited to human resources, corporate legal, finance,
information technology, and other corporate level related expenses, which are not allocated to any segment. Transfers of raw
materials between segments are recorded at cost. The accounting policies of our segments are the same as those described in
the summary of significant accounting policies in Note A.
Our operating results by business segment for the years ended June 30 were as follows (in thousands):
2024
2023
Net Sales
Private-label contract manufacturing ................................................................... $
105,358 $
145,294
Patent and trademark licensing ............................................................................
8,438
8,721
$
113,796 $
154,015
2024
2023
(Loss) Income from Operations
Private-label contract manufacturing ................................................................... $
(3,466) $
9,488
Patent and trademark licensing ............................................................................
3,319
3,021
(Loss) income from operations of reportable segments .......................................
(147)
12,509
Corporate expenses not allocated to segments .....................................................
(8,387)
(7,796)
$
(8,534) $
4,713
2024
2023
Assets
Private-label contract manufacturing ................................................................... $
127,786 $
102,495
Patent and trademark licensing ............................................................................
34,556
31,657
$
162,342 $
134,152
Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe,
Canada, Australia, New Zealand, Mexico and Asia. Our primary markets outside the U.S. are Europe and Asia. Our patent
and trademark licensing activities are primarily based in the U.S.
Net sales by geographic region, based on the customers’ location, for the two years ended June 30 were as follows (in
thousands):
2024
2023
United States ............................................................................................................... $
73,512 $
109,277
Markets outside the United States ...............................................................................
40,284
44,738
Total net sales ....................................................................................................... $
113,796 $
154,015
Products manufactured by NAIE accounted for 79% of consolidated net sales in markets outside the U.S. in fiscal 2024 and
in fiscal 2023. No products manufactured by NAIE were sold in the U.S. during the fiscal years ended June 30, 2024 and
2023.
54
Long-lived assets by geographic region, based on the location of the company or subsidiary at which they were located or
made, for the two years ended June 30 were as follows (in thousands):
2024
2023
United States ............................................................................................................... $
78,146 $
53,536
Europe .........................................................................................................................
17,602
20,674
Total Long-Lived Assets ...................................................................................... $
95,748 $
74,210
Total assets by geographic region, based on the location of the company or subsidiary at which they were located or made,
for the two years ended June 30 were as follows (in thousands):
2024
2023
United States ............................................................................................................... $
118,878 $
89,167
Europe .........................................................................................................................
43,464
44,985
Total Assets .......................................................................................................... $
162,342 $
134,152
Capital expenditures by geographic region, based on the location of the company or subsidiary at which they were located
or made, for the two years ended June 30 were as follows (in thousands):
2024
2023
United States ............................................................................................................... $
2,793 $
13,210
Europe .........................................................................................................................
224
314
Total Capital Expenditures ................................................................................... $
3,017 $
13,524
55
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain certain disclosure controls and procedures as defined under the Securities Exchange Act of 1934. They are
designed to help ensure that material information is: (1) gathered and communicated to our management, including our
principal executive and financial officers, in a manner that allows for timely decisions regarding required disclosures; and
(2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934
and within the time periods specified by the SEC.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the
effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on such
evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures
were effective as of June 30, 2024.
(b) Management’s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for the
Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30,
2024. For this purpose, internal control over financial reporting refers to a process designed by, or under the supervision of,
our principal executive and financial officers and effected by our board of directors, management and other personnel, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could
have a material adverse effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2024
based upon criteria in an Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO) (2013 framework). Based on this assessment, management believes our internal control
over financial reporting was effective as of June 30, 2024 based on the criteria issued by COSO.
This assessment does not include an attestation report of our independent registered public accounting firm regarding internal
control over financial reporting. Management’s report was not required to be attested to by our independent registered public
accounting firm pursuant to applicable law and rules that permit the Company to provide only the management’s report as
part of this assessment.
(c) Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting during the fourth quarter ended June 30, 2024 that have
materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
56
PART III
The information called for under Items 10- 14 of this Part III will be incorporated by reference from our definitive proxy
statement for our Annual Meeting of Stockholders to be held on December 6, 2024, to be filed on or before October 28, 2024.
57
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this report:
(1) Financial Statements. The financial statements listed below are included under Item 8 of this report:
• Consolidated Balance Sheets as of June 30, 2024 and 2023;
• Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended June 30, 2024
and 2023;
• Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2024 and 2023;
• Consolidated Statements of Cash Flows for the years ended June 30, 2024 and 2023; and
• Notes to Consolidated Financial Statements.
(2) Exhibits. The following exhibit index shows those exhibits filed with this report and those incorporated by
reference:
EXHIBIT INDEX
Exhibit
Number
Description
Incorporated By Reference To
3(i)
Amended and Restated Certificate of Incorporation of
Natural Alternatives International, Inc. filed with the
Delaware Secretary of State on January 14, 2005
Exhibit 3(i) of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2004,
filed with the commission on February 14, 2005
3(ii)
Amended and Restated By-laws of Natural
Alternatives International, Inc. dated as of February 9,
2009
Exhibit 3(ii) of NAI’s Current Report on Form 8-K
dated February 9, 2009, filed with the commission on
February 13, 2009
4(i)
Form of NAI’s Common Stock Certificate
Exhibit 4(i) of NAI’s Annual Report on Form 10-K for
the fiscal year ended June 30, 2005, filed with the
commission on September 8, 2005
10.1
Lease of Facilities in Vista, California between NAI
and Calwest Industrial Properties, LLC, a California
limited liability company (lease reference date
June 12, 2003)
Exhibit 10.10 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2003,
filed with the commission on November 5, 2003
10.2
Form of Indemnification Agreement entered into
between NAI and each of its directors
Exhibit 10.15 of NAI’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2004, filed with the
commission on September 14, 2004
10.3
2009 Omnibus Incentive Plan*
Attachment D of NAI’s definitive Proxy Statement
filed with the commission on October 16, 2009
10.4
Nonqualified Incentive Plan*
Exhibit 10.1 to NAI’s Current Report on Form 8-K
dated July 16, 2020, filed with the commission on July
22, 2020
10.5
License and Fee Agreement effective November 10,
2010 by and among Roger Harris, Mark Dunnett,
Kenny Johansson and NAI
Exhibit 10.40 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2010,
filed with the commission on November 12, 2010
10.6
ISDA 2002 Master Agreement dated as of March 10,
2011 by and between Bank of America N.A. and NAI
(with Schedule dated March 10, 2011)
Exhibit 10.31 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 2011, filed
with the commission on May 16, 2011
10.7
Third amendment to the Lease of Facilities in Vista,
California between NAI and CWCA Vista
Distribution 77, LLC, a Delaware limited liability
company
Exhibit 10.40 of NAI’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2013, filed with the
commission on September 19, 2013
10.8
Lease of Facilities in Manno, Switzerland between
NAIE and Mr. Silvio Tarchini effective July 1, 2014
(English translation)
Exhibit 10.38 of NAI’s Annual Report on Form 10-K
for the fiscal year ended June 30, 2014, filed with the
commission on September 25, 2014.
58
10.9
Amended and Restated Employment Agreement, by
and between NAI and Mark A. LeDoux, effective
October 1, 2015*
Exhibit 10.1 of NAI’s Current Report on Form 8-K
dated October 1, 2015, filed with the commission on
October 1, 2015.
10.10
Amended and Restated Employment Agreement, by
and between NAI and Kenneth E. Wolf, effective
October 1, 2015*
Exhibit 10.2 of NAI’s Current Report on Form 8-K
dated October 1, 2015, filed with the commission on
October 1, 2015.
10.11
Amended and Restated Employment Agreement, by
and between NAI and Michael E. Fortin, effective
October 1, 2015*
Exhibit 10.3 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2015,
filed with the commission on November 12, 2015.
10.12
First amendment to credit agreement by and between
NAI and the Wells Fargo Bank N.A. effective as of
February 1, 2016
Exhibit 10.01 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2015,
filed with the commission on February 9, 2016.
10.13
First amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Michael E. Fortin, effective September 1, 2016*
NAI’s Current Report on Form 8-K dated September 1,
2016, filed with the commission on September 6, 2016
10.14
First amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Mark A. LeDoux, effective July 1, 2018*
Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.15
First amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Kenneth E. Wolf, effective July 1, 2018*
Exhibit 10.2 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.16
Second amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Michael E. Fortin, effective July 1, 2018*
Exhibit 10.3 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.17
Lease of Facilities in Manno, Switzerland between
NAIE and Mr. Silvio Tarchini dated October 19, 2018
Exhibit 10.4 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.18
Lease of Parking Places in Manno, Switzerland
between NAIE and Mr. Silvio Tarchini dated October
19, 2018
Exhibit 10.5 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.19
Lease of Facilities in Manno, Switzerland between
NAIE and Sofinol SA dated November 5, 2018
Exhibit 10.6 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 2018,
filed with the commission on November 13, 2018
10.20
Amended and Restated Exclusive Manufacturing
Agreement with Juice Plus+ dated March 31, 2019
Exhibit 10.48 of NAI’s Current Report on Form 8-K
Form 8-K dated March 31, 2019, filed with the
commission on April 5, 2019
10.21
Third amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Michael E. Fortin, effective July 1, 2019*
Exhibit 10.61 of NAI's Annual Report on Form 10-K
for the annual period ended June 30, 2019, filed with
the commission on September 24, 2019
10.22
Second amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Mark LeDoux, effective July 1, 2021*
Exhibit 10.65 of NAI’s Current Report on Form 8-K
dated July 1, 2021, filed with the commission on July
9, 2021
10.23
Second amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Kenneth E. Wolf, effective July 1, 2021*
Exhibit 10.66 of NAI’s Current Report on Form 8-K
dated July 1, 2021, filed with the commission on July
9, 2021
10.24
Fourth amendment to the Amended and Restated
Employment Agreement, by and between NAI and
Michael E. Fortin, effective July 1, 2021*
Exhibit 10.67 of NAI’s Current Report on Form 8-K
dated July 1, 2021, filed with the commission on July
9, 2021
10.25
Credit Agreement by and between NAI and Wells
Fargo Bank, N.A. effective as of May 24, 2021
Exhibit 10.1 of NAI’s Current Report on Form 8-K
dated May 24, 2021 filed with the commission on May
27, 2021.
10.26
2020 Omnibus Incentive Plan*
Annex I of NAI’s definitive Proxy Statement filed with
the commission on October 26, 2020
10.27
First Amendment to Credit Agreement by and
between NAI and Wells Fargo Bank, N.A. effective as
of August 16, 2021
Exhibit 10.3 of NAI’s Current Report on Form 8-K
dated August 16, 2021 filed with the commission on
August 24, 2021
10.28
Revolving Line of Credit Note made by NAI for the
benefit of Wells Fargo Bank. N.A. dated August 16,
2021 in the amount of $20,000,000
Exhibit 10.4 of NAI’s Current Report on Form 8-K
dated August 16, 2021 filed with the commission on
August 24, 2021
59
10.29
Term Note by and between NAI and Wells Fargo
Bank, N.A. effective as of August 16, 2021
Exhibit 10.5 of NAI’s Current Report on Form 8-K
dated August 16, 2021 filed with the commission on
August 24, 2021
10.30
Security Agreement by and between NAI and Wells
Fargo Bank, N.A. effective as of August 16. 2021
Exhibit 10.6 of NAI’s Current Report on Form 8-K
dated August 16, 2021 filed with the commission on
August 24, 2021
10.31
Second Amendment to Credit Agreement by and
between NAI and Wells Fargo Bank, N.A. effective
January 31, 2022
Exhibit 10.33 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2021,
filed with the commission on February 9, 2022
10.32
Lease of Facilities in Manno, Switzerland between
NAIE and Mr. Silvio Tarchini dated May 4, 2022
Exhibit 10.34 of NAI's Annual Report on Form 10-K
for the fiscal year ended June 30, 2022, filed with the
commission on September 21, 2022.
10.33
Third Amendment to Credit Agreement by and
between NAI and Wells Fargo effective as of
September 19, 2022.
Exhibit 10.35 of NAI's Current Report on Form 8-K
dated October 12, 2022, file with the commission on
October 13, 2022
10.34
Revolving Line of Credit Note made by NAI for the
benefit of Wells Fargo dated September 19, 2022 in
the amount of $20,000,000.
Exhibit 10.36 of NAI's Current Report on Form 8-K
dated October 12, 2022, file with the commission on
October 13, 2022
10.35
Fourth Amendment to Lease of NAI manufacturing
facilities in Vista, California between NAI, the tenant,
and Park Center Industrial ILP, LLC, a Delaware
limited liability company, the landlord
Exhibit 10.17 of NAI's Current Report on Form 8-K
dated July 21, 2023, file with the commission on July
24, 2023.
10.36
Clawback Policy
Exhibit 10.36 of NAI's Annual Report on Form 10-K
for the fiscal year ended June 30, 2023, filed with the
commission on September 19, 2023.
10.37
First modification to Promissory Note by and between
NAI and Wells Fargo, effective as of February 13,
2024
Exhibit 10.37 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2023,
filed with the commission on February 13, 2024
10.38
Fourth Amendment and Waiver of Events of Default
to Credit Agreement by and between NAI and Wells
Fargo effective as of February 13, 2024
Exhibit 10.38 of NAI’s Quarterly Report on Form 10-Q
for the quarterly period ended December 31, 2023,
filed with the commission on February 13, 2024
21
Subsidiaries of the Company
Filed herewith
23.1
Consent of Independent Registered Public Accounting
Firm
Filed herewith
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief
Executive Officer
Filed herewith
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief
Financial Officer
Filed herewith
32
Section 1350 Certification
Filed herewith
101.INS
Inline XBRL Instance Document (the Instance
Document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline
XBRL document)
Furnished herewith
101.SCH Inline XBRL Taxonomy Extension Schema
Document
Furnished herewith
101.CAL Inline XBRL Taxonomy Extension Calculation
Linkbase Document
Furnished herewith
101.DEF Inline XBRL Taxonomy Extension Definition
Linkbase Document
Furnished herewith
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
Document
Furnished herewith
101.PRE Inline XBRL Taxonomy Extension Presentation
Linkbase Document
Furnished herewith
104
Cover Page Interactive Data File (formatted as Inline
XBRL and contained in Exhibit 101)
Furnished herewith
* Indicates management contract or compensatory plan or arrangement.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Natural Alternatives
International, Inc., the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: September 27, 2024
NATURAL ALTERNATIVES INTERNATIONAL, INC.
By: /s/ Mark A. LeDoux
Mark A. LeDoux, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of Natural Alternatives International, Inc. and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Mark A. LeDoux
Chief Executive Officer and
September 27, 2024
(Mark A. LeDoux)
Chairman of the Board of Directors
(principal executive officer)
/s/ Michael E. Fortin
Chief Financial Officer
September 27, 2024
(Michael E. Fortin)
(principal financial officer and
principal accounting officer)
/s/ Alan G. Dunn
Director
September 27, 2024
(Alan G. Dunn)
/s/ L. Kay Matherly
Director
September 27, 2024
(L. Kay Matherly)
/s/ Guru Ramanathan
Director
September 27, 2024
(Guru Ramanathan)
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CORPORATE INFORMATION
OFFICERS
Mark LeDoux
Chairman and Chief Executive
Ofϐicer
Kenneth Wolf
President, Chief Operating
Ofϐicer and Secretary
Michael Fortin
Chief Financial Ofϐicer
BOARD OF DIRECTORS
Mark LeDoux
Alan Dunn
Laura Kay Matherly
Guru Ramanathan
INVESTOR RELATIONS
Natural Alternatives International,
Inc.
1535 Faraday Avenue
Carlsbad, California 92078 USA
ANNUAL MEETING
The annual meeting of the
stockholders will be held at 11:00
a.m. PST on Friday, December 6,
2024.
The annual meeting will be
conducted exclusively via a live
webcast.
Meeting ID:
hƩps://meetnow.global/MQGLFDP
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Haskell & White LLP
300 Spectrum Center Drive, Suite
300
Irvine, California 92618
CORPORATE COUNSEL
FisherBroyles LLP
12707 High Bluff Drive, Suite 200
San Diego, California 92130
TRANSFER AGENT & REGISTRAR
Computershare, Inc.
PO Box 505000
Louisville, Kentucky 40233-5000
T: 800-522-6645
www.Computershare.com/investor
NATURAL ALTERNATIVES INTERNATIONAL, INC.
Custom Formulating ● Blending ● Tablets ● Capsules ● Enteric Coating ● Powders
Pre-Blends ● Packaging Solutions Including High Speed Bottling, Packets, Powder Stick Packs, Powder
Pouches, Sachets and Blister Packs
Domestic and International Regulatory Support
CORPORATE HEADQUARTERS
1535 Faraday Avenue ● Carlsbad, California 92008 USA ● T: 760-736-7700 ● F: 760-727-5325 ● E: info@nai-online.com
NAI EUROPE
Centro Galleria 1 ● Via Cantonale ● 6928 Manno ● Switzerland ● T: 41-91-610-8460 ● F: 41-91-610-8470
1-800-VITAMIN WWW.NAI-ONLINE.COM