Core Insights - Natural Alternatives International, Inc. (NAI) has launched TriBsyn™, a new carnosine booster that enhances beta-alanine bioavailability while eliminating the common side effect of paresthesia [1][2][3] Product Innovation - TriBsyn™ utilizes CarnoSyn® beta-alanine and patent-pending technology to significantly improve the absorption of beta-alanine, increasing its pharmacokinetic efficiency by more than four times compared to conventional forms [2][3] - The formulation is designed to cater to a broader consumer base, including older adults and individuals following vegetarian or vegan diets, by providing the health benefits of increased carnosine levels without the discomfort of paresthesia [2][3] Health Benefits - Increased carnosine levels are linked to various health benefits, such as enhancing cognitive performance, improving muscle function in older adults, and slowing age-related health decline [2] - Clinical trials have confirmed the effectiveness of TriBsyn™ in eliminating paresthesia while enhancing the delivery of beta-alanine [2][3] Market Positioning - The launch of TriBsyn™ is expected to strengthen NAI's presence in multiple dietary supplement categories, including fortified and medical foods, addressing the growing demand for wellness solutions among aging populations and those with plant-based diets [3][4] - TriBsyn™ will be showcased at the 46th ESPEN Congress on Clinical Nutrition & Metabolism in Milan, Italy, marking its commercial debut [3] Company Overview - NAI is a leading formulator and manufacturer of nutritional supplements, providing a range of services including scientific research, product formulation, and regulatory review [5] - The company has a portfolio that includes CarnoSyn® instant release beta-alanine powder and SR CarnoSyn® sustained release beta-alanine tablets, both of which have received FDA approval and GRAS status [4][5]

Core Insights - Natural Alternatives International, Inc. (NAI) reported a net loss of $1.6 million, or ($0.27) per diluted share, on net sales of $25.1 million for Q3 FY2024, an improvement from a net loss of $2.4 million, or ($0.41) per diluted share, in the same quarter of the previous fiscal year [1][4]. Financial Performance - Net sales for the three months ended March 31, 2024, decreased by $7.6 million, or 23%, to $25.1 million compared to $32.7 million in the same period last year [2]. - Private-label contract manufacturing sales fell by 26% to $22.4 million, primarily due to reduced orders from larger customers aiming to decrease excess inventory [2]. - For the nine months ended March 31, 2024, net sales decreased by $33.8 million, or 29%, to $84.3 million compared to $118.1 million in the prior year [5]. Revenue Streams - CarnoSyn® beta-alanine royalty, licensing, and raw material sales revenue increased by 13% to $2.7 million in Q3 FY2024, driven by higher royalty income and favorable volume rebate activity [3]. - For the first nine months of FY2024, CarnoSyn® revenue rose by 28% to $6.6 million compared to $5.2 million in the same period of FY2023 [5]. Operational Challenges - The company experienced a loss from operations due to a slowdown in sales within the private-label contract manufacturing segment [6]. - A temporary closure of the high-speed powder processing facility in Carlsbad, California, was announced on August 16, 2023, due to excess inventory at a major customer [6]. Future Outlook - The company anticipates a net loss in Q4 FY2024 and an overall net loss for FY2024 based on current sales forecasts [7]. - The reopening of the Carlsbad powder facility is expected to resume commercial production later in May 2024, with optimism for future sales growth and return to profitability [8]. Balance Sheet Highlights - As of March 31, 2024, the company had cash of $12.4 million and working capital of $40.7 million, slightly down from $13.6 million and $41.1 million, respectively, as of June 30, 2023 [7]. - Total assets increased to $153.2 million as of March 31, 2024, compared to $134.2 million as of June 30, 2023 [13].

PART I [PART I - FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2024, with detailed notes [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for the three and nine months ended March 31, 2024, including balance sheets, statements of operations, stockholders' equity, and cash flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$153.2 million** while total liabilities grew to **$69.1 million**, leading to a decline in stockholders' equity to **$84.1 million** as of March 31, 2024 Condensed Consolidated Balance Sheets (in thousands) | | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | | **Total current assets** | $54,361 | $57,010 | | **Total assets** | **$153,211** | **$134,152** | | **Total current liabilities** | $13,647 | $15,884 | | **Total liabilities** | **$69,112** | **$45,380** | | **Total stockholders' equity** | **$84,099** | **$88,772** | [Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20%28Loss%29%20Income) The company reported a net loss of **$5.3 million** for the nine months ended March 31, 2024, a significant decline from prior-year net income, driven by a 29% decrease in net sales Financial Performance (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $25,136 | $32,699 | $84,307 | $118,121 | | **Gross profit** | $1,922 | $1,376 | $5,446 | $12,961 | | **(Loss) income from operations** | $(1,952) | $(2,488) | $(6,009) | $1,539 | | **Net (loss) income** | **$(1,578)** | **$(2,381)** | **$(5,343)** | **$485** | | **Diluted net (loss) income per share** | $(0.27) | $(0.41) | $(0.91) | $0.08 | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity decreased to **$84.1 million** by March 31, 2024, primarily due to a **$5.3 million** net loss and common stock repurchases - For the nine months ended March 31, 2024, total stockholders' equity fell by **$4.7 million**, mainly due to a net loss of **$5.3 million**[19](index=19&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operating activities improved to **$1.2 million** for the nine months ended March 31, 2024, with cash and cash equivalents ending at **$12.4 million** Nine-Month Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $1,220 | $(470) | | **Net cash used in investing activities** | $(1,983) | $(13,191) | | **Net cash (used in) provided by financing activities** | $(434) | $7,388 | | **Net decrease in cash and cash equivalents** | $(1,197) | $(6,273) | | **Cash and cash equivalents at end of period** | $12,407 | $15,560 | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Detailed notes disclose accounting policies, a **28% increase** in beta-alanine revenue, a significant lease extension, credit facility amendments, high customer concentration, and supply chain risks - Revenue from beta-alanine raw material sales and royalty/licensing income increased to **$6.6 million** for the nine months ended March 31, 2024, up from **$5.2 million** in the prior-year period[39](index=39&type=chunk) - In July 2023, the company extended the lease for its Vista, CA manufacturing facility by ten years and five months, increasing the lease liability and Right of Use asset by approximately **$25.9 million**[55](index=55&type=chunk) - The company failed to meet certain financial covenants as of December 31, 2023, leading to a Fourth Amendment of its credit facility on February 13, 2024, which waived non-compliance, reduced borrowing capacity to **$12.5 million**, increased the interest rate, and suspended share repurchases[60](index=60&type=chunk)[61](index=61&type=chunk) - The company is monitoring the Israel-Hamas conflict for potential impacts on its supply chain, as it sources multiple raw materials from Israel[91](index=91&type=chunk) Customer Concentration (% of Consolidated Net Sales) | Customer | Nine Months Ended Mar 31, 2024 | Nine Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Customer 1 | $35,215 (41.8%) | $46,948 (39.7%) | | Customer 2 | $13,604 (16.1%) | $38,823 (32.9%) | | **Total** | **$48,819 (57.9%)** | **$85,771 (72.6%)** | Segment Performance - Nine Months Ended March 31 (in thousands) | Segment | Net Sales 2024 | Net Sales 2023 | (Loss) Income from Ops 2024 | Income from Ops 2023 | | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing | $77,718 | $112,969 | $(2,367) | $6,264 | | Patent and trademark licensing | $6,589 | $5,152 | $2,592 | $1,485 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes a **29% decline** in nine-month net sales to reduced private-label manufacturing orders, anticipates a full fiscal year net loss, and temporarily closed its Carlsbad facility - Net sales for the nine months ended March 31, 2024, were **29% lower** than the prior-year period, primarily due to a **31% decrease** in private-label contract manufacturing sales[97](index=97&type=chunk) - The company announced the temporary closure of its Carlsbad, California powder processing facility in August 2023 due to a customer's excess inventory and announced its reopening for May 2024[102](index=102&type=chunk) - Management anticipates a net loss in the fourth quarter of fiscal 2024 and an overall net loss for the full fiscal year[103](index=103&type=chunk) Results of Operations - Nine Months Ended March 31 (in thousands) | Metric | 2024 | 2023 | % Change | | :--- | :--- | :--- | :--- | | **Total net sales** | $84,307 | $118,121 | (29)% | | **Gross profit** | $5,446 | $12,961 | (58)% | | **(Loss) income from operations** | $(6,009) | $1,539 | (490)% | | **Net (loss) income** | $(5,343) | $485 | (1202)% | [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting - Based on an evaluation as of March 31, 2024, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[124](index=124&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[125](index=125&type=chunk) PART II [PART II - OTHER INFORMATION](index=32&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers other information including legal proceedings, risk factors, equity sales, defaults, and exhibits [Item 1. Legal Proceedings](index=32&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material pending legal proceedings as of May 14, 2024, despite involvement in various ordinary course legal matters - As of May 14, 2024, neither NAI nor its subsidiary NAIE were party to any material pending legal proceedings[129](index=129&type=chunk) [Item 1A. Risk Factors](index=32&type=section&id=Item%201A.%20Risk%20Factors) This section highlights new risks from geopolitical instability, including conflicts in Ukraine and the Middle East, which could impact supply chains and market volatility - The company's business operations may be adversely affected by ongoing geopolitical instability, including conflicts in Ukraine and the Middle East, which could lead to disruptions in the global supply chain, energy price fluctuations, and financial market volatility[131](index=131&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell any unregistered equity securities during the nine months ended March 31, 2024 - The company did not sell any unregistered equity securities during the three-month periods ended September 30, 2023, December 31, 2023, and March 31, 2024[132](index=132&type=chunk) [Item 3. Defaults Upon Senior Securities](index=32&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reports no defaults upon senior securities - None[133](index=133&type=chunk) [Item 5. Other Information](index=32&type=section&id=Item%205.%20Other%20Information) The company reports no other information for this item - None[134](index=134&type=chunk) [Item 6. Exhibits](index=33&type=section&id=Item%206.%20Exhibits) This section provides an index of exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and XBRL data files - The report includes certifications from the Chief Executive Officer and Chief Financial Officer, as well as Inline XBRL documents, filed as exhibits[135](index=135&type=chunk)

[Forward-Looking Statements](index=3&type=section&id=SPECIAL%20NOTE%20ABOUT%20FORWARD-LOOKING%20STATEMENTS) This report contains forward-looking statements about future events and financial performance, subject to risks and uncertainties - This report contains forward-looking statements regarding future events and financial performance. These statements are based on current views and assumptions and are subject to risks and uncertainties. Readers are cautioned not to place undue reliance on these statements[7](index=7&type=chunk) - Key areas covered by forward-looking statements include, but are not limited to: future financial results (net sales, income), customer relationships, sufficiency of cash flow, patent licensing revenues, inventory levels, operating efficiencies, and the impact of external factors like economic conditions[8](index=8&type=chunk) [PART I: FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%20FINANCIAL%20INFORMATION) [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Q2 FY2024, including Balance Sheets, Statements of Operations, and Cash Flows [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$155.7 million**, driven by operating lease assets, while liabilities also rose significantly Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$155,733** | **$134,152** | | Cash and cash equivalents | $16,595 | $13,604 | | Inventories, net | $19,596 | $29,694 | | Operating lease right-of-use assets | $44,994 | $20,369 | | **Total Liabilities** | **$70,278** | **$45,380** | | Long-term liability – operating leases | $46,701 | $18,965 | | **Total Stockholders' Equity** | **$85,455** | **$88,772** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20(Loss)%20Income) Net sales for Q2 FY2024 decreased **40%** year-over-year, resulting in a **net loss of $3.1 million** for the quarter Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 FY2024 (3 months ended Dec 31, 2023) | Q2 FY2023 (3 months ended Dec 31, 2022) | YTD FY2024 (6 months ended Dec 31, 2023) | YTD FY2023 (6 months ended Dec 31, 2022) | | :--- | :--- | :--- | :--- | :--- | | **Net Sales** | **$25,202** | **$42,295** | **$59,171** | **$85,422** | | Gross Profit | $387 | $6,214 | $3,524 | $11,585 | | (Loss) Income from Operations | $(3,513) | $2,485 | $(4,057) | $4,027 | | **Net (Loss) Income** | **$(3,070)** | **$1,813** | **$(3,765)** | **$2,866** | | Diluted EPS | $(0.52) | $0.31 | $(0.64) | $0.49 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow improved to **$4.8 million** due to inventory reduction, with lower investing activities Cash Flow Summary (Six Months Ended Dec 31, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,844 | $3,735 | | Net cash used in investing activities | $(1,707) | $(11,598) | | Net cash used in financing activities | $(146) | $(1,197) | | **Net increase (decrease) in cash** | **$2,991** | **$(9,060)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) Notes detail inventory changes, lease extensions, credit facility amendments, and customer concentration - Revenue from beta-alanine raw material sales and royalty/licensing income was **$3.9 million** for the six months ended Dec 31, 2023, up from **$2.8 million** in the prior-year period[38](index=38&type=chunk) Inventories, net (in thousands) | Category | Dec 31, 2023 | June 30, 2023 | | :--- | :--- | :--- | | Raw materials | $14,443 | $20,946 | | Work in progress | $2,474 | $4,504 | | Finished goods | $3,485 | $4,928 | | **Total** | **$19,596** | **$29,694** | - On July 18, 2023, the company amended its Vista, CA manufacturing facility lease, extending it by over ten years. This resulted in an increase of approximately **$25.9 million** to both the lease liability and the Right of Use asset[53](index=53&type=chunk) - The company was not in compliance with certain financial covenants of its credit facility as of December 31, 2023. Subsequently, on February 13, 2024, it entered into a **Fourth Amendment and Waiver** with Wells Fargo, which waived non-compliance, reduced borrowing capacity to **$12.5 million**, increased the interest rate, modified covenants, and suspended share repurchases[63](index=63&type=chunk)[92](index=92&type=chunk) Customer Sales Concentration (in thousands) | Period | Customer 1 | Customer 2 | Customer 3 | Total from Top Customers | | :--- | :--- | :--- | :--- | :--- | | **6 Months Ended Dec 31, 2023** | $23,965 | $12,131 | <10% | $36,096 | | **6 Months Ended Dec 31, 2022** | $29,265 | $30,987 | $10,831 | $71,083 | Segment Performance (Six Months Ended Dec 31, in thousands) | Segment | Net Sales 2023 | Net Sales 2022 | (Loss) Income from Ops 2023 | Income from Ops 2022 | | :--- | :--- | :--- | :--- | :--- | | Private-label contract manufacturing | $55,239 | $82,615 | $(1,360) | $7,510 | | Patent and trademark licensing | $3,932 | $2,807 | $1,391 | $694 | [Management's Discussion and Analysis (MD&A)](index=24&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MD&A discusses a **31%** sales decline due to reduced manufacturing, offset by licensing growth, and liquidity [Executive Overview](index=24&type=section&id=Executive%20Overview) Net sales fell **31%** due to manufacturing decline, partially offset by licensing growth, with a **net loss** expected for FY2024 - For the six months ended December 31, 2023, net sales were **31% lower** than the prior year period, with private-label contract manufacturing sales **decreasing 33%** and patent/trademark licensing revenue **increasing 40%**[98](index=98&type=chunk)[99](index=99&type=chunk) - The company announced the temporary closure of its Carlsbad, California powder processing facility in August 2023 due to a large customer's efforts to rebalance inventory. The facility is now expected to re-open late in the fourth fiscal quarter of 2024[103](index=103&type=chunk) - Management anticipates the company will experience a **net loss** in the second half of fiscal 2024 and an overall **net loss** for the full fiscal year 2024[104](index=104&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) Q2 FY2024 net sales dropped **40%**, leading to a significant gross profit margin collapse and operating loss Results of Operations Highlights (in thousands) | Metric | Q2 FY2024 | Q2 FY2023 | % Change | YTD FY2024 | YTD FY2023 | % Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total net sales | $25,202 | $42,295 | (40)% | $59,171 | $85,422 | (31)% | | Gross profit | $387 | $6,214 | (94)% | $3,524 | $11,585 | (70)% | | Gross profit % | 1.5% | 14.7% | - | 6.0% | 13.6% | - | | (Loss) income from operations | $(3,513) | $2,485 | (241)% | $(4,057) | $4,027 | (201)% | | Net (loss) income | $(3,070) | $1,813 | (269)% | $(3,765) | $2,866 | (231)% | | Diluted EPS | $(0.52) | $0.31 | $(0.64) | $0.49 | - The decrease in private-label contract manufacturing sales was primarily due to reduced orders from several larger customers working to lower their excess on-hand inventories[110](index=110&type=chunk) - The increase in patent and trademark licensing revenue was driven by more orders from existing customers and higher royalty income[111](index=111&type=chunk) [Liquidity and Capital Resources](index=28&type=section&id=Liquidity%20and%20Capital%20Resources) Cash from operations improved to **$4.8 million** due to inventory reduction, with **sufficient** liquidity for 12 months - Net cash provided by operating activities was **$4.8 million** for the six months ended Dec 31, 2023, compared to **$3.7 million** in the prior year period[116](index=116&type=chunk) - A reduction in inventory provided **$10.1 million** in cash during the first six months of fiscal 2024, compared to using **$3.6 million** in the prior year period[118](index=118&type=chunk) - As of February 13, 2024, a **Fourth Amendment and Waiver** to the credit facility waived prior non-compliance, decreased total borrowing capacity to **$12.5 million**, and required the company to suspend share repurchase and dividend activity[122](index=122&type=chunk) - The company believes its available cash of **$16.6 million**, potential cash flows, and credit facility will be **sufficient** to fund working capital and capital expenditures for at least the next 12 months[123](index=123&type=chunk) [Controls and Procedures](index=29&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were **effective** as of December 31, 2023 - Based on an evaluation as of December 31, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective**[127](index=127&type=chunk) - **No changes** occurred in internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, these controls[128](index=128&type=chunk) [PART II: OTHER INFORMATION](index=30&type=section&id=PART%20II%20OTHER%20INFORMATION) [Legal Proceedings](index=30&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in various legal proceedings, **not expected to have a material adverse effect** - The company is party to various investigations, claims, and legal proceedings arising in the ordinary course of business but does not currently believe their resolution will result in a **not material adverse effect**[131](index=131&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) New risk factors include **geopolitical instability**, potentially **disrupting supply chains** and financial performance - A new risk factor has been identified related to **geopolitical instability**. Ongoing conflicts in Ukraine and the Middle East (Israel-Hamas conflict) may lead to increased political, economic, and security risks, potentially **disrupting global supply chain** and impacting financial performance[134](index=134&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=30&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No **unregistered equity securities** were sold during the three-month periods ended September 30 and December 31, 2023 - There were **no sales** of unregistered equity securities during the quarter[135](index=135&type=chunk) [Exhibits](index=31&type=section&id=Item%206.%20Exhibits) This section indexes filed exhibits, including the **Fourth Amendment** to the Credit Agreement with Wells Fargo - The report includes several filed exhibits, most notably the **Fourth Amendment and Waiver** of Events of Default to the Credit Agreement with Wells Fargo, **effective** February 13, 2024[138](index=138&type=chunk) [Signatures](index=32&type=section&id=SIGNATURES) The report was **duly signed** on February 13, 2024, by the CEO and CFO - The report was **duly signed** on February 13, 2024, by Mark A. LeDoux, Chief Executive Officer, and Michael E. Fortin, Chief Financial Officer[139](index=139&type=chunk)[140](index=140&type=chunk)[142](index=142&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 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. Washington, D.C. 20549 1535 Faraday Ave Carlsbad, CA 92008 (760) 736-7700 (Address of pri ...

Financial Performance - Consolidated net sales for fiscal 2023 decreased by 10% to $154.0 million compared to $171.0 million in fiscal 2022[143]. - Net income for fiscal 2023 was $2.5 million, a decrease of 76% compared to $10.7 million in fiscal 2022[154]. - Gross profit fell to $18,158 thousand in 2023, down from $30,509 thousand in 2022, a decrease of about 40.4%[189]. - Total income before income taxes decreased from $13.659 million in fiscal 2022 to $3.555 million in fiscal 2023[269]. - The comprehensive income for 2023 was $740 thousand, a sharp decline from $12,972 thousand in 2022, reflecting a decrease of approximately 94.3%[189]. - Basic net income per common share for the year ended June 30, 2023, was $0.43, down 75.4% from $1.75 for the year ended June 30, 2022[243]. - Diluted net income per common share for the year ended June 30, 2023, was $0.43, compared to $1.74 for the year ended June 30, 2022, reflecting a decrease of 75.1%[243]. Sales and Revenue - Private-label contract manufacturing sales decreased by 6% primarily due to reduced orders from larger customers, with sales to the largest customer increasing by 66%[143]. - Patent and trademark licensing revenue decreased by 46% to $8.7 million from $16.2 million in fiscal 2022, attributed to market factors and a slowdown in the Sports Nutrition sales channel[144]. - Net sales decreased to $154,015 thousand in 2023 from $170,966 thousand in 2022, representing a decline of approximately 9.9%[189]. - Private-label contract manufacturing segment net sales were $145.3 million in fiscal 2023, down from $154.8 million in fiscal 2022, a decrease of about 6%[322]. - Patent and trademark licensing segment net sales fell to $8.7 million in fiscal 2023 from $16.2 million in fiscal 2022, a decline of approximately 46%[322]. - Net sales in the United States were $109,277,000 in 2023, down from $115,255,000 in 2022, a decrease of about 5.9%[323]. Expenses and Costs - Selling, general, and administrative expenses decreased by 20% to $13.5 million from $16.8 million in fiscal 2022[157]. - Interest expense increased significantly to $451 thousand in 2023 from $83 thousand in 2022, marking a rise of approximately 443.4%[189]. - Advertising costs incurred during fiscal 2023 were $0.7 million, down from $1.1 million in fiscal 2022[233]. - Health care benefits expenses for active employees totaled $1.7 million for the fiscal year ended June 30, 2023, compared to $1.4 million for the fiscal year ended June 30, 2022[280]. Cash Flow and Liquidity - Cash provided by operating activities was $7.0 million in fiscal 2023, down from $11.9 million in fiscal 2022[160]. - Cash and cash equivalents at the end of 2023 were $13,604 thousand, compared to $21,833 thousand at the end of 2022, indicating a decrease of approximately 37.6%[194]. - Cash used in investing activities decreased to $13.5 million in fiscal 2023 from $26.5 million in fiscal 2022, primarily due to the absence of a new facility purchase[163]. - Cash used in financing activities was $1.8 million in fiscal 2023, down from $4.3 million provided in fiscal 2022, reflecting reduced stock repurchase activity[164]. - The company anticipates not being able to comply with all covenants under the Credit Agreement in Q2 of fiscal 2024 due to reduced sales and temporary facility closures[167]. Inventory and Assets - Total current assets decreased to $57.0 million as of June 30, 2023, from $76.7 million in 2022[187]. - The company’s inventories decreased to $29.694 million as of June 30, 2023, from $32.475 million as of June 30, 2022, a reduction of 8.7%[247]. - Total assets decreased to $134.2 million as of June 30, 2023, compared to $146.0 million as of June 30, 2022, a decline of approximately 8%[322]. - Long-lived assets in the United States increased from $43,769,000 in 2022 to $53,536,000 in 2023, an increase of approximately 22.4%[324]. Debt and Financing - The company entered into a new credit facility with Wells Fargo, extending the maturity of its working line of credit to May 24, 2024, with a total lending capacity of $20.0 million[260]. - The company has $20.0 million available for borrowing under its credit facility as of June 30, 2023[267]. - The company is currently negotiating a potential revised credit facility with its lender[167]. Operational Developments - A temporary closure of the new high-speed powder processing facility was announced due to excess inventory, with expectations to resume operations by late Q3 of fiscal 2024[148]. - The company plans to continue focusing on expanding its beta-alanine patent estate and developing new sales distribution channels in the Wellness and Healthy Aging category[152]. - The company recognized a benefit of $3.5 million from the Employee Retention Tax Credit, with $2.2 million offsetting cost of goods sold and $1.3 million offsetting other selling, general and administrative expenses[204]. Pension and Employee Benefits - The defined benefit pension plan's funded status showed a benefit obligation of $1.364 million at the end of June 30, 2023, down from $1.438 million at the end of June 30, 2022[286]. - The net periodic benefit expense for the defined benefit pension plan was $81,000 for the fiscal year ended June 30, 2023, compared to $83,000 for the fiscal year ended June 30, 2022[287]. - The fair value of plan assets at the end of June 30, 2023, was $1.025 million, a decrease from $1.094 million at the end of June 30, 2022[286].

Sales Performance - For the nine months ended March 31, 2023, net sales decreased by 0.3% compared to the same period in 2022, with private-label contract manufacturing sales increasing by 7.7% primarily due to higher sales to the largest customer[89]. - The company anticipates a consolidated net sales decrease of 10% to 12% for fiscal 2023 compared to fiscal 2022, driven by changes in sales mix and inflationary factors[94]. - During the three months ended March 31, 2023, private-label contract manufacturing net sales decreased by 19% compared to the same period in 2022, primarily due to reduced orders from two of the three largest customers[103]. Profitability - Gross profit for the three months ended March 31, 2023, was $1.4 million, representing a gross profit margin of 4.2%, down from 17.4% in the same period in 2022[102]. - Gross profit margin for private-label contract manufacturing decreased by 11.5 percentage points for the three months ended March 31, 2023, primarily due to lower sales and increased per-unit manufacturing costs[106]. - Patent and trademark licensing gross profit margin decreased by 1.7 percentage points for the three months ended March 31, 2023, attributed to decreased net sales in this segment[106]. Expenses and Cost Management - A workforce restructuring plan was implemented in March 2023, resulting in the elimination of 32 positions, approximately 9% of the global workforce, expected to reduce operating expenses by $1.8 million annually[95]. - Selling, general and administrative expenses decreased by $0.3 million, or 6%, for the three months ended March 31, 2023, mainly due to a partial recovery of previously reserved accounts receivable[106]. - The company expects to continue evaluating cost reduction opportunities to mitigate the impact of order reductions and higher operational costs on financial results[96]. Cash Flow and Financial Position - Net cash used by operating activities was $0.5 million for the nine months ended March 31, 2023, compared to $3.1 million provided in the prior year[111]. - Changes in accounts receivable provided $9.8 million in cash for the nine months ended March 31, 2023, compared to $1.2 million in the prior year[112]. - Cash used in investing activities was $13.2 million for the nine months ended March 31, 2023, down from $21.4 million in the prior year, primarily due to different capital expenditures[114]. - Cash provided by financing activities was $7.4 million for the nine months ended March 31, 2023, compared to $4.8 million in the prior year[115]. - As of March 31, 2023, the company had $15.6 million in cash and cash equivalents, sufficient to fund current working capital needs and capital expenditures for the next 12 months[117]. Research and Development - The company continues to invest in research and development for the SR CarnoSyn® sustained release delivery system, targeting growth in the Wellness and Healthy Aging markets[91]. - The company plans to begin commercial production in a new high-volume powder blending and packaging facility, which was fully opened in April 2023[97]. Legal and Other Expenses - Legal expenses related to the CarnoSyn® business were approximately $0.1 million for the first nine months of fiscal 2023, down from $0.3 million in the same period in fiscal 2022[92]. - Other expenses increased by $0.2 million for the three months ended March 31, 2023, primarily due to increased expenses related to the CHF balance sheet hedge and interest expense[107]. Taxation - Income tax benefit decreased by $1.1 million to a benefit of $0.4 million for the three months ended March 31, 2023, due to a pre-tax loss compared to the prior year[108].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☐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 ☒QUARTERLY REPORT PURSUAN ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 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 84-1 ...

Part I [Business](index=5&type=section&id=Item%201.%20Business) NAI is a leading nutritional supplement formulator and manufacturer, primarily through private-label contract manufacturing and beta-alanine patent licensing, operating certified facilities in the US and Switzerland - The company's primary business is private-label contract manufacturing for the nutritional supplement industry, complemented by a patent and trademark licensing segment for its beta-alanine ingredient, CarnoSyn®[15](index=15&type=chunk) - NAI operates certified manufacturing facilities in Vista and Carlsbad, California, and Manno, Switzerland, holding certifications from TGA, NSF International, Health Canada, and Swissmedic for global distribution[20](index=20&type=chunk)[21](index=21&type=chunk)[26](index=26&type=chunk) Net Sales by Segment (Fiscal Years 2022 vs. 2021) | Segment | FY 2022 Sales ($ thousands) | % of Total | FY 2021 Sales ($ thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Private-label Contract Manufacturing | $154,798 | 91% | $164,310 | 92% | | Patent and Trademark Licensing | $16,168 | 9% | $14,210 | 8% | | **Total Net Sales** | **$170,966** | **100%** | **$178,520** | **100%** | - The company faces customer concentration risk, with **three private-label contract manufacturing customers** each accounting for over **10% of consolidated net sales**[40](index=40&type=chunk) - As of June 30, 2022, NAI employed **294 full-time employees in the U.S.** and **95 full-time employees in its Swiss subsidiary, NAIE**[58](index=58&type=chunk)[59](index=59&type=chunk) [Risk Factors](index=14&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including supply chain disruptions from COVID-19, economic downturns, intense competition, dependency on key suppliers and customers, regulatory hurdles, and intellectual property litigation - The COVID-19 pandemic has caused and may continue to cause disruptions in supply chains, production, and labor availability, potentially impacting operational and financial performance[70](index=70&type=chunk)[71](index=71&type=chunk) - The company derives a significant portion of its revenue from a limited number of customers, with sales to the **three largest customers constituting approximately 72% of consolidated net sales in fiscal year 2022**[91](index=91&type=chunk) - A **single manufacturer in Japan** supplies all beta-alanine for the CarnoSyn® and SR CarnoSyn® business, creating a significant supplier dependency risk[85](index=85&type=chunk) - The company's ability to maintain or grow revenue from its patent and trademark licensing segment is highly dependent on its ability to defend its patents for beta-alanine (CarnoSyn® and SR CarnoSyn®)[94](index=94&type=chunk) - Officers and directors beneficially owned approximately **20% of outstanding common stock** as of June 30, 2022, with the CEO and Chairman, Mark LeDoux, and his affiliates owning about **16%**, giving them significant influence over corporate matters[110](index=110&type=chunk) [Properties](index=23&type=section&id=Item%202.%20Properties) As of June 30, 2022, NAI owns its Carlsbad, CA headquarters and a new powder facility, while leasing its primary US manufacturing site in Vista, CA, and Swiss facilities, all deemed adequate for operations Summary of Facilities as of June 30, 2022 | Location | Nature of Use | Square Feet | How Held | | :--- | :--- | :--- | :--- | | Vista, CA USA | Manufacturing, warehousing, packaging | 162,000 | Leased | | Manno, Switzerland | Manufacturing, warehousing, packaging | 95,990 | Leased | | Manno, Switzerland | Warehousing | 30,892 | Leased | | Carlsbad, CA USA | Corporate headquarters | 20,981 | Owned | | Carlsbad, CA USA | Powder filling, packaging, storage | 54,154 | Owned | - A new facility purchased in August 2021 in Carlsbad, CA is being converted into a high-volume powder blending and packaging facility, expected to be operational by **mid-fiscal 2023**[128](index=128&type=chunk) [Legal Proceedings](index=23&type=section&id=Item%203.%20Legal%20Proceedings) As of September 21, 2022, NAI and its subsidiary NAIE were not party to any material pending legal proceedings, with management not expecting current matters to materially adversely affect the business - As of **September 21, 2022**, the company was not a party to any material pending legal proceedings[126](index=126&type=chunk) [Mine Safety Disclosures](index=23&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[128](index=128&type=chunk) Part II [Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=24&type=section&id=Item%205.%20Market%20for%20Our%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) NAI common stock trades on Nasdaq under "NAII"; the company has never paid and does not intend to pay cash dividends, instead retaining earnings for growth, and repurchased **37,305 shares** for **$0.4 million** in Q4 FY2022 - The company's common stock is traded on the Nasdaq Global Market under the symbol **"NAII"**[130](index=130&type=chunk) - NAI has never paid a dividend on its common stock and does not intend to in the foreseeable future, with a policy to retain all earnings for growth[132](index=132&type=chunk) Common Stock Repurchases (Quarter Ended June 30, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1-30, 2022 | 4,359 | $11.64 | | May 1-31, 2022 | 15,114 | $10.20 | | June 1-30, 2022 | 17,832 | $10.56 | | **Total** | **37,305** | - | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In FY2022, consolidated net sales decreased **4% to $171.0 million**, driven by a **6% decline** in private-label manufacturing due to a **40% reduction** from the largest customer, partially offset by a **14% increase** in licensing revenue, while net income remained flat at **$10.7 million** Consolidated Operating Results (Fiscal Years Ended June 30) | Metric ($ in thousands) | 2022 | 2021 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total net sales | $170,966 | $178,520 | $(7,554) | (4)% | | Gross profit | $30,509 | $30,442 | $67 | 0% | | Income from operations | $13,679 | $13,672 | $7 | 0% | | Net income | $10,712 | $10,768 | $(56) | (1)% | - Private-label contract manufacturing sales decreased by **6% in FY2022**, mainly due to a **40% drop in sales** to the largest customer, whose revenue concentration fell from **51% to 32% of total net sales**[142](index=142&type=chunk)[153](index=153&type=chunk) - Patent and trademark licensing revenue grew **14% to $16.2 million in FY2022**, attributed to new customers, higher prices, and increased demand as athletic activities resumed post-COVID restrictions[143](index=143&type=chunk)[154](index=154&type=chunk) - For fiscal 2023, the company anticipates consolidated net sales to increase between **10.0% and 15.0%** compared to fiscal 2022, with operating income projected to be between **5.0% and 7.0% of net sales**[146](index=146&type=chunk) - Net cash from operating activities was **$11.9 million in FY2022**, down from **$20.8 million in FY2021**, while cash used in investing activities increased significantly to **$26.5 million** due to the purchase and retrofitting of a new manufacturing facility[158](index=158&type=chunk)[161](index=161&type=chunk) [Financial Statements and Supplementary Data](index=31&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) Audited consolidated financial statements for FY2022 and FY2021 are presented with an unqualified auditor's opinion, highlighting revenue recognition as a critical audit matter, and showing total assets increased to **$146.0 million** while liabilities rose to **$57.5 million** - The independent auditor, HASKELL & WHITE LLP, issued an **unqualified opinion** on the consolidated financial statements, identifying revenue recognition as a critical audit matter due to contract complexity and judgment[172](index=172&type=chunk)[177](index=177&type=chunk) Key Balance Sheet Data (as of June 30) | ($ in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $21,833 | $32,133 | | Total current assets | $76,746 | $80,348 | | Total assets | $146,003 | $120,281 | | **Liabilities & Equity** | | | | Total current liabilities | $23,261 | $22,072 | | Total liabilities | $57,483 | $40,198 | | Total stockholders' equity | $88,520 | $80,083 | Key Income Statement Data (for the year ended June 30) | ($ in thousands) | 2022 | 2021 | | :--- | :--- | :--- | | Net sales | $170,966 | $178,520 | | Gross profit | $30,509 | $30,442 | | Income from operations | $13,679 | $13,672 | | Net income | $10,712 | $10,768 | | Diluted EPS | $1.74 | $1.69 | - The business is divided into two reportable segments: private-label contract manufacturing and patent/trademark licensing, generating **$154.8 million in sales** and **$15.7 million in operating income** for the former, and **$16.2 million in sales** and **$6.8 million in operating income** for the latter in FY2022[308](index=308&type=chunk)[310](index=310&type=chunk) - The company has significant customer and supplier concentration, with **three customers accounting for 72% of net sales** and **one raw material supplier accounting for 17% of total raw material purchases in FY2022**[295](index=295&type=chunk)[296](index=296&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=66&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) No disagreements with accountants on accounting and financial disclosure were reported during the period - None reported[318](index=318&type=chunk) [Controls and Procedures](index=66&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2022, with no material changes reported during the fourth quarter - Based on an evaluation as of **June 30, 2022**, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[320](index=320&type=chunk) - Management's assessment concluded that the company's internal control over financial reporting was effective as of **June 30, 2022**, based on the COSO 2013 framework[323](index=323&type=chunk) [Other Information](index=66&type=section&id=Item%209B.%20Other%20Information) No other information was reported for this period - None[326](index=326&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Certain Relationships](index=66&type=section&id=Items%2010-14) Information for Items 10 through 14 is incorporated by reference from the definitive proxy statement for the Annual Meeting of Stockholders, scheduled to be filed by **October 28, 2022** - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the definitive proxy statement for the Annual Meeting of Stockholders to be held on **December 2, 2022**[328](index=328&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=67&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements filed under Item 8 and provides an index of all exhibits filed with the report or incorporated by reference, including corporate governance documents, material contracts, and SEC-required certifications - This section contains the list of financial statements included in Item 8 and an index of all exhibits filed with the report[330](index=330&type=chunk)[331](index=331&type=chunk)[332](index=332&type=chunk)