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 ...

Table of Contents 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, 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. (Exact name of registrant as specified in its charter) Delaware 84-1007839 (Sta ...

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 March 31, 2023 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to . | Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | | --- | --- | --- | | Common Stock, $0.01 par value per sh ...

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)

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents Natural Alternatives International, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flow statements, for the period ended March 31, 2022 [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased to **$135.5 million** by March 31, 2022, driven by higher property and equipment and inventories, while liabilities also rose due to a new mortgage note payable Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2022 (Unaudited) | June 30, 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $18,575 | $32,133 | | Inventories, net | $36,800 | $27,006 | | Property and equipment, net | $40,400 | $22,271 | | **Total current assets** | **$78,206** | **$80,348** | | **Total assets** | **$135,488** | **$120,281** | | Accounts payable | $17,838 | $11,893 | | Mortgage note payable | $9,863 | $0 | | **Total current liabilities** | **$24,368** | **$22,072** | | **Total liabilities** | **$50,411** | **$40,198** | | **Total stockholders' equity** | **$85,077** | **$80,083** | [Condensed Consolidated Statements of Income and Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Q3 2022 net sales decreased to **$42.4 million**, but net income increased to **$2.5 million**, while nine-month net sales fell to **$118.4 million** with a slight decrease in net income Financial Performance Summary (in thousands, except per share data) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $42,373 | $46,320 | $118,440 | $134,129 | | Gross profit | $7,393 | $6,836 | $22,220 | $22,515 | | Income from operations | $3,274 | $2,700 | $9,903 | $10,177 | | Net income | $2,504 | $1,916 | $7,607 | $7,806 | | Diluted EPS | $0.41 | $0.30 | $1.22 | $1.22 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations significantly decreased to **$3.1 million** for the nine months ended March 31, 2022, while cash used in investing surged to **$21.4 million**, primarily for property and equipment Cash Flow Summary (in thousands) | Activity | Nine Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $3,122 | $15,999 | | Net cash used in investing activities | ($21,438) | ($4,248) | | Net cash provided by (used in) financing activities | $4,758 | ($14,140) | | **Net decrease in cash and cash equivalents** | **($13,558)** | **($2,389)** | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes detail accounting policies, highlight increased beta-alanine revenue, the acquisition of a **$17.5 million** manufacturing property, high customer concentration, and segment performance showing growth in licensing despite a decline in contract manufacturing - Beta-alanine (CarnoSyn®) related revenue, including raw material sales and royalties, was **$4.8 million** for Q3 2022 and **$13.5 million** for the nine months ended March 31, 2022, up from **$4.1 million** and **$9.6 million** in the respective prior-year periods[35](index=35&type=chunk) - On August 20, 2021, the company acquired a manufacturing and warehouse property in Carlsbad, California, for **$17.5 million** to be retrofitted into a powder blending and packaging facility[47](index=47&type=chunk) Net Sales by Business Segment (in thousands) | Segment | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Private label contract manufacturing | $37,623 | $42,196 | $104,894 | $124,569 | | Patent and trademark licensing | $4,750 | $4,124 | $13,546 | $9,560 | | **Total Net Sales** | **$42,373** | **$46,320** | **$118,440** | **$134,129** | - Sales to the top three customers were highly concentrated. For the nine months ended March 31, 2022, Customer 1 accounted for **$40.1 million**, Customer 2 for **$22.8 million**, and Customer 3 for **$19.8 million** of net sales[68](index=68&type=chunk) [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 discusses a **12%** decline in nine-month net sales, primarily from contract manufacturing, partially offset by a **42%** increase in licensing revenue, while forecasting **18-21%** sales growth for Q4 2022 - Private-label contract manufacturing sales decreased **16%** in the first nine months of fiscal 2022, mainly due to a **44%** drop in sales to the largest customer, whose revenue concentration fell from **54%** to **34%** of total net sales[104](index=104&type=chunk) - Patent and trademark licensing revenue grew **42%** to **$13.5 million** in the first nine months of fiscal 2022, attributed to new customers, higher prices, and increased demand as athletic activities resumed post-COVID restrictions[105](index=105&type=chunk) - The company anticipates consolidated net sales for Q4 2022 to increase by **18.0% to 21.0%** compared to Q4 2021, with operating income as a percentage of net sales expected to be between **9.0% and 12.0%**[109](index=109&type=chunk) - Liquidity was impacted by a **$9.8 million** use of cash for inventory buildup and **$21.4 million** in capital expenditures, primarily for a new facility. The company secured a **$10.0 million** term loan to help fund the purchase[125](index=125&type=chunk)[126](index=126&type=chunk)[127](index=127&type=chunk) [Item 4. Controls and Procedures](index=32&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of March 31, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[134](index=134&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[135](index=135&type=chunk) PART II - OTHER INFORMATION [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings but does not anticipate a material adverse effect on its financial condition, with no material pending proceedings as of May 12, 2022 - The company is involved in ordinary course investigations, claims, and legal proceedings but does not expect them to have a material adverse effect on the business[138](index=138&type=chunk) - As of May 12, 2022, neither NAI nor its subsidiary NAIE were party to any material pending legal proceedings[139](index=139&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section refers readers to the company's 2021 Annual Report on Form 10-K for a detailed discussion of comprehensive risk factors - The report refers readers to Item 1A of the 2021 Annual Report on Form 10-K for a detailed discussion of risk factors[140](index=140&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=33&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not sell unregistered equity securities but repurchased **179,810** common shares for **$2.3 million** under its authorized plan during the three months ended March 31, 2022 Common Stock Repurchases (Q3 2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | Jan 2022 | 106,058 | $13.29 | | Feb 2022 | 43,456 | $11.95 | | Mar 2022 | 30,296 | $11.24 | | **Total** | **179,810** | **-** | - On January 14, 2022, the Board of Directors authorized an additional **$3.0 million** for the stock repurchase plan, bringing the total authorized amount to **$18.0 million**[84](index=84&type=chunk) [Item 3. Defaults Upon Senior Securities](index=33&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon its senior securities during the period - None[143](index=143&type=chunk) [Item 5. Other Information](index=34&type=section&id=Item%205.%20Other%20Information) The company reported no other information required to be disclosed under this item - None[144](index=144&type=chunk) [Item 6. Exhibits](index=35&type=section&id=Item%206.%20Exhibits) This section indexes exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Exhibits filed with this report include Rule 13a-14(a)/15d-14(a) Certifications for the CEO and CFO, a Section 1350 Certification, and XBRL data files[147](index=147&type=chunk)