NAI(NAII) - 2025 Q4 - Annual Report

Special Note About Forward-Looking Statements Forward-Looking Statements Disclaimer This section highlights that certain statements in the report are forward-looking, reflecting current views on future events and financial performance based on assumptions, and cautions against undue reliance due to inherent risks and uncertainties - Forward-looking statements reflect current views about future events and financial performance based on certain assumptions, including opinions, forecasts, intentions, plans, goals, projections, guidance, expectations, and beliefs[11] - Readers are cautioned not to place undue reliance on forward-looking statements, as they are subject to future events, risks, and uncertainties outside the company's control, which could cause actual results to differ materially[12] - Key factors that could impact future results include the ability to develop market acceptance for new products, future financial and operating results, liquidity, facility adequacy, customer orders, pricing, patent/trademark licensing, operating efficiencies, raw material availability, intellectual property protection, economic/political conditions, currency exchange rates, litigation outcomes, and regulatory compliance[13] PART I Item 1. Business Natural Alternatives International, Inc. (NAI) is a formulator, manufacturer, and marketer of nutritional supplements, primarily offering private-label contract manufacturing services and commercializing its patent estate related to beta-alanine, emphasizing quality, scientific research, and regulatory compliance across its U.S. and Swiss facilities - NAI's vision is to enrich the world through the best of nutrition, serving as a leading formulator, manufacturer, and marketer of nutritional supplements[14][15] - The primary business activity is private-label contract manufacturing, alongside commercialization of its beta-alanine patent estate under CarnoSyn®, SR CarnoSyn®, and TriBsyn™ trademarks[16] - NAI operates manufacturing facilities in Vista and Carlsbad, California, and Manno, Switzerland, holding various certifications including TGA, NSF, Health Canada, Organic, SSCI, and Swissmedic pharmaceutical licenses[21][22][24][25][27][28][29] General Business Overview - NAI provides comprehensive strategic partnerships, offering services like scientific research, clinical studies, proprietary ingredients, product formulation, testing, marketing support, packaging, regulatory review, and international product registration assistance[15] - The company commercializes its beta-alanine patent estate through direct raw material sales and supply agreements under CarnoSyn®, SR CarnoSyn®, and TriBsyn™ trademarks[16] History and Facilities - Founded in 1980 and reorganized in 1989, NAI's principal executive offices are in Carlsbad, CA, with primary U.S. manufacturing in Vista, CA, and an additional facility in Carlsbad, CA[17] - NAIE, a wholly-owned Swiss subsidiary formed in 1999, operates a manufacturing facility in Manno, Switzerland, with capabilities in encapsulation, powders, tablets, packaging, quality control, and distribution[18] - NAI licensed beta-alanine patent rights in 1997, expanding to include sustained-release beta-alanine (SR CarnoSyn®) and a new form, TriBsyn™[19] - U.S. facilities are certified by TGA (Australia), NSF International (GMP and 'GMP for Sport'), Health Canada, and Natural Food Certifiers (Organic), with the Vista facility's TGA certification renewed through August 2025[21][22][23][24][25] - The Carlsbad, CA facility, acquired in August 2021 and fully operational in April 2023, is a dedicated high-volume powder blending and packaging facility, also certified Organic, NSF, NSF for Sport, and SSCI[28] - NAIE's Swiss facility holds pharmaceutical licenses from Swissmedic Authority (since 2004, with upgrades in 2007 and 2013) and FSSC 22000 certification (May 2024)[29] Business Strategy - NAI's goals are long-term growth, profitability, and sales base diversification by leveraging certified facilities, expanding beta-alanine patent commercialization, and improving operational efficiencies[30][33] - The company aims to enhance consumer confidence through education, utilizing its GMP and TGA certified operations, science-based formulations, clinical studies, and regulatory expertise as competitive advantages[30] - Significant opportunities exist in commercializing the beta-alanine patent estate, particularly for SR CarnoSyn® and the new TriBsyn™ product, targeting Wellness and Healthy Aging channels and new demographics like older adults, vegetarians, and vegans[32][34] Products, Principal Markets and Methods of Distribution - NAI's primary business is private-label contract manufacturing of nutritional supplements (vitamins, minerals, herbs) and other healthcare products for direct sales, e-commerce, and retail channels, in forms like capsules, tablets, chewable wafers, and powders[37] - Strategic partnering services include customized product formulation, clinical study support, manufacturing, marketing support, international regulatory compliance, product registration, and packaging/labeling design[38][45] Net Sales Breakdown (in thousands) | Category | 2025 ($) | 2025 (%) | 2024 ($) | 2024 (%) | | :----------------------------- | :------- | :------- | :------- | :------- | | Private-label Contract Manufacturing | 121,779 | 94 | 105,358 | 93 | | Patent and Trademark Licensing | 8,081 | 6 | 8,438 | 7 | | Total Net Sales | 129,860 | 100 | 113,796 | 100 | Research and Development - NAI is committed to quality R&D, focusing on new science-based products and improving existing ones, including testing for stability, potency, efficacy, and safety, and participating in clinical research[40] Research and Development Expenses (in millions) | Fiscal Year | Expense ($) | | :------------ | :---------- | | 2025 | 1.8 | | 2024 | 1.9 | Sources and Availability of Raw Materials - NAI uses various raw materials, including powders, excipients, capsules, and packaging components, with identity testing and quality evaluation protocols[43] - The company experienced supply chain challenges due to COVID-19, geopolitical issues (Ukraine-Russia, Israel-Hamas conflicts), and inflationary pressures, leading to increased costs for raw materials, packaging, labor, and transportation[44][46][47] - The commercialization of beta-alanine patents depends on the availability of this raw material, which is purchased from a single manufacturer in Japan[43][93] Customers - NAI has three private-label contract manufacturing customers, each representing over 10% of consolidated net sales, posing a significant concentration risk[48] - The company is actively seeking new private-label customers to mitigate risks associated with a limited customer base[48] Competition - The nutritional supplement industry is highly fragmented and competitive, with competition based on customized services, product quality and safety, innovation, price, and customer service[50][51] - NAI believes it competes favorably due to its comprehensive customer solutions, certified manufacturing operations, commitment to quality and safety, and R&D activities[51] - Future competitive position depends on product acceptance, intellectual property protection, product expansion, inventory levels, manufacturing quality/price, personnel, regulatory changes, and industry growth[52] Government Regulation - NAI's business is subject to extensive regulation by U.S. authorities (FDA, FTC, CPSC, USDA, EPA) and various state/local agencies, covering product claims, labels, ingredients, manufacturing, packaging, distribution, import/export, and storage[53][55] - The FDA regulates dietary supplements under GMPs, DSHEA (1994), and the 2006 Act, requiring compliance with manufacturing standards, labeling, claims, and adverse event reporting[54][56][57][58][59] - International operations are subject to varying regulations, including EU rules and country-specific approvals, which may conflict with U.S. laws and require significant financial and operational resources for compliance[61] Intellectual Property - NAI owns 57 registered trademarks globally, including 11 in the U.S. (7 incontestable), and 46 foreign trademarks covering 39 countries, including CarnoSyn®, SR CarnoSyn®, and TriBsyn™[62][63] - The company holds nine U.S. patents and eight corresponding non-U.S. patents related to beta-alanine, with some extending through 2036, and pending applications for TriBsyn™[66] Intellectual Property Related Financials (in millions) | Item | Fiscal 2025 ($) | | :-------------------------------- | :-------------- | | Beta-alanine sales & licensing revenue | 8.1 | | IP litigation & patent compliance expenses | 0.4 | Employees - As of June 30, 2025, NAI employed 215 full-time U.S. employees (3 executive officers, 45 R&D/QC, 13 sales/marketing, 154 manufacturing/admin) and 19 temporary personnel[68] - NAIE employed an additional 78 full-time and 21 temporary employees, mostly in manufacturing and support[69] - Employees are not unionized, and the company reports a good relationship with its workforce[69] Seasonality - NAI is impacted by seasonal factors and trends, such as cultural events and vacation patterns, which vary by region[71] - While the impact on consolidated results is minimal, quarterly results may vary significantly due to the timing of private-label contract manufacturing and beta-alanine raw material orders[71] Financial Information about Our Business Segments and Geographic Areas - NAI operates in two reportable segments: Private-label contract manufacturing and Royalty, licensing, and raw material sales (primarily beta-alanine)[72][75] - Private-label products are sold in the U.S. and international markets (Europe, Australia, Asia, Mexico, Canada), with Europe and Asia being primary international markets. Patent and trademark licensing activities are primarily U.S.-based[72] Item 1A. Risk Factors This section outlines various risks that could materially adversely affect NAI's business, financial condition, and results of operations, spanning economic downturns, global instability, intense competition, operational challenges, customer concentration, regulatory compliance, intellectual property protection, corporate governance, and potential acquisition failures - A significant or prolonged economic downturn could materially adversely affect NAI's results by lowering consumer demand for products manufactured for customers and those sold under licensed patent rights[78] - Global economic instability, including supply chain issues, inflation, fuel/energy costs, and geopolitical conflicts (Ukraine-Russia, Israel-Hamas), impact raw material availability and pricing, increasing operational costs[79][80][81][82] - The nutritional supplement industry is highly competitive with low entry barriers; NAI faces risks from larger competitors, new product introductions, and potential price reductions if consumers do not value higher quality[83][84] - Operational risks include dependence on uninterrupted facility operations, potential power failures, cybersecurity vulnerabilities, human error, natural disasters, and the ability to attract and retain qualified management and manufacturing personnel[88][89] - Customer concentration is a significant risk, with sales to the three largest customers representing approximately 59% of consolidated net sales in fiscal 2025; the loss of any major customer or a significant decline in their orders could materially affect financial results[99] - Extensive government regulation (FDA, FTC, international agencies) poses risks of non-compliance, product withdrawals, recalls, fines, and increased costs, while potential new tariffs on imported goods could adversely impact raw material costs and customer competitiveness[108][109][112][113] - NAI faces risks related to protecting its intellectual property (patents, trademarks, trade secrets), including litigation costs and potential infringement claims, and the ability to successfully commercialize new beta-alanine forms like SR CarnoSyn® and TriBsyn™[103][104][105][118] Item 1C. Cybersecurity NAI maintains various information security processes as part of its enterprise risk management to identify, assess, and manage cybersecurity threats, employing technological defenses, an Incident Response Plan, and a governance structure involving the Audit Committee and senior management to oversee cybersecurity risks, though it acknowledges the continuous and evolving nature of these threats - NAI has implemented information security processes to identify, assess, and manage cybersecurity risks to its critical computer networks, third-party hosted services, and data, aligning with business objectives and operational needs[138] - Technological defenses include gateway consoles, limited access to key Information Systems, and multi-factor authentication via a third-party mobile identity management tool[140] - An established Incident Response Plan formalizes stages for reporting, identification, scope, response, and recovery of cybersecurity incidents, supported by crisis management and business continuity measures[141] - The Audit Committee of the Board of Directors oversees risk management, including cybersecurity, with senior management responsible for day-to-day management and reporting material issues to the Board[143][144][145] Item 2. Properties NAI's facilities as of June 30, 2025, include leased manufacturing and distribution sites in Vista, CA, and Manno, Switzerland, along with owned corporate headquarters and a powder filling/packaging facility in Carlsbad, CA, which the company believes are adequate for foreseeable operating requirements Summary of Facilities as of June 30, 2025 | Location | Nature of Use | Square Feet | How Held | Lease Expiration Date | | :------------------ | :------------------------------------------------ | :---------- | :------- | :-------------------- | | Vista, CA USA | Manufacturing, warehousing, packaging, distribution | 162,000 | Leased | August 2034 | | Manno, Switzerland | Manufacturing, warehousing, packaging, distribution | 85,070 | Leased | December 2032 | | Manno, Switzerland | Warehousing | 30,892 | Leased | December 2026 | | Carlsbad, CA USA | Corporate headquarters | 20,981 | Owned | N/A | | Carlsbad, CA USA | Powder filling, packaging, distribution, storage | 67,453 | Owned | N/A | - The Vista, CA facility lease was extended through August 31, 2034, and the Carlsbad, CA powder facility, operational since April 2023, was temporarily closed in October 2023 due to customer inventory issues but reopened in May 2024[152] Item 3. Legal Proceedings NAI is involved in various legal proceedings in the ordinary course of business, and as of June 30, 2025, the company accrued $1.4 million for a tentative settlement of two class action and PAGA lawsuits filed by former employees in December 2023, with court approval estimated to take about one year - NAI is routinely involved in investigations, claims, and legal proceedings related to intellectual property, product liability, employment, tax, regulation, and contracts[148] - In December 2023, NAI was sued by three former employees in two class action and PAGA lawsuits, leading to a tentative settlement agreement on July 3, 2025, for a maximum contribution of $1.25 million[149] - The company accrued $1.4 million in its fiscal 2025 results for the settlement and estimated legal fees, with court approval for the settlement process expected to take approximately one year[149] Item 4. Mine Safety Disclosures This item is not applicable to Natural Alternatives International, Inc PART II Item 5. Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities NAI's common stock trades on the Nasdaq Global Market under 'NAII', with 169 stockholders of record as of September 19, 2025; the company has never paid dividends and does not intend to in the foreseeable future, retaining earnings for growth, and stock repurchases were limited to shares acquired from employees for tax withholding upon restricted stock vesting - NAI's common stock trades on the Nasdaq Global Market under the symbol 'NAII'[155] Common Stock High and Low Sales Prices (Fiscal 2025 & 2024) | Quarter | Fiscal 2025 High ($) | Fiscal 2025 Low ($) | Fiscal 2024 High ($) | Fiscal 2024 Low ($) | | :-------------- | :------------------- | :------------------ | :------------------- | :------------------ | | First Quarter | 6.88 | 5.10 | 7.62 | 5.06 | | Second Quarter | 5.60 | 4.02 | 7.37 | 5.78 | | Third Quarter | 4.40 | 3.27 | 6.98 | 5.65 | | Fourth Quarter | 3.62 | 2.57 | 7.26 | 6.00 | - As of September 19, 2025, there were 169 stockholders of record, and the closing sale price was $3.12 per share[156] - NAI has never paid dividends on its common stock and does not intend to in the foreseeable future, prioritizing retention of earnings for operations and future growth, also restricted by credit facility terms[157] - No unregistered securities were sold during fiscal year 2025[158] Common Stock Repurchases (Fiscal 2025) | Item | Shares Purchased | Average Cost ($) | Total Cost (in thousands) ($) | | :--------------------------------------- | :--------------- | :--------------- | :---------------------------- | | Shares purchased under Repurchase Plan | — | — | — | | Shares acquired for restricted stock vesting | 45,972 | 3.88 | 178 | | Total | 45,972 | | 178 | Equity Compensation Plan Information (as of June 30, 2025) | Plan Category | Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights (a) | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (b) | Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a)) (c) | | :---------------------------------------------- | :--------------------------------------------------------------------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------------------------------------------------------- | | Equity compensation plans approved by stockholders | — | — | 158,877 | | Equity compensation plans not approved by stockholders | N/A | N/A | N/A | | Total | — | — | 158,877 | Item 6. Selected Financial Data As a smaller reporting company, Natural Alternatives International, Inc. is not required to provide Item 6 disclosure in this Annual Report Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of NAI's financial performance, highlighting a 14% increase in consolidated net sales in fiscal 2025, primarily driven by private-label contract manufacturing, but reported a net loss due to factory underutilization, a valuation allowance against deferred tax assets, and a litigation settlement, anticipating a net loss in the first half of fiscal 2026 but expecting full-year net income while actively managing liquidity, capital resources, and inflationary pressures - Consolidated net sales increased by 14% in fiscal 2025 compared to fiscal 2024, primarily driven by a 16% increase in private-label contract manufacturing net sales[167][176] - Revenue concentration from the largest private-label contract manufacturing customer decreased from 42% in fiscal 2024 to 33% in fiscal 2025[167][176] - Patent and trademark licensing revenue decreased by 4% to $8.1 million in fiscal 2025, primarily due to decreased material sales from existing customers, partially offset by lower volume rebates and increased royalty income[168][177] - NAI incurred a net loss of $13.6 million in fiscal 2025, an 88% increase from $7.2 million in fiscal 2024, primarily due to underutilization of factory capacities, a $4.8 million valuation allowance against domestic net deferred income tax assets, and a $1.4 million litigation settlement accrual[172][176][182] - The company anticipates a net loss in the first half of fiscal 2026 but expects to achieve net income in the second half and for the full fiscal year 2026[172] - Net cash provided by operating activities was $5.9 million in fiscal 2025, a significant improvement from net cash used of $1.5 million in fiscal 2024, driven by changes in accounts receivable and inventory[183][213] - NAI's credit facility was amended on June 20, 2025, extending maturity to December 31, 2026, decreasing the maximum borrowing to $10.0 million, and waiving prior covenant defaults. The company expects non-compliance with modified covenants in H1 fiscal 2026 and is negotiating revisions[190] Executive Overview - NAI's business strategy focuses on long-term growth, profitability, and sales diversification through new private-label customers and commercialization of its beta-alanine patent estate (CarnoSyn®, SR CarnoSyn®, TriBsyn™)[166] - The new TriBsyn™ product, a patent-pending carnosine booster, aims to penetrate the Wellness and Healthy Aging channel by increasing beta-alanine bioavailability and eliminating paresthesia, making it suitable for older adults, vegetarians, and vegans[169] - Litigation and patent compliance expenses for CarnoSyn® product offerings were $0.4 million in fiscal 2025 and $0.2 million in fiscal 2024, primarily for patent and trademark estate maintenance and expansion[170] - Key strategic focuses for fiscal 2026 include leveraging certified facilities, expanding beta-alanine commercialization into Sports Nutrition, Wellness, Healthy Aging, and Medical foods, and improving operational efficiencies[173][178] Discussion of Critical Accounting Estimates - Revenue recognition involves significant judgment in estimating variable consideration, such as volume rebates, which can differ from actual sales due to changes in customer orders and raw material availability[174] Results of Operations Consolidated Operating Results (in thousands, except percentages) | Item | Fiscal Year Ended June 30, 2025 ($) | Fiscal Year Ended June 30, 2025 (%) | Fiscal Year Ended June 30, 2024 ($) | Fiscal Year Ended June 30, 2024 (%) | Increase (Decrease) ($) | Increase (Decrease) (%) | | :------------------------------------------ | :---------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------- | :---------------------- | | Private-label contract manufacturing | 121,779 | 94% | 105,358 | 93% | 16,421 | 16% | | Patent and trademark licensing | 8,081 | 6% | 8,438 | 7% | (357) | (4)% | | Total net sales | 129,860 | 100% | 113,796 | 100% | 16,064 | 14% | | Cost of goods sold | 120,571 | 93% | 106,931 | 94% | 13,640 | 13% | | Gross profit | 9,289 | 7% | 6,865 | 6% | 2,424 | 35% | | Other selling, general & administrative expenses | 16,549 | 13% | 15,399 | 14% | 1,150 | 7% | | Settlement of legal proceeding and associated expense | 1,400 | 1% | — | 0% | 1,400 | 100% | | Loss from operations | (8,660) | (7)% | (8,534) | (7)% | (126) | 1% | | Other loss, net | (2,080) | (2)% | (930) | (1)% | (1,150) | 124% | | Loss before income taxes | (10,740) | (8)% | (9,464) | (8)% | (1,276) | 13% | | Provision (benefit) for income taxes | 2,835 | 2% | (2,247) | (2)% | 5,082 | (226)% | | Net loss | (13,575) | (10)% | (7,217) | (6)% | (6,358) | 88% | - Gross profit margin increased by 1.2 percentage points in fiscal 2025, primarily due to a favorable product sales mix in private-label contract manufacturing, despite a marginal increase in manufacturing overhead costs[178][180] - Selling, general and administrative expenses increased by $1.2 million (7%) in fiscal 2025, driven by higher compensation, legal expenses for patent/trademark registrations, rent, and sales commissions, plus a $1.4 million legal settlement accrual[179] - Other expense, net, increased by $1.2 million in fiscal 2025 due to unfavorable foreign currency exchange volatility and higher interest expense from increased rates and credit facility usage[181] - An income tax provision of $2.8 million was recorded in fiscal 2025, compared to a $2.2 million tax benefit in fiscal 2024, mainly due to a $4.8 million valuation allowance against domestic net deferred income tax assets[182] Liquidity and Capital Resources - Net cash provided by operating activities was $5.9 million in fiscal 2025, a significant improvement from $1.5 million used in fiscal 2024, primarily due to timing of sales and collections for accounts receivable[183][184] - Cash used in investing activities increased to $3.6 million in fiscal 2025 (from $3.0 million in fiscal 2024) due to increased capital expenditures, including solar energy generation equipment[186] - Cash used in financing activities was $2.0 million in fiscal 2025, compared to $2.9 million provided in fiscal 2024, reflecting net payments on the line of credit[187] - As of June 30, 2025, NAI had $12.3 million in cash and cash equivalents, with $9.9 million available borrowing capacity on its credit facility and $8.9 million outstanding on a term loan[188][190] - The company was not in compliance with credit agreement covenants for Q4 fiscal 2025, but received a prospective waiver. It anticipates non-compliance in H1 fiscal 2026 and is negotiating a revised credit facility[189][190] Off-Balance Sheet Arrangements - As of June 30, 2025, NAI did not have any significant off-balance sheet debt or arrangements with unconsolidated entities that would materially affect its financial condition or results of operations[191] Inflation - NAI experienced continued price increases for raw materials and operational costs in fiscal 2025, expecting these inflationary pressures to persist through fiscal 2026 due to limited supplies, higher labor/transportation costs, interest rates, tariffs, and global fuel/energy costs[192] Recent Accounting Pronouncements - A discussion of recent accounting pronouncements is included under Note A in the notes to the consolidated financial statements[193] Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Natural Alternatives International, Inc. is not required to provide Item 7A disclosure in this Annual Report PART III Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Natural Alternatives International, Inc. for the fiscal years ended June 30, 2025, and 2024, including the balance sheets, statements of operations and comprehensive loss, stockholders' equity, and cash flows, with the independent registered public accounting firm issuing an unqualified opinion stating the financial statements are presented fairly in all material respects, and extensive notes detailing accounting policies, financial instrument fair values, inventory, property and equipment, leases, comprehensive income, debt, income taxes, employee benefits, stockholders' equity, commitments, economic dependency, derivatives, hedging, contingencies, and segment information - The independent registered public accounting firm, HASKELL & WHITE LLP, issued an unqualified opinion, stating that the consolidated financial statements present fairly, in all material respects, the company's financial position and results of operations in conformity with GAAP[197] - No critical audit matters were identified during the audit of the consolidated financial statements for the current period[201] Report of Independent Registered Public Accounting Firm - The audit was conducted in accordance with PCAOB standards, assessing risks of material misstatement and evaluating accounting principles and estimates[199][200] - The company is not required to have, nor was the auditor engaged to perform, an audit of its internal control over financial reporting[199] Consolidated Balance Sheets Consolidated Balance Sheets (in thousands) | Item | June 30, 2025 ($) | June 30, 2024 ($) | | :-------------------------------------------- | :---------------- | :---------------- | | Assets | | | | Cash and cash equivalents | 12,325 | 11,981 | | Accounts receivable, net | 14,644 | 16,891 | | Inventories, net | 24,871 | 24,249 | | Total current assets | 59,276 | 61,610 | | Property and equipment, net | 50,890 | 52,211 | | Operating lease right-of-use assets | 41,054 | 43,537 | | Deferred tax asset, net – noncurrent | — | 3,170 | | Total assets | 151,939 | 162,342 | | Liabilities and Stockholders' Equity | | | | Accounts payable | 15,352 | 12,740 | | Accrued liabilities | 3,105 | 2,847 | | Line of credit – current | 1,900 | 3,400 | | Total current liabilities | 28,804 | 23,465 | | Long-term liability – operating leases | 45,970 | 46,468 | | Mortgage note payable, net of current portion | 8,628 | 8,933 | | Total liabilities | 83,513 | 79,747 | | Total stockholders' equity | 68,426 | 82,595 | | Total liabilities and stockholders' equity | 151,939 | 162,342 | Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share data) | Item | 2025 ($) | 2024 ($) | | :------------------------------------------ | :-------- | :-------- | | Net sales | 129,860 | 113,796 | | Cost of goods sold | 120,571 | 106,931 | | Gross profit | 9,289 | 6,865 | | Other selling, general and administrative expenses | 16,549 | 15,399 | | Settlement of legal proceeding and associated expense | 1,400 | — | | Loss from operations | (8,660) | (8,534) | | Total other expense | (2,080) | (930) | | Loss before income taxes | (10,740) | (9,464) | | Provision (benefit) for income taxes | 2,835 | (2,247) | | Net loss | (13,575) | (7,217) | | Comprehensive loss | (14,968) | (7,156) | | Net loss per common share: Basic | (2.28) | (1.23) | | Net loss per common share: Diluted | (2.28) | (1.23) | | Weighted average common shares outstanding: Basic | 5,946,520 | 5,870,974 | | Weighted average common shares outstanding: Diluted | 5,946,520 | 5,870,974 | Consolidated Statements of Stockholders' Equity Consolidated Statements of Stockholders' Equity (in thousands) | Item | June 30, 2023 | June 30, 2024 | June 30, 2025 | | :------------------------------------------ | :------------ | :------------ | :------------ | | Common Stock (Shares) | 9,314,406 | 9,480,906 | 9,504,906 | | Common Stock (Amount) | 91 | 93 | 93 | | Additional Paid-in Capital | 31,436 | 32,634 | 33,611 | | Retained Earnings | 80,183 | 72,966 | 59,391 | | Treasury Stock (Shares) | 3,240,593 | 3,280,721 | 3,326,693 | | Treasury Stock (Amount) | (22,855) | (23,076) | (23,254) | | Accumulated Other Comprehensive Income (Loss) | (83) | (22) | (1,415) | | Total Stockholders' Equity | 88,772 | 82,595 | 68,426 | | Net Loss | (7,217) | (13,575) | | Consolidated Statements of Cash Flows Consolidated Statements of Cash Flows (in thousands) | Item | 2025 ($) | 2024 ($) | | :------------------------------------------ | :------- | :------- | | Cash flows from operating activities | | | | Net loss | (13,575) | (7,217) | | Adjustments to reconcile net loss to net cash provided by (used in) operating activities: | | | | Settlement of legal proceeding and associated expense | 1,400 | — | | Depreciation and amortization | 4,560 | 4,647 | | Deferred income taxes | 3,613 | (2,907) | | Non-cash lease expenses | 7,254 | 6,083 | | Non-cash compensation | 977 | 1,200 | | Changes in operating assets and liabilities: | | | | Accounts receivable | 2,247 | (9,869) | | Inventories | (622) | 5,445 | | Accounts payable and accrued liabilities | 2,858 | 5,387 | | Net cash provided by (used in) operating activities | 5,932 | (1,497) | | Cash flows from investing activities | | | | Purchases of property and equipment | (3,614) | (3,017) | | Net cash used in investing activities | (3,614) | (3,017) | | Cash flows from financing activities | | | | (Payments) Borrowings on line of credit | (1,500) | 3,400 | | Repurchase of common stock | (178) | (221) | | Payments on long-term debt | (296) | (288) | | Net cash (used in) provided by financing activities | (1,974) | 2,891 | | Net increase (decrease) in cash and cash equivalents | 344 | (1,623) | | Cash and cash equivalents at end of year | 12,325 | 11,981 | A. Organization and Summary of Significant Accounting Policies - NAI provides private-label contract manufacturing and commercializes its beta-alanine patent estate (CarnoSyn®, SR CarnoSyn®, TriBsyn™) through raw material and finished product sales, and licensing[216] - NAIE, a wholly-owned Swiss subsidiary, operates a manufacturing facility in Manno, Switzerland, with its functional currency being the U.S. Dollar[217][218] - NAI adopted ASU 2023-07 (Segment Reporting) in fiscal 2025, which did not materially impact financial statements. It is evaluating ASU 2024-03 (Expense Disaggregation) and ASU 2023-09 (Income Tax Disclosures) for future adoption[219][220][221][222] - Fair value measurements use a three-level hierarchy, with cash, cash equivalents, and marketable securities as Level 1, and derivative forward exchange contracts, line of credit, and term loan as Level 2[225][226][227][228] - Revenue is recognized when performance obligations are fulfilled and control of products is transferred, with estimates for variable consideration like early payment discounts and volume rebates[241][242][244] - NAI uses derivative financial instruments to manage foreign currency exchange risk for Euro and Swiss Franc sales and interest rate fluctuations on its term note, with some designated as cash flow hedges[235][236][237][238][239] - A valuation allowance of $4.8 million was recorded in fiscal 2025 against net domestic deferred income tax assets due to cumulative U.S.-based operational losses, resulting in a net deferred tax asset of $0[255][256] - Basic and diluted net loss per common share were both $(2.28) in fiscal 2025 and $(1.23) in fiscal 2024, with restricted stock excluded from diluted EPS calculation due to anti-dilutive effect[264] - Credit risk is concentrated with three largest customers, whose receivables represented 67.8% of gross accounts receivable at June 30, 2025[265] B. Inventories Inventories, net (in thousands) | Item | June 30, 2025 ($) | June 30, 2024 ($) | | :-------------- | :---------------- | :---------------- | | Raw materials | 17,632 | 18,489 | | Work in progress | 3,943 | 3,362 | | Finished goods | 4,054 | 3,038 | | Reserves | (758) | (640) | | Total | 24,871 | 24,249 | - Inventories are valued at the lower of cost (first-in, first-out) or net realizable value, with reserves established for inventory not expected to be recovered, based on factors like quantity on hand, estimated sales time, shelf life, demand, and market conditions[231] C. Property and Equipment Property and Equipment (in thousands) | Item | Depreciable Life (Years) | 2025 ($) | 2024 ($) | | :---------------------------------- | :----------------------- | :-------- | :-------- | | Land | NA | 8,940 | 8,940 | | Building and building improvements | 7 – 39 | 24,650 | 24,723 | | Machinery and equipment | 3 – 12 | 41,311 | 43,631 | | Office equipment and furniture | 3 – 5 | 6,936 | 6,765 | | Vehicles | 3 | 237 | 237 | | Leasehold improvements | 1 – 20 | 24,788 | 23,223 | | Total property and equipment | | 106,862 | 107,519 | | Less: accumulated depreciation and amortization | | (55,972) | (55,308) | | Property and equipment, net | | 50,890 | 52,211 | - Depreciation and amortization expense was $4.6 million in both fiscal 2025 and fiscal 2024[270] - During fiscal 2025, NAI disposed of machinery and equipment with an original value of $3.945 million, resulting in a $49,000 loss on disposal[269] D. Leases - NAI leases manufacturing and support facilities in Vista, California, and Lugano, Switzerland, with no finance leases currently classified[271][274] - The Vista, CA facility lease was extended by ten years and five months, effective April 1, 2024, increasing base rent and resulting in a $25.9 million increase in lease liability and right-of-use asset[272] - The weighted average remaining lease term for operating leases was 8.6 years in fiscal 2025 (9.5 years in fiscal 2024), with a weighted average discount rate of 5.94% (5.92% in fiscal 2024)[274] Supplemental Cash Flows Information for Leases (in thousands) | Item | 2025 ($) | 2024 ($) | | :-------------------------------------------------------------------- | :------- | :------- | | Cash paid for amounts included in the measurement of operating lease liabilities | 4,302 | 2,966 | | Net increase in operating lease liabilities and right-of-use assets due to lease remeasurement | — | 25,692 | E. Other Comprehensive (Loss) Income Other Comprehensive (Loss) Income (in thousands) | Item | Year Ended June 30, 2025 ($) | Year Ended June 30, 2024 ($) | | :---------------------------------------------------------------- | :--------------------------- | :--------------------------- | | Balance as of June 30, 2024 | (22) | (83) | | OCI/OCL before reclassifications | (2,115) | 204 | | Amounts reclassified from OCI | 278 | (53) | | Tax effect of OCI activity | 444 | (90) | | Net current period OCI/OCL | (1,393) | 61 | | Balance as of June 30, 2025 | (1,415) | (22) | F. Debt - NAI's credit facility with Wells Fargo was amended on June 20, 2025 (Sixth Amendment), extending maturity to December 31, 2026, decreasing maximum borrowing to $10.0 million, increasing interest rate to 3.25%, and waiving prior covenant non-compliance[285] - The amended credit agreement includes new financial covenants, with NAI anticipating non-compliance in the first half of fiscal 2026 due to litigation expense and deferred tax asset valuation allowance, and is negotiating a revision[286][290] - NAI has a $10.0 million Term Note with Wells Fargo, secured by its Carlsbad property, with payments amortized over 25 years and a final installment due September 1, 2028. The variable interest rate was fixed at 2.4% for the first three years via an interest rate swap, which expired on September 3, 2024[289][239] Future Debt Payments Under Term Note (in thousands) | Year | 2026 ($) | 2027 ($) | 2028 ($) | 2029 ($) | 2030 and Thereafter ($) | Total ($) | | :--------- | :------- | :------- | :------- | :------- | :---------------------- | :-------- | | Future Debt Payments | 305 | 315 | 325 | 7,988 | — | 8,933 | - As of June 30, 2025, NAI had $1.9 million outstanding on its credit facility and $9.9 million available borrowing capacity[291] G. Income Taxes - In fiscal 2025, NAI recorded a U.S.-based domestic tax expense of $2.7 million and foreign tax expense of $0.1 million, compared to a U.S.-based domestic tax benefit of $2.2 million in fiscal 2024[292] - A $4.8 million valuation allowance was recognized in fiscal 2025 against net domestic deferred income tax assets, resulting in a net deferred tax asset of $0, due to cumulative U.S.-based operational losses[293] Geographical Breakdown of Loss Before Income Taxes (in thousands) | Region | 2025 ($) | 2024 ($) | | :------------ | :-------- | :-------- | | United States | (11,520) | (9,046) | | Foreign | 780 | (418) | | Total | (10,740) | (9,464) | Provision (Benefit) for Income Taxes (in thousands) | Item | 2025 ($) | 2024 ($) | | :---------------------------------- | :------- | :------- | | Current: Federal | (858) | (55) | | Current: State | (17) | 41 | | Current: Foreign | 161 | 66 | | Deferred: Federal | (1,198) | (2,007) | | Deferred: State | (68) | (223) | | Deferred: Foreign | — | (69) | | Valuation allowance | 4,815 | — | | Total provision (benefit) for income taxes | 2,835 | (2,247) | Net Deferred Tax Assets and Liabilities (in thousands) | Item | 2025 ($) | 2024 ($) | | :---------------------------------- | :------- | :------- | | Total gross deferred tax assets | 14,347 | 12,563 | | Deferred tax liabilities | (9,533) | (9,393) | | Valuation allowance | (4,814) | — | | Net deferred tax assets | — | 3,170 | - NAI has U.S. federal net operating loss carryforwards of $8.0 million (indefinite carryforward) and state NOLs of $6.8 million (expiring from fiscal 2032). Federal and state tax credits total $0.8 million (expiring from fiscal 2041)[296] Income Tax Provision (Benefit) Reconciliation (in thousands) | Item | 2025 ($) | 2024 ($) | | :------------------------------------------ | :------- | :------- | | Income taxes computed at statutory federal income tax rate | (2,256) | (2,033) | | State income taxes, net of federal income tax expense | (177) | (215) | | Permanent differences | 10 | (20) | | Foreign tax rate differential | (2) | 131 | | Tax credits | (61) | (170) | | Stock based compensation | 123 | 93 | | Global intangible low-taxed income (GILTI) | 233 | — | | Return to provision - differences | 150 | (33) | | Change in valuation allowance, net | 4,815 | — | | Income tax provision (benefit) as reported | 2,835 | (2,247) | | Effective tax rate | (26.4)% | (23.7)% | H. Employee Benefit Plans - NAI has a 401(k) profit-sharing plan, matching 50% of the first 6% of participant contributions since January 1, 2025, with total contributions of $0.5 million in fiscal 2025 and $0.6 million in fiscal 2024[304] - A Non-Qualified Incentive Plan allows for deferred cash awards to directors, officers, employees, and consultants, with $0.2 million granted in fiscal 2025 and $0.9 million in fiscal 2024[307][309] Defined Benefit Pension Plan Funded Status (in thousands) | Item | 2025 ($) | 2024 ($) | | :------------------------------------------ | :------- | :------- | | Benefit obligation at end of year | 1,152 | 1,374 | | Fair value of plan assets at end of year | 1,042 | 1,232 | | Difference between benefit obligation and fair value of plan assets | (110) | (142) | | Unrecognized net actuarial loss in accumulated other comprehensive income | 217 | 282 | | Net amount recognized | 107 | 140 | Defined Benefit Pension Plan Net Periodic Benefit Cost (in thousands) | Item | 2025 ($) | 2024 ($) | | :------------------------ | :------- | :------- | | Interest cost | 46 | 49 | | Expected return on plan assets | (51) | (42) | | Recognized actuarial loss | 24 | 39 | | Settlement loss | 62 | — | | Net periodic benefit expense | 81 | 46 | Defined Benefit Pension Plan Asset Allocation (June 30) | Asset Category | 2025 (%) | 2024 (%) | Target Allocation (%) | | :---------------- | :------- | :------- | :-------------------- | | Equity securities | 60 | 72 | 53 | | Debt securities | 35 | 14 | 41 | | Cash alternatives | 4 | 14 | 2 | | Commodities | 1 | 0 | 4 | | Total | 100 | 100 | 100 | I. Stockholders' Equity - The Board authorized a total of $18.0 million for the stock repurchase plan, but current credit agreement terms prohibit most stock repurchases[320] - Stock repurchases in fiscal 2025 were limited to 45,972 shares acquired from employees for restricted stock vesting, totaling $0.178 million[322][323] Restricted Stock Activity (2020 Plan) | Item | Number of Shares – 2020 Plan (2025) | Weighted Average Grant Date Fair Value (2025) ($) | Number of Shares – 2020 Plan (2024) | Weighted Average Grant Date Fair Value (2024) ($) | | :------------------------ | :---------------------------------- | :------------------------------------------------ | :---------------------------------- | :------------------------------------------------ | | Nonvested at June 30 | 173,985 | 6.38 | 283,107 | 7.50 | | Granted | 24,000 | 3.84 | 166,500 | 6.09 | | Vested | (133,122) | 8.31 | (104,075) | 11.39 | | Forfeited | — | — | (3,000) | 9.59 | | Available for grant at June 30 | 158,877 | | 182,877 | | - Total remaining unrecognized compensation cost for unvested restricted stock was $0.9 million at June 30, 2025, with a weighted average remaining service period of 1.6 years[327] J. Commitments - NAI leases 162,000 sq ft in Vista, CA, under an operating lease extended through August 31, 2034, with an option to extend to August 31, 2039[328] - NAIE leases 116,000 sq ft in Manno, Switzerland, for manufacturing and warehousing, with the main facility lease extended to December 31, 2032, and a warehouse lease automatically extended to December 31, 2026[329][331] Minimum Rental Commitments (in thousands) | Year | 2026 ($) | 2027 ($) | 2028 ($) | 2029 ($) | 2030 ($) | Thereafter ($) | Total ($) | | :--------- | :------- | :------- | :------- | :------- | :------- | :------------- | :-------- | | Gross minimum rental commitments | 5,014 | 4,889 | 4,863 | 4,996 | 9,009 | 20,420 | 49,191 | - Rental expense totaled $5.5 million for fiscal 2025 and $5.4 million for fiscal 2024[333] K. Economic Dependency - NAI has substantial economic dependency on a few key customers; sales to its three largest private-label contract manufacturing customers totaled $77.16 million in fiscal 2025 and $77.31 million in fiscal 2024[334] Net Sales to Major Customers (in thousands) | Customer | Fiscal 2025 ($) | Fiscal 2024 ($) | | :--------- | :-------------- | :-------------- | | Customer 1 | 42,289 | 48,055 | | Customer 2 | 17,707 | 12,941 | | Customer 3 | 17,165 | 16,312 | | Total | 77,161 | 77,308 | - Accounts receivable from these major customers were $9.9 million at June 30, 2025, and $12.3 million at June 30, 2024[334] - NAI is dependent on a single supplier for beta-alanine and other raw materials, with Supplier 1 representing 18% of total raw material purchases in fiscal 2025 and 23% in fiscal 2024[335] Raw Material Purchases from Major Supplier (in thousands) | Supplier | 2025 Raw Material Purchases ($) | 2025 % of Total Raw Material Purchases | 2024 Raw Material Purchases ($) | 2024 % of Total Raw Material Purchases | | :--------- | :------------------------------ | :------------------------------------- | :------------------------------ | :------------------------------------- | | Supplier 1 | 12,004 | 18% | 11,624 | 23% | | Total | 12,004 | 18% | 11,624 | 23% | L. Derivatives and Hedging - NAI uses foreign exchange forward contracts to manage foreign currency exchange risk from forecasted Euro and Swiss Franc sales, with some designated as cash flow hedges[336][337] - As of June 30, 2025, notional amounts for cash flow hedges were $35.5 million (€31.2 million) for Euro sales and $6.8 million (CHF 5.4 million) for Swiss Franc sales, expected to settle by June 2026[340] - A net loss of approximately $1.6 million (offset by $0.4 million deferred taxes) related to cash flow hedges was recorded in OCI as of June 30, 2025, with $1.6 million expected to be reclassified to earnings in the next 12 months[340] - NAI also uses foreign currency contracts not designated as cash flow hedges to hedge its Swiss Franc-denominated lease liability, with notional amounts of $11.8 million (CHF 9.5 million) as of June 30, 2025[343] - An interest rate swap fixed the variable interest rate on the $10.0 million Term Note to 2.4% for three years, expiring on September 3, 2024[344] M. Contingencies - NAI accrued $1.4 million for a tentative settlement of two class action and PAGA lawsuits filed by former employees in December 2023, including estimated legal fees, with court ap