ITEM1A.RISK FACTORS
When evaluating our business and future prospects, you should carefully review and consider the risks described below in conjunction with other information in this report and in other reports and documents we file with the SEC. The risks and uncertainties described below are not the only ones we face. Additional material risks and uncertainties, not presently known to us, or that we currently see as immaterial, may also occur or become material. If any of the following risks or any additional risks and uncertainties actually occur or become material, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline, and our stockholders could lose all or a portion of the value of their investment in our common stock.
Risks Related to the Company’s Industry and Business
A significant or prolonged economic downturn, could have, a material adverse effect on our results of operations.
Our results of operations are affected by the level of business activity of our customers and licensees, which in turn are affected by the level of consumer demand for their products. A significant or prolonged economic downturn may adversely affect the disposable income of many consumers and may lower demand for the products we produce for our private-label contract manufacturing customers and products sold or manufactured by others using our licensed patent rights. Any decline in economic conditions in the U.S. and the various foreign markets in which our customers operate could negatively impact our customers’ businesses and our operations. A significant decline in consumer demand and the level of business activity of our customers, even if only due in part to general economic conditions, could have a material adverse effect on our revenues and profit margins.
Risks related to global economic instability, including global supply chain issues, inflation and fuel and energy costs may affect the Company's business.
In February 2022, armed conflict escalated between Russia and Ukraine. Although Russia and Ukraine did not account for any of our net sales in FY 2025 or FY 2024, economic sanctions and export control measures by the U.S. and European Union against Russia have resulted in increased volatility in the availability and prices of raw materials that are produced in that region. There are further concerns regarding continued supply chain disruptions, consumer purchasing and consumption behavior, increases in global shipping expenses, greater volatility in foreign exchange and interest rates, increased energy costs, and other unforeseen business disruptions due to the current global geopolitical tensions, including relating to Ukraine and the Middle East. We will continue to evaluate impacts of the conflict on our customers, suppliers, employees, and operations.
In October 2023, armed conflict escalated between Israel and Hamas. Israel accounts for a small portion of our global net sales, but we also source multiple raw materials that come from Israel. While we do not anticipate this conflict will have a significant impact on our net sales, we are continually communicating with our customers and suppliers who may be impacted by this conflict, and we are evaluating options for alternative ingredient sources and/or holding safety stock of impacted materials to limit the effect this conflict may have on our ability to obtain the ingredients sourced from this region.
Recently, these conflicts have resulted in market uncertainty and volatility, and this has negatively affected many industries, including the dietary supplement industry. Global financial conditions remain subject to sudden and rapid destabilizations in response to economic shocks. A slowdown in the financial markets or other economic conditions including but not limited to global supply chain issues, inflation, tariffs and trade disputes, fuel and energy costs, lack of available credit, the state of the financial markets, interest rates and tax rates, may adversely affect our growth. Future economic shocks may be precipitated by a number of causes, including a continued rise in the price of oil and other commodities, the volatility of raw material prices, geopolitical instability, terrorism, pandemics, the devaluation and volatility of global stock markets and natural disasters. Any sudden or rapid destabilization of global economic conditions could adversely impact our ability to obtain equity or debt financing in the future on terms favorable to us or at all. In such an event, our operations and financial condition could be adversely impacted.
Prices and availability of commodities consumed or used in connection with raw materials we purchase or the operation of our manufacturing facilities, such as natural gas, diesel, oil and electricity, also fluctuate, and these fluctuations affect the costs of operations. These fluctuations can be unpredictable, can occur over short periods of time and may have a material adverse impact on our operating costs or the timing and costs of various projects. Over the past several years, the United States, and many other countries, have experienced significant volatility related to inflationary factors. These factors have impacted all aspects of manufacturing operations, including increased costs of labor, utilities, materials, supplies, etc. While we continue to evaluate cost reduction opportunities, including working with both suppliers and customers, to attempt to mitigate the impact of these higher operational costs, there can be no assurance our efforts will result in an offset of such increases or when inflation will return to more reasonable levels.
Our industry is highly competitive, and we may be unable to continue to compete effectively. Increased competition could adversely affect our financial condition.
The market for our products, and those of our customers, is highly competitive. Some of our competitors are larger than we are and have greater financial resources and broader name recognition than we do. Our competitors may be able to devote greater resources to research and development, marketing and other activities that could provide them with a competitive advantage. Our market has relatively low entry barriers and is highly sensitive to the introduction of new products that may rapidly capture significant market share. Our competitors may not stress the level of quality we provide and could manufacture with a lower level of quality at lower costs. Our competitors are largely private and not subject to the same disclosure requirements as a publicly traded company. If consumers do not perceive higher quality as worth a higher price, our revenue could suffer. Increased competition could result in price reductions, reduced profit margins or loss of market share, any of which could have a material adverse effect on our financial condition and results of operations. There can be no assurance we will be able to compete effectively in this intensely competitive environment.
Our business is subject to the effects of adverse publicity, which could negatively affect our sales and revenues.
Our business can be affected by adverse publicity or negative public perception about us, our competitors, our customers, our products, or our industry generally. Adverse publicity may include publicity about the nutritional supplements industry generally, the efficacy, safety and quality of nutritional supplements and other health care products or ingredients in general or our products or ingredients specifically, and regulatory investigations, regardless of whether these investigations involve us or the business practices or products of our competitors, or our customers. Any adverse publicity or negative public perception could have a material adverse effect on our business, financial condition and results of operations. Our business, financial condition and results of operations could be adversely affected if any of our products or any similar products distributed by other companies are alleged to be or are proved to be harmful to consumers or to have unanticipated and unwanted health consequences.
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Risks Related to Operations, Manufacturing, and Technology
If we are unable to attract and retain qualified management personnel, and key manufacturing personnel, our business may suffer.
Our executive officers and other management personnel are primarily responsible for managing our day-to-day operations. We believe our success depends largely on our ability to attract, retain and motivate highly qualified management and key manufacturing personnel. Competition for qualified individuals can be intense and has been increasing in recent years. We may not be able to hire additional qualified personnel in a timely manner or on terms that would not substantially increase our costs. Any inability to retain a skilled professional management team and manufacturing team could adversely affect our ability to successfully execute our business strategies and achieve our goals and objectives.
Our manufacturing and third party fulfillment activities are subject to certain risks.
We manufacture the majority of our products at our manufacturing facilities in California and Switzerland. As a result, we are dependent on the uninterrupted and efficient operation of these facilities. Our manufacturing operations, including those of our suppliers, are subject to power failures, blackouts, border shutdowns, telecommunications failures, computer viruses, cybersecurity vulnerabilities, human error, breakdown, failure or substandard performance of our facilities, our equipment, the improper installation or operation of equipment, terrorism, pandemics (e.g. COVID-19), natural or other disasters, intentional acts of violence, and the need to comply with the requirements or directives of governmental agencies, including but not limited to the FDA. In addition, we may in the future determine to expand or relocate our facilities, which may result in slowdowns or delays in our operations. While we have implemented and regularly evaluate various emergency, contingency and disaster recovery plans and we maintain business interruption insurance, there can be no assurance the occurrence of these or any other operational problems at our facilities in California or Switzerland would not have a material adverse effect on our business, financial condition and results of operations. Furthermore, there can be no assurance our contingency plans will prove to be adequate or successful if needed or our insurance will continue to be available at a reasonable cost or, if available, will be adequate to cover any losses that we may incur from an interruption in our manufacturing and distribution operations. In August of 2021, we opened a new warehouse and distribution facility in Carlsbad, California, and converted it into a dedicated high-volume powder blending and packaging facility while also providing additional raw material storage capacity. There can be no assurance we will be successful in obtaining additional facility certifications that may be necessary to attract new customers or that we will obtain sufficient business through our on-going sales efforts to effectively utilize the facility and our investment therein.
We source our beta-alanine raw material as well as certain manufacturing activities from third parties. The operation of the third-party service provider’s facilities is subject to the interruption risk and other risks similar to those described above for our facilities and there can be no assurance these interruptions or any other operational problem at such third party’s facilities would not have a material adverse effect on our business, financial condition and results of operations.
If we or our private-label contract manufacturing customers expand into additional markets outside the U.S. or our or their sales in markets outside the U.S. increase, our business could become increasingly subject to political, economic, regulatory and other risks in those markets, which could adversely affect our business.
Our future growth may depend, in part, on our ability and the ability of our private-label contract manufacturing customers, to expand into additional markets outside the U.S. or to improve sales in markets outside the U.S. There can be no assurance we or such customers will be able to expand in existing markets outside the U.S. or enter new markets on a timely basis, or that new markets outside the U.S. will be profitable. There are significant regulatory and legal barriers in markets outside the U.S. that must be overcome to enter and operate in such markets. We are subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping or conflicting laws. We may also experience difficulties adapting to new cultures, business customs and legal systems. Our sales and operations outside the U.S. are subject to political, economic and social uncertainties including, among others:
• import and export controls;
• custom duties and tariffs;
• government regulations and laws;
• coordination of geographically separated locations;
• changes in currency exchange rates;
• economic and political instability; and
Any changes related to these, and other factors could adversely affect our business, profitability and growth prospects. If we or our customers expand into additional markets outside the U.S. or improve sales in markets outside the U.S., these and other risks associated with operations outside the U.S. will likely increase.
The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion could adversely affect the results of our operations.
We buy our raw materials from a limited number of suppliers. During fiscal 2025 and fiscal 2024, one of our suppliers represented more than 10% of our total raw material purchases. Additionally, we currently purchase all of our beta-alanine for our CarnoSyn®, SR CarnoSyn® and TriBsynTM products from a single manufacturer located in Japan. Any disruption in their ability to source materials for or produce the amounts of beta-alanine needed to meet our requirements could have an adverse effect on our business.
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The loss of any of our major suppliers or of any supplier who provides us materials that are hard to obtain elsewhere at the same quality could adversely affect our business operations. Although we believe we could establish alternative sources for most of our raw materials, any delay in locating and establishing relationships with other sources could result in shortages of products we manufacture from such raw materials, with a resulting loss of sales and customers. In certain situations, we may be required to alter our products or with our customers' consent to substitute different materials from alternative sources.
A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for those materials. We have experienced increases in various raw material costs, transportation costs and the cost of petroleum-based raw materials and packaging supplies used in our business. Increasing pricing pressures on raw materials and other products have continued throughout fiscal 2025 as a result of limited supplies of various ingredients, tariffs, and inflationary factors, including higher labor and transportation costs. We expect these upward pressures to continue through fiscal 2026. Although we may be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently or quickly enough to offset the negative effects such cost increases could have on our results of operations or financial condition.
There can be no assurance suppliers will provide the quality raw materials needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the actual production of these raw materials, we are also subject to delays caused by interruption in production of materials including but not limited to those resulting from conditions outside of our control, such as pandemics, weather, transportation interruptions, labor shortages, strikes, terrorism, natural disasters, and other catastrophic events.
In addition, our efforts to maintain or increase sales of CarnoSyn®, SR CarnoSyn® and TriBsynTM are substantially dependent on the availability of the raw material beta-alanine and sales of beta-alanine or products incorporating beta-alanine. The availability of beta-alanine, and thus sales of such raw material and products using such material, could be negatively impacted by any shortages, interruptions and similar events described above, which could in turn adversely affect the amount of revenue and profit margin we earn from the sale of beta-alanine.
Risks Related to Customer Concentration
Because we derive a significant portion of our revenues from a limited number of customers, our revenues would be adversely affected by the loss of a major customer or a significant change in their business, personnel or the timing or amount of their sales to their customers and their orders from us.
We have in the past and expect to continue to derive a significant portion of our revenues from a relatively limited number of customers. During the fiscal year ended June 30, 2025, sales to our three largest customers were approximately 59% of our consolidated net sales. We cannot predict with any certainty if sales to these customers will increase or decrease in the future.
On August 16, 2023, we announced the temporary closure of our new high-speed powder processing facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand. We reopened this facility in May 2024 based on new orders received from this customer but there can be no certainty that this, or any other customer, will not experience similar circumstances that require them to reduce or discontinue orders in the future.
The loss of one of our largest customers, or other major customers, a significant decline in sales to any of our largest customers, a significant change in their business model or personnel, or in their ability to make payments when due, could materially and adversely affect our financial condition and results of operations. The timing of our customers’ orders is impacted by, among other factors, their marketing programs, their customer demand, seasonality, their raw material suppliers we are sometimes required to use, their supply chain management, their entry into new markets and their new product introductions, all of which are outside of our control. All of these attributes have had and are expected to have a significant impact on our business in the future.
Our future growth and stability depends, in part, on our ability to diversify our sales. Our efforts to establish new sales from both existing customers and new customers could require significant initial investments, which may or may not result in higher overall sales and improved financial results.
Our business strategy depends in large part on our ability to develop new product sales from both current and new customer relationships. These activities often require a significant up-front investment including, among others, customized formulations, compliance with different regulatory schemes, product registrations, package design, product testing, pilot production runs, and the build-up of initial inventory. We may experience significant delays from the time we increase our operating expenses and make investments in inventory (incur additional related carrying costs) until the time we generate net sales from new products or customers, and it is possible after incurring such expenditures we may not generate material revenue from new products or customers. If we incur significant expenses and investments in inventory we are not able to recover, and we are not able to compensate for those expenses, our operating results would be adversely affected.
We currently derive significant revenues and income from sales of beta-alanine and from licensing our patents. Our ability to maintain or grow our sales of beta-alanine and license revenue from our other patents is contingent on our ability to defend our patents, and commercialize the sale of beta-alanine under our instant release CarnoSyn® patents and trademark, our sustained release SR CarnoSyn® patents and trademark, and our TriBsynTM trademark pending patent applications, and any additional patents we may seek related to TriBsynTM.
We own multiple patents and trademarks related to the use of beta-alanine in food and nutritional supplements. A majority of our revenue and income from this segment is currently derived from activity related to licensing our patents and other intellectual property associated with instant release beta-alanine, sold under our trade name CarnoSyn®. We have one patent for this version of CarnoSyn®, which expires in July 2026. Our patent and trademark licensing revenue decreased from $8.4 million in fiscal 2024 to $8.1 million in fiscal 2025 due to decreased orders from existing customers partially offset by decreased volume rebates and increased royalty income. There is no assurance we will be successful maintaining our historical CarnoSyn® instant release beta-alanine sales levels or growing future sales volumes with our remaining CarnoSyn® instant release patent estate. If we are not successful it could have a material adverse effect on our business, results of operations, and financial condition.
We believe SR CarnoSyn® and TriBsynTM are superior delivery systems for CarnoSyn® beta-alanine as they allow for increased daily dosing, improved muscle retention and bioavailability of carnosine. Our patents related to SR CarnoSyn® extend through 2036, and we currently have patents pending for TriBsynTM and believe SR CarnoSyn® beta-alanine and the introduction of TriBsynTM high-bioavailability beta-alanine are an important step in the further commercialization of our patent estate. There can be no assurance we will be successful in getting the market to accept these new forms of beta-alanine or that we will be successful launching new products utilizing SR CarnoSyn® or TriBsynTM beta-alanine.
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Risks Related to Regulations
Our products and manufacturing activities are subject to extensive government regulation, which could limit or prevent the sale of our products in some markets and could increase our costs.
The manufacturing, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the U.S. and in other countries. For example, we are required to comply with certain GMP’s and incur costs associated with the audit and certification of our facilities. Failure to comply with governmental regulations may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions. Any action of this type by a governmental agency could materially adversely affect our ability to successfully market our products and services. In addition, if such governmental agency has reason to believe the law is being violated (for example, if it believes we do not possess adequate substantiation for product claims), it can initiate an enforcement action. Governmental agency enforcement could result in orders requiring, among other things, limits on advertising, consumer redress, divestiture of assets, rescission of contracts, and such other relief as may be deemed necessary. Violation of these orders could result in substantial financial or other penalties. Any action by a governmental agency could materially adversely affect our ability and our customers’ ability to successfully market and continue selling the products involved.
Before commencing operations or marketing our products in markets outside the U.S., we are routinely required to obtain approvals, licenses, or certifications from a country’s ministry of health or comparable agency. Approvals or licensing may be conditioned on reformulation of products or even may be unavailable with respect to certain products or product ingredients. We must also comply with product labeling and packaging regulations that vary from country to country. Furthermore, the regulations of these countries may conflict with those in the U.S. and with each other. The sale of our products in certain European countries is subject to the rules and regulations of the European Union, which may be interpreted differently among the countries within the European Union. The cost of complying with these various and potentially conflicting regulations can be substantial and could adversely affect our results of operations.
During the COVID-19 pandemic, our operations were subject to additional laws and regulations imposed by federal, state, and local governments primarily related to the ability of our employees to come to work and the safety measures that needed to be in place in order for our facilities to remain operational. While we already had robust quality standards and procedures, we had to constantly monitor these new regulations and implement additional procedures where necessary, including at times temperature checks, additional cleaning procedures, allowing administrative personnel to work remotely, etc. Recurrence of pandemic related regulations, or new or expanded regulations, or the reinstatement of pandemic conditions, including any inability to continue qualifying as an essential business in the event of future government-imposed lockdowns, could adversely affect our results of operations.
We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations, when and if adopted, would have on our business. They could include new or revised requirements or restrictions related to the safe operation of our facilities, or for the reformulation of certain products to meet new standards, the recall or discontinuance of certain products, additional compliance costs or record keeping requirements, expanded or different labeling, and additional scientific substantiation. Any or all of these requirements could have a material adverse effect on our operations.
Possible new tariffs on imported goods from China and elsewhere could adversely affect our business operations.
In recent years, the United States has implemented increased tariffs on a wide range of goods and materials imported from China, Japan, India, Russia, Vietnam, South Korea, Australia, the European Union, Canada, Mexico and other governments. These goods and materials may include products, applications, and ingredients we or our customers require for their products, including beta-alanine. Our ability to maintain or increase CarnoSyn® sales and licensing revenue depends on the availability of the raw material beta-alanine. China and other governments responded to the implementation of tariffs by the United States by imposing their own tariffs on certain American products. Continuing or increased tariffs could have a material adverse effect on our customers’ businesses, the availability of beta-alanine, and the cost of other raw materials we use in our customers’ products. While it is difficult to predict whether or how existing and additional potential tariffs will be imposed, or how tariffs will impact our business, we believe the imposition of additional tariffs by the U.S. or other governments on products we or our customers offer for sale, or ingredients we use in the products we manufacture could adversely impact our offerings and our customers, and could have an adverse impact on the availability of raw materials we purchase including beta-alanine from Japan.
Such results could adversely impact our ability to license our patents and trademarks, our ability to sell beta-alanine, and our customers’ ability to compete in the marketplace, resulting in reduced demand for our products, and products we manufacture for our customers. Additional tariffs imposed by any government on beta-alanine could have an adverse impact on the price we have to pay for beta-alanine and the availability of beta-alanine. Any of these events could have a material adverse effect on our business and results of operations.
Risks Related to Litigation
We could be exposed to product liability claims or other litigation, which may be costly and could materially adversely affect our operations.
We could face financial liability due to product liability claims if the use of our products results in significant loss or injury. Additionally, the manufacture and sale of our products involves risk of injury to consumers from tampering by unauthorized third parties or product contamination. We could be exposed to future product liability claims that include, among others, assertions that: our products contain contaminants; we provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our products with other substances. Even if we were to prevail in any such claims, the cost of litigation and settlement could be significant.
We maintain product liability insurance coverage, including primary product liability and excess liability coverage. While we expect to be able to continue our product liability insurance, there can be no assurance we will be able to continue such insurance coverage, or such insurance coverage will be adequate to cover any liability we may incur, or our insurance policies will continue to be available at a cost similar to our cost today, or even an economically reasonable cost.
Additionally, it is possible one or more of our insurers could exclude from our coverage certain ingredients used in our products. In such event, we may have to stop using those ingredients or rely on indemnification or similar arrangements with our customers who wish to continue to include those ingredients in their products. A substantial increase in our product liability risk or the loss of customers or product lines, or the failure of a customer to honor indemnification agreements could each have a material adverse effect on our results of operations and financial condition.
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We may continue to incur significant costs in the course of creating and defending our intellectual property. We may be unable to protect our intellectual property rights or may inadvertently infringe on the intellectual property rights of others.
We possess and may possess in the future certain proprietary technology, trade secrets, trademarks, trade names, licenses, patents, and similar intellectual property. We may continue to incur significant patent and trademark litigation costs associated with creating and defending our intellectual property. During fiscal 2025, we incurred approximately $0.4 million in patent litigation and prosecution expense and expect these expenses to be between $0.1 million and $0.3 million during fiscal 2026. There is no assurance we will be able to create new intellectual property, protect our existing intellectual property adequately, or that our intellectual property rights will be upheld. If as we have been in the past, we are again subject to legal proceedings seeking to invalidate our patent rights, such proceedings or the success of the efforts thereby could have a material adverse impact upon our financial condition and results of operations. Furthermore, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S. Additional litigation in the U.S. or abroad may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if ultimately determined in our favor, could result in substantial additional costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. If infringement claims are asserted against us, we may seek to obtain a license to use the claiming third party’s intellectual property rights. There can be no assurance such a license would be available at all or available on terms acceptable or favorable to us.
Risks Related to Insider Ownership and Corporate Structure
If certain provisions of our Certificate of Incorporation, Bylaws and Delaware law are triggered, the market for our shares may decrease.
Certain provisions in our Certificate of Incorporation, Bylaws and Delaware corporate law may discourage unsolicited proposals to acquire our business, even if such proposals would benefit our stockholders. Those provisions include one that authorizes our Board of Directors, without stockholder approval, to issue up to 500,000 shares of preferred stock having such rights, preferences, and privileges, including voting rights, as the Board of Directors designates. The rights of our common stockholders will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Any or all of these provisions could delay, deter or prevent a takeover of our company and could lower the price investors are willing to pay for our common stock and the number of investors willing to own our common stock.
Collectively, our officers and directors own a significant amount of our common stock, giving them influence over corporate transactions and other matters and potentially limiting the influence of other stockholders on important policy and management issues.
Our officers and directors, together with their families and affiliates, beneficially owned approximately 21% of our outstanding shares of common stock as of June 30, 2025. Approximately 15% of the outstanding shares of common stock are beneficially owned by Mark LeDoux, and his family and affiliates. Mr. LeDoux is our Chief Executive Officer and Chairman of the Board. As a result, our officers and directors, and in particular Mr. LeDoux, could influence such business matters as the election of directors and approval of significant corporate transactions.
Various transactions could be delayed, deferred, or prevented without the approval of stockholders, including the following:
• transactions resulting in a change in control;
• mergers and acquisitions;
• tender offers;
• election of directors; and
• proxy contests.
There can be no assurance that conflicts of interest will not arise with respect to the officers and directors who own shares of our common stock or that conflicts will be resolved in a manner favorable to the Company or our other stockholders.
Risks Related to Future Acquisitions
We may pursue acquisitions of other companies that, if not successful, could adversely affect our business, financial condition and results of operations.
We may pursue acquisitions of companies we believe could complement or expand our business, augment our market coverage, provide us with important relationships or otherwise offer us growth opportunities. Acquisitions involve numerous risks, including the following:
• diverting management’s attention from other daily operations of the business;
• potential loss of key employees of an acquired company;
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• an uncertain sales and earnings stream from an acquired company; and
There can be no assurance that acquisitions we may pursue will be successful. If we pursue an acquisition but are not successful in completing it, or if we complete an acquisition but are not successful integrating an acquired company’s employees, products or operations, our business, financial position or results of operations could be adversely affected.
General Risk Factors
We expect our operating results will vary. Fluctuations in our operating results may adversely affect the share price of our common stock.
Our net sales increased during fiscal 2025 as compared to fiscal 2024 but our loss from operations increased during the same period, and there can be no assurance our net sales will further improve in the near term, or we will earn a profit in any given year. We experienced a net loss in fiscal 2025 and 2024 and may incur losses in the future. Our operating results may fluctuate from year to year and/or from quarter to quarter due to various factors including differences related to the timing of revenues and expenses for financial reporting purposes and other factors described in this report. At times, these fluctuations may be significant. We currently anticipate we will experience a net loss in the first half of fiscal 2026, net income in the second half of fiscal 2026 and net income for the full year in fiscal 2026. Fluctuations in our operating results may adversely affect the share price of our common stock.
Our stock price could fluctuate significantly.
Stock prices in general can be volatile and ours is no different. The trading price of our stock may fluctuate in response to the following, as well as other, factors including but not limited to factors outside of our control:
• broad market fluctuations and general economic and/or political conditions;
• fluctuations in our financial results;
• relatively low trading volumes;
• future offerings of our common stock or other securities;
• the general condition of the nutritional supplement industry;
• increased competition;
• regulatory action;
• adverse publicity;
• manipulative or illegal trading practices by third parties; and
• our and our customers’ and suppliers’ products and other public announcements.
The market for our stock has historically experienced significant price and volume fluctuations. There can be no assurance that an active market in our stock will continue to exist or that the price of our common stock will not decline. Our future operating results may be below the expectations of securities analysts and investors. If this were to occur, the price of our common stock could decline, perhaps substantially.
From time to time our shares may be listed for trading on one or more foreign exchanges, with or without our prior knowledge or consent. Certain foreign exchanges may have less stringent listing requirements, rules and enforcement procedures than the Nasdaq Global Market or other markets in the U.S., and this may increase the potential for manipulative trading practices to occur on such foreign exchanges. These practices, or the perception by investors that such practices could occur, may increase the volatility of our stock price or result in a decline in our stock price, which in some cases could be significant.
We may not be able to raise additional capital or obtain additional financing if needed.
It is possible our cash from operations could become insufficient to meet our working capital needs and/or to implement our business strategies. In such an event, there can be no assurance our existing line of credit would be sufficient to meet our working capital needs. Furthermore, if we fail to maintain certain loan covenants, we may no longer have access to our credit line. Under the terms of our credit facility, there are limits on our ability to create, incur or assume additional indebtedness without the approval of our lender. Our credit line terminates in December 2026 and there is no guarantee we will be able to extend or renew this credit line on favorable terms or at all.
We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses and potentially lowering our credit ratings. At any given time, it could be difficult for us to raise capital due to a variety of factors, some of which may be outside of our control, including a tightening of credit markets, overall poor performance of stock markets, and/or an economic slowdown in the U.S. or other countries, or in the businesses of our customers. There is no assurance we would be able to market such security issuances on favorable terms, or at all, in which case, if we did not have any alternate funds we might not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, respond to competitive pressures or meet unanticipated customer requirements.
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If we were unable to raise additional capital or to obtain additional financing when we want to or need to, that could negatively affect our ability to implement our business strategies and meet our goals. This, in turn, could adversely affect our financial condition and results of operations.
Item 1C. Cybersecurity
Risk Management and Strategy
As part of our overall enterprise risk management function, we have implemented and currently maintain various information security processes designed to identify, assess and manage material risks related to information technology, including cybersecurity threats to our critical computer networks, third-party hosted services, and our critical data, (“Information Systems”). Our Information Systems risk management process evaluates and mitigates cybersecurity risks in alignment with our business objectives and operational needs.
We periodically engage third-party consultants and service providers to obtain an independent assessment regarding internal efforts to prevent threats to our Information Systems. Continuous vigilance over safeguarding the Company’s Information Systems has resulted in our current approach and these assessments are shared with our Audit Committee.
Technology
To mitigate the occurrence of an incident as defined by the Company’s formal documentation, which classifies and defines the properties of potential threats, the Company has in place a host of defenses which include, but are not limited to, the use of gateway consoles in all our global locations, limited access to key Information Systems from in-office networks or VPN with multi-factor authentication by means of a third-party mobile identity management tool to limit access to authorized users.
Process
Internally to manage potential cybersecurity threats, we have established an Incident Response Plan that is designed to control the workflow of a reported incident. This plan formalizes incidence response stages such that reporting, identification, scope, response, and recovery are executed in a timely manner and identifies the order and coordination of internal and external communication. In addition, the Company addresses crisis management and business continuity with respect to Information Systems to ensure reliable redundancy and recovery of backed-up databases.
Management is not aware of any material security breaches on its Information Systems and risks from cybersecurity threats have not previously materially affected us. Certain of our vendors have experienced cyberattacks in the past and the threat and development of cyberattacks is continuous. It is impossible to say with certainty whether the Company’s efforts will prevail in a coordinated attack on its Information Systems. Currently we expect the risks from cybersecurity threats will continue, but are not reasonably likely to materially affect us mostly due to our profile and not because our defenses are impenetrable or the efforts of criminals will not become more sophisticated. A cybersecurity attack on our systems could have a material negative impact upon our business, results of operations or financial condition. For additional information about cybersecurity risks, see Item 1A. “Risk Factors.”
Governance
Role of the Board
The Audit Committee of our Board of Directors (the “Board”) has the responsibility for the oversight of risk management, including those risks related to cybersecurity.The Board holds strategic planning sessions with senior management to discuss strategies, key challenges, risks and opportunities for mitigation. The involvement of our Board in setting our business strategy is a key part of its oversight of risk management, its assessment of management’s appetite for risk, and its determination of what constitutes an appropriate level of risk for us. Our senior management attends meetings of our Board and its committees on a quarterly basis, and management communicates with the Board and its members regularly between Board meetings as otherwise needed and are available to address any questions or concerns raised by our Board on risk management and any other matters.
Role of Management
Our senior management, with the oversight of the Board, is responsible for the day-to-day management of the material risks the Company faces, including those related to cybersecurity. We believe it is important to work at all levels of the Company’s hierarchy to manage cybersecurity risks and threats. Therefore, all users must use an online IT ticketing system, which is monitored around the clock, to report any incidents. Qualified individuals in IT determine what resources to allocate to each case and escalation of an incident, if deemed necessary. The Systems Administrators and IT Director, who has more than 18 years of experience with the Company, communicates on a day-to-day basis with the Chief Financial Officer, and President/Chief Operating Officer who would bring any material cybersecurity issues to the attention of the Company’s Chief Executive Officer, the Audit Committee, and the Board.
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ITEM2. PROPERTIES
This table summarizes our facilities as of June 30, 2025. We believe our facilities are adequate to meet our operating requirements for the foreseeable future.
Lease
Square Expiration
Location Nature of Use Feet How Held Date
Manno, Switzerland(4) Warehousing 30,892 Leased December 2026
Carlsbad, CA USA(5) Corporate headquarters 20,981 Owned N/A
(4) This facility is used by NAIE for additional warehouse storage.
(5) We purchased our Carlsbad, California corporate headquarters in March 2016.
ITEM3. LEGAL PROCEEDINGS
From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, product liability, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. While unfavorable outcomes are possible, and sometimes a matter is subsequently determined to be of greater risk. Based on available information, we generally do not believe the resolution of these matters, even if unfavorable, will result in a material adverse effect on our business, consolidated financial condition, or results of operations. Our evaluation of the likely impact of these actions could change in the future, routinely do change, and we could have unfavorable outcomes we do not expect. An unexpected settlement expense or an unexpected unfavorable outcome of a matter could adversely impact our results of operations.
In December 2023 we were sued by three former employees in two separate but substantially identical matters brought by the same law firm. The lawsuits were filed as a putative class action and a Private Attorney General Act ("PAGA") action seeking awards for all similarly situated employees going back ten years or more. We responded to these actions and agreed to submit the matters for mediation. On July 3, 2025, the mediation took place, and a tentative settlement agreement was reached whereby we agreed to contribute a maximum of $1.25 million. We have joined with the plaintiffs in moving the court to consolidate the two actions. The potential settlement has been brought before the court and all similarly situated employees need to be contacted, and they may elect to participate or not. The process of obtaining court approval of the settlement is estimated to take approximately one year. We accrued the maximum settlement amount in our results of operation as of June 30, 2025 along with estimated related legal fees of approximately $0.15 million.
As of September 23, 2025 with exception of these two matters, neither NAI nor NAIE were a party to any material pending legal proceeding nor was any of our property the subject of any material pending legal proceeding. At any given time, we may be involved in one or more matters in the ordinary course of our business.
There is no assurance NAI will prevail in any litigation matters or that litigation expenses will not be greater than anticipated.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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PART II
ITEM5. MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock trades on the Nasdaq Global Market under the symbol “NAII.” Below are the high and low sales prices of our common stock as reported on the Nasdaq Global Market for each quarter of the fiscal years ended June 30, 2025 and 2024:
High Low High Low
Holders
As of September 19, 2025, there were 169 stockholders of record of our common stock. On that same date, the last sales price of our common stock as reported on NASDAQ was $3.12 per share.
Dividends
We have never paid a dividend on our common stock, and we do not intend to pay a dividend in the foreseeable future. Our current policy is to retain all earnings to provide funds for operations and future growth. Additionally, under the terms of our credit facility, we are precluded from paying a dividend while such facility is in place without a waiver from our lender.
Recent Sales of Unregistered Securities
During the fiscal year ended June 30, 2025, we did not sell any unregistered securities.
Repurchases
During the fiscal year ended June 30, 2025, we did not repurchase any shares of our common stock other than shares acquired from employees in exchange for our paying their withholding requirements upon vesting of restricted stock.
Equity Compensation Plan Information
The following table sets forth information regarding outstanding options and shares reserved for future issuance under our existing equity compensation plans as of June 30, 2025:
Number of
Shares
Remaining
Available
Weighted- for Future
Number of Average Issuance
Shares Exercise Under Equity
to be Issued Price Compensation
Upon of Plans
Exercise of Outstanding (Excluding
Outstanding Options, Shares
Options, Warrants, Reflected in
Warrants, and Column
Plan Category and Rights Rights (a))
(a) (b) (c)
Equity compensation plans approved by stockholders — $ — 158,877
Equity compensation plans not approved by stockholders N/A N/A N/A
ITEM 6. SELECTED FINANCIAL DATA
As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report.
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ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis is intended to help you understand our financial condition and results of operations as of June 30, 2025 and 2024 and for each of the last two fiscal years then ended. You should read the following discussion and analysis together with our audited consolidated financial statements and the notes to the consolidated financial statements included under Item 8 in this report. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors. You should carefully review the risks described under Item 1A and elsewhere in this report, which identify certain important factors that could cause our future financial condition and results of operations to vary.
Executive Overview
The following overview does not address all of the matters covered in the other sections of this Item7 or other items in this report or contain all of the information that may be important to our stockholders or the investing public. You should read this overview in conjunction with the other sections of this Item7, the financial statements and accompanying notes, and this report.
Our primary business activity is providing private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbal and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. Historically, our revenue has been largely dependent on sales to two or three private-label contract manufacturing customers and subject to variations in the timing of such customers’ orders, which in turn is impacted by such customers’ internal marketing programs, supply chain management, entry into new markets, new product introductions, the demand for such customers’ products, and general industry and economic conditions. Our revenue also includes raw material sales, royalty and licensing revenue generated from our patent estate pursuant to license and supply agreements with third parties for the distribution and use of the ingredient known as beta-alanine sold under our CarnoSyn®, SR CarnoSyn® and TriBsynTM trademarks.
A cornerstone of our business strategy is to achieve long-term growth and profitability and to diversify our sales base. We have sought and expect to continue to seek to diversify our sales by developing relationships with additional, quality-oriented, private-label contract manufacturing customers, and commercializing our patent estate through sales of beta-alanine under our CarnoSyn®, SR CarnoSyn® and TriBsynTM trademarks, royalties from license agreements, and potentially additional contract manufacturing opportunities with licensees.
During fiscal 2025, our consolidated net sales were 14% higher than in fiscal 2024. Private-label contract manufacturing net sales increased 16% primarily due to increased orders from two of our larger customers and shipments to new customers partially offset by lower sales from our largest customer. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 33% in fiscal 2025, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2024 was 42%.
During fiscal 2025, patent and trademark licensing revenue decreased 4% to $8.1 million as compared to $8.4 million for fiscal 2024. The decrease in patent and trademark licensing revenue was primarily due to decreased material sales from existing customers partially offset by decreased volume rebates and increased royalty income.
We continue to invest in research and development for the expansion of our CarnoSyn® product offerings. We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets but acceptance of this product offering has been limited as we only offer this product in tablet form. In August 2024, we announced our new product called TriBsynTM. We believe TriBsynTM and its patent-pending formulation will allow us to better penetrate the Wellness and Healthy Aging channel. This groundbreaking product is a carnosine booster that utilizes CarnoSyn® beta-alanine and other proprietary technology to increase beta-alanine bioavailability and absorption while effectively eliminating beta-alanine related paresthesia. This product is available as a raw material powder, which allows formulation flexibility for our customers. The elimination of paresthesia while maintaining efficacy of dosage creates a new opportunity to reach segments of the market that to date have been untapped, including older adults, vegetarians, and vegans. We believe our efforts to refine our formulations and product offerings will be positively received and result in significant opportunity for increased sales of our patented products. We are also working on several additional innovations we believe could lead to new patentable products for CarnoSyn® Brands in the future.
To protect and grow our CarnoSyn® product offerings, we incurred litigation and patent compliance expenses of approximately $0.4 million during fiscal 2025 and $0.2 million during fiscal 2024. Our legal expense associated with our CarnoSyn® business has remained relatively low as we have no active litigation, and the current run-rate of expenses is primarily related to maintenance and expansion of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark and our new beta-alanine product marketed under our TriBsynTM trademark, maintain our patent rights, the availability and the cost of the raw material when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights. During fiscal 2026, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn®, SR CarnoSyn® and TriBsynTM beta-alanine products.
We experienced a loss during fiscal 2025 that was primarily due to underutilization of our available factory capacities, a valuation allowance against our domestic net deferred income tax assets and the accrual of a litigation settlement associated with a PAGA claim. Although our overall sales forecast for fiscal 2026 includes a significant increase in sales as compared to fiscal 2025, we currently anticipate we will experience a net loss in the first half of fiscal 2026, net income in the second half of fiscal 2026, and net income for the full fiscal 2026 year.
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During fiscal 2026, we plan to continue our focus on:
Discussion of Critical Accounting Estimates
We have identified the following as our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies is disclosed in Note A, Organization and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements.
Revenue Recognition — Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling one or more performance obligations. For certain contracts with volume rebates, our estimates of future sales used to assess the volume rebate estimates are subject to a high degree of judgement and may differ from actual sales due to, among other things, changes in customer orders and raw material availability.
Results of Operations
The following table sets forth selected consolidated operating results for each of the last two fiscal years, presented as a percentage of net sales (dollars in thousands).
Fiscal Year Ended
Private-label contract manufacturing sales increased 16% primarily due to increased orders from two of our larger customers and shipments to new customers partially offset by lower sales from our largest customer. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 33% in fiscal 2025, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2024 was 42%.
Net sales from our patent and trademark licensing segment decreased 4% during fiscal 2025. The decrease in patent and trademark licensing revenue was primarily due to decreased orders from existing customers partially offset by decreased volume rebates and increased royalty income.
The change in gross profit margin for the year ended June 30, 2025, was as follows:
Percentage
Change
Contract manufacturing (1) 1.4
Patent and trademark licensing (2) (0.2 )
Total change in gross profit margin 1.2
Selling, general and administrative expenses, excluding litigation settlement expenses, increased $1.2 million, or 7% to $16.5 million in fiscal 2025 as compared to $15.4 million in fiscal 2024. This increase is primarily due to increased compensation and benefits costs, legal expenses associated with new patent and tradename registrations, rent, and outside sales commissions. Fiscal 2025 results of operations also included a $1.4 million expense associated with an accrued litigation settlement and related legal costs associated with a PAGA claim.
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Other expense, net, increased $1.2 million during fiscal 2025 as compared to fiscal 2024. The increase is primarily due to unfavorable foreign currency exchange volatility and increased interest expense due to increased interest rates and usage of our credit facility.
We recorded an income tax provision of $2.8 million during fiscal 2025 as compared to a tax benefit of $2.2 million in fiscal 2024. The change in our income tax provision in fiscal 2025 compared to the benefit recorded in fiscal 2024 is primarily driven by a $4.8 million valuation allowance that was recognized in fiscal 2025 against our net domestic deferred income tax asset.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of borrowings under our credit facilities. Net cash provided by operating activities was $5.9 million in fiscal 2025 compared to net cash used in operating activities of $1.5 million in fiscal 2024.
For the year ended June 30, 2025, changes in accounts receivable provided $2.2 million in cash compared to using $9.9 million in fiscal 2024. The increase in cash provided by accounts receivable during fiscal 2025 primarily resulted from timing of sales and the related collections. Days sales outstanding increased to 44 days during fiscal 2025 compared to 38 days during fiscal 2024, primarily due to customer sales mix and timing of sales and the related collections.
Inventory used $0.6 million in cash during fiscal 2025 compared to providing $5.4 million in fiscal 2024. The change in cash activity from inventory was primarily related to the difference in the amount and timing of orders and anticipated sales in fiscal year 2025 as compared to fiscal year 2024. Changes in accounts payable and accrued liabilities provided $2.9 million in cash during fiscal 2025 compared to providing $5.4 million during fiscal 2024. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.
Cash used in investing activities in fiscal 2025 was $3.6 million compared to $3.0 million in fiscal 2024. The primary reason for this change is due to increased capital expenditures. Capital expenditures in fiscal 2025 included costs incurred to install solar energy generation equipment on our manufacturing facilities. Capital expenditures in fiscal 2024 included normal expenditures to support equipment and activities in our facilities in California and Switzerland.
Cash used in financing activities in fiscal 2025 was $2.0 million, compared to $2.9 million provided in fiscal 2024. The change in financing activities includes net payments of $1.5 million on outstanding short-term borrowings on our line of credit in fiscal 2025 compared to a $3.4 million increase in short-term net borrowings on our line of credit in fiscal 2024.
At June 30, 2025, we had $9.9 million of borrowing capacity available on our credit facility of which we had outstanding borrowings of $1.9 million. We also owed $8.9 million on a term loan that was borrowed as part of the purchase of our Carlsbad, California manufacturing facility in August 2021. At June 30, 2024, we had $12.0 million of borrowing capacity available on our credit facility of which we had outstanding borrowings of $3.4 million. We also owed $9.2 million on the term loan.
For the quarter ended June 30, 2025, we were not in compliance with the minimum net income and fixed charge coverage ratio covenants of our credit agreement, but these defaults were prospectively waived by the Sixth Amendment to our credit facility, as discussed below.
As of June 30, 2025, we had $12.3 million in cash and cash equivalents of which $11.9 million was held by NAIE. Overall, we believe our available cash, cash equivalents, potential cash flows from operations, and our line of credit will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months. On June 20, 2025, we entered into an amended credit facility with Wells Fargo Bank, National Association ("Wells Fargo"). The amended credit facility extended the maturity date of our credit facility to December 31, 2026, decreased the maximum principal amount that can be borrowed from $12.5 million to $10.0 million, waived all prior events of default, prospectively waived the anticipated covenant violations for the quarter ending June 30, 2025, and modified the financial covenants for the first quarter of fiscal 2026 and beyond. We anticipate we will not be able to comply with all of the covenants required under the modified Credit Agreement in the first half of fiscal 2026, primarily related to the impact on the fixed charge coverage ratio calculation due to the unexpected recognition of the litigation expense and valuation allowance on our net deferred tax assets during the fourth quarter of fiscal 2025. We have advised our lender and are currently negotiating a potential revision to our credit agreement. There can be no assurance we will be able to successfully complete the negotiation of a revised credit facility, or what the differences in amount, cost and other factors may be. Please see Note F in Item 8 of this report for terms of our current modified line of credit.
Off-Balance Sheet Arrangements
As of June 30, 2025, we did not have any significant off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons, in each case that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.
Inflation
During fiscal 2025, we experienced continued price increases for product raw material, and other increased operational costs related to inflationary pressure though to a lesser degree than in fiscal 2024. We currently believe increasing raw material and product cost pricing pressures will continue throughout fiscal 2026 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, interest rates, tariffs, and global fuel and energy costs. We anticipate current inflation rates will have a negative impact on our fiscal 2026 operations, and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results.
Recent Accounting Pronouncements
A discussion of recent accounting pronouncements is included under Note A in the notes to our consolidated financial statements which are included under Item 8 of this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide Item 7A disclosure in this Annual Report.
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ITEM8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Natural Alternatives International, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Natural Alternatives International, Inc. (the “Company”) as of June 30, 2025 and 2024, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2025, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2025 and 2024, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2025, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ HASKELL & WHITE LLP
We have served as the Company’s auditor since 2014.
Irvine, California
September 23, 2025
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Natural Alternatives International, Inc.
Consolidated Balance Sheets
As of June30
(Dollars in thousands, except share and per share data)
Assets
Current assets:
Income tax receivable 276 —
Prepaids and other current assets 6,792 7,997
Deferred tax asset, net – noncurrent — 3,170
Other noncurrent assets, net 719 1,814
Liabilities and Stockholders’ Equity
Current liabilities:
Accrued compensation and employee benefits 2,173 2,090
Short-term liability – operating leases 2,227 1,194
Mortgage note payable, current portion 305 296
Long-term liability – operating leases 45,970 46,468
Long-term pension liability 111 141
Mortgage note payable, net of current portion 8,628 8,933
Income taxes payable, noncurrent — 740
Commitments and contingencies (Notes D, F, H, J and M)
Stockholders’ equity:
Accumulated other comprehensive loss (1,415 ) (22 )
Total liabilities and stockholders’ equity $ 151,939 $ 162,342
See accompanying notes to consolidated financial statements.
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Natural Alternatives International, Inc.
Consolidated Statements of Operations and Comprehensive Loss
For the Years Ended June30
(Dollars in thousands, except share and per share data)
Other selling, general and administrative expenses 16,549 15,399
Settlement of legal proceeding and associated expense 1,400 —
Other income (expense):
Foreign exchange loss (1,340 ) (652 )
Other, net 7 (93 )
Provision (benefit) for income taxes 2,835 (2,247 )
Change in minimum pension liability, net of tax $ 50 $ 102
Net loss per common share:
Weighted average common shares outstanding:
See accompanying notes to consolidated financial statements.
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Natural Alternatives International, Inc.
Consolidated Statements of Stockholders’ Equity
For the Years Ended June30
(Dollars in thousands)
Accumulated
Additional Other
Common Stock Paid-in Retained Treasury Stock Comprehensive
Shares Amount Capital Earnings Shares Amount Income (Loss) Total
Issuance of common stock for restricted stock grants 166,500 2 (2 ) — — — — —
Compensation expense related to stock compensation plans — — 1,200 — — — — 1,200
Repurchase of common stock — — — — 37,128 (221 ) — (221 )
Forfeiture of restricted stock — — — — 3,000 — — —
Change in minimum pension liability, net of tax — — — — — — 102 102
Issuance of common stock for restricted stock grants 24,000 — — — — — — —
Compensation expense related to stock compensation plans — — 977 — — — — 977
Repurchase of common stock — — — — 45,972 (178 ) — (178 )
Change in minimum pension liability, net of tax — — — — — — 50 50
See accompanying notes to consolidated financial statements.
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Natural Alternatives International, Inc.
Consolidated Statements of Cash Flows
For the Years Ended June30
(in thousands)
Cash flows from operating activities
Settlement of legal proceeding and associated expense 1,400 —
Depreciation and amortization 4,560 4,647
Pension expense, net of contributions 81 46
Loss on disposal of assets 49 —
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities 2,858 5,387
Operating lease liabilities (4,235 ) (3,003 )
Accrued compensation and employee benefits 36 (273 )
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 beginning of year 11,981 13,604
Cash and cash equivalents at end of year $ 12,325 $ 11,981
Supplemental disclosures of cash flow information
Cash paid during the year for:
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Organization and Summary of Significant Accounting Policies
Organization
We provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We also seek to commercialize our patent and trademark estate related to the ingredient known as beta-alanine sold under our CarnoSyn®, SR CarnoSyn® and TriBsynTM trademarks through raw material and finished product sales and various license and similar arrangements.
Subsidiaries
On January 22,1999, Natural Alternatives International Europe S.A., a Swiss Corporation (NAIE) was formed as our wholly owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened a manufacturing facility and currently possesses manufacturing capability in encapsulation, powders, tablets, finished goods packaging, quality control laboratory testing, warehousing, distribution and administration.
Principles of Consolidation
The consolidated financial statements include the accounts of Natural Alternatives International, Inc. (NAI) and our wholly owned subsidiary, NAIE. All intercompany accounts and transactions have been eliminated. The functional currency of NAIE, our foreign subsidiary, is the U.S. Dollar. Certain accounts of NAIE have been translated at either current or historical exchange rates, as appropriate, with gains and losses included in the consolidated statements of operations.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures". This amendment improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendment in this update is effective for fiscal years beginning after December 15, 2023, and interim periods with fiscal years beginning after December 15, 2024. We adopted this guidance in fiscal 2025 and will adopt the guidance in interim periods beginning in fiscal 2026. The adoption of ASU 2023-07 did not materially impact our results of operations or our financial statement presentation or related disclosures.
Recently Issued Accounting and Regulatory Pronouncements
In November of 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses presented in the Consolidated Statements of Operations and Comprehensive Loss. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. ASU 2024-03 allows for early adoption and requires prospective application to financial statements issued for reporting periods after the effective date of ASU 2024-03, and it allows for election to retrospectively adopt to any or all comparatively presented prior periods in the financial statements beginning before the effective date. This ASU will be adopted in our annual financial statements for the year ending June 30, 2028. We are currently evaluating the impact of this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements.
In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, "Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative". ASU 2023-06 clarifies or improves disclosure and presentation requirements on various disclosure areas, including the statement of cash flows, earnings per share, debt, equity, and derivatives. The amendments will align the requirements in the FASB Accounting Standards Codification (ASC) with the SEC’s regulations. The amendments in this ASU will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will not be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our Consolidated Financial Statements or related disclosures.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. This ASU will be adopted in our annual financial statements for the year ending June 30, 2026. We are currently evaluating the impact of this standard; however, we do not expect it to have a material impact on our Consolidated Financial Statements.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
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Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances.
The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable or can be corroborated, either directly or indirectly by observable market data. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
Except for cash and cash equivalents, as of June 30, 2025 and June 30, 2024, we did not have any financial assets or liabilities classified as Level 1. We classify derivative forward exchange contracts as Level 2 assets and liabilities. The fair values were determined by obtaining pricing from our bank.
Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands):
Interest Swap – Other Current Assets $ — $ 111
Euro Forward Contract– Current Assets — 492
Swiss Franc Forward Contract – Current Assets 368 —
Total Derivative Contracts – Current Assets 368 603
Euro Forward Contract– Other Noncurrent Assets — 78
Total Derivative Contracts – Other Noncurrent Assets — 78
Euro Forward Contract–Current Liabilities (1,704 ) —
Swiss Franc Forward Contract – Current Liabilities (263 ) (91 )
Total Derivative Contracts – Current Liabilities (1,967 ) (91 )
Fair Value Net Asset – all Derivative Contracts $ (1,599 ) $ 590
We also classify any outstanding line of credit and term loan balance as a Level 2 liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets. As of June 30, 2025, we had $1.9 million outstanding on our line of credit and of $8.9 million outstanding on our term loan. As of June 30, 2024, we had $3.4 million outstanding on our line of credit and $9.2 million outstanding on our term loan. As of June 30, 2025 and June 30, 2024, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between these levels during fiscal 2025 or fiscal 2024.
Accounts Receivable
We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and expected future customer credit-worthiness. An allowance for estimated credit losses is maintained based on, but not limited to, historical collection experience, current customer financial condition, current and future economic and market conditions, and age of receivables to identify any customer credit issues. We monitor our expected collections regularly and adjust the allowance for credit loss accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable is uncollectible, we record the respective amount as a charge against allowance for credit losses. To date, such credit loss reserves, in the aggregate, have been adequate to cover collection losses.
Inventories
We operate primarily as a private-label contract manufacturer. We make products based upon anticipated demand or following receipt of customer specific purchase orders. From time to time, we make inventory for private-label contract manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or canceled at the customer’s request. We value inventory at the lower of cost (first-in, first-out) or net realizable value on an item-by-item basis, including costs for raw materials, labor and manufacturing overhead. We establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or net realizable value, management considers such factors as the amount of inventory on hand, the estimated time required to sell such inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value.
Property and Equipment
We state property and equipment at cost. Depreciation of property and equipment is provided using the straight-line method over their estimated useful lives, generally ranging from 1 to 39 years. We amortize leasehold improvements using the straight-line method over the shorter of the useful life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred. Significant expenditures that increase economic useful lives of property or equipment are capitalized and expensed over the useful life of such expenditure.
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Impairment of Long-Lived Assets
We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During fiscal 2025 and 2024, we recognized no impairment losses.
Derivative Financial Instruments
We may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted sales denominated in Euros and Swiss Francs, our long-term lease liability denominated in Swiss Francs and our exposure to interest rate fluctuations related to our term-note with Wells Fargo.
We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts. To the extent we use derivative financial instruments that meet the relevant criteria, we account for them as cash flow hedges. Foreign exchange derivative instruments that do not meet the criteria for cash flow hedge accounting are marked-to-market through the Consolidated Statements of Operations and Comprehensive Loss. Historically, our cash flow derivative instruments related to our Euro sales have met the criteria for hedge accounting, while our derivative instruments related to our long-term lease liability have not. In the fourth quarter of fiscal 2025, we began hedging our currency risk associated with sales denominated in Swiss Franc and these derivative instruments meet the criteria for cash flow hedge accounting.
We recognize any unrealized gains and losses associated with derivative instruments accounted for as cash flow hedges in income in the period in which the underlying hedged transaction is realized. To the extent the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2025, we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar, which are the Euro and Swiss Franc. As of June 30, 2025, the notional amounts of our foreign exchange contracts were $35.5 million (€31.2 million) for Euro sales and $6.8 million (CHF 5.4 million) for Swiss Franc sales. These contracts will mature over the next 11 months.
As of June 30, 2025, we held foreign currency contracts not designated as cash flow hedges primarily to protect against changes in valuation of our long-term lease liability associated with our Swiss manufacturing and storage facilities. As of June 30, 2025, the notional amounts of our foreign currency contracts not designated as cash flow hedges were $11.8 million (CHF 9.5 million). These contracts will mature in the first quarter of fiscal year 2026.
We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable interest rate of 1.80% above the SOFR rolling 30-day average. To manage our exposure to this variable rate, on August 23, 2021, we entered into a floored interest rate swap that fixes our all-in rate on this loan to 2.4% for the firstthree years of the term loan which expired on September 3, 2024.
Defined Benefit Pension Plan
We formerly sponsored a defined benefit pension plan. Effective June 21,1999, we adopted an amendment to freeze benefit accruals to the participants. The plan obligation and related assets of the plan are presented in the notes to the consolidated financial statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued based upon third party market quotations. Independent actuaries, through the use of a number of assumptions, determine plan obligations and annual pension expense. Key assumptions in measuring the plan obligations include the discount rate and estimated future return on plan assets. In determining the discount rate, we use an average long-term bond yield. Asset returns are based on the historical returns of multiple asset classes to develop a risk free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free rate of return and the associated risk premium. A weighted average rate is developed based on the overall rates and the plan’s asset allocation.
Revenue Recognition
We record revenue based on a five-step model which includes: (1) identifying a contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price among the performance obligations; and (5) recognizing revenue as each of the various performance obligations are satisfied.
Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling one or more performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, including estimates for early payment discounts, volume rebates, and contractual discounts. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. We review and update these estimates at the end of each reporting period, and the impact of any adjustment is recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay the amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, which is typically 30 days from the invoice date. Invoices are generally issued on the date of transfer of control of the products ordered to the customer.
Revenue is recognized at the point in time that each of our performance obligations is fulfilled, and control of the ordered products is transferred to the customer. This transfer occurs when the product is shipped, or in some cases, when the product is delivered to the customer. We recognize revenue in certain circumstances before delivery to the customer has occurred (commonly referred to as bill-and-hold transactions). Products sold under bill-and-hold arrangements are recorded as revenue when risk of ownership has been transferred to the customer, but the product has not shipped due to a substantive reason, typically at the customer’s request. The product must be separately identified as belonging to the customer, ready for physical transfer to the customer, and we cannot have the ability to redirect the product to another customer.
We provide early payment discounts to certain customers. We evaluate the likelihood of customers taking advantage of these discounts based on historical payment trends. The cost of these discounts is reported as a reduction to the transaction price. If the actual discounts differ from those estimated, the difference is also reported as a change in the transaction price. We require prepayment from certain customers. We record any payments received in advance of contracts fulfillment as a contract liability, and they are classified as customer deposits on the consolidated balance sheet.
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Contract liabilities and revenue recognized were as follows (in thousands):
June 30, 2024 Additions Revenue Recognized Customer Refunds June 30, 2025
Contract Liabilities (Customer Deposits) $ 302 $ 4,371 $ (3,309 ) $ — $ 1,364
June 30, 2023 Additions Revenue Recognized Customer Refunds June 30, 2024
Contract Liabilities (Customer Deposits) $ 317 $ 2,500 $ (2,515 ) $ — $ 302
Except for product defects, no right of return exists on the sale of our products. We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of June 30, 2025, we have $11,000 in our returns reserve.
We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under our CarnoSyn®, SR CarnoSyn® and TriBsynTM trademarks. We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $8.1 million during fiscal 2025 and $8.4 million during fiscal 2024. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $0.3 million during fiscal 2025 and $0.3 million during fiscal 2024.
Cost of Goods Sold
Cost of goods sold includes raw material, labor, manufacturing overhead, royalty expense, shipping, and customer related research and development costs.
Shipping and Handling Costs
We include fees earned on the shipment of our products to customers in sales and include costs incurred on the shipment of product to customers in costs of goods sold.
Research and Development Costs
As part of the services we provide to our private-label contract manufacturing customers, we may perform, but are not obligated to perform, certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products. We also direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for product claims and marketing initiatives.
Research and development costs are expensed when incurred. Our research and development expenses for the last two fiscal years ended June 30 were $1.8 million for fiscal 2025 and $1.9 million for fiscal 2024. These costs are included in selling, general and administrative expenses and cost of goods sold.
Advertising Costs
We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed advertising costs in the amount of $0.4 million during the fiscal year ended June 30, 2025 and $0.3 million during fiscal 2024. These costs are included in selling, general and administrative expenses.
Income Taxes
To determine our annual provision for income taxes, we use an estimated annual effective tax rate that is based on annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.
We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will ultimately be realized based on whether future taxable income will be generated during the periods in which those temporary differences become deductible. During the year ended June 30, 2025, we recorded a valuation allowance against deferred income tax assets of $4.8 million, representing the amount of our deferred income tax assets in excess of our deferred income tax liabilities. We recorded the valuation allowance because management was unable to conclude, in light of the cumulative loss we have realized related to our US-based operations in recent years, that realization of the net deferred income tax asset was more likely than not. The valuation allowance recorded during fiscal 2025 primarily related to fiscal 2025 and prior net operating loss carry forwards and changes in other deferred tax items recognized during fiscal 2025. As a result of the recognition of these valuation adjustments, we have a $4.8 million net deferred tax asset offset by a valuation allowance of $4.8 million resulting in a net deferred tax asset of $0 as of June 30, 2025. This valuation allowance did not have any effect on the tax expense and related liability recorded for operating income recognized by NAIE during the year ended June 30, 2025.
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured and recorded using enacted tax rates for each of the jurisdictions in which we operate, and adjusted using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or expense in the period that includes the enactment date.
We account for uncertain tax positions using the more-likely-than-not recognition threshold. It is our policy to establish reserves based on management’s assessment of exposure for certain positions taken in previously filed tax returns that may become payable upon audit by tax authorities. Our tax reserves are analyzed quarterly, and adjustments are made as events occur that we believe warrant adjustments to the reserves. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2025 and June 30, 2024, we did not record any tax liabilities for uncertain tax positions.
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Stock-Based Compensation
Our current omnibus equity incentive plan that became effective January 1, 2021 (the “2020 Plan”), which was approved by our stockholders at the Annual Meeting of Stockholders on December 4, 2020. Under the 2020 Plan, we may grant nonqualified and incentive stock options, restricted stock grants, restricted stock units, stock appreciation rights, and other stock-based awards to employees, non-employee directors and consultants.
We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the use of highly subjective assumptions. Black-Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair value of our stock awards to expense over the related vesting periods.
We recognize forfeitures as they occur.
Use of Estimates
Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP). Actual results could differ from those estimates and our assumptions may prove to be inaccurate.
Net Loss per Common Share
We compute basic net loss per common share using the weighted average number of common shares outstanding during the year, and diluted net loss per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of stock options and restricted shares account for the additional weighted average shares of common stock outstanding for our diluted net income per common share computation. We calculated basic and diluted net (loss) income per common share as follows (in thousands, except per share data):
For the Years Ended June 30,
Numerator
Denominator
Basic weighted average common shares outstanding 5,947 5,871
Dilutive effect of stock options and restricted stock shares — —
Diluted weighted average common shares outstanding 5,947 5,871
Basic net loss per common share $ (2.28 ) $ (1.23 )
Diluted net loss per common share $ (2.28 ) $ (1.23 )
We exclude the impact of restricted stock from the calculation of diluted net loss per common share in periods where we have a net loss or when their inclusion would be antidilutive. During the year ended June 30, 2025, we excluded 222,551 shares of unvested restricted stock. For the year ended June 30, 2024 we excluded restricted stock totaling 232,574, as their impact would have been anti-dilutive.
Concentrations of Credit Risk
Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect to receivables is primarily concentrated with our three largest customers, whose receivable balances collectively represented 67.8% of gross accounts receivable at June 30, 2025 and 72.6% at June 30, 2024.
Additionally, amounts due related to our beta-alanine raw material sales were 6.8% of gross accounts receivable at June 30, 2025 and 4.4% of gross accounts receivable at June 30, 2024. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.
B. Inventories
Inventories, net, consisted of the following at June 30 (in thousands):
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C. Property and Equipment
Property and equipment consisted of the following at June 30 (dollars in thousands):
Depreciable
Life
Less: accumulated depreciation and amortization (55,972 ) (55,308 )
During fiscal year 2025, we disposed of machinery and equipment primarily due to obsolescence with total original value of $3.945 million and related accumulated depreciation of $3.896 million resulting in a loss on disposal of assets of $49,000.
Depreciation and amortization expense was $4.6 million in both fiscal 2025 and fiscal 2024.
D. Leases
We currently lease our Vista, California and Lugano, Switzerland product manufacturing and support facilities. At the inception of a contract, we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period of the contract, and (3) whether we have the right to direct the use of the asset during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.
On July 18, 2023, we entered into a Fourth Amendment to the Lease of our Vista, California manufacturing facility. The Fourth Amendment extends the term of the Lease by an additional ten years and five months commencing April 1, 2024. The amended lease covering two buildings and approximately 162,000 square feet will result in an increase in base rent to $1.50 per square foot, after five free months of base rent beginning at the commencement of the extended term. NAI intends to construct substantial improvements to the facilities including but not limited to installation of an approximately $2.3 million solar electrical generating system on both buildings, and other substantial improvements. Pursuant to the Fourth Amendment, the Landlord will reimburse NAI for up to $1.1 million of these tenant improvements to the buildings. Our lease liability and right of use asset were both increased by approximately $25.9 million as a result of this lease extension effective on the date that the Fourth Amendment was executed.
On January 26, 2024, we exercised the early termination of an apartment lease in Lugano, Switzerland. The early termination reduced the lease term by 9 years and 8 months thus ending on April 30, 2024. Our lease liability and right of use asset were both decreased by approximately $0.3 million as a result of the early termination of the lease agreement. On January 22, 2024, we entered into a lease for a new apartment in Lugano, Switzerland. This lease is for an initial term of 27 months beginning April 1, 2024 and ending on June 30, 2026.
Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset, or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria. Substantially all our operating leases are comprised of payments for the use of manufacturing and office space. We have no leases classified as finance leases. As of June 30, 2025, the weighted average remaining lease term for our operating leases was 8.6 years. The weighted average discount rate for our operating leases was 5.94%. As of June 30, 2024, the weighted average remaining lease term for our operating leases was 9.5 years and the weighted average discount rate was 5.92%. The lease discount rate is determined as the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized. The right-of-use asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.
The right-of-use asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All right-of-use assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate.
Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early. Certain leases contain escalation clauses. Fixed escalation clauses are included in our calculation of right-of-use assets and operating lease liabilities. Escalation clauses based on the CPI (Consumer Price Index) are not included in our calculation of right-of-use assets and operating lease liabilities because they cannot be readily determined.
Some of our manufacturing leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and separated into lease and non-lease components based on the initial amount stated in the lease or standalone selling prices. Lease components are included in the measurement of the initial lease liability. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.
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Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the right-of-use asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset, lease liability, and the short-term lease cost for the years ended June 30, 2025 and 2024 was not material.
Other information related to leases was as follows (in thousands) for the year ended June 30,
Supplemental Cash Flows Information 2025 2024
E. Other Comprehensive (Loss) Income
Other comprehensive (loss) income (“OCL” and “OCI”) consisted of the following at June 30 (dollars in thousands):
Unrealized Unrealized
Gains Gains
(Losses) (Losses)
Defined on on
Benefit Cash Flow Swap
Pension Plan Hedges Derivative Total
Amounts reclassified from OCI 86 192 — 278
Unrealized Unrealized
(Losses) Gains
Gains (Losses)
Defined on on
Benefit Cash Flow Swap
Pension Plan Hedges Derivative Total
Amounts reclassified from OCI 39 (92 ) — (53 )
Tax effect of OCI activity (25 ) (164 ) 99 (90 )
F. Debt
We have had a credit line with Wells Fargo Bank, N.A (“Wells Fargo”) for many years. The credit line has been amended, modified, and extended several times, most recently on June 20, 2025, when we entered into a Sixth Amendment to Credit Agreement. The Sixth Amendment waived all prior instances of non-compliance and preemptively waived anticipated non-compliance with covenants in the quarter ending June 30, 2025. The amended Credit Agreement extended the credit line to December 31, 2026, decreased the maximum principal amount that can be borrowed from $12.5 million to $10.0 million, increased the interest rate on borrowings under the line of credit to 3.25%, increased the unused commitment fee to 0.375%, and added the Company’s powder processing facility in Carlsbad, California as security for the amended Credit Agreement. Our obligations under the Credit Agreement are also secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment, and fixtures.
The Sixth Amendment also included modifications to our covenants under the Credit Agreement, including (i) net loss not greater than $250,000 for the first quarter of fiscal 2026, a net loss not greater than $750,000 for the first half of fiscal 2026, and net income of at least $1.00 on a year to date basis starting with the third quarter of fiscal 2026 and each fiscal quarter thereafter; (ii) fixed charge coverage ratio calculated on a rolling 4-quarter basis of not less than 1.0 to 1.0 for the first quarter of fiscal 2026 and not less than 1.25 to 1.0 for the second fiscal quarter of 2026 and all quarters thereafter. Amounts outstanding that are subject to a fluctuating interest rate may be prepaid at any time without penalty.
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Amounts outstanding under our credit line are subject to a fixed interest rate, may be prepaid at any time in minimum amounts of $100,000 subject to a prepayment fee equal to the sum of the discounted monthly differences between payment under a fixed rate versus payment under the variable rate for each month from the month of prepayment through the month in which the then applicable fixed rate term matures. There is an unused commitment fee of 0.375% required as part of the line of credit, and an extension fee of $20,000 was incurred upon execution of the Sixth Amendment.
We have a Term Note with Wells Fargo we entered into on August 16, 2021 to borrow part of the purchase price of our powder processing and warehouse property in Carlsbad, California. The Term Note is secured by a first mortgage on that property. The Term Note was in the original principal amount of $10.0 million and is a seven-year note with payments fully amortized based on a twenty-five year assumed term. Installment payments under this term loan commenced October 1, 2021 and continue through August 1, 2028 with a final installment consisting of all remaining amounts due, is due September 1, 2028. Amounts outstanding on this note during the term of the agreement bear interest at the rate of 1.8% above the SOFR rolling 30-day average.
We also have credit approval with Wells Fargo Bank, which allows us to hedge foreign currency exposures up to 12 months in the future, and we have credit approval with Bank of America which allows us to hedge foreign currency exposures up to 24 months in the future.
As of June 30, 2025, we had $8.9 million outstanding under the Term Note. The future debt payments under the Term Note are as follows (in thousands):
For the quarter ended June 30, 2025, we were not in compliance with the minimum net income and fixed charge coverage ratio covenants of our credit agreement, but these defaults were prospectively waived by the Sixth Amendment to our credit facility. We anticipate we will not be able to comply with all of the covenants required under the modified Credit Agreement in the first half of fiscal 2026, primarily related to the impact on the fixed charge coverage ratio calculation due to the unexpected recognition of the litigation expense and valuation allowance on our net deferred tax assets during the fourth quarter of fiscal 2025. We have advised our lender and are currently negotiating a potential revision to our credit agreement. There can be no assurance we will be able to successfully complete the negotiation of a revised credit facility, or what the differences in amount, cost and other factors may be.
As of June 30, 2025, we had $1.9 million outstanding on our credit facility with Wells Fargo Bank. Our available borrowing capacity under the amended terms of our amended credit facility was $9.9 million as of June 30, 2025.
G. Income Taxes
During fiscal 2025, we recorded U.S.-based domestic tax expense of $2.7 million and foreign tax expense of $0.1 million. During fiscal 2024, we recorded U.S.-based domestic tax benefit of $2.2 million and negligible foreign tax benefit.
During fiscal 2025, we recorded a valuation allowance against net domestic deferred income tax assets of $4.8 million, representing the amount of our deferred income tax assets in excess of our domestic deferred income tax liabilities. We recorded the valuation allowance because management was unable to conclude, in light of the cumulative loss we have realized related to our US-based operations in recent years, that realization of the net deferred income tax asset was more likely than not. The valuation allowance recorded during fiscal 2025 primarily related to fiscal 2025 and prior net operating loss carry forwards and changes in other deferred tax items recognized during fiscal 2025. As a result of the recognition of these valuation adjustments, we have a $4.8 million net deferred tax asset offset by a valuation allowance of $4.8 million resulting in a net deferred tax asset of $0 as of June 30, 2025. This valuation allowance did not have any effect on the tax expense and related liability recorded for operating income recognized by NAIE during the year ended June 30, 2025.
The following is a geographical breakdown of loss before income taxes (in thousands):
Total loss before income taxes $ (10,740 ) $ (9,464 )
The provision (benefit) for income taxes for the years ended June 30 consisted of the following (in thousands):
Current:
Deferred:
Foreign — (69 )
Valuation allowance 4,815 —
Total provision (benefit) for income taxes $ 2,835 $ (2,247 )
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Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):
Deferred tax assets:
Inventory capitalization $ 295 $ 279
Net operating loss carry forward 2,151 1,505
Capitalized research and experimentation 944 694
Accrued contingent fee 72 207
Stock-based compensation 95 129
Forward contracts 378 —
Tax credit carry forward 722 682
Pension liability 52 67
Accrued settlement of legal proceeding 302 —
Deferred tax liabilities:
Withholding taxes (134 ) (134 )
Forward contracts — (54 )
Employee retention tax credit refund (358 ) —
Other, net — (26 )
Deferred tax liabilities (9,533 ) (9,393 )
Valuation allowance (4,814 ) —
Net deferred tax assets $ — $ 3,170
As of June 30, 2025, the Company had U.S. federal net operating loss carryforwards of $8.0 million which may be carried forward indefinitely. The Company has state net operating loss carryforwards of $6.8 million, which, if unutilized, will begin to expire beginning in fiscal year 2032. The Company has federal and state tax credits of $0.8 million, which, if unutilized, will begin to expire in fiscal year 2041.
Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2025 and June 30, 2024.
We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2020 and forward are subject to examination by the U.S. tax authorities. Our tax years for the fiscal years ended June 30, 2019 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2023 and forward are subject to assessment by the Swiss tax authorities.
NAIE’s effective tax rate for the fiscal year ended June 30, 2025 for Swiss federal, cantonal and communal taxes is approximately 21%.
As part of the Tax Cuts and Jobs Act of 2017 (the Tax Act), we were required to recognize a one-time deemed repatriation transition tax during the fiscal year ended June 30, 2018 based on our total post-1986 earnings and profits (E&P) from our Swiss subsidiary, NAIE. This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. We no longer consider undistributed foreign earnings from NAIE as of December 31, 2017 as indefinitely reinvested. We consider earnings accumulated subsequent to December 31, 2017 as indefinitely reinvested.
For tax years commencing on or after January 1, 2022, the Tax Cuts and Jobs Act of 2017, also eliminated the ability to immediately deduct research and development costs. Instead, taxpayers were mandated to capitalize these expenses and amortize them over five years for research conducted within the United States and 15 years for research conducted abroad, as stipulated in IRC Section 174. Although the requirements of the Tax Cuts and Jobs Act of 2017 are applicable for our fiscal year ended on June 30, 2025, the One Big Beautiful Bill Act was voted into law by congress on July 4, 2025 and restores the immediate expensing of domestic research and development expenses while making permanent the capitalization and amortization rules of research and development conducted abroad. The One Big Beautiful Bill Act is effective beginning in our fiscal year 2026.No dividends to NAI were declared by NAIE in fiscal 2025. During fiscal 2024, NAIE declared a dividend to NAI of $5.4 million, which was paid in the first quarter of fiscal 2025. These amounts are part of the undistributed earnings that we recorded a one-time deemed repatriation transition tax in fiscal 2018, and therefore, we did not recognize any additional tax on these dividends. However, as part of these dividends, we were required to pay a 5% Swiss withholding tax totaling $0.3 million in fiscal 2024 which was also accrued for as part of the implementation of the Tax Act in fiscal 2018.
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A reconciliation of our income tax provision (benefit) computed by applying the statutory federal income tax rate of 21% for fiscal 2025 and for fiscal 2024 to net loss before income taxes for the year ended June 30 is as follows (dollars in thousands):
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
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 )%
We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.
H. Employee Benefit Plans
401(k) Plan
We have a profit-sharing plan pursuant to Section 401(k) of the Code, whereby participants may contribute a percentage of compensation not in excess of the maximum allowed under the Code. Effective January 1, 2022, all employees became eligible to participate in the plan the first of the month following 30 days of employment. Also effective, January 1, 2025, we match 50% of the first6% of a participant’s compensation contributed to the plan. The total contributions under the plan charged to income from operations totaled $0.5 million for fiscal 2025 and $0.6 million for fiscal 2024.
Additionally, we have a discretionary profit-sharing plan pursuant to Section 401(k) of the Code, whereby we may contribute an additional percentage of compensation. Employees are not required to contribute to the plan to receive the discretionary profit-sharing contribution. We did not make any discretionary profit-sharing contributions in fiscal 2025 or in fiscal 2024.
We have a “Cafeteria Plan” pursuant to Section 125 of the Code, whereby health care benefits are provided for active employees through insurance companies. Substantially all active full-time employees are eligible for these benefits. We recognize the cost of providing these benefits by expensing the annual premiums, which are based on benefits paid during the year. The premiums expensed to results from operations for these benefits totaled $1.6 million for the fiscal year ended June 30, 2025 and $1.4 million for the fiscal year ended June 30, 2024.
Deferred Compensation Plan
Effective July 16, 2020, the Board of Directors approved and adopted a Non-Qualified Incentive Plan (the “Incentive Plan”). Pursuant to the Incentive Plan, the Human Resources Committee and the Board of Directors may make deferred cash payments or other cash awards (“Awards”) to directors, officers, employees and eligible consultants of NAI (“Participants”). These Awards are made subject to conditions precedent that must be met before NAI is obligated to make the payment. The purpose of the Incentive Plan is to enhance the long-term stockholder value of NAI by providing the Human Resources Committee and the Board of Directors the ability to make deferred cash payments or other cash awards to encourage Participants to serve NAI or to remain in the service of NAI, or to assist NAI to achieve results determined by the Human Resources Committee or the Board of Directors to be in NAI's best interest.
The Incentive Plan authorizes the Human Resources Committee or the Board of Directors to grant to, and administer, unsecured and deferred cash Awards to Participants and to subject each Award to whatever conditions are determined appropriate by the Human Resources Committee or the Board of Directors. The terms of each Award, including the amount and any conditions that must be met to be entitled to payment of the Award are set forth in an Award Agreement between each Participant and NAI. The Incentive Plan provides the Board of Directors with the discretion to set aside assets to fund the Incentive Plan although that has not been done to date.
During the year ended June 30, 2025, we granted a total of $0.2 million in deferred cash awards to members of our Board of Directors. During the year ended June 30, 2024, we granted a total of $0.9 million in deferred cash awards to members of our Board of Directors and certain key members of our management team. Each deferred cash award provides for three equal cash payments to the applicable Participant to be paid on the one year, two year, and three year anniversaries of the date of the grant of such Awards, (the “Award Date”); provided on the date of each payment (the “Payment Date”), the Participant has been since the Award Date, and continues to be through the Payment Date, a member of our Board of Directors or an employee of NAI. In the event a Participant ceases to be an employee of NAI or a member of our Board of Directors prior to any Payment Date, no further payments shall be made in connection with the Award.
No deferred cash awards were forfeited during the fiscal year ended June 30, 2025 and the fiscal year ended June 30, 2024.
Defined Benefit Pension Plan
We formerly sponsored a defined benefit pension plan, which provides retirement benefits to employees based generally on years of service and compensation during the last five years before retirement. Effective June 21,1999, we adopted an amendment to freeze benefit accruals to the participants. Annually, we contribute an amount not less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 nor more than the maximum tax-deductible amount.
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Disclosure of Funded Status
The following table sets forth the defined benefit pension plan’s funded status and amount recognized in our consolidated balance sheets at June 30 (in thousands):
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 1,374 $ 1,364
Actuarial gain (loss) 62 (39 )
Benefits paid (330 ) —
Benefit obligation at end of year $ 1,152 $ 1,374
Change in Plan Assets:
Fair value of plan assets at beginning of year $ 1,232 $ 1,025
Actual return on plan assets 92 91
Employer contributions 48 116
Benefits paid (330 ) —
Fair value of plan assets at end of year $ 1,042 $ 1,232
Reconciliation of Funded Status:
Net amount recognized $ 107 $ 140
Projected benefit obligation $ 1,152 $ 1,374
Accumulated benefit obligation $ 1,152 $ 1,374
Fair value of plan assets $ 1,042 $ 1,232
The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 5.29% for the year ended June 30, 2025 and 5.28% during the year ended June 30, 2024.
Net Periodic Benefit Cost
The components included in the defined benefit pension plan’s net periodic benefit expense for the fiscal years ended June 30 were as follows (in thousands):
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
In the fiscal year ended June 30, 2025, we contributed $48,000 to our defined benefit pension plan, and in the fiscal year ended June 30, 2024, we contributed $116,000 to our defined benefit pension plan.
The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (loss) (in thousands):
Net income (loss) $ 21 $ (88 )
Settlement loss (62 ) —
Amortization of net loss (24 ) (39 )
Total recognized in other comprehensive loss $ (65 ) $ (127 )
The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is approximately $17,000. We do not have any transition obligations or prior service costs recorded in accumulated other comprehensive income.