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What changed in NATURAL ALTERNATIVES INTERNATIONAL INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NATURAL ALTERNATIVES INTERNATIONAL INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+231 added−225 removedSource: 10-K (2024-09-27) vs 10-K (2023-09-21)

Top changes in NATURAL ALTERNATIVES INTERNATIONAL INC's 2024 10-K

231 paragraphs added · 225 removed · 185 edited across 3 sections

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeMARKET 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, 2023 and 2022: Fiscal 2023 Fiscal 2022 High Low High Low First Quarter $ 12.60 $ 8.38 $ 19.15 $ 13.50 Second Quarter $ 9.84 $ 7.04 $ 14.47 $ 12.49 Third Quarter $ 10.12 $ 7.95 $ 13.62 $ 10.68 Fourth Quarter $ 9.44 $ 6.97 $ 11.73 $ 8.91 Holders As of September 19, 2023, there were 181 stockholders of record of our common stock.
Biggest changeMARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the Nasdaq Global Market under the symbol “NAII.” Below are the high and low sales prices of our common stock as reported on the Nasdaq Global Market for each quarter of the fiscal years ended June 30, 2024 and 2023: Fiscal 2024 Fiscal 2023 High Low High Low First Quarter $ 7.62 $ 5.06 $ 12.60 $ 8.38 Second Quarter $ 7.37 $ 5.78 $ 9.84 $ 7.04 Third Quarter $ 6.98 $ 5.65 $ 10.12 $ 7.95 Fourth Quarter $ 7.26 $ 6.00 $ 9.44 $ 6.97 Holders As of September 25, 2024, there were 177 stockholders of record of our common stock.
On that same date, the last sales price of our common stock as reported on NASDAQ was $6.36 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.
On that same date, the last sales price of our common stock as reported on NASDAQ was $6.54 per share. Dividends We have never paid a dividend on our common stock, and we do not intend to pay a dividend in the foreseeable future. Our current policy is to retain all earnings to provide funds for operations and future growth.
Additionally, under the terms of our credit facility, we are precluded from paying a dividend while such facility is in place without a waiver from our lender. Recent Sales of Unregistered Securities During the fiscal year ended June 30, 2023, we did not sell any unregistered securities.
Additionally, under the terms of our credit facility, we are precluded from paying a dividend while such facility is in place without a waiver from our lender. Recent Sales of Unregistered Securities During the fiscal year ended June 30, 2024, we did not sell any unregistered securities.
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, 2023: 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 — $ — 349,377 Equity compensation plans not approved by stockholders N/A N/A N/A Total — $ — 349,377
Equity Compensation Plan Information The following table sets forth information regarding outstanding options and shares reserved for future issuance under our existing equity compensation plans as of June 30, 2024: Number of Shares Remaining Available Weighted- for Future Number of Average Issuance Shares 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 — $ — 182,877 Equity compensation plans not approved by stockholders N/A N/A N/A Total — $ — 182,877
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 17 Table of Contents PART II ITEM 5.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 18 Table of Contents PART II ITEM 5.
Repurchases During the quarter ended June 30, 2023, we did not repurchase any shares of our common stock.
Repurchases During the fiscal year ended June 30, 2024, we did not repurchase any shares of our common stock other than shares acquired from employees in exchange for our paying their withholding requirements upon vesting of restricted stock.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

40 edited+8 added−17 removed12 unchanged
Biggest changeFiscal Year Ended June 30, 2023 June 30, 2022 Increase (Decrease) Private-label contract manufacturing $ 145,294 94 % $ 154,798 91 % $ (9,504 ) (6 )% Patent and trademark licensing 8,721 6 % 16,168 9 % (7,447 ) (46 )% Total net sales 154,015 100 % 170,966 100 % (16,951 ) (10 )% Cost of goods sold 135,857 88 % 140,457 82 % (4,600 ) (3 )% Gross profit 18,158 12 % 30,509 18 % (12,351 ) (40 )% Selling, general & administrative expenses 13,445 9 % 16,830 10 % (3,385 ) (20 )% Income from operations 4,713 3 % 13,679 8 % (8,966 ) (66 )% Other (loss), net (1,158 ) (1 )% (20 ) (0 )% (1,138 ) 5690 % Income before income taxes 3,555 2 % 13,659 8 % (10,104 ) (74 )% Provision for income taxes 1,033 1 % 2,947 2 % (1,914 ) (65 )% Net income $ 2,522 2 % $ 10,712 6 % $ (8,190 ) (76 )% Private-label contract manufacturing sales decreased 6% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventory.
Biggest changeFiscal Year Ended June 30, 2024 June 30, 2023 Increase (Decrease) Private-label contract manufacturing $ 105,358 93 % $ 145,294 94 % $ (39,936 ) (27 )% Patent and trademark licensing 8,438 7 % 8,721 6 % (283 ) (3 )% Total net sales 113,796 100 % 154,015 100 % (40,219 ) (26 )% Cost of goods sold 106,931 94 % 135,857 88 % (28,926 ) (21 )% Gross profit 6,865 6 % 18,158 12 % (11,293 ) (62 )% Selling, general & administrative expenses 15,399 14 % 13,445 9 % 1,954 15 % (Loss) income from operations (8,534 ) (7 )% 4,713 3 % (13,247 ) (281 )% Other loss, net (930 ) (1 )% (1,158 ) (1 )% 228 (20 )% (Loss) income before income taxes (9,464 ) (8 )% 3,555 2 % (13,019 ) (366 )% Provision for income taxes (2,247 ) (2 )% 1,033 1 % (3,280 ) (318 )% Net (loss) income $ (7,217 ) (6 )% $ 2,522 2 % $ (9,739 ) (386 )% Private-label contract manufacturing sales decreased 27% primarily due to reduced orders from several of our larger customers associated with their continued efforts to reduce excess on-hand inventory, partially offset by increased shipments to other existing customers and shipments to new customers.
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. 20 Table of Contents 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).
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. 21 Table of Contents 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).
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, 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.
Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark and our new TriBsyn™ product, maintain our patent rights, the availability and the cost of the raw material when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights.
Off-Balance Sheet Arrangements As of June 30, 2023, 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.
Off-Balance Sheet Arrangements As of June 30, 2024, we did not have any significant off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons, in each case that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.
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, 2023 and 2022 and for each of the last two fiscal years then ended.
MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The following discussion and analysis is intended to help you understand our financial condition and results of operations as of June 30, 2024 and 2023 and for each of the last two fiscal years then ended.
During fiscal 2024, we plan to continue our focus on : • Leveraging our state-of-the-art, certified facilities to increase the value of the goods and services we provide to our highly valued private-label contract manufacturing customers, and assist us in developing relationships with additional quality-oriented customers; • Expanding the commercialization of our beta-alanine patent estate through raw material sales, developing a new sales distribution channel under the Wellness and Healthy Aging category for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, exploiting new contract manufacturing opportunities, license and royalty agreements, and protecting our proprietary rights; and • Improving operational efficiencies and managing costs and business risks to improve profitability.
During fiscal 2025, we plan to continue our focus on : • Leveraging our state-of-the-art, certified facilities to increase the value of the goods and services we provide to our highly valued private-label contract manufacturing customers, and assist us in developing relationships with additional quality-oriented customers; • Expanding the commercialization of our beta-alanine patent estate through raw material sales, developing a new sales distribution channel under the Wellness and Healthy Aging category for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, developing a market for our new TriBsyn™ beta-alanine product, exploiting new contract manufacturing opportunities, license and royalty agreements, and protecting our proprietary rights; and • Improving operational efficiencies and managing costs and business risks to improve profitability.
We anticipate current inflation rates will have a negative impact on our fiscal 2024 operations and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results.
We anticipate current inflation rates will have a negative impact on our fiscal 2025 operations, and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results.
ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report. 18 Table of Contents ITEM 7.
ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report. 19 Table of Contents ITEM 7.
At June 30, 2023,we had no outstanding balances due on our line of credit and had $20.0 million available with this loan facility and we owed $9.5 million on a term loan that was borrowed as part of the purchase of our new Carlsbad manufacturing facility in August 2021.
At June 30, 2023 we had no outstanding balances due and $20.0 million available in connection with our line of credit. We also owed $9.5 million on a term loan that was borrowed as part of the purchase of our new Carlsbad, California manufacturing facility in August 2021.
Sales were also negatively impacted by Euro to USD exchange rates. Our foreign currency exchange rates as applied to sales denominated in Euro decreased to a weighted average of 1.13 EUR/USD in fiscal 2023 compared to a weighted average of 1.18 EUR/USD in fiscal 2022.
Sales were also negatively impacted by Euro to USD exchange rates. Our foreign currency exchange rates as applied to sales denominated in Euro decreased to a weighted average of 1.09 EUR/USD in fiscal 2024 compared to a weighted average of 1.13 EUR/USD in fiscal 2023.
The change in gross profit margin for the year ended June 30, 2023, was as follows: Percentage Change Contract manufacturing(1) (3.9 ) Patent and trademark licensing(2) (2.2 ) Total change in gross profit margin (6.1 ) 1 Private-label contract manufacturing gross profit margin contribution decreased 3.9 percentage points in fiscal 2023 as compared to fiscal 2022.
The change in gross profit margin for the year ended June 30, 2024, was as follows: Percentage Change Contract manufacturing(1) (6.9 ) Patent and trademark licensing(2) 1.1 Total change in gross profit margin (5.8 ) 1 Private-label contract manufacturing gross profit margin contribution decreased 6.9 percentage points in fiscal 2024 as compared to fiscal 2023.
The decrease in margin contribution during the year ended June 30, 2023 was primarily due to decreased patent and trademark licensing net sales as a percentage of total consolidated net sales, as patent and trademark licensing historically provides higher profit margins than our private-label contract manufacturing business.
The increase in margin contribution during the year ended June 30, 2024 was primarily due to increased patent and trademark licensing net sales in total as a percentage of total consolidated net sales, as patent and trademark licensing historically provides higher profit margins than our private-label contract manufacturing business.
Inventory provided $2.8 million in cash during fiscal 2023 compared to using $5.5 million in fiscal 2022. 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 2023 as compared to fiscal year 2022.
Inventory provided $5.4 million in cash during fiscal 2024 compared to providing $2.8 million in fiscal 2023. The change in cash activity from inventory was primarily related to the difference in the amount and timing of orders and anticipated sales in fiscal year 2024 as compared to fiscal year 2023.
We currently believe increasing raw material and product cost pricing pressures will continue throughout fiscal 2024 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, rising interest rates, higher global fuel and energy costs, and the continued impact of COVID-19.
We currently believe increasing raw material and product cost pricing pressures will continue throughout fiscal 2025 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, interest rates, and global fuel and energy costs.
Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 40% in fiscal 2023, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2022 was 32%. Net sales from our patent and trademark licensing segment decreased 46% during fiscal 2023.
Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 42% in fiscal 2024, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2023 was 40%. Net sales from our patent and trademark licensing segment decreased 3% during fiscal 2024.
The increase in effective tax rate was primarily driven by changes in apportionment allocation of income to state jurisdictions and an increase in the Global Low-Taxed Intangible Income associated with our Swiss operations. 21 Table of Contents 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.
The decrease in the effective tax rate was primarily driven by decreases in Global Low-Taxed Intangible Income associated with our Swiss operations and changes in apportionment allocation of income to state jurisdictions offset by an increase in available business credits in the U.S. 22 Table of Contents 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.
The increase in cash provided by accounts receivable during fiscal 2023 primarily resulted from timing of sales and the related collections. Days sales outstanding decreased to 29 days during fiscal 2023 compared to 38 days during fiscal 2022, primarily due to customer sales mix and timing of sales and the related collections.
The increase in cash used by accounts receivable during fiscal 2024 primarily resulted from timing of sales and the related collections. Days sales outstanding increased to 38 days during fiscal 2024 compared to 29 days during fiscal 2023, primarily due to customer sales mix and timing of sales and the related collections.
Of these amounts, $12.2 million of cash and cash equivalents were held by NAIE. Overall, we believe our available cash, cash equivalents, potential cash flows from operations, and our credit facility will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.
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.
Changes in accounts payable and accrued liabilities used $8.6 million in cash during fiscal 2023 compared to providing $3.1 million during fiscal 2022. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.
Changes in accounts payable and accrued liabilities provided $5.4 million in cash during fiscal 2024 compared to using $8.6 million during fiscal 2023. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.
To protect our CarnoSyn® business, we incurred litigation and patent compliance expenses of approximately $0.2 million during fiscal 2023 and $0.2 million during fiscal 2022. Our legal expense associated with our CarnoSyn® business has remained low as we have no active litigation and the current run-rate of expenses is primarily related to maintenance of our patent and trademark estate.
Our legal expense associated with our CarnoSyn® business has remained low as we have no active litigation, and the current run-rate of expenses is primarily related to maintenance of our patent and trademark estate.
The decrease in gross profit as a percentage of sales for private-label contract manufacturing is primarily due to lower sales and unfavorable sales mix, increased costs related to labor, utilities, operating supplies, freight and other costs resulting in an increase in per-unit manufacturing costs.
The decrease in gross profit as a percentage of sales for private-label contract manufacturing is primarily due to unfavorable sales mix, lower sales, and increased per unit manufacturing costs.
Sales to this customer increased 66% in fiscal 2023 as compared to fiscal 2022. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 40% in fiscal 2023, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2022 was 32%.
Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 42% in fiscal 2024, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 2023 was 40%.
During fiscal 2023, our consolidated net sales were 10% lower than in fiscal 2022. Private-label contract manufacturing sales decreased 6% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventory. Sales were also negatively impacted by Euro to USD exchange rates.
During fiscal 2024, our consolidated net sales were 26% lower than in fiscal 2023. Private-label contract manufacturing sales decreased 27% primarily due to reduced orders from several of our larger customers associated with their efforts to reduce excess on-hand inventory, partially offset by increased shipments from other existing customers and shipments to new customers.
Inflation During fiscal 2023, we experienced price increases in product raw material and operational costs related to inflationary pressures.
Inflation During fiscal 2024, we experienced continued price increases for product raw material, and other increased operational costs related to inflationary pressure though to a lesser degree than in fiscal 2023.
Selling, general and administrative expenses decreased $3.4 million, or 20% to $13.5 million in fiscal 2023 as compared to $16.8 million in fiscal 2022.
Selling, general and administrative expenses increased $2.0 million, or 15% to $15.4 million in fiscal 2024 as compared to $13.5 million in fiscal 2023.
Our foreign currency exchange rates as applied to sales denominated in Euro decreased to a weighted average of 1.13 EUR/USD in fiscal 2023 compared to a weighted average of 1.18 EUR/USD in fiscal 2022. The decrease in sales to these customers was partially offset by increased sales to our largest customer.
Sales were also negatively impacted by Euro to USD exchange rates. Our foreign currency exchange rates as applied to sales denominated in Euro decreased to a weighted average of 1.09 EUR/USD in fiscal 2024 compared to a weighted average of 1.13 EUR/USD in fiscal 2023.
Net cash provided by operating activities was $7.0 million in fiscal 2023 compared to net cash provided by operating activities of $11.9 million in fiscal 2022.
Net cash used in operating activities was $1.5 million in fiscal 2024 compared to net cash provided by operating activities of $7.0 million in fiscal 2023. At June 30, 2024, changes in accounts receivable used $9.8 million in cash compared to providing $11.8 million in fiscal 2023.
We have advised the lender and are currently negotiating a potential revised credit facility. 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.
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.
Cash used in financing activities in fiscal 2023 was $1.8 million, compared to $4.3 million provided in fiscal 2022. The change in financing activities includes a reduction of stock repurchase activity, which totaled $1.5 million in fiscal 2023 as compared to $5.5 million in fiscal 2022.
The change in financing activities includes $3.4 million of outstanding short-term borrowing on our line of credit in fiscal 2024 offset by a reduction of stock repurchase activity which totaled $0.2 million in 2024 as compared to $1.5 million in fiscal 2023.
During fiscal 2024, 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® and SR CarnoSyn® beta-alanine. 19 Table of Contents 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 customer’s and their efforts to rebalance supply and demand.
On August 16, 2023, we announced the temporary closure of our high-speed powder processing facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand. We reopened this facility in May 2024.
Subject to this uncertainty, and our overall sales forecast, we currently anticipate we will experience a net loss in the first half of fiscal 2024, net income in the second half and an overall net loss in fiscal 2024.
Although our overall sales forecast for fiscal 2025 includes a significant increase in sales as compared to fiscal 2024, we currently anticipate we will experience a net loss in the first half of fiscal 2025, net income in the second half of fiscal 2025, and we will break-even or have a slight profit for the full fiscal 2025 year.
The increase is primarily associated with increased expenses related to our CHF balance sheet hedge and interest expense related to usage of our line of credit. Our income tax expense decreased $1.9 million during fiscal 2023 as compared to fiscal 2022.
The decrease is primarily associated to an increase in interest income and a decrease in interest expense related to reduced usage of our line of credit in fiscal 2024. We recorded an income tax benefit of $2.2 million during fiscal 2024 as compared to tax expense of $1.0 million in fiscal 2023.
The decrease year over year includes a $1.3 million benefit recorded related to our ERTC filing, a $1.4 million bad debt recovery associated with a settlement we agreed to with a former customer whose balance was written-off in a prior year, and favorable salary costs. Other loss, net, increased $1.1 million during fiscal 2023 as compared to fiscal 2022.
Our fiscal 2023 expense included a $1.3 million benefit recorded related to our Employee Retention Tax Credit filing and a $1.4 million bad debt recovery associated with a settlement we agreed to with a former customer whose balance was written-off in a prior year while fiscal 2024 did not include any such items.
The decrease is primarily due to a reduction in pre-tax income, which was partially offset by a higher effective tax rate.
The change in our income tax provision between fiscal 2024 and 2023 is primarily driven by our pre-tax income changing from income in fiscal 2023 to a loss in fiscal 2024, which was partially offset by a lower effective tax rate.
At June 30, 2022 we had no outstanding balances due and $20.0 million available in connection with our loan facility. During fiscal 2023, we were in compliance with all of the financial and other covenants required under our Credit Agreement. As of June 30, 2023, we had $13.6 million in cash and cash equivalents.
At June 30, 2024, we were in compliance with the financial and other covenants as modified by the Fourth Amendment to our credit facility. As of June 30, 2024, we had $12.0 million in cash and cash equivalents which was held by NAIE.
As a result of reduced sales overall, and the impact of temporary closure of our Carlsbad California high-speed powder processing facility, we anticipate we will not be able to comply with all of the covenants required under the Credit Agreement in the second quarter of fiscal 2024.
We anticipate we will not be able to comply with all of the covenants required under the modified Credit Agreement in the first half of fiscal 2025. We have advised our lender and are currently negotiating a potential revised line of credit.
We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets. We believe our efforts to refine our formulations and product offerings will be positively received and result in significant opportunity for increased SR CarnoSyn® sales.
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.
These new products are being offered both as business-to-business private label products and direct to the consumer through Amazon and our own direct to consumer website. In addition, we are also working on several innovations that could lead to new patentable products for CarnoSyn® Brands in the future.
We are also working on several additional innovations that 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 $0.2 million during fiscal 2024 and $0.2 million during fiscal 2023.
The primary reason for the change was due to the purchase of a new manufacturing and warehouse facility in Carlsbad, California in fiscal 2022 while fiscal 2023 included capital improvement costs and equipment purchases associated with the on-going project to improve the new facility to become a high capacity powder processing and storage facility.
Cash used in investing activities in fiscal 2024 was $3.0 million compared to $13.5 million in fiscal 2023. The primary reason for this change is due to reduced capital expenditures. Fiscal 2023 included residual capital improvement expenditures associated with our new manufacturing and warehouse facility in Carlsbad, California that was completed in fiscal 2023.
During fiscal 2023, patent and trademark licensing revenue decreased 46% to $8.7 million as compared to $16.2 million for fiscal 2022. The decrease in patent and trademark licensing revenue was primarily due to a decrease in orders from existing customers as a result of market and inflationary factors along with a general slowdown in the Sports Nutrition sales channel.
During fiscal 2024, patent and trademark licensing revenue decreased 3% to $8.4 million as compared to $8.7 million for fiscal 2023. The decrease in patent and trademark licensing revenue was primarily due to increased volume rebates partially offset by increased royalty income. We continue to invest in research and development for the expansion of our CarnoSyn® product offerings.
Removed
Included in the market factors, fiscal 2022 benefited from a ramp up of Sports Nutrition sales activity due to easing COVID restrictions on athletic activities with no corresponding activity in fiscal 2023. We continue to invest in research and development for our SR CarnoSyn® sustained release delivery system.
Added
We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets but acceptance of this product offering has been limited as we only offer this product in tablet form. In August 2024, we announced our new product called TriBsyn™. We believe TriBsyn™ may allow us to better penetrate the Wellness and Healthy Aging channel.
Removed
As part of this commercialization effort, we have recently introduced two new SR CarnoSyn® Wellness tablet products – Complete Vision Support and Complete Memory Support.
Added
This groundbreaking new product is a carnosine booster that utilizes CarnoSyn® beta-alanine and other patent-pending technology to increase beta-alanine bioavailability and absorption while effectively eliminating beta-alanine related paresthesia. This product is available as a raw material powder, which allows formulation flexibility for our customers.
Removed
These new offerings are condition-specific tablet products that include SR CarnoSyn® as the primary ingredient along with other science-backed ingredients that strengthen the claims and marketing around the product and are more recognizable to the consumer.
Added
During fiscal 2025, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn®, SR CarnoSyn® and TriBsyn™ beta-alanine products. 20 Table of Contents We experienced a loss during fiscal 2024 that was primarily due to a slowdown across our private-label contract manufacturing segment.
Removed
As a result of this temporary closure sixty-day notice was provided to all employees who may be furloughed starting in early October 2023.
Added
The decrease in patent and trademark licensing revenue was primarily due to increased volume rebates partially offset by increased royalty income.
Removed
We expect this facility will re-open and our prior level of operations will resume late in our third fiscal quarter of 2024, but there can be no assurance this customer will resolve its supply and demand issues in the timeframe expected, or what level of business we will have with this customer when they purchase from us in the future.
Added
Per unit manufacturing costs were negatively impacted by reduced sales resulting in our fixed costs being allocated over fewer production units and carrying costs of our Carlsbad, California manufacturing plant that was closed beginning in October of fiscal 2024 and not re-opened until May of fiscal 2024, increased costs associated with higher labor rates, and increased rent and utility costs. 2 During fiscal 2024, patent and trademark licensing gross profit margin contribution increased 1.1 percentage points as compared to fiscal 2023.
Removed
If this customer is unable to resolve its inventory issues in this timeframe, or our sales forecast is not realized we will likely experience a continuing material decrease in revenues during fiscal year 2024.
Added
Excluding the non-recurring items, the remainder of selling, general and administrative expenses decreased in fiscal 2024 as compared to fiscal 2023 primarily due to a decrease in advertising, promotion, and sales commission expenses. Other loss, net, decreased $0.2 million during fiscal 2024 as compared to fiscal 2023.
Removed
Impact of COVID-19 on Our Business The COVID-19 pandemic resulted in significant economic disruption and may have some effect on our business in the future. Our facilities, located both in the United States and Europe, maintained operations throughout the duration of the COVID-19 pandemic, however, there can be no assurance our facilities will continue to operate without interruption.
Added
Capital expenditures in fiscal 2024 included normal expenditures to support equipment and activities in our facilities in California and Switzerland. Cash provided in financing activities in fiscal 2024 was $2.9 million, compared to $1.8 million used in fiscal 2023.
Removed
The decrease in sales to these customers was partially offset by increased sales to our largest customer. Sales to this customer increased 66% in fiscal 2023 as compared to fiscal 2022.
Added
At June 30, 2024, we had $12.0 million of borrowing capacity on our credit facility of which we had outstanding borrowings of $3.4 million. We also owed $9.2 million on a term loan that was borrowed as part of the purchase of our new Carlsbad, California manufacturing facility in August 2021.
Removed
The decrease in patent and trademark licensing revenue was primarily due to a decrease in orders from existing customers as a result of market and inflationary factors along with a general slowdown in the Sports Nutrition sales channel.
Removed
Included in the market factors, fiscal 2022 benefited from a ramp up of Sports Nutrition sales activity due to easing COVID restrictions on athletic activities with no corresponding activity in fiscal 2023.
Removed
Included in the increased labor costs for the fiscal 2023 is a restructuring charge of approximately $350,000 due to a workforce restructuring plans completed during the year. These factors were partially offset by a $2.2 million Employee Retention Tax Credit (“ERTC”) recorded in fiscal 2023.
Removed
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law, providing numerous tax provisions and other stimulus measures, including the ERTC. The Tax Payer Certainty and Disaster Tax Relief Act of 2020 and the American Rescue Plan Act of 2021 extended the availability of the ERTC.
Removed
Under these expanded measures, we determined during fiscal 2023 that we qualified for the ERTC for the first three quarters of calendar 2021 and do not expect any further benefit to subsequent periods. 2 During fiscal 2023, patent and trademark licensing gross profit margin contribution decreased 2.2 percentage points as compared to fiscal 2022.
Removed
At June 30, 2023, changes in accounts receivable, consisting primarily of amounts due from our private-label contract manufacturing customers and our patent and trademark raw material sales activities, provided $11.8 million in cash compared to providing $0.6 million in fiscal 2022.
Removed
Cash used in investing activities in fiscal 2023 was $13.5 million compared to $26.5 million in fiscal 2022.
Removed
Fiscal 2022 also included $10.0 million in borrowings used to finance a portion of the purchase of our new manufacturing and warehouse facility in Carlsbad, California while fiscal 2023 did not include any such borrowings.
Removed
Please see Note F in Item 8 of this report for terms of our credit facility.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

139 edited+38 added−23 removed136 unchanged
Biggest changeExhibit 10.36 of NAI's Current Report on Form 8-K dated October 12, 2022, file with the commission on October 13, 2022 10.35 Fourth Amendment to Lease of NAI manufacturing facilities in Vista, California between NAI, the tenant, and Park Center Industrial ILP, LLC, a Delaware limited liability company, the landlord Exhibit 10.17 of NAI's Current Report on Form 8-K dated July 21, 2023, file with the commission on July 24, 2023. 10.36 Clawback Policy Filed herewith 21 Subsidiaries of the Company Filed herewith 23.1 Consent of Independent Registered Public Accounting Firm Filed herewith 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Filed herewith 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Filed herewith 32 Section 1350 Certification Filed herewith 101.INS Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) Furnished herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Furnished herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Furnished herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Furnished herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Furnished herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Furnished herewith 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Furnished herewith * Indicates management contract or compensatory plan or arrangement. 49 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Natural Alternatives International, Inc., the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Biggest changeExhibit 10.36 of NAI's Current Report on Form 8-K dated October 12, 2022, file with the commission on October 13, 2022 10.35 Fourth Amendment to Lease of NAI manufacturing facilities in Vista, California between NAI, the tenant, and Park Center Industrial ILP, LLC, a Delaware limited liability company, the landlord Exhibit 10.17 of NAI's Current Report on Form 8-K dated July 21, 2023, file with the commission on July 24, 2023. 10.36 Clawback Policy Exhibit 10.36 of NAI's Annual Report on Form 10-K for the fiscal year ended June 30, 2023, filed with the commission on September 19, 2023. 10.37 First modification to Promissory Note by and between NAI and Wells Fargo, effective as of February 13, 2024 Exhibit 10.37 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2023, filed with the commission on February 13, 2024 50 Table of Contents 10.38 Fourth Amendment and Waiver of Events of Default to Credit Agreement by and between NAI and Wells Fargo effective as of February 13, 2024 Exhibit 10.38 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2023, filed with the commission on February 13, 2024 21 Subsidiaries of the Company Filed herewith 23.1 Consent of Independent Registered Public Accounting Firm Filed herewith 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer Filed herewith 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer Filed herewith 32 Section 1350 Certification Filed herewith 101.INS Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) Furnished herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Furnished herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Furnished herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Furnished herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Furnished herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Furnished herewith 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) Furnished herewith * Indicates management contract or compensatory plan or arrangement. 51 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Natural Alternatives International, Inc., the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
During the year ended June 30, 2023 , we recognized $0.5 million of net gains in OCI, reclassified $3.1 million of gains and forward point amortization from OCI to Net Sales.
During the year ended June 30, 2023 , we recognized $0.5 million of net gains in OCI and reclassified $3.1 million of gains and forward point amortization from OCI to Net Sales.
Installment payments under this loan commenced October 1, 2021 and continue through August 1, 2028 with a final installment consisting of all remaining amounts due to be paid in full on September 1, 2028. Amounts outstanding on this note during the term of the agreement will bear interest equal to 1.8% above the SOFR rolling 30 -day average.
Installment payments under this loan commenced October 1, 2021 and continue through August 1, 2028 with a final installment consisting of all remaining amounts due to be paid in full on September 1, 2028. Amounts outstanding on this note during the term of the agreement bear interest equal to 1.8% above the SOFR rolling 30 -day average.
Although we don’t anticipate receiving the funds related to these amended returns until sometime in fiscal 2024, we recorded a receivable and recognized a benefit for this amount in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2023 by applying the loss recovery model as codified by Accounting Standards Codification (“ASC”) section 450 “Contingencies” that indicates that an asset related to a recovery should be recognized when the recovery is determined to be probable.
Although we don’t anticipate receiving the funds related to these amended returns until sometime in fiscal 2025, we recorded a receivable and recognized a benefit for this amount in our Consolidated Statements of Operations and Comprehensive Income in fiscal 2023 by applying the loss recovery model as codified by Accounting Standards Codification (“ASC”) section 450 “Contingencies” that indicates that an asset related to a recovery should be recognized when the recovery is determined to be probable.
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. 39 Table of Contents 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.
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. 40 Table of Contents 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.
During the year ended June 30, 2023 and prior, we entered into forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. These contracts are expected to be settled through September 2024.
During the year ended June 30, 2024 and prior, we entered into forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. These contracts are expected to be settled through September 2025.
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. 22 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Natural Alternatives International, Inc.
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. 23 Table of Contents ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Natural Alternatives International, Inc.
Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures. We also have credit approval with Wells Fargo Bank, N.A. which allows us to hedge foreign currency exposures up to 30 months in the future.
Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures. We also have credit approval with Wells Fargo Bank, which allows us to hedge foreign currency exposures up to 30 months in the future.
We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item as well as ensuring the assumptions we made at hedge inception have not materially changed. No hedging relationships were terminated as a result of ineffective hedging for the years ended June 30, 2023 and June 30, 2022 .
We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item as well as ensuring the assumptions we made at hedge inception have not materially changed. No hedging relationships were terminated as a result of ineffective hedging for the years ended June 30, 2024 and June 30, 2023 .
LeDoux, effective July 1, 2018* Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, filed with the commission on November 13, 2018 48 Table of Contents 10.15 First amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
LeDoux, effective July 1, 2018* Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018, filed with the commission on November 13, 2018 49 Table of Contents 10.15 First amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2023, in conformity with accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2024 and 2023, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2024, in conformity with accounting principles generally accepted in the United States of America.
Except for cash and cash equivalents, as of June 30, 2023 and June 30, 2022 , 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.
Except for cash and cash equivalents, as of June 30, 2024 and June 30, 2023 , we did not have any financial assets or liabilities classified as Level 1. We classify derivative forward exchange contracts as Level 2 assets and liabilities. The fair values were determined by obtaining pricing from our bank.
As of June 30, 2023 , we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar, which is primarily the Euro.
As of June 30, 2024 , we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar, which is primarily the Euro.
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, 2023 and 2022 was not material.
We have elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases on our right-of-use asset, lease liability, and the short-term lease cost for the years ended June 30, 2024 and 2023 was not material.
We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of June 30, 2023 , we have $0 in our returns reserve. We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications.
We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of June 30, 2024 , we have $0 in our returns reserve. We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications.
Based on this assessment, management believes our internal control over financial reporting was effective as of June 30, 2023 based on the criteria issued by COSO. This assessment does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
Based on this assessment, management believes our internal control over financial reporting was effective as of June 30, 2024 based on the criteria issued by COSO. This assessment does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting.
The valuation of the shares acquired and thereby the number of shares returned to us was calculated based on the closing share price on the date the shares vested. Stock Incentive Plans For the years ended June 30, 2023 and June 30, 2022 , the Company had no stock options outstanding.
The valuation of the shares acquired and thereby the number of shares returned to us was calculated based on the closing share price on the date the shares vested. Stock Incentive Plans For the years ended June 30, 2024 and June 30, 2023 , the Company had no stock options outstanding.
(c) Changes in Internal Control Over Financial Reporting There were no changes to our internal control over financial reporting during the fourth quarter ended June 30, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None.
(c) Changes in Internal Control Over Financial Reporting There were no changes to our internal control over financial reporting during the fourth quarter ended June 30, 2024 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None .
During the year ended June 30, 2023 , we entered into forward contracts in order to hedge foreign exchange risk associated with our lease liability at NAIE, which is denominated in Swiss Francs (CHF).
During the year ended June 30, 2024 , we entered into forward contracts in order to hedge foreign exchange risk associated with our lease liability at NAIE, which is denominated in Swiss Francs (CHF).
Management performed an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2023 based upon criteria in an Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).
Management performed an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2024 based upon criteria in an Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).
Interest expense is adjusted for the difference between the actual SOFR spread and the swap contractual rate such that our effective interest expense for each period is equal to our hedged rate of 2.4%. 44 Table of Contents M.
Interest expense is adjusted for the difference between the actual SOFR spread and the swap contractual rate such that our effective interest expense for each period is equal to our hedged rate of 2.4%. 45 Table of Contents M.
Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2023 and June 30, 2022 , we did not record any tax liabilities for uncertain tax positions.
Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2024 and June 30, 2023 , we did not record any tax liabilities for uncertain tax positions.
It is expected that $0.2 million of the gross gain as of June 30, 2023 , will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.
It is expected that $0.2 million of the gross gain as of June 30, 2024 , will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2023.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2024.
(b) Management ’ s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2023.
(b) Management ’ s Annual Report on Internal Control Over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, and for performing an assessment of the effectiveness of internal control over financial reporting as of June 30, 2024.
Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value. 30 Table of Contents 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.
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.
As of June 30, 2023 , a net gain of approximately $0.2 million offset by approximately $0.1 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
As of June 30, 2024 , a net gain of approximately $0.2 million offset by approximately $0.1 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
Shares acquired from employees for restricted stock vesting and stock options exercises were returned to us by the related employees and in return we paid each employee’s required tax withholding resulting from the vesting of restricted shares.
Shares acquired from employees for restricted stock vesting were returned to us by the related employees and in return we paid each employee’s required tax withholding resulting from the vesting of restricted shares.
Additionally, amounts due related to our beta-alanine raw material sales were 21.4% of gross accounts receivable at June 30, 2023 and 5.4% of gross accounts receivable at June 30, 2022 . 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.
Additionally, amounts due related to our beta-alanine raw material sales were 4.4% of gross accounts receivable at June 30, 2024 and 21.4% of gross accounts receivable at June 30, 2023 . Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base. B.
During the year ended June 30, 2023 , there was no change to our valuation allowance. Income taxes are accounted for under the asset and liability method.
During the year ended June 30, 2024 , there was no change to our valuation allowance. Income taxes are accounted for under the asset and liability method.
The financial statements listed below are included under Item 8 of this report: • Consolidated Balance Sheets as of June 30, 2023 and 2022; • Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2023 and 2022; • Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2023 and 2022; • Consolidated Statements of Cash Flows for the years ended June 30, 2023 and 2022; and • Notes to Consolidated Financial Statements.
The financial statements listed below are included under Item 8 of this report: • Consolidated Balance Sheets as of June 30, 2024 and 2023; • Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended June 30, 2024 and 2023; • Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2024 and 2023; • Consolidated Statements of Cash Flows for the years ended June 30, 2024 and 2023; and • Notes to Consolidated Financial Statements.
(the “Company”) as of June 30, 2023 and 2022, and the related consolidated statements of operations and comprehensive income, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2023, and the related notes (collectively referred to as the “consolidated financial statements”).
(the “Company”) as of June 30, 2024 and 2023, and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for each of the two years in the period ended June 30, 2024, and the related notes (collectively referred to as the “consolidated financial statements”).
Debt On May 24, 2021, we entered into a new credit facility with Wells Fargo Bank, N.A (“Wells Fargo”) to extend the maturity for our working line of credit from November 1, 2022, to May 24, 2024.
Debt On May 24, 2021, we entered into a renewed credit facility with Wells Fargo Bank, N.A (“Wells Fargo”) to extend the maturity of our working line of credit from November 1, 2022 to May 24, 2024.
The loss of any of these customers, or a significant decline in sales or the growth rate of sales to these customers, or in their ability to make payments when due, could have a material adverse impact on our net sales and net income.
The loss of any of these customers, or a significant decline in sales or the growth rate of sales to these customers, or in their ability to make payments when due, could have a material adverse impact on our net sales and net operating results.
We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2023 and June 30, 2022 . We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2015 and forward are subject to examination by the U.S. tax authorities.
We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2024 and June 30, 2023 . We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2019 and forward are subject to examination by the U.S. tax authorities.
The premiums expensed to income from operations for these benefits totaled $1.7 million for the fiscal year ended June 30, 2023 and $1.4 million for the fiscal year ended June 30, 2022 . Deferred Compensation Plan Effective July 16, 2020, the Board of Directors approved and adopted a Non-Qualified Incentive Plan (the “Incentive Plan”).
The premiums expensed to results from operations for these benefits totaled $1.4 million for the fiscal year ended June 30, 2024 and $1.7 million for the fiscal year ended June 30, 2023 . Deferred Compensation Plan Effective July 16, 2020, the Board of Directors approved and adopted a Non-Qualified Incentive Plan (the “Incentive Plan”).
The total contributions under the plan charged to income from operations totaled $0.7 million for fiscal 2023 and $0.5 million for fiscal 2022 . 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.
The total contributions under the plan charged to income from operations totaled $0.6 million for fiscal 2024 and $0.7 million for fiscal 2023 . Additionally, we have a discretionary profit-sharing plan pursuant to Section 401 (k) of the Code, whereby we may contribute an additional percentage of compensation.
Date: September 21, 2023 NATURAL ALTERNATIVES INTERNATIONAL, INC. By: /s/ Mark A. LeDoux Mark A. LeDoux, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Natural Alternatives International, Inc. and in the capacities and on the dates indicated.
Date: September 27, 2024 NATURAL ALTERNATIVES INTERNATIONAL, INC. By: /s/ Mark A. LeDoux Mark A. LeDoux, Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Natural Alternatives International, Inc. and in the capacities and on the dates indicated.
This reduced amount is to be paid based on an agreed upon payment schedule and if all payments are made as agreed the entire balance will be considered paid in full.
This reduced amount was paid based on an agreed upon payment schedule and if all payments are made as agreed the entire balance will be considered paid in full.
As of June 30, 2023 , the notional amounts of our foreign exchange contracts not designated as cash flow hedges were approximately $12.3 million (CHF 11.1 million). We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable interest rate of 1.80% above the SOFR rolling 30 -day average.
As of June 30, 2024 , the notional amounts of our foreign exchange contracts not designated as cash flow hedges were approximately $11.9 million (CHF 10.5 million). We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable interest rate of 1.80% above the SOFR rolling 30 -day average.
This transfer occurs when the product is shipped, or in some cases, when the product is delivered to the customer. 31 Table of Contents We recognize revenue in certain circumstances before delivery to the customer has occurred (commonly referred to as bill-and-hold transactions).
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).
Our research and development expenses for the last two fiscal years ended June 30 were $2.1 million for fiscal 2023 and $2.5 million for fiscal 2022 . These costs were 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.
Our research and development expenses for the last two fiscal years ended June 30 were $1.9 million for fiscal 2024 and $2.1 million for fiscal 2023 . These costs are included in selling, general and administrative expenses and cost of goods sold. Advertising Costs We expense the production costs of advertising the first time the advertising takes place.
We recorded this benefit as a reduction to our payroll tax expense in the current year with $2.2 million of the benefit offsetting cost of goods sold and $1.3 million offsetting other selling, general and administrative expenses.
We recorded this benefit as a reduction to our payroll tax expense in the fiscal year 2023 with $2.2 million of the benefit offsetting cost of goods sold and $1.3 million offsetting selling, general and administrative expenses.
The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $2.0 million at June 30, 2023 and the weighted average remaining requisite service period of unvested restricted stock shares was 2.1 years. J.
The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $1.7 million at June 30, 2024 and the weighted average remaining requisite service period of unvested restricted stock shares was 2.1 years. J.
Critical Audit Matter The critical audit matters communicated below 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.
Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.
Our tax years for the fiscal years ended June 30, 2018 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2022 and forward are subject to examination by the Swiss tax authorities.
Our tax years for the fiscal years ended June 30, 2018 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2023 and forward are subject to assessment by the Swiss tax authorities.
Accounts receivable from these customers totaled $1.8 million at June 30, 2023 and $10.7 million at June 30, 2022 . We buy certain products, including beta-alanine, from a single supplier. The loss of this supplier or other raw material suppliers could have a material adverse impact on our net sales and net income.
Accounts receivable from these customers totaled $12.3 million at June 30, 2024 and $1.8 million at June 30, 2023 . We buy certain products, including beta-alanine, from a single supplier. The loss of this supplier or other raw material suppliers could have a material adverse impact on our net sales and net income.
Signature Title Date /s/ Mark A. LeDoux Chief Executive Officer and Chairman of the Board of Directors September 21, 2023 (Mark A. LeDoux) (principal executive officer) /s/ Michael E. Fortin Chief Financial Officer September 21, 2023 (Michael E. Fortin) (principal financial officer and principal accounting officer) /s/ Alan G. Dunn Director September 21, 2023 (Alan G. Dunn) /s/ L.
Signature Title Date /s/ Mark A. LeDoux Chief Executive Officer and Chairman of the Board of Directors September 27, 2024 (Mark A. LeDoux) (principal executive officer) /s/ Michael E. Fortin Chief Financial Officer September 27, 2024 (Michael E. Fortin) (principal financial officer and principal accounting officer) /s/ Alan G. Dunn Director September 27, 2024 (Alan G. Dunn) /s/ L.
As of June 30, 2023, the former customer made all scheduled payments totaling $850,000 and we have adjusted our accounts receivable reserve along with the corresponding accounts receivable balance such that the amount in excess of the settlement amount has been written-off and the reserve associated with the unpaid portion of the settlement is no longer reserved for.
As of June 30, 2023, the former customer had made all scheduled payments totaling $850,000, and we adjusted our accounts receivable reserve along with the corresponding accounts receivable balance such that the amount in excess of the settlement amount was written-off and the reserve associated with the unpaid portion of the settlement was no longer reserved for as of June 30, 2023.
During the year ended June 30, 2022 , we granted a total of $0.3 million in deferred cash awards to members of our Board of Directors and certain key members of our management team.
During the year ended June 30, 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.
PART III The information called for under Items 10- 14 of this Part III will be incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders to be held on December 7, 2023, to be filed on or before October 28, 2023. 47 Table of Contents PART IV ITEM 15.
PART III The information called for under Items 10- 14 of this Part III will be incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders to be held on December 6, 2024, to be filed on or before October 28, 2024. 48 Table of Contents PART IV ITEM 15.
The Company enters certain customer supply contracts that contain unique, customer-specific terms and conditions that results in variable consideration. For such contracts, significant interpretation may be required to determine the contract terms, estimated amounts and timing of recognition of variable consideration. Variable consideration includes volume-related and other discounts and pricing concessions.
The Company is a party to certain customer supply contracts that contain unique, customer-specific terms and conditions that result in variable consideration. For such contracts, significant interpretation may be required to determine the contract terms, estimated amounts and timing of recognition of variable consideration. Variable consideration includes volume-related and other discounts and pricing concessions.
Actual results could differ from those estimates and our assumptions may prove to be inaccurate. Net Income per Common Share We compute basic net income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities.
Actual results could differ from those estimates and our assumptions may prove to be inaccurate. 34 Table of Contents Net (Loss) Income per Common Share We compute basic net (loss) income per common share using the weighted average number of common shares outstanding during the year, and diluted net income per common share using the additional dilutive effect of all dilutive securities.
As of June 30, 2022 , a net loss of approximately $2.3 million, offset by approximately $0.5 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
As of June 30, 2023 , a net loss of approximately $0.2 million, offset by approximately $0.1 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
As of June 30, 2023 , the weighted average remaining lease term for our operating leases was 5.3 years. The weighted average discount rate for our operating leases was 4.12%. As of June 30, 2022 , the weighted average remaining lease term for our operating leases was 6.3 years and the weighted average discount rate was 4.12%.
As of June 30, 2024 , the weighted average remaining lease term for our operating leases was 9.5 years. The weighted average discount rate for our operating leases was 5.92%. As of June 30, 2023 , the weighted average remaining lease term for our operating leases was 5.3 years and the weighted average discount rate was 4.12%.
During the year ended June 30, 2022 , we recognized $5.4 million of net gains in OCI, reclassified $3.0 million of gains and forward point amortization from OCI to Net Sales.
During the year ended June 30, 2024 , we recognized $0.8 million of net gains in OCI and reclassified $0.4 million of gains and forward point amortization from OCI to Net Sales.
NAIE’s effective tax rate for the fiscal year ended June 30, 2023 for Swiss federal, cantonal and communal taxes is approximately 23%.
NAIE’s effective tax rate for the fiscal year ended June 30, 2024 for Swiss federal, cantonal and communal taxes is approximately 1%.
Raw material purchases from any one supplier representing 10% or more of the respective period’s total raw material purchases were as follows (dollars in thousands): Year ended June 30, 2023 2022 % of Total % of Total Raw Material Raw Raw Material Raw Purchases by Material Purchases by Material Supplier Purchases Supplier Purchases Supplier 1 $ 11,487 13 % $ 14,065 17 % $ 11,487 13 % $ 14,065 17 % L.
Raw material purchases from any one supplier representing 10% or more of the respective period’s total raw material purchases were as follows (dollars in thousands): Year ended June 30, 2024 2023 % of Total % of Total Raw Material Raw Raw Material Raw Purchases by Material Purchases by Material Supplier Purchases Supplier Purchases Supplier 1 $ 11,624 23 % $ 11,487 13 % $ 11,624 23 % $ 11,487 13 % L.
Recently Issued Accounting and Regulatory Pronouncements In June of 2016, the FASB issued ASU 2016 - 13 titled "Financial Instruments - Credit Losses (Topic 326 )." This directive introduced a novel approach to assessing impairments known as the "current expected credit loss model" or "CECL." Unlike the previous standard, which focused on incurred losses, CECL centers on anticipated losses.
Recently Adopted Accounting Pronouncements In June 2016, the FASB issued ASU 2016 - 13, “Financial Instruments—Credit Losses (Topic 326 ): Measurement of Credit Losses on Financial Instruments.” ASU 2016 - 13 introduced a novel approach to assessing impairments known as the "current expected credit loss model" or "CECL." Unlike the previous standard, which focused on incurred losses, CECL centers on anticipated losses.
Contract liabilities and revenue recognized were as follows (in thousands): June 30, 2022 Additions Revenue Recognized Customer Refunds June 30, 2023 Contract Liabilities (Customer Deposits) $ 140 $ 317 $ (137 ) $ (3 ) $ 317 June 30, 2021 Additions Revenue Recognized Customer Refunds June 30, 2022 Contract Liabilities (Customer Deposits) $ 1,721 $ 140 $ (1,721 ) $ — $ 140 Except for product defects, no right of return exists on the sale of our products.
Contract liabilities and revenue recognized were as follows (in thousands): June 30, 2023 Additions Revenue Recognized Customer Refunds June 30, 2024 Contract Liabilities (Customer Deposits) $ 317 $ 2,500 $ (2,515 ) $ — $ 302 June 30, 2022 Additions Revenue Recognized Customer Refunds June 30, 2023 Contract Liabilities (Customer Deposits) $ 140 $ 317 $ (137 ) $ (3 ) $ 317 Except for product defects, no right of return exists on the sale of our products.
The future debt payments under the Term Note are as follows (in thousands): 2024 2025 2026 2027 2028 Thereafter Total Future Debt Payments $ 312 $ 296 $ 305 $ 315 $ 325 $ 7,964 $ 9,517 On June 30, 2023 , we were in compliance with all of the financial and other covenants required under the Credit Agreement.
The future debt payments under the Term Note are as follows (in thousands): 2025 2026 2027 2028 2029 Total Future Debt Payments $ 296 $ 305 $ 315 $ 325 $ 7,988 $ 9,229 On June 30, 2024 , we were in compliance with all of the financial and other covenants required under the Amended Credit Agreement.
As of June 30, 2023 , the notional amounts of our foreign exchange contracts were $31.7 million (€28.4 million). These contracts will mature over the next 15 months. As of June 30, 2023 , we held foreign currency contracts not designated as cash flow hedges primarily to protect against changes in valuation of our long-term lease liability.
As of June 30, 2024 , the notional amounts of our foreign exchange contracts were $34.0 million (€30.8 million). These contracts will mature over the next 15 months. As of June 30, 2024 , we held foreign currency contracts not designated as cash flow hedges primarily to protect against changes in valuation of our long-term lease liability.
This new credit facility provides total lending capacity of up to $20.0 million and allows us to use the credit facility for working capital as well as potential acquisitions. On August 18, 2021, we entered into an amendment of our credit facility with Wells Fargo.
That credit facility provided total lending capacity of up to $20.0 million and allowed us to use the credit facility for working capital as well as potential acquisitions. On August 18, 2021, we entered into an amendment of that credit facility with Wells Fargo.
Under this framework, organizations are obligated to acknowledge an allowance corresponding to their estimate of expected credit losses. The CECL model is applicable to a wide range of financial instruments, including debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments.
Under this framework, organizations are obligated to acknowledge an allowance corresponding to their estimate of expected credit losses. The CECL model is applicable to a wide range of financial instruments, including debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. We adopted ASU 2016 - 13 effective July 1, 2023.
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): 2023 2022 Interest cost $ 46 $ 39 Expected return on plan assets (42 ) (69 ) Recognized actuarial loss 50 63 Settlement loss 27 50 Net periodic benefit expense $ 81 $ 83 In the fiscal years ended June 30, 2023 and June 30, 2022 , we did not contribute to our defined benefit pension plan.
Net Periodic Benefit Cost The components included in the defined benefit pension plan’s net periodic benefit expense for the fiscal years ended June 30 were as follows (in thousands): 2024 2023 Interest cost $ 49 $ 46 Expected return on plan assets (42 ) (42 ) Recognized actuarial loss 39 50 Settlement loss - 27 Net periodic benefit expense $ 46 $ 81 In the fiscal year ended June 30, 2024 , we contributed $0.1 million to our defined benefit pension plan, and in the fiscal year ended June 30, 2023 , we did not contribute to the plan.
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): 2023 2022 Change in Benefit Obligation: Benefit obligation at beginning of year $ 1,438 $ 1,820 Interest cost 46 39 Actuarial loss (29 ) (276 ) Benefits paid (91 ) (145 ) Benefit obligation at end of year $ 1,364 $ 1,438 Change in Plan Assets: Fair value of plan assets at beginning of year $ 1,094 $ 1,429 Actual return on plan assets 22 (190 ) Employer contributions — — Benefits paid (91 ) (145 ) Plan expenses — — Fair value of plan assets at end of year $ 1,025 $ 1,094 Reconciliation of Funded Status: Difference between benefit obligation and fair value of plan assets $ (339 ) $ (344 ) Unrecognized net actuarial loss in accumulated other comprehensive income 409 495 Net amount recognized $ 70 $ 151 Projected benefit obligation $ 1,364 $ 1,438 Accumulated benefit obligation $ 1,364 $ 1,438 Fair value of plan assets $ 1,025 $ 1,094 The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 4.89% for the year ended June 30, 2023 and 4.39% during the year ended June 30, 2022 .
Disclosure of Funded Status The following table sets forth the defined benefit pension plan’s funded status and amount recognized in our consolidated balance sheets at June 30 (in thousands): 2024 2023 Change in Benefit Obligation: Benefit obligation at beginning of year $ 1,364 $ 1,438 Interest cost 49 46 Actuarial loss (39 ) (29 ) Benefits paid — (91 ) Benefit obligation at end of year $ 1,374 $ 1,364 Change in Plan Assets: Fair value of plan assets at beginning of year $ 1,025 $ 1,094 Actual return on plan assets 91 22 Employer contributions 116 — Benefits paid — (91 ) Fair value of plan assets at end of year $ 1,232 $ 1,025 Reconciliation of Funded Status: Difference between benefit obligation and fair value of plan assets $ (142 ) $ (339 ) Unrecognized net actuarial loss in accumulated other comprehensive income 282 409 Net amount recognized $ 140 $ 70 Projected benefit obligation $ 1,374 $ 1,364 Accumulated benefit obligation $ 1,374 $ 1,364 Fair value of plan assets $ 1,232 $ 1,025 The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 5.28% for the year ended June 30, 2024 and 4.89% during the year ended June 30, 2023 .
Our assessment of management’s evaluation of the above referenced matters related to proper revenue recognition is significant to our audit because the amounts are material to the consolidated financial statements, the assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in this area is complex. 23 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures related to the Company’s revenue recognition for customer contracts that include variable consideration included the following: ● We evaluated the appropriateness of management’s revenue recognition policies. ● We tested the mathematical accuracy of management’s calculations of revenue, including variable consideration, and the associated timing of revenue recognized in the consolidated financial statements. ● We selected a sample of revenue transactions with variable consideration and performed the following procedures: o Obtained and read contracts and other source documents for each selection. o Tested management’s identification and treatment of the key contract terms, including performance obligations and variable consideration. o Evaluated the appropriateness of management's application of the Company’s accounting policies, along with their use of estimates, in the determination of revenue recognition conclusions.
Our assessment of management’s evaluation of the above referenced matter related to proper revenue recognition is significant to our audit because the amounts may potentially be material to the consolidated financial statements, the assessment process involves significant judgment, and the application of U.S. generally accepted accounting principles in this area is complex. 24 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our principal audit procedures related to the Company’s revenue recognition for customer contracts that include variable consideration included the following: ● We evaluated the appropriateness of management’s revenue recognition policies. ● We tested the mathematical accuracy of management’s calculations of revenue, including variable consideration, and the associated timing of revenue recognized in the consolidated financial statements. ● We identified customer contracts with variable consideration and performed the following procedures: o Obtained and read contracts and other source documents for each selection. o Tested management’s identification and treatment of the key contract terms, including performance obligations and variable consideration. o Evaluated the appropriateness of management's application of the Company’s accounting policies, along with their use of estimates, in the determination of revenue recognition in the proper amounts. /s/ HASKELL & WHITE LLP We have served as the Company’s auditor since 2014.
During fiscal 2022 , we recorded U.S.-based domestic tax expense of $2.0 million and foreign tax expense of $0.9 million.
During fiscal 2023 , we recorded U.S.-based domestic tax expense of $0.8 million and foreign tax expense of $0.2 million.
Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were as follows: Target 2023 2022 Allocation Equity securities 64 % 49 % 53 % Debt securities 14 % 20 % 41 % Commodities 12 % 0 % 0 % Other 10 % 31 % 6 % 100 % 100 % 100 % The underlying basis of the investment strategy of our defined benefit pension plan is to ensure that pension funds are available to meet the plan’s benefit obligations when due.
Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were as follows: Target 2024 2023 Allocation Equity securities 72 % 64 % 53 % Debt securities 14 % 14 % 41 % Commodities 0 % 12 % 4 % Cash alternatives 14 % 10 % 2 % 100 % 100 % 100 % The underlying basis of the investment strategy of our defined benefit pension plan is to ensure that pension funds are available to meet the plan’s benefit obligations when due.
The communication of these critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
The communication of this critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
The amended credit agreement also increased the allowed capital expenditures from $10.0 million to $15.0 million for fiscal 2022, (exclusive of the amount paid for the acquisition of the new Carlsbad property noted above). In addition, the new credit notes now reflect a change in the interest rate reference from LIBOR to SOFR.
The amended credit agreement also increased the allowed capital expenditures from $10.0 million to $15.0 million for fiscal 2022, (exclusive of the amount paid for the acquisition of the new Carlsbad property noted above). In addition, the revised credit notes reflected a change in the interest rate reference from London Interbank Offered Rate (LIBOR) to Secured Overnight Financing Rate (SOFR).
Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands): June 30, June 30, 2023 2022 Euro Forward Contract– Current Assets $ 250 $ 3,144 Swiss Franc Forward Contract – Current Assets 140 109 Total Derivative Contracts – Current Assets 390 3,253 Interest Swap – Other noncurrent Assets 532 453 Euro Forward Contract– Other noncurrent Assets 15 561 Total Derivative Contracts – Other noncurrent Assets 547 1,014 Fair Value Net Asset – all Derivative Contracts $ 937 $ 4,267 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.
Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands): June 30, June 30, 2024 2023 Interest Swap – Other Current Assets $ 111 $ — Euro Forward Contract– Current Assets 492 250 Swiss Franc Forward Contract – Current Assets — 140 Total Derivative Contracts – Current Assets 603 390 Interest Swap – Other Noncurrent Assets — 532 Euro Forward Contract– Other Noncurrent Assets 78 15 Total Derivative Contracts – Other Noncurrent Assets 78 547 Swiss Franc Forward Contract – Current Liabilities (91 ) — Total Derivative Contracts – Current Liabilities (91 ) — Fair Value Net Asset – all Derivative Contracts $ 590 $ 937 We also classify any outstanding line of credit and term loan balance as a Level 2 liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets.
The following benefit payments are expected to be paid (in thousands): 2024 $ 739 2025 264 2026 13 2027 106 2028 30 2029-2033 105 Total benefit payments expected to be paid $ 1,257 The weighted-average rates used for the years ended June 30 in determining the defined benefit pension plan’s net pension costs, were as follows: 2023 2022 Discount rate 4.89 % 4.39 % Expected long-term rate of return 6.24 % 6.10 % Compensation increase rate N/A N/A Our expected rate of return is determined based on a methodology that considers historical returns of multiple classes analyzed to develop a risk-free real rate of return and risk premiums for each asset class.
The following benefit payments are expected to be paid (in thousands): 2025 $ 1,009 2026 13 2027 101 2028 29 2029 32 2030-2034 199 Total benefit payments expected to be paid $ 1,383 The weighted-average rates used for the years ended June 30 in determining the defined benefit pension plan’s net pension costs, were as follows: 2024 2023 Discount rate 5.28 % 4.89 % Expected long-term rate of return 6.70 % 6.24 % Compensation increase rate N/A N/A Our expected rate of return is determined based on a methodology that considers historical returns of multiple classes analyzed to develop a risk-free real rate of return and risk premiums for each asset class.
The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (loss) (in thousands): 2023 2022 Net loss $ (8 ) $ (17 ) Settlement loss (28 ) (50 ) Amortization of net loss (50 ) (63 ) Plan expenses — — Total recognized in other comprehensive loss $ (86 ) $ (130 ) Total recognized in net periodic benefit cost and other comprehensive loss $ (5 ) $ (47 ) 40 Table of Contents 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 $40,000.
The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (loss) (in thousands): 2024 2023 Net loss $ (88 ) $ (8 ) Settlement loss — (28 ) Amortization of net loss (39 ) (50 ) Total recognized in other comprehensive loss $ (127 ) $ (86 ) Total recognized in net periodic benefit cost and other comprehensive loss $ (81 ) $ (5 ) 41 Table of Contents The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is approximately $24,000.
We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis. As of June 30, 2023 , the notional amounts of our foreign exchange contracts accounted for as cash flow hedges were $31.7 million (€28.4 million).
We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis. As of June 30, 2024 , the notional amounts of our foreign exchange contracts accounted for as cash flow hedges were $34.0 million (€30.8 million).
Other information related to leases was as follows (in thousands) for the year ended June 30, Supplemental Cash Flows Information 2023 2022 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,291 $ 3,289 Increase in operating lease liabilities and right-of-use assets due to lease remeasurement 906 8,513 35 Table of Contents E.
Other information related to leases was as follows (in thousands) for the year ended June 30, Supplemental Cash Flows Information 2024 2023 Cash paid for amounts included in the measurement of operating lease liabilities $ 2,966 $ 3,291 Net increase in operating lease liabilities and right-of-use assets due to lease remeasurement 25,692 906 36 Table of Contents E.
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.
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.
Net sales by geographic region, based on the customers’ location, for the two years ended June 30 were as follows (in thousands): 2023 2022 United States $ 109,277 $ 115,255 Markets outside the United States 44,738 55,711 Total net sales $ 154,015 $ 170,966 Products manufactured by NAIE accounted for 79% of consolidated net sales in markets outside the U.S. in fiscal 2023 and 84% in fiscal 2022 .
Net sales by geographic region, based on the customers’ location, for the two years ended June 30 were as follows (in thousands): 2024 2023 United States $ 73,512 $ 109,277 Markets outside the United States 40,284 44,738 Total net sales $ 113,796 $ 154,015 Products manufactured by NAIE accounted for 79% of consolidated net sales in markets outside the U.S. in fiscal 2024 and in fiscal 2023 .
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.
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.
However, as part of this dividend, we were required to pay a 5% Swiss withholding tax totaling $0.7 million, which was also accrued for as part of the implementation of the Tax Act in fiscal 2018. 38 Table of Contents A reconciliation of our income tax provision computed by applying the statutory federal income tax rate of 21% for fiscal 2023 and for fiscal 2022 to net income before income taxes for the year ended June 30 is as follows (dollars in thousands): 2023 2022 Income taxes computed at statutory federal income tax rate $ 749 $ 2,868 State income taxes, net of federal income tax expense 90 174 Permanent differences 8 85 Foreign tax rate differential 18 (47 ) Tax credits (347 ) (124 ) FDII export sales incentive — (46 ) Stock based compensation 61 37 Global intangible low-taxed income (GILTI) 355 — Return to provision - differences 99 Income tax provision as reported $ 1,033 $ 2,947 Effective tax rate 29.1 % 21.6 % We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.
However, as part of these dividends, we were required to pay a 5% Swiss withholding tax totaling $0.3 million in fiscal 2024 and $0.7 million in fiscal 2023 which were also accrued for as part of the implementation of the Tax Act in fiscal 2018. 39 Table of Contents A reconciliation of our income tax (benefit) provision computed by applying the statutory federal income tax rate of 21% for fiscal 2024 and for fiscal 2023 to net (loss) income before income taxes for the year ended June 30 is as follows (dollars in thousands): 2024 2023 Income taxes computed at statutory federal income tax rate $ (2,033 ) $ 749 State income taxes, net of federal income tax expense (215 ) 90 Permanent differences (20 ) 8 Foreign tax rate differential 131 18 Tax credits (170 ) (347 ) Stock based compensation 93 61 Global intangible low-taxed income (GILTI) — 355 Return to provision - differences (33 ) 99 Income tax (benefit) provision as reported $ (2,247 ) $ 1,033 Effective tax rate (23.7 )% 29.1 % We expect our U.S. federal statutory rate to be 21% for fiscal years going forward.

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