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What changed in NATURAL ALTERNATIVES INTERNATIONAL INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NATURAL ALTERNATIVES INTERNATIONAL INC's 2022 and 2023 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 2023 report.

+229 added−212 removedSource: 10-K (2023-09-21) vs 10-K (2022-09-21)

Top changes in NATURAL ALTERNATIVES INTERNATIONAL INC's 2023 10-K

229 paragraphs added · 212 removed · 168 edited across 3 sections

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeRepurchases During the quarter ended June 30, 2022, we repurchased 37,305 shares of our common stock at a total cost of $0.4 million (including commissions and transaction fees) as set forth below: Period Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (as of June 30, 2022) ( in thousands ) April 1, 2022 to April 30, 2022 4,359 $ 11.64 4,359 — March 1, 2022 to March 31, 2022 15,114 $ 10.20 15,114 — June 1, 2022 to June 30, 2022 17,832 $ 10.56 17,832 — Total 37,305 37,305 $ 1,009 19 Table of Contents 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, 2022: Plan Category Number of Shares to be Issued Upon Exercise of Outstanding Options, Warrants, and Rights Weighted- Average Exercise Price of Outstanding Options, Warrants, and Rights Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a)) (a) (b) (c) Equity compensation plans approved by stockholders — $ — 472,377 Equity compensation plans not approved by stockholders N/A N/A N/A Total — $ — 472,377
Biggest changeEquity 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
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, 2022, 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, 2023, we did not sell any unregistered securities.
On that same date, the last sales price of our common stock as reported on NASDAQ was $11.56 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 $6.36 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.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 18 Table of Contents PART II ITEM 5.
ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 17 Table of Contents PART II ITEM 5.
MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the Nasdaq Global Market under the symbol “NAII.” Below are the high and low sales prices of our common stock as reported on the Nasdaq Global Market for each quarter of the fiscal years ended June 30, 2022 and 2021: Fiscal 2022 Fiscal 2021 High Low High Low First Quarter $ 19.15 $ 13.50 $ 8.23 $ 6.52 Second Quarter $ 14.47 $ 12.49 $ 10.99 $ 7.40 Third Quarter $ 13.62 $ 10.68 $ 17.66 $ 10.60 Fourth Quarter $ 11.73 $ 8.91 $ 18.20 $ 12.90 Holders As of September 20, 2022, there were approximately 185 stockholders of record of our common stock.
MARKET FOR OUR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Market Information Our common stock trades on the Nasdaq Global Market under the symbol “NAII.” Below are the high and low sales prices of our common stock as reported on the Nasdaq Global Market for each quarter of the fiscal years ended June 30, 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.
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Repurchases During the quarter ended June 30, 2023, we did not repurchase any shares of our common stock.

Item 6. [Reserved]

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

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Biggest changeFiscal Year Ended June 30, 2022 June 30, 2021 Increase (Decrease) Private-label contract manufacturing $ 154,798 91 % $ 164,310 92 % $ (9,512 ) (6 )% Patent and trademark licensing 16,168 9 % 14,210 8 % 1,958 14 % Total net sales 170,966 100 % 178,520 100 % (7,554 ) (4 )% Cost of goods sold 140,457 82 % 148,078 83 % (7,621 ) (5 )% Gross profit 30,509 18 % 30,442 17 % 67 0 % Selling, general & administrative expenses 16,830 10 % 16,770 9 % 60 0 % Income from operations 13,679 8 % 13,672 8 % 7 0 % Other (loss), net (20 ) (0 )% (1,547 ) (1 )% 1,527 (99 )% Income before income taxes 13,659 8 % 12,125 7 % 1,534 13 % Provision for income taxes 2,947 2 % 1,357 1 % 1,590 117 % Net income $ 10,712 6 % $ 10,768 6 % $ (56 ) (1 )% Private-label contract manufacturing sales decreased 6% primarily due to lower sales to our largest customer.
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.
During fiscal 2023, 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 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.
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. 22 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. 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).
Off-Balance Sheet Arrangements As of June 30, 2022, 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, 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.
We currently believe increasing raw material and product cost pricing pressures will continue throughout fiscal 2023 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 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.
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, 2022 and 2021 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, 2023 and 2022 and for each of the last two fiscal years then ended.
ITEM 6. SELECTED FINANCIAL DATA As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report. 20 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. 18 Table of Contents ITEM 7.
At June 30, 2022 we had no outstanding balances due on our line of credit and had $20.0 million available with this loan facility and we owed $9.8 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 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.
Inflation During fiscal 2022 we experienced price increases in product raw material and operational costs related to inflationary pressures.
Inflation During fiscal 2023, we experienced price increases in product raw material and operational costs related to inflationary pressures.
At June 30, 2022, 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 $0.6 million in cash compared to using $0.8 million in fiscal 2021.
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.
The change in gross profit margin for the year ended June 30, 2022, was as follows: Percentage Change Contract manufacturing(1) (0.3 ) Patent and trademark licensing(2) 1.1 Total change in gross profit margin 0.8 1 Private-label contract manufacturing gross profit margin contribution decreased 0.3 percentage points in fiscal 2022 as compared to fiscal 2021.
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.
Changes in accounts payable and accrued liabilities provided $3.1 million in cash during fiscal 2022 compared to providing $1.9 million during fiscal 2021. 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 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.
Overall, we believe our available cash, cash equivalents, potential cash flows from operations, and credit facility will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.
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.
Cash used in investing activities in fiscal 2022 was $26.5 million compared to $5.0 million in fiscal 2021.
Cash used in investing activities in fiscal 2023 was $13.5 million compared to $26.5 million in fiscal 2022.
Net cash provided by operating activities was $11.9 million in fiscal 2022 compared to net cash provided by operating activities of $20.8 million in fiscal 2021.
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.
Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales decreased to 32% in fiscal 2022 from 51% in fiscal 2021. We expect this percentage to remain consistent in fiscal 2023. Net sales from our patent and trademark licensing segment increased 14% during 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%. Net sales from our patent and trademark licensing segment decreased 46% during fiscal 2023.
At June 30, 2021 we had no outstanding balances due and $20.0 million available in connection with our loan facility. During fiscal 2022 we were in compliance with all of the financial and other covenants required under our Credit Agreement. Refer to Note F, "Debt," in Item 8 of this report, for terms of such Credit Agreement and additional information.
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.
We anticipate current inflation rates will have a negative impact on our fiscal 2023 operations and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results. We are actively working to identify additional sales opportunities and we are evaluating various options for minimizing the impact of continuing inflationary pressures.
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.
The change in cash activity from inventory was primarily related to the difference in amount and timing of sales at the end of fiscal 2022 and anticipated sales for the beginning of fiscal 2023 as compared to the same drivers at the end of fiscal 2021.
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.
The decrease in sales to our largest customer was partially offset by increased sales to other existing customers and a new customer. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales decreased to 32% in fiscal 2022 from 51% in fiscal 2021. We expect this percentage to remain consistent in fiscal 2023.
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%.
The change in cash used by accounts receivable during fiscal 2022 primarily resulted from timing of sales and the related collections at the end of fiscal 2022 as compared to fiscal 2021.
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.
Selling, general and administrative expenses were flat in fiscal 2022 as compared to fiscal 2021 at $16.8 million. Other loss, net, decreased $1.5 million during fiscal 2022 as compared to fiscal 2021.
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.
Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. Our facilities, located both in the United States and Europe, continue to operate as an essential and critical manufacturer in accordance with applicable federal, state, and local regulations, however, there can be no assurance our facilities will continue to operate without interruption.
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.
The increase in margin contribution during the year ended June 30, 2022 was primarily due to increased patent and trademark licensing net sales as a percentage of total consolidated net sales, higher average sales prices, and a change in estimate regard certain volume rebate programs.
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 was primarily due to discrete tax benefit items recorded in fiscal 2021, with no corresponding discrete tax benefits recorded in fiscal 2022. 23 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 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.
We anticipate current inflation rates will have a negative impact on our fiscal 2023 operations and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results. 24 Table of Contents Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included under Note A in the notes to our consolidated financial statements which are included under Item 8 of this report.
Recent Accounting Pronouncements A discussion of recent accounting pronouncements is included under Note A in the notes to our consolidated financial statements which are included under Item 8 of this report.
The decrease in gross profit as a percentage of sales for private-label contract manufacturing is primarily due to an increase in per unit manufacturing costs partially offset by favorable product and customer sales mix. 2 During fiscal 2022, patent and trademark licensing gross profit margin contribution increased 1.1 percentage points as compared to fiscal 2021.
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 primary reason for the change was due to the purchase of a new manufacturing and warehouse facility in Carlsbad, CA during the first quarter of fiscal 2022 along with expenditures made related to our on-going efforts to retrofit this facility with powder storage and processing capabilities.
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 provided by financing activities in fiscal 2022 was $4.3 million, compared to $14.1 million used in fiscal 2021.
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.
During fiscal 2023, 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. 21 Table of Contents Based on our current sales order volumes, sales backlog and forecasts we have received from our customers, we anticipate our fiscal 2023 consolidated net sales will increase between 10.0% and 15.0% as compared to fiscal 2022.
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.
The decreases were primarily due to favorable fiscal 2022 foreign exchange revaluation activity associated with our balance sheet and the fluctuations in unhedged foreign currency rates when compared to the same activity in fiscal 2021. Our income tax expense increased $1.6 million during fiscal 2022 as compared to fiscal 2021.
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.
Sales to this customer decreased 40% as compared to the prior year with a majority of the decrease associated with an inventory reduction program mostly related to their European business. The decrease in sales to our largest customer was partially offset by increased sales to other existing customers and a new customer.
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.
The activity in fiscal 2022 includes $10.0 million in borrowings used to finance a portion of the purchase of our new manufacturing and warehouse facility in Carlsbad, CA and treasury stock repurchases while fiscal 2021 included treasury stock repurchases and a payment of $10.0 million against our line of credit that was originally withdrawn as a measure to provide our business with liquidity out of an abundance of caution due to the COVID-19 pandemic during fiscal 2020.
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.
To protect our CarnoSyn® business, we incurred litigation and patent compliance expenses of approximately $0.2 million during fiscal 2022 and $1.2 million during fiscal 2021. The decrease in these legal expenses on a year over year basis was primarily due to the successful resolution of several cases that were settled.
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.
During fiscal 2022, our consolidated net sales were 4% lower than in fiscal 2021. Private-label contract manufacturing sales decreased 6% primarily due to lower sales to our largest customer. Sales to this customer decreased 40% as compared to the prior year with a majority of the decrease associated with an inventory reduction program mostly related to their European business.
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.
We believe the increase experienced in fiscal year 2022 included larger than usual orders associated with our customer’s refilling their distribution channels and we anticipate these sales levels will normalize to historical trend in fiscal 2023. We continue to invest in research and development for our SR CarnoSyn® sustained release delivery system.
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.
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During fiscal 2022, patent and trademark licensing revenue increased 14% to $16.2 million as compared to $14.2 million for fiscal 2021.
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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.
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The increase in patent and trademark licensing revenue was primarily due to sales to new customers, higher average sales prices, and increased shipments to existing customers related in part to athletic activities and gyms reopening in accordance with easing COVID-19 restrictions across the USA as compared to significant restrictions in athletic activities in the prior year.
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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.
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We currently expect our litigation and patent compliance expenses to be consistent with the amount incurred in fiscal 2022.
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As part of this commercialization effort, we have recently introduced two new SR CarnoSyn® Wellness tablet products – Complete Vision Support and Complete Memory Support.
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We also anticipate we will generate operating income between 5.0% and 7.0% of net sales for our fiscal year ending June 30, 2023.
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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.
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While sales are expected to increase during fiscal 2023 when compared to fiscal 2022, we anticipate operating income will be negatively impacted by changes in sales mix and increased operational costs primarily impacted by increased labor and supply chain costs and other inflationary factors.
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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.
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There can be no assurance our expectations will result in the currently anticipated increase in net sales or operating income levels. Impact of COVID-19 on Our Business The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely continue to affect our business.
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As a result of this temporary closure sixty-day notice was provided to all employees who may be furloughed starting in early October 2023.
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Factors that derive from COVID-19 and the accompanying response, and that have or may negatively impact sales and gross margin in the future include, but are not limited to the following: ● Limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the materials included in the products we sell, or to meet delivery requirements and commitments; ● Limitations on the ability of our employees to perform their work due to illness caused by the pandemic or due to other restrictions on our employees to keep them safe and the increased cost of measures taken to ensure employee health and safety; ● Limitation on the availability of qualified individuals to adequately staff our manufacturing facilities; ● Limitations on the ability of our suppliers to manufacture and meet timelines associated with capital improvement projects; ● Limitations on the ability of our customers to conduct their business and purchase our products and services; and ● Limitations on the ability of our customers to pay us on a timely basis.
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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.
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We will continue to actively monitor the situation and may take further actions to alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders.
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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.
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While we are unable to determine or predict the nature, duration, or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we believe we will be able to remain operational and our working capital will be sufficient for us to remain operational even as the longer-term consequences of this pandemic become known.
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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.
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The increase in patent and trademark licensing revenue was primarily due to sales to new customers, higher average sales prices, and increased shipments to existing customers related in part to athletic activities and gyms reopening in accordance with easing COVID-19 restrictions across the USA as compared to significant restrictions in athletic activities in the prior year.
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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.
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We believe the increase experienced in fiscal year 2022 included larger than usual orders associated with our customer’s refilling their distribution channels and we anticipate these sales levels will normalize to historical trend in fiscal 2023.
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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.
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Days sales outstanding increased to 38 days during fiscal 2022 compared to 36 days during fiscal 2021, primarily due to customer sales mix and timing of sales and the related collections. Inventory used $5.5 million in cash during fiscal 2022 compared to providing $1.0 million in fiscal 2021.
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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.
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As of June 30, 2022, we had $21.8 million in cash and cash equivalents. Of these amounts, $17.8 million of cash and cash equivalents were held by NAIE.
Added
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.
Added
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.
Added
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.
Added
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.
Added
The decrease is primarily due to a reduction in pre-tax income, which was partially offset by a higher effective tax rate.
Added
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.
Added
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.
Added
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

127 edited+40 added−31 removed131 unchanged
Biggest changeStock option activity for the year ended June 30, 2021 was as follows: 2009 Plan Weighted Average Exercise Price Weighted Average Contractual Term (in years) Aggregate Intrinsic Value Vested and exercisable at June 30, 2020 130,000 $ 6.28 Exercised (130,000 ) $ 6.28 Forfeited — $ — Granted — $ — Outstanding at June 30, 2021 — $ — — $ — Vested and exercisable at June 30, 2021 — $ — — $ — Of the 130,000 options exercised, 120,000 of these option exercises were cashless net exercises resulting in the issuance of 55,915 shares for the year ended June 30, 2021. 44 Table of Contents Restricted stock activity for the year ended June 30, 2022 was as follows: Number of Shares – 2009 Plan Weighted Average Grant Date Fair Value Nonvested at June 30, 2021 61,324 $ 11.47 Granted — $ — Vested (51,326 ) $ 11.52 Forfeited (8,332 ) $ 10.88 Nonvested at June 30, 2022 1,666 $ 8.50 Available for grant at June 30, 2022 — Number of Shares – 2020 Plan Weighted Average Grant Date Fair Value Nonvested at June 30, 2021 87,773 $ 16.81 Granted 135,850 $ 10.99 Vested (25,896 ) $ 16.81 Forfeited (11,500 ) $ 16.81 Nonvested at June 30, 2022 186,227 $ 12.56 Available for grant at June 30, 2022 472,377 Restricted stock activity for the year ended June 30, 2021 was as follows: Number of Shares – 2009 Plan Weighted Average Grant Date Fair Value Nonvested at June 30, 2020 197,650 $ 11.06 Granted — $ — Vested (136,326 ) $ 10.88 Forfeited — $ — Nonvested at June 30, 2021 61,324 $ 11.47 Available for grant at June 30, 2021 — Number of Shares – 2020 Plan Weighted Average Grant Date Fair Value Nonvested at June 30, 2020 — $ — Granted 91,773 $ 16.81 Vested (4,000 ) $ 16.81 Forfeited — $ — Nonvested at June 30, 2021 87,773 $ 16.81 Available for grant at June 30, 2021 608,227 Restricted stock grants, granted to members of our Board of Directors and certain key members of our management team, vest over a period of years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the right to receive dividends, if declared by our Board of Directors, is forfeitable until the shares become vested.
Biggest changeRestricted stock activity for the year ended June 30, 2023 was as follows: Weighted Number of Average Grant Shares – Date Fair 2009 Plan Value Nonvested at June 30, 2022 1,666 $ 8.50 Granted — $ — Vested 1,666 $ 8.50 Forfeited — $ — Nonvested at June 30, 2023 — $ — Available for grant at June 30, 2023 — Weighted Number of Average Grant Shares – Date Fair 2020 Plan Value Nonvested at June 30, 2022 186,227 $ 12.56 Granted 123,000 $ 8.79 Vested (71,146 ) $ 13.04 Forfeited (14,399 ) $ 11.69 Nonvested at June 30, 2023 223,682 $ 10.39 Available for grant at June 30, 2023 349,377 42 Table of Contents Restricted stock activity for the year ended June 30, 2022 was as follows: Weighted Number of Average Grant Shares – Date Fair 2009 Plan Value Nonvested at June 30, 2021 61,324 $ 11.47 Granted — $ — Vested (51,326 ) $ 11.52 Forfeited (8,332 ) $ 10.88 Nonvested at June 30, 2022 1,666 $ 8.50 Available for grant at June 30, 2022 — Weighted Number of Average Grant Shares – Date Fair 2020 Plan Value Nonvested at June 30, 2021 87,773 $ 16.81 Granted 135,850 $ 10.99 Vested (25,896 ) $ 16.81 Forfeited (11,500 ) $ 16.81 Nonvested at June 30, 2022 186,227 $ 12.56 Available for grant at June 30, 2022 472,377 Restricted stock grants, granted to members of our Board of Directors and certain key members of our management team, vest over a period of years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the right to receive dividends, if declared by our Board of Directors, is forfeitable until the shares become vested.
Each deferred cash award provides for three equal cash payments to the applicable Participant to be paid on the one year, two year, and three year anniversaries of the date of the grant of such Awards, (the “Award Date”); provided on the date of each payment (the “Payment Date”), the Participant has been since Award Date, and continues to be through the Payment Date, a member of our Board of Directors or an employee of NAI.
Each deferred cash award provides for three equal cash payments to the applicable Participant to be paid on the one year, two year, and three year anniversaries of the date of the grant of such Awards, (the “Award Date”); provided on the date of each payment (the “Payment Date”), the Participant has been since the Award Date, and continues to be through the Payment Date, a member of our Board of Directors or an employee of NAI.
Fortin, effective October 1, 2015* Exhibit 10.3 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the commission on November 12, 2015. 10.13 First amendment to credit agreement by and between NAI and the Wells Fargo Bank N.A. effective as of February 1, 2016 Exhibit 10.01 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2015, filed with the commission on February 9, 2016. 10.14 First amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Fortin, effective October 1, 2015* Exhibit 10.3 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the commission on November 12, 2015. 10.12 First amendment to credit agreement by and between NAI and the Wells Fargo Bank N.A. effective as of February 1, 2016 Exhibit 10.01 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2015, filed with the commission on February 9, 2016. 10.13 First amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Silvio Tarchini effective July 1, 2014 (English translation) Exhibit 10.38 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the commission on September 25, 2014. 10.10 Amended and Restated Employment Agreement, by and between NAI and Mark A.
Silvio Tarchini effective July 1, 2014 (English translation) Exhibit 10.38 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the commission on September 25, 2014. 10.9 Amended and Restated Employment Agreement, by and between NAI and Mark A.
This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. We no longer consider undistributed foreign earnings from NAIE as of December 31, 2017 as indefinitely reinvested.
This accumulated E&P amount has historically been considered permanently reinvested thereby allowing us to defer recognizing any U.S. income tax on the amount. We no longer consider undistributed foreign earnings from NAIE as of December 31, 2017 as indefinitely reinvested. We consider earnings accumulated subsequent to December 31, 2017 as indefinitely reinvested.
LeDoux, effective October 1, 2015* Exhibit 10.1 of NAI’s Current Report on Form 8-K dated October 1, 2015, filed with the commission on October 1, 2015. 10.11 Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
LeDoux, effective October 1, 2015* Exhibit 10.1 of NAI’s Current Report on Form 8-K dated October 1, 2015, filed with the commission on October 1, 2015. 10.10 Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 32 Table of Contents Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
Cash and Cash Equivalents We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. 29 Table of Contents Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
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. 41 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. 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.
The following exhibit index shows those exhibits filed with this report and those incorporated by reference: EXHIBIT INDEX Exhibit Number Description Incorporated By Reference To 3(i) Amended and Restated Certificate of Incorporation of Natural Alternatives International, Inc. filed with the Delaware Secretary of State on January 14, 2005 Exhibit 3(i) of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, filed with the commission on February 14, 2005 3(ii) Amended and Restated By-laws of Natural Alternatives International, Inc. dated as of February 9, 2009 Exhibit 3(ii) of NAI’s Current Report on Form 8-K dated February 9, 2009, filed with the commission on February 13, 2009 4(i) Form of NAI’s Common Stock Certificate Exhibit 4(i) of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the commission on September 8, 2005 10.1 Lease of Facilities in Vista, California between NAI and Calwest Industrial Properties, LLC, a California limited liability company (lease reference date June 12, 2003) Exhibit 10.10 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003, filed with the commission on November 5, 2003 10.2 Form of Indemnification Agreement entered into between NAI and each of its directors Exhibit 10.15 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004, filed with the commission on September 14, 2004 10.3 2009 Omnibus Incentive Plan* Attachment D of NAI’s definitive Proxy Statement filed with the commission on October 16, 2009 10.4 Nonqualified Incentive Plan* Exhibit 10.1 to NAI’s Current Report on Form 8-K dated July 16, 2020, filed with the commission on July 22, 2020 10.5 License and Fee Agreement effective November 10, 2010 by and among Roger Harris, Mark Dunnett, Kenny Johansson and NAI Exhibit 10.40 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010, filed with the commission on November 12, 2010 10.6 ISDA 2002 Master Agreement dated as of March 10, 2011 by and between Bank of America N.A. and NAI (with Schedule dated March 10, 2011) Exhibit 10.31 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed with the commission on May 16, 2011 10.7 Third amendment to the Lease of Facilities in Vista, California between NAI and CWCA Vista Distribution 77, LLC, a Delaware limited liability company Exhibit 10.40 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the commission on September 19, 2013 10.8 Agreement to License by and between NAI and Compound Solutions, Inc. effective as of April 1, 2014 Exhibit 10.37 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the commission on September 25, 2014. 10.9 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
The following exhibit index shows those exhibits filed with this report and those incorporated by reference: EXHIBIT INDEX Exhibit Number Description Incorporated By Reference To 3(i) Amended and Restated Certificate of Incorporation of Natural Alternatives International, Inc. filed with the Delaware Secretary of State on January 14, 2005 Exhibit 3(i) of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2004, filed with the commission on February 14, 2005 3(ii) Amended and Restated By-laws of Natural Alternatives International, Inc. dated as of February 9, 2009 Exhibit 3(ii) of NAI’s Current Report on Form 8-K dated February 9, 2009, filed with the commission on February 13, 2009 4(i) Form of NAI’s Common Stock Certificate Exhibit 4(i) of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2005, filed with the commission on September 8, 2005 10.1 Lease of Facilities in Vista, California between NAI and Calwest Industrial Properties, LLC, a California limited liability company (lease reference date June 12, 2003) Exhibit 10.10 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003, filed with the commission on November 5, 2003 10.2 Form of Indemnification Agreement entered into between NAI and each of its directors Exhibit 10.15 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004, filed with the commission on September 14, 2004 10.3 2009 Omnibus Incentive Plan* Attachment D of NAI’s definitive Proxy Statement filed with the commission on October 16, 2009 10.4 Nonqualified Incentive Plan* Exhibit 10.1 to NAI’s Current Report on Form 8-K dated July 16, 2020, filed with the commission on July 22, 2020 10.5 License and Fee Agreement effective November 10, 2010 by and among Roger Harris, Mark Dunnett, Kenny Johansson and NAI Exhibit 10.40 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010, filed with the commission on November 12, 2010 10.6 ISDA 2002 Master Agreement dated as of March 10, 2011 by and between Bank of America N.A. and NAI (with Schedule dated March 10, 2011) Exhibit 10.31 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011, filed with the commission on May 16, 2011 10.7 Third amendment to the Lease of Facilities in Vista, California between NAI and CWCA Vista Distribution 77, LLC, a Delaware limited liability company Exhibit 10.40 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2013, filed with the commission on September 19, 2013 10.8 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
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. 25 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. 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.
Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value. 33 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. 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.
N.A. dated August 16, 2021 in the amount of $20,000,000 Exhibit 10.4 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.31 Term Note by and between NAI and Wells Fargo Bank, N.A. effective as of August 16, 2021 Exhibit 10.5 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.32 Security Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of August 16. 2021 Exhibit 10.6 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.33 Second Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective January 31, 2022 Exhibit 10.33 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2021, filed with the commission on February 9, 2022 10.34 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
N.A. dated August 16, 2021 in the amount of $20,000,000 Exhibit 10.4 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.29 Term Note by and between NAI and Wells Fargo Bank, N.A. effective as of August 16, 2021 Exhibit 10.5 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.30 Security Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of August 16. 2021 Exhibit 10.6 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.31 Second Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective January 31, 2022 Exhibit 10.33 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2021, filed with the commission on February 9, 2022 10.32 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
Additionally, we entered into a second amendment to our credit facility with Wells Fargo on February 8, 2022 that is effective January 31, 2022 and modifies the annual limit imposed upon our ability to repurchase stock and issue dividends. This amendment increased this limit from $5.0 million annually to $7.0 million annually.
Additionally, we entered into a second amendment to our credit facility with Wells Fargo on February 8, 2022 that was effective January 31, 2022 and modifies the annual limit imposed upon our ability to repurchase stock and issue dividends. This amendment increased this limit from $5.0 million annually to $7.0 million annually.
Silvio Tarchini dated October 19, 2018 Exhibit 10.5 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 10.21 Lease of Facilities in Manno, Switzerland between NAIE and Sofinol SA dated November 5, 2018 Exhibit 10.6 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 10.22 Amended and Restated Exclusive Manufacturing Agreement with Juice Plus+ dated March 31, 2019 Exhibit 10.48 of NAI’s Current Report on Form 8-K Form 8-K dated March 31, 2019, filed with the commission on April 5, 2019 10.23 Third amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Silvio Tarchini dated October 19, 2018 Exhibit 10.5 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 10.19 Lease of Facilities in Manno, Switzerland between NAIE and Sofinol SA dated November 5, 2018 Exhibit 10.6 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 10.20 Amended and Restated Exclusive Manufacturing Agreement with Juice Plus+ dated March 31, 2019 Exhibit 10.48 of NAI’s Current Report on Form 8-K Form 8-K dated March 31, 2019, filed with the commission on April 5, 2019 10.21 Third amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
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, 2022 and June 30, 2021.
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 .
Fortin, effective July 1, 2021* Exhibit 10.67 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.27 Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of May 24, 2021 Exhibit 10.1 of NAI’s Current Report on Form 8-K dated May 24, 2021 filed with the commission on May 27, 2021. 10.28 2020 Omnibus Incentive Plan* Annex I of NAI’s definitive Proxy Statement filed with the commission on October 26, 2020 10.29 First Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of August 16, 2021 Exhibit 10.3 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.30 Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank.
Fortin, effective July 1, 2021* Exhibit 10.67 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.25 Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of May 24, 2021 Exhibit 10.1 of NAI’s Current Report on Form 8-K dated May 24, 2021 filed with the commission on May 27, 2021. 10.26 2020 Omnibus Incentive Plan* Annex I of NAI’s definitive Proxy Statement filed with the commission on October 26, 2020 10.27 First Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of August 16, 2021 Exhibit 10.3 of NAI’s Current Report on Form 8-K dated August 16, 2021 filed with the commission on August 24, 2021 10.28 Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank.
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of June 30, 2022 and 2021, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2022, 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, 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.
We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2022 and June 30, 2021. 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, 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.
Wolf, effective July 1, 2018* Exhibit 10.2 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 10.18 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Wolf, effective July 1, 2018* Exhibit 10.2 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 10.16 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Date: September 21, 2022 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 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.
As of June 30, 2022, 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, 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.
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, 2022 and 2021 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, 2023 and 2022 was not material.
Silvio Tarchini dated October 19, 2018 Exhibit 10.4 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 10.20 Lease of Parking Places in Manno, Switzerland between NAIE and Mr.
Silvio Tarchini dated October 19, 2018 Exhibit 10.4 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 10.18 Lease of Parking Places in Manno, Switzerland between NAIE and Mr.
Based on this assessment, management believes our internal control over financial reporting was effective as of June 30, 2022 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, 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.
Fortin, effective July 1, 2018* Exhibit 10.3 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 10.19 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
Fortin, effective July 1, 2018* Exhibit 10.3 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 10.17 Lease of Facilities in Manno, Switzerland between NAIE and Mr.
Wolf, effective July 1, 2021* Exhibit 10.66 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.26 Fourth amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
Wolf, effective July 1, 2021* Exhibit 10.66 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.24 Fourth amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E.
(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, 2022 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, 2023 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None.
(the “Company”) as of June 30, 2022 and 2021, 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, 2022, and the related notes (collectively referred to as the “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”).
Fortin, effective July 1, 2019* Exhibit 10.61 of NAI's Annual Report on Form 10-K for the annual period ended June 30, 2019, filed with the commission on September 24, 2019 10.24 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark LeDoux, effective July 1, 2021* Exhibit 10.65 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.25 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
Fortin, effective July 1, 2019* Exhibit 10.61 of NAI's Annual Report on Form 10-K for the annual period ended June 30, 2019, filed with the commission on September 24, 2019 10.22 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark LeDoux, effective July 1, 2021* Exhibit 10.65 of NAI’s Current Report on Form 8-K dated July 1, 2021, filed with the commission on July 9, 2021 10.23 Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
California Senate Bill 113, effective February 9, 2022 reinstates net operating loss deductions in tax years beginning in 2022. Our state tax loss carry forwards will begin to expire in fiscal 2029, unless used before their expiration.
California Senate Bill 113, effective February 9, 2022, reinstates net operating loss deductions in tax years beginning in 2022. Our state tax loss carry forwards will begin to expire in fiscal 2031, unless used before their expiration.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of June 30, 2022 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, 2023 based upon criteria in an Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) (2013 framework).
Wolf, effective October 1, 2015* Exhibit 10.2 of NAI’s Current Report on Form 8-K dated October 1, 2015, filed with the commission on October 1, 2015. 10.12 Amended and Restated Employment Agreement, by and between NAI and Michael E.
Wolf, effective October 1, 2015* Exhibit 10.2 of NAI’s Current Report on Form 8-K dated October 1, 2015, filed with the commission on October 1, 2015. 10.11 Amended and Restated Employment Agreement, by and between NAI and Michael E.
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%. 47 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%. 44 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, 2022 and June 30, 2021, 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, 2023 and June 30, 2022 , we did not record any tax liabilities for uncertain tax positions.
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, 2022. 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, 2022.
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.
(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, 2022.
(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.
Signature Title Date /s/ Mark A. LeDoux Chief Executive Officer and Chairman of the Board of Directors September 21, 2022 (Mark A. LeDoux) (principal executive officer) /s/ Michael E. Fortin Chief Financial Officer September 21, 2022 (Michael E. Fortin) (principal financial officer and principal accounting officer) /s/ Alan G. Dunn Director September 21, 2022 (Alan G. Dunn) /s/ L.
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.
Our research and development expenses for the last two fiscal years ended June 30 were $2.5 million for fiscal 2022 and $1.9 million for fiscal 2021. 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 $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.
Actual results could differ from those estimates and our assumptions may prove to be inaccurate. 35 Table of Contents 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. 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.
Critical Audit Matter The critical audit matter communicated below is a matter 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 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.
During the year ended June 30, 2022, 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, 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, 2022 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 August 2023.
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.
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 year ended 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, 2023 and June 30, 2022 , the Company had no stock options outstanding.
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, 2021 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, 2022 and forward are subject to examination by the Swiss tax authorities.
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 51 Table of Contents 10.17 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 48 Table of Contents 10.15 First amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E.
The premiums expensed to income from operations for these benefits totaled $1.4 million for the fiscal year ended June 30, 2022 and $1.2 million for the fiscal year ended June 30, 2021. 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 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 total contributions under the plan charged to income from operations totaled $0.5 million for fiscal 2022 and $0.4 million for fiscal 2021. 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 $0.7 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 credit agreement also includes a limitation on the amount of capital expenditures that can be made in a given fiscal year, with such limitation set at $15.0 million for our fiscal year ending June 30, 2022 and $7.5 million for all fiscal years thereafter.
The credit agreement also includes a limitation on the amount of capital expenditures that can be made in a given fiscal year, with such limitation set at $25.0 million for our fiscal year ending June 30, 2023 and $7.5 million for all fiscal years thereafter.
D. Leases We currently lease our Vista, CA and Lugano, Switzerland product manufacturing and support facilities. At the inception of a contract, we assess whether the contract is, or contains, a lease.
Leases We currently lease our Vista, California and Lugano, Switzerland product manufacturing and support facilities. At the inception of a contract, we assess whether the contract is, or contains, a lease.
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).
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).
Additionally, amounts due related to our beta-alanine raw material sales were 5.4% of gross accounts receivable at June 30, 2022 and 8.6% of gross accounts receivable at June 30, 2021. 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 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.
Accounts receivable from these customers totaled $10.7 million at June 30, 2022 and $14.0 million at June 30, 2021. 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 $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.
As of June 30, 2022, a net loss of approximately $2.3 million offset by $542,000 of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI.
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.
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, 2021, we recognized $2.8 million of net losses in OCI, reclassified $3.2 million of losses and forward point amortization from OCI to Net Sales.
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.
Credit risk with respect to receivables is primarily concentrated with our three largest customers, whose receivable balances collectively represented 52.4% of gross accounts receivable at June 30, 2022 and 64.8% at June 30, 2021.
Credit risk with respect to receivables is primarily concentrated with our three largest customers, whose receivable balances collectively represented 47.4% of gross accounts receivable at June 30, 2023 and 52.4% at June 30, 2022 .
The financial statements listed below are included under Item 8 of this report: • Consolidated Balance Sheets as of June 30, 2022 and 2021; • Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended June 30, 2022 and 2021; • Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2022 and 2021; 50 Table of Contents • Consolidated Statements of Cash Flows for the years ended June 30, 2022 and 2021; 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, 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.
Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands): June 30, 2022 June 30, 2021 Euro Forward Contract– Current Assets $ 3,144 $ — Swiss Franc Forward Contract – Current Assets 109 — Total Derivative Contracts – Current Assets 3,253 — Interest Swap – Other noncurrent Assets 453 — Euro Forward Contract– Other noncurrent Assets 561 — Total Derivative Contracts – Other noncurrent Assets 1,014 — Euro Forward Contract–Current Liabilities — (630 ) Swiss Franc Forward Contract – Current Liabilities — (184 ) Total Derivative Contracts – Current Liabilities — (814 ) Euro Forward Contract – Noncurrent Liabilities — (4 ) Fair Value Net Asset (Liability) – all Derivative Contracts $ 4,267 $ (818 ) 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, 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.
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 2, 2022, to be filed on or before October 28, 2022. 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 7, 2023, to be filed on or before October 28, 2023. 47 Table of Contents PART IV ITEM 15.
Other information related to leases was as follows (in thousands) for the year ended June 30, Supplemental Cash Flows Information 2022 2021 Cash paid for amounts included in the measurement of operating lease liabilities $ 3,289 $ 3,298 Increase in operating lease liabilities and right-of-use assets due to lease remeasurement 8,513 187 37 Table of Contents E.
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.
As of June 30, 2022, the notional amounts of our foreign exchange contracts were $37.7 million ( €31.9 million). These contracts will mature over the next 14 months. As of June 30, 2022, 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, 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.
We incurred and expensed advertising costs in the amount of $1.1 million during the fiscal year ended June 30, 2022 and $0.8 million during fiscal 2021.
We incurred and expensed advertising costs in the amount of $0.7 million during the fiscal year ended June 30, 2023 and $1.1 million during fiscal 2022 .
As of June 30, 2022, we had the full $20.0 million available for borrowing under our credit facility with Wells Fargo Bank. G. Income Taxes During fiscal 2022, we recorded U.S.-based domestic tax expense of $2.0 million. During fiscal 2021, we recorded U.S.-based domestic tax expense of $0.6 million.
As of June 30, 2023 , we had the full $20.0 million available for borrowing under our credit facility with Wells Fargo Bank. G. Income Taxes During fiscal 2023 , we recorded U.S.-based domestic tax expense of $0.8 million and foreign tax expense of $0.2 million.
We also have credit approval with Bank of America which allows us to hedge foreign currency exposures up to 24 months in the future. As of June 30, 2022, we had $171,000 of interest capitalized to building improvements.
We also have credit approval with Bank of America which allows us to hedge foreign currency exposures up to 24 months in the future. During fiscal year 2023, we capitalized $198,000 of interest expense to building improvements. As of June 30, 2022, we capitalized $171,000 of interest expense to building improvements.
The weighted average discount rate for our operating leases was 4.12%. As of June 30, 2021, the weighted average remaining lease term for our operating leases was 6.3 years and the weighted average discount rate was 3.24%.
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%.
During the year ended June 30, 2021, we granted a total of $1.5 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, 2023 , we granted a total of $0.6 million in deferred cash awards to members of our Board of Directors and certain key members of our management team.
( 2 ) This category is comprised of publicly traded funds, of which 42% are U.S. fixed income funds and 58% are corporate and foreign market fixed income funds. ( 3 ) This category is comprised of commodities and cash alternatives. 43 Table of Contents I.
( 2 ) This category is comprised of publicly traded funds, of which 34% are U.S. fixed income funds and 66% are corporate and foreign market fixed income funds. ( 3 ) This category is comprised of commodities and cash alternatives. 41 Table of Contents I.
The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $2.1 million at June 30, 2022 and the weighted average remaining requisite service period of unvested restricted stock shares was 2.4 years. 45 Table of Contents J.
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.
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, 2022 2021 Raw Material Purchases by Supplier % of Total Raw Material Purchases Raw Material Purchases by Supplier % of Total Raw Material Purchases Supplier 1 $ 14,065 17 % $ 23,033 24 % $ 14,065 17 % $ 23,033 24 % 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, 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.
As of June 30, 2022, the notional amounts of our foreign currency contracts not designated as cash flow hedges were $5.2 million (CHF 5.0 million). These contracts will mature in the first quarter of fiscal year 2023. Defined Benefit Pension Plan We formerly sponsored a defined benefit pension plan.
As of June 30, 2023 , the notional amounts of our foreign currency contracts not designated as cash flow hedges were $12.3 million (CHF 11.1 million). These contracts will mature in the first quarter of fiscal year 2024. Defined Benefit Pension Plan We formerly sponsored a defined benefit pension plan.
Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were as follows: 2022 2021 Target Allocation Equity securities 49 % 62 % 55 % Debt securities 20 % 25 % 41 % Commodities 0 % 12 % 0 % Other 31 % 1 % 4 % 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 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.
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): 2022 2021 Change in Benefit Obligation: Benefit obligation at beginning of year $ 1,820 $ 2,035 Interest cost 39 39 Actuarial loss (276 ) (43 ) Benefits paid (145 ) (211 ) Benefit obligation at end of year $ 1,438 $ 1,820 Change in Plan Assets: Fair value of plan assets at beginning of year $ 1,429 $ 1,339 Actual return on plan assets (190 ) 294 Employer contributions — 7 Benefits paid (145 ) (211 ) Plan expenses — — Fair value of plan assets at end of year $ 1,094 $ 1,429 Reconciliation of Funded Status: Difference between benefit obligation and fair value of plan assets $ (344 ) $ (391 ) Unrecognized net actuarial loss in accumulated other comprehensive income 495 626 Net amount recognized $ 151 $ 235 Projected benefit obligation $ 1,438 $ 1,820 Accumulated benefit obligation $ 1,438 $ 1,820 Fair value of plan assets $ 1,094 $ 1,429 The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 4.39% for the year ended June 30, 2022 and 2.74% during the year ended June 30, 2021.
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 .
Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all non-cancelable operating leases with initial or remaining lease terms in excess of one year, including the lease agreements referred to above, are set forth below as of June 30, 2022 (in thousands): 2023 2024 2025 2026 2027 There- after Total Gross minimum rental commitments $ 3,187 $ 2,607 $ 1,288 $ 1,288 $ 1,288 $ 7,083 $ 16,741 Rental expense totaled $3.4 million for the fiscal year ended June 30, 2022 and $3.4 million for the fiscal year ended June 30, 2021. 46 Table of Contents K.
Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all non-cancelable operating leases with initial or remaining lease terms in excess of one year, including the lease agreements referred to above, are set forth below as of June 30, 2023 (in thousands): There- 2024 2025 2026 2027 2028 after Total Gross minimum rental commitments $ 2,868 $ 1,369 $ 1,369 $ 1,369 $ 1,369 $ 6,162 $ 14,506 Rental expense totaled $3.3 million for the fiscal year ended June 30, 2023 and $3.4 million for the fiscal year ended June 30, 2022 . 43 Table of Contents K.
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): 2022 2021 Interest cost $ 39 $ 39 Expected return on plan assets (69 ) (59 ) Recognized actuarial loss 63 110 Settlement loss 50 73 Net periodic benefit expense $ 83 $ 163 In the fiscal year ended 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): 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.
The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (loss) (in thousands): 2022 2021 Net loss $ (17 ) $ (277 ) Settlement loss (50 ) (73 ) Amortization of net loss (63 ) (110 ) Plan expenses — — Total recognized in other comprehensive income (loss) $ (130 ) $ (460 ) Total recognized in net periodic benefit cost and other comprehensive loss $ (47 ) $ (297 ) 42 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 $50,000.
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 benefit payments are expected to be paid (in thousands): 2023 $ 799 2024 — 2025 276 2026 14 2027 110 2028-2032 67 Total benefit payments expected to be paid $ 1,266 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: 2022 2021 Discount rate 4.39 % 2.74 % Expected long-term rate of return 6.10 % 6.60 % 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): 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 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 matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
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 Term Note used as part of the purchase consideration of our new manufacturing and warehouse property in Carlsbad California referenced above, is for the original principal amount of $10.0 million, and is a seven year term note with payments fully amortized based on a twenty five year assumed term.
There is an unused commitment fee of 0.125% required as part of the line of credit. 36 Table of Contents The Term Note used as part of the purchase consideration of our new manufacturing and warehouse property in Carlsbad, California referenced above, is for the original principal amount of $10.0 million, and is a seven year term note with payments fully amortized based on a twenty five year assumed term.
The fair values by asset category of our defined benefit pension plan at June 30, 2022 were as follows (in thousands): Total Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Equity securities(1) $ 590 $ 590 $ — $ — Debt securities(2) $ 217 $ 217 $ — $ — Other(3) $ 287 $ 287 $ — $ — Total $ 1,094 $ 1,094 $ — $ — ( 1 ) This category is comprised of publicly traded funds, of which 51% are large-cap funds, 24% are developed market funds, 19% are mid-cap funds, and 6% are small-cap funds.
The fair values by asset category of our defined benefit pension plan at June 30, 2023 were as follows (in thousands): Quoted Prices in Active Markets for Significant Significant Identical Observable Unobservable Assets Inputs Inputs Total (Level 1) (Level 2) (Level 3) Equity securities(1) $ 653 $ 653 $ — $ — Debt securities(2) $ 141 $ 141 $ — $ — Other(3) $ 231 $ 231 $ — $ — Total $ 1,025 $ 1,025 $ — $ — ( 1 ) This category is comprised of publicly traded funds, of which 50% are large-cap funds, 26% are developed and emerging market funds, 18% are mid-cap funds, and 6% are small-cap funds.
The future debt payments under the Term Note are as follows (in thousands): 2023 2024 2025 2026 2027 Thereafter Total Future Debt Payments $ 279 $ 287 $ 296 $ 305 $ 315 $ 8,313 $ 9,795 On June 30, 2022, 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): 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.
It is expected that $1.9 million of the gross loss as of June 30, 2022, 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, 2023 , will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.

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