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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT

pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2003

000-15701

(Commission file number)

NATURAL ALTERNATIVES INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.01 par value per share

Indicate by check mark whether Natural Alternatives International, Inc. (NAI) (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that NAI was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of NAI’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨

Indicate by check mark whether NAI is an accelerated filer (as defined in Rule 12b-2 of the Act).    ¨  Yes    x  No

The aggregate market value of NAI’s common stock held by non-affiliates of NAI as of the last business day of NAI’s most recently completed second fiscal quarter (December 31, 2002) was approximately $17,578,361 (based on the closing sale price of $3.985 reported by Nasdaq on December 31, 2002). For this purpose, all of NAI’s officers and directors and their affiliates were assumed to be affiliates of NAI.

As of September 17, 2003, 5,821,973 shares of NAI’s common stock were outstanding, net of 272,400 treasury shares.

DOCUMENTS INCORPORATED BY REFERENCE

Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K incorporates by reference portions of NAI’s definitive proxy statement for its 2004 Annual Meeting of Stockholders, to be filed on or before October 28, 2003.

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SPECIAL NOTE—FORWARD-LOOKING STATEMENTS

Certain statements in this report, including information incorporated by reference, are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect current views about future events and financial performance based on certain assumptions. They include opinions, forecasts, projections, guidance, expectations, beliefs or other statements that are not statements of historical fact. Words such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “believes,” “anticipates,” “intends,” “estimates,” “approximates,” “predicts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Forward-looking statements in this report may include statements about:

The forward-looking statements in this report speak only as of the date of this report. Forward-looking statements are subject to certain events, risks, and uncertainties that may be outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this report as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described under Item 7 and elsewhere in this report, as well as in other reports and documents we file with the SEC.

PART I

Overview

We provide private label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health and personal care products, to consumers both within and outside the United States. We provide both product and market development services including:

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In fiscal 2000, we initiated our direct-to-consumer marketing program to develop, manufacture and market our own products. Under this program, we work with nationally recognized physicians and other personalities to develop brand name products that reflect their individual approaches to restoring, maintaining or improving health. In March 2000, we launched Basic Nutrient Support^TM, our first product developed in collaboration with Dr. Reginald B. Cherry, M.D. In fiscal 2001, we launched Dr. Cherry’s Pathway to Healing^TM product line.

While private label contract manufacturing remains our core business, we are actively pursuing new products and initiatives for our direct-to-consumer marketing program. In April 2003, we began marketing our Jennifer O’Neill line of vitamins and skin care products.

Our U.S.-based manufacturing facilities are located in San Marcos and Vista, California. Natural Alternatives International Europe S.A. (NAIE), our wholly-owned subsidiary existing under the laws of Switzerland, also operates a manufacturing, warehousing and distribution facility in Manno, Switzerland. This facility helps us provide improved service to our customers that sell their products in Europe. Among other benefits, our facility in Switzerland can help lower distribution and other costs of products sold outside the United States and can also help reduce lead times and lower inventory costs. NAIE operates under a five-year Swiss federal and cantonal income tax holiday that ends in fiscal 2005.

In addition to our operations in the United States and Switzerland, we have a full-time representative in Japan who provides a range of services to our customers seeking to expand into the Japanese market and other markets in the Pacific Rim. These services include regulatory and marketing assistance along with guidance and support in adapting products to these markets.

Originally founded in 1980, Natural Alternatives International, Inc. reorganized as a Delaware corporation in 1989. Our principal executive offices are located at 1185 Linda Vista Drive, San Marcos, California 92069. Unless the context requires otherwise, all references in this report to the “Company,” “NAI” “we,” “our,” and “us” refer to Natural Alternatives International, Inc. and, as applicable, NAIE, its wholly-owned subsidiary.

Business Strategy

Our goals are to increase and diversify our revenues and improve our overall financial results. To achieve these goals, we intend to:

We believe our comprehensive approach to customer service is unique within our industry. We believe this approach, together with our commitment to high-quality, innovative products and the leadership of our experienced management team, will provide the means to implement our strategy and achieve our goals. There can be no assurance, however, that we will successfully implement any of our business strategies or that we will increase our revenues or improve our overall financial results.

Products, Principal Markets and Methods of Distribution

We provide private label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health and personal care products, to consumers both within and outside the United States. Our products are generally available in a variety of forms, including capsules, tablets, chewable wafers, powders and creams, to accommodate a variety of consumer preferences.

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Our private label contract manufacturing customers include direct selling organizations and other specialized corporate accounts. We have a worldwide manufacturing agreement with NSA International, Inc., located in Memphis, Tennessee. NSA International, Inc. is our largest customer and sells its nutritional products to consumers in over 30 countries.

Under our direct-to-consumer marketing program, we develop and manufacture our own products. We work with nationally recognized physicians and other personalities to develop brand name products that reflect their individual approaches to restoring, maintaining or improving health. The products in our direct-to-consumer marketing program are sold through a variety of distribution channels including television programs, personal appearances of brand name personalities, newsletters, direct mail solicitations, websites, radio, magazines and other marketing channels.

In October 1999, the Therapeutic Goods Administration (TGA) of Australia certified our operations. The TGA evaluates new therapeutic products, prepares standards, develops testing methods and conducts testing programs to ensure that products are high in quality, safe and effective. TGA certification enables us to manufacture products for export into countries that have signed the Pharmaceutical Inspection Convention, which include most European countries as well as several Pacific Rim countries. The TGA recertified our operations in March 2000.

In October 2002, we were awarded Good Manufacturing Practices (GMP) registration by NSF International (NSF) through the NSF Dietary Supplements Certification Program. GMP requirements are regulatory requirements that provide guidelines for necessary processes, procedures and documentation to assure the product produced has the identity, strength, composition, quality and purity it is represented to possess.

For the last three fiscal years, net sales from our private label contract manufacturing and direct-to-consumer marketing program were as follows:

Research and Development

We are committed to quality research and development. We focus on the development of new products and the improvement of existing products through continued testing. We continuously produce sample runs of products to help ensure their stability, potency, and safety, as well as to determine ingredient interaction and the potential for customer acceptance of the final product. We maintain quality control procedures to verify that our products comply with applicable specifications and standards established by the Food and Drug Administration and other regulatory agencies. We also direct and participate in clinical research studies, often in collaboration with other scientists and research institutions, to establish the benefits of a product, including its potency and efficacy, and to provide scientific support for product claims and marketing initiatives. We believe our research and development team of experienced personnel, as well as our facilities and strategic alliances with our suppliers and customers, allow us to effectively identify, develop and market high-quality and innovative products.

As part of the services we provide to our private label contract manufacturing customers, we may perform certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products. Research and development costs are expensed as incurred.

Our research and development expenses for the fiscal years ended June 30, 2003, 2002 and 2001 were $1.7 million, $821,000 and $718,000, respectively.

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Sources and Availability of Raw Materials

We use various raw materials in our operations including nutrient powders, excipients, empty gelatin capsules, and components for packaging and distributing our finished products. We typically buy raw materials in bulk from a limited number of qualified vendors located both within and outside the United States. During fiscal 2003, Carrington Laboratories Incorporated was our largest supplier, accounting for 35% of our total raw material purchases.

We test the materials we buy to ensure their quality, purity and potency before we use them in our products. During the fiscal year ended June 30, 2003, we did not experience any shortages or difficulties obtaining adequate supplies of raw materials and we do not anticipate any significant shortages or difficulties in the near term.

Major Customers

Most of our customers are marketing organizations that distribute a variety of nutritional and health related products throughout the United States, Europe and the Pacific Rim. NSA International, Inc. has been our largest customer over the past several years. During the fiscal year ended June 30, 2003, NSA International, Inc. accounted for approximately 43% of our net sales. Our second largest customer was Mannatech Incorporated, which accounted for approximately 27% of our net sales during fiscal 2003. No other customer accounted for 10% or more of our net sales during fiscal 2003.

Competition

We compete with other manufacturers and distributors of vitamins, minerals, herbs, and other nutritional supplements, as well as other health and personal care products, both within and outside the United States. The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements and other health and personal care products comes from many sources. These products are sold primarily through mass market retailers (drug store chains, supermarkets, and large chain discount retailers), health and natural food stores, and direct sales channels (mail order, network marketing and internet distribution companies). The products we produce for our private label contract manufacturing customers may compete with our direct-to-consumer products, although we believe any competition will be limited.

We believe competition in our industry is based on, among other things, price, delivery, product quality and safety, innovation and customer service. We believe we compete favorably with other companies because of our comprehensive approach to customer service and our commitment to innovation, quality and safety through our research and development activities. Our future position in the industry will likely depend on, but not be limited to the following:

The nutritional supplement industry is highly competitive and we expect the level of competition to remain high over the near term. We do not believe it is possible to accurately estimate the number or size of our competitors. The industry has undergone consolidation in the recent past and we expect that trend to continue in the near term.

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Government Regulation

Our business is subject to varying degrees of regulation by a number of government authorities in the United States, including the United States Food and Drug Administration (FDA), the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the United States Department of Agriculture, and the Environmental Protection Agency. Various agencies of the state and localities in which we operate and in which our products are sold also regulate our business, such as the California Department of Health Services, Food and Drug Branch. The areas of our business that these and other authorities regulate include, among others:

The FDA, in particular, regulates the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and sale of vitamin and other nutritional supplements in the United States, while the FTC regulates marketing and advertising claims. The FDA issued a final rule called “Statements Made for Dietary Supplements Concerning the Effect of the Product on the Structure or Function of the Body,” which includes regulations requiring companies, their suppliers and manufacturers to meet Good Manufacturing Practices in the preparation, packaging, storage and shipment of their products. The FDA also published a Notice of Advance Rule Making for Good Manufacturing Practices that would require manufacturing of dietary supplements to follow Good Manufacturing Practices. While the final regulations are subject to revision, we are committed to meeting or exceeding the standards set by the FDA.

The FDA has also issued regulations governing the labeling and marketing of dietary and nutritional supplement products. They include:

The Dietary Supplement Health and Education Act of 1994 (DSHEA) revised the provisions of the Federal Food, Drug and Cosmetic Act concerning the composition and labeling of dietary supplements and defined dietary supplements to include vitamins, minerals, herbs, amino acids and other dietary substances used to supplement diets. DSHEA generally provides a regulatory framework to help ensure safe, quality dietary supplements and the dissemination of accurate information about such products. Under DSHEA, companies must provide evidence that a dietary supplement is reasonably safe. The FDA is generally prohibited from regulating active ingredients in dietary supplements as drugs unless product claims, such as claims that a product may heal, mitigate, cure or prevent an illness, disease or malady, trigger drug status.

We are also subject to a variety of other regulations in the United States, including those relating to taxes, labor and employment, import and export, the environment and intellectual property.

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Our operations outside the United States are similarly regulated by various agencies and entities in the countries in which we operate and in which our products are sold. The regulations of these countries may conflict with those in the United States and may vary from country to country. The sale of our products in Europe is subject to the rules and regulations of the European Union, which may be interpreted differently among the countries within the union. In markets outside the United States, we may be required to obtain approvals, licenses, or certifications from a country’s ministry of health or comparable agency before we begin operations or the marketing of products in that country. Approvals or licenses may be conditioned on reformulation of our products for a particular market or may be unavailable for certain products or product ingredients. These regulations may limit our ability to enter certain markets outside the United States.

Intellectual Property

Trademarks. We have developed and use registered trademarks in our business, particularly relating to corporate and product names. We own 19 trademark registrations in the United States and 10 trademark applications pending with the United States Patent and Trademark Office. Federal registration of a trademark enables the registered owner of the mark to bar the unauthorized use of the registered mark in connection with a similar product in the same channels of trade by any third party anywhere in the United States, regardless of whether the registered owner has ever used the trademark in the area where the unauthorized use occurs.

We have filed applications and own trademark registrations and intend to register additional trademarks in foreign countries where products are or may be sold in the future. Currently, we have five trademark applications filed with the Japan Trademark Office.

We also claim ownership and protection of certain product names, unregistered trademarks and service marks under common law. Common law trademark rights do not provide the same level of protection afforded by registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to our recognition and the marketing of our products and that these proprietary rights have been and will continue to be important in enabling us to compete.

Trade Secrets. We own certain intellectual property, including trade secrets, that we seek to protect, in part, through confidentiality agreements with employees and other parties, although some employees involved in research and development activities have not entered into these agreements. Although we regard our proprietary technology, trade secrets, trademarks and similar intellectual property as critical to our success, we rely on a combination of trade secrets, contract, patent, copyright and trademark law to establish and protect our rights in our products and technology. In addition, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the United States.

Patent Licenses. We have licensed exclusive worldwide rights to three certain United States patents, and each patent’s corresponding foreign patent application, and are currently involved in research and development of products employing the licensed inventions.

Backlogs

Our backlog was approximately $10.1 million at September 2, 2003 and September 5, 2002, respectively. Our sales are made primarily pursuant to standard purchase orders for the delivery of products. Quantities of our products to be delivered and delivery schedules are frequently revised to reflect changes in our customers’ needs. Customer orders generally can be cancelled or rescheduled without significant penalty to the customer. For these reasons, our backlog as of any particular date is not representative of actual sales for any succeeding period, and therefore, we believe that backlog is not necessarily a good indicator of future revenue.

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Employees

As of June 30, 2003, we employed 175 full-time employees in the United States, 6 of whom held executive management positions. Of the remaining full-time employees, 23 were employed in research, laboratory and quality control, 9 in sales and marketing, and 137 in manufacturing and administration. From time to time we use temporary personnel to help us meet short-term operating requirements. These positions typically are in manufacturing and manufacturing support. As of June 30, 2003, we had approximately 12 temporary personnel.

In January 2003, Randell Weaver was promoted from Executive Vice President and Chief Operating Officer to President. John Reaves was promoted from Vice President of Finance to Chief Financial Officer.

As of June 30, 2003, NAIE employed 24 full-time employees. Most of these positions are in the areas of manufacturing and manufacturing support.

Our employees are not represented by a collective bargaining agreement and we have not experienced any work stoppages as a result of labor disputes. We believe our relationship with our employees is good.

Seasonality

We believe there is no material impact on our business or results of operations from seasonal factors.

Financial Information about Our Business Segment and Geographic Areas

Our business consists of one industry segment, the development, manufacturing, marketing and distribution of nutritional supplements and other health and personal care products. It is grouped into two geographic areas, the United States and all other markets outside the United States. Our primary market outside the United States is Europe.

For the last three fiscal years, the percentage of our net sales to customers in markets outside the United States and the percentage of our net sales from products manufactured by NAIE for customers within the European market were as follows:

For additional financial information about our business segment and geographic areas, please see the notes to the consolidated financial statements included under Item 8 of this report.

As we continue to expand into markets outside the United States, we will become increasingly subject to political, economic and other risks in the countries in which the products are sold and in which we operate. For more information about these and other risks, please see Items 7 and 7A in this report.

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This table summarizes our facilities as of June 30, 2003. We believe our facilities are adequate to meet our operating requirements for the foreseeable future.

We believe we have adequate capacity in our domestic and Swiss facilities for current and foreseeable business requirements.

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to product liability, employment, intellectual property, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties. While unfavorable outcomes are possible, we believe the resolution of these matters, individually or in the aggregate, will not result in a material adverse effect on our business, financial condition or results of operations.

As of September 17, 2003, neither NAI nor its subsidiaries were a party to any material pending legal proceedings nor was any of their property the subject of any material pending legal proceedings.

We did not submit any matters to our stockholders for a vote during the fourth quarter ended June 30, 2003.

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PART II

Market Information

Our common stock trades on the Nasdaq National Market under the symbol “NAII.” Below are the high and low closing prices of our common stock as reported on the Nasdaq National Market for each quarter of the fiscal years ended June 30, 2003 and 2002:

Holders

As of September 17, 2003, there were approximately 408 stockholders of record of our common stock.

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 help provide funds for future growth.

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Securities Authorized for Issuance Under Equity Compensation Plans

Recent Sales of Unregistered Securities

During the fiscal year ended June 30, 2003, we did not sell any unregistered securities.

The following tables contain certain financial information about NAI, including its subsidiaries. When you review this information, you should keep in mind that it is historical. Our future financial condition and results of operations will vary based on a variety of factors. You should carefully review the following information together with the information on risks under Item 7 and elsewhere in this report, and our consolidated financial statements included in this report under Item 8.

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Annual Financial Data