TABLE OF CONTENTS

 

		Page
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		1
PART I
Item 1.	Business	2
Item 1A.	Risk Factors	9
Item 2.	Properties	16
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosures	16
PART II
Item 5.	Market for Our Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	23
Item 8.	Financial Statements and Supplementary Data	24
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	47
Item 9A.	Controls and Procedures	47
Item 9B.	Other Information	47
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	48
Item 11.	Executive Compensation	48
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	48
Item 13.	Certain Relationships and Related Transactions, and Director Independence	48
Item 14.	Principal Accountant Fees and Services	48
PART IV
Item 15.	Exhibits and Financial Statement Schedules	48
SIGNATURES		51

 

 

 

SPECIAL NOTE ABOUT 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, intentions, plans, goals, 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,” “forecasts,” or “projects,” or the negative or other variation of such words, and similar expressions may identify a statement as a forward-looking statement. Any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, our goals, strategies, focus and plans, and other characterizations of future events or circumstances, including statements expressing general optimism or pessimism about future operating results, are forward-looking statements. Forward-looking statements in this report may include statements about:

 

	•	the impact of the COVID-19 Pandemic (“COVID-19”), and other external factors, both within and outside of our control, on our business and results in operations, our employees, our supply chain and on our vendors and our customers;
	•	future financial and operating results, including projections of net sales, revenue, income or loss, net income or loss per share, profit margins, expenditures, liquidity, and other financial results;
	•	our ability to maintain or increase our patent and trademark licensing revenues;
	•	our ability to develop market acceptance for and increase sales of new products, develop relationships with new customers and maintain or improve existing customer relationships;
	•	inventory levels, including the adequacy of quality raw material and other inventory items to meet future customer demand, in particular assumptions regarding the impact of the COVID-19 pandemic;
	•	our ability to protect our intellectual property;
	•	future economic and political conditions, including implementation of new or increased tariffs;
	•	our ability to improve operating efficiencies, manage costs and business risks and improve or maintain profitability;
	•	currency exchange rates, their effect on our results of operations, (including amounts that may be reclassified as earnings), the availability of foreign exchange facilities, our ability to effectively hedge against foreign exchange risks and the extent to which we may seek to hedge against such risks;
	•	the outcome of currently pending litigation, regulatory and tax matters, the costs associated with such matters and the effect of such matters on our business and results of operations;
	•	sources and availability of raw materials, including the limited number of suppliers of beta-alanine meeting our quality requirements;
	•	the future adequacy and intended use of our facilities;
	•	potential manufacturing and distribution channels, product returns, and potential product recalls;
	•	future customer orders;
	•	the impact of external factors on our business and results of operations, especially variations in quarterly net sales from seasonal and other factors;
	•	our ability to operate within the standards set by the U.S. Food and Drug Administration’s (FDA) Good Manufacturing Practices (GMP);
	•	our ability to successfully expand our operations, including outside the United States (U.S.);
	•	the adequacy of our financial reserves and allowances;
	•	the sufficiency of our available cash, cash equivalents, and potential cash flows from operations to fund our working capital needs and capital expenditures through the next 12 months and longer;
	•	the impact of accounting pronouncements and our adoption of certain accounting guidance; and
	•	other assumptions described in this report underlying or relating to any forward-looking statements.

 

The forward-looking statements in this report speak only as of the date of this report and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks, and uncertainties that are or 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 1A of Part I and elsewhere in this report, as well as in other reports and documents we file with the United States Securities and Exchange Commission (SEC).

 

 

 

PART I

 

ITEM  1.

BUSINESS

 

General

 

Our vision is to enrich the world through the best of nutrition.

 

We are a leading formulator, manufacturer and marketer of nutritional supplements. Our comprehensive strategic partnerships with our customers allow us to offer a wide range of innovative nutritional products and services to such customers including: scientific research, clinical studies, proprietary ingredients, customer-specific nutritional product formulation, product testing and evaluation, marketing management and support, packaging and delivery system design, regulatory review, and international product registration assistance.

 

As our primary business activity, we provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbal and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We also own a patent estate related to the raw material ingredient known as beta-alanine, which is primarily commercialized through the direct sale of this raw material and supply agreements with third parties for the distribution and use of this raw material under our CarnoSyn® and SR CarnoSyn® trademarks.

 

History

 

Originally founded in 1980, Natural Alternatives International, Inc. (NAI) reorganized as a Delaware corporation in 1989. Our principal executive offices are located at 1535 Faraday Ave, Carlsbad, CA 92008. Our U.S. manufacturing facility is located approximately three miles away in Vista, California.

 

In January 1999, we formed Natural Alternatives International Europe S.A. (NAIE), a Swiss corporation, and our wholly-owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened its manufacturing facility in Manno, Switzerland, which has grown over the ensuing years and currently possesses manufacturing capabilities in encapsulation, powders, tablets, finished goods packaging, quality control, laboratory testing, warehousing, and distribution and administration.

 

In 1997, we obtained certain patent rights related to instant-release beta-alanine and have since expanded this patent estate to include sustained-release beta-alanine. We sell these products under our trademarks CarnoSyn® and SR CarnoSyn®. As part of our business strategy, we have sought to commercialize our CarnoSyn® patent estate through contract manufacturing and royalty and license agreements. We directly sell beta-alanine and license our related patent and trademark rights to others for use in or with their products.

 

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, other than “NAI” and as applicable, to NAIE.

 

Overview of our Facilities and Operations

 

Our U.S.-based operations are located in Vista and Carlsbad, California and include manufacturing and distribution, sales and marketing, in-house formulation, laboratory, and other research and development services. Our U.S. manufacturing facilities were recertified on November 8, 2016 by the Therapeutic Goods Administration (TGA) of Australia after its audit of our GMP’s. 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 also conducts a range of assessment and monitoring activities including audits of the manufacturing practices of companies who export and sell products to Australia. 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. TGA certifications are generally reviewed every eighteen to thirty six months. During August 2016, TGA completed an inspection of our facilities and quality systems for compliance with good manufacturing practices, and a renewed GMP clearance was issued to NAI that would have expired on August 3, 2020. However, due to the COVID-19 pandemic, TGA overseas GMP inspections have been suspended and as a result, at this time, NAI has been issued a 6-month extension of its current GMP clearance certificate.

 

Our California facilities also have been awarded GMP registration annually since October 2002 by NSF International (NSF) through the NSF Dietary Supplements Certification Program and received “GMP for Sport” NSF Certified registration on February 16, 2009. GMP requirements are regulatory standards and guidelines setting forth necessary processes, procedures and documentation for manufacturers in an effort to assure the products produced by that manufacturer have the identity, strength, composition, quality and purity represented. The NSF Certified for Sport program focuses on minimizing the risk that a dietary supplement or sports nutrition product contains banned substances and was developed due to growing demand from athletes and coaches concerned about banned substances in sports supplements.  The program focuses primarily on manufacturing and sourcing processes, while embedding preventative measures throughout.  NAI’s participation in the program allows us to produce products bearing the NSF Sport logo.

 

Our U.S. operations have also been certified by Health Canada as compliant with the GMP requirements outlined in Part 3 of the Canadian Natural Health Products Regulations.  Health Canada is the department of the Canadian government with responsibility for national public health.  Health Canada has initiated work to modernize its regulatory system for food and health products.  Health Canada plays an active role in ensuring access to safe and effective drugs and health products while giving high priority to public safety and strives to provide information needed to make good choices and informed decisions regarding one’s health.  NAI was issued its initial certification by Health Canada in December 2011 and received its most recent renewal in November 2019, which is valid until December 2022.  This approval demonstrates another level of regulatory compliance by NAI, and may also ease the approval process for our customers who import products into Canada.

 

 

During March 2015, our Vista California facility became certified as an Organic Processor and Handler by Natural Food Certifiers (NFC).  This certification demonstrates our facility meets the USDA National Organic Program standards and allows our contract manufacturing and packaging services to include products labeled as Organic.  The certification requires annual renewal and was last renewed in November 2019. We are registered with the State of California, Department of Public Health Food and Drug Branch as an organic processor. Additionally, we are certified by various Rabbinical and Halal authorities to produce Kosher and Halal certified products. These certifications guarantee the manufacturing facility and processes for, and the ingredients of, certified products have been reviewed and found to be in compliance with the strict dietary laws of the respective Jewish and Muslim communities.

 

NAIE operates a manufacturing, warehousing, packaging and distribution facility in Manno, Switzerland. In January 2004, NAIE obtained a pharmaceutical license from the Swissmedic Authority of Bern, Switzerland to process pharmaceuticals for packaging, import, export and sale within Switzerland and other countries. In March 2007, following the expansion of NAIE’s manufacturing facilities to include powder filling capabilities, NAIE obtained an additional pharmaceutical license from the Swissmedic Authority certifying that NAIE’s expanded facilities conform to their GMPs. In January 2013, following the additional upgrade of NAIE’s manufacturing facilities to include the manufacture of pharmaceuticals, NAIE obtained an additional pharmaceutical approval from the Swissmedic Authority certifying that NAIE’s upgraded facilities conform to GMP. We believe these licenses and NAIE’s manufacturing capabilities help strengthen our relationships with existing customers and improve our ability to develop relationships with new customers. NAIE's last Swissmedic inspection was conducted in August 2020 and we expect the renewed certification to be issued in the second quarter of fiscal 2021.

 

In March 2019, the Japanese Minister of Health, Labor, and Welfare approved beta-alanine for use in Japanese food products. We have partnered with Shimizu Chemical Corporation of Hiroshima Japan to provide exclusive distribution of our CarnoSyn® and SR CarnoSyn® beta-alanine in Japan.

 

Business Strategy

 

Our goals are to achieve long-term growth and profitability and to diversify our sales base. To accomplish these goals, we have sought, and intend to continue to seek, to do the following:

 

•

leverage 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 to assist in developing relationships with additional quality oriented customers;

 

•

expand 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, and exploiting new contract manufacturing opportunities, license agreements while protecting our proprietary rights;

 

•

improve operational efficiencies and manage costs and business risks to improve profitability.

 

Overall, we believe there is an opportunity to enhance consumer confidence in the quality of our customer’s nutritional supplements and their adherence to label claims through education provided by direct sales and direct-to-consumer marketing programs. We believe our GMP and TGA certified manufacturing operations, science based product formulations, peer-reviewed clinical studies and regulatory expertise collectively provide us with a sustainable competitive advantage and provide our customers with a high degree of confidence in the products we manufacture.

 

While today’s consumer may have access to a variety of information, we believe many consumers remain uneducated about nutrition and nutritional supplementation, uncertain about the relevance or reliability of the information available to them, or confused about conflicting claims or information. We believe this state of the market creates a significant opportunity for the direct sales marketing channel. The direct sales marketing channel has proved, and we believe will continue to prove, to be a highly effective method for marketing high-quality nutritional supplements because it allows associates or other individuals to educate consumers on the benefits of science-based nutritional supplements. Our largest customers operate in the direct sales marketing channel. Thus, the majority of our business has relied primarily on the effectiveness of our customers in this marketing channel.

 

We also believe there is significant opportunity with the commercialization of our patent estate through the introduction of CarnoSyn® and SR CarnoSyn® beta-alanine into additional markets and with the introduction of new beta-alanine product offerings. Currently, a majority of our sales of CarnoSyn® are to companies that operate in the sports nutrition channel and are focused on products containing the instant release form of beta-alanine. We believe there are several other markets and distribution channels that represent growth opportunities for the distribution of CarnoSyn® and SR CarnoSyn® beta-alanine. We believe SR CarnoSyn® is a superior delivery system of CarnoSyn® beta-alanine based on its sustained release profile that allows for increased daily dosing and improved muscle retention of carnosine. We believe SR CarnoSyn® beta-alanine is a vital component in the further commercialization of our patent estate outside of the sports nutrition channel. Our patents related to instant release beta-alanine extend through 2026 while our patents for SR CarnoSyn® extend through 2027.

 

We believe our comprehensive approach to customer service is unique within our industry. We believe this comprehensive approach, together with our commitment to high quality, product development and manufacturing capabilities, will provide the means to implement our strategies 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 or diversify our sales, successfully commercialize our patent estate, or improve our overall financial results.

 

 

Products, Principal Markets and Methods of Distribution

 

Our primary business activity is to provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. Our private-label contract manufacturing customers include companies that market nutritional supplements through direct sales marketing channels, direct to consumer ecommerce channels, and retail stores. We manufacture products in a variety of forms, including capsules, tablets, chewable wafers, and powders to accommodate a variety of our customer’s preferences.

 

We provide strategic partnering services to our private-label contract manufacturing customers that include but are not limited to the following:

 

	•	customized product formulation;
	•	clinical studies;
	•	manufacturing;
	•	marketing support;
	•	international regulatory and label law compliance;
	•	international product registration; and
	•	packaging in multiple formats and labeling design.

 

We also seek to commercialize our patent and trademarks through the direct distribution and sale of CarnoSyn® and SR CarnoSyn®, new contract manufacturing opportunities, and various license and similar arrangements.

 

For the last two fiscal years ended June 30, our net sales were derived from the following (in thousands):

 

		2020								2019
			$			%					$			%
Private-label Contract Manufacturing		$	106,291				89			$	121,598				88
Patent and Trademark Licensing			12,585				11				16,692				12
Total Net Sales		$	118,876				100			$	138,290				100

 

Research and Development

 

We are committed to quality research and development. We focus on the development of new science-based products and the improvement of existing products. We periodically test and validate our products to help ensure their stability, potency, efficacy and safety. We maintain quality control procedures to verify that our products comply with applicable specifications and standards established by the FDA and other regulatory agencies. We also both direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of an ingredient or a product and provide scientific support for product claims and marketing initiatives. We believe our commitment to research and development, as well as to 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, but are not required to perform, certain research and development activities related to the development or improvement of their products. While our customers often do not pay directly for this service, the cost of this service is often included as a component of the price we charge to manufacture and deliver their products. Research and development costs, including costs associated with international regulatory compliance services we provide to our customers, are expensed as incurred.

 

Our research and development expenses for the fiscal year ended June 30, 2020 remained consistent at $1.8 million, compared to the same amount for the fiscal year ended June 30, 2019.

 

Sources and Availability of Raw Materials

 

We use many raw materials in our operations including powders, excipients, empty capsules, and components for packaging and distributing our finished products. In addition, the commercialization of our beta-alanine patents and trademarks depends on the availability of the raw material beta-alanine. We conduct identity testing for all raw materials we purchase and, on a predetermined testing protocol basis, we evaluate raw materials to ensure their quality, purity and potency before we use them in our products. We typically buy raw materials in bulk from qualified vendors located both within and outside the U.S.

 

Our contract manufacturing business did not experience any significant shortages or difficulties obtaining adequate supplies of raw materials during fiscal 2020. However, due to COVID-19 there continues to be significant pricing pressures and supply chain challenges associated with various raw materials and packaging components. Additionally, there still remains uncertainty related to existing and potentially increased tariffs. Throughout fiscal 2021, we expect upward pricing pressures for raw materials, packaging components, and other costs will continue as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, and the potential levy of tariffs on goods we import from overseas, including beta-alanine.

 

 

Customers

 

We have two private-label contract manufacturing customers that each individually represent more than 10% of our consolidated net sales. The loss of either of these customers could result in a significant negative impact to our financial position and results of operations. We continue to focus on obtaining new private-label contract manufacturing customers to reduce the risks associated with deriving a significant portion of our sales from a limited number of customers.

 

Competition

 

We compete with other manufacturers, distributors and marketers of vitamins, minerals, plant extracts, and other nutritional supplements both within and outside the U.S. The nutritional supplement industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources. These products are sold primarily through retailers (drug store chains, supermarkets, and mass market discount retailers), health and natural food stores, and direct sales channels (network marketing and internet sales).

 

We believe private-label contract manufacturing competition in our industry is based on, among other things, customized services offered, product quality and safety, innovation, price and customer service. We believe we compete favorably with other companies because of our ability to provide comprehensive solutions for customers, our certified manufacturing operations, our commitment to quality and safety, and our research and development activities.

 

Our future competitive position for private-label contract manufacturing and patent and trademark licensing will likely depend on, but not be limited to, the following:

 

•

the continued acceptance of our products by our customers and consumers;

 

•

our ability to protect our proprietary rights in our patent estate and the continued validity of such patents;

 

•

our ability to successfully expand our product offerings related to our patent and trademark estate;

 

•

our ability to maintain adequate inventory levels to meet our customer’s demands;

 

•

our ability to continue to manufacture high quality products at competitive prices;

 

•

our ability to attract and retain qualified personnel;

 

•

the effect of any future governmental regulations on our products and business;

 

•

the results of, and publicity from, product safety and performance studies performed by governments and other research institutions;

 

•

the continued growth of the global nutrition industry; and

 

•

our ability to respond to changes within the industry and consumer demand, financially and otherwise.

 

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

 

 

Government Regulation

 

Our business is subject to varying degrees of regulation by a number of government authorities in the U.S., including the FDA, the Federal Trade Commission (FTC), the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency. Various state and local agencies in areas where 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 regulated by both these and other authorities include, among others:

 

•

product claims and advertising;

 

•

product labels;

 

•

product ingredients;

 

•

how we manufacture, package, distribute, import, export, sell and store our products; and

 

•

our classification as an essential business and our right to continue operations during government shutdowns.

 

The FDA, in particular, regulates the formulation, manufacturing, packaging, storage, labeling, promotion, distribution and sale of vitamins and other nutritional supplements in the U.S., while the FTC regulates marketing and advertising claims. In August 2007, a rule issued by the FDA went into effect requiring companies that manufacture, package, label, distribute or hold nutritional supplements to meet certain GMP’s to ensure such products are of the quality specified and are properly packaged and labeled. We are committed to meeting or exceeding the standards set by the FDA and believe we are currently operating within the FDA mandated GMP.

 

The FDA also regulates the labeling and marketing of dietary supplements and nutritional products, including the following:

 

•

the identification of dietary supplements or nutritional products and their nutrition and ingredient labeling;

 

•

requirements related to the wording used for claims about nutrients, health claims, and statements of nutritional support;

 

•

labeling requirements for dietary supplements or nutritional products for which “high potency” and “antioxidant” claims are made;

 

•

notification procedures for statements on dietary supplements or nutritional products; and

 

•

premarket notification procedures for new dietary ingredients in nutritional supplements.

 

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 re-defined dietary supplements to include vitamins, minerals, herbs, amino acids and other dietary substances. DSHEA generally provides a regulatory framework to help ensure safe, quality dietary supplements and the dissemination of accurate information about such products. The FDA is generally prohibited from regulating active ingredients in dietary supplements as drugs unless product claims about such supplements trigger regulatory status, such as claims that a product may heal, mitigate, cure or prevent an illness, disease or malady.

 

In December 2006, the Dietary Supplement and Nonprescription Drug Consumer Protection Act (the "2006 Act") was passed, and further revised the provisions of the Federal Food, Drug and Cosmetic Act. Under the 2006 Act, manufacturers, packers or distributors whose name appears on the product label of a dietary supplement or nonprescription drug are required to include contact information on the product label for consumers to use in reporting adverse events associated with the product’s use and to notify the FDA of any serious adverse event report. Events reported to the FDA are not considered an admission from a company that its product caused or contributed to the reported event. We believe we are in compliance with the 2006 Act and we are committed to meeting or exceeding the requirements of the 2006 Act.

 

We are also subject to a variety of other regulations in the U.S., including those relating to health, safety, bioterrorism, taxes, labor, employment, import and export, the environment and intellectual property. All of these regulations require significant financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite our best efforts to do so or that being in compliance will not become prohibitively costly to our business.

 

 

Our operations outside the U.S. 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 U.S. and may vary from country to country. The sale of our products in certain European countries is subject to the rules and regulations of the European Union, which may be interpreted differently among the countries within the European Union. In other markets outside the U.S., 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, or continue to operate in, certain markets outside the U.S. As with the costs of regulatory compliance in the U.S., foreign regulations require significant financial and operational resources to ensure compliance, and we cannot assure you we will always be in compliance despite our best efforts to do so or that being in compliance will not become prohibitively costly to our business. Our failure to maintain regulatory compliance within and outside the U.S. could impact our ability to sell our products and thus, adversely impact our financial position and results of operations.

  

Intellectual Property

 

Trademarks. We have developed and use trademarks in our business, particularly relating to corporate, brand and product names. We own 48 trademark registrations; including ten registrations in the U.S. Six of these U.S. registrations are incontestable. Federal registration of a trademark in the United States affords the owner nationwide exclusive trademark rights in the registered mark and the ability to prevent subsequent users from using the same or similar mark. However, to the extent any other business operator has acquired trademark rights in a mark by its consistent use of such mark in connection with similar goods or services in a particular geographic area, the nationwide rights conferred by federal registration can be subject to that user’s prior established non-statutory (“Common Law”) rights in that geographic area. In addition, rights in a registered mark are dependent upon the continued use of the mark in connection with the goods and/or services set forth in the registration.

 

We have 37 foreign trademark registrations covering 41 countries including registrations for CarnoSyn and SR CarnoSyn in Australia, Brazil, Canada, China, Cuba, the European Union Intellectual Property Office, Hong Kong, Israel, Japan, Mexico, New Zealand, Poland, and South Korea. Registrations have also been obtained for CarnoSyn® and the SR CarnoSyn® logos in Switzerland and for CarnoSyn SR® in Australia and the European Union. We currently have six U.S. trademark applications pending and three International applications pending. We also claim common law ownership and protection of certain unregistered trademarks and service marks based upon our continued use of the marks under common law. In some countries, such as the United States, Common Law offers protection of a mark within the particular geographic area in which it is continually and deliberately used.

 

We believe our registered and unregistered trademarks constitute valuable assets, adding to the recognition of our products and services in the marketplace. These and other proprietary rights have been and will continue to be important in enabling us to compete; however, we cannot assure you that our current or future trademark applications will be granted or our current trademarks or registrations will be maintained.

 

Trade Secrets. We own certain intellectual property, including trade secrets, which we seek to protect, in part, through confidentiality agreements with employees and other parties. We regard our proprietary technology, trade secrets, trademarks and similar intellectual property as critical to our success, and we rely on a combination of trade secrets, contract, patent, copyright and trademark law (including established but non-statutory law) to establish and protect the rights in our products and technology. The laws of certain foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.

 

Patents and Patent Licenses. We currently own nine U.S. patents and eighteen corresponding patents registered in countries throughout North America, Europe and Asia. We also have pending applications in several countries. All of these patents and patent rights relate to the ingredient known as beta-alanine. Certain of these patents were assigned to NAI and we make certain ongoing royalty payments to the prior owners of the patents. The royalty payments and licenses are expected to continue until the expiration of the patents. We also sell beta-alanine, and license our patent and trademark rights related to beta-alanine. These patents extend through 2027.

 

Licensing, royalties, raw material sales, and revenues we have received associated with the sale and licensing of beta-alanine under the CarnoSyn® and SR CarnoSyn® trade names were primarily related to the direct sale of the raw material beta-alanine and totaled $12.6 million in fiscal 2020. We incurred intellectual property litigation and patent compliance expenses of approximately $2.0 million during fiscal 2020 primarily in connection with our efforts to procure and protect our proprietary rights and patent estate. We expect to continue to incur these types of litigation and compliance expenses during fiscal 2021.

 

 

Employees

 

As of June 30, 2020, we employed 175 full-time employees in the U.S., three of whom held executive management positions. Of the remaining full-time employees, 40 were employed in research, laboratory and quality control, 15 in sales and marketing, and 117 in manufacturing and administration. From time to time we use temporary personnel to help us meet shorter-term operating requirements. These positions typically are in manufacturing and manufacturing support. As of June 30, 2020, we had nine temporary personnel.

 

As of June 30, 2020, NAIE employed an additional 87 full-time employees and 54 temporary employees. Most of these positions were in the areas of manufacturing and manufacturing support.

 

In response to COVID-19, the state of California has taken measures intended to expand the availability of workers’ compensation or to change the presumptions applicable to workers compensation measures. These actions may increase our exposure to workers’ compensation claims and increase our cost of insurance. Additionally, the federal Families First Coronavirus Response Act (the “FFCRA”) expanded paid sick and family medical leave for employees affected by COVID-19. The FFCRA covers the cost of this paid leave with refundable tax credits. While we have yet to experience significant labor shortages due to COVID-19, there is no guarantee that we will be able to maintain or secure sufficient labor to continue manufacturing operations at needed levels.

 

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, but we cannot assure this will continue in the future.

 

Seasonality

 

In addition to general economic factors, we are impacted by seasonal factors and trends, such as major cultural events and vacation patterns. We manufacture and sell products to customers that operate in many different countries throughout the world and these seasonal factors vary by region. Although we believe the impact of seasonality on our consolidated results of operations is minimal, our quarterly results may vary significantly in the future due to the timing of private-label contract manufacturing and CarnoSyn® and SR CarnoSyn® beta-alanine raw material orders. We cannot provide assurances future revenue trends will follow historical patterns. The market price of our common stock may be adversely affected by these seasonal factors.

 

Financial Information about Our Business Segments and Geographic Areas

 

Our operations are comprised of two reportable segments:

 

•

Private-label contract manufacturing, in which we primarily provide manufacturing services to companies that market and distribute nutritional supplements and other health care products.

 

•

Royalty, licensing, and raw material sales associated with the sale and license of beta-alanine under our CarnoSyn® and SR CarnoSyn® trademarks.

 

Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe, Australia, Asia and Canada. Our primary markets outside the U.S. are Europe and Asia. Our patent and trademark licensing activities are primarily based in the U.S.

 

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

 

Our activities in markets outside the U.S. are subject to political, economic and other risks in the countries in which our products are sold and in which we operate. For more information about these and other risks, please see Item 1A in this report.

 

 

ITEM 1A.

RISK FACTORS

 

When evaluating our business and future prospects, you should carefully review and consider the risks described below in conjunction with other information in this report and in other reports and documents we file with the SEC. The risks and uncertainties described below are not the only ones we face. Additional material risks and uncertainties, not presently known to us, or that we currently see as immaterial, may also occur or become material. If any of the following risks or any additional risks and uncertainties actually occur or become material, our business, financial condition and results of operations could be seriously harmed. In that event, the market price of our common stock could decline and our stockholders could lose all or a portion of the value of their investment in our common stock. 

 

The COVID-19 pandemic has significantly impacted worldwide economic conditions and could have a material adverse effect on our operations and business. 

 

While our facilities have been able to continue to operate, the global COVID-19 pandemic has caused disruptions in supply chains, affecting production and sales across a range of industries. While the disruptions are currently expected to be temporary, there is considerable uncertainty around the duration and the impact of these disruptions.

 

The extent of the impact of COVID-19 on our operational and financial performance will depend on the on-going and future impact on our customers, vendors, and availability of labor as well as the potential impact of future expanded local, state, or federal restrictions – all of which are uncertain and are difficult to predict. 

 

Out of an abundance of caution with regard to the COVID-19 pandemic and to increase our liquidity in response to the unknown risk from the pandemic, its potential to have a material negative impact on our business and as a preventative  measure to provide our business with the potentially needed additional liquidity resulting from such negative impact, we withdrew $10 million from our credit facility with Wells Fargo in the third quarter of fiscal 2020. 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 do so. However, there can be no assurance we will be able to obtain additional working capital in the amounts or in the timing that may become necessary, which could adversely affect our financial condition and results of operations.

 

Because we derive a significant portion of our revenues from a limited number of customers, our revenues would be adversely affected by the loss of a major customer or a significant change in their business, personnel or the timing or amount of their orders.

 

We have in the past and expect to continue to derive a significant portion of our revenues from a relatively limited number of customers. During the fiscal year ended June 30, 2020, sales to our largest customer, The Juice Plus+ Company, were approximately 44% of our consolidated net sales. During fiscal 2020, sales to Juice Plus+ declined 23% primarily as a result of reduced customer demand, and we cannot predict if sales to Juice Plus+ will increase or decrease in the future. We also have one other private-label contract manufacturing customer that represented 21% of our consolidated net sales during that same time period. During fiscal 2020 we terminated our ongoing relationship with one private-label contract manufacturing customer who in some recent times had been greater than 10% of our consolidated net sales.  Due to uncertainty regarding the future operations of this former customer we recorded a $4.3 million accounts receivable and inventory reserve during fiscal 2020.  Sales to this discontinued customer were $7.0 million in fiscal 2020 and there is no assurance we will replace those sales.

 

Although no other customers represented more than 10% of our consolidated net sales, the loss of one of our largest customers, or other major customers, a significant decline in sales to any of our largest customers, a significant change in their business model or personnel, or in their ability to make payments when due, could materially and adversely affect our financial condition and results of operations. The timing of our customers’ orders is impacted by, among other factors, their marketing programs, their customer demand, seasonality, their raw material suppliers we are sometimes required to use, their supply chain management, their entry into new markets and their new product introductions, all of which are outside of our control. All of these attributes have had and are expected to have a significant impact on our business in the future.

 

Our future growth and stability depends, in part, on our ability to diversify our sales. Our efforts to establish new sales from both existing customers and new customers could require significant initial investments, which may or may not result in higher overall sales and improved financial results.

 

Our business strategy depends in large part on our ability to develop new product sales from both current and new customer relationships. These activities often require a significant up-front investment including, among others, customized formulations, compliance with a different regulatory schemes, product registrations, package design, product testing, pilot production runs, and the build-up of initial inventory. We may experience significant delays from the time we increase our operating expenses and make investments in inventory (and incur additional related carrying costs) until the time we generate net sales from new products or customers, and it is possible after incurring such expenditures we may not generate material revenue from new products or customers. If we incur significant expenses and investments in inventory that we are not able to recover, and we are not able to compensate for those expenses, our operating results would be adversely affected.

 

 

We currently derive significant revenues and income from sales of beta-alanine and from licensing our patents. Our ability to maintain or grow our sales of beta-alanine and license revenue from our other patents is contingent on our ability to continue to defend our patents, and commercialize the sale of beta-alanine under our instant release CarnoSyn® patents and trademark and our sustained release CarnoSyn® patents and trademark.

 

We own multiple patents and trademarks related to the use of beta-alanine in food and nutritional supplements. A majority of our revenue and income from this segment is currently derived from activity related to licensing our patents associated with instant release beta-alanine, sold under our trade name CarnoSyn®. Fifteen patents related to CarnoSyn® expired in August 2017 and we have six remaining patents for this version of CarnoSyn®, of which the latest expires in 2026. Our patent and trademark licensing revenue decreased from $16.7 million in fiscal 2019 to $12.6 million in fiscal 2020 in part due to certain of our customers discontinuing the use of our CarnoSyn® beta-alanine in favor of generic beta-alanine. There is no assurance we will be successful maintaining our historical CarnoSyn® instant release beta-alanine sales levels or growing future sales volumes with our remaining CarnoSyn® instant release patent estate. If we are not successful it could have a material adverse effect on our business, results of operations, and financial condition.

 

We believe SR CarnoSyn® is a superior delivery system for CarnoSyn® beta-alanine based on its sustained release profile that allows for increased daily dosing and improved muscle retention of carnosine. Our patents related to SR CarnoSyn® extend through 2027 and we believe the introduction of SR CarnoSyn® beta-alanine is an important step in the further commercialization of our patent estate. There can be no assurance that we will be successful in getting the market to transition to this new form of beta-alanine or that we will be successful launching new products utilizing SR CarnoSyn® beta-alanine. If we are not successful in either one of these goals, it could have a material adverse effect on our business, results of operations, and financial condition.

 

We may continue to incur significant costs in the course of creating and defending our intellectual property. We may be unable to protect our intellectual property rights or may inadvertently infringe on the intellectual property rights of others.

 

We possess and may possess in the future certain proprietary technology, trade secrets, trademarks, trade names, licenses, patents, and similar intellectual property. We may continue to incur significant patent and trademark litigation costs associated with creating and defending our intellectual property. During fiscal 2020, we incurred approximately $2.0 million in patent litigation and prosecution expense and expect these expenses to be between $1.0 million and $1.5 million during fiscal 2021. There is no assurance we will be able to create new intellectual property, protect our existing intellectual property adequately or that our intellectual property rights will be upheld. If, as we have been in the past, we are again subject to legal proceedings seeking to invalidate our patent rights, such proceedings or the success of the efforts thereby could have a material adverse impact upon our financial condition and results of operations. Furthermore, the laws of certain foreign countries may not protect our intellectual property rights to the same extent as do the laws of the U.S. Additional litigation in the U.S. or abroad may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement. Such litigation, even if ultimately determined in our favor, could result in substantial additional costs and diversion of resources and could have a material adverse effect on our business, results of operations and financial condition. If infringement claims are asserted against us, we may seek to obtain a license to use the claiming third party’s intellectual property rights. There can be no assurance such a license would be available at all or available on terms acceptable or favorable to us.

 

Possible new tariffs on imported goods from China and elsewhere could adversely affect our business operations.

 

The United States has implemented new and increased tariffs on a wide range of goods and materials imported from China and other governments, in addition to tariffs previously imposed. These goods may include products and applications, including ingredients we or our customers require for their products, including beta-alanine.  Our ability to maintain or increase CarnoSyn® sales and licensing revenue depends on the availability of the raw material beta-alanine. In response, China and other governments have, or announced plans, to impose additional tariffs on certain American products if additional U.S. tariffs are imposed. Continuing or increased tariffs could have a material adverse effect on our customer’s businesses, the availability of beta-alanine, and the cost of our other products. While it is difficult to predict whether or how existing and additional potential tariffs will be imposed, or how tariffs will impact our business, we believe the imposition of additional tariffs by the U.S. or other governments on products we or our customers offer for sale, or ingredients we use in the products we manufacture could adversely impact our offerings and our customers, and such tariffs could have an adverse impact on the availability of raw materials we purchase including beta-alanine.

 

Such results could adversely impact our ability to license our patents and trademarks, our ability to sell beta-alanine, and our customers’ ability to compete in the market place, resulting in reduced demand for our products, and products we manufacture for our customers. Any of these events could have a material adverse effect on our business and results of operations.

 

 

Our operating results will vary. We experienced declines in net sales and incurred a loss in fiscal 2020 and there is no guarantee our sales will improve or we will earn a profit in future years. Fluctuations in our operating results may adversely affect the share price of our common stock.

 

Our net sales decreased during fiscal 2020 as compared to fiscal 2019, and there can be no assurance our net sales will improve in the near term, or we will earn a profit in any given year. We experienced a net loss in fiscal 2020 and may incur losses in the future. Our operating results may fluctuate from year to year and/or from quarter to quarter due to various factors including differences related to the timing of revenues and expenses for financial reporting purposes and other factors described in this report. At times, these fluctuations may be significant. We anticipate generating positive net income in fiscal 2021, although there is no assurance we will be able to do so. Fluctuations in our operating results may adversely affect the share price of our common stock.

 

Our products and manufacturing activities are subject to extensive government regulation, which could limit or prevent the sale of our products in some markets and could increase our costs.

 

The manufacturing, packaging, labeling, advertising, promotion, distribution, and sale of our products are subject to regulation by numerous national and local governmental agencies in the U.S. and in other countries. For example, we are required to comply with certain GMP and incur costs associated with the audit and certification of our facilities. Failure to comply with governmental regulations may result in, among other things, injunctions, product withdrawals, recalls, product seizures, fines, and criminal prosecutions. Any action of this type by a governmental agency could materially adversely affect our ability to successfully market our products and services. In addition, if such governmental agency has reason to believe the law is being violated (for example, if it believes we do not possess adequate substantiation for product claims), it can initiate an enforcement action. Governmental agency enforcement could result in orders requiring, among other things, limits on advertising, consumer redress, divestiture of assets, rescission of contracts, and such other relief as may be deemed necessary. Violation of these orders could result in substantial financial or other penalties. Any action by a governmental agency could materially adversely affect our ability and our customers’ ability to successfully market and continue selling the products involved.

 

Before commencing operations or marketing our products in markets outside the U.S., we are routinely required to obtain approvals, licenses, or certifications from a country’s ministry of health or comparable agency. Approvals or licensing may be conditioned on reformulation of products or even may be unavailable with respect to certain products or product ingredients. We must also comply with product labeling and packaging regulations that vary from country to country. Furthermore, the regulations of these countries may conflict with those in the U.S. and with each other. The sale of our products in certain European countries is subject to the rules and regulations of the European Union, which may be interpreted differently among the countries within the European Union. The cost of complying with these various and potentially conflicting regulations can be substantial and could adversely affect our results of operations.

 

As a result of the COVID-19 pandemic, our operations have been subjected to additional laws and regulations imposed by federal, state, and local governments and have primarily related to the ability for our employees to come to work and the safety measures that need to be in place in order for our facilities to remain operational. While we already had robust quality standards and procedures, we have had to constantly monitor these new regulations and implement additional procedures where necessary, including temperature checks, additional cleaning procedures, allowing administrative personnel to work remotely, etc. New or expanded regulations or our inability to continue operating as an essential business could adversely affect our results of operations.

 

We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations, when and if adopted, would have on our business. They could include new or revised requirements or restrictions related to the safe operation of our facilities due to the pandemic, or for the reformulation of certain products to meet new standards, the recall or discontinuance of certain products, additional compliance costs or record keeping requirements, expanded or different labeling, and additional scientific substantiation. Any or all of these requirements could have a material adverse effect on our operations.

 

A significant or prolonged economic downturn, could have, and at certain times in the past has had, a material adverse effect on our results of operations.

 

Our results of operations are affected by the level of business activity of our customers and licensees, which in turn is affected by the level of consumer demand for their products. A significant or prolonged economic downturn may adversely affect the disposable income of many consumers and may lower demand for the products we produce for our private-label contract manufacturing customers and products sold or manufactured by others using our licensed patent rights. Any decline in economic conditions in the U.S. and the various foreign markets in which our customers operate could negatively impact our customers’ businesses and our operations. A significant decline in consumer demand and the level of business activity of our customers, even if only due in part to general economic conditions, could have a material adverse effect on our revenues and profit margins.

 

 

The failure of our suppliers to supply quality materials in sufficient quantities, at a favorable price, and in a timely fashion could adversely affect the results of our operations.

 

We buy our raw materials from a limited number of suppliers. During fiscal 2020, one of our suppliers, Yasunaga Trading Company, LTD (Yasunaga), represented more than 10% of our total raw material purchases. During fiscal 2019, another of our suppliers, Capsugel Manufacturing LLC, represented more than 10% of our raw material purchases. Additionally, during fiscal 2019, we began only sourcing our beta-alanine from Japan through Yasunaga Trading Company. The loss of any of our major suppliers or of any supplier who provides us materials that are hard to obtain elsewhere at the same quality could adversely affect our business operations. Although we believe we could establish alternate sources for most of our raw materials, any delay in locating and establishing relationships with other sources could result in shortages of products we manufacture from such raw materials, with a resulting loss of sales and customers. In certain situations we may be required to alter our products or with our customer’s consent to substitute different materials from alternative sources.

 

A shortage of raw materials or an unexpected interruption of supply could also result in higher prices for those materials. We have experienced increases in various raw material costs, transportation costs and the cost of petroleum-based raw materials and packaging supplies used in our business. Increasing cost pricing pressures on raw materials and other products have continued throughout fiscal 2020 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, and impact of COVID-19. We expect these upward pressures to continue through fiscal 2021. Although we may be able to raise our prices in response to significant increases in the cost of raw materials, we may not be able to raise prices sufficiently or quickly enough to offset the negative effects such cost increases could have on our results of operations or financial condition.

 

There can be no assurance suppliers will provide the quality raw materials needed by us in the quantities requested or at a price we are willing to pay. Because we do not control the actual production of these raw materials, we are also subject to delays caused by interruption in production of materials including but not limited to those resulting from conditions outside of our control, such as pandemics, weather, transportation interruptions, strikes, terrorism, natural disasters, and other catastrophic events.

 

In addition, our efforts to maintain or increase sales of CarnoSyn® and SR CarnoSyn® and related supply agreements are substantially dependent on the availability of the raw material beta-alanine and sales of beta-alanine or products incorporating beta-alanine. The availability of beta-alanine, and thus sales of such raw material and products using such material, could be negatively impacted by any shortages, interruptions and similar events described above, which could in turn adversely affect the amount of revenue and profit margin we earn from the sale of beta-alanine.  Additional tariffs imposed by any government on beta-alanine could have an adverse impact on the price we have to pay for beta-alanine and the availability of beta-alanine.

 

Our industry is highly competitive and we may be unable to continue to compete effectively. Increased competition could adversely affect our financial condition.

 

The market for our products, and those of our customers, is highly competitive. Some of our competitors are larger than we are and have greater financial resources and broader name recognition than we do. Our competitors may be able to devote greater resources to research and development, marketing and other activities that could provide them with a competitive advantage. Our market has relatively low entry barriers and is highly sensitive to the introduction of new products that may rapidly capture significant market share. Our competitors may not stress the level of quality we provide and could manufacture with a lower level of quality at lower costs. Our competitors are largely private and not subject to the same disclosure requirements as a publicly traded company. If consumers do not perceive higher quality as worth a higher price, our revenue could suffer. Increased competition could result in price reductions, reduced profit margins or loss of market share, any of which could have a material adverse effect on our financial condition and results of operations. There can be no assurance we will be able to compete effectively in this intensely competitive environment.

 

We could be exposed to product liability claims or other litigation, which may be costly and could materially adversely affect our operations.

 

We could face financial liability due to product liability claims if the use of our products results in significant loss or injury. Additionally, the manufacture and sale of our products involves risk of injury to consumers from tampering by unauthorized third parties or product contamination. We could be exposed to future product liability claims that include, among others, assertions that: our products contain contaminants; we provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our products with other substances. Even if we were to prevail in any such claims, the cost of litigation and settlement could be significant.

 

We maintain product liability insurance coverage, including primary product liability and excess liability coverage. While we expect to be able to continue our product liability insurance, there can be no assurance we will in fact be able to continue such insurance coverage, or that such insurance coverage will be adequate to cover any liability we may incur, or that our insurance policies will continue to be available at a cost similar to our cost today, or even an economically reasonable cost.

 

Additionally, it is possible one or more of our insurers could exclude from our coverage certain ingredients used in our products. In such event, we may have to stop using those ingredients or rely on indemnification or similar arrangements with our customers who wish to continue to include those ingredients in their products. A substantial increase in our product liability risk or the loss of customers or product lines, or the failure of a customer to honor indemnification agreements each could have a material adverse effect on our results of operations and financial condition.

 

 

If we or our private-label contract manufacturing customers expand into additional markets outside the U.S. or our or their sales in markets outside the U.S. increase, our business could become increasingly subject to political, economic, regulatory and other risks in those markets, which could adversely affect our business.

 

Our future growth may depend, in part, on our ability and the ability of our private-label contract manufacturing customers, to expand into additional markets outside the U.S. or to improve sales in markets outside the U.S. There can be no assurance we or such customers will be able to expand in existing markets outside the U.S. or enter new markets on a timely basis, or that new markets outside the U.S. will be profitable. There are significant regulatory and legal barriers in markets outside the U.S. that must be overcome to enter and operate in such markets. We will be subject to the burden of complying with a wide variety of national and local laws, including multiple and possibly overlapping and conflicting laws. We also may experience difficulties adapting to new cultures, business customs and legal systems. Our sales and operations outside the U.S. are subject to political, economic and social uncertainties including, among others:

 

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changes and limits in import and export controls;

 

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increases in custom duties and tariffs;

 

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changes in government regulations and laws;

 

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coordination of geographically separated locations;

 

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absence in some jurisdictions of effective laws to protect our intellectual property rights;

 

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changes in currency exchange rates;

 

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economic and political instability; and

 

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currency transfer and other restrictions and regulations that may limit our ability to sell certain products or repatriate profits to the U.S.

 

Any changes related to these and other factors could adversely affect our business, profitability and growth prospects. If we or our customers expand into additional markets outside the U.S. or improve sales in markets outside the U.S., these and other risks associated with operations outside the U.S. will likely increase.

 

Our business is subject to the effects of adverse publicity, which could negatively affect our sales and revenues.

 

Our business can be affected by adverse publicity or negative public perception about us, our competitors, our customers, our products, or our industry or competitors generally. Adverse publicity may include publicity about the nutritional supplements industry generally, the efficacy, safety and quality of nutritional supplements and other health care products or ingredients in general or our products or ingredients specifically, and regulatory investigations, regardless of whether these investigations involve us or the business practices or products of our competitors, or our customers. Any adverse publicity or negative public perception could have a material adverse effect on our business, financial condition and results of operations. Our business, financial condition and results of operations could be adversely affected if any of our products or any similar products distributed by other companies are alleged to be or are proved to be harmful to consumers or to have unanticipated and unwanted health consequences.

 

If we are unable to attract and retain qualified management personnel, our business may suffer.

 

Our executive officers and other management personnel are primarily responsible for our day-to-day operations. We believe our success depends largely on our ability to attract, retain and motivate highly qualified management personnel. Competition for qualified individuals can be intense and has been increasing in recent years, and we may not be able to hire additional qualified personnel in a timely manner or on terms that would not substantially increase our costs. Any inability to retain a skilled professional management team could adversely affect our ability to successfully execute our business strategies and achieve our goals and objectives.

 

Our manufacturing and third party fulfillment activities are subject to certain risks.

 

We manufacture the majority of our products at our manufacturing facilities in California and Switzerland. As a result, we are dependent on the uninterrupted and efficient operation of these facilities. Our manufacturing operations, including those of our suppliers, are subject to power failures, blackouts, border shutdowns, telecommunications failures, computer viruses, cybersecurity vulnerabilities, human error, breakdown, failure or substandard performance of our facilities, our equipment, the improper installation or operation of equipment, terrorism, pandemics (including COVID-19), natural or other disasters, intentional acts of violence, and the need to comply with the requirements or directives of governmental agencies, including the FDA. In addition, we may in the future determine to expand or relocate our facilities, which may result in slowdowns or delays in our operations. While we have implemented and regularly evaluate various emergency, contingency and disaster recovery plans and we maintain business interruption insurance, there can be no assurance the occurrence of these or any other operational problems at our facilities in California or Switzerland would not have a material adverse effect on our business, financial condition and results of operations. Furthermore, there can be no assurance our contingency plans will prove to be adequate or successful if needed or our insurance will continue to be available at a reasonable cost or, if available, will be adequate to cover any losses that we may incur from an interruption in our manufacturing and distribution operations.

 

 

We outsource our beta-alanine fulfillment and distribution activities as well as certain manufacturing activities. The operation of the third party service provider’s facilities is subject to the interruption risk and other risks similar to those  described above for our facilities and there can be no assurance these interruptions or any other operational problem at such third party’s facilities would not have a material adverse effect on our business, financial condition and results of operations.

 

We may pursue acquisitions of other companies that, if not successful, could adversely affect our business, financial condition and results of operations.

 

We may pursue acquisitions of companies we believe could complement or expand our business, augment our market coverage, provide us with important relationships or otherwise offer us growth opportunities. Acquisitions involve numerous risks, including the following:

 

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potential difficulties related to integrating the products, personnel and operations of an acquired company;

 

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failure to operate efficiently as a combined organization utilizing common information and communication systems, operating procedures, financial controls and human resources practices;

 

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diverting management’s attention from other daily operations of the business;

 

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entering markets in which we have no or limited prior direct experience and where competitors in such markets have more experience and stronger market positions;

 

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potential loss of key employees of an acquired company;

 

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potential inability to achieve cost savings and other potential benefits expected from the acquisition;

 

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an uncertain sales and earnings stream from an acquired company; and

 

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potential impairment charges, which may be significant, against goodwill and purchased intangible assets acquired in an acquisition due to changes in conditions and circumstances that occur after the acquisition, many of which may be outside of our control.

 

There can be no assurance that acquisitions we may pursue will be successful. If we pursue an acquisition but are not successful in completing it, or if we complete an acquisition but are not successful in integrating an acquired company’s employees, products or operations successfully, our business, financial position or results of operations could be adversely affected.

 

Collectively, our officers and directors own a significant amount of our common stock, giving them influence over corporate transactions and other matters and potentially limiting the influence of other stockholders on important policy and management issues.

 

Our officers and directors, together with their families and affiliates, beneficially owned approximately 24% of our outstanding shares of common stock as of June 30, 2020. Approximately 16% of the outstanding shares of common stock are beneficially owned by Mark LeDoux, and his family and affiliates. Mr. LeDoux is our Chief Executive Officer and Chairman of the Board. As a result, our officers and directors, and in particular Mr. LeDoux, could influence such business matters as the election of directors and approval of significant corporate transactions.

 

Various transactions could be delayed, deferred, or prevented without the approval of stockholders, including the following:

 

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transactions resulting in a change in control;

 

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mergers and acquisitions;

 

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tender offers;

 

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election of directors; and

 

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proxy contests.

 

There can be no assurance that conflicts of interest will not arise with respect to the officers and directors who own shares of our common stock or that conflicts will be resolved in a manner favorable to us or our other stockholders.

 

 

We may not be able to raise additional capital or obtain additional financing if needed.

 

It is possible our cash from operations could become insufficient to meet our working capital needs and/or to implement our business strategies. In such an event, there can be no assurance our existing line of credit would be sufficient to meet our working capital needs, if the line has any credit still available when needed. We currently have taken all of the funds available under our line of credit. If we did have additional credit available and we fail to maintain certain loan covenants, we may no longer have access to our credit line. Under the terms of our credit facility, there are limits on our ability to create, incur or assume additional indebtedness without the approval of our lender. Our credit line terminates in November 2022 and there is no guarantee we will be able to extend or renew this credit line on favorable terms or at all.

 

We may consider issuing additional debt or equity securities in the future to fund potential acquisitions or investments, to refinance existing debt, or for general corporate purposes. If we issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses and potentially lowering our credit ratings. At any given time, it could be difficult for us to raise capital due to a variety of factors, some of which may be outside of our control, including a tightening of credit markets, overall poor performance of stock markets, and/or an economic slowdown in the U.S. or other countries, or in the businesses of our customers. There is no assurance we would be able to market such security issuances on favorable terms, or at all, in which case, if we did not have any alternate funds we might not be able to develop or enhance our products, execute our business plan, take advantage of future opportunities, respond to competitive pressures or meet unanticipated customer requirements.

 

Our inability to raise additional capital or to obtain additional financing if needed could negatively affect our ability to implement our business strategies and meet our goals. This, in turn, could adversely affect our financial condition and results of operations.

 

If certain provisions of our Certificate of Incorporation, Bylaws and Delaware law are triggered, the market for our shares may decrease.

 

Certain provisions in our Certificate of Incorporation, Bylaws and Delaware corporate law may discourage unsolicited proposals to acquire our business, even if such proposals would benefit our stockholders. Those provisions include one that authorizes our Board of Directors, without stockholder approval, to issue up to 500,000 shares of preferred stock having such rights, preferences, and privileges, including voting rights, as the Board of Directors designates. The rights of our common stockholders will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Any or all of these provisions could delay, deter or prevent a takeover of our company and could lower the price investors are willing to pay for our common stock and the number of investors willing to own our common stock.

 

Our stock price could fluctuate significantly.

 

Stock prices in general can be volatile and ours is no different. The trading price of our stock may fluctuate in response to the following, as well as other, factors including but not limited to factors outside of our control:

 

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broad market fluctuations and general economic and/or political conditions;

 

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fluctuations in our financial results;

 

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relatively low trading volumes;

 

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future offerings of our common stock or other securities;

 

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the general condition of the nutritional supplement industry;

 

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increased competition;

 

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regulatory action;

 

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adverse publicity;

 

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manipulative or illegal trading practices by third parties; and

 

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our and our customers' and suppliers' products and other public announcements.

 

The stock market has historically experienced significant price and volume fluctuations. There can be no assurance that an active market in our stock will continue to exist or that the price of our common stock will not decline. Our future operating results may be below the expectations of securities analysts and investors. If this were to occur, the price of our common stock could decline, perhaps substantially.

 

From time to time our shares may be listed for trading on one or more foreign exchanges, with or without our prior knowledge or consent. Certain foreign exchanges may have less stringent listing requirements, rules and enforcement procedures than the Nasdaq Global Market or other markets in the U.S., which may increase the potential for manipulative trading practices to occur on such foreign exchanges. These practices, or the perception by investors that such practices could occur, may increase the volatility of our stock price or result in a decline in our stock price, which in some cases could be significant.

 

 

ITEM 2.

PROPERTIES

 

This table summarizes our facilities as of June 30, 2020. We believe our facilities are adequate to meet our operating requirements for the foreseeable future.

 

Location	Nature of Use		Square Feet			How Held		Lease Expiration Date
Vista, CA USA(1),(2)	Manufacturing, warehousing, packaging and distribution			162,000		Leased		March 2024
Manno, Switzerland(3)	Manufacturing, warehousing, packaging and distribution			95,990		Leased		June 2024
Manno, Switzerland(4)	Warehousing			30,892		Leased		December 2023
Carlsbad, CA USA(5)	Corporate headquarters			20,981		Owned		N/A

 

(1)	This facility is used by NAI for its private-label contract manufacturing segment.

 

(2)	At this facility we use approximately 93,000 square feet for production, 60,000 square feet for warehousing and 9,000 square feet for administrative functions.

 

(3)	This facility is used by NAIE in connection with our private-label contract manufacturing segment. As of July 1, 2019, we exercised the option to renew the lease of this facility until June 2024.

 

(4)	This facility is used by NAIE for additional warehouse storage.

 

(5)	We purchased the Carlsbad facility in March 2016.

 

ITEM 3.

LEGAL PROCEEDINGS

 

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to intellectual property, product liability, employment, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. While unfavorable outcomes are possible, based on available information, we generally do not believe the resolution of these matters, even if unfavorable, will result in a material adverse effect on our business, consolidated financial condition, or results of operations. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes we do not expect. An unexpected settlement expense or an unexpected unfavorable outcome of a matter could adversely impact our results of operations.

 

As of September 18, 2020, neither NAI nor its subsidiary were a party to any material pending legal proceeding nor was any of our property the subject of any material pending legal proceeding. We are currently involved in several matters in the ordinary course of our business.

 

There is no assurance NAI will prevail in any litigation matters or that litigation expenses will not be greater than anticipated.

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not applicable.

 

 

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, 2020 and 2019:

 

		Fiscal 2020								Fiscal 2019
		High				Low				High				Low
First Quarter		$	12.30			$	8.20			$	10.57			$	9.35
Second Quarter		$	9.36			$	7.61			$	10.40			$	8.73
Third Quarter		$	9.61			$	5.15			$	11.88			$	9.46
Fourth Quarter		$	7.43			$	5.93			$	14.25			$	11.16

 

Holders

 

As of September 18, 2020, there were approximately 203 stockholders of record of our common stock. On that same date, the last sales price of our common stock as reported on NASDAQ was $6.77 per share.

 

Dividends

 

We have never paid a dividend on our common stock and we do not intend to pay a dividend in the foreseeable future. Our current policy is to retain all earnings to provide funds for operations and future growth. Additionally, under the terms of our credit facility, we are precluded from paying a dividend while such facility is in place without a waiver from our lender.

 

Recent Sales of Unregistered Securities

 

During the fiscal year ended June 30, 2020, we did not sell any unregistered securities.

 

Repurchases

 

As set forth below, during the quarter ended June 30, 2020, we repurchased 38,617 shares of our common stock at a total cost of $0.3 million (including commissions and transactions fees) under our stock repurchase plan 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, 2020) (in thousands)
April 1, 2020 to April 30, 2020			4,123			$	7.13				4,123				—
May 1, 2020 to May 31, 2020			10,652			$	6.97				10,652				—
June 1, 2020 to June 30, 2020			23,842			$	6.76				23,842				—
Total			38,617								38,617			$	1,701

 

⁽¹⁾ Average price paid per share includes costs associated with the repurchases

 

 

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, 2020:

 

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

130,000

$

6.28

—

Equity compensation plans not approved by stockholders

N/A

N/A

N/A

Total

130,000

$

6.28

—

 

ITEM 6.

SELECTED FINANCIAL DATA

 

As a smaller reporting company, we are not required to provide Item 6 disclosure in this Annual Report.

 

 

ITEM 7.

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, 2020 and 2019 and for each of the last two fiscal years then ended. You should read the following discussion and analysis together with our audited consolidated financial statements and the notes to the consolidated financial statements included under Item 8 in this report. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors. You should carefully review the risks described under Item 1A and elsewhere in this report, which identify certain important factors that could cause our future financial condition and results of operations to vary.

 

Executive Overview

 

The following overview does not address all of the matters covered in the other sections of this Item 7 or other items in this report or contain all of the information that may be important to our stockholders or the investing public. You should read this overview in conjunction with the other sections of this Item 7, the financial statements and accompanying notes, and this report.

 

Our primary business activity is providing private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. Historically, our revenue has been largely dependent on sales to two or three private-label contract manufacturing customers and subject to variations in the timing of such customers’ orders, which in turn is impacted by such customers’ internal marketing programs, supply chain management, entry into new markets, new product introductions, the demand for such customers’ products, and general industry and economic conditions. Our revenue also includes raw material sales, royalty and licensing revenue generated from our patent estate pursuant to license and supply agreements with third parties for the distribution and use of the ingredient known as beta-alanine sold under our CarnoSyn® and SR CarnoSyn® trademarks.

 

A cornerstone of our business strategy is to achieve long-term growth and profitability and to diversify our sales base. We have sought and expect to continue to seek to diversify our sales by developing relationships with additional, quality-oriented, private-label contract manufacturing customers, and commercializing our patent estate through sales of beta-alanine under our CarnoSyn® and SR CarnoSyn® trade names, royalties from license agreements, and potentially additional contract manufacturing opportunities with licensees.

 

Impact of COVID-19 on Our Business

 

On March 11, 2020, the World Health Organization classified the novel coronavirus, or COVID-19, as a pandemic. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely affect our business. 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. 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 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;
	●	Local, state, or federal orders requiring employees to remain at home;
	●	Limitations on the ability of carriers to deliver our products to customers;
	●	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.

 

As a preventative measure to provide our business with potentially needed liquidity, and out of an abundance of caution, we withdrew $10 million from our credit facility with Wells Fargo in the third quarter of fiscal 2020. 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. 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.

 

During fiscal 2020, our consolidated net sales were 14% lower than in fiscal 2019. Private-label contract manufacturing sales decreased 13% due primarily to lower volumes of current products to existing customers located primarily in the U.S. and European markets partially offset by new product sales to new and existing customers in the U.S market. During fiscal 2020, sales to our largest private-label contract manufacturing customer declined 23% primarily as a result of reduced customer demand. However, a majority of this decline occurred during the first nine months of fiscal 2020 while the fourth quarter of fiscal 2020 included a year over year increase in sales for this customer, primarily due to increased consumer demand and shipments of a newly awarded product. Fiscal 2021 sales from our largest private-label contract manufacturing customer are expected to increase as compared to fiscal 2020. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales decreased to 44% in fiscal 2020 from 49% in fiscal 2019. We expect this percentage to increase in fiscal 2021.

 

 

Effective March 31, 2020, we terminated our ongoing relationship with one private-label contract manufacturing customer, Kaged Muscle. We are working with this former customer to assist them with completing their obligations to us, transition to a replacement manufacturer, and the transfer of inventory items we hold specific to this customer. Due to uncertainty regarding the future operations of this former customer, we reserved 100% of their outstanding accounts receivable balance and a majority of the inventory we hold for their products. As of June 30, 2020, our balance sheet and results of operations for fiscal 2020 included total reserves (and accompanying expense) of $4.3 million related to this former customer.

 

During fiscal 2020, CarnoSyn® beta-alanine revenue decreased 25% to $12.6 million as compared to $16.7 million for fiscal 2019. The decrease in CarnoSyn® revenue was primarily due to decreased beta-alanine shipments as a result of changes to consumer market trends and lower average beta-alanine sales prices. We believe this sales decline was also impacted by certain customers discontinuing the use of our CarnoSyn® beta-alanine in favor of generic beta-alanine and lower overall consumer demand for our customers’ CarnoSyn® products, including the negative impact COVID-19 had on the sports nutrition industry in the latter part of fiscal 2020 due to the shutdown of athletic activities and gyms across the USA.

 

We continue to invest in research and development for our SR CarnoSyn® sustained release delivery system. We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets. We believe our recent efforts to refine our formulations and product offerings will be positively received and result in significant opportunity for increased SR CarnoSyn® sales.

 

To protect our CarnoSyn® business, we incurred litigation and patent compliance expenses of approximately $2.0 million during fiscal 2020 and $2.4 million during fiscal 2019. 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 and the successful completion of an effort to gain New Dietary Ingredient status from the FDA on our patented CarnoSyn® beta-alanine. We currently expect our litigation and patent compliance expenses to decrease during fiscal 2021 to an annual rate of approximately $1.0 million to $1.5 million. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to develop a market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, maintain our patent rights, the availability and the cost of the raw material when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights.  During fiscal 2021, 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.

 

Based on our current sales order volumes and forecasts we have received from our customers, we expect our fiscal 2021 consolidated net sales to increase as compared to fiscal 2020. We also expect operating income will increase in fiscal 2021 due to increased sales and a non-recurrence of the $4.3 million accounts receivable and inventory reserve that was recorded in fiscal 2020. There can be no assurance our customer’s sales and marketing activities as well as our own sales and marketing and litigation efforts will reverse or decelerate potential future sales declines. We are also closely monitoring the impact of the COVID-19 pandemic but we cannot reasonably estimate the length of time or severity of the pandemic and cannot currently estimate the impact this pandemic may have on our consolidated financial results for fiscal 2021 and beyond.

 

During fiscal 2021, 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.

 

Critical Accounting Policies and Estimates 

 

Our consolidated financial statements included under Item 8 in this report have been prepared in accordance with U.S. generally accepted accounting principles (GAAP). A description of our significant accounting policies can be found in the notes to our consolidated financial statements in Item 8 of this report. The preparation of financial statements in accordance with GAAP requires we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies we believe are important to the portrayal of our financial condition and results of operations. Implementation of these policies requires the application of significant judgment by our management. We base our estimates on our historical experience, industry standards, and various other assumptions that we believe are reasonable under the circumstances. Actual results could differ from these estimates. An adverse effect on our financial condition, changes in financial condition, and results of operations could occur if circumstances change that alter the various assumptions or conditions used in making such estimates or assumptions.

 

 

 

Results of Operations

 

The following table sets forth selected consolidated operating results for each of the last two fiscal years, presented as a percentage of net sales (dollars in thousands).  

 

		Fiscal Year Ended
		June 30, 2020								June 30, 2019								Increase (Decrease)
Private-label contract manufacturing		$	106,291				89	%		$	121,598				88	%		$	(15,307	)			(13	)%
Patent and trademark licensing			12,585				11	%			16,692				12	%			(4,107	)			(25	)%
Total net sales			118,876				100	%			138,290				100	%			(19,414	)			(14	)%
Cost of goods sold			100,005				84	%			114,715				83	%			(14,710	)			(13	)%
Gross profit			18,871				16	%			23,575				17	%			(4,704	)			(20	)%
Selling, general & administrative expenses			20,380				17	%			17,614				13	%			2,766				16	%
(Loss) income from operations			(1,509	)			(1	)%			5,961				4	%			(7,470	)			(125	)%
Other (loss) income, net			(229	)			—	%			1,992				1	%			(2,221	)			(111	)%
(Loss) income before income taxes			(1,738	)			(2	)%			7,953				6	%			(9,961	)			(122	)%
(Benefit) provision for income taxes			(93	)			—	%			1,412				1	%			(1,505	)			(107	)%
Net (loss) income		$	(1,645	)			(1	)%		$	6,541				5	%		$	(8,186	)			(125	)%

 

Private-label contract manufacturing net sales decreased 13% due primarily to lower volumes of current products to existing customers located primarily in the U.S. and European markets partially offset by new product sales to new and existing customers in the U.S market. During fiscal 2020, sales to our largest private-label contract manufacturing customer declined 23% primarily as a result of reduced customer demand. However, a majority of this decline occurred during the first nine months of fiscal 2020 while the fourth quarter of fiscal 2020 included a year over year increase in sales for this customer, primarily due to increased consumer demand and shipments of a newly awarded product.

 

Net sales from our patent and trademark licensing segment decreased 25% during fiscal 2020. The decrease in patent and trademark licensing revenue was primarily due to decreased beta-alanine shipments as a result of changes to consumer market trends and lower average beta-alanine sales prices. We believe this sales decline was also impacted by certain customers discontinuing the use of our CarnoSyn® beta-alanine in favor of generic beta-alanine and lower overall consumer demand for our customers’ CarnoSyn® products, which included the negative impact COVID-19 had on the sports nutrition industry in the latter part of fiscal 2020 due to the shutdown of athletic activities and gyms across the USA.

 

The change in gross profit margin for the year ended June 30, 2020, was as follows:

 

		Percentage Change
Contract manufacturing(1)			(1.1	)
Patent and trademark licensing(2)			—
Total change in gross profit margin			(1.1	)

 

1

Private-label contract manufacturing gross profit margin contribution decreased 1.1 percentage points in fiscal 2020 as compared to fiscal 2019. The decrease in gross profit as a percentage of sales in fiscal 2020 is primarily due to a $1.0 million inventory reserve recorded related to one of our former contract manufacturing customers.

 

2	During fiscal 2020, patent and trademark licensing gross profit margin contribution remained relatively consistent with prior year.

 

Selling, general and administrative expenses increased $2.8 million, or 16%, during fiscal 2020 as compared to fiscal 2019. This increase was primarily due $3.3 million of bad debt expense recorded related to a receivable from a former contract manufacturing customer that was partially offset by decreased litigation and patent compliance expenses associated with our CarnoSyn® beta-alanine patent estate.

 

Other income (net) decreased $2.2 million during fiscal 2020 as compared to fiscal 2019. The decrease for fiscal 2020 was primarily due to the exclusion of the amortization of forward points from cash flow hedge instruments during the year ended June 30, 2020 as compared to including $1.6 million in fiscal 2019. This change in classification of forward points is the result of the adoption of ASU No. 2017-12 that now requires the amortization of forward points be included as a component of net revenues while they were previously included as a component of other income. The remaining portion of the decrease primarily related to foreign currency exchange losses associated with fluctuations in various foreign exchange rates used to revalue our balance sheet.

 

Our income tax expense decreased $1.5 million during fiscal 2020 as compared to fiscal 2019.  The decrease was primarily due to the decrease in income before taxes when compared to fiscal 2019.

 

 

Liquidity and Capital Resources 

 

Our primary sources of liquidity and capital resources are cash flows provided by operating activities and the availability of borrowings under our credit facilities. Net cash provided by operating activities was $3.7 million in fiscal 2020 compared to net cash provided by operating activities of $6.6 million in fiscal 2019.

 

We had a loss of $1.6 million in fiscal 2020 as compared to net income of $6.5 million in fiscal 2019. This decrease in net income was primarily due to lower consolidated sales and an accounts receivable and inventory reserve recorded in fiscal 2020 related to one of our former contract manufacturing customers.

 

At June 30, 2020, 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, used $4.3 million in cash compared to using $1.3 million in fiscal 2019. The increase in cash used by accounts receivable during fiscal 2020 primarily resulted from timing of sales and the related collections at the end of fiscal 2020 as compared to fiscal 2019. In addition, provision for uncollectible accounts receivable used $3.3 million in fiscal 2020 as compared to zero for fiscal 2019. The change in provision for uncollectible accounts receivable was primarily associated with a reserve recorded associated with a former contract manufacturing customer. Days sales outstanding (DSO) increased to 51 days during fiscal 2020 compared to 40 days during fiscal 2019, primarily due to customer sales mix and timing of sales and the related collections.

 

Inventory used $2.0 million in cash during fiscal 2020 compared to using $2.4 million in fiscal 2019. The change in cash activity from inventory was primarily related to the timing of sales and anticipated sales at the end of fiscal 2020 as compared to fiscal 2019. Inventory at the end of fiscal 2020 also included a buildup of inventory associated with anticipated new product launches from multiple private-label contract manufacturing customers and increased inventory related to our CarnoSyn® beta-alanine business. Changes in accounts payable and accrued liabilities provided $2.7 million in cash during fiscal 2020 compared to using $0.5 million during fiscal 2019. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.

 

Cash used in investing activities in fiscal 2020 was $4.5 million compared to $3.8 million in fiscal 2019. Capital expenditures were $4.5 million during fiscal 2020 compared to $5.3 million in fiscal 2018. Capital expenditures during fiscal 2020 and fiscal 2019 were primarily for manufacturing equipment used in our Vista, California and Manno, Switzerland facilities. Investing activities in fiscal 2019 also included the collection of the $1.5 million note receivable.

 

Cash provided by financing activities in fiscal 2020 was $6.3 million, compared to using $1.3 million in fiscal 2019. This change is primarily due to $10.0 million in proceeds from our line of credit, withdrawn as a measure to provide our business with liquidity out of an abundance of caution due to the COVID-19 pandemic, offset by increased repurchases of our stock. At June 30, 2020 we had $10.0 million due in connection with our loan facility. As of June 30, 2019, we had no outstanding balances due in connection with our loan facility.

 

During fiscal 2020 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.

 

As of June 30, 2020, we had $30.5 million in cash and cash equivalents. Of these amounts, $13.8 million of cash and cash equivalents were held by NAIE. Overall, we believe our available cash, cash equivalents and potential cash flows from operations will be sufficient to fund our current working capital needs and capital expenditures through at least the next 12 months.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2020, we did not have any significant off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons, in each case that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.

 

Inflation

 

During fiscal 2020 and 2019, we did not experience any significant increases in product raw material or operational costs we attributed to inflationary factors. We currently believe increasing raw material and product cost pricing pressures will exist throughout fiscal 2021 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, and the impact of COVID-19. We do not believe current inflation rates will have a material impact on our fiscal 2021 operations or profitability.

 

 

Recent Accounting Pronouncements

 

A discussion of recent accounting pronouncements is included under Note A in the notes to our consolidated financial statements which are included under Item 8 of this report.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide Item 7A disclosure in this Annual Report.

 

 

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.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Natural Alternatives International, Inc. (the Company) as of June 30, 2020 and 2019, and the related consolidated statements of operations and comprehensive (loss) income, stockholders’ equity and cash flows for each of the years in the two-year period ended June 30, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended June 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

/s/ HASKELL & WHITE LLP

 

We have served as the Company’s auditor since 2014.

San Diego, California

September 21, 2020

 

 

Natural Alternatives International, Inc.

Consolidated Balance Sheets

As of June 30

(Dollars in thousands, except share and per share data)

 

 

See accompanying notes to consolidated financial statements.

 

 

Natural Alternatives International, Inc.

Consolidated Statements of Operations And Comprehensive (Loss) Income

For the Years Ended June 30

(Dollars in thousands, except share and per share data) 

 

 

See accompanying notes to consolidated financial statements.

 

 

Natural Alternatives International, Inc.

Consolidated Statements of Stockholders’ Equity

For the Years Ended June 30

(Dollars in thousands)

 

 

 See accompanying notes to consolidated financial statements.

 

 

Natural Alternatives International, Inc.

Consolidated Statements of Cash Flows

For the Years Ended June 30

(in thousands)

 

 

See accompanying notes to consolidated financial statements.

 

 

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

 

 

 

 

 

 

 

 

 

 

 

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

We maintain certain disclosure controls and procedures as defined under the Securities Exchange Act of 1934. They are designed to help ensure that material information is: (1) gathered and communicated to our management, including our principal executive and financial officers, in a manner that allows for timely decisions regarding required disclosures; and (2) recorded, processed, summarized, reported and filed with the SEC as required under the Securities Exchange Act of 1934 and within the time periods specified by the SEC.

 

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, 2020. 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, 2020.

 

(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, 2020. For this purpose, internal control over financial reporting refers to a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material adverse effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2020 based upon criteria in an Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, management believes the Company’s internal control over financial reporting was effective as of June 30, 2020 based on the criteria issued by COSO.

 

This assessment does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not required to be attested to by the Company’s independent registered public accounting firm pursuant to applicable law and rules that permit the Company to provide only the management’s report as part of this assessment.

 

(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, 2020 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

 

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 4, 2020, to be filed on or before October 28, 2020.

 

PART IV

 

ITEM  15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

 

The following documents are filed as part of this report:

 

(1)

Financial Statements. The financial statements listed below are included under Item 8 of this report:

 

	•	Consolidated Balance Sheets as of June 30, 2020 and 2019;
	•	Consolidated Statements of Operations and Comprehensive (Loss) Income for the years ended June 30, 2020 and 2019;
	•	Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2020 and 2019;
	•	Consolidated Statements of Cash Flows for the years ended June 30, 2020 and 2019; and
	•	Notes to Consolidated Financial Statements.

 

 

(2)

Exhibits. 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
10.5	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
10.6	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
10.9	2009 Omnibus Incentive Plan*		Attachment D of NAI’s definitive Proxy Statement filed with the commission on October 16, 2009
10.10	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
10.21	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
10.23	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
10.30	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
10.33	Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of November 1, 2014		Exhibit 10.1 of NAI’s Current Report on Form 8-K dated December 22, 2014 filed with the commission on December 24, 2014.
10.37	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.

10.38	Lease of Facilities in Manno, Switzerland between NAIE and Mr. 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.
10.39	Amended and Restated Employment Agreement, by and between NAI and Mark A. 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.
10.40	Amended and Restated Employment Agreement, by and between NAI and Kenneth 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.
10.41	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.
10.42	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.
10.44	First amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E. Fortin, effective September 1, 2016*		NAI’s Current Report on Form 8-K dated September 1, 2016, filed with the commission on September 6, 2016
10.45	Second Amendment to the Credit agreement by and between NAI and the Wells Fargo Bank N.A. effective as of March 28, 2017		Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2017, filed with the commission on May 15, 2017

 

 

10.47	Exclusive Manufacturing Agreement by and between NAI and the Juice Plus+ Company dated August 7, 2017		Exhibit 10.45 of NAI’s Current Report on Form 8-K filed with the commission on August 11, 2017
10.48	Restricted Stock Agreement by and between NAI and the Juice Plus+ Company dated August 7, 2017		Exhibit 10.46 of NAI’s Current Report on Form 8-K filed with the commission on August 11, 2017
10.49	Third amendment to the Credit agreement by and between NAI and Wells Fargo Bank N.A. effective as of September 30, 2017		Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017, filed with the commission on November 13, 2017
10.51	Fourth Amendment to the Credit agreement by and between NAI and the Wells Fargo Bank N.A. effective as of March 20, 2018		Exhibit 10.1 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed with the commission on May 14, 2018
10.52	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank N.A. dated March 20, 2018 in the amount of $10,000,000		Exhibit 10.2 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018, filed with the commission on May 14, 2018
10.53	First amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark A. 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
10.54	First amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth 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
10.55	Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E. 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
10.56	Lease of Facilities 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
10.57	Lease of Parking Places in Manno, Switzerland between NAIE and Mr. 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
10.58	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
10.60	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
10.61	Third amendment to the Amended and Restated Employment Agreement, by and between NAI and Michael E. Fortin, effective July 1, 2019*		Exhibit 10.61 of NAI's Annual Report on Form 10-K for the fiscal year ended June 30, 2019, filed with the commission on September 24, 2019.
10.62	Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of July 1, 2019		Exhibit 10.1 of NAI’s Current Report on Form 8-K dated July 26, 2019 filed with the commission on July 30, 2019
10.63	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank N.A. dated July 1, 2019 in the amount of $10,000,000		Exhibit 10.2 of NAI’s Current Report on Form 8-K dated July 26, 2019 filed with the commission on July 30, 2019
10.64	Security Agreement by and between NAI and Wells Fargo effective as of July 1, 2019		Exhibit 10.3 of NAI’s Current Report on Form 8-K dated July 26, 2019 filed with the commission on July 30, 2019
21	Subsidiaries of the Company		Filed herewith
23.1	Consent of Independent Registered Public Accounting Firm		Filed herewith
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer		Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer		Filed herewith
32	Section 1350 Certification		Filed herewith
101.INS	XBRL Instance Document		Furnished herewith
101.SCH	XBRL Taxonomy Extension Schema Document		Furnished herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document		Furnished herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document		Furnished herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document		Furnished herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document		Furnished herewith

 

*

Indicates management contract or compensatory plan or arrangement.

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Natural Alternatives International, Inc., the registrant, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: September 21, 2020

 

	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.

 

Signature	Title	Date
/s/ Mark A. LeDoux	Chief Executive Officer and Chairman of the Board of Directors	September 21, 2020
(Mark A. LeDoux)	(principal executive officer)
/s/ Michael E. Fortin	Chief Financial Officer	September 21, 2020
(Michael E. Fortin)	(principal financial officer and principal accounting officer)
/s/ Joe E. Davis	Director	September 21, 2020
(Joe E. Davis)
/s/ Alan G. Dunn	Director	September 21, 2020
(Alan G. Dunn)
/s/ Alan J. Lane	Director	September 21, 2020
(Alan J. Lane)
/s/ Lee G. Weldon	Director	September 21, 2020
(Lee G. Weldon)

 

/s/ L. Kay Matherly	Director	September 21, 2020
(L. Kay Matherly)