NAII 10-K & 10-Q changes, risk factors and insider trading

Risks Related to the Company’s IndustryBusiness and BusinessIndustry

A significant or prolonged economic downturn,downturn could have,have a material adverse effect on our results of operations.

In OctoberFebruary 2023,2026, the launch of Operation Epic Fury escalated conflict between the U.S. alongside Israeli forces targeting Iran. In response, blockades of vital maritime chokepoints such as the Strait of Hormuz have caused the global price level of commodities including fuel and energy to increase. Conflict with Iran was preceded by armed conflict escalated between Israel and Hamas.Hamas that began in October 2023. Israel accounts for a small portion of our global net sales, but we also source multiple raw materials that come from Israel. While we do not anticipate this conflict will have a significant impact on our net sales, we are continually communicating with our customers and suppliers who may be impacted by this conflict, and we are evaluating options for alternative ingredient sources and/or holding safety stock of impacted materials to limit the effect this conflict may have on our ability to obtain the ingredients sourced from this region.

Recently, these conflicts have resulted in market uncertainty and volatility, and this has negatively affected many industries, including the dietary supplement industry. Global financial conditions remain subject to sudden and rapid destabilizations in response to economic shocks. A slowdown in the financial markets or other economic conditions including but not limited to global supply chain issues, inflation, tariffs and trade disputes, fuel and energy costs, lack of available credit, the state of the financial markets, interest rates and tax rates,rates may adversely affect our growth. Future economic shocks may be precipitated by a number of causes, including a continued rise in the price of oil and other commodities, the volatility of raw material prices, geopolitical instability, terrorism, pandemics, the devaluation and volatility of global stock and debt markets and natural disasters. Any sudden or rapid destabilization of global economic conditions could adversely impact our ability to obtain equity or debt financing in the future on terms favorable to us or at all. In such an event, our operations and financial condition could be adversely impacted.

Prices and availability of commodities consumed or used in connection with raw materials we purchase or the operation of our manufacturing facilities, such as natural gas, diesel, oil and electricity, also fluctuate, and these fluctuations affect the costs of operations. These fluctuations can be unpredictable, can occur over short periods of time and may have a material adverse impact on our operating costs or the timing and costs of various projects. Over the past several years, the United States, and many other countries, have experienced significant volatility related to inflationary factors. These factors have impacted all aspects of our manufacturing operations, including increased costs of labor, utilities, materials, supplies, etc. While we continue to evaluate cost reduction opportunities, including working with both suppliers and customers, to attempt to mitigate the impact of these higher operational costs, there can be no assurance our efforts will result in an offset of such increases or whenif inflation will return to more reasonable levels.

Our business can be affected by adverse publicity or negative public perception about us, our competitors, our customers, our products, or our industry generally. Adverse publicity may include publicity about the nutritional supplements industry generally, the efficacy, safety and quality of nutritional supplements and other health care products or ingredients in general or our and our customers' 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 or our customers' 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.

We manufacture the majority of our and our customers' products at our manufacturing facilities in California and Switzerland. As a result, we are dependent on the uninterrupted and efficient operation of these facilities. Our manufacturing operations, including those of our suppliers, are subject to power failures, blackouts, border shutdowns, telecommunications failures, computer viruses, cybersecurity vulnerabilities, human error, breakdown, failure or substandard performance of our facilities, our equipment, the improper installation or operation of equipment, terrorism, pandemics (e.g. COVID-19),pandemics, natural or other disasters, intentional acts of violence, and the need to comply with the requirements or directives of governmental agencies, including but not limited to the FDA. In addition, we may in the future determine to expand or relocate our facilities, which may result in slowdowns or delays in our operations. While we have implemented and regularly evaluate various emergency, contingency and disaster recovery plans and we maintain business interruption insurance, there can be no assurance the occurrence of these or any other operational problems at our facilities in California or Switzerland would not have a material adverse effect on our business, financial condition and results of operations. Furthermore, there can be no assurance our contingency plans will prove to be adequate or successful if needed or our insurance will continue to be available at a reasonable cost or, if available, will be adequate to cover any losses that we may incur from an interruption in our manufacturing and distribution operations. In August of 2021, we openedacquired a new warehouse and distribution facility in Carlsbad, California, and converted it into a dedicated high-volume powder blending and packaging facility while also providing additional raw material storage capacity. In addition, the Board of Directors also approved management to sell our manufacturing facility in Carlsbad, California which is a more specialized property, and we anticipate may not be sold quickly. There can be no assurance we will be successful in obtaining additional facility certifications that may be necessary to attract new customers or that we will obtain sufficient business through our on-going sales efforts to effectively utilize the facility and our investment therein.

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

We buy our raw materials from a limited number of suppliers. During fiscal 20252026 and fiscal 2024,2025, one of our suppliers represented more than 10% of our total raw material purchases. Additionally, we currently purchase all of our beta-alanine for our CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® products from a single manufacturer located in Japan. Any disruption in their ability to source materials for or produce the amounts of beta-alanine needed to meet our requirements could have an adverse effect on our business.

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 international conflicts, pandemics, weather, transportation interruptions, labor shortages, strikes, terrorism, natural disasters, and other catastrophic events.

In addition, our efforts to maintain or increase sales of CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® 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.

We have in the past and expect to continue to derive a significant portion of our revenues from a relatively limited number of customers. During the fiscal year ended June 30, 2025,2026, sales to our threetwo largest customers were approximately 59%52% of our consolidated net sales. We cannot predict with any certainty if sales to these customers will increase or decrease in the future. Subsequent to June 30, 2026 and prior to filing this Form 10-K, one of our largest customers informed us of a material downward revision to their forecast of their projected orders and purchases from us during our fiscal year 2027 primarily caused by their growing inventory levels. Please see disclosure of Subsequent Events in Note O, Part II in Item 8 on this Form 10-K.

On August 16, 2023, we announced the temporary closure of our new high-speed powder processing facility in Carlsbad, California due to excess inventory on hand at one of our largest customers and their efforts to rebalance supply and demand. We reopened this facility in May 2024 based on new orders received from this customer but there can be no certainty that this, or any other customer, will not experience similar circumstances that require them to reduce or discontinue orders in the future. In addition, the Board of Directors also approved management to sell our manufacturing facility in Carlsbad, California which is a more specialized property, and we anticipate may not be sold quickly.

We currently derive significant revenues and income from sales of beta-alanine and from licensing our patents. Our ability to maintain or grow our sales of beta-alanine and license revenue from our other patents is contingent on our ability to defend our patents,patents and commercialize the sale of beta-alanine under our instant release CarnoSyn® patents and trademark, our sustained release SR CarnoSyn® patents and trademark, and our TriBsyn™ trademark pending patent applications, and any additional patents we may seek related to CarnoSyn® 4X and TriBsyn™®.

We own multiple patents and trademarks related to the use of beta-alanine in food and nutritional supplements. A majority of our revenue and income from this segment is currently derived from activity related to licensing our patents and other intellectual property associated with instant release beta-alanine, sold under our trade name CarnoSyn®. WeOur have onefinal patent for this version of CarnoSyn®, which expiresexpired in July 2026. Our patent and trademark licensing revenue decreased from $8.4 million in fiscal 2024 to $8.1 million in fiscal 2025 to $7.9 million in fiscal 2026 due to decreaseda ordersdecrease fromin existingtrademarked customersmaterial sales, partially offset by decreased volume rebates and increased royaltyorders income.of other raw material sales. There is no assurance we will be successful maintaining our historical CarnoSyn® instant release beta-alanine sales levels or growinggrow future sales volumes with our remainingof CarnoSyn® instant release patent estate.beta-alanine. 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®, CarnoSyn® 4X and TriBsyn™® are superior delivery systems for CarnoSyn® beta-alanine as they allow for increased daily dosing, improved muscle retention and bioavailability of carnosine. Our patents related to SR CarnoSyn® extend through 2036, and we currently have patents pending for TriBsyn™ and believe SR CarnoSyn® beta-alanine and the introduction of CarnoSyn® 4X and TriBsyn™® high-bioavailability beta-alanine are an important step in the further commercialization of our patent estate. There can be no assurance we will be successful in getting the market to accept these new forms of beta-alanine or that we will be successful launching new products utilizing SR CarnoSyn®, CarnoSyn® 4X or TriBsyn™® beta-alanine.

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

Before commencing operations or marketing our products and often our customers' products we manufacture 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. TheIn certain European countries, the sale of our products inand certainour Europeancustomers' countriesproducts iswe manufacture are 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 couldcan adversely affect our results of operations.

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

In recent years, theThe United States has implemented increased tariffs on a wide range of goods and materials imported from most of its foreign trading partners including China, Japan, India, Russia, Vietnam, South Korea, Australia, the European Union, Canada, Mexico and other governments. These goods and materials may include products, applications, and ingredients we or our customers require for their products, including beta-alanine. Our ability to maintain or increase CarnoSyn® sales and licensing revenue depends on the availability of the raw material beta-alanine. China and other governments responded to the implementation of tariffs by the United States by imposing their own tariffs on certain American products. Continuing or increased tariffs could have a material adverse effect on our business and our customers’ businesses, the availability of beta-alanine, and the cost of other raw materials we use in our customers’ products. While it is difficult to predict whether or how existing and additional potential tariffs will be imposed, or how tariffs will impact our business, we believe the imposition of additional tariffs by the U.S. or other governments on products we or our customers offer for sale, or ingredients we use in the products we manufacture could adversely impact our offerings and our customers, and could have an adverse impact on the availability of raw materials we purchase including beta-alanine from Japan.

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 or our customers' products involves a 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 or our customers' products contain contaminants; we or our customers provide consumers with inadequate instructions about product use; or we provide inadequate warning about side effects or interactions of our or our customers' products with other substances. Even if we were to prevail in any such claims, the cost of litigation and settlement could be significant.

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

Our officers and directors, together with their families and affiliates, beneficially owned approximately 21%20% of our outstanding shares of common stock as of June 30, 2025.2026. Approximately 15% of the outstanding shares of common stock are beneficially owned by Mark LeDoux,LeDoux and his family and affiliates.family. 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.

Our net sales increased during fiscal 20252026 as compared to fiscal 20242025 butand our loss from operations increased during the same period,period. and thereThere can be no assurance our net sales will further improve in the near term, or we will earn a profit in any given year. We experienced athree years of net losslosses in fiscal 2025years 2026, 2025, and 2024 and may incur losses in the future. We experienced negative cash flows from operating activities in fiscal years 2026 and 2024. Our operating results may fluctuate from year to year and/or from quarter to quarter due to various factors including differences related to the timing of revenues and expenses for financial reporting purposes and other factors described in this report. At times, these fluctuations may be significant. We currently anticipate we will experience a net loss in the first half offor fiscal 2026, net income in the second half of fiscal 2026 and net income for the full year in fiscal 2026.2027. Fluctuations in our operating results may adversely affect the share price of our common stock.

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

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 linedomestic and Swiss lines of credit would be sufficient to meet our working capital needs. Furthermore, if we fail to maintain certain loan covenants, we may no longer have access to our credit line.lines. Under the terms of our domestic credit facility, there are limits on our ability to create, incur or assume additional indebtedness without the approval of our lender. Our domestic credit line terminates inon DecemberMay 202618, 2029 and there is no guarantee we will be able to extend or renew this credit line on favorable terms or at all. Although our Swiss line of credit is subject to an indefinite term, the lender reserves the right to refuse utilization of the credit facility without termination of the credit agreement in the event of a change in circumstances.

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 fundsfunds, 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.

The following discussion and analysis is intended to help you understand our financial condition and results of operations as of June 30, 2025 and 2024 and for each of the last twoour fiscal years thenending ended.June 30, 2026 and 2025. 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.

Our primary business activity is providing private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbal and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. Historically, our revenue has been largely dependent on sales to two or three private-label contract manufacturing customers and subject to variations in the timing of such customers’ orders, which in turn is impacted by such customers’ internal marketing programs, supply chain management, entry into new markets, new product introductions, the demand for such customers’ products, and general industry and economic conditions. Our revenue also includes raw material sales, royalty and licensing revenue generated from our patent estate pursuant to license and supply agreements with third parties for the distribution and use of the ingredient known as beta-alanine sold under our CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® trademarks.

A cornerstone of our business strategy is to achieve long-term growth and profitability and to diversify our sales base. We have sought and expect to continue to seek to diversify our sales by developing relationships with additional, quality-oriented, private-label contract manufacturing customers, and commercializing our patent estate through sales of beta-alanine under our CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® trademarks, royalties from license agreements, and potentially additional contract manufacturing opportunities with licensees.

During fiscal 2025,2026, our consolidated net sales were 14%10% higher than in fiscal 2024.2025. Private-label contract manufacturing net sales increased 16%11% primarily due to increased orders from twoone of our largerlargest customers and shipmentsseveral toof newour customersother existing customers, partially offset by lowerreduced salesorders from ourother largestexisting customer.customers. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 33%28% in fiscal 2025,2026, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 20242025 was 42%.33%.

During fiscal 2025,2026, patent and trademark licensing revenue decreased 4%2% to $8.1$7.9 million as compared to $8.4$8.1 million for fiscal 2024.2025. The decrease in patent and trademark licensing revenue was primarily due to decreaseda decrease in beta-alanine-based material sales from existing customerscustomers, partially offset by decreased volume rebates and increased royaltyorders income.of other raw material sales.

We continue to invest in research and development forto the expansion ofexpand our CarnoSyn® product offerings. We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets but acceptance of thisBrands product offering has been limited as we only offer this product in tablet form.portfolio. In August 2024, we announced oura new product called TriBsyn™.®, a clinically supported carnosine booster designed for daily wellness that delivers more than four times the bioavailability of standard beta-alanine without the paresthesia commonly associated with traditional formulations. We believe TriBsyn™® and its patent-pending formulation will allowenable us to better penetrate the Wellness and Healthy Aging channel.market. ThisOn groundbreakingApril product20, 2026, we launched CarnoSyn® 4X, which utilizes the same microencapsulation technology as TriBsyn® and is aspecifically carnosinepositioned boosterfor thatthe utilizesSports Nutrition market. On May 4, 2026, we announced expanded market applications for TriBsyn®, unlocking new opportunities across the beverage, dairy, and medical nutrition categories. With these expanded capabilities, TriBsyn® is well suited for ready-to-drink beverages, protein drinks, dairy-based products, gummies, and medical nutrition applications. Both CarnoSyn® 4X and TriBsyn® combine CarnoSyn® beta-alanine and otherwith proprietary technology to increaseenhance beta-alanine bioavailability and absorption while effectively eliminating beta-alanine relatedbeta-alanine-related paresthesia. This product is availableAvailable as a raw material powder,powders, whichthey allowsprovide formulation flexibility for our customers. TheBy elimination ofeliminating paresthesia while maintaining efficacyan ofefficacious dosagedosage, createsthese aproducts create new opportunityopportunities to reach segmentspreviously of theuntapped market that to date have been untapped,segments, including older adults, vegetarians, and vegans. We believe our continued efforts to refine our formulations and expand our product offeringsportfolio will be positivelywell received and result increate significant opportunityopportunities forto increasedincrease sales of our patented and patent-pending products. We are also working on several additional innovations we believe could lead to new patentable products for CarnoSyn® Brands in the future.

To protect and grow our CarnoSyn® product offerings, we incurred litigation and patent compliance expenses of approximately $0.4 million during fiscal 20252026 and $0.2 million during fiscal 2024.2025. Our legal expense associated with our CarnoSyn® business has remained relatively low as we have no related active litigation, and the current run-rate of expenses is primarily related to maintenance and expansion of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to developexpand athe market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark and our new beta-alanine product marketed under our TriBsyn™® trademark,and CarnoSyn® 4X trademarks, maintain our patent rights, the availability and the cost of the raw material when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, and continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights. During fiscal 2026,2027, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® beta-alanine products.

We have identified the following as our most critical accounting estimates, which are those that are most important to the portrayal of our financial condition and results, and that require management’s most subjective and complex judgments. Information regarding our other significant accounting estimates and policies is disclosed in Note A,A of Item 8, Organization and Summary of Significant Accounting Policies, of the notes to the consolidated financial statements.

Private-label contract manufacturing sales increased 16%11% primarily due to increased orders from twoone of our largerlargest customers and shipments to newexisting customerscustomers, partially offset by lower sales from ourother largestexisting customer.customers. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales was 33%28% in fiscal 2025,2026, and revenue concentration from our largest private-label contract manufacturing customer as a percentage of total net sales in fiscal 20242025 was 42%.33%.

Net sales from our patent and trademark licensing segment decreased 4%2% during fiscal 2025.2026. The decrease in patent and trademark licensing revenue was primarily due to decreaseda ordersdecrease in beta-alanine-based material sales from existing customerscustomers, partially offset by decreased volume rebates and increased royaltyorders income.of other raw material sales.

Other expense, net, increaseddecreased $1.2$0.6 million during fiscal 20252026 as compared to fiscal 2024.2025. The increasedecrease is primarily due to unfavorablefavorable foreign currency exchange volatilityrates, andpartially increasedoffset by an increase in interest expense duerelated to increased interest rates and usage of our credit facility.facility under the terms of our domestic credit agreement.

We recorded an income tax provision of $2.8$0.4 million during fiscal 20252026 as compared to a tax benefit of $2.2$2.8 million in fiscal 2024.2025. The changedecrease in our income tax provision in fiscal 2025 compared to the benefit recorded in fiscal 2024 is primarily driven by a $4.8 million valuation allowance that was recognized in fiscal 2025 against our net domestic deferred income tax asset.asset, as well as continuation of a full valuation allowance on our domestic deferred income tax asset throughout fiscal 2026.

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 used in operating activities was $8.9 million in fiscal 2026 compared to net cash provided by operating activities wasof $5.9 million in fiscal 2025 compared to net cash used in operating activities of $1.5 million in fiscal 2024.2025.

For the year ended June 30, 2025,2026, changes in accounts receivable providedused $2.2$6.0 million in cash compared to usingproviding $9.9$2.2 million in fiscal 2024.2025. The increasechange in cash providedused byin accounts receivable during fiscal 20252026 primarily resulted from the timing of sales and the related collections. Days sales outstanding increased to 45 days during fiscal 2026 compared to 44 days during fiscal 2025 compared to 38 days during fiscal 2024, primarily due to customer sales mix and timing of sales and the related collections.2025.

Inventory used $0.6$5.9 million in cash during fiscal 20252026 compared to providing $5.4$0.6 million in fiscal 2024.2025. The change in cash activity from inventory was primarily related to the difference in the amount and timing of orders and anticipated sales in fiscal year 20252026 as compared to fiscal year 2024.2025. Changes in accounts payable and accrued liabilities provided $2.9$4.1 million in cash during fiscal 20252026 compared to providing $5.4$2.9 million during fiscal 2024.2025. 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 20252026 was $3.6$3.7 million compared to $3.0$3.6 million in fiscal 2024.2025. The primary reason for this change is due to increased capital expenditures. Capital expenditures in fiscal 2026 and in fiscal 2025 included costs incurred to install solar energy generation equipment on our manufacturing facilities.facilities Capitalas expenditureswell in fiscal 2024 includedas normal expenditures to support equipment and activities in our facilities in California and Switzerland.

Cash usedprovided inby financing activities in fiscal 20252026 was $2.0$7.8 million, compared to $2.9$2.0 million providedused in fiscal 2024.2025. The change in financing activities includes net paymentsborrowings of $1.5$66.7 million on outstandingour short-term borrowings on our line of credit in fiscal 20252026 compared to aborrowings $3.4of $31.0 million increasein fiscal 2025. The change in short-termfinancing netactivities also includes borrowings of $11.0 million on our long-term debt in fiscal 2026 compared to no additional borrowings in fiscal 2025. Offsetting these borrowings are repayments of $60.9 million on our short-term line of credit in fiscal 2024.2026 compared to repayments of $32.5 million in fiscal 2025. The change in financing activities also includes repayments of $9.0 million as part of refinancing our real estate loan in fiscal 2026 compared to repayments of $0.3 million in fiscal 2025.

During fiscal 2025,2026, we experienced continued price increases for product raw material, and other increased operational costs related to inflationary pressure though to a lesserhigher degree than in fiscal 2024.2025. We currently believe increasing raw material and product cost pricing pressures will continue throughout fiscal 20262027 as a result of limited supplies of various ingredients, the effects of higher labor and transportation costs, interest rates, tariffs, and global fuel and energy costs. We anticipate current inflation rates will have a negative impact on our fiscal 20262027 operations, and we are monitoring the drivers and working with suppliers and customers to mitigate the impact on our results.

The following discussion and analysis are intended to help you understand our financial condition and results of operations for the three and sixnine months ended DecemberMarch 31, 2025.2026. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this Report, as well as the risk factors and other information included in our 2025 Annual Report and other reports and documents we file with the SEC. 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.

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

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

During the sixnine months ended DecemberMarch 31, 2025,2026, our net sales were 8%13% higher than in the sixnine months ended DecemberMarch 31, 2024.2025. Private-label contract manufacturing sales increased 9%14% primarily due to increased orders from one of our largest customers and several of our other existing customers and shipments to new customers, partially offset by reduced orders from other existing customers. Revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the sixnine months ended DecemberMarch 31, 20252026 was 31%,27%, and revenue concentration for our largest private-label contract manufacturing customer as a percentage of total net sales for the sixnine months ended DecemberMarch 31, 20242025 was 34%.35%. We expect our annualized fiscal 2026 revenue concentration for our largest customer to be lower as compared to our revenue concentration for our largest customer in fiscal 2025.

During the sixnine months ended DecemberMarch 31, 2025,2026, patent and trademark licensing revenue decreased 15%11% to $3.7$5.3 million compared to revenue of $4.3$6.0 million for the sixnine months ended DecemberMarch 31, 2024.2025. The decrease in patent and trademark licensing revenue during the sixnine months ended DecemberMarch 31, 20252026 was primarily due to lower instant release CarnoSyn® raw material sales and lower royalty and licensing revenue, partially offset by sales of our new TriBsyn™® product.

We continue to invest in research and development for the expansion of our CarnoSyn® Brands product offerings. We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets but acceptance of this product offering has been limited as we only offer this product in tablet form. In August 2024, we announced our new product called TriBsyn™.® which is a clinically supported carnosine booster designed for daily wellness, delivering the benefits of beta-alanine without the paresthesia commonly associated with traditional forms. We believe TriBsyn™® and its patent-pending formulation will allow us to better penetrate the Wellness and Healthy Aging channel. On April 20, 2026, we launched a new product called CarnoSyn® 4X, the most advanced sports nutrition CarnoSyn® beta-alanine formulation to date. This new ingredient delivers more than four times the bioavailability of standard beta-alanine without paresthesia utilizing the same microencapsulation technology as TriBsyn® and is positioned for the Sports Nutrition channel. On May 4, 2026, we announced expanded market applications for TriBsyn®, unlocking new opportunities across beverage, dairy, and medical nutrition categories. With these expanded capabilities, TriBsyn® is now ideally suited for ready-to-drink beverages, protein drinks, and dairy-based products, as well as gummies and medical nutrition applications. These groundbreaking productproducts is a carnosine booster that utilizesutilize CarnoSyn® beta-alanine and other proprietary technology to increase beta-alanine bioavailability and absorption while effectively eliminating beta-alanine related paresthesia. ThisThese productproducts isare available as a raw material powder, which allows formulation flexibility for our customers. The elimination of paresthesia while maintaining efficacy of dosage creates a new opportunity to reach segments of the market that to date have been untapped, including older adults, vegetarians, and vegans. We believe our efforts to refine our formulationsformulations, and product offerings will be positively received and result in significant opportunity for increased sales of our patented and patent pending products. We are also working on several additional innovations we believe could lead to new patentable products for CarnoSyn® Brands in the future.

To protect and grow our CarnoSyn® product offerings, we incurred litigation and patent compliance expenses of approximately $0.2 million during the six months ended December 31, 2025 and $0.3 million during the sixnine months ended DecemberMarch 31, 2024.2026 and nine months ended March 31, 2025. Our legal expense associated with our CarnoSyn® business has remained relatively low as we have no active litigation, and our current run-rate of expenses is primarily related to maintenance and expansion of our patent and trademark estate. Our ability to maintain or further increase our beta-alanine royalty and licensing revenue will depend in large part on our ability to developexpand athe market for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark and our new beta-alanine productproducts marketed under our TriBsyn™® trademark,and CarnoSyn® 4X trademarks, maintain our patent rights, the availability and 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 the remainder of fiscal 2026, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn™® beta-alanine products.

While we grew our net sales, expanded our gross margins and reduced selling, general and administrative costssales during the three and sixnine months ended DecemberMarch 31, 2025,2026, we experienced a loss from operations during the first sixnine months of fiscal 2026 primarily due to underutilization of our factory capacities. The growth in net sales is primarily related to increased new and existing private label contract manufacturing customer sales that also drove improved factory utilization partially offset by a decrease in patent and trademark licensing net sales. The improvement in gross profit isduring primarilythe first nine months of fiscal 2026 related to increased new and existing customer sales that also drove improved factory utilization. Selling, general and administrative expenses decreased slightlyincreased as compared to the prior year primarily related to aan reductionincrease in legalcompensation feesexpense associatedrelated withto increased headcount required to support the growth in sales and an increase in advertising expense to promote our patentTriBsyn® estateproduct andofferings. a customer credit loss in the prior year. Although weWe anticipate we will increase our sales revenue duringfor the remainingfourth two quartersquarter of fiscal 2026 will increase as compared to thefiscal prior year periods2025 and the firstthird halfquarter of thisfiscal year,2026. weWe nowalso believe thatanticipate we will experience a net loss infor the secondfourth halfquarter of fiscal 2026,2026 and aan overall net loss for the full year of fiscal 2026 year due to declines in our customer’s forecasted sales along with delayed new product launches.2026.

The results of our operations for the three and sixnine months ended DecemberMarch 31 were as follows (dollars in thousands):

Private-label contract manufacturing net sales increased 2%25% during the three months ended DecemberMarch 31, 2025,2026, and increased 9%14% during the sixnine months ended DecemberMarch 31, 2025,2026, when compared to the same periods in the prior year. The increase in net sales during the three and sixnine months ended DecemberMarch 31, 20252026 was primarily due to increased orders from severalone of our existinglargest customers and shipments to new customers, which was partially offset by decreaseda net decrease in shipments to other existing customers.

Net sales from our patent and trademark licensing segment increaseddecreased 13%1% during the three months ended DecemberMarch 31, 2025,2026, and decreased 15%11% during the sixnine months ended DecemberMarch 31, 2025,2026, when compared to the same periods in the prior year. The increasedecrease in patent and trademark licensing revenue during the three months ended DecemberMarch 31, 2025,2026, was primarily due to increasedlower instant release CarnoSyn® raw material orders from existing customerssales partially offset by aan decreaseincrease in royalty and licensing revenue. The decrease in patent and trademark licensing revenue during the sixnine months ended DecemberMarch 31, 2025,2026, was primarily due to decreasedlower instant release CarnoSyn® raw material orders from existing customerssales and decreasedlower royalty and licensing revenue, partially offset by salesTriBsyn® ofproduct our new TriBsyn™ product.sales.

The change in gross profit margin for the three and sixnine months ended DecemberMarch 31, 2025,2026, was as follows:

Selling, general and administrative expenses decreasedincreased approximately $0.1$0.5 million, or 2%,12%, during the three months ended DecemberMarch 31, 20252026 and $0.1increased approximately $0.4 million or 1%3% during the sixnine months ended DecemberMarch 31, 20252026 when compared to the comparable periods in the prior year. Both decreasesincreases compared to the same periods in the prior year are primarily related to decreases in allowance for credit losses and legal expenses associated with our patent estate, partially offset by increases in compensation andexpenses benefitsprimarily expensesdue to increased headcount required to support the increase in private label contract manufacturing sales and newincreased productmarketing promotionaland advertising expenses related to the newour TriBsyn™® product.product line.

Our provision for income taxes during the three-month period ended DecemberMarch 31, 20252026 increased to an expense of approximately $0.2$0.1 million when compared to a benefit for income taxes of approximately $0.7$0.5 million during the three months ended DecemberMarch 31, 2024.2025. Our provision for income taxes during the six-monthnine periodmonths ended DecemberMarch 31, 20252026 increased to $0.3$0.4 million compared to a tax benefit of $1.1$1.6 million in the comparable period during the prior fiscal year. The increase in our provision for income taxes during the three and sixnine months ended DecemberMarch 31, 20252026 is primarily due to a 5% Swiss withholding tax on a dividend paid by NAIE to NAI as well as income before income taxes from NAIE. The loss before income taxes from our U.S operations had no impact on our provision for income taxes due to a full valuation allowance on the domestic net deferred tax asset from our U.S. operations during the three and sixnine months ended DecemberMarch 31, 2025.2026.

Our primary sources of liquidity and capital resources are cash flows from operating activities and the availability of borrowings under our credit facilities. Net cash used in operating activities was $10.4$7.9 million for the sixnine months ended DecemberMarch 31, 2025,2026, compared to net cash usedprovided inby operating activities of $3.4$2.6 million in the comparable period during the prior fiscal year.

For the sixnine months ended DecemberMarch 31, 2025,2026, changes in accounts receivable, consisting of amounts due from our private-label contract manufacturing customers and our patent and trademark licensing activities, used $3.1$5.9 million in cash compared to usingproviding $0.1$5.2 million of cash during the comparable six-monthnine-month period in the prior year. The change in cash flow activity in accounts receivable during the sixnine months ended DecemberMarch 31, 2025,2026, primarily resulted from the timing of sales and related collections. Days sales outstanding was 4145 days during the sixnine months ended DecemberMarch 31, 2025,2026, as compared to 4641 days for the prior year period.

Changes in inventory used $8.6$5.1 million in cash during the sixnine months ended DecemberMarch 31, 2025,2026, compared to providingusing $1.2$2.7 million in the comparable prior year period. The change in cash related to inventory during the sixnine months ended DecemberMarch 31, 2025,2026, was primarily related to the difference in the amount and timing of orders and anticipated sales as compared to the same period in the prior year. Changes in accounts payable and accrued liabilities provided $0.9$2.6 million in cash during the sixnine months ended DecemberMarch 31, 2025,2026, compared to usingproviding $3.5$1.0 million during the sixnine months ended DecemberMarch 31, 2024.2025. The change in cash flow activity related to accounts payable and accrued liabilities was primarily due to the timing of inventory receipts and payments.

Cash used in investing activities in the sixnine months ended DecemberMarch 31, 2025,2026, was $2.0$3.1 million compared to $1.4$2.2 million in the comparable prior year period. The increase during the sixnine months ended DecemberMarch 31, 20252026 was related to increased capital expenditures primarily related to costs incurred to install solar energy generation equipment on our manufacturing facilities during the sixnine months ended DecemberMarch 31, 20252026 as compared to the sixnine months ended DecemberMarch 31, 2024.2025.

Cash provided by financing activities for the sixnine months ended DecemberMarch 31, 2025,2026, was $3.7$7.8 million compared to providingusing $1.4$1.8 million in the comparable prior year period. The change in financing activities is primarily due to increased usage of our credit facility during the six-monthnine-month period ended DecemberMarch 31, 20252026 compared to the six-monthnine-month period ended DecemberMarch 31, 2024.2025.

As of DecemberMarch 31, 2025,2026, we had $10.0 million of borrowing capacity available on our credit facility of which we had outstanding borrowingborrowings of $5.8$10.0 million. We also owed $8.8$8.7 million on a term loan secured by our Carlsbad, California powder processing and storage facility. As of June 30, 2025, we had outstanding borrowingborrowings of $1.9 million on our line of credit, and we also owed $8.9 million on our term loan.

As of DecemberMarch 31, 2025,2026, we did not have any 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 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 that would be material to investors.