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Natural Alternatives International Inc (NAII)

Business Summary

Natural Alternatives International, Inc. operates in the nutritional supplement industry, 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. The industry is highly fragmented and competition for the sale of nutritional supplements comes from many sources, with products sold primarily through retailers, ecommerce, health and natural food stores, and direct sales channels. The company also owns a patent estate related to the raw material ingredient beta-alanine, commercialized through direct sales and supply agreements under the CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn® trademarks. The company believes the direct sales marketing channel is a highly effective method for marketing high-quality nutritional supplements, and a significant portion of its business relies on the effectiveness of its customers in this channel.

The company competes with other manufacturers, distributors and marketers of vitamins, minerals, plant extracts, and other nutritional supplements both within and outside the U.S. Competition is based on customized services offered, product quality and safety, innovation, price and customer service. The company believes it competes favorably due to its ability to provide comprehensive solutions for customers, its certified manufacturing operations, its commitment to quality and safety, and its research and development activities. Some competitors are larger and have greater financial resources and broader name recognition. The company does not have sufficient information to accurately estimate the total number or size of its competitors.

The company's primary business activity is providing private-label contract manufacturing services, which generates the majority of its revenue. It also generates revenue from patent and trademark licensing, including raw material sales, royalties, and licensing fees associated with beta-alanine. The company's revenue is historically largely dependent on sales to two or three private-label contract manufacturing customers and subject to variations in the timing of such customers' orders. The company provides strategic partnering services including customized product formulation, clinical study design and support, manufacturing, marketing support, international regulatory and label law compliance, international product registration, and packaging in multiple formats and labeling design.

The company's operations are comprised of two reportable segments: Private-label contract manufacturing and Patent and trademark licensing. Private-label contract manufacturing net sales were $134,615 thousand in fiscal 2026, representing 94% of total net sales. Patent and trademark licensing net sales were $7,900 thousand in fiscal 2026, representing 6% of total net sales. The company manufactures products in a variety of forms, including capsules, tablets, chewable wafers, and powders. The patent and trademark licensing segment includes the direct sale of beta-alanine raw material and licensing of patent and trademark rights related to CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn®.

During fiscal 2026, the company launched CarnoSyn® 4X on April 20, 2026 , which utilizes the same microencapsulation technology as TriBsyn® and is positioned for the Sports Nutrition market. On May 4, 2026 , the company announced expanded market applications for TriBsyn®, unlocking new opportunities across the beverage, dairy, and medical nutrition categories. The company also entered into a new domestic credit facility with Legacy Corporate Lending, LLC on May 18, 2026 , which includes a new term loan for $11.0 million and a working capital line of credit with a maximum borrowing capacity of $20.0 million . On June 17, 2026 , NAIE entered into a new credit line with UBS Switzerland AG with maximum borrowing capacity of CHF 2.0 million . The company recognized a non-cash impairment charge of $10.4 million to write down property and equipment related to its Carlsbad, California manufacturing facility.

Consolidated net sales increased 10% in fiscal 2026 to $142,515 thousand from $129,860 thousand in fiscal 2025. Private-label contract manufacturing net sales increased 11% primarily due to increased orders from one of the largest customers and several other existing customers. Patent and trademark licensing revenue decreased 2% to $7.9 million from $8.1 million in fiscal 2025. The company experienced a net loss of $20,695 thousand in fiscal 2026, compared to a net loss of $13,575 thousand in fiscal 2025. The increased loss was primarily due to the non-cash impairment charge of $10.4 million .

Business Outlook & Financial Sufficiency

Management anticipates the company will experience a net loss for fiscal 2027 . The overall sales forecast for fiscal 2027 includes an expected increase in sales as compared to fiscal 2026 . Management expects upward pricing pressures will continue for raw materials, packaging components, and other costs throughout fiscal 2027 as a result of limited supplies of various ingredients and the impact of inflationary factors, including higher labor, transportation costs, and tariffs on goods imported from overseas.

The company plans to continue expanding the commercialization of its beta-alanine patent and trademark estate in Sports Nutrition, Wellness and Healthy Aging and Medical food channels with its CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn® beta-alanine product lines. The company believes SR CarnoSyn® provides a superior delivery system for CarnoSyn® beta-alanine due to its sustained-release profile, which supports higher daily dosing and improved muscle carnosine retention. With the introduction of CarnoSyn® 4X and TriBsyn®, the company believes it is well positioned to expand its presence in the Wellness and Healthy Aging markets. These products are available as raw material powders, offering formulation flexibility for customers, and are suited for ready-to-drink beverages, protein drinks, dairy-based products, gummies, and medical nutrition products. The company is also developing several additional innovations that could result in new patentable products for the CarnoSyn® Brands portfolio.

The company plans to continue its 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 during fiscal 2027 . The company believes there is significant opportunity with the commercialization of its patent estate through the introduction of existing patented ingredients into additional markets and the introduction of new beta-alanine product offerings. The company believes several additional markets and distribution channels represent significant growth opportunities for its SR CarnoSyn®, CarnoSyn® 4X, and TriBsyn® product offerings.

Management is evaluating cost containment and reduction opportunities in an effort to improve financial results while also improving working capital usage . The company plans to consolidate its facilities and factories to improve operational efficiencies and manage costs and business risks to improve profitability. Management believes production can be effectively consolidated into its Vista, California manufacturing facility with no disruptions to production of customers' products .

The company has listed its corporate headquarters for sale and is actively marketing the property for sale . The Board of Directors also approved management to sell the manufacturing facility in Carlsbad, California . Management believes unlocking the capital currently held in this facility will allow the company to extinguish the outstanding term-note on this property, reduce persistent excess capacity in the contract manufacturing segment, and better size the company for sustainable growth .

The company expects to continue to incur patent compliance expenses during fiscal 2027 and beyond . Patent litigation and prosecution expense is expected to be between $0.1 million and $0.3 million during fiscal 2027 .

The company anticipates current inflation rates will have a negative impact on its fiscal 2027 operations . The company is monitoring the drivers and working with suppliers and customers to mitigate the impact on its results. The company expects increasing raw material and product cost pricing pressures will continue throughout fiscal 2027 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.

The company anticipates it will not be able to comply with the fixed charge coverage ratio covenant required under the Loan and Security Agreement as of September 30, 2026 due to one of its largest private-label contract manufacturing customer's material downward revisions to their forecast of projected orders and purchases during fiscal year 2027. There is no assurance the lender will agree to a waiver, amendment, or other remedy .

Management Sentiments & Priorities

Management's message emphasizes a focus on long-term growth and profitability and diversifying the sales base. The company plans to leverage its state-of-the-art, certified facilities to increase the value of goods and services provided to private-label contract manufacturing customers and develop relationships with additional quality-oriented customers. Management also plans to expand the commercialization of the beta-alanine patent and trademark estate in Sports Nutrition, Wellness and Healthy Aging and Medical food channels. The company is focused on consolidating facilities and factories to improve operational efficiencies and manage costs and business risks to improve profitability. Management anticipates a net loss for fiscal 2027 but expects an increase in sales as compared to fiscal 2026 . Management has initiated a comprehensive review process to explore strategic alternatives focused on maximizing shareholder value, including evaluating a full range of strategic growth paths, potential mergers, acquisitions, joint ventures, or a strategic sale of the Company .

Financial Details

Total net sales for fiscal 2026 were $142,515 thousand , compared to $129,860 thousand in fiscal 2025, an increase of 10% . Net loss for fiscal 2026 was $20,695 thousand , compared to a net loss of $13,575 thousand in fiscal 2025. Loss per share, basic and diluted, was $3.32 for fiscal 2026, compared to $2.18 for fiscal 2025. Gross profit was $8,997 thousand in fiscal 2026, compared to $9,289 thousand in fiscal 2025, with gross profit margin decreasing from 7% to 6% . Loss from operations was $18,752 thousand in fiscal 2026, compared to $8,660 thousand in fiscal 2025. The company recognized a non-cash impairment charge of $10.4 million in fiscal 2026 related to its Carlsbad, California manufacturing facility, which significantly increased the operating loss. Fiscal 2025 results included a $1.4 million expense associated with an accrued litigation settlement and related legal costs. Other expense, net, was $1,513 thousand in fiscal 2026, compared to $2,080 thousand in fiscal 2025. The income tax provision was $0.4 million in fiscal 2026, compared to $2.8 million in fiscal 2025. Net cash used in operating activities was $8.9 million in fiscal 2026, compared to net cash provided by operating activities of $5.9 million in fiscal 2025. As of June 30, 2026, the company had $7.5 million in cash, cash equivalents and restricted cash, of which $6.3 million was held by NAIE. The company had $17.7 million available of the maximum borrowing capacity under the Legacy credit line, with outstanding borrowings of $7.7 million , and owed $10.9 million on the new term loan. As of June 30, 2025, the company had $9.9 million available of the maximum borrowing capacity on its previous credit facility, with outstanding borrowings of $1.9 million , and owed $8.9 million on the previous term loan.

Risk Factors

The company faces substantial doubt about its ability to continue as a going concern due to continued net losses and negative operating cash flows, a forecasted inability to meet the financial covenant requirements of its credit facility for the nine months ending September 30, 2026 , and insufficient cash resources to satisfy liabilities under the credit facility if the lender exercises its rights . The company's two largest customers accounted for approximately 52% of consolidated net sales in fiscal 2026, and one of these customers has materially revised downward its forecast of projected orders for fiscal 2027 . The company's patents covering instant-release beta-alanine expired in July 2026 , and a majority of its patent and trademark licensing revenue is derived from this version of CarnoSyn® . The company purchases all of its beta-alanine from a single manufacturer located in Japan , and one supplier represented more than 10% of total raw material purchases in fiscal 2026 and fiscal 2025. The company is subject to risks from tariffs on imported goods, including beta-alanine, which could adversely impact the availability and cost of raw materials .

References

  1. [1] Item 1, Business — Products, Principal Markets and Methods of Distribution
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  5. [5] Item 7, MD&A — Executive Overview
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  7. [7] Item 7, MD&A — Liquidity and Capital Resources
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  12. [12] Item 7, MD&A — Results of Operations
  13. [13] Item 7, MD&A — Executive Overview
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  23. [23] Item 1A, Risk Factors — General Risk Factors
  24. [24] Item 7, MD&A — Executive Overview
  25. [25] Item 1, Business — Sources and Availability of Raw Materials
  26. [26] Item 7, MD&A — Executive Overview
  27. [27] Item 7, MD&A — Liquidity and Capital Resources
  28. [28] Item 7, MD&A — Liquidity and Capital Resources
  29. [29] Item 1A, Risk Factors — Risks Related to the Company's Business and Industry
  30. [30] Item 1A, Risk Factors — Risks Related to the Company's Business and Industry
  31. [31] Item 7, MD&A — Liquidity and Capital Resources
  32. [32] Item 1, Business — Intellectual Property
  33. [33] Item 1A, Risk Factors — Risks Related to Litigation
  34. [34] Item 7, MD&A — Inflation
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  36. [36] Item 7, MD&A — Liquidity and Capital Resources
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  38. [38] Item 1A, Risk Factors — Risks Related to the Company's Business and Industry
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  40. [40] Item 1A, Risk Factors — Risks Related to Customer Concentration
  41. [41] Item 1A, Risk Factors — Risks Related to Customer Concentration
  42. [42] Item 1, Business — Intellectual Property
  43. [43] Item 1A, Risk Factors — Risks Related to Customer Concentration
  44. [44] Item 1A, Risk Factors — Risks Related to Operations, Manufacturing, and Technology
  45. [45] Item 1A, Risk Factors — Risks Related to Operations, Manufacturing, and Technology
  46. [46] Item 1A, Risk Factors — Risks Related to Regulations
  47. [47] Item 1A, Risk Factors — General Risk Factors
  48. [48] Item 7, MD&A — Executive Overview
  49. [49] Item 7, MD&A — Liquidity and Capital Resources
  50. [50] Item 7, MD&A — Results of Operations
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  52. [52] Item 7, MD&A — Executive Overview
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  55. [55] Item 8, Consolidated Statements of Operations
  56. [56] Item 8, Consolidated Statements of Operations
  57. [57] Item 7, MD&A — Results of Operations
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  69. [69] Item 7, MD&A — Liquidity and Capital Resources
  70. [70] Item 7, MD&A — Liquidity and Capital Resources
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Analysis on 9/28/2026