10-K

 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT

pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

FOR THE FISCAL YEAR ENDED JUNE 30, 2016

000-15701

(Commission file number)

NATURAL ALTERNATIVES INTERNATIONAL, INC. 

(Exact name of registrant as specified in its charter)

Delaware	84-1007839
(State of incorporation)	(IRS Employer Identification No.)
1535 Faraday Ave Carlsbad, CA 92008	(760) 744-7340
(Address of principal executive offices)	(Registrant’s telephone number)

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

Title of each class	Name of exchange on which registered
Common Stock, $0.01 par value per share	Nasdaq Global Market

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

None

Indicate by check mark if Natural Alternatives International, Inc. (NAI) is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933.    ☐  Yes    ☒  No

Indicate by check mark if NAI is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No

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

Indicate by check mark whether NAI has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that NAI was required to submit and post such files).    ☒  Yes     ☐  No

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

Indicate by check mark whether NAI is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒

Indicate by check mark whether NAI is a shell company (as defined in Rule 12b-2 of the Exchange Act):    ☐  Yes    ☒  No

The aggregate market value of NAI’s common stock held by non-affiliates of NAI as of the last business day of NAI’s most recently completed second fiscal quarter (December 31, 2015) was approximately $54,798,557 (based on the closing sale price of $10.34 reported by Nasdaq on December 31, 2015). For this purpose, all of NAI’s officers and directors and their affiliates were assumed to be affiliates of NAI.

As of September 8, 2016, 6,868,628 shares of NAI’s common stock were outstanding, net of 958,049 treasury shares.     

DOCUMENTS INCORPORATED BY REFERENCE

Part III (Items 10, 11, 12, 13 and 14) of this Form 10-K incorporates by reference portions of NAI’s definitive proxy statement for its Annual Meeting of Stockholders to be held December 2, 2016, to be filed on or before October 28, 2016.

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	15
Item 3.	Legal Proceedings	15
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	17
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 8.	Financial Statements and Supplementary Data	26
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		52

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 about future operating results, are forward-looking statements. Forward-looking statements in this report may include statements about:

• 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 items;

• our ability to maintain or increase our patent and trademark licensing revenues;

• our ability to develop new products, develop relationships with new customers and maintain or improve existing customer relationships;

• our ability to protect our intellectual property;

• our ability to improve operation 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;

• future levels of our revenue concentration risk;

• sources and availability of raw materials, including the limited number of suppliers of beta-alanine;

• inventories, including the adequacy of raw material and other inventory levels to meet future customer demand and the adequacy and intended use of our facilities;

• manufacturing and distribution channels, product sales and performance, and timing of product shipments;

• current or future customer orders, product returns, and potential product recalls;

• the impact on our business and results of operations and 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 reserves and allowances;

• 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;

• the sufficiency of our available cash, cash equivalents, and potential cash flows from operations to fund our current working capital needs and capital expenditures through the next 12 months;

• current and future economic and political conditions;

• 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 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).

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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 offer a wide range of innovative nutritional products and services to our clients including the following: 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 ingredient known as beta-alanine, which is primarily commercialized through the direct sale of this raw material under our CarnoSyn® trademark.

History

Originally founded in 1980, Natural Alternatives International, Inc. reorganized as a Delaware corporation in 1989. Our principal executive offices were located at 1185 Linda Vista Drive, San Marcos, California, 92078 until relocating to 1535 Faraday Ave, Carlsbad, CA 92008 during August 2016.

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

Historically, as part of our business strategy, we have sought to commercialize our patent estate through contract manufacturing, royalty and license agreements. From March 2009 through March 31, 2015, we had an agreement with Compound Solutions, Inc. (CSI) to grant a license to manufacture, offer for sale and/or sell products incorporating, using or made in accordance with our patent rights to CSI and customers of CSI who purchased beta-alanine from CSI under the CarnoSyn® trademark. During the term of this relationship, we received a fee from CSI that varied based on the quantity and source of beta-alanine sold by CSI. We terminated our relationship with CSI effective April 1, 2015 and began directly selling beta-alanine, and licensing our related patent and trademark rights, in order to take advantage of strategic opportunities, including opportunities to provide additional contract manufacturing services, further commercialize our patent estate, and to increase our top-line revenue and profit profile.

Additionally, we have historically developed, manufactured and marketed our own branded products under the Pathway to Healing^® product line, which was aimed at restoring, maintaining and improving the health of the users. However, due to the steady decline in sales of this product line over the prior several years, we decided to discontinue the product line. All termination activities related to the Pathway to Healing® product line were substantially completed by December 31, 2014. We did not change the financial presentation in this report to reflect the branded products segment as “Discontinued Operations” as the wind down of this product line did not meet the criteria for discontinued operations presentation as prescribed by applicable accounting regulations (ASC 205-20).

Unless the context requires otherwise, all references in this report to the “Company,” “NAI,” “we,” “our,” and “us” refer to Natural Alternatives International, Inc. and, as applicable, and 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 manufacturing facilities were recertified on December 20, 2012 by the Therapeutic Goods Administration (TGA) of Australia after its audit of our GMP. 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 facility and quality systems for compliance with good manufacturing practices, and a renewed 36 months GMP clearance is expected in the coming months.

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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 establishing 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 they are represented to possess. 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, 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 GMP requirements as 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 striving to provide information needed to make healthy choices and informed decisions regarding one’s health.  NAI was issued its initial certification in December 2011 and received its most recent renewal in November 2015.  Not only does this approval demonstrate another level of regulatory compliance for NAI, it may also ease the approval process for our customers who import products into Canada.

During March 2015, our California facilities became certified as Organic Processor and Handler by Natural Food Certifiers (NFC).  This certification demonstrates that we meet the USDA National Organic Program standards and allows us to expand our contract manufacturing and packaging services to include Organic labeled products.  The certification requires annual renewal and we believe we will obtain renewals annually. 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 that the facility, processes, and 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 also operates a manufacturing, warehousing, packaging and distribution facility in Manno, Switzerland. In January 2004, NAIE obtained a pharmaceutical license to process pharmaceuticals for packaging, import, export and sale within Switzerland and other countries from the Swissmedic Authority of Bern, Switzerland. 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 GMP. 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. Our Swissmedic licenses are valid until February 2019.

In addition to our operations in the U.S. and Switzerland, we have had a representative in Japan for many years who provides a range of services to our customers currently present in or seeking to expand into the Japanese market and other markets in the Pacific Rim. These services include regulatory and marketing assistance along with guidance and support in adapting products to these markets.

Business Strategy

Our goals are to achieve long-term growth and profitability and to diversify our sales base. To accomplish these goals, we have 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 assist in developing relationships with additional quality oriented customers;

• expand the commercialization of our beta-alanine patent estate through raw material sales, introduction of new products, new contract manufacturing opportunities, license and sub-license agreements, and protecting our proprietary rights;

• provide strategic partnering services to our private-label contract manufacturing customers, as described below under “Products, Principal Markets and Methods of Distribution”; and

• 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 nutritional supplements and their adherence to label claims through the 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 provide us with a sustainable competitive advantage by providing our customers with a high degree of confidence in the products we manufacture.

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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 as associates or other individuals 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® 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 that there are several other markets and distribution channels that represent growth opportunities for the distribution of CarnoSyn® beta-alanine. We have also recently introduced SR CarnoSyn®, which we believe is a superior form of beta-alanine based on its sustained release profile that allows for increased daily dosing and improved muscle retention of carnosine. We believe the introduction of SR CarnoSyn® beta-alanine is an important step in the further commercialization of our patent estate and is even more important because our patents related to instant release beta-alanine expire in August 2017 while our patents for SR CarnoSyn® extend through 2026.

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 response television 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, including 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 trademark through 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):

	2016				2015
	$		%		$		%
Private-label Contract Manufacturing	$	92,420		81	$	69,670		88
Patent and Trademark Licensing		21,781		19		9,140		11
Branded Products		-		-		698		1
Total Net Sales	$	114,201		100	$	79,508		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 direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for product claims and marketing initiatives. We believe our commitment to research and development, as well as our facilities and strategic alliances with our suppliers and customers, allow us to effectively identify, develop and market high-quality and innovative products.

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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 included as a component of the price we charge to manufacture and deliver their products. Research and development costs, which include costs associated with international regulatory compliance services we provide to our customers, are expensed as incurred.

Our research and development expenses for the last two fiscal years ended June 30 remained consistent at $1.1 million in each fiscal period.

Sources and Availability of Raw Materials

We use 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 patent estate 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. During fiscal 2016, we did not have any suppliers that represented more than 10% of our total raw material purchases.

Our contract manufacturing business did not experience any significant shortages or difficulties obtaining adequate supplies of raw materials during fiscal 2016. However, there continues to be significant pricing pressures associated with various vitamins, minerals and herbs in the raw material marketplace. In early March 2011, the factory that produces the major supply of beta-alanine sold under our CarnoSyn® trade name was damaged as a result of the massive earthquake off the coast of Sendai, Japan resulting in a significant beta-alanine supply interruption. While this Japanese factory resumed operations in June 2011 and was able to produce beta-alanine at historical levels during fiscal 2012, there is no assurance this or any other facility will not incur future production interruptions as a result of causes outside our control. Throughout fiscal 2017, we expect to continue to experience difficulties in sourcing various raw materials as a result of worldwide shortages, and other supply constraints. We also believe raw material and product cost pricing pressures will continue throughout fiscal 2017 as a result of limited supplies of various ingredients and the effects of higher labor and transportation costs.

Customers

We have two private-label contract manufacturing customers that individually represent more than 10% of our consolidated net sales. The loss of any one 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, herbs, 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, internet marketing and mail order).

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 expand;

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

• our ability to attract and retain qualified personnel;

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• 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 believe it is possible 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 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 these and other authorities regulate include, among others:

• product claims and advertising;

• product labels;

• product ingredients; and

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

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 new 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 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, such as claims that a product may heal, mitigate, cure or prevent an illness, disease or malady, trigger drug status.

In December 2006, the Dietary Supplement and Nonprescription Drug Consumer Protection Act was passed, which further revised the provisions of the Federal Food, Drug and Cosmetic Act. Under the 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 for us to notify the FDA of any serious adverse event report within 15 business days of receiving such report. Events reported to the FDA would not be considered an admission from a company that its product caused or contributed to the reported event. We are committed to meeting or exceeding the requirements of this Act.

We are also subject to a variety of other regulations in the U.S., including those relating to bioterrorism, taxes, labor and 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.

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 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. 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.

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Intellectual Property

Trademarks. We have developed and use registered trademarks in our business, particularly relating to corporate, brand and product names. We own 30 trademark registrations, including thirteen incontestable registrations, in the U.S. Federal registration of a trademark affords the owner nationwide exclusive trademark rights in the registered mark and the ability to prevent others from using the same or similar marks. However, to the extent a common law user has made prior use of the 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 rights in that geographic area.

We have sixteen foreign trademark registrations.  One trademark is registered with the Australian Patent and Trademark Office, two with the Canadian Patent and Trademark Office, two with the Chinese Patent and Trademark Office, two with the Trademarks and Designs Registration Office of the European Union, two with the Hong Kong Patent and Trademark Office, three with the Japanese Patent and Trademark Office, two with the South Korean Patent and Trademark Office, and two with the Swiss Patent and Trademark Office.  We currently have no additional trademark applications pending in any other jurisdictions outside of the United States. We also claim common law ownership and protection of certain unregistered trademarks and service marks. Trademark rights are based on use of a mark. Common law use of a mark offers protection of a mark within the particular geographic area in which it is 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 future trademark applications will be granted or our current trademarks 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 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 fourteen U.S. patents and thirty-two 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. We also license rights to certain uses that are covered by the patents to the prior owners. The royalty payments and license continue until the expiration of the patents. We also sell beta-alanine, and license our patent and trademark rights related to beta-alanine. Twenty-four of our patents expire in 2017, 1 patent expires in 2024 and twenty-one patents expire in 2026.

Beginning in fiscal 2009, the licensing, raw material sales, and revenues we have received associated with the sale and license of beta-alanine under the CarnoSyn® trade name have grown steadily from $515,000 in fiscal 2009 to $21.8 million in fiscal 2016. During fiscal 2016, our revenues included $235,000 of royalties and $21.6 million related to the direct sale of beta-alanine. We incurred intellectual property litigation and patent compliance expenses of approximately $2.0 million during fiscal 2016 primarily in connection with our efforts to protect our proprietary rights and patent estate. We expect to continue to incur these types of litigation expenses during fiscal 2017.

Employees

As of June 30, 2016, we employed 177 full-time employees in the U.S., three of whom held executive management positions. Of the remaining full-time employees, 39 were employed in research, laboratory and quality control, 16 in sales and marketing, and 119 in manufacturing and administration. From time to time we use temporary personnel to help us meet short-term operating requirements. These positions typically are in manufacturing and manufacturing support. As of June 30, 2016, we had 39 temporary personnel.

As of June 30, 2016, NAIE employed an additional 42 full-time employees and 27 temporary personnel. Most of these positions were in the areas of manufacturing and manufacturing support.

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

Seasonality

Although we believe there is little if any material impact on our business or results of operations from seasonal factors, we have experienced and expect to continue to experience variations in quarterly net sales due to the timing of private-label contract manufacturing and CarnoSyn® beta-alanine raw material orders.

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Financial Information about Our Business Segments and Geographic Areas

Our operations are comprised of three 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® trademark.

• Branded products, in which we marketed and distributed branded nutritional supplements through direct-to-consumer marketing programs, and under which we developed, manufactured and marketed our own products and worked with nationally recognized persons to develop brand name products that reflected their individual approach to restoring, maintaining or improving health. We discontinued the sole remaining product line in this segment effective September 15, 2014. All termination activities related to the last remaining product line were substantially completed by December 31, 2014. We did not change the financial presentation in this report to reflect the branded products segment as “Discontinued Operations” as the wind down of this product line did not meet the criteria for discontinued operations presentation as prescribed by applicable accounting regulations (ASC 205-20).

Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe, Australia and Asia, as well as Canada, Mexico and South Africa. Our primary market outside the U.S. is Europe. 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.

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ITEM 1A.      RISK FACTORS

You should carefully review and consider the risks described below, as well as the other information in this report and in other reports and documents we file with the SEC when evaluating our business and future prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties, not presently known to us, or that we currently see as immaterial, may also occur. 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 you could lose all or a portion of the value of your investment in our common stock. You should not draw any inference as to the magnitude of any particular risk from its position in the following discussion.

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 its business, personnel or the timing or amount of its 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, 2016, sales to our largest customer, The Juice Plus+ Company, were approximately 43% of our consolidated net sales. We also have one other private-label contract manufacturing customer that represented 12% of our consolidated net sales. No other customers represented more than 10% of our consolidated net sales. The loss of one of these customers or other major customers, a significant decrease in sales to these customers, or a significant change in their business or personnel, could materially affect our financial condition and results of operations. Furthermore, the timing of our customers’ orders is impacted by, among others, their marketing programs, customer demand, supply chain management, entry into new markets and 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.

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

Our business strategy depends in large part on our ability to develop new product sales from current and new customer relationships. These activities often require a significant up-front investment including, among others, customized formulations, regulatory compliance, 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 until the time we generate net sales from new products or customers, and it is possible that we may not generate material revenue from new products or customers after incurring such expenditures. 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 could be adversely affected.

We currently derive significant revenues and income from sales of beta-alanine and licensing our patents that expire in August 2017. Our ability to maintain or grow our sales of beta-alanine and license revenue from our other patents is contingent on our ability to commercialize the sale of beta-alanine under our SR Carnosyn® trademark and maintain or grow our license revenue from our other patents, which does not expire until 2026.

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®. Our patents related to instant release CarnoSyn® expire in August 2017. While we believe there will be a certain portion of the market that still sees value in utilizing our CarnoSyn® trade name, we anticipate we will be required to reduce our sales price, and license fees in order to compete with generic beta-alanine sources.

We have recently introduced SR CarnoSyn®, which we believe is a superior form of 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 2026 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 we will be successful in getting the market to transition to this new form of beta-alanine or we will be successful launching new products utilizing SR CarnoSyn® beta-alanine in former and new product channels and markets. If we are not successful it could have a material adverse effect on our business, results of operations, and financial condition.

We have incurred, and may continue to incur significant costs 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 defending this intellectual property. During fiscal 2016, we incurred approximately $2.0 million in patent litigation and prosecution expense and may incur significant similar expenses during fiscal 2017. These efforts are described in more detail under Item 3 of this report. There is no assurance we will be able to protect our intellectual property adequately or that our intellectual property rights will be upheld. If pending legal proceedings to invalidate our patent rights are successful, they 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 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 successful, 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 such infringement claims are asserted against us, we may seek to obtain a license under the third party’s intellectual property rights. There can be no assurance a license would be available on terms acceptable or favorable to us, if at all.

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Our operating results will vary. We have experienced a decline in net sales and incurred losses in past years 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 increased during fiscal 2016 as compared to fiscal 2015 but there can be no assurance our net sales will continue to improve in the near term, or we will earn a profit in any given year. We have experienced net losses in the past 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 2017, 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 the 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 those products.

Before commencing operations of marketing our products in 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. Approvals or licensing may be conditioned on reformulation of products or 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.

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 requirements 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, such as the one the global economy has recently experienced, could have, and recently 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 renewed or further decline in consumer demand and the level of business activity of our customers due to economic conditions could have a material adverse effect on our revenues and profit margins.

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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 2016 and fiscal 2015, we did not have any suppliers that represented more than 10% of our raw material purchases. Still, the loss of any of our major suppliers or of a supplier that provides any hard to obtain materials 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 product shortages, 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. Since fiscal 2009, 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 raw material and product cost pricing pressures have continued throughout fiscal 2016 as a result of limited supplies of various ingredients and the effects of higher labor and transportation costs. We expect these pressures to continue through fiscal 2017. 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 negative effects of cost increases 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 based on conditions outside of our control, including weather, transportation interruptions, strikes, natural disasters, or other catastrophic events.

In addition, our efforts to commercialize our patent estate and the revenues we receive from related supply agreements, are substantially dependent on the availability of the raw material beta-alanine and sales of such raw material or products incorporating such raw material. The availability of beta-alanine, and thus sales of such raw material and products using such material, would be negatively impacted by any shortages, interruptions and similar risks described above, which could in turn adversely affect the amount of revenue and product margin we earn from the sale of beta-alanine. In early March 2011, the factory that produces a major supply of beta-alanine sold under our CarnoSyn® trade name was damaged as a result of the massive earthquake off the coast of Sendai, Japan resulting in a significant beta-alanine supply interruption. As a result, our fiscal 2011 fourth quarter beta-alanine licensing revenue declined 85% from the preceding quarter ended March 31, 2011. While this Japanese factory resumed operations in June 2011 and is producing beta-alanine at historical levels, there is no assurance this or any other facility will not incur future production interruptions as a result of additional environmental or other causes outside our control.

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

The market for our products, and those of our customers, is highly competitive. Many of our competitors are substantially larger and have greater financial resources and broader name recognition than we do. Our larger 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 a significant market share. Our competitors may not stress the level of quality we provide and could manufacture at lower costs, they are largely private and not subject to the same disclosure requirements of us as a publicly traded company. Increased competition could result in price reductions, reduced gross 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 that we will be able to compete 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 the risk of injury to consumers from tampering by unauthorized third parties or product contamination. We could be exposed to future product liability claims that, among others: 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. The cost of this coverage has increased dramatically in recent years, while the availability of adequate insurance coverage has decreased. 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 our insurance will be adequate to cover any liability we may incur, or our insurance will continue to be available at an economically reasonable cost.

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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 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 our 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 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:

• changes and limits in import and export controls;

• increases in custom duties and tariffs;

• changes in government regulations and laws;

• coordination of geographically separated locations;

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

• changes in currency exchange rates;

• economic and political instability; and

• 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. may 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 our industry, our competitors, our customers, 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 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, maintain and motivate highly qualified management personnel. Competition for qualified individuals can be intense, 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. Our inability to retain a skilled professional management team could adversely affect our ability to successfully execute our business strategies and achieve our goals.

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

We manufacture the vast majority of our products at our manufacturing facility in California. As a result, we are dependent on the uninterrupted and efficient operation of this facility. Our manufacturing operations are subject to power failures, blackouts, the breakdown, failure or substandard performance of our leased facilities, our equipment, the improper installation or operation of equipment, natural or other disasters, 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 are evaluating various emergency, contingency and disaster recovery plans and maintain business interruption insurance, there can be no assurance the occurrence of these or any other operational problems at our facilities in California or at NAIE’s facility in 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. The operation of the third party service provider’s facilities is subject to the interruption and similar risks 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:

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

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

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

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

• potential loss of key employees of the acquired company;

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

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

• potential impairment charges, which may be significant, against goodwill and purchased intangible assets acquired in the 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 the 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 23% of our outstanding shares of common stock as of June 30, 2016, including approximately 17% of our outstanding shares of common stock beneficially owned by Mark LeDoux, our Chief Executive Officer and Chairman of the Board, and his family and affiliates. 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:

• transactions resulting in a change in control;

• mergers and acquisitions;

• tender offers;

• election of directors; and

• 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.

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Business interruptions could limit our ability to operate our business.

Our operations, including those of our suppliers, are vulnerable to damage or interruption from computer viruses, human error, natural disasters, telecommunications failures, intentional acts of vandalism, and similar events. While we have established a formal disaster recovery plan, our back-up operations and our business interruption insurance may not be adequate to compensate us for losses that occur. A significant business interruption could result in losses or damages incurred by us and require us to cease or curtail our operations. 

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. Furthermore, if we fail to maintain certain loan covenants we may no longer have access to our credit line. Our credit line terminates in January 2019 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 lower our credit ratings. We may not be able to market such 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.

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 a 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. Thus, there is no assurance we would be able to raise additional capital if needed. To the extent we do raise additional capital the ownership position of existing stockholders would be diluted. Similarly, there can be no assurance additional financing will be available if needed or that it will be available on favorable terms. 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 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 the proposal 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 limit 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:

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

• fluctuations in our financial results;

• relatively low trading volumes;

• future offerings of our common stock or other securities;

• the general condition of the nutritional supplement industry;

• increased competition;

• regulatory action;

• adverse publicity;

• manipulative or illegal trading practices by third parties; and

• product 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.

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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. 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, 2016. 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
San Marcos, CA USA(1)	NAI corporate headquarters, previous		29,500	Leased	August 2016
Vista, CA USA(2),(3)	Manufacturing, warehousing, packaging and distribution		162,000	Leased	March 2024
Manno, Switzerland(4)	Manufacturing, warehousing, packaging and distribution		94,217	Leased	June 2019
Carlsbad, CA USA(5)	NAI corporate headquarters, new		20,981	Owned	N/A

(1) This facility was previously owned and sold during February 2016, and was leased though a sale-leaseback agreement through August 2016. The property was vacated during August 2016

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

(3) We use approximately 93,000 square feet for production, 60,000 square feet for warehousing and 9,000 square feet for administrative functions.

(4) This facility is used by NAIE, our wholly owned Swiss subsidiary, in connection with our private-label contract manufacturing segment.

(5) We purchased the Carlsbad facility in March 2016 and began to occupy as our new corporate headquarters during August 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 will result in a material adverse effect on our business, consolidated financial condition, or results of operations. However, a settlement payment or unfavorable outcome could adversely impact our 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.

As of September 19, 2016, except as described below, 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.

In 2011, NAI filed a lawsuit against Woodbolt Distribution, LLC, also known as Cellucor (“Woodbolt”), and both NAI and Woodbolt filed additional lawsuits and countersuits against each other. NAI and Woodbolt subsequently settled all of the lawsuits between them, but not before the United States Patent and Trademark Office (“USPTO”) at Woodbolt’s request rejected the claims of one NAI patent. The ruling rejecting the claims of one NAI patent was subsequently confirmed by the Patent Trial and Appeal Board (PTAB) at the USPTO, and that confirmation is presently subject to a request by NAI for a rehearing. The NAI Patent rejected by the USPTO expires in August 2017.

On September 18, 2015, the Company filed a complaint against Creative Compounds, Inc., alleging various claims including (1) violation of Section 43 of the Lanham Act, (2) violation of California's Unfair Competition Law, (3) violation of California's False Advertising Law, (4) Trade Libel and Business Disparagement and (5) Intentional Interference with Prospective Economic Advantage. On October 23, 2015, Creative Compounds filed its answer to the Company's complaint denying the Company's allegations. A trial date of September 18, 2017 has been set by the Court. The parties are currently engaged in fact discovery. On August 24, 2016, the Company filed a separate complaint against Creative Compounds, Inc., alleging infringement of U.S. patent 7,825,084. No answer has been filed.

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On July 1, 2016, the Company filed a complaint in U.S. District Court for the Southern District of California against Cenegenics, LLC, alleging infringement of U.S. patents 7,504,376 and 7,825,084. On August 3, 2016, the Company filed an amended complaint to assert infringement of the same patents against Cenegenics' contract manufacturer, Atlantic-Pro Nutrients d/b/a Xymogen, LLC. No answer has been filed by either defendant to date.

On July 6, 2016, the Company filed a complaint against Allmax Nutrition, Inc. in U.S. District Court for the Southern District of California, alleging (1) infringement of U.S. patents 5,965,596, 6,172,098, 7,825,084 and RE 45,947, (2) violation of Section 32 of the Lanham Act, and (3) copyright infringement. No answer has been filed by Allmax to date.

On August 2, 2016, the Company filed a complaint against Muscle Sports Products, LLC in U.S. District Court for the Southern District of California, alleging infringement of its CarnoSyn® and CarnoSyn Beta Alanine® trademarks. No answer has been filed to date.

Although we believe the above litigation matters are supported by valid claims, there is no assurance NAI will prevail in these litigation matters or in similar proceedings it may initiate or that litigation expenses will be as anticipated

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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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, 2016 and 2015:

	Fiscal 2016				Fiscal 2015
	High		Low		High		Low
First Quarter	$	6.41	$	5.60	$	6.70	$	4.95
Second Quarter	$	10.74	$	5.40	$	6.63	$	5.00
Third Quarter	$	13.80	$	6.72	$	5.72	$	5.02
Fourth Quarter	$	14.50	$	10.05	$	5.88	$	5.31

Holders

As of September 8, 2016, there were approximately 220 stockholders of record of our common stock. On that same date, the last sales price of our common stock as reported on Nasdaq was $10.89 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.

Recent Sales of Unregistered Securities

During the fiscal year ended June 30, 2016, we did not sell or otherwise issue any unregistered securities.

Repurchases

During the quarter ended June 30, 2016, we did not repurchase any shares of our common stock.

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, 2016:

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 of Outstanding Restricted Stock		Weighted- Average Exercise Price of Outstanding Restricted Stock		Number of Shares Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Shares Reflected in Column (a) and (c))
	(a)		(b)		(c)		(d)		(e)
Equity compensation plans approved by stockholders		140,000	$	6.36		310,321		N/A		508,104
Equity compensation plans not approved by stockholders		N/A		N/A		N/A		N/A		N/A
Total		140,000	$	6.36		310,321		N/A		508,104

ITEM 6. SELECTED FINANCIAL DATA

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

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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, 2016 and 2015 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 one or two 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® trademark.

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, contract manufacturing and license agreements.

We have historically developed, manufactured and marketed our own branded products, most recently under the Pathway to Healing® product line. However, due to the steady decline in sales of this product line over the prior several years, we decided to discontinue the product line. All termination activities related to the Pathway to Healing® product line were substantially complete by December 31, 2014. We did not change the financial presentation in this report to reflect the branded products segment as “Discontinued Operations” as the wind down of this product line did not meet the criteria for discontinued operations presentation as prescribed by applicable accounting regulations (ASC 205-20).

During fiscal 2016, our net sales were 44% higher than in fiscal 2015. Private-label contract manufacturing sales increased 33% due primarily to the sale of higher volumes of existing products to existing customers and new product sales to new and existing customers, partially offset by unfavorable foreign exchange rates as compared to the prior year period. Our foreign exchange rates as applied to sales denominated in Euro deceased to a weighted average of 1.11 EUR/USD in fiscal 2016 from a weighted average of 1.31 EUR/USD during fiscal 2015. Revenue concentration from our largest private-label contract manufacturing customer as a percentage of our total net sales increased to 43% in fiscal 2016 from 37% for fiscal 2015. We expect our fiscal 2017 revenue concentration as a percentage of consolidated net sales for this customer to be consistent with fiscal 2016.

During fiscal 2016, CarnoSyn® beta-alanine revenue increased 138% to $21.8 million as compared to $9.1 million for fiscal 2015. The increase in beta-alanine revenue was primarily due to the increase in raw material sales as a result of taking over the direct sale and distribution of beta-alanine raw materials effective April 1, 2015. We had raw material sales of beta-alanine totaling $21.6 million for fiscal 2016 and $4.4 million raw material sales during fiscal 2015. We expect our beta-alanine raw material sales during fiscal 2017 will be consistent with our fiscal 2016 sales.

During fiscal 2016, twelve new beta-alanine patents were issued to NAI.  This new intellectual property related to a broad range of beta-alanine method and composition claims which covered sustained release formulations for beta-alanine.  As of June 30, 2016, NAI possessed twenty-six beta-alanine patents and twenty sustained release beta-alanine patents.

To protect our CarnoSyn® business and its underlying patent estate, we incurred litigation and patent compliance expenses of approximately $2.0 million during fiscal 2016 and $1.6 million during fiscal 2015. The majority of our litigation activity was related to litigation with Woodbolt Distribution, LLC, also known as Cellucor (Woodbolt), which was settled during the third quarter of 2016 and we do not expect costs related to this case to continue. We describe our efforts to protect our patent estate in more detail under Item 1 of Part II of this report. 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 of the raw material beta-alanine when and in the amounts needed, the ability to expand distribution of beta-alanine to new and existing customers, the ability to further commercialize our existing patents, and the continued compliance by third parties with our patent and trademark rights.

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Net sales from our branded products declined 100% in fiscal 2016 as compared to fiscal 2015 due to our product line discontinuation efforts described above.

During fiscal 2017, 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 market for our sustained release form of beta-alanine marketed under our SR Carnosyn® trademark, new contract manufacturing opportunities, license agreements and protecting our proprietary rights;

• 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). Our significant accounting policies are described in the notes to our consolidated financial statements. The preparation of financial statements in accordance with GAAP requires that we make estimates and assumptions that affect the amounts reported in our financial statements and their accompanying notes. We have identified certain policies that we believe are important to the portrayal of our financial condition and results of operations. These policies require 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 such estimates or assumptions. Some of our critical accounting policies include those listed below.

Revenue Recognition

To recognize revenue, four basic criteria must be met: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the seller’s price to the buyer is substantially fixed or determinable at the date of sale; (b) the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (c) the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (d) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (e) the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (f) the amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue from shipments where title passes upon delivery is deferred until the shipment has been delivered.

We record reductions to gross revenue for estimated returns of private-label contract manufacturing products and branded products. The estimated returns are based on the trailing six months of private-label contract manufacturing gross sales and our historical experience for both private-label contract manufacturing and branded product returns. However, the estimate for product returns does not reflect the impact of a potential large product recall resulting from product nonconformance or other factors as such events are not predictable nor is the related economic impact estimable.

We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold by us under our CarnoSyn® and SR Carnosyn® trademarks, and combined with a license to our patent estate. We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $21.8 million during fiscal 2016 and $9.1 million during fiscal 2015. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $865,000 during fiscal 2016 and $806,000 during fiscal 2015.

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Inventory Reserve

We operate primarily as a private-label contract manufacturer and build products based upon anticipated demand or following receipt of customer specific purchase orders. From time to time, we build inventory for private-label contract manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or canceled at the customer’s request. We value inventory at the lower of cost or market on an item-by-item basis and establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve amount in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, the estimated time required to sell such inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value. These adjustments are estimates, which could vary significantly, either favorably or unfavorably, from actual requirements if future economic conditions, customer demand or other factors differ from expectations.

Accounting for Income Taxes

We account for uncertain tax positions using the more-likely-than-not recognition threshold. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2016 and June 30, 2015, we had not recorded any tax liabilities for uncertain tax positions.

We estimate income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items, such as property and equipment depreciation, for tax and financial reporting purposes. Actual income taxes could vary from these estimates due to future changes in income tax law or results from final tax examination reviews.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that it is more likely than not that we will not realize all or part of our deferred tax assets in the future, we will record an adjustment to the carrying value of the deferred tax asset, which would be reflected as income tax expense. Conversely, if we determine we will realize a deferred tax asset, which currently has a valuation allowance, we will reverse the valuation allowance, which would be reflected as an income tax benefit.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the fourth quarter of fiscal 2016, we concluded that it was more likely than not that we would be able to realize the benefit of our federal and state deferred tax assets in the future. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. As a result, we reduced the valuation allowance on our net deferred tax assets by $193,000 at June 30, 2016. We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.

We have not recorded U.S. income tax expense for NAIE’s retained earnings that we have declared as indefinitely reinvested offshore, thus reducing our overall income tax expense. The earnings designated as indefinitely reinvested in NAIE are based on the actual deployment of such earnings in NAIE’s assets and our expectations of the future cash needs of NAIE and NAI. Income tax laws also are a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

We carefully review several factors that influence the ultimate disposition of NAIE’s retained earnings declared as reinvested offshore, and apply stringent standards to overcome the presumption of repatriation. Despite this approach, because the determination involves our future plans and expectations of future events, the possibility exists that amounts declared as indefinitely reinvested offshore may ultimately be repatriated. For instance, NAI’s actual cash needs may exceed our current expectations or NAIE’s actual cash needs may be less than our current expectations. Additionally, changes may occur in tax laws and/or accounting standards that could change our determination of the status of NAIE’s retained earnings. This would result in additional income tax expense in the fiscal year in which we determine that amounts are no longer indefinitely reinvested offshore.

On an interim basis, we estimate what our effective tax rate will be for the full fiscal year and record a quarterly income tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, we refine our estimate based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to our expected effective tax rate for the fiscal year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate.

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Derivative Financial Instruments

We may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted transactions denominated in Euros. We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts and currency options. To the extent we use derivative financial instruments, we account for them using the deferral method, when such instruments are intended to hedge identifiable, firm foreign currency commitments or anticipated transactions and are designated as, and effective as, hedges. Foreign exchange exposures arising from certain transactions that do not meet the criteria for the deferral method are marked-to-market.

We recognize any unrealized gains and losses associated with derivative instruments in income in the period in which the underlying hedged transaction is realized. In the event the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2016, we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). These contracts will mature over the next 12 months.

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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, 2016				June 30, 2015				Increase (Decrease)
Private-label contract manufacturing	$	92,420	81	%	$	69,670	88	%	$	22,750		33	%
Patent and trademark licensing		21,781	19	%		9,140	11	%		12,641		138	%
Branded products		–	–	%		698	1	%		(698	)	(100	)%
Total net sales		114,201	100	%		79,508	100	%		34,693		44	%
Cost of goods sold		88,943	78	%		65,169	82	%		23,774		37	%
Gross profit		25,258	22	%		14,339	18	%		10,919		76	%
Selling, general & administrative expenses		13,000	11	%		10,180	13	%		2,820		28	%
Income from operations		12,258	11	%		4,159	5	%		8,099		193	%
Other income, net		1,314	1	%		148	0	%		1,166		785	%
Income before income taxes		13,572	12	%		4,307	5	%		9,265		213	%
Provision for income taxes		4,026	4	%		961	1	%		3,065		319	%
Net income	$	9,546	8	%	$	3,346	4	%	$	6,200		185	%

Private-label contract manufacturing net sales increased 33% primarily due to the sale of higher volumes of existing products to existing customers and new product sales to new and existing customers, partially offset by unfavorable foreign exchange rates as compared to the prior year period. Our foreign exchange rates as applied to sales denominated in Euro deceased to a weighted average of 1.11 EUR/USD in fiscal 2016 from a weighted average of 1.31 EUR/USD during fiscal 2015. Net sales to our largest customer represented a majority of our increase in private-label contract manufacturing sales, which included an increase in international sales of 45% and an increase in domestic sales of 90%. The increase in international sales during fiscal 2016 is primarily due to increased consumer demand, partially offset by the decreased Euro foreign exchange rate as compared to fiscal 2015. The domestic increase is primarily due to sales of a new product we were awarded in fiscal 2016, partially offset by a decrease in shipments of existing products in fiscal 2016 as compared to fiscal 2015 related to the timing of orders.

Net sales from our patent and trademark licensing segment increased 138% during fiscal 2016. During fiscal 2016, patent and trademark licensing sales included $0.2 million of royalty income, $21.6 million in direct beta-alanine raw material sales, and zero license fees. During fiscal 2015, patent and trademark licensing sales included $4.7 million of royalty income, $4.4 million in direct beta-alanine raw material sales, and zero license fees. The increase in beta-alanine raw material sales was a result of our decision to take over the direct sale and distribution of beta-alanine effective April 1, 2015. As part of this decision, we allowed our former agreement with CSI to expire as of March 31, 2015, which also discontinued our royalty income stream.

Net sales from our branded products declined 100% in fiscal 2016 as compared to fiscal 2015 due to the discontinuation of our Pathway to Healing® product line. All termination activities related to the Pathway to Healing® product line were substantially complete by December 31, 2014.

Consolidated gross profit margin increased 4.1 percentage points during fiscal 2016 primarily due to the following:

	Percentage Change
Contract manufacturing:
Shift in sales mix and material cost		(4.6	)(1)
Overhead expenses		4.8	(1)
Incremental direct and indirect labor		2.7	(1)
Patent and trademark licensing		1.7	(2)
Branded products		(0.5	)(3)
Total		4.1

1 Private-label contract manufacturing gross profit margin contribution increased 2.9 percentage points in fiscal 2016 as compared to fiscal 2015. The increase in gross profit as a percentage of sales in fiscal 2016 was primarily driven by improved operational throughput and lower per unit manufacturing costs partially offset by the shift in sales and material mix between the periods, including lower average Euro exchange rates.

2 During fiscal 2016, patent and trademark licensing gross profit margin contribution increased 1.7 percentage points due primarily to patent and trademark revenue representing a higher percentage of consolidated net sales on a period over period basis. In addition, we took over the raw material sale and distribution activities for beta-alanine in the fourth quarter of fiscal 2015, which resulted in additional profit contribution per sales dollar during fiscal 2016.

3 Branded products gross profit margin contribution as a percentage of consolidated net sales decreased 0.5 percentage points during fiscal 2016 due to the discontinuation of our Pathway to Healing^® product line.

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Selling, general and administrative expenses increased $2.8 million, or 28%, during fiscal 2016 as compared to fiscal 2015. This increase was primarily due to increased employee compensation costs, increased litigation and patent compliance expenses, and sales and marketing expenses associated with our patent and trademark licensing segment. The increase in expenses associated with our patent and trademark licensing segment are primarily associated with taking over the direct sale and distribution of beta-alanine effective April 1, 2015 and with our efforts to further commercialize our CarnoSyn® beta-alanine patent estate. Our efforts to further commercialize our CarnoSyn® patent estate included marketing efforts designed to increase CarnoSyn® brand awareness and R&D efforts to develop our recently launched SR CarnoSyn® beta-alanine products. We expect to continue these efforts during fiscal 2017 as we launch SR CarnoSyn® in existing and new markets.

Other income, net increased $1.2 million during fiscal 2016 as compared to fiscal 2015. The increase for fiscal 2016 is due primarily to the sale of our domestic corporate headquarters in San Marcos, CA which resulted in a one-time pre-tax gain of $1.6 million.

Our income tax expense increased $3.1 million during fiscal 2016 as compared to fiscal 2015. The increase is primarily due to increased consolidated pre-tax income and a higher effective tax rate due to domestic operations representing a larger portion of consolidated pre-tax income.

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 $9.3 million in fiscal 2016 compared to net cash provided by operating activities of $2.7 million in fiscal 2015.

Net income increased by $6.2 million to $9.5 million during fiscal 2016 as compared to net income of $3.3 million in the prior fiscal year. At June 30, 2016, 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 $3.3 million in cash compared to using $3.1 million in fiscal 2015. The increase in cash used by accounts receivable during fiscal 2016 was primarily due to increased amounts due associated with our patent and trademark business primarily due to timing of sales year over year. The average number of days our accounts receivable were outstanding was 37 days during fiscal 2016, as compared to 38 days for fiscal 2015.

Increases in inventory used $8.2 million in cash during fiscal 2016 compared to providing $276,000 in fiscal 2015. The change in cash activity from inventory during fiscal 2016 was primarily related to inventory purchased to support growing private-label contract manufacturing demand, as well as inventory purchased to support our patent and trademark licensing business as a result of taking over the direct sales and distribution activities as of April 1, 2015. Changes in accounts payable and accrued liabilities provided $8.0 million in cash during fiscal 2016 compared to using $520,000 during fiscal 2015. The change in cash flow activity related to accounts payable and accrued liabilities is primarily due to the timing of inventory receipts and payments.

Approximately $2.2 million of our operating cash flow was generated by NAIE in fiscal 2016. As of June 30, 2016, NAIE’s undistributed retained earnings of $17.8 million were considered indefinitely reinvested.

Cash used in investing activities in fiscal 2016 was $7.4 million compared to $1.6 million in fiscal 2015. Capital expenditures were $10.4 million during fiscal 2016 compared to $1.7 million in fiscal 2015. Capital expenditures during fiscal 2016 and fiscal 2015 were primarily for manufacturing equipment in our Vista, California and Manno, Switzerland facilities and for the purchase of our new corporate headquarters in Carlsbad, California. The capital expenditures during fiscal 2016 were partially offset by proceeds from the sale of equipment and sale of our former headquarters of $3.0 million as compared to $90,000 in fiscal 2015.

At June 30, 2016 and June 30, 2015, on a consolidated basis, we had no outstanding debt balances.

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On February 1, 2016, we executed a new Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement replaces the previous credit facility and provides us with a line of credit of up to $10.0 million. There was no commitment fee required as part of this agreement. There are no amounts currently drawn under the line of credit.

Under the terms of the Credit Agreement, borrowings are subject to eligibility requirements including maintaining (i) a ratio of total liabilities to tangible net worth of not greater than 1.25 to 1.0 at any time; and (ii) a ratio of total current assets to total current liabilities of not less than 1.75 to 1.0 at each fiscal quarter end. Any amounts outstanding under the line of credit will bear interest at a fixed or fluctuating interest rate as elected by NAI from time to time; provided, however, that if the outstanding principal amount is less than $100,000 such amount shall bear interest at the then applicable fluctuating rate of interest. If elected, the fluctuating rate per annum would be equal to 1.25% above the daily one month LIBOR rate as in effect from time to time. If a fixed rate is elected, it would equal a per annum rate of 1.25% above the LIBOR rate in effect on the first day of the applicable fixed rate term. Any amounts outstanding under the line of credit must be paid in full on or before January 31, 2019. Amounts outstanding that are subject to a fluctuating interest rate may be prepaid at any time without penalty. Amounts outstanding that are subject to a fixed interest rate may be prepaid at any time in minimum amounts of $100,000, subject to a prepayment fee equal to the sum of the discounted monthly differences for each month from the month of prepayment through the month in which the then applicable fixed rate term matures.

Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures. We also have a foreign exchange facility with Wells Fargo in effect until January 31, 2019, and with Bank of America, N.A. in effect until August 15, 2017.

On June 30, 2016, we were in compliance with all of the financial and other covenants required under the Credit Agreement.

On September 22, 2006, NAIE, our wholly owned subsidiary, entered into a credit facility with Credit Suisse to provide NAIE with a credit line of up to CHF 1.3 million, or approximately $1.3 million, which was the initial maximum aggregate amount that could be outstanding at any one time under the credit facility. This maximum amount is reduced annually by CHF 160,000, or approximately $163,000. On February 19, 2007, NAIE amended its credit facility to provide that the maximum aggregate amount that may be outstanding under the facility cannot be reduced below CHF 500,000, or approximately $510,000. As of June 30, 2016, there was no outstanding balance under this credit facility.

Under its credit facility, NAIE may draw amounts either as current account loan credits to its current or future bank accounts or as fixed loans with a maximum term of 24 months. Current account loans will bear interest at the rate of 5% per annum. Fixed loans will bear interest at a rate determined by the parties based on current market conditions and must be repaid pursuant to a repayment schedule established by the parties at the time of the loan. If a fixed loan is repaid early at NAIE’s election or in connection with the termination of the credit facility, NAIE will be charged a pre-payment penalty equal to 0.1% of the principal amount of the fixed loan or CHF 1,000 (approximately $1,020), whichever is greater. The bank reserves the right to refuse individual requests for an advance under the credit facility, although its exercise of such right will not have the effect of terminating the credit facility as a whole.

As of June 30, 2016, we had $19.7 million in cash and cash equivalents and $10.5 million available under our credit facilities. Of these amounts, $6.7 million of cash and cash equivalents and $510,000 of the amount available under our credit facilities were held by NAIE. Our intent is to permanently reinvest all of our earnings from foreign operations, and we do not currently anticipate that we will need funds generated from foreign operations to fund our domestic operations. In the event funds from foreign operations are needed to fund our U.S. operations, we may be required to accrue and pay additional U.S. taxes to repatriate any such funds. 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, 2016, 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 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 2015 and 2016, we did not experience any significant increases in product raw material or operational costs due to inflationary factors. We currently believe increasing raw material and product cost pricing pressures will exist throughout fiscal 2017 as a result of limited supplies of various ingredients, including beta-alanine, and the effects of higher labor and transportation costs. We do not believe current inflation rates will have a material impact on our fiscal 2017 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 included under Item 8 of this report.

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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.

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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.

We have audited the accompanying consolidated balance sheets of Natural Alternatives International, Inc. (the “Company”) as of June 30, 2016 and 2015, and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for the years then ended. The Company’s management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Natural Alternatives International, Inc. as of June 30, 2016 and 2015, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Haskell & White LLP

HASKELL & WHITE LLP

San Diego, California

September 19, 2016

26

Natural Alternatives International, Inc.

Consolidated Balance Sheets

As of June 30

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

	2016			2015
Assets
Current assets:
Cash and cash equivalents	$	19,747		$	18,551
Accounts receivable – less allowance for doubtful accounts of $45 at June 30, 2016 and $20 at June 30, 2015		13,217			9,895
Inventories, net		20,768			12,564
Deferred income taxes		–			367
Income tax receivable		14			316
Prepaids and other current assets		2,136			1,907
Total current assets		55,882			43,600
Property and equipment, net		15,167			7,633
Deferred income taxes		2,227			1,663
Other noncurrent assets, net		899			920
Total assets	$	74,175		$	53,816
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,821		$	4,647
Accrued liabilities		2,242			2,495
Accrued compensation and employee benefits		2,802			1,462
Income taxes payable		1,340			489
Total current liabilities		19,205			9,093
Long-term pension liability		758			439
Deferred rent		486			403
Other noncurrent liabilities, net		–			21
Total liabilities		20,449			9,956
Commitments and contingencies
Stockholders’ equity:
Preferred stock; $.01 par value; 500,000 shares authorized; none issued or outstanding		—			—
Common stock; $.01 par value; 20,000,000 shares authorized at June 30, 2016 and June 30, 2015, issued and outstanding (net of treasury shares) 6,868,628 at June 30, 2016 and 6,743,093 at June 30, 2015		77			75
Additional paid-in capital		21,138			20,258
Accumulated other comprehensive loss		(680	)		(766	)
Retained earnings		38,553			29,007
Treasury stock, at cost, 958,049 shares at June 30, 2016 and 875,584 at June 30, 2015		(5,362	)		(4,714	)
Total stockholders’ equity		53,726			43,860
Total liabilities and stockholders’ equity	$	74,175		$	53,816

See accompanying notes to consolidated financial statements.

27

Natural Alternatives International, Inc.

Consolidated Statements Of Operations And Comprehensive Income

For the Years Ended June 30

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

	2016			2015
Net sales	$	114,201		$	79,508
Cost of goods sold		88,943			65,169
Gross profit		25,258			14,339
Selling, general and administrative expenses		13,000			10,180
Income from operations		12,258			4,159
Other income (expense):
Interest income		131			36
Interest expense		2			(12	)
Foreign exchange gain (loss)		(425	)		127
Other, net		1,606			(3	)
		1,314			148
Income before income taxes		13,572			4,307
Provision for income taxes		4,026			961
Net income	$	9,546		$	3,346
Change in minimum pension liability, net of tax	$	(132	)	$	(141	)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax		218			(156	)
Comprehensive income	$	9,632		$	3,049
Net income per common share:
Basic	$	1.46		$	0.50
Diluted	$	1.44		$	0.49
Weighted average common shares outstanding:
Basic		6,523,555			6,753,239
Diluted		6,640,728			6,806,385

See accompanying notes to consolidated financial statements.

28

Natural Alternatives International, Inc.

Consolidated Statements Of Stockholders’ Equity

For the Years Ended June 30

(Dollars in thousands)

	Common Stock				Additional Paid-in			Retained		Treasury Stock					Accumulated Other Comprehensive
	Shares		Amount		Capital			Earnings		Shares		Amount			Income (Loss)			Total
Balance, June 30, 2014		7,513,677	$	74	$	19,865		$	25,661		515,923	$	(2,693	)	$	(469	)	$	42,438
Issuance of common stock for restricted stock grants		105,000		1		(1	)		—		—		—			—			—
Compensation expense related to stock compensation plans		—		—		390			—		—		—			—			390
Repurchase of common stock		—		—		—			—		359,661		(2,021	)		—			(2,021	)
Tax effect of stock compensation		—		—		4			—		—		—			—			4
Change in minimum pension liability, net of tax		—		—		—			—		—		—			(141	)		(141	)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax		—		—		—			—		—		—			(156	)		(156	)
Net income		—		—		—			3,346		—		—			—			3,346
Balance, June 30, 2015		7,618,677		75		20,258			29,007		875,584		(4,714	)		(766	)		43,860
Issuance of common stock for restricted stock grants		208,000		2		(2	)		—		—		—			—			—
Compensation expense related to stock compensation plans		—		—		724			—		—		—			—			724
Repurchase of common stock		—		—		—			—		82,465		(648	)		—			(648	)
Tax effect of stock compensation		—		—		158			—		—		—			—			158
Change in minimum pension liability, net of tax		—		—		—			—		—		—			(132	)		(132	)
Unrealized gain resulting from change in fair value of derivative instruments, net of tax		—		—		—			—		—		—			218			218
Net income		—		—		—			9,546		—		—			—			9,546
Balance, June 30, 2016		7,826,677	$	77	$	21,138		$	38,553		958,049	$	(5,362	)	$	(680	)	$	53,726

See accompanying notes to consolidated financial statements.

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Natural Alternatives International, Inc.

Consolidated Statements Of Cash Flows

For the Years Ended June 30

(in thousands)

	2016			2015
Cash flows from operating activities
Net income	$	9,546		$	3,346
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for uncollectible accounts receivable		9			7
Depreciation and amortization		1,772			2,431
Non-cash equipment impairment charge		–			417
Deferred income taxes		(197	)		(93	)
Non-cash compensation		724			390
Pension expense		106			31
Gain on disposal of assets		(1,866	)		(62	)
Changes in operating assets and liabilities:
Accounts receivable		(3,331	)		(3,067	)
Inventories		(8,204	)		276
Prepaids and other assets		131			(875	)
Accounts payable and accrued liabilities		7,983			(520	)
Income taxes		1,272			173
Accrued compensation and employee benefits		1,340			224
Net cash provided by operating activities		9,285			2,678
Cash flows from investing activities
Purchases of property and equipment		(10,441	)		(1,708	)
Proceeds from sale of property and equipment		3,000			90
Net cash used in investing activities		(7,441	)		(1,618	)
Cash flows from financing activities
Repurchase of common stock		(648	)		(2,021	)
Net cash used in financing activities		(648	)		(2,021	)
Net increase (decrease) in cash and cash equivalents		1,196			(961	)
Cash and cash equivalents at beginning of year		18,551			19,512
Cash and cash equivalents at end of year	$	19,747		$	18,551
Supplemental disclosures of cash flow information
Cash paid during the year for:
Taxes	$	3,359		$	888
Interest	$	–		$	10
Disclosure of non-cash activities:
Change in minimum pension liability, net of tax	$	132		$	141
Change in unrealized (loss) gain resulting from change in fair value of derivative instruments, net of tax	$	(218	)	$	156

See accompanying notes to consolidated financial statements.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

A. Organization and Summary of Significant Accounting Policies

Organization

We provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We also seek to commercialize our patent and trademark estate related to the ingredient known as beta-alanine through direct raw material sales and various license and similar arrangements.

Subsidiaries

On January 22, 1999, Natural Alternatives International Europe S.A. (NAIE) was formed as our wholly owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened its manufacturing facility and possesses manufacturing capability in encapsulation, powders, tablets, finished goods packaging, quality control laboratory testing, warehousing, distribution and administration.

Principles of Consolidation

The consolidated financial statements include the accounts of Natural Alternatives International, Inc. (NAI) and our wholly owned subsidiary, NAIE. All intercompany accounts and transactions have been eliminated. The functional currency of NAIE, our foreign subsidiary, is the U.S. Dollar. The financial statements of NAIE have been translated at either current or historical exchange rates, as appropriate, with gains and losses included in the consolidated statements of operations.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) (ASU 2015-17), which amends existing standards for deferred taxes to present all deferred tax assets and liabilities as noncurrent. We adopted the ASU effective June 30, 2016, applied prospectively, and it did not have a significant impact on our financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends existing standards for leases to increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities on the balance sheet and requiring disclosure of key information about such arrangements. ASU 2016-02 will be effective for us beginning in our first quarter of fiscal 2020, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In March 2016, the FASB issued Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815) (ASU 2016-05), which provides guidance related to the replacement of a counterparty of an existing designated hedging instrument. The guidance stipulates that the replacement of a counterparty does not in itself constitute a termination of the hedging instrument. ASU 2016-05 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We do not expect the new standard to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) (ASU 2016-09), which provides guidance improvements to employee share-based payment accounting. The standard amends several aspects of current employee share-based payment accounting including income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606)(ASU 2016-10), which amends and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related to identifying performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (ASU 2016-11), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09. In May 2016 the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12), which provides narrow scope improvements and practical expedients related to ASU 2014-09. We are currently evaluating the impact of adopting these new standards on our consolidated financial statements. All of these new standards will be effective for us concurrently with ASU 2014-09, beginning in our first quarter of fiscal 2019, early adoption is not permitted.

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Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances.

The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable or can be corroborated, either directly or indirectly by observable market data. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 1, except for assets and liabilities related to our pension plan. We classify derivative forward exchange contracts as Level 2 assets. The fair value of our forward exchange contracts as of June 30, 2016 was a net asset of $250,000 and the value as of June 30, 2015 was a net asset of $474,000. The fair values were determined based on obtaining pricing from our bank and corroborating those values with a third party bank. As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between any levels during fiscal 2016.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and customer credit-worthiness. An allowance for estimated doubtful accounts is maintained based on historical experience and identified customer credit issues. We monitor collections regularly and adjust the allowance for doubtful accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable is uncollectible, we record the respective amount as a charge against allowance for doubtful accounts. To date, such doubtful accounts reserves, in the aggregate, have been adequate to cover collection losses.

Inventories

We operate primarily as a private-label contract manufacturer that builds products based upon anticipated demand or following receipt of customer specific purchase orders. From time to time, we build inventory for private-label contract manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or canceled at the customer’s request. We value inventory at the lower of cost (first-in, first-out) or market (net realizable value) on an item-by-item basis, including costs for raw materials, labor and manufacturing overhead. We establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, the estimated time required to sell such inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value.

Property and Equipment

We state property and equipment at cost. Depreciation of property and equipment is provided using the straight-line method over their estimated useful lives, generally ranging from 1 to 39 years. We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred. Significant expenditures that increase economic useful lives are capitalized.

32

Impairment of Long-Lived Assets

We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We did not recognize any impairment losses during fiscal 2016. During fiscal 2015, we recorded an impairment loss of $417,000 related to manufacturing equipment and related tooling that was determined to be obsolete.

Derivative Financial Instruments

We currently may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted transactions denominated in Euros. We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts and currency options. To the extent we use derivative financial instruments, we account for them using the deferral method, when such instruments are intended to hedge identifiable, firm foreign currency commitments or anticipated transactions and are designated as, and effective as, hedges. Foreign exchange exposures arising from certain transactions that do not meet the criteria for the deferral method are marked-to-market through the Consolidated Statements of Operations and Comprehensive Income.

We recognize any unrealized gains and losses associated with derivative instruments in income in the period in which the underlying hedged transaction is realized. In the event the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2016, we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar. As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). These contracts will mature over the next 14 months.

Defined Benefit Pension Plan

We formerly sponsored a defined benefit pension plan. Effective June 21, 1999, we adopted an amendment to freeze benefit accruals to the participants. The plan obligation and related assets of the plan are presented in the notes to the consolidated financial statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued based upon third party market quotations. Independent actuaries, through the use of a number of assumptions, determine plan obligation and annual pension expense. Key assumptions in measuring the plan obligation include the discount rate and estimated future return on plan assets. In determining the discount rate, we use an average long-term bond yield. Asset returns are based on the historical returns of multiple asset classes to develop a risk free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free rate of return and the associated risk premium. A weighted average rate is developed based on the overall rates and the plan’s asset allocation.

Revenue Recognition

To recognize revenue, four basic criteria must be met: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the seller’s price to the buyer is substantially fixed or determinable at the date of sale; (b) the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (c) the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (d) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (e) the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (f) the amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue from shipments where title passes upon delivery is deferred until the shipment has been delivered.

We record reductions to gross revenue for estimated returns of private-label contract manufacturing products and branded products. The estimated returns are based on the trailing six months of private-label contract manufacturing gross sales and our historical experience for both private-label contract manufacturing and branded product returns. However, the estimate for product returns does not reflect the impact of a potential large product recall resulting from product nonconformance or other factors as such events are not predictable nor is the related economic impact estimable.

We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under the CarnoSyn® trade name. From March 2009 to April 2015, we had an agreement with Compound Solutions, Inc. (CSI) to grant a license to manufacture, offer for sale and/or sell products incorporating, using or made in accordance with our patent rights to customers of CSI who purchase beta-alanine under the CarnoSyn® trade name from CSI. We received a fee from CSI that varied based on the quantity and source of beta-alanine sold by CSI. Effective April 1, 2015, we began directly selling beta-alanine, and licensing the related patent and trademark rights, in order to take advantage of strategic opportunities, including opportunities to provide additional contract manufacturing services, and to increase our top-line revenue and profit profile.

33

We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $21.8 million during fiscal 2016 and $9.1 million during fiscal 2015. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $865,000 during fiscal 2016 and $806,000 during fiscal 2015.

Cost of Goods Sold

Cost of goods sold includes raw material, labor, manufacturing overhead, and royalty expense.

Shipping and Handling Costs 

We include fees earned on the shipment of our products to customers in sales and include costs incurred on the shipment of product to customers in costs of goods sold.

Research and Development Costs

As part of the services we provide to our private-label contract manufacturing customers, we may perform, but are not obligated to perform, certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products. We also direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for product claims and marketing initiatives. We believe our commitment to research and development, as well as our facilities and strategic alliances with our suppliers and customers, allow us to effectively identify, develop and market high-quality and innovative products.

Research and development costs are expensed when incurred. Our research and development expenses for the last two fiscal years ended June 30 were $1.1 million for 2016 and $1.1 million for 2015. These costs were included in selling, general and administrative expenses and cost of goods sold.

Advertising Costs

We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed advertising costs in the amount of $334,000 during the fiscal year ended June 30, 2016 and $69,000 during fiscal 2015. These costs were included in selling, general and administrative expenses.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates, for each of the jurisdictions in which we operate, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

We account for uncertain tax positions using the more-likely-than-not recognition threshold. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2016 and June 30, 2015, we had not recorded any tax liabilities for uncertain tax positions.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that it is more likely than not that we will not realize all or part of our deferred tax assets in the future, we will record an adjustment to the carrying value of the deferred tax asset, which would be reflected as income tax expense. Conversely, if we determine we will realize a deferred tax asset, which currently has a valuation allowance, we will reverse the valuation allowance, which would be reflected as an income tax benefit.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the fourth quarter of fiscal 2016, we concluded that it was more likely than not that we would be able to realize the benefit of our federal and state deferred tax assets in the future. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. As a result, we reduced the valuation allowance on our net deferred tax assets by $193,000 at June 30, 2016. We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.

34

We do not record U.S. income tax expense for NAIE’s retained earnings that are declared as indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested in NAIE is based on the actual deployment of such earnings in NAIE’s assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax laws are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

Stock-Based Compensation

We have an omnibus incentive plan that was approved by our Board of Directors effective as of October 15, 2009 and approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009. Under the plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. Our prior equity incentive plan was terminated effective as of November 30, 2009.

We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions. Black-Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair value of our stock awards to expense over the related vesting periods.

The Company did not grant any options during fiscal 2016 or 2015.

We did not have any options exercised during fiscal 2016 or fiscal 2015. All remaining outstanding stock options are fully vested and all related compensation cost was fully recognized at June 30, 2014. No options vested during the fiscal years ended June 30, 2016 and June 30, 2015.

On March 19, 2015, we granted 105,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted shares partially vested, and the remainder will continue to vest over three years and the unvested portion of these shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. During fiscal 2016, we granted a total of 208,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted stock grants will vest over three or five years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. There were 193,012 vested restricted stock shares as of June 30, 2016 and there were 93,866 vested restricted stock shares as of June 30, 2015. The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $2.3 million at June 30, 2016 and the weighted average remaining requisite service period of unvested restricted stock shares was 1.6 years. The weighted average fair value of restricted stock shares granted during fiscal 2016 was $9.86. The weighted average fair value of restricted stock shares granted during fiscal 2015 was $5.51.

Use of Estimates

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

35

Net Income per Common Share

We compute basic net income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of stock options and restricted shares account for the additional weighted average shares of common stock outstanding for our diluted net income per common share computation. We calculated basic and diluted net income per common share as follows (in thousands, except per share data):

	For the Years Ended June 30,
	2016		2015
Numerator
Net income	$	9,546	$	3,346
Denominator
Basic weighted average common shares outstanding		6,524		6,753
Dilutive effect of stock options and restricted stock shares		117		53
Diluted weighted average common shares outstanding		6,641		6,806
Basic net income per common share	$	1.46	$	0.50
Diluted net income per common share	$	1.44	$	0.49

No shares related to stock options were excluded for the year ended June 30, 2016.

We excluded shares related to stock options totaling 151,000 shares of common stock for the year ended June 30, 2015, from the calculation of diluted net income per common share, as the effect of their inclusion would have been anti-dilutive.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect to receivables is concentrated with our two largest customers, whose receivable balances collectively represented 61.1% of gross accounts receivable at June 30, 2016 and 25.8% at June 30, 2015. Additionally, amounts due related to our beta-alanine raw material sales were 14.6% of gross accounts receivable at June 30, 2016, and 26.0% of gross accounts receivable at June 30, 2015. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.

B. Inventories

Inventories, net, consisted of the following at June 30 (in thousands):

	2016			2015
Raw materials	$	14,751		$	9,744
Work in progress		3,487			1,552
Finished goods		2,832			1,603
Reserve		(302	)		(335	)
	$	20,768		$	12,564

C. Property and Equipment

Property and equipment consisted of the following at June 30 (dollars in thousands):

	Depreciable Life In Years			2016			2015
Land		NA		$	1,200		$	393
Building and building improvements	7	–	39		3,324			2,793
Machinery and equipment	3	–	12		23,846			26,444
Office equipment and furniture	3	–	5		2,994			3,168
Vehicles		3			209			209
Leasehold improvements	1	–	15		15,261			11,244
Total property and equipment					46,834			44,251
Less: accumulated depreciation and amortization					(31,667	)		(36,618	)
Property and equipment, net				$	15,167		$	7,633

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D. Other comprehensive loss

      Other comprehensive (loss) income consisted of the following at June 30 (dollars in thousands):

	Year Ended June 30, 2016
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)
Other comprehensive loss before reclassifications		(232	)		414			182
Amounts reclassified from OCI		19			(74	)		(55	)
Tax effect of OCI activity		81			(122	)		(41	)
Other comprehensive loss		(132	)		218			86
Balance as of June 30, 2016	$	(775	)	$	95		$	(680	)

	Year Ended June 30, 2015
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2014	$	(502	)	$	33		$	(469	)
Other comprehensive loss before reclassifications		(176	)		2,228			2,052
Amounts reclassified from OCI		(49	)		(2,461	)		(2,510	)
Tax effect of OCI activity		84			77			161
Other comprehensive loss		(141	)		(156	)		(297	)
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)

E. Debt

On February 1, 2016, we executed a new Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement replaces the previous credit facility and increases our credit line from $5.0 million to $10.0 million. The line of credit may be used to finance working capital requirements. There was no commitment fee required as part of this agreement. There are no amounts currently drawn under the line of credit.

Under the terms of the Credit Agreement, borrowings are subject to eligibility requirements including maintaining (i) a ratio of total liabilities to tangible net worth of not greater than 1.25 to 1.0 at any time; and (ii) a ratio of total current assets to total current liabilities of not less than 1.75 to 1.0 at each fiscal quarter end. Any amounts outstanding under the line of credit will bear interest at a fixed or fluctuating interest rate as elected by NAI from time to time; provided, however, that if the outstanding principal amount is less than $100,000 such amount shall bear interest at the then applicable fluctuating rate of interest. If elected, the fluctuating rate per annum would be equal to 1.25% above the daily one month LIBOR rate as in effect from time to time. If a fixed rate is elected, it would equal a per annum rate of 1.25% above the LIBOR rate in effect on the first day of the applicable fixed rate term. Any amounts outstanding under the line of credit must be paid in full on or before January 31, 2019. Amounts outstanding that are subject to a fluctuating interest rate may be prepaid at any time without penalty. Amounts outstanding that are subject to a fixed interest rate may be prepaid at any time in minimum amounts of $100,000, subject to a prepayment fee equal to the sum of the discounted monthly differences for each month from the month of prepayment through the month in which the then applicable fixed rate term matures.

Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures. We also have a foreign exchange facility with Wells Fargo Bank, N.A. in effect until January 31, 2019, and with Bank of America, N.A. in effect until August 15, 2017.

On June 30, 2016, we were in compliance with all of the financial and other covenants required under the Credit Agreement.

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On September 22, 2006, NAIE, our wholly owned subsidiary, entered into a credit facility with Credit Suisse to provide NAIE with a credit line of up to CHF 1.3 million, or approximately $1.3 million, which was the initial maximum aggregate amount that could be outstanding at any one time under the credit facility. This maximum amount is reduced annually by CHF 160,000, or approximately $163,000. On February 19, 2007, NAIE amended its credit facility to provide that the maximum aggregate amount that may be outstanding under the facility cannot be reduced below CHF 500,000, or approximately $510,000. As of June 30, 2016, there was no outstanding balance under this credit facility.

Under its credit facility, NAIE may draw amounts either as current account loan credits to its current or future bank accounts or as fixed loans with a maximum term of 24 months. Current account loans will bear interest at the rate of 5% per annum. Fixed loans will bear interest at a rate determined by the parties based on current market conditions and must be repaid pursuant to a repayment schedule established by the parties at the time of the loan. If a fixed loan is repaid early at NAIE’s election or in connection with the termination of the credit facility, NAIE will be charged a pre-payment penalty equal to 0.1% of the principal amount of the fixed loan or CHF 1,000 (approximately $1,020), whichever is greater. The bank reserves the right to refuse individual requests for an advance under the credit facility, although its exercise of such right will not have the effect of terminating the credit facility as a whole.

We did not use our working capital line of credit nor did we have any long-term debt outstanding during the year ended June 30, 2016. As of June 30, 2016, we had $10.5 million available under our credit facilities.

F. Income Taxes

During fiscal 2016, we recorded U.S.-based domestic tax expense of $3.6 million on U.S.-based income from continuing operations, which was offset by the release of our deferred tax asset valuation of $193,000 resulting in a net domestic tax expense of $3.4 million. We released our deferred tax asset valuation based on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. The valuation allowance activity did not have any impact on the tax expense and related liability recorded for operating income recognized by NAIE during the years ended June 30, 2016 or June 30, 2015.

The provision for income taxes for the years ended June 30 consisted of the following (in thousands):

	2016			2015
Current:
Federal	$	3,339		$	396
State		138			41
Foreign		629			450
		4,106			887
Deferred:
Federal		46			125
State		67			(51	)
Valuation allowance		(193	)		—
		(80	)		74
Provision for income taxes	$	4,026		$	961

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):

	2016			2015
Deferred tax assets:
Inventory capitalization	$	576		$	167
Pension liability		403			322
Accrued bonus		391			107
Net operating loss carry forward		298			439
Deferred rent		175			143
Accumulated depreciation and amortization		158			897
Stock-based compensation		154			130
Tax credit carry forward		138			88
Accrued vacation expense		130			106
Other, net		64			13
Total gross deferred tax assets		2,487			2,412
Deferred tax liabilities:
Prepaid expenses		(260	)		(189	)
Other		—			—
Deferred tax liabilities		(260	)		(189	)
Valuation allowance		–			(193	)
Net deferred tax assets	$	2,227		$	2,030

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At June 30, 2016, we had state tax net operating loss carry forwards of approximately $5.1 million. Under California tax law, net operating loss deductions were suspended for tax years beginning in 2008, 2009, 2010 and 2011 and the carry forward periods of any net operating losses not utilized due to such suspension were extended. Our state tax loss carry forwards will begin to expire in fiscal 2022, unless used before their expiration.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2016 and June 30, 2015.

We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2013 and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended June 30, 2008 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2015 and forward are subject to examination by the Switzerland tax authorities.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 18.7%. NAIE had net income of $2.7 million for the fiscal year ended June 30, 2016. Undistributed earnings of NAIE amounted to approximately $17.8 million at June 30, 2016. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal taxes has been provided thereon.

A reconciliation of income tax provision computed by applying the statutory federal income tax rate of 34% to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):

	2016			2015
Income taxes computed at statutory federal income tax rate	$	4,614		$	1,463
State income taxes, net of federal income tax expense		179			7
Expenses not deductible for tax purposes		19			13
Foreign tax rate differential		(514	)		(451	)
Adjust state deferred due to change in apportionment		(18	)		(25	)
Change in valuation allowance		(193	)		—
Other, net		(61	)		(46	)
Income tax provision as reported	$	4,026		$	961
Effective tax rate		29.7	%		22.3	%

G. Employee Benefit Plans 

We have a profit sharing plan pursuant to Section 401(k) of the Code, whereby participants may contribute a percentage of compensation not in excess of the maximum allowed under the Code. All employees with six months of continuous employment are eligible to participate in the plan. Effective January 1, 2004, the plan was amended to require that we match 100% of the first 3% and 50% of the next 2% of a participant’s compensation contributed to the plan. Effective January 1, 2009, we elected to temporarily discontinue the company match program. The match program was reinstated effective July 15, 2011. The total contributions under the plan charged to income from operations totaled $229,000 for fiscal 2016 and $225,000 for fiscal 2015.

We have a “Cafeteria Plan” pursuant to Section 125 of the Code, whereby health care benefits are provided for active employees through insurance companies. Substantially all active full-time employees are eligible for these benefits. We recognize the cost of providing these benefits by expensing the annual premiums, which are based on benefits paid during the year. The premiums expensed to operating income for these benefits totaled $847,000 for the fiscal year ended June 30, 2016 and $1.1 million for fiscal 2015.

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We formerly sponsored a defined benefit pension plan, which provides retirement benefits to employees based generally on years of service and compensation during the last five years before retirement. Effective June 21, 1999, we adopted an amendment to freeze benefit accruals to the participants. We contribute an amount not less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 nor more than the maximum tax-deductible amount.

Disclosure of Funded Status

The following table sets forth the defined benefit pension plan’s funded status and amount recognized in our consolidated balance sheets at June 30 (in thousands):

	2016			2015
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	2,080		$	1,901
Interest cost		87			80
Actuarial loss		272			144
Benefits paid		(110	)		(45	)
Benefit obligation at end of year	$	2,329		$	2,080
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	1,642		$	1,719
Actual return on plan assets		74			(5	)
Benefits paid		(112	)		(45	)
Plan expenses		(33	)		(27	)
Fair value of plan assets at end of year	$	1,571		$	1,642
Reconciliation of Funded Status:
Difference between benefit obligation and fair value of plan assets	$	(758	)	$	(438	)
Unrecognized net actuarial loss in accumulated other comprehensive income		1,117			904
Net amount recognized	$	359		$	466
Projected benefit obligation	$	2,329		$	2,080
Accumulated benefit obligation	$	2,329		$	2,080
Fair value of plan assets	$	1,571		$	1,642

The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 3.6% during the year ended June 30, 2016 and 4.4% for the year ended June 30, 2015.

Net Periodic Benefit Cost

The components included in the defined benefit pension plan’s net periodic benefit expense for the fiscal years ended June 30 were as follows (in thousands):

	2016			2015
Interest cost	$	87		$	80
Expected return on plan assets		(105	)		(115	)
Recognized actuarial loss		68			46
Settlement loss		55			20
Net periodic benefit expense	$	105		$	31

We did not make any contributions to our defined benefit pension plan in fiscal 2016 and do not expect to make any contributions in fiscal 2017.

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The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (in thousands):

	2016			2015
Net loss	$	304		$	265
Settlement loss		(55	)		(20	)
Amortization of net loss		(68	)		(47	)
Plan expenses		32			27
Total recognized in other comprehensive income (loss)	$	213		$	225
Total recognized in net periodic benefit cost and other comprehensive income	$	318		$	256

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $68,000. We do not have any transition obligations or prior service costs recorded in accumulated other comprehensive income.

The following benefit payments are expected to be paid (in thousands):

2017	$	55
2018		74
2019		113
2020		124
2021		123
2022-2026		705
	$	1,194

The weighted-average rates used for the years ended June 30 in determining the defined benefit pension plan’s net pension costs, were as follows:

	2016			2015
Discount rate		3.61	%		4.33	%
Expected long-term rate of return		7.00	%		7.00	%
Compensation increase rate		N/A			N/A

Our expected rate of return is determined based on a methodology that considers historical returns of multiple classes analyzed to develop a risk free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plan.

Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were as follows:

	2016			2015			Target Allocation
Equity securities		50	%		53	%		49	%
Debt securities		47	%		45	%		46	%
Commodities		—			—			2	%
Cash and money market funds		3	%		2	%		3	%
		100	%		100	%		100	%

The underlying basis of the investment strategy of our defined benefit pension plan is to ensure that pension funds are available to meet the plan’s benefit obligations when due. Our investment strategy is a long-term risk controlled approach using diversified investment options with relatively minimal exposure to volatile investment options like derivatives.

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The fair values by asset category of our defined benefit pension plan at June 30, 2016 were as follows (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	41	$	41	$	—	$	—
Equity securities(1)	$	785	$	785	$	—	$	—
Debt securities(2)	$	745	$	745	$	—	$	—
Total	$	1,571	$	1,571	$	—	$	—

(1) This category is comprised of publicly traded funds, of which 47% are large-cap funds, 28% are mid-cap and small-cap, 8% are emerging markets equity funds, and 17% are international equity funds.

(2) This category is comprised of publicly traded funds, of which 6% are long-term fixed income funds,14% are high-yield fixed income funds, 38% are intermediate fixed income funds, 27% are REITs and MLPs funds, and 15% are international/emerging markets funds.

H. Stockholders’ Equity

Treasury Stock

On June 2, 2011, the Board of Directors authorized the repurchase of up to $2.0 million of our common stock. On February 6, 2015, the Board of Directors authorized a $1.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $3.0 million. On May 11, 2015, the Board of Directors authorized a $2.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $5.0 million. Under the repurchase plan, we may, from time to time, purchase shares of our common stock, depending upon market conditions, in open market or privately negotiated transactions. During the twelve months ended June 30, 2016, we purchased 52,603 shares at a weighted average cost of $6.26 per share and a total cost of $0.3 million including commissions and fees. During the twelve months ended June 30, 2015, we purchased 342,121 shares at a weighted average cost of $5.63 per share and a total cost of $1.9 million including commissions and fees.

During fiscal 2016 we acquired 27,195 shares from employees in connection with restricted stock shares that vested during the year and during fiscal 2015 we acquired 17,540 shares in connection with restricted stock shares that vested during that year. These shares were returned to the Company by the related employees and in return the Company paid each employee’s required tax withholding. The valuation of the shares acquired and thereby the amount of shares returned to the Company was calculated based on the closing share price on the date the shares vested.

Stock Option Plans

On December 6, 1999, our stockholders approved the adoption of the 1999 Omnibus Equity Incentive Plan (the “1999 Plan”). The 1999 Plan was terminated effective as of November 30, 2009, and there are no more options outstanding under this plan.

Effective as of October 15, 2009, our Board of Directors approved an omnibus incentive plan (the “2009 Plan”). The 2009 Plan was approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009. Under the plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. As of June 30, 2016, a total of 1.1 million shares of common stock were reserved under the 2009 Plan for issuance to our employees, non-employee directors and consultants.

Stock option activity for the year ended June 30, 2016 was as follows:

	2009 Plan			Weighted Average Exercise Price		Weighted Average Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at June 30, 2015		185,000		$	6.74
Exercised		—		$	—
Forfeited		(45,000	)	$	7.90
Granted		—		$	—
Outstanding at June 30, 2016		140,000		$	6.36		4.58	$	805,000
Vested and exercisable at June 30, 2016		140,000		$	6.36		4.58	$	805,000

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Restricted stock activity for the year ended June 30, 2016 was as follows (2009 Plan):

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at June 30, 2015		204,134		$	5.42
Granted		208,000		$	9.86
Vested		(99,146	)	$	5.31
Forfeited		(2,667	)	$	5.51
Nonvested at June 30, 2016		310,321		$	8.43

As of June 30, 2016, there were 508,104 shares available for grant under the 2009 Plan.

I. Commitments

We lease a total of 162,000 square feet at our manufacturing facility in Vista, California from an unaffiliated third party under a non-cancelable operating lease. On July 31, 2013, we executed a third amendment to the lease for our manufacturing facility in Vista, CA. As a result of this amendment, our facility lease has been extended for an additional 10 year term through March 2024.

During February 2016, we sold our former corporate headquarters in San Marcos, CA and the property was leased though a sale-leaseback agreement through August 2016. The property was vacated during August 2016. We purchased the Carlsbad facility in March 2016 and began to occupy as our new corporate headquarters during August 2016.

NAIE leases facility space in Manno, Switzerland. The leased space totals approximately 94,217 square feet. We primarily use the facilities for manufacturing, packaging, warehousing and distributing nutritional supplement products for the European marketplace. Effective July 1, 2014, NAIE entered into a new lease with its current landlord. The new lease replaced, extended, and enlarged an existing lease between the same parties for the same building in Manno Switzerland. NAIE intends to improve portions of the additional space acquired by the new lease, and will continue to use the entire leased premises for offices, laboratory, warehouse and production. The new lease has a term of five years with a right for NAIE to extend the lease for an additional five years. The initial five year term expires on June 30, 2019.

Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all non-cancelable operating leases with initial or remaining lease terms in excess of one year, including the lease agreements referred to above, are set forth below as of June 30, 2016 (in thousands):

	2017		2018		2019		2020		2021		There- after		Total
Gross minimum rental commitments	$	2,826	$	2,781	$	2,778	$	1,394	$	1,429	$	4,114	$	15,322

Rental expense totaled $3.1 million for the fiscal year ended June 30, 2016 and $3.0 million for fiscal 2015.

J. Economic Dependency

We had substantial net sales to certain customers during the fiscal years ended June 30 shown in the following table. The loss of any of these customers, or a significant decline in sales or the growth rate of sales to these customers, or in their ability to make payments when due, could have a material adverse impact on our net sales and net income. Net sales to any one customer representing 10% or more of the respective year’s consolidated net sales were as follows (dollars in thousands):

	Fiscal 2016		Fiscal 2015
Customer 1	$	49,442	$	29,724
Customer 2		13,952		8,090
Customer 3		(a)		11,018
	$	63,394	$	48,832

(a) Sales were less than 10% of the respective period’s consolidated net sales.

Accounts receivable from these customers totaled $8.1 million at June 30, 2016 and $4.6 million at June 30, 2015.

We buy certain products, including beta-alanine, from a limited number of raw material suppliers. The loss of any of these suppliers could have a material adverse impact on our net sales and net income. During fiscal 2016 and 2015, we did not have any suppliers that individually represented greater than 10% of our raw material purchases.

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K. Derivatives and Hedging

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to forecasted product sales denominated in foreign currencies and transactions of NAIE, our foreign subsidiary. As part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we may use foreign exchange contracts in the form of forward contracts. There can be no guarantee any such contracts, to the extent we enter into such contracts, will be effective hedges against our foreign currency exchange risk.

During the year ended June 30, 2016 and prior, we entered into forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. These contracts are expected to be settled through August 2017. For derivative instruments that are designated and qualify as cash flow hedges, we record the effective portion of the gain or loss on the derivative in accumulated other comprehensive income (OCI) as a separate component of stockholders’ equity and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized in earnings.

For foreign currency contracts designated as cash flow hedges, hedge effectiveness is measured using the spot rate. Changes in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as interest expense. We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item. During the year ended June 30, 2016, we did not have any losses or gains related to the ineffective portion of our hedging instruments. No hedging relationships were terminated as a result of ineffective hedging or forecasted transactions no longer probable of occurring for foreign currency forward contracts. We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis.

As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). As of June 30, 2016, a net asset of approximately $149,000, offset by $54,000 of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. As of June 30, 2015, a net loss of approximately $191,000, offset by $68,000 of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. It is expected that $149,000 of the gross loss, as of June 30, 2016, will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.

As of June 30, 2016, $226,000 of the fair value of our cash flow hedges was classified in prepaids and other current assets, $24,000 was classified other noncurrent assets, net in our Consolidated Balance Sheets. During the year ended June 30, 2016, we recognized $413,000 of losses in OCI and reclassified $74,000 of gains from OCI to revenue. During the year ended June 30, 2015, we recognized $2.2 million of gains in OCI and reclassified $2.4 million of gains from OCI to revenue.

L. Contingencies

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to product liability, employment, intellectual property, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties 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 will result in a material adverse effect on our business, consolidated financial condition, or results of operation. However, a settlement payment or unfavorable outcome could adversely impact our results of operation. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes that we do not expect.

M. Segment Information

Our business consists of three segments for financial reporting purposes. The three segments are identified as (i) private-label contract manufacturing, which primarily relates to the provision of private-label contract manufacturing services to companies that market and distribute nutritional supplements and other health care products, and (ii) patent and trademark licensing, which primarily includes direct raw material sales and royalty income from our license and supply agreements associated with the sale and use of beta-alanine under our CarnoSyn® trade mark, and (iii) branded products, which relates to the marketing and distribution of our branded nutritional supplements and consists primarily of the products sold under our Pathway to Healing^® product line.

Due to the steady decline in sales of our Pathway to Healing^® product line over the prior several years, we decided to discontinue the product line. All termination activities related to the Pathway to Healing® product line were substantially completed by December 31, 2014. We did not change the financial presentation in this report to reflect the branded products segment as “Discontinued Operations” as the wind down of this product line did not meet the criteria for discontinued operations presentation as prescribed by applicable accounting regulations (ASC 205-20).

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We evaluate performance based on a number of factors. The primary performance measures for each segment are net sales and income or loss from operations before corporate allocations. Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income and expense items. Corporate general and administrative expenses include, but are not limited to: human resources, corporate legal, finance, information technology, and other corporate level related expenses, which are not allocated to any segment. The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note A.

Our operating results by business segment for the years ended June 30 were as follows (in thousands):

	2016		2015
Net Sales
Private-label contract manufacturing	$	92,420	$	69,670
Patent and trademark licensing		21,781		9,140
Branded products		–		698
	$	114,201	$	79,508

	2016			2015
Operating Income
Private-label contract manufacturing	$	12,184		$	5,172
Patent and trademark licensing		6,153			3,811
Branded products		–			248
Income from operations of reportable segments		18,337			9,231
Corporate expenses not allocated to segments		(6,079	)		(5,072	)
	$	12,258		$	4,159

	2016		2015
Total Assets
Private-label contract manufacturing	$	66,375	$	50,313
Patent and trademark licensing		7,800		3,503
	$	74,175	$	53,816

Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe, Canada, Mexico, Australia, South Africa and Asia. Our primary market outside the U.S. is Europe. Our patent and trademark licensing activities are primarily based in the U.S. and our branded products are only sold in the U.S.

Net sales by geographic region, based on the customers’ location, for the two years ended June 30 were as follows (in thousands):

	2016		2015
United States	$	50,575	$	43,671
Markets outside the United States		63,626		35,837
Total net sales	$	114,201	$	79,508

Products manufactured by NAIE accounted for 61% of net sales in markets outside the U.S. in fiscal 2016 and 74% in fiscal 2015. No products manufactured by NAIE were sold in the U.S. during the fiscal years ended June 30, 2016 and 2015.

45

Assets and capital expenditures by geographic region, based on the location of the company or subsidiary at which they were located or made, for the two years ended June 30 were as follows (in thousands):

2016	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	9,678	$	49,755	$	6,423
Europe		5,489		24,420		4,018
	$	15,167	$	74,175	$	10,441

2015	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	5,525	$	34,988	$	1,071
Europe		2,108		18,828		637
	$	7,633	$	53,816	$	1,708

N. Subsequent Events

On July 14, 2016, we purchased 24 forward contracts designated and effective as cash flow hedges to protect against the foreign currency exchange risk inherent in a portion of our forecasted sales transactions denominated in Euros. The 24 contracts expire monthly beginning September 2016 and ending August 2017. The forward contracts had a notional amount of 30.5 million Euros and a weighted average forward rate of $1.12.

46

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, 2016. 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, 2016.

(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, 2016. 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 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, 2016 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, 2016 based on the criteria issued by COSO.

This report 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 management’s report in this report.

(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, 2016 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

47

PART III

The information called for under Items 10- 14 of this Part III will be incorporated by reference from our definitive proxy statement for our Annual Meeting of Stockholders to be held on December 2, 2016, to be filed on or before October 28, 2016.

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, 2016 and 2015;

• Consolidated Statements of Operations and Comprehensive Income for the years ended June 30, 2016 and 2015;

• Consolidated Statements of Stockholders’ Equity for the years ended June 30, 2016 and 2015;

• Consolidated Statements of Cash Flows for the years ended June 30, 2016 and 2015; and

• Notes to Consolidated Financial Statements.

48

 

(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
10.1	1999 Omnibus Equity Incentive Plan as adopted effective May 10, 1999, amended effective January 30, 2004, and further amended effective December 3, 2004*	Exhibit 10.1 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
10.2	Amended and Restated Exclusive License Agreement effective as of September 1, 2004 by and among NAI and Dr. Reginald B. Cherry	Exhibit 10.11 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2004, filed with the commission on September 14, 2004
10.3	Exclusive License Agreement effective as of September 1, 2004 by and among NAI and Reginald B. Cherry Ministries, Inc.	Exhibit 10.12 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
10.4	First Amendment to Exclusive License Agreement effective as of December 10, 2004 by and among NAI and Reginald B. Cherry Ministries, Inc.	Exhibit 10.13 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
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
10.7	Loan Agreement between NAIE and Credit Suisse dated as of September 22, 2006, including general conditions (portions of the Loan Agreement have been omitted pursuant to a request for confidential treatment)	Exhibit 10.36 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2006, filed with the commission on November 1, 2006
10.8	First Amendment to Loan Agreement between NAIE and Credit Suisse dated as of February 19, 2007	Exhibit 10.41 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2007, filed with the commission on May 14, 2007
10.9	2009 Omnibus Incentive Plan*	Exhibit D of NAI’s definitive Proxy Statement filed with the commission on October 16, 2009
10.10	Manufacturing Agreement by and between NSA, Inc. and NAI dated April 1, 2005	Exhibit 10.43 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.11	Manufacturing Agreement by and between Mannatech, Inc. and NAI dated April 22, 1998	Exhibit 10.44 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.12	First Amendment to Manufacturing Agreement by and between Mannatech, Incorporated and NAI dated May 23, 2003	Exhibit 10.45 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.13	Second Amendment to Manufacturing Agreement by and between Mannatech, Incorporated and NAI dated July 1, 2003	Exhibit 10.46 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.14	Third Amendment to Manufacturing Agreement by and between Mannatech, Incorporated and NAI dated July 1, 2004	Exhibit 10.47 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.15	Fourth Amendment to Manufacturing Agreement by and among Mannatech, Incorporated, Mannatech Swiss International GmbH and NAI dated January 1, 2008	Exhibit 10.48 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010

49

 

10.16	Manufacturing Sales Agreement by and between Mannatech, Incorporated and NAI dated November 19, 2004	Exhibit 10.49 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.17	Amendment to Manufacturing Sales Agreement by and among Mannatech, Incorporated, Mannatech Swiss International GmbH and NAI dated January 1, 2008	Exhibit 10.50 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.18	Exclusive Manufacturing Agreement by and between NSA, Inc., NAI and NAIE dated as of April 1, 2005	Exhibit 10.51 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2009, filed with the commission on February 16, 2010
10.19	Amended and Restated Employment Agreement dated as of August 31, 2010, by and between NAI and Mark A. LeDoux*	Exhibit 10.41 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed with the commission on September 17, 2010
10.20	Amended and Restated Employment Agreement dated as of August 31, 2010, by and between NAI and Kenneth E. Wolf	Exhibit 10.42 of NAI’s Annual Report on Form 10-K for the fiscal year ended June 30, 2010, filed with the commission on September 17, 2010
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
10.22	Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of December 1, 2010	Exhibit 10.1 of NAI’s Current Report on Form 8-K dated December 16, 2010, filed with the commission on December 22, 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
10.24	First Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of November 28, 2011	Exhibit 10.1 of NAI’s Current Report on Form 8-K dated December 27, 2011, filed with the commission on December 30, 2011
10.25	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank, N.A. dated November 28, 2011 in the amount of $5,000,000	Exhibit 10.2 of NAI’s Current Report on Form 8-K dated December 27, 2011, filed with the commission on December 30, 2011
10.26	First Amendment to Manufacturing Agreement by and between NSA, Inc. and NAI effective as of April 1, 2012	Exhibit 10.35 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, filed with the commission on May 14, 2012
10.27	First Amendment to Exclusive Manufacturing Agreement by and between NSA, Inc., NAI and NAIE effective as of April 1, 2005.	Exhibit 10.36 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2012, filed with the commission on May 14, 2012
10.28	Second Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of December 7, 2012	Exhibit 10.38 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2012, filed with the commission on February 12, 2013
10.29	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank, N.A. dated December 7, 2012 in the amount of $5,000,000	Exhibit 10.39 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2012, filed with the commission on February 12, 2013
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
10.31	Second amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark A. LeDoux, effective July 1, 2013*	Exhibit 10.41 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
10.32	Second amendment to the Amended and Restated Employment Agreement, by and between and Kenneth E. Wolf, effective July 1, 2013*	Exhibit 10.42 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	Third Amendment to Credit Agreement by and between NAI and Wells Fargo Bank, N.A. effective as of November 1, 2013	Exhibit 10.43 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013 filed with the commission on February 12, 2014.

50

 

10.34	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank, N.A. dated November 1, 2013 in the amount of $5,000,000	Exhibit 10.44 of NAI’s Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2013 filed with the commission on February 12, 2014.
10.35	Third amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark A. LeDoux, effective July 7, 2014*	Exhibit 10.35 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.
10.36	Third amendment to the Amended and Restated Employment Agreement, by and between and Kenneth E. Wolf, effective July 7, 2014*	Exhibit 10.36 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.
10.37	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	Fourth amendment to the Amended and Restated Employment Agreement, by and between NAI and Mark A. LeDoux, effective October 1, 2015*	Exhibit 10.41 of NAI’s Annual Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the commission on November 12, 2015.
10.40	Fourth amendment to the Amended and Restated Employment Agreement, by and between NAI and Kenneth E. Wolf, effective October 1, 2015*	Exhibit 10.42 of NAI’s Annual Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the commission on November 12, 2015.
10.41	Amended and Restated Employment Agreement, by and between NAI and Michael E. Fortin, effective October 1, 2015*	Exhibit 10.43 of NAI’s Annual Report on Form 10-Q for the quarterly period ended September 30, 2015, filed with the commission on November 12, 2015.
10.42	Credit agreement by and between NAI and the Wells Fargo  Bank N.A. effective as of February 1, 2016	Exhibit 10.39 of NAI’s Annual Report on Form 10-Q for the quarterly period ended December 31, 2015, filed with the commission on February 9, 2016.
10.43	Revolving Line of Credit Note made by NAI for the benefit of Wells Fargo Bank N.A. dated February 1, 2016 in the amount of $10,000,000	Exhibit 10.40 of NAI’s Annual 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*	Exhibit 10.44 of NAI’s Current Report on Form 8-K dated September 6, 2016, filed with the commission on September 6, 2016
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.

51

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 19, 2016

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	September 19, 2016
(Mark A. LeDoux)	Chairman of the Board of Directors (principal executive officer)
/s/ Michael E. Fortin	Chief Financial Officer	September 19, 2016
(Michael E. Fortin)	(principal financial officer and principal accounting officer)
/s/ Joe E. Davis	Director	September 19, 2016
(Joe E. Davis)
/s/ Alan G. Dunn	Director	September 19, 2016
(Alan G. Dunn)
/s/ Alan J. Lane	Director	September 19, 2016
(Alan J. Lane)
/s/ Lee G. Weldon	Director	September 19, 2016
(Lee G. Weldon)

52

EX-21

Exhibit 21

List of Subsidiaries of

Natural Alternatives International, Inc., a Delaware corporation

Name of Subsidiary	State or other Jurisdiction of Incorporation or Organization
Natural Alternatives International Europe S.A.	Switzerland

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-164689, 333-180195, 333-195967) of our report dated September 19, 2016, with respect to the consolidated financial statements of Natural Alternatives International, Inc. included in this Annual Report (Form 10-K) of Natural Alternatives International, Inc. for the year ended June 30, 2016.

/s/ Haskell & White LLP

HASKELL & WHITE LLP

San Diego, California

September 19, 2016

EX-31.1 4 ex31-1.htm EXHIBIT 31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

I, Mark A. LeDoux, Chief Executive Officer of Natural Alternatives International, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of Natural Alternatives International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 19, 2016

/s/ Mark A. LeDoux

Mark A. LeDoux, Chief Executive Officer

EX-31.1

naii20160914_10k.htm

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to

Rule 13a-14(a)/15d-14(a)

I, Michael E. Fortin, Chief Financial Officer of Natural Alternatives International, Inc., certify that:

1. I have reviewed this Annual Report on Form 10-K of Natural Alternatives International, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: September 19, 2016

/s/ Michael E. Fortin

Michael E. Fortin, Chief Financial Officer

EX-32

naii20160914_10k.htm

XML

Document And Entity Information - USD ($)	12 Months Ended
	Jun. 30, 2016	Sep. 08, 2016	Dec. 31, 2015
Document Information [Line Items]
Entity Registrant Name	NATURAL ALTERNATIVES INTERNATIONAL INC
Entity Central Index Key	0000787253
Trading Symbol	naii
Current Fiscal Year End Date	--06-30
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		6,868,628
Entity Public Float			$ 54,798,557
Document Type	10-K
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Jun. 30, 2016	Jun. 30, 2015
Current assets:
Cash and cash equivalents	$ 19,747,000	$ 18,551,000
Accounts receivable – less allowance for doubtful accounts of $45 at June 30, 2016 and $20 at June 30, 2015	13,217,000	9,895,000
Inventories, net	20,768,000	12,564,000
Deferred income taxes		367,000
Income tax receivable	14,000	316,000
Prepaids and other current assets	2,136,000	1,907,000
Total current assets	55,882,000	43,600,000
Property and equipment, net	15,167,000	7,633,000
Deferred income taxes	2,227,000	1,663,000
Other noncurrent assets, net	899,000	920,000
Total assets	74,175,000	53,816,000
Current liabilities:
Accounts payable	12,821,000	4,647,000
Accrued liabilities	2,242,000	2,495,000
Accrued compensation and employee benefits	2,802,000	1,462,000
Income taxes payable	1,340,000	489,000
Total current liabilities	19,205,000	9,093,000
Long-term pension liability	758,000	439,000
Deferred rent	486,000	403,000
Other noncurrent liabilities, net		21,000
Total liabilities	20,449,000	9,956,000
Stockholders’ equity:
Preferred stock; $.01 par value; 500,000 shares authorized; none issued or outstanding	0	0
Common stock; $.01 par value; 20,000,000 shares authorized at June 30, 2016 and June 30, 2015, issued and outstanding (net of treasury shares) 6,868,628 at June 30, 2016 and 6,743,093 at June 30, 2015	77,000	75,000
Additional paid-in capital	21,138,000	20,258,000
Accumulated other comprehensive loss	(680,000)	(766,000)
Retained earnings	38,553,000	29,007,000
Treasury stock, at cost, 958,049 shares at June 30, 2016 and 875,584 at June 30, 2015	(5,362,000)	(4,714,000)
Total stockholders’ equity	53,726,000	43,860,000
Total liabilities and stockholders’ equity	$ 74,175,000	$ 53,816,000

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Jun. 30, 2016	Jun. 30, 2015
Accounts receivable, allowance for doubtful accounts	$ 45	$ 20
Preferred stock par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares authorized (in shares)	500,000	500,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, issued (in shares)	6,868,628	6,743,093
Common stock, outstanding (in shares)	6,868,628	6,743,093
Treasury stock, shares (in shares)	958,049	875,584

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Consolidated Statements of Operations and Comprehensive Income - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Net sales	$ 114,201	$ 79,508
Cost of goods sold	88,943	65,169
Gross profit	25,258	14,339
Selling, general and administrative expenses	13,000	10,180
Income from operations	12,258	4,159
Other income (expense):
Interest income	131	36
Interest expense	2	(12)
Foreign exchange gain (loss)	(425)	127
Other, net	1,606	(3)
	1,314	148
Income before income taxes	13,572	4,307
Provision for income taxes	4,026	961
Net income	9,546	3,346
Change in minimum pension liability, net of tax	(132)	(141)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax	218	(156)
Comprehensive income	$ 9,632	$ 3,049
Net income per common share:
Basic (in dollars per share)	$ 1.46	$ 0.50
Diluted (in dollars per share)	$ 1.44	$ 0.49
Weighted average common shares outstanding:
Basic (in shares)	6,523,555	6,753,239
Diluted (in shares)	6,640,728	6,806,385

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Consolidated Statements of Stockholders' Equity - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Jun. 30, 2014	7,513,677			515,923
Balance at Jun. 30, 2014	$ 74,000	$ 19,865,000	$ 25,661,000	$ (2,693,000)	$ (469,000)	$ 42,438,000
Issuance of common stock for restricted stock grants (in shares)	105,000
Issuance of common stock for restricted stock grants	$ 1,000	(1,000)
Compensation expense related to stock compensation plans		390,000				390,000
Repurchase of common stock (in shares)				359,661
Repurchase of common stock				$ (2,021,000)		(2,021,000)
Tax effect of stock compensation		4,000				4,000
Change in minimum pension liability, net of tax					(141,000)	(141,000)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax					(156,000)	(156,000)
Net income			3,346,000			3,346,000
Balance (in shares) at Jun. 30, 2015	7,618,677			875,584
Balance at Jun. 30, 2015	$ 75,000	20,258,000	29,007,000	$ (4,714,000)	(766,000)	43,860,000
Issuance of common stock for restricted stock grants (in shares)	208,000
Issuance of common stock for restricted stock grants	$ 2,000	(2,000)
Compensation expense related to stock compensation plans		724,000				724,000
Repurchase of common stock (in shares)				82,465
Repurchase of common stock				$ (648,000)		(648,000)
Tax effect of stock compensation		158,000				158,000
Change in minimum pension liability, net of tax					(132,000)	(132,000)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax					218,000	218,000
Net income			9,546,000			9,546,000
Balance (in shares) at Jun. 30, 2016	7,826,677			958,049
Balance at Jun. 30, 2016	$ 77,000	$ 21,138,000	$ 38,553,000	$ (5,362,000)	$ (680,000)	$ 53,726,000

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash flows from operating activities
Net income	$ 9,546,000	$ 3,346,000
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for uncollectible accounts receivable	9,000	7,000
Depreciation and amortization	1,772,000	2,431,000
Non-cash equipment impairment charge	0	417,000
Deferred income taxes	(197,000)	(93,000)
Non-cash compensation	724,000	390,000
Pension expense	106,000	31,000
Gain on disposal of assets	(1,866,000)	(62,000)
Changes in operating assets and liabilities:
Accounts receivable	(3,331,000)	(3,067,000)
Inventories	(8,204,000)	276,000
Prepaids and other assets	131,000	(875,000)
Accounts payable and accrued liabilities	7,983,000	(520,000)
Income taxes	1,272,000	173,000
Accrued compensation and employee benefits	1,340,000	224,000
Net cash provided by operating activities	9,285,000	2,678,000
Cash flows from investing activities
Purchases of property and equipment	(10,441,000)	(1,708,000)
Proceeds from sale of property and equipment	3,000,000	90,000
Net cash used in investing activities	(7,441,000)	(1,618,000)
Cash flows from financing activities
Repurchase of common stock	(648,000)	(2,021,000)
Net cash used in financing activities	(648,000)	(2,021,000)
Net increase (decrease) in cash and cash equivalents	1,196,000	(961,000)
Cash and cash equivalents at beginning of year	18,551,000	19,512,000
Cash and cash equivalents at end of year	19,747,000	18,551,000
Supplemental disclosures of cash flow information
Taxes	3,359,000	888,000
Interest		10,000
Disclosure of non-cash activities:
Change in minimum pension liability, net of tax	132,000	141,000
Change in unrealized (loss) gain resulting from change in fair value of derivative instruments, net of tax	$ (218,000)	$ 156,000

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Note A - Organization and Summary of Significant Accounting Policies

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

A. Organization and Summary of Significant Accounting Policies

Organization

We provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We also seek to commercialize our patent and trademark estate related to the ingredient known as beta-alanine through direct raw material sales and various license and similar arrangements.

Subsidiaries

On January 22, 1999, Natural Alternatives International Europe S.A. (NAIE) was formed as our wholly owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened its manufacturing facility and possesses manufacturing capability in encapsulation, powders, tablets, finished goods packaging, quality control laboratory testing, warehousing, distribution and administration.

Principles of Consolidation

The consolidated financial statements include the accounts of Natural Alternatives International, Inc. (NAI) and our wholly owned subsidiary, NAIE. All intercompany accounts and transactions have been eliminated. The functional currency of NAIE, our foreign subsidiary, is the U.S. Dollar. The financial statements of NAIE have been translated at either current or historical exchange rates, as appropriate, with gains and losses included in the consolidated statements of operations.

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) (ASU 2015-17), which amends existing standards for deferred taxes to present all deferred tax assets and liabilities as noncurrent. We adopted the ASU effective June 30, 2016, applied prospectively, and it did not have a significant impact on our financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends existing standards for leases to increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities on the balance sheet and requiring disclosure of key information about such arrangements. ASU 2016-02 will be effective for us beginning in our first quarter of fiscal 2020, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In March 2016, the FASB issued Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815) (ASU 2016-05), which provides guidance related to the replacement of a counterparty of an existing designated hedging instrument. The guidance stipulates that the replacement of a counterparty does not in itself constitute a termination of the hedging instrument. ASU 2016-05 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We do not expect the new standard to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) (ASU 2016-09), which provides guidance improvements to employee share-based payment accounting. The standard amends several aspects of current employee share-based payment accounting including income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606)(ASU 2016-10), which amends and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related to identifying performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (ASU 2016-11), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09. In May 2016 the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12), which provides narrow scope improvements and practical expedients related to ASU 2014-09. We are currently evaluating the impact of adopting these new standards on our consolidated financial statements. All of these new standards will be effective for us concurrently with ASU 2014-09, beginning in our first quarter of fiscal 2019, early adoption is not permitted.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances.

The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable or can be corroborated, either directly or indirectly by observable market data. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 1, except for assets and liabilities related to our pension plan. We classify derivative forward exchange contracts as Level 2 assets. The fair value of our forward exchange contracts as of June 30, 2016 was a net asset of $250,000 and the value as of June 30, 2015 was a net asset of $474,000. The fair values were determined based on obtaining pricing from our bank and corroborating those values with a third party bank. As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between any levels during fiscal 2016.

Accounts

Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and customer credit-worthiness. An allowance for estimated doubtful accounts is maintained based on historical experience and identified customer credit issues. We monitor collections regularly and adjust the allowance for doubtful accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable is uncollectible, we record the respective amount as a charge against allowance for doubtful accounts. To date, such doubtful accounts reserves, in the aggregate, have been adequate to cover collection losses.

Inventories

We operate primarily as a private-label contract manufacturer that builds products based upon anticipated demand or following receipt of customer specific purchase orders. From time to time, we build inventory for private-label contract manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or canceled at the customer’s request. We value inventory at the lower of cost (first-in, first-out) or market (net realizable value) on an item-by-item basis, including costs for raw materials, labor and manufacturing overhead. We establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, the estimated time required to sell such inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value.

Property and Equipment

We state property and equipment at cost. Depreciation of property and equipment is provided using the straight-line method over their estimated useful lives, generally ranging from 1 to 39 years. We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred. Significant expenditures that increase economic useful lives are capitalized.

Impairment of Long-Lived Assets

We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We did not recognize any impairment losses during fiscal 2016. During fiscal 2015, we recorded an impairment loss of $417,000 related to manufacturing equipment and related tooling that was determined to be obsolete.

Derivative Financial Instruments

We currently may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted transactions denominated in Euros. We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts and currency options. To the extent we use derivative financial instruments, we account for them using the deferral method, when such instruments are intended to hedge identifiable, firm foreign currency commitments or anticipated transactions and are designated as, and effective as, hedges. Foreign exchange exposures arising from certain transactions that do not meet the criteria for the deferral method are marked-to-market through the Consolidated Statements of Operations and Comprehensive Income.

We recognize any unrealized gains and losses associated with derivative instruments in income in the period in which the underlying hedged transaction is realized. In the event the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2016, we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar. As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). These contracts will mature over the next 14 months.

Defined Benefit Pension Plan

We formerly sponsored a defined benefit pension plan. Effective June 21, 1999, we adopted an amendment to freeze benefit accruals to the participants. The plan obligation and related assets of the plan are presented in the notes to the consolidated financial statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued based upon third party market quotations. Independent actuaries, through the use of a number of assumptions, determine plan obligation and annual pension expense. Key assumptions in measuring the plan obligation include the discount rate and estimated future return on plan assets. In determining the discount rate, we use an average long-term bond yield. Asset returns are based on the historical returns of multiple asset classes to develop a risk free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free rate of return and the associated risk premium. A weighted average rate is developed based on the overall rates and the plan’s asset allocation.

Revenue Recognition

To recognize revenue, four basic criteria must be met: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the seller’s price to the buyer is substantially fixed or determinable at the date of sale; (b) the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (c) the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (d) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (e) the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (f) the amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue from shipments where title passes upon delivery is deferred until the shipment has been delivered.

We record reductions to gross revenue for estimated returns of private-label contract manufacturing products and branded products. The estimated returns are based on the trailing six months of private-label contract manufacturing gross sales and our historical experience for both private-label contract manufacturing and branded product returns. However, the estimate for product returns does not reflect the impact of a potential large product recall resulting from product nonconformance or other factors as such events are not predictable nor is the related economic impact estimable.

We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under the CarnoSyn® trade name. From

March 2009 to April 2015, we had an agreement with Compound Solutions, Inc. (CSI) to grant a license to manufacture, offer for sale and/or sell products incorporating, using or made in accordance with our patent rights to customers of CSI who purchase beta-alanine under the CarnoSyn® trade name from CSI. We received a fee from CSI that varied based on the quantity and source of beta-alanine sold by CSI. Effective April 1, 2015, we began directly selling beta-alanine, and licensing the related patent and trademark rights, in order to take advantage of strategic opportunities, including opportunities to provide additional contract manufacturing services, and to increase our top-line revenue and profit profile.

We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $21.8 million during fiscal 2016 and $9.1 million during fiscal 2015. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $865,000 during fiscal 2016 and $806,000 during fiscal 2015.

Cost of Goods Sold

Cost of goods sold includes raw material, labor, manufacturing overhead, and royalty expense.

Shipping and Handling Costs

We include fees earned on the shipment of our products to customers in sales and include costs incurred on the shipment of product to customers in costs of goods sold.

Research and Development Costs

As part of the services we provide to our private-label contract manufacturing customers, we may perform, but are not obligated to perform, certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products. We also direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for product claims and marketing initiatives. We believe our commitment to research and development, as well as our facilities and strategic alliances with our suppliers and customers, allow us to effectively identify, develop and market high-quality and innovative products.

Research and development costs are expensed when incurred. Our research and development expenses for the last two fiscal years ended June 30 were $1.1 million for 2016 and $1.1 million for 2015. These costs were included in selling, general and administrative expenses and cost of goods sold.

Advertising Costs

We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed advertising costs in the amount of $334,000 during the fiscal year ended June 30, 2016 and $69,000 during fiscal 2015. These costs were included in selling, general and administrative expenses.

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates, for each of the jurisdictions in which we operate, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

We account for uncertain tax positions using the more-likely-than-not recognition threshold. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2016 and June 30, 2015, we had not recorded any tax liabilities for uncertain tax positions.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that it is more likely than not that we will not realize all or part of our deferred tax assets in the future, we will record an adjustment to the carrying value of the deferred tax asset, which would be reflected as income tax expense. Conversely, if we determine we will realize a deferred tax asset, which currently has a valuation allowance, we will reverse the valuation allowance, which would be reflected as an income tax benefit.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the fourth quarter of fiscal 2016, we concluded that it was more likely than not that we would be able to realize the benefit of our federal and state deferred tax assets in the future. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. As a result, we reduced the valuation allowance on our net deferred tax assets by $193,000 at June 30, 2016. We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.

We do not record U.S. income tax expense for NAIE’s retained earnings that are declared as indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested in NAIE is based on the actual deployment of such earnings in NAIE’s assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax laws are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

Stock-Based Compensation

We have an omnibus incentive plan that was approved by our Board of Directors effective as of October 15, 2009 and approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009. Under the plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. Our prior equity incentive plan was terminated effective as of November 30, 2009.

We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions. Black-Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair value of our stock awards to expense over the related vesting periods.

The Company did not grant any options during fiscal 2016 or 2015.

We did not have any options exercised during fiscal 2016 or fiscal 2015. All remaining outstanding stock options are fully vested and all related compensation cost was fully recognized at June 30, 2014. No options vested during the fiscal years ended June 30, 2016 and June 30, 2015.

On March 19, 2015, we granted 105,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted shares partially vested, and the remainder will continue to vest over three years and the unvested portion of these shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. During fiscal 2016, we granted a total of 208,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted stock grants will vest over three or five years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. There were 193,012 vested restricted stock shares as of June 30, 2016 and there were 93,866 vested restricted stock shares as of June 30, 2015. The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $2.3 million at June 30, 2016 and the weighted average remaining requisite service period of unvested restricted stock shares was 1.6 years. The weighted average fair value of restricted stock shares granted during fiscal 2016 was $9.86. The weighted average fair value of restricted stock shares granted during fiscal 2015 was $5.51.

Use of

Estimates

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

Net Income per Common Share

We compute basic net income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of stock options and restricted shares account for the additional weighted average shares of common stock outstanding for our diluted net income per common share computation. We calculated basic and diluted net income per common share as follows (in thousands, except per share data):

	For the Years Ended June 30,
	201 6		201 5
Numerator
Net income	$	9,546	$	3,346
Denominator
Basic weighted average common shares outstanding		6,524		6,753
Dilutive effect of stock options and restricted stock shares		117		53
Diluted weighted average common shares outstanding		6,641		6,806
Basic net income per common share	$	1.46	$	0.50
Diluted net income per common share	$	1.44	$	0.49

No shares related to stock options were excluded for the year ended June 30, 2016.

We excluded shares related to stock options totaling 151,000 shares of common stock for the year ended June 30, 2015, from the calculation of diluted net income per common share, as the effect of their inclusion would have been anti-dilutive.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect to receivables is concentrated with our two largest customers, whose receivable balances collectively represented 61.1% of gross accounts receivable at June 30, 2016 and 25.8% at June 30, 2015. Additionally, amounts due related to our beta-alanine raw material sales were 14.6% of gross accounts receivable at June 30, 2016, and 26.0% of gross accounts receivable at June 30, 2015. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.

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Note B - Inventories

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Inventory Disclosure [Text Block]

B. Inventories

Inventories, net, consisted of the following at June 30 (in thousands):

	2016			201 5
Raw materials	$	14,751		$	9,744
Work in progress		3,487			1,552
Finished goods		2,832			1,603
Reserve		(302	)		(335	)
	$	20,768		$	12,564

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Note C - Property and Equipment

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

C. Property and Equipment

Property and equipment consisted of the following at June 30 (dollars in thousands):

	Depreciable Life In Years			201 6			201 5
Land		NA		$	1,200		$	393
Building and building improvements	7	–	39		3,324			2,793
Machinery and equipment	3	–	12		23,846			26,444
Office equipment and furniture	3	–	5		2,994			3,168
Vehicles		3			209			209
Leasehold improvements	1	–	15		15,261			11,244
Total property and equipment					46,834			44,251
Less: accumulated depreciation and amortization					(31,667	)		(36,618	)
Property and equipment, net				$	15,167		$	7,633

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Note D - Other Comprehensive Loss

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

D. Other comprehensive loss

      Other comprehensive (loss) income consisted of the following at June 30 (dollars in thousands):

	Year Ended June 30, 201 6
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)
Other comprehensive loss before reclassifications		(232	)		414			182
Amounts reclassified from OCI		19			(74	)		(55	)
Tax effect of OCI activity		81			(122	)		(41	)
Other comprehensive loss		(132	)		218			86
Balance as of June 30, 2016	$	(775	)	$	95		$	(680	)

	Year Ended June 30, 201 5
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2014	$	(502	)	$	33		$	(469	)
Other comprehensive loss before reclassifications		(176	)		2,228			2,052
Amounts reclassified from OCI		(49	)		(2,461	)		(2,510	)
Tax effect of OCI activity		84			77			161
Other comprehensive loss		(141	)		(156	)		(297	)
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)

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Note E - Debt

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Debt Disclosure [Text Block]

E. Debt

On February 1, 2016, we executed a new Credit Agreement with Wells Fargo Bank, N.A. The Credit Agreement replaces the previous credit facility and increases our credit line from $5.0 million to $10.0 million. The line of credit may be used to finance working capital requirements. There was no commitment fee required as part of this agreement. There are no amounts currently drawn under the line of credit.

Under the terms of the Credit Agreement, borrowings are subject to eligibility requirements including maintaining (i) a ratio of total liabilities to tangible net worth of not greater than 1.25 to 1.0 at any time; and (ii) a ratio of total current assets to total current liabilities of not less than 1.75 to 1.0 at each fiscal quarter end. Any amounts outstanding under the line of credit will bear interest at a fixed or fluctuating interest rate as elected by NAI from time to time; provided, however, that if the outstanding principal amount is less than $100,000 such amount shall bear interest at the then applicable fluctuating rate of interest. If elected, the fluctuating rate per annum would be equal to 1.25% above the daily one month LIBOR rate as in effect from time to time. If a fixed rate is elected, it would equal a per annum rate of 1.25% above the LIBOR rate in effect on the first day of the applicable fixed rate term. Any amounts outstanding under the line of credit must be paid in full on or before January 31, 2019. Amounts outstanding that are subject to a fluctuating interest rate may be prepaid at any time without penalty. Amounts outstanding that are subject to a fixed interest rate may be prepaid at any time in minimum amounts of $100,000, subject to a prepayment fee equal to the sum of the discounted monthly differences for each month from the month of prepayment through the month in which the then applicable fixed rate term matures.

Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures. We also have a foreign exchange facility with Wells Fargo Bank, N.A. in effect until January 31, 2019, and with Bank of America, N.A. in effect until August 15, 2017.

On June 30, 2016, we were in compliance with all of the financial and other covenants required under the Credit Agreement.

On September 22, 2006, NAIE, our wholly owned subsidiary, entered into a credit facility with Credit Suisse to provide NAIE with a credit line of up to CHF 1.3 million, or approximately $1.3 million, which was the initial maximum aggregate amount that could be outstanding at any one time under the credit facility. This maximum amount is reduced annually by CHF 160,000, or approximately $163,000. On February 19, 2007, NAIE amended its credit facility to provide that the maximum aggregate amount that may be outstanding under the facility cannot be reduced below CHF 500,000, or approximately $510,000. As of June 30, 2016, there was no outstanding balance under this credit facility.

Under its credit facility, NAIE may draw amounts either as current account loan credits to its current or future bank accounts or as fixed loans with a maximum term of 24 months. Current account loans will bear interest at the rate of 5% per annum. Fixed loans will bear interest at a rate determined by the parties based on current market conditions and must be repaid pursuant to a repayment schedule established by the parties at the time of the loan. If a fixed loan is repaid early at NAIE’s election or in connection with the termination of the credit facility, NAIE will be charged a pre-payment penalty equal to 0.1% of the principal amount of the fixed loan or CHF 1,000 (approximately $1,020), whichever is greater. The bank reserves the right to refuse individual requests for an advance under the credit facility, although its exercise of such right will not have the effect of terminating the credit facility as a whole.

We did not use our working capital line of credit nor did we have any long-term debt outstanding during the year ended June 30, 2016. As of June 30, 2016, we had $10.5 million available under our credit facilities.

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Note F - Income Taxes

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Income Tax Disclosure [Text Block]

F.

Income Taxes

During fiscal 2016, we recorded U.S.-based domestic tax expense of $3.6 million on U.S.-based income from continuing operations, which was offset by the release of our deferred tax asset valuation of $193,000 resulting in a net domestic tax expense of $3.4 million. We released our deferred tax asset valuation based on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. The valuation allowance activity did not have any impact on the tax expense and related liability recorded for operating income recognized by NAIE during the years ended June 30, 2016 or June 30, 2015.

The provision for income taxes for the years ended June 30 consisted of the following (in thousands):

	2016			2015
Current:
Federal	$	3,339		$	396
State		138			41
Foreign		629			450
		4,106			887
Deferred:
Federal		46			125
State		67			(51	)
Valuation allowance		(193	)		—
		(80	)		74
Provision for income taxes	$	4,026		$	961

Net deferred tax assets and deferred tax liabilities as of June 30 were as follows (in thousands):

	2016			201 5
Deferred tax assets:
Inventory capitalization	$	576		$	167
Pension liability		403			322
Accrued bonus		391			107
Net operating loss carry forward		298			439
Deferred rent		175			143
Accumulated depreciation and amortization		158			897
Stock-based compensation		154			130
Tax credit carry forward		138			88
Accrued vacation expense		130			106
Other, net		64			13
Total gross deferred tax assets		2,487			2,412
Deferred tax liabilities:
Prepaid expenses		(260	)		(189	)
Other		—			—
Deferred tax liabilities		(260	)		(189	)
Valuation allowance		–			(193	)
Net deferred tax assets	$	2,227		$	2,030

At June 30, 2016, we had state tax net operating loss carry forwards of approximately $5.1 million. Under California tax law, net operating loss deductions were suspended for tax years beginning in 2008, 2009, 2010 and 2011 and the carry forward periods of any net operating losses not utilized due to such suspension were extended.

Our state tax loss carry forwards will begin to expire in fiscal 2022, unless used before their expiration.

Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of the net operating loss carry forwards and research and development tax credits could be limited by any greater than 50% ownership change during any three-year testing period. We did not have any ownership changes that met this criterion during the fiscal years ended June 30, 2016 and June 30, 2015.

We are subject to taxation in the U.S., Switzerland and various state jurisdictions. Our tax years for the fiscal year ended June 30, 2013 and forward are subject to examination by the U.S. tax authorities and our years for the fiscal year ended June 30, 2008 and forward are subject to examination by the state tax authorities. Our tax years for the fiscal year ended June 30, 2015 and forward are subject to examination by the Switzerland tax authorities.

NAIE’s effective tax rate for Swiss federal, cantonal and communal taxes is approximately 18.7%. NAIE had net income of $2.7 million for the fiscal year ended June 30, 2016. Undistributed earnings of NAIE amounted to approximately $17.8 million at June 30, 2016. These earnings are considered to be indefinitely reinvested and, accordingly, no provision for U.S. federal taxes has been provided thereon.

A reconciliation of income tax provision computed by applying the statutory federal income tax rate of 34% to net income before income taxes for the year ended June 30 is as follows (dollars in thousands):

	2016			201 5
Income taxes computed at statutory federal income tax rate	$	4,614		$	1,463
State income taxes, net of federal income tax expense		179			7
Expenses not deductible for tax purposes		19			13
Foreign tax rate differential		(514	)		(451	)
Adjust state deferred due to change in apportionment		(18	)		(25	)
Change in valuation allowance		(193	)		—
Other, net		(61	)		(46	)
Income tax provision as reported	$	4,026		$	961
Effective tax rate		29.7	%		22.3	%

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Note G - Employee Benefit Plans

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

G. Employee Benefit Plans

We have a profit sharing plan pursuant to Section 401(k) of the Code, whereby participants may contribute a percentage of compensation not in excess of the maximum allowed under the Code. All employees with six months of continuous employment are eligible to participate in the plan. Effective January 1, 2004, the plan was amended to require that we match 100% of the first 3% and 50% of the next 2% of a participant’s compensation contributed to the plan. Effective January 1, 2009, we elected to temporarily discontinue the company match program. The match program was reinstated effective July 15, 2011. The total contributions under the plan charged to income from operations totaled $229,000 for fiscal 2016 and $225,000 for fiscal 2015.

We have a “Cafeteria Plan” pursuant to Section 125 of the Code, whereby health care benefits are provided for active employees through insurance companies. Substantially all active full-time employees are eligible for these benefits. We recognize the cost of providing these benefits by expensing the annual premiums, which are based on benefits paid during the year. The premiums expensed to operating income for these benefits totaled $847,000 for the fiscal year ended June 30, 2016 and $1.1 million for fiscal 2015.

We formerly sponsored a defined benefit pension plan, which provides retirement benefits to employees based generally on years of service and compensation during the last five years before retirement. Effective June 21, 1999, we adopted an amendment to freeze benefit accruals to the participants. We contribute an amount not less than the minimum funding requirements of the Employee Retirement Income Security Act of 1974 nor more than the maximum tax-deductible amount.

Disclosure of Funded Status

The following table sets forth the defined benefit pension plan’s funded status and amount recognized in our consolidated balance sheets at June 30 (in thousands):

	201 6			201 5
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	2,080		$	1,901
Interest cost		87			80
Actuarial loss		272			144
Benefits paid		(110	)		(45	)
Benefit obligation at end of year	$	2,329		$	2,080
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	1,642		$	1,719
Actual return on plan assets		74			(5	)
Benefits paid		(112	)		(45	)
Plan expenses		(33	)		(27	)
Fair value of plan assets at end of year	$	1,571		$	1,642
Reconciliation of Funded Status:
Difference between benefit obligation and fair value of plan assets	$	(758	)	$	(438	)
Unrecognized net actuarial loss in accumulated other comprehensive income		1,117			904
Net amount recognized	$	359		$	466
Projected benefit obligation	$	2,329		$	2,080
Accumulated benefit obligation	$	2,329		$	2,080
Fair value of plan assets	$	1,571		$	1,642

The weighted-average discount rate used for determining the projected benefit obligations for the defined benefit pension plan was 3.6% during the year ended June 30, 2016 and 4.4% for the year ended June 30, 2015.

Net Periodic Benefit Cost

The components included in the defined benefit pension plan’s net periodic benefit expense for the fiscal years ended June 30 were as follows (in thousands):

	201 6			201 5
Interest cost	$	87		$	80
Expected return on plan assets		(105	)		(115	)
Recognized actuarial loss		68			46
Settlement loss		55			20
Net periodic benefit expense	$	105		$	31

We did not make any contributions to our defined benefit pension plan in fiscal 2016 and do not expect to make any contributions in fiscal 2017.

The following is a summary of changes in plan assets and benefit obligations recognized in other comprehensive income (in thousands):

	201 6			201 5
Net loss	$	304		$	265
Settlement loss		(55	)		(20	)
Amortization of net loss		(68	)		(47	)
Plan expenses		32			27
Total recognized in other comprehensive income (loss)	$	213		$	225
Total recognized in net periodic benefit cost and other comprehensive income	$	318		$	256

The estimated net loss for the defined benefit pension plan that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year is $68,000. We do not have any transition obligations or prior service costs recorded in accumulated other comprehensive income.

The following benefit payments are expected to be paid (in thousands):

2017	$	55
2018		74
2019		113
2020		124
2021		123
2022-2026		705
	$	1,194

The weighted-average rates used for the years ended June 30 in determining the defined benefit pension plan’s net pension costs, were as follows:

	201 6			201 5
Discount rate		3.61	%		4.33	%
Expected long-term rate of return		7.00	%		7.00	%
Compensation increase rate		N/A			N/A

Our expected rate of return is determined based on a methodology that considers historical returns of multiple classes analyzed to develop a risk free real rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free real rate of return, and the associated risk premium. A weighted average rate was developed based on those overall rates and the target asset allocation of the plan.

Our defined benefit pension plan’s weighted average asset allocation at June 30 and weighted average target allocation were as follows:

	201 6			201 5			Target Allocation
Equity securities		50	%		53	%		49	%
Debt securities		47	%		45	%		46	%
Commodities		—			—			2	%
Cash and money market funds		3	%		2	%		3	%
		100	%		100	%		100	%

The underlying basis of the investment strategy of our defined benefit pension plan is to ensure that pension funds are available to meet the plan’s benefit obligations when due. Our investment strategy is a long-term risk controlled approach using diversified investment options with relatively minimal exposure to volatile investment options like derivatives.

The fair values by asset category of our defined benefit pension plan at June 30, 2016 were as follows (in thousands):

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	41	$	41	$	—	$	—
Equity securities (1)	$	785	$	785	$	—	$	—
Debt securities (2)	$	745	$	745	$	—	$	—
Total	$	1,571	$	1,571	$	—	$	—

(1) This category is comprised of publicly traded funds, of which 47% are large-cap funds, 28% are mid-cap and small-cap, 8% are emerging markets equity funds, and 17% are international equity funds.

(2) This category is comprised of publicly traded funds, of which 6% are long-term fixed income funds,14% are high-yield fixed income funds, 38% are intermediate fixed income funds, 27% are REITs and MLPs funds, and 15% are international/emerging markets funds.

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Note H - Stockholders' Equity

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

H. Stockholders’ Equity

Treasury Stock

On June 2, 2011, the Board of Directors authorized the repurchase of up to $2.0 million of our common stock. On February 6, 2015, the Board of Directors authorized a $1.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $3.0 million. On May 11, 2015, the Board of Directors authorized a $2.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $5.0 million. Under the repurchase plan, we may, from time to time, purchase shares of our common stock, depending upon market conditions, in open market or privately negotiated transactions. During the twelve months ended June 30, 2016, we purchased 52,603 shares at a weighted average cost of $6.26 per share and a total cost of $0.3 million including commissions and fees. During the twelve months ended June 30, 2015, we purchased 342,121 shares at a weighted average cost of $5.63 per share and a total cost of $1.9 million including commissions and fees.

During fiscal 2016 we acquired 27,195 shares from employees in connection with restricted stock shares that vested during the year and during fiscal 2015 we acquired 17,540 shares in connection with restricted stock shares that vested during that year. These shares were returned to the Company by the related employees and in return the Company paid each employee’s required tax withholding. The valuation of the shares acquired and thereby the amount of shares returned to the Company was calculated based on the closing share price on the date the shares vested.

Stock

Option Plans

On December 6, 1999, our stockholders approved the adoption of the 1999 Omnibus Equity Incentive Plan (the “1999 Plan”). The 1999 Plan was terminated effective as of November 30, 2009, and there are no more options outstanding under this plan.

Effective as of October 15, 2009, our Board of Directors approved an omnibus incentive plan (the “2009 Plan”). The 2009 Plan was approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009. Under the plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. As of June 30, 2016, a total of 1.1 million shares of common stock were reserved under the 2009 Plan for issuance to our employees, non-employee directors and consultants.

Stock option activity for the year ended June 30, 2016 was as follows:

	2009 Plan			Weighted Average Exercise Price		Weighted Average Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at June 30, 2015		185,000		$	6.74
Exercised		—		$	—
Forfeited		(45,000	)	$	7.90
Granted		—		$	—
Outstanding at June 30, 2016		140,000		$	6.36		4.58	$	805,000
Vested and exercisable at June 30, 2016		140,000		$	6.36		4.58	$	805,000

Restricted stock activity for the year ended June 30, 2016 was as follows (2009 Plan):

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at June 30, 2015		204,134		$	5.42
Granted		208,000		$	9.86
Vested		(99,146	)	$	5.31
Forfeited		(2,667	)	$	5.51
Nonvested at June 30, 2016		310,321		$	8.43

As of June 30, 2016, there were 508,104 shares available for grant under the 2009 Plan.

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Note I - Commitments

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Commitments Disclosure [Text Block]

I. Commitments

We lease a total of 162,000 square feet at our manufacturing facility in Vista, California from an unaffiliated third party under a non-cancelable operating lease. On July 31, 2013, we executed a third amendment to the lease for our manufacturing facility in Vista, CA. As a result of this amendment, our facility lease has been extended for an additional 10 year term through March 2024.

During February 2016, we sold our former corporate headquarters in San Marcos, CA and the property was leased though a sale-leaseback agreement through August 2016. The property was vacated during August 2016. We purchased the Carlsbad facility in March 2016 and began to occupy as our new corporate headquarters during August 2016.

NAIE leases facility space in Manno, Switzerland. The leased space totals approximately 94,217 square feet

.

We primarily use the facilities for manufacturing, packaging, warehousing and distributing nutritional supplement products for the European marketplace. Effective July 1, 2014, NAIE entered into a new lease with its current landlord. The new lease replaced, extended, and enlarged an existing lease between the same parties for the same building in Manno Switzerland. NAIE intends to improve portions of the additional space acquired by the new lease, and will continue to use the entire leased premises for offices, laboratory, warehouse and production. The new lease has a term of five years with a right for NAIE to extend the lease for an additional five years. The initial five year term expires on June 30, 2019.

Minimum rental commitments (exclusive of property tax, insurance and maintenance) under all non-cancelable operating leases with initial or remaining lease terms in excess of one year, including the lease agreements referred to above, are set forth below as of June 30, 2016 (in thousands):

	201 7		201 8		201 9		20 20		202 1		There- after		Total
Gross minimum rental commitments	$	2,826	$	2,781	$	2,778	$	1,394	$	1,429	$	4,114	$	15,322

Rental expense totaled $3.1 million for the fiscal year ended June 30, 2016 and $3.0 million for fiscal 2015.

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Note J - Economic Dependency

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

J. Economic Dependency

We had substantial net sales to certain customers during the fiscal years ended June 30 shown in the following table. The loss of any of these customers, or a significant decline in sales or the growth rate of sales to these customers, or in their ability to make payments when due, could have a material adverse impact on our net sales and net income. Net sales to any one customer representing 10% or more of the respective year’s consolidated net sales were as follows (dollars in thousands):

	Fiscal 2016		Fiscal 2015
Customer 1	$	49,442	$	29,724
Customer 2		13,952		8,090
Customer 3		(a)		11,018
	$	63,394	$	48,832

(a) Sales were less than 10% of the respective period’s consolidated net sales.

Accounts receivable from these customers totaled $8.1 million at June 30, 2016 and $4.6 million at June 30, 2015.

We buy certain products, including beta-alanine, from a limited number of raw material suppliers. The loss of any of these suppliers could have a material adverse impact on our net sales and net income. During fiscal 2016 and 2015, we did not have any suppliers that individually represented greater than 10% of our raw material purchases.

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Note K - Derivatives and Hedging

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

K. Derivatives

and Hedging

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to forecasted product sales denominated in foreign currencies and transactions of NAIE, our foreign subsidiary. As part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we may use foreign exchange contracts in the form of forward contracts. There can be no guarantee any such contracts, to the extent we enter into such contracts, will be effective hedges against our foreign currency exchange risk.

During the year ended June 30, 2016 and prior, we entered into forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. dollar. These contracts are expected to be settled through August 2017. For derivative instruments that are designated and qualify as cash flow hedges, we record the effective portion of the gain or loss on the derivative in accumulated other comprehensive income (OCI) as a separate component of stockholders’ equity and subsequently reclassify these amounts into earnings in the period during which the hedged transaction is recognized in earnings.

For foreign currency contracts designated as cash flow hedges, hedge effectiveness is measured using the spot rate. Changes in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as interest expense. We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item. During the year ended June 30, 2016, we did not have any losses or gains related to the ineffective portion of our hedging instruments. No hedging relationships were terminated as a result of ineffective hedging or forecasted transactions no longer probable of occurring for foreign currency forward contracts. We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis.

As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). As of June 30, 2016, a net asset of approximately $149,000, offset by $54,000 of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. As of June 30, 2015, a net loss of approximately $191,000, offset by $68,000 of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. It is expected that $149,000 of the gross loss, as of June 30, 2016, will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.

As of June 30, 2016, $226,000 of the fair value of our cash flow hedges was classified in prepaids and other current assets, $24,000 was classified other noncurrent assets, net in our Consolidated Balance Sheets. During the year ended June 30, 2016, we recognized $413,000 of losses in OCI and reclassified $74,000 of gains from OCI to revenue. During the year ended June 30, 2015, we recognized $2.2 million of gains in OCI and reclassified $2.4 million of gains from OCI to revenue.

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Note L - Contingencies

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

L. Contingencies

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters may relate to product liability, employment, intellectual property, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties 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 will result in a material adverse effect on our business, consolidated financial condition, or results of operation. However, a settlement payment or unfavorable outcome could adversely impact our results of operation. Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes that we do not expect.

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Note M - Segment Information

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

M. Segment Information

Our business consists of three segments for financial reporting purposes. The three segments are identified as (i) private-label contract manufacturing, which primarily relates to the provision of private-label contract manufacturing services to companies that market and distribute nutritional supplements and other health care products, and (ii) patent and trademark licensing, which primarily includes direct raw material sales and royalty income from our license and supply agreements associated with the sale and use of beta-alanine under our CarnoSyn® trade mark, and (iii) branded products, which relates to the marketing and distribution of our branded nutritional supplements and consists primarily of the products sold under our Pathway to

Healing

®

product line.

Due to the steady decline in sales of our Pathway to

Healing

®

product line over the prior several years, we decided to discontinue the product line. All termination activities related to the Pathway to Healing® product line were substantially completed by December 31, 2014. We did not change the financial presentation in this report to reflect the branded products segment as “Discontinued Operations” as the wind down of this product line did not meet the criteria for discontinued operations presentation as prescribed by applicable accounting regulations (ASC 205-20).

We evaluate performance based on a number of factors. The primary performance measures for each segment are net sales and income or loss from operations before corporate allocations. Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income and expense items. Corporate general and administrative expenses include, but are not limited to: human resources, corporate legal, finance, information technology, and other corporate level related expenses, which are not allocated to any segment.

The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note A.

Our operating results by business segment for the years ended June 30 were as follows (in thousands):

	201 6		201 5
Net Sales
Private-label contract manufacturing	$	92,420	$	69,670
Patent and trademark licensing		21,781		9,140
Branded products		–		698
	$	114,201	$	79,508

	201 6			201 5
Operating Income
Private-label contract manufacturing	$	12,184		$	5,172
Patent and trademark licensing		6,153			3,811
Branded products		–			248
Income from operations of reportable segments		18,337			9,231
Corporate expenses not allocated to segments		(6,079	)		(5,072	)
	$	12,258		$	4,159

	201 6		201 5
Total Assets
Private-label contract manufacturing	$	66,375	$	50,313
Patent and trademark licensing		7,800		3,503
	$	74,175	$	53,816

Our private-label contract manufacturing products are sold both in the U.S. and in markets outside the U.S., including Europe, Canada, Mexico, Australia, South Africa and Asia. Our primary market outside the U.S. is Europe. Our patent and trademark licensing activities are primarily based in the U.S. and our branded products are only sold in the U.S.

Net sales by geographic region, based on the customers’ location, for the two years ended June 30 were as follows (in thousands):

	201 6		201 5
United States	$	50,575	$	43,671
Markets outside the United States		63,626		35,837
Total net sales	$	114,201	$	79,508

Products manufactured by NAIE accounted for 61% of net sales in markets outside the U.S. in fiscal 2016 and 74% in fiscal 2015. No products manufactured by NAIE were sold in the U.S. during the fiscal years ended June 30, 2016 and 2015.

Assets and capital expenditures by geographic region, based on the location of the company or subsidiary at which they were located or made, for the two years ended June 30 were as follows (in thousands):

201 6	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	9,678	$	49,755	$	6,423
Europe		5,489		24,420		4,018
	$	15,167	$	74,175	$	10,441

2015	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	5,525	$	34,988	$	1,071
Europe		2,108		18,828		637
	$	7,633	$	53,816	$	1,708

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Note N - Subsequent Events

12 Months Ended

Jun. 30, 2016

Notes to Financial Statements

Subsequent Events [Text Block]

N. Subsequent Events

On July 14, 2016, we purchased 24 forward contracts designated and effective as cash flow hedges to protect against the foreign currency exchange risk inherent in a portion of our forecasted sales transactions denominated in Euros. The 24 contracts expire monthly beginning September 2016 and ending August 2017. The forward contracts had a notional amount of 30.5 million Euros and a weighted average forward rate of $1.12.

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Significant Accounting Policies (Policies)

12 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Consolidation, Subsidiaries or Other Investments, Consolidated Entities, Policy [Policy Text Block]

Subsidiaries

On January 22, 1999, Natural Alternatives International Europe S.A. (NAIE) was formed as our wholly owned subsidiary, based in Manno, Switzerland. In September 1999, NAIE opened its manufacturing facility and possesses manufacturing capability in encapsulation, powders, tablets, finished goods packaging, quality control laboratory testing, warehousing, distribution and administration.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of Natural Alternatives International, Inc. (NAI) and our wholly owned subsidiary, NAIE. All intercompany accounts and transactions have been eliminated. The functional currency of NAIE, our foreign subsidiary, is the U.S. Dollar. The financial statements of NAIE have been translated at either current or historical exchange rates, as appropriate, with gains and losses included in the consolidated statements of operations.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In November 2015, the Financial Accounting Standards Board (“FASB”), issued Accounting Standards Update No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740) (ASU 2015-17), which amends existing standards for deferred taxes to present all deferred tax assets and liabilities as noncurrent. We adopted the ASU effective June 30, 2016, applied prospectively, and it did not have a significant impact on our financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-02, Leases (Topic 842) (ASU 2016-02), which amends existing standards for leases to increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities on the balance sheet and requiring disclosure of key information about such arrangements. ASU 2016-02 will be effective for us beginning in our first quarter of fiscal 2020, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In March 2016, the FASB issued Accounting Standards Update No. 2016-05, Derivatives and Hedging (Topic 815) (ASU 2016-05), which provides guidance related to the replacement of a counterparty of an existing designated hedging instrument. The guidance stipulates that the replacement of a counterparty does not in itself constitute a termination of the hedging instrument. ASU 2016-05 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We do not expect the new standard to have a material impact on our consolidated financial statements.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, Compensation-Stock Compensation (Topic 718) (ASU 2016-09), which provides guidance improvements to employee share-based payment accounting. The standard amends several aspects of current employee share-based payment accounting including income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. ASU 2016-09 will be effective for us beginning in our first quarter of fiscal 2018, early adoption is permitted. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements and the timing and presentation of our adoption.

In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606)(ASU 2016-10), which amends and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014-09) related to identifying performance obligations and licensing. In May 2016, the FASB issued Accounting Standards Update No. 2016-11, Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) (ASU 2016-11), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014-09. In May 2016 the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts with Customers (Topic 606) (ASU 2016-12), which provides narrow scope improvements and practical expedients related to ASU 2014-09. We are currently evaluating the impact of adopting these new standards on our consolidated financial statements. All of these new standards will be effective for us concurrently with ASU 2014-09, beginning in our first quarter of fiscal 2019, early adoption is not permitted.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Fair Value Measurement, Policy [Policy Text Block]

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three-level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances.

The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. Fair values determined by Level 2 inputs are based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active and models for which all significant inputs are observable or can be corroborated, either directly or indirectly by observable market data. Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. These include certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.

As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 1, except for assets and liabilities related to our pension plan. We classify derivative forward exchange contracts as Level 2 assets. The fair value of our forward exchange contracts as of June 30, 2016 was a net asset of $250,000 and the value as of June 30, 2015 was a net asset of $474,000. The fair values were determined based on obtaining pricing from our bank and corroborating those values with a third party bank. As of June 30, 2016 and June 30, 2015, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between any levels during fiscal 2016.

Trade and Other Accounts Receivable, Policy [Policy Text Block]

Accounts

Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and customer credit-worthiness. An allowance for estimated doubtful accounts is maintained based on historical experience and identified customer credit issues. We monitor collections regularly and adjust the allowance for doubtful accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable is uncollectible, we record the respective amount as a charge against allowance for doubtful accounts. To date, such doubtful accounts reserves, in the aggregate, have been adequate to cover collection losses.

Inventory, Policy [Policy Text Block]

Inventories

We operate primarily as a private-label contract manufacturer that builds products based upon anticipated demand or following receipt of customer specific purchase orders. From time to time, we build inventory for private-label contract manufacturing customers under a specific purchase order with delivery dates that may subsequently be rescheduled or canceled at the customer’s request. We value inventory at the lower of cost (first-in, first-out) or market (net realizable value) on an item-by-item basis, including costs for raw materials, labor and manufacturing overhead. We establish reserves equal to all or a portion of the related inventory to reflect situations in which the cost of the inventory is not expected to be recovered. This requires us to make estimates regarding the market value of our inventory, including an assessment for excess and obsolete inventory. Once we establish an inventory reserve in a fiscal period, the reduced inventory value is maintained until the inventory is sold or otherwise disposed of. In evaluating whether inventory is stated at the lower of cost or market, management considers such factors as the amount of inventory on hand, the estimated time required to sell such inventory, the remaining shelf life and efficacy, the foreseeable demand within a specified time horizon and current and expected market conditions. Based on this evaluation, we record adjustments to cost of goods sold to adjust inventory to its net realizable value.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

We state property and equipment at cost. Depreciation of property and equipment is provided using the straight-line method over their estimated useful lives, generally ranging from 1 to 39 years. We amortize leasehold improvements using the straight-line method over the shorter of the life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred. Significant expenditures that increase economic useful lives are capitalized.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of Long-Lived Assets

We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. We did not recognize any impairment losses during fiscal 2016. During fiscal 2015, we recorded an impairment loss of $417,000 related to manufacturing equipment and related tooling that was determined to be obsolete.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments

We currently may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted transactions denominated in Euros. We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts and currency options. To the extent we use derivative financial instruments, we account for them using the deferral method, when such instruments are intended to hedge identifiable, firm foreign currency commitments or anticipated transactions and are designated as, and effective as, hedges. Foreign exchange exposures arising from certain transactions that do not meet the criteria for the deferral method are marked-to-market through the Consolidated Statements of Operations and Comprehensive Income.

We recognize any unrealized gains and losses associated with derivative instruments in income in the period in which the underlying hedged transaction is realized. In the event the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2016, we held derivative contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar. As of June 30, 2016, the notional amounts of our foreign exchange contracts were $19.0 million (EUR 16.8 million). These contracts will mature over the next 14 months.

Pension and Other Postretirement Plans, Policy [Policy Text Block]

Defined Benefit Pension Plan

We formerly sponsored a defined benefit pension plan. Effective June 21, 1999, we adopted an amendment to freeze benefit accruals to the participants. The plan obligation and related assets of the plan are presented in the notes to the consolidated financial statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued based upon third party market quotations. Independent actuaries, through the use of a number of assumptions, determine plan obligation and annual pension expense. Key assumptions in measuring the plan obligation include the discount rate and estimated future return on plan assets. In determining the discount rate, we use an average long-term bond yield. Asset returns are based on the historical returns of multiple asset classes to develop a risk free rate of return and risk premiums for each asset class. The overall rate for each asset class was developed by combining a long-term inflation component, the risk free rate of return and the associated risk premium. A weighted average rate is developed based on the overall rates and the plan’s asset allocation.

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition

To recognize revenue, four basic criteria must be met: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. Revenue from sales transactions where the buyer has the right to return the product is recognized at the time of sale only if (a) the seller’s price to the buyer is substantially fixed or determinable at the date of sale; (b) the buyer has paid the seller, or the buyer is obligated to pay the seller and the obligation is not contingent on resale of the product; (c) the buyer’s obligation to the seller would not be changed in the event of theft or physical destruction or damage of the product; (d) the buyer acquiring the product for resale has economic substance apart from that provided by the seller; (e) the seller does not have significant obligations for future performance to directly bring about resale of the product by the buyer; and (f) the amount of future returns can be reasonably estimated. We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time title passes to the customer, which usually occurs upon shipment. Revenue from shipments where title passes upon delivery is deferred until the shipment has been delivered.

We record reductions to gross revenue for estimated returns of private-label contract manufacturing products and branded products. The estimated returns are based on the trailing six months of private-label contract manufacturing gross sales and our historical experience for both private-label contract manufacturing and branded product returns. However, the estimate for product returns does not reflect the impact of a potential large product recall resulting from product nonconformance or other factors as such events are not predictable nor is the related economic impact estimable.

We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under the CarnoSyn® trade name. From

March 2009 to April 2015, we had an agreement with Compound Solutions, Inc. (CSI) to grant a license to manufacture, offer for sale and/or sell products incorporating, using or made in accordance with our patent rights to customers of CSI who purchase beta-alanine under the CarnoSyn® trade name from CSI. We received a fee from CSI that varied based on the quantity and source of beta-alanine sold by CSI. Effective April 1, 2015, we began directly selling beta-alanine, and licensing the related patent and trademark rights, in order to take advantage of strategic opportunities, including opportunities to provide additional contract manufacturing services, and to increase our top-line revenue and profit profile.

We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $21.8 million during fiscal 2016 and $9.1 million during fiscal 2015. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $865,000 during fiscal 2016 and $806,000 during fiscal 2015.

Cost of Sales, Policy [Policy Text Block]

Cost of Goods Sold

Cost of goods sold includes raw material, labor, manufacturing overhead, and royalty expense.

Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling Costs

We include fees earned on the shipment of our products to customers in sales and include costs incurred on the shipment of product to customers in costs of goods sold.

Research and Development Expense, Policy [Policy Text Block]

Research and Development Costs

As part of the services we provide to our private-label contract manufacturing customers, we may perform, but are not obligated to perform, certain research and development activities related to the development or improvement of their products. While our customers typically do not pay directly for this service, the cost of this service is included as a component of the price we charge to manufacture and deliver their products. We also direct and participate in clinical research studies, often in collaboration with scientists and research institutions, to validate the benefits of a product and provide scientific support for product claims and marketing initiatives. We believe our commitment to research and development, as well as our facilities and strategic alliances with our suppliers and customers, allow us to effectively identify, develop and market high-quality and innovative products.

Research and development costs are expensed when incurred. Our research and development expenses for the last two fiscal years ended June 30 were $1.1 million for 2016 and $1.1 million for 2015. These costs were included in selling, general and administrative expenses and cost of goods sold.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed advertising costs in the amount of $334,000 during the fiscal year ended June 30, 2016 and $69,000 during fiscal 2015. These costs were included in selling, general and administrative expenses.

Income Tax, Policy [Policy Text Block]

Income Taxes

We account for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates, for each of the jurisdictions in which we operate, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date.

We account for uncertain tax positions using the more-likely-than-not recognition threshold. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2016 and June 30, 2015, we had not recorded any tax liabilities for uncertain tax positions.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance. If we determine that it is more likely than not that we will not realize all or part of our deferred tax assets in the future, we will record an adjustment to the carrying value of the deferred tax asset, which would be reflected as income tax expense. Conversely, if we determine we will realize a deferred tax asset, which currently has a valuation allowance, we will reverse the valuation allowance, which would be reflected as an income tax benefit.

In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. During the fourth quarter of fiscal 2016, we concluded that it was more likely than not that we would be able to realize the benefit of our federal and state deferred tax assets in the future. We based this conclusion on historical and projected operating performance, as well as our expectation that our operations will generate sufficient taxable income in future periods to realize the tax benefits associated with the deferred tax assets. As a result, we reduced the valuation allowance on our net deferred tax assets by $193,000 at June 30, 2016. We will continue to assess the need for a valuation allowance on the deferred tax assets by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.

We do not record U.S. income tax expense for NAIE’s retained earnings that are declared as indefinitely reinvested offshore, thus reducing our overall income tax expense. The amount of earnings designated as indefinitely reinvested in NAIE is based on the actual deployment of such earnings in NAIE’s assets and our expectations of the future cash needs of our U.S. and foreign entities. Income tax laws are also a factor in determining the amount of foreign earnings to be indefinitely reinvested offshore.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

We have an omnibus incentive plan that was approved by our Board of Directors effective as of October 15, 2009 and approved by our stockholders at the Annual Meeting of Stockholders held on November 30, 2009. Under the plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. Our prior equity incentive plan was terminated effective as of November 30, 2009.

We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the input of highly subjective assumptions. Black-Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair value of our stock awards to expense over the related vesting periods.

The Company did not grant any options during fiscal 2016 or 2015.

We did not have any options exercised during fiscal 2016 or fiscal 2015. All remaining outstanding stock options are fully vested and all related compensation cost was fully recognized at June 30, 2014. No options vested during the fiscal years ended June 30, 2016 and June 30, 2015.

On March 19, 2015, we granted 105,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted shares partially vested, and the remainder will continue to vest over three years and the unvested portion of these shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. During fiscal 2016, we granted a total of 208,000 restricted stock shares to the members of our Board of Directors and certain key members of our management team pursuant to our 2009 Omnibus Incentive plan. These restricted stock grants will vest over three or five years from the date of grant and the unvested shares cannot be sold or otherwise transferred and the rights to receive dividends, if declared by our Board of Directors, are forfeitable until the shares become vested. There were 193,012 vested restricted stock shares as of June 30, 2016 and there were 93,866 vested restricted stock shares as of June 30, 2015. The total remaining unrecognized compensation cost related to unvested restricted stock shares amounted to $2.3 million at June 30, 2016 and the weighted average remaining requisite service period of unvested restricted stock shares was 1.6 years. The weighted average fair value of restricted stock shares granted during fiscal 2016 was $9.86. The weighted average fair value of restricted stock shares granted during fiscal 2015 was $5.51.

Use of Estimates, Policy [Policy Text Block]

Use of

Estimates

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates.

Earnings Per Share, Policy [Policy Text Block]

Net Income per Common Share

We compute basic net income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of stock options and restricted shares account for the additional weighted average shares of common stock outstanding for our diluted net income per common share computation. We calculated basic and diluted net income per common share as follows (in thousands, except per share data):

	For the Years Ended June 30,
	201 6		201 5
Numerator
Net income	$	9,546	$	3,346
Denominator
Basic weighted average common shares outstanding		6,524		6,753
Dilutive effect of stock options and restricted stock shares		117		53
Diluted weighted average common shares outstanding		6,641		6,806
Basic net income per common share	$	1.46	$	0.50
Diluted net income per common share	$	1.44	$	0.49

No shares related to stock options were excluded for the year ended June 30, 2016.

We excluded shares related to stock options totaling 151,000 shares of common stock for the year ended June 30, 2015, from the calculation of diluted net income per common share, as the effect of their inclusion would have been anti-dilutive.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect to receivables is concentrated with our two largest customers, whose receivable balances collectively represented 61.1% of gross accounts receivable at June 30, 2016 and 25.8% at June 30, 2015. Additionally, amounts due related to our beta-alanine raw material sales were 14.6% of gross accounts receivable at June 30, 2016, and 26.0% of gross accounts receivable at June 30, 2015. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.

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Note A - Organization and Summary of Significant Accounting Policies (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Years Ended June 30,
	201 6		201 5
Numerator
Net income	$	9,546	$	3,346
Denominator
Basic weighted average common shares outstanding		6,524		6,753
Dilutive effect of stock options and restricted stock shares		117		53
Diluted weighted average common shares outstanding		6,641		6,806
Basic net income per common share	$	1.46	$	0.50
Diluted net income per common share	$	1.44	$	0.49

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Note B - Inventories (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	2016			201 5
Raw materials	$	14,751		$	9,744
Work in progress		3,487			1,552
Finished goods		2,832			1,603
Reserve		(302	)		(335	)
	$	20,768		$	12,564

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Note C - Property and Equipment (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Property, Plant and Equipment [Table Text Block]

	Depreciable Life In Years			201 6			201 5
Land		NA		$	1,200		$	393
Building and building improvements	7	–	39		3,324			2,793
Machinery and equipment	3	–	12		23,846			26,444
Office equipment and furniture	3	–	5		2,994			3,168
Vehicles		3			209			209
Leasehold improvements	1	–	15		15,261			11,244
Total property and equipment					46,834			44,251
Less: accumulated depreciation and amortization					(31,667	)		(36,618	)
Property and equipment, net				$	15,167		$	7,633

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Note D - Other Comprehensive Loss (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Year Ended June 30, 201 6
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)
Other comprehensive loss before reclassifications		(232	)		414			182
Amounts reclassified from OCI		19			(74	)		(55	)
Tax effect of OCI activity		81			(122	)		(41	)
Other comprehensive loss		(132	)		218			86
Balance as of June 30, 2016	$	(775	)	$	95		$	(680	)

	Year Ended June 30, 201 5
	Defined Benefit Pension Plan			Unrealized Losses on Cash Flow Hedges			Total
Balance as of June 30, 2014	$	(502	)	$	33		$	(469	)
Other comprehensive loss before reclassifications		(176	)		2,228			2,052
Amounts reclassified from OCI		(49	)		(2,461	)		(2,510	)
Tax effect of OCI activity		84			77			161
Other comprehensive loss		(141	)		(156	)		(297	)
Balance as of June 30, 2015	$	(643	)	$	(123	)	$	(766	)

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Note F - Income Taxes (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

	2016			2015
Current:
Federal	$	3,339		$	396
State		138			41
Foreign		629			450
		4,106			887
Deferred:
Federal		46			125
State		67			(51	)
Valuation allowance		(193	)		—
		(80	)		74
Provision for income taxes	$	4,026		$	961

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

	2016			201 5
Deferred tax assets:
Inventory capitalization	$	576		$	167
Pension liability		403			322
Accrued bonus		391			107
Net operating loss carry forward		298			439
Deferred rent		175			143
Accumulated depreciation and amortization		158			897
Stock-based compensation		154			130
Tax credit carry forward		138			88
Accrued vacation expense		130			106
Other, net		64			13
Total gross deferred tax assets		2,487			2,412
Deferred tax liabilities:
Prepaid expenses		(260	)		(189	)
Other		—			—
Deferred tax liabilities		(260	)		(189	)
Valuation allowance		–			(193	)
Net deferred tax assets	$	2,227		$	2,030

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

	2016			201 5
Income taxes computed at statutory federal income tax rate	$	4,614		$	1,463
State income taxes, net of federal income tax expense		179			7
Expenses not deductible for tax purposes		19			13
Foreign tax rate differential		(514	)		(451	)
Adjust state deferred due to change in apportionment		(18	)		(25	)
Change in valuation allowance		(193	)		—
Other, net		(61	)		(46	)
Income tax provision as reported	$	4,026		$	961
Effective tax rate		29.7	%		22.3	%

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Note G - Employee Benefit Plans (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Changes in Projected Benefit Obligations, Fair Value of Plan Assets, and Funded Status of Plan [Table Text Block]

	201 6			201 5
Change in Benefit Obligation:
Benefit obligation at beginning of year	$	2,080		$	1,901
Interest cost		87			80
Actuarial loss		272			144
Benefits paid		(110	)		(45	)
Benefit obligation at end of year	$	2,329		$	2,080
Change in Plan Assets:
Fair value of plan assets at beginning of year	$	1,642		$	1,719
Actual return on plan assets		74			(5	)
Benefits paid		(112	)		(45	)
Plan expenses		(33	)		(27	)
Fair value of plan assets at end of year	$	1,571		$	1,642
Reconciliation of Funded Status:
Difference between benefit obligation and fair value of plan assets	$	(758	)	$	(438	)
Unrecognized net actuarial loss in accumulated other comprehensive income		1,117			904
Net amount recognized	$	359		$	466
Projected benefit obligation	$	2,329		$	2,080
Accumulated benefit obligation	$	2,329		$	2,080
Fair value of plan assets	$	1,571		$	1,642

Schedule of Net Benefit Costs [Table Text Block]

	201 6			201 5
Interest cost	$	87		$	80
Expected return on plan assets		(105	)		(115	)
Recognized actuarial loss		68			46
Settlement loss		55			20
Net periodic benefit expense	$	105		$	31

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

	201 6			201 5
Net loss	$	304		$	265
Settlement loss		(55	)		(20	)
Amortization of net loss		(68	)		(47	)
Plan expenses		32			27
Total recognized in other comprehensive income (loss)	$	213		$	225
Total recognized in net periodic benefit cost and other comprehensive income	$	318		$	256

Schedule of Expected Benefit Payments [Table Text Block]

2017	$	55
2018		74
2019		113
2020		124
2021		123
2022-2026		705
	$	1,194

Schedule of Assumptions Used [Table Text Block]

	201 6			201 5
Discount rate		3.61	%		4.33	%
Expected long-term rate of return		7.00	%		7.00	%
Compensation increase rate		N/A			N/A

Schedule of Weighted Average Allocation of Assets Related to Defined Benefit Plans Disclosure [Table Text Block]

	201 6			201 5			Target Allocation
Equity securities		50	%		53	%		49	%
Debt securities		47	%		45	%		46	%
Commodities		—			—			2	%
Cash and money market funds		3	%		2	%		3	%
		100	%		100	%		100	%

Schedule of Allocation of Plan Assets [Table Text Block]

	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	41	$	41	$	—	$	—
Equity securities (1)	$	785	$	785	$	—	$	—
Debt securities (2)	$	745	$	745	$	—	$	—
Total	$	1,571	$	1,571	$	—	$	—

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Note H - Stockholders' Equity (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	2009 Plan			Weighted Average Exercise Price		Weighted Average Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at June 30, 2015		185,000		$	6.74
Exercised		—		$	—
Forfeited		(45,000	)	$	7.90
Granted		—		$	—
Outstanding at June 30, 2016		140,000		$	6.36		4.58	$	805,000
Vested and exercisable at June 30, 2016		140,000		$	6.36		4.58	$	805,000

Schedule of Share-based Compensation, Restricted Stock and Restricted Stock Units Activity [Table Text Block]

	Number of Shares			Weighted Average Grant Date Fair Value
Nonvested at June 30, 2015		204,134		$	5.42
Granted		208,000		$	9.86
Vested		(99,146	)	$	5.31
Forfeited		(2,667	)	$	5.51
Nonvested at June 30, 2016		310,321		$	8.43

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Note I - Commitments (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

	201 7		201 8		201 9		20 20		202 1		There- after		Total
Gross minimum rental commitments	$	2,826	$	2,781	$	2,778	$	1,394	$	1,429	$	4,114	$	15,322

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Note J - Economic Dependency (Tables)

12 Months Ended

Jun. 30, 2016

Customer Concentration Risk [Member]

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Fiscal 2016		Fiscal 2015
Customer 1	$	49,442	$	29,724
Customer 2		13,952		8,090
Customer 3		(a)		11,018
	$	63,394	$	48,832

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Note M - Segment Information (Tables)

12 Months Ended

Jun. 30, 2016

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	201 6		201 5
Net Sales
Private-label contract manufacturing	$	92,420	$	69,670
Patent and trademark licensing		21,781		9,140
Branded products		–		698
	$	114,201	$	79,508

	201 6			201 5
Operating Income
Private-label contract manufacturing	$	12,184		$	5,172
Patent and trademark licensing		6,153			3,811
Branded products		–			248
Income from operations of reportable segments		18,337			9,231
Corporate expenses not allocated to segments		(6,079	)		(5,072	)
	$	12,258		$	4,159

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

	201 6		201 5
Total Assets
Private-label contract manufacturing	$	66,375	$	50,313
Patent and trademark licensing		7,800		3,503
	$	74,175	$	53,816

Revenue from External Customers by Geographic Areas [Table Text Block]

	201 6		201 5
United States	$	50,575	$	43,671
Markets outside the United States		63,626		35,837
Total net sales	$	114,201	$	79,508

Long-lived Assets by Geographic Areas [Table Text Block]

201 6	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	9,678	$	49,755	$	6,423
Europe		5,489		24,420		4,018
	$	15,167	$	74,175	$	10,441

2015	Long-Lived Assets		Total Assets		Capital Expenditures
United States	$	5,525	$	34,988	$	1,071
Europe		2,108		18,828		637
	$	7,633	$	53,816	$	1,708

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Note A - Organization and Summary of Significant Accounting Policies (Details Textual) $ / shares in Units, € in Millions		12 Months Ended
	Mar. 19, 2015 shares	Jun. 30, 2016 USD ($) $ / shares shares	Jun. 30, 2015 USD ($) $ / shares shares	Jun. 30, 2016 EUR (€) shares	Jun. 30, 2016 USD ($) shares
Fair Value, Inputs, Level 1 [Member]
Fair Value, Net Asset (Liability)			$ 0		$ 0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Net Asset (Liability)			$ 0		$ 0
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | shares		0	151,000
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate		0.00%
Restricted Stock [Member] | 2009 Omnibus Stock Incentive Plan [Member] | Board of Directors and Management Members [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		0 years
Restricted Stock [Member] | 2009 Omnibus Stock Incentive Plan [Member] | Board of Directors and Management Members [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period		5 years
Restricted Stock [Member] | 2009 Omnibus Stock Incentive Plan [Member] | Board of Directors and Management Members [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	3 years
Restricted Stock [Member] | 2009 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares		$ 9.86
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding, Number | shares			93,866	193,012	193,012
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Share-based Awards Other than Options					$ 2,300,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition		1 year 219 days
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value | $ / shares		$ 9.86	$ 5.51
2009 Omnibus Stock Incentive Plan [Member] | Board of Directors and Management Members [Member]
Stock Issued During Period, Shares, Restricted Stock Award, Gross | shares	105,000	208,000
2009 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | shares
Minimum [Member]
Property, Plant and Equipment, Useful Life		1 year
Maximum [Member]
Property, Plant and Equipment, Useful Life		39 years
Foreign Exchange Contract [Member]
Derivative, Notional Amount				€ 16.8	19,000,000
Derivative, Remaining Maturity		1 year 60 days
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Beta Alanine Raw Material Sale Customers [Member]
Concentration Risk, Percentage		14.60%	26.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member]
Concentration Risk, Percentage		61.10%	25.80%
Liability for Uncertainty in Income Taxes, Current			$ 0		0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross | shares		0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested in Period, Fair Value		$ 0	$ 0
Foreign Currency Contract, Asset, Fair Value Disclosure			474,000		$ 250,000
Impairment of Long-Lived Assets to be Disposed of		0	417,000
Royalty and Licensing Revenue		21,800,000	9,100,000
Royalty Expense		865,000	806,000
Research and Development Expense		1,100,000	1,100,000
Advertising Expense		334,000	$ 69,000
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount		$ (193,000)
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period | shares		0	0
Concentration of Risk Number of Major Customers		2

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Note A - Organization and Summary of Significant Accounting Policies - Calculation of Basic and Diluted Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Numerator
Net Income (Loss) Attributable to Parent	$ 9,546	$ 3,346
Denominator
Basic weighted average common shares outstanding (in shares)	6,523,555	6,753,239
Dilutive effect of stock options and restricted stock shares (in shares)	117,000	53,000
Diluted weighted average common shares outstanding (in shares)	6,640,728	6,806,385
Basic net income per common share (in dollars per share)	$ 1.46	$ 0.50
Diluted net income per common share (in dollars per share)	$ 1.44	$ 0.49

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Note B - Inventories - Summary of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Jun. 30, 2015
Raw materials	$ 14,751	$ 9,744
Work in progress	3,487	1,552
Finished goods	2,832	1,603
Reserve	(302)	(335)
	$ 20,768	$ 12,564

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Note C - Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Land [Member]
Property and equipment	$ 1,200	$ 393
Building and Building Improvements [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	7 years
Building and Building Improvements [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	39 years
Building and Building Improvements [Member]
Property and equipment	$ 3,324	2,793
Machinery and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Machinery and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	12 years
Machinery and Equipment [Member]
Property and equipment	$ 23,846	26,444
Office Equipment [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	3 years
Office Equipment [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	5 years
Office Equipment [Member]
Property and equipment	$ 2,994	3,168
Vehicles [Member]
Property and equipment	$ 209	209
Property, Plant and Equipment, Useful Life	3 years
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment, Useful Life	1 year
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life	15 years
Leasehold Improvements [Member]
Property and equipment	$ 15,261	11,244
Minimum [Member]
Property, Plant and Equipment, Useful Life	1 year
Maximum [Member]
Property, Plant and Equipment, Useful Life	39 years
Property and equipment	$ 46,834	44,251
Less: accumulated depreciation and amortization	(31,667)	(36,618)
Property and equipment, net	$ 15,167	$ 7,633

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Note D - Other Comprehensive Loss - Other Comprehensive (Loss) Income (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Accumulated Defined Benefit Plans Adjustment Attributable to Parent [Member]
Accumulated Other Comprehensive Loss, Beginning Balance	$ (643,000)	$ (502,000)
Other comprehensive loss before reclassifications	(232,000)	(176,000)
Amounts Reclassified from OCI	19,000	(49,000)
Tax Effect of OCI Activity	81,000	84,000
Other comprehensive loss	(132,000)	(141,000)
Accumulated Other Comprehensive Loss, Ending Balance	(775,000)	(643,000)
Accumulated Net Gain (Loss) from Cash Flow Hedges Attributable to Parent [Member]
Accumulated Other Comprehensive Loss, Beginning Balance	(123,000)	33,000
Other comprehensive loss before reclassifications	414,000	2,228,000
Amounts Reclassified from OCI	(74,000)	(2,461,000)
Tax Effect of OCI Activity	(122,000)	77,000
Other comprehensive loss	218,000	(156,000)
Accumulated Other Comprehensive Loss, Ending Balance	95,000	(123,000)
Accumulated Other Comprehensive Loss, Beginning Balance	(766,000)	(469,000)
Other comprehensive loss before reclassifications	182,000	2,052,000
Amounts Reclassified from OCI	(55,000)	(2,510,000)
Tax Effect of OCI Activity	(41,000)	161,000
Other comprehensive loss	86,000	(297,000)
Accumulated Other Comprehensive Loss, Ending Balance	$ (680,000)	$ (766,000)

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Note E - Debt (Details Textual)		12 Months Ended
	Feb. 01, 2016 USD ($)	Jun. 30, 2016 CHF (SFr)	Jun. 30, 2016 USD ($)	Jan. 31, 2016 USD ($)	Feb. 19, 2007 CHF (SFr)	Feb. 19, 2007 USD ($)	Sep. 22, 2006 CHF (SFr)	Sep. 22, 2006 USD ($)
Wells Fargo Bank, N.A. [Member] | Credit Agreement [Member] | Maximum [Member]
Ratio of Indebtedness to Net Capital	1.25
Ratio of Total Current Assets to Total Current Liabilities	1.75
Wells Fargo Bank, N.A. [Member] | Credit Agreement [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	1.25%
Debt Instrument Basis Spread on Elected Fixed Rate Borrowing	1.25%
Wells Fargo Bank, N.A. [Member] | Credit Agreement [Member]
Long-term Line of Credit			$ 0
Line of Credit Facility, Commitment Fee Amount	$ 0
Line of Credit Facility, Maximum Borrowing Capacity	10,000,000			$ 5,000,000
Long-term Debt, Percentage Bearing Fluctuating Interest, Threshold Amount	100,000
Minimum Prepayment Amount Under Line of Credit	$ 100,000
Fixed Loans [Member] | Natural Alternatives International Europe SA [Member] | Line of Credit [Member]
Debt Prepayment Penalty Rate		0.10%	0.10%
Debt Pre Payment Penalty		SFr 1,000	$ 1,020
Natural Alternatives International Europe SA [Member] | Maximum [Member] | Line of Credit [Member]
Debt Instrument, Term		2 years	2 years
Natural Alternatives International Europe SA [Member] | Line of Credit [Member]
Debt Instrument, Interest Rate, Stated Percentage			5.00%
Natural Alternatives International Europe SA [Member]
Long-term Line of Credit			$ 0
Line of Credit Facility, Maximum Borrowing Capacity							SFr 1,300,000	$ 1,300,000
Line of Credit Facility Maximum Borrowing Capacity Annual Reduction							SFr 160,000	$ 163,000
Line of Credit Facility Maximum Amount Outstanding after Reduction					SFr 500,000	$ 510,000
Long-term Debt			0
Line of Credit Facility, Remaining Borrowing Capacity			$ 10,500,000

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Note F - Income Taxes (Details Textual) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
State and Local Jurisdiction [Member]
Operating Loss Carryforwards	$ 5,100,000
Foreign Tax Authority [Member] | Earliest Tax Year [Member] | Swiss Federal Tax Administration (FTA) [Member]
Open Tax Year	2013
Foreign Tax Authority [Member] | Natural Alternatives International Europe SA [Member]
Effective Income Tax Rate Reconciliation, Percent	18.70%
Natural Alternatives International Europe SA [Member]
Net Income (Loss) Attributable to Parent	$ 2,700,000
Undistributed Earnings of Foreign Subsidiaries	17,800,000
Federal, State and Local Income Tax Expense (Benefit), Gross, Continuing Operations	3,600,000
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	(193,000)
Federal, State and Local Income Tax Expense Benefit, Continuing Operations	$ 3,400,000
Effective Income Tax Rate Reconciliation, Percent	29.70%	22.30%
Net Income (Loss) Attributable to Parent	$ 9,546,000	$ 3,346,000
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%

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Note F - Income Taxes - Provision for Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Current:
Federal	$ 3,339	$ 396
State	138	41
Foreign	629	450
	4,106	887
Deferred:
Federal	46	125
State	67	(51)
Valuation allowance	(193)
	(80)	74
Provision for income taxes	$ 4,026	$ 961

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Note F - Income Taxes - Net Deferred Tax Assets and Deferred Tax Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Jun. 30, 2015
Deferred tax assets:
Inventory capitalization	$ 576	$ 167
Pension liability	403	322
Accrued bonus	391	107
Net operating loss carry forward	298	439
Deferred rent	175	143
Accumulated depreciation and amortization	158	897
Stock-based compensation	154	130
Tax credit carry forward	138	88
Accrued vacation expense	130	106
Other, net	64	13
Total gross deferred tax assets	2,487	2,412
Deferred tax liabilities:
Prepaid expenses	(260)	(189)
Other
Deferred tax liabilities	(260)	(189)
Valuation allowance		(193)
Net deferred tax assets	$ 2,227	$ 2,030

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Note F - Income Taxes - Reconciliation of Income Tax Provision (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Income taxes computed at statutory federal income tax rate	$ 4,614	$ 1,463
State income taxes, net of federal income tax expense	179	7
Expenses not deductible for tax purposes	19	13
Foreign tax rate differential	(514)	(451)
Adjust state deferred due to change in apportionment	(18)	(25)
Valuation allowance	(193)
Other, net	(61)	(46)
Provision for income taxes	$ 4,026	$ 961
Effective Income Tax Rate Reconciliation, Percent	29.70%	22.30%

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Note G - Employee Benefit Plans (Details Textual) - USD ($)		12 Months Ended
	Jan. 01, 2004	Jun. 30, 2016	Jun. 30, 2015
First Contributions [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	100.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	3.00%
Next Contributions [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match	50.00%
Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay	2.00%
Large-cap Funds [Member]
Defined Benefit Plan Equity Securities by Type, Percentage		47.00%
Mid-cap and Small-cap Funds [Member]
Defined Benefit Plan Equity Securities by Type, Percentage		28.00%
Emerging Market Equity Funds [Member]
Defined Benefit Plan Equity Securities by Type, Percentage		8.00%
International Equity Funds [Member]
Defined Benefit Plan Equity Securities by Type, Percentage		17.00%
Long-term Fixed Income Funds [Member]
Defined Benefit Plan Debt Securities by Type, Percentage		6.00%
High-yield Fixed Income Funds [Member]
Defined Benefit Plan Debt Securities by Type, Percentage		14.00%
Intermediate Fixed Income Funds [Member]
Defined Benefit Plan Debt Securities by Type, Percentage		38.00%
REIT and MPL Funds [Member]
Defined Benefit Plan Debt Securities by Type, Percentage		27.00%
International Emerging Markets Funds [Member]
Defined Benefit Plan Debt Securities by Type, Percentage		15.00%
Defined Contribution Plan, Employer Discretionary Contribution Amount		$ 229,000	$ 225,000
Health Insurance Plan Premium Expense		$ 847,000	$ 1,100,000
Number of Years Compensation Used for Benefit Obligation Assumptions		5 years
Defined Benefit Plan, Assumptions Used Calculating Benefit Obligation, Discount Rate		3.60%	4.40%
Defined Benefit Plan, Amount to be Amortized from Accumulated Other Comprehensive Income (Loss) Next Fiscal Year		$ 68,000

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Note G - Employee Benefit Plans - Defined Benefit Pension Plan's Funded Status and Amount Recognized (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Change in Benefit Obligation:
Benefit obligation at beginning of year	$ 2,080	$ 1,901
Interest cost	87	80
Actuarial loss	272	144
Benefits paid	(112)	(45)
Benefit obligation at end of year	2,329	2,080
Change in Plan Assets:
Fair value of plan assets at beginning of year	1,642	1,719
Actual return on plan assets	74	(5)
Benefits paid	(112)	(45)
Plan expenses	(33)	(27)
Fair value of plan assets at end of year	1,571	1,642
Reconciliation of Funded Status:
Difference between benefit obligation and fair value of plan assets	(758)	(438)
Unrecognized net actuarial loss in accumulated other comprehensive income	1,117	904
Net amount recognized	359	466
Projected benefit obligation	2,329	2,080
Accumulated benefit obligation	2,329	2,080
Fair value of plan assets at end of year	$ 1,571	$ 1,642

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Note G - Employee Benefit Plans - Components Included in Defined Benefit Pension Plan's Net Periodic Benefit Expense (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Interest cost	$ 87	$ 80
Expected return on plan assets	(105)	(115)
Recognized actuarial loss	68	46
Settlement loss	55	20
Net periodic benefit expense	$ 105	$ 31

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Note G - Employee Benefit Plans - Summary of Changes in Plan Assets and Benefit Obligation (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Net loss	$ 304	$ 265
Settlement loss	(55)	(20)
Amortization of net loss	(68)	(46)
Plan expenses	33	27
Total recognized in other comprehensive income (loss)	213	225
Total recognized in net periodic benefit cost and other comprehensive income	$ 318	$ 256

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Note G - Employee Benefit Plans - Benefit Payments Expected to be Paid (Details) $ in Thousands	Jun. 30, 2016 USD ($)
2017	$ 55
2018	74
2019	113
2020	124
2021	123
2022-2026	705
	$ 1,194

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Note G - Employee Benefits Plans - Weighted-Average Rates Used In Determining Defined Benefit Pension Plan's Net Pension Costs (Details)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Discount rate	3.61%	4.33%
Expected long-term rate of return	7.00%	7.00%
Compensation increase rate

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Note G - Employee Benefits Plans - Defined Benefit Pension Plan's Weighted Average Asset Association and Weighted Average Target Allocation (Details)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Equity Securities [Member]
Weighted-average asset allocation	50.00%	53.00%
Weighted-average target allocation	49.00%
Debt Securities [Member]
Weighted-average asset allocation	47.00%	45.00%
Weighted-average target allocation	46.00%
Commodity Contract [Member]
Weighted-average asset allocation
Weighted-average target allocation	2.00%
Cash and Cash Equivalents [Member]
Weighted-average asset allocation	3.00%	2.00%
Weighted-average target allocation	3.00%
Weighted-average asset allocation	100.00%	100.00%
Weighted-average target allocation	100.00%

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Note G - Employee Benefits Plans - Fair Values by Asset Category of Defined Benefit Pension Plan (Details) - USD ($) $ in Thousands		Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2014
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and money market funds		$ 41
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and money market funds
Cash and Cash Equivalents [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and money market funds
Cash and Cash Equivalents [Member]
Cash and money market funds		41
Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and money market funds	[1]	785
Equity Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and money market funds	[1]
Equity Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and money market funds	[1]
Equity Securities [Member]
Cash and money market funds	[1]	785
Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Cash and money market funds	[2]	745
Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Cash and money market funds	[2]
Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Cash and money market funds	[2]
Debt Securities [Member]
Cash and money market funds	[2]	745
Fair Value, Inputs, Level 1 [Member]
Cash and money market funds		1,571
Fair Value, Inputs, Level 2 [Member]
Cash and money market funds
Fair Value, Inputs, Level 3 [Member]
Cash and money market funds
Cash and money market funds		$ 1,571	$ 1,642	$ 1,719

[1] This category is comprised of publicly traded funds, of which 47% are large-cap funds, 28% are mid-cap and small-cap, 8% are emerging markets equity funds, and 17% are international equity funds.

[2] This category is comprised of publicly traded funds, of which 6% are long-term fixed income funds,14% are high-yield fixed income funds, 38% are intermediate fixed income funds, 27% are REITs and MLPs funds, and 15% are international/emerging markets funds.

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Note H - Stockholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	May 11, 2015	Feb. 06, 2015	Jun. 02, 2011
2015 Increase [Member]
Stock Repurchase Program, Authorized Amount			$ 2,000	$ 1,000
Excluding Restricted Stock Purchased [Member]
Treasury Stock, Shares, Acquired	52,603	342,121
Treasury Stock Acquired, Average Cost Per Share	$ 6.26	$ 5.63
Treasury Stock, Value, Acquired, Cost Method	$ 300	$ 1,900
2009 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized	1,100,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	508,104
Stock Repurchase Program, Authorized Amount			$ 5,000	$ 3,000	$ 2,000
Treasury Stock, Value, Acquired, Cost Method	$ 648	$ 2,021
Shares Paid for Tax Withholding for Share Based Compensation	27,195	17,540

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Note H - Stockholders' Equity - Stock Option Activity (Details) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
2009 Omnibus Stock Incentive Plan [Member]
Outstanding, beginning balance (in shares)	185,000
Weighted-average exercise price, outstanding (in dollars per share)	$ 6.74
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period
Weighted-average exercise price, exercised (in dollars per share)
Forfeited (in shares)	(45,000)
Weighted-average exercise price. forfeited (in dollars per share)	$ 7.90
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross
Weighted-average exercise price, granted (in dollars per share)
Outstanding, ending balance (in shares)	140,000	185,000
Weighted-average exercise price, outstanding (in dollars per share)	$ 6.36	$ 6.74
Weighted-average contractual term, outstanding	4 years 211 days
Aggregate intrinsic value, outstanding	$ 805,000
Vested and exercisable (in shares)	140,000
Weighted-average exercise price, vested and exercisable (in dollars per share)	$ 6.36
Weighted-average contractual term, vested and exercisable	4 years 211 days
Aggregate intrinsic value, vested and exercisable	$ 805,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	0	0

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Note H - Stockholders' Equity - Restricted Stock (Details) - Restricted Stock [Member] - $ / shares	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
2009 Omnibus Stock Incentive Plan [Member]
Nonvested, beginning balance (in shares)	204,134
Weighted-average grant date fair value, nonvested (in dollars per share)	$ 5.42
Granted (in shares)	208,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9.86
Vested (in shares)	(99,146)
Weighted-average grant date fair value, vested (in dollars per share)	$ 5.31
Forfeited (in shares)	(2,667)
Weighted-average grant date fair value, forfeited (in dollars per share)	$ 5.51
Nonvested, ending balance (in shares)	310,321	204,134
Weighted-average grant date fair value, nonvested (in dollars per share)	$ 8.43	$ 5.42
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value	$ 9.86	$ 5.51

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Note I - Commitments (Details Textual) $ in Millions	12 Months Ended
	Jun. 30, 2016 USD ($) ft²	Jun. 30, 2015 USD ($)
California [Member]
Operating Lease Facility Area	162,000
Lessee Leasing Arrangements, Operating Leases, Renewal Term	10 years
SWITZERLAND | Natural Alternatives International Europe SA [Member]
Operating Lease Facility Area	94,217
Lessee Leasing Arrangements, Operating Leases, Renewal Term	5 years
Lessee Leasing Arrangements, Operating Leases, Term of Contract	5 years
Operating Leases, Rent Expense, Net | $	$ 3.1	$ 3.0

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Note I - Commitments - Minimum Rental Commitments (Details) $ in Thousands	Jun. 30, 2016 USD ($)
2017	$ 2,826
2018	2,781
2019	2,778
2020	1,394
2021	1,429
There-after	4,114
Total	$ 15,322

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Note J - Economic Dependency (Details Textual) - USD ($) $ in Millions	Jun. 30, 2016	Jun. 30, 2015
Customer 1, 2 and 3 [Member]
Accounts Receivable, Net	$ 8.1	$ 4.6

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Note J - Economic Dependency - Substantial Net Sales to Certain Customers (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016		Jun. 30, 2015
Sales Revenue, Goods, Net [Member] | Customer Concentration Risk [Member] | Customer 1 [Member]
Revenue, Net	$ 49,442		$ 29,724
Sales Revenue, Goods, Net [Member] | Customer Concentration Risk [Member] | Customer 2 [Member]
Revenue, Net	13,952		8,090
Sales Revenue, Goods, Net [Member] | Customer Concentration Risk [Member] | Customer 3 [Member]
Revenue, Net		[1]	11,018
Sales Revenue, Goods, Net [Member] | Customer Concentration Risk [Member]
Revenue, Net	63,394		48,832
Revenue, Net	$ 114,201		$ 79,508

[1] Sales were less than 10% of the respective period's consolidated net sales.

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Note K - Derivatives and Hedging (Details Textual) € in Millions	12 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 EUR (€)	Jun. 30, 2016 USD ($)
Cash Flow Hedging Foreign Exchange Contract [Member]
Derivative, Notional Amount			€ 16.8	$ 19,000,000
Reclassification out of Accumulated Other Comprehensive Income [Member]
Foreign Currency Cash Flow Hedge Gain (Loss) to be Reclassified During Next 12 Months				(149,000)
Prepaid Expenses and Other Current Assets [Member]
Cash Flow Hedge Derivative Instrument Assets at Fair Value				226,000
Other Noncurrent Assets [Member]
Cash Flow Hedge Derivative Instrument Assets at Fair Value				24,000
Cash Flow Hedging [Member]
Derivative Instruments, Loss Recognized in Other Comprehensive Income (Loss), Effective Portion	$ 413,000
Derivative Instruments, Gain Reclassified from Accumulated OCI into Income, Effective Portion	74,000	$ 2,400,000
Derivative Instruments, Gain Recognized in Other Comprehensive Income (Loss), Effective Portion		2,200,000
Gain (Loss) on Cash Flow Hedge Ineffectiveness, Net	$ 0
Accumulated Other Comprehensive Income (Loss) Cumulative Cash Flow Hedges, Gain (Loss)		191,000		149,000
Accumulated Other Comprehensive Income (Loss) Cumulative Cash Flow Hedges Gain (Loss), Tax Effect		$ 68,000		$ 54,000

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Note M - Segment Information (Details Textual) - USD ($)	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Products Manufactured by NAIE [Member] | UNITED STATES
Revenue, Net	$ 0	$ 0
Products Manufactured by NAIE [Member] | Non-US [Member] | Sales Revenue, Net [Member] | Product Concentration Risk [Member]
Concentration Risk, Percentage	61.00%	74.00%
UNITED STATES
Revenue, Net	$ 50,575,000	$ 43,671,000
Non-US [Member]
Revenue, Net	63,626,000	35,837,000
Revenue, Net	$ 114,201,000	$ 79,508,000
Number of Reportable Segments	3

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Note M - Segment Information - Operating Results by Business Segment (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Private Label Contract Manufacturing [Member] | Operating Segments [Member]
Net Sales
Income from Operations	$ 12,184	$ 5,172
Private Label Contract Manufacturing [Member]
Net Sales
Revenue, Net	92,420	69,670
Patent and Trademark Licensing [Member] | Operating Segments [Member]
Net Sales
Income from Operations	6,153	3,811
Patent and Trademark Licensing [Member]
Net Sales
Revenue, Net	21,781	9,140
Branded Products [Member] | Operating Segments [Member]
Net Sales
Income from Operations		248
Branded Products [Member]
Net Sales
Revenue, Net		698
Operating Segments [Member]
Net Sales
Income from Operations	18,337	9,231
Corporate, Non-Segment [Member]
Net Sales
Income from Operations	(6,079)	(5,072)
Revenue, Net	114,201	79,508
Income from Operations	$ 12,258	$ 4,159

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Note M - Segment Information - Assets by Business Segment (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Jun. 30, 2015
Private Label Contract Manufacturing [Member]
Total Assets
Assets	$ 66,375	$ 50,313
Patent and Trademark Licensing [Member]
Total Assets
Assets	7,800	3,503
Assets	$ 74,175	$ 53,816

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Note M - Segment Information - Net Sales by Geographic Region (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
UNITED STATES
Revenue, Net	$ 50,575	$ 43,671
Non-US [Member]
Revenue, Net	63,626	35,837
Revenue, Net	$ 114,201	$ 79,508

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Note M - Segment Information - Assets and Capital Expenditures by Geographical Region (Details) - USD ($) $ in Thousands	12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
UNITED STATES
Long-lived Assets	$ 9,678	$ 5,525
Assets	49,755	34,988
Capital Expenditures	6,423	1,071
Europe [Member]
Long-lived Assets	5,489	2,108
Assets	24,420	18,828
Capital Expenditures	4,018	637
Long-lived Assets	15,167	7,633
Assets	74,175	53,816
Capital Expenditures	$ 10,441	$ 1,708

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Note N - Subsequent Events (Details Textual) - Subsequent Event [Member] - Foreign Exchange Forward [Member] - Designated as Hedging Instrument [Member] - Cash Flow Hedging [Member] € in Millions	Jul. 14, 2016 EUR (€)
Derivative, Number of Instruments Held	24
Derivative, Notional Amount	€ 30.5
Derivative, Average Forward Exchange Rate	1.12