Significant Accounting Policies (Policies)

12 Months Ended

Jun. 30, 2021

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., a Swiss Corporation (NAIE) was formed as our wholly-owned subsidiary, based in Manno, Switzerland. In

September 1999,

NAIE opened a manufacturing facility and currently 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. Certain accounts 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]

Recently Adopted Accounting Pronouncements

We did

not

adopt any accounting pronouncements during the fiscal year ended

June 30, 2021.

Recently Issued Accounting Pronouncements

On

December 18, 2019,

the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU")

No.

2019

-

12,

Income Taxes (Topic

740

): Simplifying the Accounting for Income Taxes

. This new standard eliminates certain exceptions in Accounting Standards Codification ("ASC")

740

related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. This standard is effective for fiscal years, and interim periods within those years, beginning after

December 15, 2020,

with early adoption permitted in any interim period within that year. This ASU will be effective for us beginning in our

first

quarter of fiscal

2022.

We do

not

expect this ASU will have a material impact on our consolidated financial statements.

In

March 2020,

the FASB issued ASU

2020

-

04,

Reference Rate Reform (Topic

848

): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional expedient and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. In response to the concerns about structural risks of interbank offered rates ("IBORs") and, particularly, the risk of cessation of the London Interbank Offered Rate ("LIBOR"), regulators in several jurisdictions around the world have undertaken reference rate reform initiatives to identify alternative reference rates that are more observable or transaction based and less susceptible to manipulation. The ASU provides companies with optional guidance to ease the potential accounting burden associated with transitioning away from reference rates that are expected to be discontinued. The ASU can be adopted

no

later than

December 1, 2022 (

fiscal year

2023

) with early adoption permitted. We do

not

expect this ASU will have a material impact on our consolidated financial statements.

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 we have the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level

1

assets. The approximate fair value of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings is equal to book value due to the short-term nature of these items. 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.

Except for cash and cash equivalents, as of

June 30, 2021

and

June 30, 2020,

we did

not

have any financial assets or liabilities classified as Level

1.

We classify derivative forward exchange contracts as Level

2

assets and liabilities. The fair value of our forward exchange contracts as of

June 30, 2021

included a net liability of

$0.8

million. The fair value as of

June 

30,

2020

was a net asset of

$0.3

million. The fair values were determined based on obtaining pricing from our bank and corroborating those values with a

third

party bank or pricing service. We classify any outstanding line of credit balance as a Level

2

liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets. As of

June 

30,

2021

and

June 

30,

2020,

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

2021.

Accounts Receivable [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, including 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.

Financing Receivable [Policy Text Block]

Customer Deposits

For certain customers we have contract terms where the customer pays a certain portion of their orders as prepayment. We treat this as a customer deposit liability and do

not

record revenue until we ship the product to the customer. As of

June 30, 2021

we had

$1.7

 million in customer deposits. As of

June 30, 2020

our customer deposit balance was

$0.1

million.

Inventory, Policy [Policy Text Block]

Inventories

We operate primarily as a private-label contract manufacturer. We 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 (

first

-in,

first

-out) or 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 net realizable value, 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 useful life of the improvement or the term of the lease. Maintenance and repairs are expensed as incurred. Significant expenditures that increase economic useful lives of property or equipment are capitalized and expensed over the useful life of such expenditure.

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. During fiscal

2021

we recognized

$21,000

in impairment losses. We did

not

recognize any impairment losses during fiscal

2020.

Derivatives, Policy [Policy Text Block]

Derivative Financial Instruments

We

may

use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted sales denominated in Euros. We

may

hedge our foreign currency exposures by entering into offsetting forward exchange contracts. To the extent we use derivative financial instruments, we account for them as cash flow hedges. Foreign exchange derivative instruments that do

not

meet the criteria for cash flow hedge accounting are marked-to-market through the Consolidated Statements of Operations and Comprehensive Income (Loss). Historically, our cash flow derivative instruments have met the criteria for hedge accounting.

We recognize any unrealized gains and losses associated with derivative instruments accounted for as cash flow hedges in income in the period in which the underlying hedged transaction is realized. To the extent the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of

June 

30,

2021,

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, which is primarily the Euro. As of

June 

30,

2021,

the notional amounts of our foreign exchange contracts were

$60.4

million (

€51.3

million). These contracts will mature over the next

14

months.

As of

June 30, 2021,

we held foreign currency contracts

not

designated as cash flow hedges primarily to protect against change in valuation of an underlying balance sheet item. As of

June 30, 2021,

the notional amounts of our foreign currency contracts

not

designated as cash flow hedges were

$6.2

million (CHF

5.5

million). These contracts will mature in the

first

quarter of fiscal year

2022.

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 obligations and annual pension expense. Key assumptions in measuring the plan obligations 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 [Policy Text Block]

Revenue Recognition

We record revenue based on a

five

-step model which includes: (

1

) identifying a contract with a customer; (

2

) identifying the performance obligations in the contract; (

3

) determining the transaction price; (

4

) allocating the transaction price among the performance obligations; and (

5

) recognizing revenue as each of the various performance obligations are satisfied.

Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling

one

or more performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, including estimates for early payment discounts and volume rebates. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. We review and update these estimates at the end of each reporting period and the impact of any adjustments is recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, which is typically

30

days from the invoice date. Invoices are generally issued on the date of transfer of control of the products ordered to the customer.

Revenue is recognized at the point in time that each of our performance obligations is fulfilled, and control of the ordered products is transferred to the customer. This transfer occurs when the product is shipped, or in some cases, when the product is delivered to the customer.

We provide early payment discounts to certain customers. Based on historical payment trends, we expect that these customers will take advantage of these early payment discounts. The cost of these discounts is reported as a reduction to the transaction price. If the actual discounts differ from those estimated, the difference is also reported as a change in the transaction price. We require prepayment from certain customers. We record any payments received in advance of contracts fulfillment as a contract liability and classified as customer deposits on the consolidated balance sheet.

Except for product defects,

no

right of return exists on the sale of our products. We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of

June 30, 2021,

we have

no

known returns liability.

We have an Exclusive Manufacturing Agreement with The Juice Plus+ Company LLC (“Juice Plus+”) through

August 6, 2025.

Pursuant to the Exclusive Manufacturing Agreement, Juice Plus+ has granted us exclusive rights to manufacture and supply them with certain of their products within

24

countries where Juice Plus+ currently sells those products. Pursuant to this Exclusive Manufacturing Agreement, we provide Juice Plus+ with a cash discount. We recorded

$1.6

million of “Cash Sales Discount” for the year ended

June 30, 2021,

which was recorded as a reduction to net sales. We recorded

$1.6

million of “Cash Sales Discount” during the year ended

June 30, 2020,

with such amounts recorded as a reduction to net sales.

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 our CarnoSyn® and SR CarnoSyn® trade names. We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of

$14.2

million during fiscal

2021

and

$12.6

million during fiscal

2020.

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

$0.6

million during fiscal

2021

and

$0.5

million during fiscal

2020.

Cost of Goods and Service [Policy Text Block]

Cost of Goods Sold

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

Shipping and Handling Costs [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.

Research and development costs are expensed when incurred. Our research and development expenses for the last

two

fiscal years ended

June 

30

were

$1.9

million for fiscal

2021

and

$1.8

million for fiscal

2020.

These costs were included in selling, general and administrative expenses and cost of goods sold.

Advertising Cost [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

$0.8

million during the fiscal year ended

June 

30,

2021

and

$1.4

million during fiscal

2020.

These costs were included in selling, general and administrative expenses.

Income Tax, Policy [Policy Text Block]

Income Taxes

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on

March 27, 2020

in the United States. The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cuts and Jobs Act (“TCJ Act”), and estimated income tax payments. We filed an amended return for our fiscal

2015

and fiscal

2016

tax years under provisions of the CARES act, as discussed below. We will continue to monitor and assess the impact of the CARES Act, and similar legislation in other countries, with respect to what impact such legislation

may

have on our business and financial results.

On

July 23, 2020,

the Department of Treasury issued final regulations which provide an exclusion to the global intangible low-taxed income (GILTI) calculation on an elective basis. These regulations were effective

September 21, 2020

and

may

be retroactively applied. Under these new regulations, we are able to exclude the GILTI calculation from our domestic taxable income if the deemed effective tax rate at our foreign subsidiary is greater than

18.9%.

We assessed this rate, including the implementation of certain tax strategies, and we have determined that our effective rate at NAIE is greater than

18.9%

as of the year ended

June 30, 2020.

We reassessed our estimated taxes for fiscal

2020

and in the year ended

June 30, 2021

we recorded a reduction to our fiscal

2020

estimated taxes of

$0.4

million as a discrete benefit. As a result of this adjustment, our domestic tax return for fiscal

2020

reflected a net operating loss which, in accordance with the CARES ACT, we carried back to fiscal

2015

and fiscal

2016,

which reflected a higher federal tax rate. Due to this rate differential we have recorded a permanent discrete tax benefit of

$0.3

million during the year ended

June 30, 2021.

For NAIE the result of this tax planning during the year ended

June 30, 2021

was an additional foreign estimated tax benefit of

$0.1

million.

To determine our quarterly provision for income taxes, we use an estimated annual effective tax rate that is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject. Certain significant or unusual items are separately recognized as discrete items in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured and recorded using enacted tax rates for each of the jurisdictions in which we operate, and adjusted using the tax rates 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 income or expense in the period that includes the enactment date.

We account for uncertain tax positions using the more-likely-than-

not

recognition threshold. It is our policy to establish reserves based on management's assessment of exposure for certain positions taken in previously filed tax returns that

may

become payable upon audit by tax authorities. Our tax reserves are analyzed quarterly and adjustments are made as events occur that we believe warrant adjustments to the reserves. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of

June 

30,

2021

and

June 

30,

2020,

we did

not

record 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. 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 ultimately be realized based on whether future taxable income will be generated during the periods in which those temporary differences become deductible. During the year ended

June 30, 2021,

there was

no

change to our valuation allowance.

Share-based Payment Arrangement [Policy Text Block]

Stock-Based Compensation

We had an omnibus equity incentive plan that was approved by our Board of Directors effective

October 

15,

2009

and approved by our stockholders at the Annual Meeting of Stockholders held on

November 

30,

2009

(the

"2009

Plan"). The

2009

Plan expired on

October 15, 2019.

The Board of Directors approved a new omnibus equity incentive plan that became effective

January 1, 2021 (

the

“2020

Plan”), which was approved by our stockholders at the Annual Meeting of Stockholders on

December 4, 2020.

Under the

2020

Plan, we

may

grant nonqualified and incentive stock options, restricted stock grants, restricted stock units, stock appreciation rights, and other stock-based awards to employees, non-employee directors and consultants.

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 use 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.

We recognize forfeitures as they occur.

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 U.S. generally accepted accounting principles (GAAP). Actual results could differ from those estimates and our assumptions

may

prove to be inaccurate.

Earnings Per Share, Policy [Policy Text Block]

Net Income (Loss) 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,
	2021		2020
Numerator
Net income (loss)	$	10,768	$	(1,645	)
Denominator
Basic weighted average common shares outstanding		6,291		6,695
Dilutive effect of stock options and restricted stock shares		88		—
Diluted weighted average common shares outstanding		6,379		6,695
Basic net income (loss) per common share	$	1.71	$	(0.25	)
Diluted net income (loss) per common share	$	1.69	$	(0.25	)

During the year ended

June 30, 2021,

we excluded shares relating to stock options totaling

22,500

and

52,108

shares of unvested restricted stock, as their impact would have been anti-dilutive.

In periods where we have a net loss, stock options and restricted stock are excluded from our calculation of diluted net income (loss) per common share, as their inclusion would have an antidilutive effect. For the year ended

June 30, 2020

we recorded a net loss for the year and therefore we excluded shares related to stock options totaling

130,000

and restricted stock totaling

323,904.

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 primarily concentrated with our

two

largest customers, whose receivable balances collectively represented

64.8%

of gross accounts receivable at

June 

30,

2021

and

65.7%

at

June 

30,

2020.

As of

June 30, 2021,

we had a receivable balance of

$3.5

million and as of

June 30, 2020

we had a receivable balance of

$3.3

million from a former contract manufacturing customer. We have recorded a bad debt reserve equal to

100%

of this outstanding balance and thus did

not

reflect it in the percentages listed above.

Additionally, amounts due related to our beta-alanine raw material sales were

8.6%

of gross accounts receivable at

June 30, 2021

and

2.5%

of gross accounts receivable at

June 30, 2020.

Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.