Business context and reporting period
Natural Alternatives International, Inc. (NAI) filed this Form 10-K for the fiscal year ended June 30, 2026. It formulates and manufactures private-label nutritional supplements and sells and licenses beta-alanine products, including CarnoSyn, SR CarnoSyn, CarnoSyn 4X and TriBsyn. Private-label contract manufacturing accounted for 94% of fiscal 2026 sales; patent, trademark and related raw-material sales accounted for 6%.
Financial performance and liquidity
| Metric | FY2026 | FY2025 |
|---|---|---|
| Net sales | $142.5 million | $129.9 million |
| Gross profit / margin | $9.0 million / 6% | $9.3 million / 7% |
| Operating loss | $18.8 million | $8.7 million |
| Net loss | $20.7 million | $13.6 million |
| Loss per diluted share | $3.43 | $2.28 |
| Cash used in operating activities | $8.9 million | Cash provided: $5.9 million |
| Cash, cash equivalents and restricted cash at year-end | $7.5 million | $12.3 million |
Fiscal 2026 sales rose 10%, mainly from higher manufacturing orders. Gross profit fell and margin narrowed as manufacturing costs and product mix pressures, lower higher-margin licensing sales, and an Employee Retention Tax Credit reserve weighed on results. The $10.4 million non-cash impairment of the Carlsbad manufacturing facility and related assets was the main driver of the larger operating and net losses; it did not directly reduce cash.
At June 30, 2026, current assets were $65.4 million and current liabilities were $37.7 million. Debt included $7.7 million drawn on the domestic line of credit and $10.9 million on the term loan. The Legacy line had $17.7 million of stated availability, subject to its borrowing-base calculation. The company also had substantial operating lease liabilities. Shareholders’ equity was $50.0 million.
Operating cash flow deteriorated chiefly as accounts receivable used $6.0 million and inventory used $5.9 million. Investing activities used $3.7 million, primarily for capital expenditures; financing activities provided $7.8 million. The company reported negative operating cash flow in fiscal 2026 and 2024.
Material changes versus the prior year
- Manufacturing sales increased 11% to $134.6 million; patent and trademark licensing sales decreased 2% to $7.9 million.
- Sales to the largest manufacturing customer declined from 33% to 28% of total sales, but the two largest customers still represented approximately 52% of fiscal 2026 sales.
- Operating loss more than doubled, including the new $10.4 million impairment charge. Net loss increased by $7.1 million.
- Cash declined by $4.9 million, and operating cash flow swung from a $5.9 million inflow to an $8.9 million outflow.
- The company refinanced its domestic debt in May 2026 with Legacy, replacing Wells Fargo facilities. It also entered a Swiss credit line with UBS; no borrowings were outstanding on that facility at year-end.
- NAI’s instant-release beta-alanine patents expired in July 2026, and the related royalty expense agreement ended. SR CarnoSyn patents extend through 2036; patent applications for CarnoSyn 4X and TriBsyn are pending.
Outlook, risks and unusual items
Management expects fiscal 2027 sales to increase from fiscal 2026 but anticipates another net loss; it provided no specific forecast amounts. In August 2026, a major customer materially cut its projected orders for fiscal 2027, citing growing inventory. NAI expects this to prevent compliance with the Legacy fixed-charge coverage covenant, first measured for the nine months ending September 30, 2026. The company has notified the lender, but no waiver, amendment or other remedy is assured.
The auditor issued an unmodified opinion on the financial statements but highlighted substantial doubt about NAI’s ability to continue as a going concern. Management cited continuing losses and negative operating cash flow, expected covenant non-compliance, and insufficient cash to repay debt if the lender exercises default remedies. Its plans include seeking lender relief or alternative financing, reducing costs and working-capital needs, selling property, growing sales, and reviewing strategic alternatives, including a potential sale of the company. Management cautions these plans may not succeed.
The corporate headquarters was classified as held for sale at a carrying value of $4.0 million; management expects a sale in fiscal 2027 but gives no assurance on timing or proceeds. The board also approved sale of the specialized Carlsbad manufacturing facility, which management says may take longer to sell and whose production it expects to consolidate in Vista.
Other notable items include a $1.2 million net fiscal 2026 expense related to reserving the remaining Employee Retention Tax Credit claim after legal advisers concluded further pursuit was not economical; and a maximum $1.25 million employment-litigation settlement paid in the first quarter of fiscal 2027, with final court approval and termination expected in February 2027. Raw-material, labor, transportation, energy and tariff cost pressures are expected to continue. NAI also depends on a single Japanese supplier for beta-alanine and two customers for a substantial share of revenue. The company terminated its Wells Fargo foreign-exchange hedging facility and had no outstanding hedge contracts at year-end.
Important facts for investors to verify
- Whether Legacy grants covenant relief, on what terms, and whether NAI retains access to its domestic credit line.
- The major customer’s revised fiscal 2027 orders, resulting sales and cash-flow impact, and whether management’s sales-growth outlook remains achievable.
- Progress, timing, expected net proceeds and operational consequences of selling the headquarters and Carlsbad manufacturing facility.
- Whether cash, borrowing availability and any asset-sale proceeds will be sufficient to fund obligations and operations over the next 12 months.
- Whether new products and remaining beta-alanine intellectual property can offset the expiration of instant-release patents and support licensing and raw-material revenue.
- The status and final cost of the employment settlement, and any updates to the disputed tax-credit claim or related reserves.