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SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS		13

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements	4

	Condensed Consolidated Balance Sheets	24
	Condensed Consolidated Statements of Income and Comprehensive Income	35
	Condensed Consolidated Statements of Stockholders’ Equity	46
	Condensed Consolidated Statements of Cash Flows	68
	Notes to Condensed Consolidated Financial Statements	79

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	1521

Item 3.	~~Quantitative and Qualitative Disclosures About Market Risk~~	18

~~Item~~ 4.	Controls and Procedures	1826

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	1927

Item 1A.	Risk Factors	1927

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1927

Item 3.	Defaults Upon Senior Securities	1927

Item 4.	~~Mine Safety Disclosures~~	19

~~Item~~ 5.	Other Information	1927

Item 6.	Exhibits	2028

SIGNATURES		2129

~~SPECI~~ALSPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

Certain statements in this Form 10-Q quarterly report (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. ~~These~~Examples of forward-looking statements 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,” “expect,” “plan,” “believe,” “anticipate,” “intend,” “estimate,” “approximate,” “predict,” “forecast,” or “project,” or the negative or other variation of such words, and similar expressions may each identify a statement as a forward-looking statement. Any statements contained herein 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 our future operating results, are forward-looking statements. Forward-looking statements in this Report may include statements about:

the impact, of the Covid-19 Pandemic (“COVID-19”) and other external factors both within and outside of our control, on our business and results in operations including variations in our quarterly net sales , our employees, supply chain, vendors and customers;

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 market acceptance for and increase sales of new products, develop relationships with new customers and maintain or improve existing customer relationships;

inventory levels, including the adequacy of quality raw material and other inventory levels to meet future ~~levels~~customer demand, in particular assumptions regarding the impact of ~~our revenue concentration risk;~~the COVID-19 pandemic;

our ability to protect our intellectual property;

future economic and political conditions, including implementation of new or increased tariffs;

our ability to improve operating efficiencies, manage costs and business risks, and improve or maintain profitability;

currency exchange rates and their effect on our results of operations ~~including~~(including amounts that we may reclassify as ~~earnings,~~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;

the outcome of ~~potential~~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;

sources, availability and quality of raw materials, including the limited number of suppliers of beta-alanine meeting our quality requirements;

~~inventory levels, including the adequacy of quality raw material and other inventory levels to meet future customer demand;~~

the future adequacy, and intended use, of our facilities;

potential manufacturing and distribution channels, product returns, and product recalls;

future customer orders;

the impact of external factors on our business and results of operations, especially, for example, variations in ~~our~~ quarterly net sales from seasonal and other external factors;

our ability to operate within the standards set by the U.S. Food and Drug Administration’s (FDA) Good Manufacturing Practices (GMPs);

our ability to successfully expand our operations, including outside the United States (U.S.);

the adequacy of our financial reserves and allowances;

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

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.

Forward-looking statements in this Report speak only as of the date of this Report based on information available to us at that time and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain future events, risks, and uncertainties that are or 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 II and elsewhere in this Report, as well as in other reports and documents we have filed and will file with the United States Securities and Exchange Commission (SEC).

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PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	December 31, 2019			June 30, 2019			December 31, 2020			June 30, 2020
	(Unaudited)						(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	26,900		$	25,040		$	28,629		$	30,478
Accounts receivable - less allowance for doubtful accounts of $0 at December 31, 2019 and $25 at June 30, 2019		14,227			15,964
Accounts receivable - less allowance for doubtful accounts of $3,185 at December 31, 2020 and $3,240 at June 30, 2020								17,062			17,001
Inventories, net		22,650			26,003			34,466			27,972
Income tax receivable		1,180			901			200			848
Forward contracts		1,636			1,978			—			450
Prepaids and other current assets		1,929			1,500			3,060			2,275
Total current assets		68,522			71,386			83,417			79,024
Property and equipment, net		20,613			21,085			22,409			21,523
Operating lease right-of-use assets		19,523			—			17,034			18,354
Deferred tax asset – noncurrent								1,262			196
Other noncurrent assets, net		863			1,019			1,397			1,106
Total assets	$	109,521		$	93,490		$	125,519		$	120,203
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,437		$	8,634		$	12,377		$	12,509
Accrued liabilities		3,292			2,782			2,809			1,627
Accrued compensation and employee benefits		882			1,615			2,330			2,660
Forward contracts								3,184			—
Income taxes payable		1,591			1,219			1,988			1,010
Lines of credit – current								10,000			10,000
Total current liabilities		11,202			14,250			32,688			27,806
Long-term liability – operating leases		19,742			—			17,956			18,782
Noncurrent forward contracts								403			195
Long-term pension liability		255			246			734			696
Deferred rent		—			543
Income taxes payable, noncurrent		1,349			1,349			1,250			1,349
Deferred income taxes		853			1,018
Total liabilities		33,401			17,406			53,031			48,828
Commitments and contingencies (Note L)
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; issued and outstanding (net of treasury shares) 7,055,404 at December 31, 2019 and 7,225,072 at June 30, 2019		87			87
Common stock; $.01 par value; 20,000,000 shares authorized; issued and outstanding (net of treasury shares) 6,363,865 at December 31, 2020 and 6,752,372 at June 30, 2020								88			87
Additional paid-in capital		27,172			26,280			28,689			27,992
Retained earnings		58,500			57,380			62,071			56,181
Treasury stock, at cost, 1,801,273 shares at December 31, 2019 and 1,626,605 June 30, 2019		(9,287	)		(7,955	)
Accumulated other comprehensive (loss) gain		(352	)		292
Treasury stock, at cost, 2,523,254 shares at December 31, 2020 and 2,104,305 June 30, 2020								(15,203	)		(11,702	)
Accumulated other comprehensive loss								(3,157	)		(1,183	)
Total stockholders’ equity		76,120			76,084			72,488			71,375
Total liabilities and stockholders’ equity	$	109,521		$	93,490		$	125,519		$	120,203

~~Three-Month~~Three-Month Period ~~Ended December 31, 2019~~EndedDecember 31, 2020 and ~~2018~~2019

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~~NATURAL~~NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands, except share and per share data)

(Unaudited)

	Six Months Ended December 31,						Six Months Ended December 31,
	2019			2018			2020			2019
Cash flows from operating activities
Net income	$	572		$	4,740		$	5,890		$	572
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		1,966			1,597			2,148			1,966
Non-cash sales discount		—			490
Non-cash compensation		892			809			698			892
Non-cash lease expenses								494			96
Deferred income taxes								(469	)		—
(Gain) loss on disposal of assets								(3	)		122
Pension expense, net of contributions		9			25			38			9
Loss (gain) on disposal of assets		122			(1	)
Changes in operating assets and liabilities:
Accounts receivable, net		1,737			1,086			(61	)		1,737
Inventories, net		3,353			92			(6,494	)		3,353
Operating lease right-of-use assets and liabilities, net		96			—
Prepaids and other assets		(612	)		(1,094	)		(1,075	)		(602	)
Accounts payable and accrued liabilities		(2,687	)		(546	)		1,050			(2,687	)
Forward contracts								1,270			(10	)
Accrued compensation and employee benefits		(733	)		380			(330	)		(733	)
Income taxes		93			609			1,527			93
Net cash provided by operating activities		4,808			8,187			4,683			4,808

Cash flows from investing activities
Purchases of property and equipment		(1,633	)		(2,662	)		(3,034	)		(1,633	)
Proceeds from sale of property and equipment		17			19			3			17
Proceeds from collection of notes receivable		—			1,500
Net cash used in investing activities		(1,616	)		(1,143	)		(3,031	)		(1,616	)

Cash flows from financing activities
Repurchase of common stock		(1,332	)		(430	)		(3,501	)		(1,332	)
Issuance of common stock		—			38
Net cash used in financing activities		(1,332	)		(392	)		(3,501	)		(1,332	)

Net increase in cash and cash equivalents		1,860			6,652
Net (decrease) increase in cash and cash equivalents								(1,849	)		1,860
Cash and cash equivalents at beginning of period		25,040			23,613			30,478			25,040
Cash and cash equivalents at end of period	$	26,900		$	30,265		$	28,629		$	26,900

Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest	$	11		$	7		$	91		$	11
Taxes	$	18		$	733		$	263		$	18
Disclosure of non-cash activities:
Unrealized (loss) gain resulting from change in fair value of derivative instruments, net of tax	$	(516	)	$	1,235

See accompanying notes to condensed consolidated financial statements.

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~~NOTE~~SNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

A. Basis of Presentation and Summary of Significant Accounting Policies

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and with applicable rules and regulations. Pursuant to such rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted. In management’s opinion, all adjustments necessary for a fair presentation of the financial position, results of operations, stockholders’ equity, and cash flows have been included and are of a normal, recurring nature. The results of operations for the six months ended December 31, ~~2019~~2020 are not necessarily indicative of the operating results for the full fiscal year or for any future periods.

You should read the financial statements and these notes, which notes are an integral part of the financial statements, together with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, ~~2019~~2020 (“~~2019~~2020 Annual Report”). The accounting policies used to prepare the financial statements included in this Report are the same ~~as those~~policies described in the notes to the consolidated financial statements in our ~~2019~~2020 Annual Report unless otherwise noted below.

Recently Adopted Accounting Pronouncements

We did not adopt any accounting pronouncements during the three or six months ended December 31, 2020.

Recently Issued Accounting and Regulatory Pronouncements

In November 2020, the SEC issued Release No. 33-10825, Modernization of Regulation S-K Items 101, 103, and 105, which release amends and clarifies certain of our financial reporting requirements. This release will primarily impact risk factor disclosures in our future Annual Reports.

Other recently issued accounting pronouncements are not discussed in this Report as such pronouncements did not have, orand are not believed by management to have, a material impact on our present or future financial statements.

Net Income per Common Share

We compute 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 unvested restricted ~~stock accounts~~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):

	Three Months Ended				Six Months Ended				Three Months Ended				Six Months Ended
	December 31,				December 31,				December 31,				December 31,
	2019		2018		2019		2018		2020		2019		2020		2019
Numerator
Net income	$	476	$	2,181	$	572	$	4,740	$	3,632	$	476	$	5,890	$	572

Denominator
Basic weighted average common shares outstanding		6,795		6,808		6,818		6,786		6,270		6,795		6,344		6,818
Dilutive effect of stock options and restricted stock		91		191		117		196		135		91		94		117
Diluted weighted average common shares outstanding		6,886		6,999		6,935		6,982		6,405		6,886		6,438		6,935

Basic net income per common share	$	0.07	$	0.32	$	0.08	$	0.70	$	0.58	$	0.07	$	0.93	$	0.08

Diluted net income per common share	$	0.07	$	0.31	$	0.08	$	0.68	$	0.57	$	0.07	$	0.91	$	0.08

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We did not exclude any stock options or restricted stock shares for the three months ended December 31, 2020. During the six months ended December 31, 2020 we excluded shares relating to stock options totaling 90,000 and 116,658 shares of unvested restricted stock, as their impact would have been anti-dilutive. We did not exclude any stock options or restricted stock shares for the three or six months ended December 31, 2019 ~~and December 31, 2018 that~~as none would have had an anti-dilutive impact.

Revenue Recognition

We record revenue based on a five-step model ~~which~~that includes: (1) identifying a contract with a customer; (2) identifying the performance obligations in ~~the~~that contract; (3) determining the total transaction price; (4) allocating ~~the~~that 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 thus 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~~those 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,~~contracts, 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 ~~obligation~~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 continue to take advantage of these early payment discounts. The cost of these discounts is reported as a reduction to the transaction ~~price.~~price of customer contracts. If the actual discounts differ from those estimated, the difference is also reported as a change in the transaction price.

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 December 31, ~~2019,~~2020, we have no liability recorded for estimated returns of products.

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~~On August 7, 2017, we entered into three agreements (“Agreements”), with The Juice Plus+ Company LLC (“Juice Plus+”). The Agreements are~~We have an Exclusive Manufacturing Agreement ~~a Restricted Stock Award Agreement,~~with Juice Plus+, as amended and ~~an Irrevocable Proxy.~~restated on March 31, 2019, (the "JP Agreement”). Pursuant to the ~~Exclusive Manufacturing~~JP 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 the Restricted Stock Award Agreement, NAI granted 500,000 shares of NAI common stock to Juice Plus+, (the “JP Shares”), and Juice Plus+ agreed the~~The JP Shares are subject to certain restrictions and risk of forfeiture. Pursuant to the Irrevocable Proxy, Juice Plus+ also granted the NAI Board of Directors the right to vote the JP Shares that remain subject to risk of forfeiture. Each Agreement is ~~for a term of 5 years, and each may be terminated by either party only upon the occurrence of specified events.~~

~~On March 31, 2019, we amended our original Agreements with Juice Plus+ and extended the term of the Exclusive Manufacturing Agreement~~effective through August 6, 2025. ~~In addition, pursuant to that Amended and Restated Exclusive Manufacturing~~As part of the JP Agreement, we provide Juice Plus+ ~~returned 400,000 shares of restricted common stock in exchange for an annual cash sales discount. The expense associated with the return of those shares and the related~~a cash discount granted to Juice Plus+ are each recorded as a reduction to sales. As a result of the amendments contained in the Amended and Restated Exclusive Manufacturing Agreement, we made a one-time adjustment to reverse the expense associated with unvested shares that ~~were returned as a result of such amendments. Amounts associated with the new cash discount began to be recorded in our fourth quarter of fiscal 2019 and will be~~is amortized ratably over ~~extended~~the remaining life of the ~~Amended and Restated Exclusive Manufacturing~~JP Agreement based on the full value of the cash discount expected to be given over the same period. We recorded ~~$395,000~~$0.4 million of ~~“Cash Sales Discount”~~cash sales discount during the three months ended December 31, 2020 and $0.8 million during the six months ended December 31, 2020. We recorded $0.4 million of cash sales discount during the three months ended December 31, 2019 and ~~$790,000~~$0.8 million for the six months ended December 31, 2019. ~~We recognized $245,000~~

Table of ~~“Non-cash Sales Discount” during the three months ended December 31, 2018 and $490,000 during the six months ended December 31, 2018.~~

Contents

We currently own certain U.S. patents, and each such patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as “beta-alanine”, which ~~is marketed~~we market and ~~sold~~sell 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 $2.8 million during the three months ended December 31, 2020 and $5.4 million during the six months ended December 31, 2020. We similarly recorded $4.3 million during the three months ended December 31, 2019 and $7.5 million during the six months ended December 31, 2019. ~~We similarly recorded $4.4 million during the three months ended December 31, 2018 and $9.8 million during the six months ended December 31, 2018.~~ 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 ~~$192,000~~$0.1 million during the three months ended December 31, 2020 and $0.3 million during the six months ended December 31, 2020. We recorded $0.2 million during the three months ended December 31, 2019 and ~~$359,000~~$0.4 million during the six months ended December 31, 2019. ~~We similarly recognized $178,000 of royalty expense during the three months ended December 31, 2018 and $441,000 during the six months ended December 31, 2018.~~

~~Notes Receivable~~

On September 30, 2017, we accepted a 12-month note (the “KM Loan Agreement”) from Kaged Muscle, LLC (“Kaged Muscle”), one of our contract manufacturing customers, in exchange for $1.5 million of trade receivables due to us from Kaged Muscle. On September 30, 2018, we entered into a First Amendment (the “First Amendment”) with Kaged Muscle in connection with the KM Loan Agreement. The First Amendment modified the KM Loan Agreement and related promissory note by extending the loan’s maturity date from September 30, 2018 to December 28, 2018 in exchange for an extension fee in the amount of $25,000. We executed this note receivable conversion, and subsequent amendment, to assist Kaged Muscle with their near term financing needs. The note carried an interest rate of fifteen percent (15%) per annum with payments of interest only. The note was paid in full before the amended maturity date. In association with this note, we did not recognize any interest income during the three or six months ended December 31, 2019. During the three months ended December 31, 2018 we recognized $46,000 and during the six months ended December 31, 2018 we recognized $104,000 in interest income associated with this note.

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 ("2009 Plan"). The 2009 Plan expired on October 15, 2019. The Board of Directors approved a new omnibus equity incentive plan to be effective ~~October 15, 2019~~January 1, 2021 (“~~2019~~2020 Plan”) ~~and this plan~~, which was approved by our stockholders at the Annual Meeting of Stockholders ~~held~~ on December ~~6, 2019.~~4, 2020. Under the ~~2019~~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 did not grant any options during each of the three ~~and~~or six month periods ~~ending~~ended December 31, ~~2019~~2020 and December 31, ~~2018.~~2019. All remaining outstanding stock options are fully vested. During the three and six months ended December 31, 2020, 100,000 stock options were exercised. These exercises were cashless net exercises resulting in the issuance of 30,442 shares. No options were exercised during the three orand six month period ended December 31, 2019. ~~No options were exercised during the three month period ended December 31, 2018. During the six months ended December 31, 2018, 5,000 options were exercised.~~ There were no option forfeitures during the three or six month periods ended December 31, ~~2019~~2020 or December 31, ~~2018.~~2019.

We did not grant any restricted stock shares during the three or six months ended December 31, 2020. During the three and six months ended December 31, 2019, we granted 5,000 shares of restricted stock shares to a new member of our management team. ~~During~~No restricted stock shares were forfeited during the three or six months ended December 31, ~~2018, we granted 15,000 shares of restricted stock shares to a new member of our management team. We did not grant any shares to employees during the three months ended December 31, 2018.~~2020. During the three months ended December 31, 2019, there were no restricted stock forfeitures. During the six months ended December 31, 2019, 15,000 restricted stock shares were forfeited. ~~During~~Our net income included stock based compensation expense in connection with prior restricted stock grants of approximately $0.3 million for the three months ended December 31, 2020 and $0.7 million for the six months ended December 31, ~~2018, 5,000 restricted stock shares forfeited.~~2020. Our net income included stock based compensation expense of approximately ~~$459,000~~$0.5 million for the three months ended December 31, 2019, and ~~$892,000~~$0.9 million for the six months ended December 31, 2019. ~~Our net income included stock based compensation expense~~

Deferred Compensation Plan

Effective July 16, 2020, the Board of ~~approximately $400,000~~Directors approved and adopted a Non-Qualified Incentive Plan (the “Incentive Plan”). Pursuant to the Incentive Plan, the Human Resources Committee and the Board of Directors may make deferred cash payments or other cash awards (“Awards”) to directors, officers, employees and eligible consultants of NAI (“Participants”). These Awards are made subject to conditions precedent that must be met before NAI is obligated to make the payment. The purpose of the Incentive Plan is to enhance the long-term stockholder value of NAI by providing the Human Resources Committee and the Board of Directors the ability to make deferred cash payments or other cash awards to encourage Participants to serve NAI or to remain in the service of NAI, or to assist NAI to achieve results determined by the Human Resources Committee or the Board of Directors to be in NAI's best interest.

The Incentive Plan authorizes the Human Resources Committee or the Board of Directors to grant to, and administer, unsecured and deferred cash Awards to Participants and to subject each Award to whatever conditions are determined appropriate by the Human Resources Committee or the Board of Directors. The terms of each Award, including the amount and any conditions that must be met to be entitled to payment of the Award are set forth in an Award Agreement between each Participant and NAI. The Incentive Plan provides the Board of Directors with the discretion to set aside assets to fund the Incentive Plan although that has not been done to date.

On July 16, 2020, deferred cash awards of $1.0 million were granted to various officers, directors and employees of NAI pursuant to the Incentive Plan, each providing for three equal cash payments to the applicable Participant to be paid on the one year, and two year, and three ~~months ended December 31, 2018~~year anniversary of the date of the grant of such Award (the “Award Date”); provided that, on the date of each payment (the “Payment Date”), the Participant has been since Award Date, and ~~$809,000 for~~continues to be through the ~~six months ended December 31, 2018.~~Payment Date, a member of our Board of Directors or an employee of NAI. In the event a Participant ceases to be an employee of NAI or a member of our Board of Directors prior to any Payment Date, no further payments shall be made in connection with the Award.

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Fair Value of Financial Instruments

Except for cash and cash equivalents, ~~and assets and liabilities related to our pension plan,~~ as of December 31, ~~2019,~~2020 and June 30, ~~2019,~~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 December 31, ~~2019~~2020 was a net ~~asset~~liability of ~~$1.6 million. The fair value of our forward exchange contracts as of June 30, 2019 included a net asset of $2.3~~$3.6 million. The fair values were determined ~~based on~~by obtaining pricing from our bank and corroborating those values with a third party bank.

We also classify our 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 December 31, ~~2019,~~2020, and June 30, ~~2019,~~2020, we did not have any financial assets or liabilities classified as Level 3.

We did not transfer any assets or liabilities between ~~Levels~~levels during ~~fiscal 2019~~the three and six months ended December 31, 2020 or the three orand six months ended December 31, 2019.

~~Table~~

COVID-19 Pandemic

We continue to monitor and evaluate the risks to public health and the impact on overall global business activity related to the COVID-19 pandemic, including its potential impacts on our employees, customers, suppliers and financial results. As the situation remains fluid, it is difficult to predict the duration and scope of ~~Contents~~

The inventory reserve includes $0.5 million as of December 31, ~~2019~~2020 and $1.0 million as of June 30, ~~2019, included~~2020 related to one of our former customers, Kaged Muscle. We are working with this former customer to transition to a replacement manufacturer, including the transfer of inventory items we hold specific to this customer. However, due to the uncertainty regarding the future operations of this former customer, we recorded a reserve against inventory specific to this customer equal to the estimated net realizable value of ~~$39,000~~those items. Since establishing the reserve, we have reduced the reserve due to amounts purchased by the former customer and ~~$686,000, respectively,~~their new contract manufacturer. During the three months ended December 31, 2020, we reduced our inventory reserve related to this customer by $0.3 million. During the six months ended December 31, 2020, we reduced our ~~first generation SR CarnoSyn® powder.~~inventory reserve related to this customer by $0.5 million.

E. Leases

On July 1, 2019, we adopted FASB Accounting Standards Codification ~~or ASC,~~(“ASC”), Topic 842, Leases, or ASC 842, which requires the recognition of the ~~right-of-use assets~~“Right of Use Assets” and related operating and finance lease liabilities on the balance sheet. As permitted by ASC 842, we elected the adoption date of July 1, 2019, which is the date of initial application. ~~As a result, the consolidated balance sheet prior to July 1, 2019 was not restated, continues to be reported under ASC Topic 840,~~ ~~Leases~~~~, or ASC 840, which did not require the recognition of operating lease assets or liabilities on the balance sheet, and is not comparative.~~ Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases. The lease classification affects the expense recognition in the income statement. Operating lease expenses are recorded entirely in operating expenses. Finance lease charges are split, where amortization of the ~~right-of-use asset~~Right of Use Asset is recorded in operating expenses and an implied interest component is recorded in interest expense. The expense recognition for operating leases and finance leases under ASC 842 is substantially consistent with ASC 840. As a result, there is no material difference in our results of operations presented in our Condensed Consolidated Statement of Income and Comprehensive Income for each period presented.

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We adopted ASC 842 using a modified retrospective approach for all leases existing at July 1, 2019. The adoption of ASC 842 had a substantial impact on our balance sheet. The most significant impact was the recognition of the operating lease ~~right-of-use assets~~Right of Use Assets and the liability for operating ~~leases. As of July 1, 2019, we had no finance~~ leases. Upon adoption, leases that were previously classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $20.7 million to operating lease ~~right-of-use assets~~Right of Use Assets and an adjustment of $20.9 million to the related lease liability. The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our secured incremental borrowing rate at the effective date of July 1, 2019, and using the expected lease ~~term,~~term(s), including any optional renewals, as the ~~tenor.~~length of time over which to discount payments. As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether existing contracts are or contain a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs. The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability.

~~The impact of the adoption of ASC 842 on the balance sheet at June 30, 2019~~Other information related to leases was as follows (in thousands):

As Reported June 30,
2019

Adoption of ASC 842
Increase (Decrease)

Balance of July 1, 2019

Operating lease right-of-use assets
$ — $ 20,774 $ 20,774
Total assets
93,490 20,774 114,264
Deferred rent
543 (543 ) —
Long-term liability – Operating leases
— 20,897 20,897
Retained earnings
57,380 420 57,800
Total liabilities and equity
93,490 20,774 114,264

	Three Months Ended				Six Months Ended
Supplemental Cash Flows Information	December 31, 2020		December 31, 2019		December 31, 2020		December 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	826	$	791	$	1,646	$	1,566
Operating lease liabilities arising from obtaining Right of Use Assets for new leases		—		—		—		—
Operating lease liabilities arising from recording Right of Use Assets upon adoption of ASC 842		—		20,897		—		20,897

We lease substantially all of our product manufacturing and support office space used to conduct our business. ~~We adopted ASC 842 effective July, 1 2019.~~ For contracts entered into on or after ~~that effective date,~~July 1, 2019, at the inception of a contract we assess whether the contract is, or contains, a lease. Our assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether we obtain the right to substantially all the economic benefit from the use of the asset throughout the period of the contract, and (3) whether we have the right to direct the use of the asset during such time period. At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

Leases are classified as either finance leases or operating leases. A lease must be classified as a finance lease if any of the following criteria are met: the lease transfers ownership of the asset by the end of the lease term, the lease contains an option to purchase the asset that is reasonably certain to be exercised, the lease term is for a major part of the remaining useful life of the asset or the present value of the lease payments equals or exceeds substantially all of the fair value of the asset. A lease is classified as an operating lease if it does not meet any of these criteria. Substantially all our operating leases are comprised of payments for the use of manufacturing ~~space~~space. We have no leases classified as finance leases. As of December 31, 2020, the weighted average remaining lease term for our operating leases was 6.8 years and the weighted average discount rate for our operating leases was 3.25%. As of June 30, 2020, the weighted average remaining lease term for our operating leases was 7.2 years and the weighted average discount rate was 3.24%.

For all leases at the lease commencement date, a ~~right-of-use asset~~Right of Use Asset and a lease liability are recognized. The ~~right-of-use asset~~Right of Use Asset represents the right to use the leased asset for the lease term. The lease liability represents the present value of the lease payments under the lease.

The ~~right-of-use asset~~Right of Use Asset is initially measured at cost, which primarily comprises the initial amount of the lease liability, plus any initial direct costs incurred, consisting mainly of brokerage commissions, less any lease incentives received. All ~~right-of-use assets~~Right of Use Assets are reviewed for impairment. The lease liability is initially measured at the present value of the lease payments, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, our secured incremental borrowing rate for the same term as the underlying lease. For our real estate and other operating leases, we use our secured incremental borrowing rate. ~~For our finance leases, we will use the rate implicit in the lease or our secured incremental borrowing rate if the implicit lease rate cannot be determined.~~

Lease payments included in the measurement of the lease liability comprise the following: the fixed noncancelable lease payments, payments for optional renewal periods where it is reasonably certain the renewal period will be exercised, and payments for early termination options unless it is reasonably certain the lease will not be terminated early.

Some of our manufacturing leases contain variable lease payments, including payments based on an index or rate. Variable lease payments based on an index or rate are initially measured using the index or rate in effect at lease commencement and separated into lease and non-lease components based on the initial amount stated in the lease or standalone selling prices. Lease components are included in the measurement of the initial lease liability. Additional payments based on the change in an index or rate, or payments based on a change in our portion of the operating expenses, including real estate taxes and insurance, are recorded as a period expense when incurred. Lease modifications result in remeasurement of the lease liability.

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Lease expense for operating leases consists of the lease payments plus any initial direct costs, primarily brokerage commissions, and is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the ~~right-of-use asset~~Right of Use Asset on a straight-line basis over the lease term and interest expense determined on an amortized cost basis. The lease payments are allocated between a reduction of the lease liability and interest expense.

We have elected not to recognize ~~right-of-use assets~~Right of Use Assets and lease liabilities for short-term leases that have a term of 12 months or less. The effect of short-term leases ~~on our right-of-use asset~~if we had used Right of Use Assets and lease ~~liability was~~liabilities would not have been material.

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We buy certain products, including beta-alanine, from a limited number of raw material suppliers who meet our quality standards. The loss of any of these suppliers could have a material adverse impact on our net sales and net income. Raw material purchases from any one supplier representing 10% or more of the respective period’s total raw material purchases were as follows (dollars in thousands):

~~(a) Purchases were less than 10% of the respective period’s total raw material purchases.~~

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 ~~three~~two of our largest customers, whose receivable balances collectively represented ~~77.1%~~59.0% of gross accounts receivable at December 31, ~~2019~~2020 and ~~76.8%~~65.7% at June 30, ~~2019.~~2020. As of December 31, 2020 and June 30, 2020, we had a receivable balance of $3.3 million from a former contract manufacturing customer that 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 ~~16.1%~~4.5% of gross accounts receivable at December 31, ~~2019,~~2020, and ~~8.0%~~2.5% of gross accounts receivable at June 30, ~~2019.~~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.

Products manufactured by our Swiss subsidiary ("NAIE") accounted for 83% of net sales in markets outside the U.S. for the three months ended December 31, 2020 and 85% for the six months ended December 31, 2020. Products manufactured by NAIE accounted for 91% of net sales in markets outside the U.S. for the three months ended December 31, 2019 and 90% for the six months ended December 31, 2019. ~~Products manufactured by NAIE accounted for 90% of net sales in markets outside the U.S. for the three months ended December 31, 2018 and 80% for the six months ended December 31, 2018.~~ No products manufactured by NAIE were sold in U.S. markets during the three or six month periods ended December 31, ~~2019~~2020 and ~~2018.~~2019.

Long-lived assets by geographic region, based on the location of the company or subsidiary at which they were located or made, were as follows (in thousands):

~~As a result of the implementation of ASC 842, operating lease right-of-use assets are now recorded as part of long-lived assets for segment reporting.~~

Total assets by geographic region, based on the location of the company or subsidiary at which they were located or made, were as follows (in thousands):

Capital expenditures by geographic region, based on the location of the company or subsidiary at which they were located or made, were as follows (in thousands):

M. Subsequent Event

On February 2, 2021 we repaid the entire balance of our $10.0 million credit line with Wells Fargo Bank, N.A. bringing our outstanding debt under the line to zero and increasing our amount available for borrowing to $10.0 million.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is intended to help you understand our financial condition and results of operations for the three and six months ended December 31, ~~2019.~~2020. You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to the condensed consolidated financial statements included under Item 1 in this Report, as well as the risk factors and other information included in our ~~2019~~2020 Annual Report and other reports and documents we file with the SEC. Our future financial condition and results of operations will vary from our historical financial condition and results of operations described below based on a variety of factors.

Executive Overview

The following overview does not address all of the matters covered in the other sections of this Item 2 or other items in this Report nor does it 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 2 and this Report.

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

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

During the first six months of fiscal ~~2020,~~2021, our net sales were ~~20% lower~~51% higher than in the first six months of fiscal ~~2019.~~2020. Private-label contract manufacturing sales ~~decreased 19%~~increased 62% due to higher sales from a majority of our distribution channels worldwide primarily due to ~~lower~~increased shipments of existing products and sales ~~to our largest customer~~of newly awarded products. This sales increase was partially offset by ~~increased~~a reduction in sales ~~to other new and existing customers. Sales to our largest private-label contract manufacturing~~as a result of a discontinued customer ~~declined over 31%.~~relationship. Revenue concentration risk for our largest private-label contract manufacturing customer as a percentage of our total net sales ~~decreased~~increased from ~~55% to~~ 46% for the first six months ~~ended December 31, 2019 compared~~of fiscal 2020 to 56% for the first six months ~~ended December 31, 2018.~~of fiscal 2021. We expect our annualized fiscal ~~2020~~year 2021 revenue concentration for this customer to be ~~lower~~higher than fiscal ~~2019.~~year 2020.

During the first six months of fiscal ~~2020,~~2021, CarnoSyn® beta-alanine revenue decreased ~~24%~~27% to ~~$7.5~~$5.4 million, compared to revenue of ~~$9.8~~$7.5 million for the first six months of fiscal ~~2019.~~2020. The decrease in beta-alanine revenue was ~~primarily~~ due to decreased material shipments primarily resulting from ~~market and seasonal factors and lower average sales prices. We believe this decline was impacted by~~ certain of our former customers discontinuing the use of ~~our~~ CarnoSyn® beta-alanine in favor of generic beta-alanine and ~~lower overall consumer demand for our customers’ CarnoSyn® products.~~

~~In February 2019, we received New Dietary Agreement (“NDI”) status from~~ the ~~FDA for our patented CarnoSyn® beta-alanine. CarnoSyn® beta-alanine is~~negative impact COVID-19 has had on the ~~only beta-alanine that has received this status~~sports nutrition industry due to continued limitations on athletic activities and ~~we plan to work~~gyms, with the FDA and other agencies and/or courts to enforce rights connected with this NDI status. We believe the NDI strengthens our position in the market place and we intend, where applicable, to seek to curtail the importation and use of generic beta-alanine to the extent not in compliance with the law.

In March of 2019, we received a favorable ruling from the U.S. Court of Appeals for the Federal Circuit that vindicated our patents and held them as “patent eligible” under existing law. We plan on leveraging this legal victory and our recent NDI approvalsuch decrease being partially offset by ~~aggressively pursuing those who illegally violate our patents or import or use beta-alanine in violation of the law.~~

Also, in March 2019, as a result of our efforts over the last three years, the Ministry of Health, Labor, and Welfare of Japan officially approved beta-alanine for sale in Japanese food markets. We believe this opens a new market for our CarnoSyn® beta-alanine. We have entered into a Distribution Agreement with a Shimizu Chemical Corporation, and we shipped our first orders of CarnoSyn® beta-alanine to Japan in the fourth quarter of fiscal 2019. Our distribution partner is actively working to develop this new market and we believe Japan represents a previously untapped market for potentialhigher average sales ~~growth.~~prices.

We continue to invest in research and development for our SR CarnoSyn® sustained release delivery system. We believe SR CarnoSyn® may provide a unique opportunity within the growing Wellness and Healthy Aging markets. We ~~launched efforts to sell SR CarnoSyn® into the Wellness and Healthy Aging markets in early fiscal 2019 and while we have not yet had substantive sales into this market, we~~ believe our ~~recent~~ongoing efforts to refine our formulations and product offerings will be positively received and result in significant opportunity for increased SR CarnoSyn® ~~sales later this fiscal year.~~ sales.

To protect our CarnoSyn® business and our patents, trademarks and other intellectual property, we incurred litigation and patent compliance expenses of approximately ~~$1.4~~$0.7 million during the first six months of fiscal ~~2020~~2021 as compared to ~~$958,000~~$1.4 million during the comparable period in fiscal ~~2019.~~2020. The decrease in these legal expenses on a year over year basis was primarily due to the successful resolution of several cases that were settled. 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, obtain the raw material beta-alanine when and in the amounts needed, expand distribution of beta-alanine to new and existing customers, and ~~further commercialize our existing patents, and will also depend~~ on the continued compliance by third parties with our license agreements and our patent, trademark and other intellectual property rights.

For the second half of fiscal 2020, as compared to the same period in the prior year, we expect sales levels to our largest contract manufacturing customer to decline 20% to 25% and our CarnoSyn® beta-alanine revenue to be comparable to the prior year. As a result, on an annualized basis, we now expect our consolidated fiscal 2020 revenue to decline approximately 10% to 15% as compared to the prior fiscal year.

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During the remainder of fiscal ~~2020,~~2021, we will continue our sales and marketing activities to consumers, customers, potential customers, and brand owners on multiple platforms to promote and reinforce the features and benefits of utilizing ~~NAI’s contract manufacturing services and~~ CarnoSyn® and SR CarnoSyn® beta-alanine.

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Based on our current sales order volumes and future period sales forecasts received from our customers, we continue to expect our annualized fiscal 2021 net sales to increase between 30% and 50% as compared to fiscal 2020. We also expect to generate operating income between 5% and 7% of net sales for our fiscal year ending June 30, 2021. There can be no assurance our expectations will result in the currently anticipated increase in net sales, or operating income. Notwithstanding, we are closely monitoring the impact of the COVID-19 pandemic. Currently we cannot reliably estimate the length of time or severity of the pandemic, and cannot reliably estimate the total impact this pandemic may have on our consolidated financial results for the remainder of fiscal 2021 and beyond.

Impact of COVID-19 on Our Business

On March 11, 2020, the World Health Organization classified the novel coronavirus, or COVID-19, as a pandemic. The COVID-19 pandemic has resulted, and is likely to continue to result, in significant economic disruption and has and will likely affect our business. Significant uncertainty exists concerning the magnitude of the impact and duration of the COVID-19 pandemic. Our facilities, located both in the United States and Europe, continue to operate as an essential and critical manufacturer in accordance with applicable federal, state, and local regulations, however, there can be no assurance our facilities will continue to operate without interruption. Factors that ~~our customer’s~~derive from COVID-19 and the accompanying regulatory and market response, and that have or may negatively impact sales and ~~marketing activities~~gross margin in the future include, but are not limited to the following:

●

Limitations on the ability of our suppliers to manufacture, or procure from manufacturers, the products we sell, or to meet delivery requirements and commitments;

●

Limitations on the ability of our employees to perform their work due to illness caused by the pandemic or due to other restrictions on our employees to keep them safe and the increased cost of measures taken to ensure employee health and safety;

●

Local, state, or federal orders requiring employees to remain at home;

●

Limitations on the ability of carriers to deliver our products to customers;

●

Limitations on the ability of our customers to conduct their business and purchase our products and services; and

●

Limitations on the ability of our customers to pay us on a timely basis.

We will continue to actively monitor the situation and may take further actions to alter our business operations as ~~well~~may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and shareholders. While we are unable to determine or predict the nature, duration, or scope of the overall impact the COVID-19 pandemic will have on our business, results of operations, liquidity or capital resources, we believe we will be able to remain operational and our working capital will be sufficient for us to remain operational even as ~~our own sales and marketing and litigation efforts will reverse or decelerate potential future sales declines.~~the longer term consequences of this pandemic become known.

During the remainder of fiscal ~~2020, given the following strategies and business trends, we expect our consolidated operating income to be flat to slightly favorable as compared to the same period in fiscal 2019:~~

~~Continued litigation to support our patents, trademarks, and NDI status for our CarnoSyn® brands;~~

~~Marketing, advertising, and promotion costs expected to be deployed for our launch into the Wellness and Healthy Aging markets for SR CarnoSyn®;~~

~~Decreased sales expectations from our largest private-label contract manufacturing customer;~~

~~Expected lower average Euro exchange rates for fiscal 2020 as compared to fiscal 2019; and~~

~~Expansion of the Japanese marketplace for our CarnoSyn® brands.~~

~~During the remainder of fiscal 2020,~~year 2021, we also 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 to 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 new sales distribution channel under the Wellness and Healthy Aging category for our sustained release form of beta-alanine marketed under our SR CarnoSyn® trademark, ~~and~~ exploiting new contract manufacturing opportunities license and royalty agreements, and protecting our proprietary rights; and

	•	Improving operational efficiencies and managing costs and business risks to improve profitability.

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Critical Accounting Policies and Estimates

The preparation of our financial statements requires ~~that~~ we make estimates and assumptions that affect the amounts reported in our financial statements and the accompanying notes. We have identified certain policies we believe are important to the accurate and complete 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 we believe are reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions. 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.

Our critical accounting policies are discussed under Item 7 of our ~~2019~~2020 Annual Report and recently adopted and issued accounting pronouncements are discussed ~~in the~~under Item 1, Note A to our Notes to Condensed Consolidated Financial Statements contained in this ~~Quarterly~~ Report.

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Results of Operations

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

	Three Months Ended									Six Months Ended									Three Months Ended									Six Months Ended
	December 31,									December 31,									December 31,									December 31,
	2019			2018			% Change			2019			2018			% Change			2020			2019			% Change			2020			2019			% Change
Private label contract manufacturing	$	24,831		$	31,660			(22	)%	$	50,841		$	62,746			(19	)%	$	45,326		$	24,831			83	%	$	82,373		$	50,841			62	%
Patent and trademark licensing		4,272			4,383			(3	)%		7,457			9,829			(24	)%		2,757			4,272			(35	)%		5,436			7,457			(27	)%
Total net sales		29,103			36,043			(19	)%		58,298			72,575			(20	)%		48,083			29,103			65	%		87,809			58,298			51	%
Cost of goods sold		24,042			29,607			(19	)%		48,853			58,976			(17	)%		38,409			24,042			60	%		72,130			48,853			48	%
Gross profit		5,061			6,436			(21	)%		9,445			13,599			(31	)%		9,674			5,061			91	%		15,679			9,445			66	%
Gross profit %		17.4	%		17.9	%					16.2	%		18.7	%				20.1			%				17.4	%					17.9	%		16.2	%

Selling, general and administrative expenses		4,363			4,229			3	%		8,802			8,668			2	%		4,282			4,363			(2	)%		8,202			8,802			(7	)%
% of net sales		15.0	%		11.7	%					15.1	%		11.9	%					8.9	%		15.0	%					9.3	%		15.1	%

Income from operations		698			2,207			(68	)%		643			4,931			(87	)%		5,392			698			672	%		7,477			643			1,063	%
% of net sales		2.4	%		6.1	%					1.1	%		6.8	%					11.2	%		2.4	%					8.5	%		1.1	%

Total other (loss) income		(124	)		543			(123	)%		53			1,040			(95	)%		(806	)		(124	)		(550	)%		(1,127	)		53			(2,226	)%
Income before income taxes		574			2,750			(79	)%		695			5,971			(88	)%		4,586			574			699	%		6,350			695			812	%
% of net sales		2.0	%		7.6	%					1.2	%		8.2	%					9.5	%		2.0	%					7.2	%		1.2	%

Provision for income taxes		98			569			(83	)%		124			1,231			(90	)%		954			98			873	%		460			124			271	%
Net income	$	476		$	2,181			(78	)%	$	572		$	4,740			(88	)%	$	3,632		$	476			663	%	$	5,890		$	572			930	%
% of net sales		1.6	%		6.1	%					1.0	%		6.5	%					7.6	%		1.6	%					6.7	%		1.0	%

Private-label contract manufacturing net sales ~~decreased 22%~~increased 83% during the three months ended December 31, ~~2019~~2020 and ~~19%~~62% during the six months ended December 31, ~~2019,~~2020, when compared to the same ~~periods~~period in the prior year. The ~~decrease~~increase was due primarily to ~~lower~~ sales of new products to ~~our largest customer.~~new and existing customers and higher sales of existing product to existing customers, partially offset by a reduction due to a discontinued customer relationship.

Net sales from our patent and trademark licensing segment decreased 3%35% during the three months ended December 31, ~~2019~~2020 and ~~decreased 24%~~27% during the six months ended December 31, ~~2019,~~2020, when compared to the same ~~periods~~period in the prior year. The decrease in beta-alanine sales during the three and six months ended December 31, ~~2019~~2020 was ~~primarily~~ due to decreased material shipments primarily resulting from ~~market and seasonal factors and lower average sales prices. We believe this decline was impacted by~~ certain of our former customers discontinuing the use of ~~our~~ CarnoSyn® beta-alanine in favor of generic beta-alanine and ~~lower overall consumer demand for our customer’s CarnoSyn® products.~~the negative impact COVID-19 has had on the sports nutrition industry due to continued limitations on athletic activities and gyms, partially offset by an increase in average sales price.

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The change in gross profit margin for the three and six months ended December 31, ~~2019,~~2020, was as follows:

	Three Months			Six Months			Three Months			Six Months
	Ended			Ended			Ended			Ended

Contract manufacturing⁽¹⁾		(1.2	)%		(1.5	)%		7.6	%		5.2	%
Patent and trademark licensing⁽²⁾		0.7			(1.0	)		(4.9	)		(3.5	)
Total change in gross profit margin		(0.5	)%		(2.5	)%		2.7	%		1.7	%

Private-label contract manufacturing gross profit margin as a percentage of consolidated net sales ~~decreased 1.2~~increased 7.6 percentage points during the three months ended December 31, ~~2019~~2020 and ~~decreased 1.5~~5.2 percentage points during the six months ended December 31, ~~2019,~~2020, when compared to the comparable prior year period. The ~~decrease~~increase in gross profit as a percentage of ~~consolidated net~~ sales for private-label contract manufacturing is primarily due to a marginal ~~increase~~decrease in per unit manufacturing costs ~~partially offset by~~due to increased sales and a favorable ~~product~~shift in sales mix and inclusion of the amortization of forward points from cash flow hedge instruments in the three and six month results of fiscal 2020 and none in the same periods of fiscal 2019. As a result of the adoption of ASU No. 2017-12, amortization of forward points are now included as a component of net revenues while they were previously included as a component of other income. mix.

Patent and trademark licensing gross profit margin as a percentage of consolidated net sales ~~increased 0.7~~decreased 4.9 percentage points during the three months ended December 31, ~~2019, when compared to the comparable prior year period. The increase was primarily due to an increase in patent~~2020 and ~~trademark licensing net sales as a~~3.5 percentage ~~of consolidated net sales partially offset by lower average net sales prices. Patent and trademark licensing gross profit as a percentage of consolidated net sales decreased 1.0 percentage point~~points during the six months ended December 31, ~~2019,~~2020, when compared to the comparable prior year period. The decrease was primarily due to decreased patent and trademark licensing net sales as a percentage of total consolidated net ~~sales and lower average sales prices.~~sales.

Selling, general and administrative expenses ~~increased by 3% for the three months ended December 31, 2019 and increased by~~decreased $0.1 million, or 2% for the six months ended December 31, 2019 when compared to the comparable prior year periods. The increase was primarily due to an increase in legal expenses associated with our patents and trademarks licensing business..

Other income, net, decreased $667,000 during the three months ended December 31, 2019, and decreased $987,000 during the six months ended December 31, 2019, when compared to the comparable prior year period. The decrease was primarily due to the exclusion of the amortization of forward points from cash flow hedge instruments during the three and six months ended December 31, 2019 as compared to including $464,000 and $951,000 in the comparable periods of fiscal 2019. This change in classification of forward points is the result of the adoption of ASU No. 2017-12 that now requires the amortization of forward points be included as a component of net revenues while they were previously included as a component of other income.

~~Our income tax expense decreased $471,000, or 83%~~, during the three months ended December 31, ~~2019,~~2020, and decreased ~~$1.1~~$0.6 million, or ~~90%~~7%, during the six months ended December 31, ~~2019,~~2020, as compared to the comparable prior year period. Selling, general, and administrative expenses decreased primarily due to reduced litigation costs associated with our patent and trademark licensing business.

Other income, net, decreased $0.7 million during the three months ended December 31, 2020, and decreased $1.2 million during the six months ended December 31, 2020, when compared to the comparable period during the prior year. The decrease was primarily due to the unfavorable foreign exchange revaluation activity associated with our balance sheet and the fluctuations in unhedged foreign currency rates.

Our income tax expense increased $0.9 million during the three months ended December 31, 2020, and increased $0.4 million during the six months ended December 31, 2020. The increase for the three months ended December 31, 2020 was primarily related to an increase in pre-tax income, as compared to the ~~decrease~~three months ended December 31, 2019. The increase for the first six months of fiscal year 2021 as compared to the comparable period in fiscal year 2020 was primarily related to an increase in pre-tax income ~~before taxes.~~that was partially offset by a discrete tax benefit of $0.9 million recorded during the six months ended December 31, 2020.

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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 facility. Net cash provided by operating activities was ~~$4.8~~$4.7 million for the six months ended December 31, ~~2019~~2020 compared to net cash provided by operating activities of ~~$8.2~~$4.8 million in the comparable period in the prior fiscal year.

At December 31, ~~2019,~~2020, changes in accounts receivable, consisting of amounts due from our private-label contract manufacturing customers and our patent and trademark licensing activities, ~~provided $1.7~~used $0.1 million in cash compared to providing ~~$1.1~~$1.7 million of cash during the comparable six month period in the prior ~~fiscal~~ year. The ~~increase~~decrease in cash provided by accounts receivable during the six months ended December 31, ~~2019~~2020 primarily resulted from ~~timing~~increased sales and the ~~amount~~timing of sales and related collections. Days sales outstanding was 4836 days during the six months ended December 31, ~~2019~~2020 as compared to 3648 days for the same period during the prior ~~year period.~~year.

Changes in inventory ~~provided $3.4~~used $6.5 million in cash during the six months ended December 31, ~~2019~~2020 compared to providing ~~$92,000~~$3.4 million in the comparable prior year period. The change in cash related to inventory during the six months ended December 31, ~~2019~~2020 was primarily related to the difference in the amount and timing of orders and anticipated sales ~~and new order activity.~~as compared to same period in the prior year. Changes in accounts payable and accrued liabilities ~~used $2.7~~provided $1.0 million in cash during the six months ended December 31, ~~2019~~2020 compared to using ~~$546,000~~$2.7 million during the ~~six~~three months ended December 31, ~~2018.~~2019. The change in cash flow activity related to accounts payable and accrued liabilities was primarily due to the timing of inventory receipts and payments.

Cash used in investing activities during the six months ended December 31, ~~2019~~2020 was ~~$1.6~~$3.0 million compared to ~~$1.1~~$1.6 million in the comparable period during the prior ~~year period.~~year. The primary reason for the change was due ~~the collection of a note receivable during the six months ended December 31, 2018, as well as a decrease in~~to increased capital equipment purchases during the six months ended December 31, ~~2019~~2020 as compared to the ~~comparable prior year period.~~six months ended December 31, 2019. Capital expenditures during fiscal 2021 and fiscal 2020 were primarily for manufacturing equipment used in our Vista, California and Manno, Switzerland facilities.

Cash used in financing activities for the six months ended December 31, ~~2019~~2020, was ~~$1.3~~$3.5 million, compared to ~~$392,000~~$1.3 million used in the comparable period during the prior ~~year period.~~year. This ~~change~~ is ~~primarily~~ due to increased repurchases of our stock.

At December 31, ~~2019 and June 30, 2019, on a consolidated basis,~~2020 we had ~~no outstanding balances~~$10.0 million due in connection with our loan facility.

During the six months ~~ending~~ended December 31, ~~2019,~~2020, we were in compliance with all of the financial and other covenants required under the Credit Agreement. Refer to Item 1, Note F,F., "Debt," in this Quarterly Report, for terms of our Credit Agreement and additional information.

As of December 31, ~~2019,~~2020, we had ~~$26.9~~$28.6 million in cash and cash ~~equivalents and $10.0 million available under our credit facilities.~~equivalents. 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 December 31, ~~2019,~~2020, we did not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that have or are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses material to investors.

Recent Accounting Pronouncements

Recent accounting pronouncements are discussed in the notes to our consolidated financial statements included under Item 1, Note A. of this Report. Other than those pronouncements, we are not aware of any other pronouncements that materially affect our financial position or results of operations.

~~ITE~~Table of Contents~~M 3.~~ ~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~As a smaller reporting company, we are not required to provide item 3 disclosure in this Quarterly Report.~~

~~ITE~~MITEM 4. 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 (principal financial and accounting officer), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, ~~2019.~~2020. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective for their intended purpose described above as of December 31, ~~2019.~~2020.

There were no other changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarterly period ended December 31, ~~2019~~2020 that ~~has~~have materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.

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~~PAR~~TPART II - OTHER INFORMATION

ITEM 1. 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 currently do not believe the resolution of these matters, even if unfavorable, 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. An unexpected settlement expense or an unexpected unfavorable outcome of a matter could adversely impact our results of operations.

As of February ~~11, 2020,~~9, 2021, neither NAI nor NAIE were a party to any material pending legal proceeding nor was any of our property the subject of any material pending legal proceeding. We are currently involved in several matters in the ordinary course of our ~~business, each of which is related to enforcing our intellectual property rights.~~business.

There is no assurance NAI will prevail in these litigation matters or in similar proceedings itNAI or others may initiate or that litigation expenses will not be greater than anticipated.

~~ITE~~MITEM 1A. RISK FACTORS

When evaluating our business and future prospects you should carefully consider the risks described under Item 1A of our ~~2019~~2020 Annual Report, as well as the other information in our ~~2019~~2020 Annual Report, this Report and other reports and documents we file with the SEC. If any of the identified risks actually occur, 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not sell any unregistered equity securities ~~for~~during the three ~~or six~~ month periods ended December 31, ~~2019~~2020 and December 31, ~~2018.~~2019.

~~Purchases of Equity Securities~~Repurchases

During the three months ended December 31, ~~2019~~2020 we repurchased ~~150,307~~175,123 shares of our common stock at a total cost of ~~$1.3~~$1.7 million (including commissions and ~~transactions~~transaction fees) as set forth below:

Period

Total Number of
Shares Purchased

Average Price
Paid per Share ⁽¹⁾

Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs

Maximum Number (or
Approximate Dollar Value) of
Shares that May Yet Be Purchased
Under the Plans or Programs (as of
December 31, 2019)
(in thousands)

October 1, 2019 to October 31, 2019
38,397 8.88 38,397 —
November 1, 2019 to November 31, 2019
7,232 8.03 7,232 —
December 1, 2019 to December 31, 2019
104,678 8.14 104,678 —
Total
150,307 150,307 $ 747

Period	Total Number of Shares Purchased		Average Price Paid per Share ⁽¹⁾		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs (as of December 31, 2020) (in thousands)
October 1, 2020 to October 31, 2020		34,860	$	7.97		34,860		—
November 1, 2020 to November 30, 2020		64,962	$	10.14		64,962		—
December 1, 2020 to December 31, 2020		75,301	$	10.15		75,301		—
Total		175,123				175,123	$	260

⁽¹⁾ Average price paid per share includes costs associated with the repurchases

Refer to Note J, "Treasury Stock," in this Quarterly Report, for terms of repurchase plan and additional information.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM ~~4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM~~ 5. OTHER INFORMATION

None.

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ITEM 6. 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 March 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 December 8, 2005
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	Filed herewith
101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document	Filed herewith
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith
101.LAB	XBRL Taxonomy Extension Label Linkbase Document	Filed herewith
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document	Filed herewith

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~~SIGNATUR~~ESSIGNATURES

Pursuant to the requirements 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, duly authorized officers.

Date: February ~~11, 2020~~9, 2021

	NATURAL ALTERNATIVES INTERNATIONAL, INC.

	By:	/s/ Mark A. LeDoux
		Mark A. LeDoux, Chief Executive Officer
		(principal executive officer)

	By:	/s/ Michael E. Fortin
		Michael E. Fortin, Chief Financial Officer
		(principal financial and accounting officer)

Delaware	84-1007839
(State of incorporation)	(IRS Employer Identification No.)

1535 Faraday Ave Carlsbad, CA 92008	(760) 736-7700
(Address of principal executive offices)	(Registrant’s telephone number)

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.01 par value per share	NAII	Nasdaq Stock Market

Large accelerated filer	☐	Accelerated filer	☐	Emerging Growth Company	☐

Non-accelerated filer	☐	Smaller reporting company	☒

	December 31, 2019			June 30, 2019			December 31, 2020			June 30, 2020
Raw materials	$	14,228		$	18,322		$	22,531		$	20,863
Work in progress		2,696			3,785			5,000			3,447
Finished goods		6,255			5,002			7,663			4,936
Reserve		(529	)		(1,106	)		(728	)		(1,274	)
	$	22,650		$	26,003		$	34,466		$	27,972

	Depreciable Life In Years			December 31, 2019			June 30, 2019			Depreciable Life In Years				December 31, 2020			June 30, 2020
Land	NA			$	1,200		$	1,200		NA				$	1,200		$	1,200
Building and building improvements	7	–	39		3,743			3,729			7	–	39		3,748			3,743
Machinery and equipment	3	–	12		31,130			30,216			3	–	12		36,244			33,405
Office equipment and furniture	3	–	5		5,284			5,190			3	–	5		5,388			5,318
Vehicles		3			255			314				3			255			255
Leasehold improvements	1	–	15		17,509			17,468			1	–	15		18,151			18,031
Total property and equipment					59,121			58,117							64,986			61,952
Less: accumulated depreciation and amortization					(38,508	)		(37,032	)						(42,577	)		(40,429	)
Property and equipment, net				$	20,613		$	21,085						$	22,409		$	21,523

	Common Stock				Additional Paid-in		Retained		Treasury Stock					Accumulated Other Comprehensive						Common Stock				Additional Paid-in			Retained		Treasury Stock					Accumulated Other Comprehensive
																				Shares		Amount		Capital			Earnings		Shares		Amount			Income (Loss)			Total
Balance, September 30, 2020																					8,856,677	$	87	$	28,353		$	58,439		2,340,387	$	(13,445	)	$	(2,303	)	$	71,131
Compensation expense related to stock compensation plans																					—		—		337			—		—		—			—			337
Repurchase of common stock																					—		—		—			—		182,867		(1,758	)		—			(1,758	)
Issuance of common stock for stock option exercise																					30,442		1		(1	)		—		—		—			—			—
Unrealized loss resulting from change in fair value of derivative instruments, net of tax																					—		—		—			—		—		—			(854	)		(854	)
Net income																					—		—		—			3,632		—		—			—			3,632
Balance, December 31, 2020																					8,887,119	$	88	$	28,689		$	62,071		2,523,254	$	(15,203	)	$	(3,157	)	$	72,488
	Shares		Amount		Capital		Earnings		Shares		Amount			Income (Loss)			Total
Balance, September 30, 2019		8,851,677	$	87	$	26,713	$	58,024		1,643,322	$	(7,970	)	$	551		$	77,405			8,851,677	$	87	$	26,713		$	58,024		1,643,322	$	(7,970	)	$	551		$	77,405
Issuance of common stock for restricted stock grants		5,000		—		—		—		—		—			—			—			5,000		—		—			—		—		—			—			—
Compensation expense related to stock compensation plans		—		—		459		—		—		—			—			459			—		—		459			—		—		—			—			459
Repurchase of common stock		—		—		—		—		157,951		(1,317	)		—			(1,317	)		—		—		—			—		157,951		(1,317	)		—			(1,317	)
Unrealized loss resulting from change in fair value of derivative instruments, net of tax		—		—		—		—		—		—			(903	)		(903	)		—		—		—			—		—		—			(903	)		(903	)
Net income		—		—		—		476		—		—			—			476			—		—		—			476		—		—			—			476
Balance, December 31, 2019		8,856,677	$	87	$	27,172	$	58,500		1,801,273	$	(9,287	)	$	(352	)	$	76,120			8,856,677	$	87	$	27,172		$	58,500		1,801,273	$	(9,287	)	$	(352	)	$	76,120

Balance, September 30, 2018		8,676,677	$	85	$	25,177	$	53,398		1,098,942	$	(6,590	)	$	(195	)	$	71,876
Forfeiture of restricted stock		—		—		—		—		5,000		—			—			—
Compensation expense related to stock compensation plans		—		—		646		—		—		—			—			646
Repurchase of common stock		—		—		—		—		43,813		(424	)		—			(424	)
Unrealized gain resulting from change in fair value of derivative instruments, net of tax		—		—		—		—		—		—			852			852
Net income		—		—		—		2,180		—		—			—			2,180
Balance, December 31, 2018		8,676,677	$	85	$	25,823	$	55,579		1,147,755	$	(7,014	)	$	657		$	75,130

	Three Months Ended									Six Months Ended
	December 31, 2020									December 31, 2020
				Unrealized									Unrealized
	Defined			Gains						Defined			Gains
	Benefit			(Losses) on						Benefit			(Losses) on
	Pension			Cash Flow						Pension			Cash Flow
	Plan			Hedges			Total			Plan			Hedges			Total
Beginning Balance	$	(888	)	$	(1,415	)	$	(2,303	)	$	(888	)	$	(295	)	$	(1,183	)
OCI/OCL before reclassifications		-			(1,850	)		(1,850	)		-			(3,913	)		(3,913	)
Amounts reclassified from OCI		-			737			737			-			1,341			1,341
Tax effect of OCI activity		-			259			259			-			598			598
Net current period OCI/OCL		-			(854	)		(854	)		-			(1,974	)		(1,974	)

Ending Balance	$	(888	)	$	(2,269	)	$	(3,157	)	$	(888	)	$	(2,269	)	$	(3,157	)

	Three Months Ended									Six Months Ended
	December 31, 2019									December 31, 2019
				Unrealized									Unrealized
	Defined			Gains						Defined			Gains
	Benefit			(Losses) on						Benefit			(Losses) on
	Pension			Cash Flow						Pension			Cash Flow
	Plan			Hedges			Total			Plan			Hedges			Total
Beginning Balance	$	(565	)	$	1,116		$	551		$	(491	)	$	783		$	292
ASU 2018-02 Adjustment		-			-			-			(74	)		(54	)		(128	)
OCI/OCL before reclassifications		-			(369	)		(369	)		-			932			932
Amounts reclassified from OCI		-			(808	)		(808	)		-			(1,612	)		(1,612	)
Tax effect of OCI activity		-			274			274			-			164			164
Net current period OCI/OCL		-			(903	)		(903	)		(74	)		(570	)		(644	)

Ending Balance	$	(565	)	$	213		$	(352	)	$	(565	)	$	213		$	(352	)

	Three Months Ended									Six Months Ended
	December 31, 2018									December 31, 2018
				Unrealized									Unrealized
	Defined			Gains						Defined			Gains
	Benefit			(Losses) on						Benefit			(Losses) on
	Pension			Cash Flow						Pension			Cash Flow
	Plan			Hedges			Total			Plan			Hedges			Total
Beginning Balance	$	(387	)	$	192		$	(195	)	$	(387	)	$	(191	)	$	(578	)
OCI/OCL before reclassifications		-			1,784			1,784			-			2,729			2,729
Amounts reclassified from OCI		-			(674	)		(674	)		-			(1,120	)		(1,120	)
Tax effect of OCI activity		-			(258	)		(258	)		-			(374	)		(374	)
Net current period OCI/OCL		-			852			852			-			1,235			1,235

Ending Balance	$	(387	)	$	1,044		$	657		$	(387	)	$	1,044		$	657

	As Reported June 30, 2019		Adoption of ASC 842 Increase (Decrease)			Balance of July 1, 2019
Operating lease right-of-use assets	$	—	$	20,774		$	20,774
Total assets		93,490		20,774			114,264
Deferred rent		543		(543	)		—
Long-term liability – Operating leases		—		20,897			20,897
Retained earnings		57,380		420			57,800
Total liabilities and equity		93,490		20,774			114,264

	Three Months Ended December 31,				Six Months Ended December 31,				Three Months Ended December 31,				Six Months Ended December 31,
	2019		2018		2019		2018		2020		2019		2020		2019

Customer 1	$	12,422	$	17,750	$	26,776	$	38,827	$	24,827	$	12,422	$	48,785	$	26,776
Customer 2		5,539		6,196		9,509		9,926		8,910		5,539		11,716		9,509
Customer 3	(a)			3,890		(a)		(a)
	$	17,961	$	27,836	$	36,285	$	48,753	$	33,737	$	17,961	$	60,501	$	36,285

	December 31, 2019		June 30, 2019
Total Assets
Private-label contract manufacturing	$	89,666	$	74,431
Patent and trademark licensing		19,855		19,059
	$	109,521	$	93,490

	December 31, 2020		June 30, 2020
Total Assets
Private-label contract manufacturing	$	104,072	$	100,094
Patent and trademark licensing		21,447		20,109
	$	125,519	$	120,203

	December 31, 2019		June 30, 2019		December 31, 2020		June 30, 2020
United States	$	22,303	$	10,977	$	21,313	$	21,769
Europe		17,833		10,108		18,130		18,108
Total Long-Lived Assets	$	40,136	$	21,085	$	39,443	$	39,877

	December 31, 2019		June 30, 2019		December 31, 2020		June 30, 2020
United States	$	61,620	$	54,785	$	72,868	$	66,489
Europe		47,901		38,705		52,651		53,714
Total Assets	$	109,521	$	93,490	$	125,519	$	120,203