A. Organization and Summary of Significant Accounting Policies

Organization

We provide private-label contract manufacturing services to companies that market and distribute vitamins, minerals, herbs, and other nutritional supplements, as well as other health care products, to consumers both within and outside the U.S. We also seek to commercialize our patent and trademark estate related to the ingredient known as beta-alanine sold under our CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn® trademarks through raw material and finished product sales and various license and similar arrangements.

Subsidiaries

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

Principles of Consolidation

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

Recently Adopted Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures". The amendments in this update address investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. This update also includes certain other amendments to improve the effectiveness of income tax disclosures. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted the new standard and the additional disclosure requirements in our annual financial statements for the year ended  June 30, 2026 with prospective application contained in Note G.

Recently Issued Accounting and Regulatory Pronouncements

In December 2025, the FASB issued ASU 2025-12, Codification Improvements ("ASU 2025-12"). ASU 2025-12 addresses suggestions received from stakeholders regarding the Accounting Standards Codification and makes other incremental improvements to U.S. GAAP. The update represents changes to the Codification that clarify, correct errors in or make other improvements to a variety of topics that are intended to make it easier to understand and apply. ASU 2025-12 is effective for fiscal years beginning after December 15, 2026 and interim periods within those fiscal years. Entities are required to apply the amendments to ASC 260 retrospectively. All other amendments may be applied prospectively or retrospectively. Early adoption is permitted. We plan to adopt this pronouncement for the interim periods within our fiscal year beginning July 1, 2027, and we are currently evaluating the impact this ASU may have on our consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11 which is related to interim disclosure requirements. The amendments in this update clarify current interim disclosure requirements and provide a comprehensive list of required interim disclosures. The update also incorporates a disclosure principle that requires entities to disclose events that occur after the end of the last annual reporting period. This update is effective for interim periods within annual periods beginning after December 15, 2027, though early adoption is permitted. We plan to adopt this pronouncement for the interim periods within our fiscal year beginning July 1, 2028, and we do not expect it to have a material effect on our consolidated financial statements and related disclosures.

In November 2025, the FASB issued ASU 2025-09, Derivatives and Hedging (Topic 815): Hedge Accounting Improvements, which introduces five targeted improvements to better align hedge accounting with risk management activities of the entity. The update will be effective for annual reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods. Early adoption is permitted. We plan to adopt this pronouncement for the interim periods within our fiscal year beginning July 1, 2027, and we are assessing the effect of this update on our consolidated financial statements and related disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses for Accounts Receivable and Contract Assets to introduce a practical expedient intended to simplify the estimation of expected credit losses on current accounts receivable and contract assets arising from revenue transactions under ASC 606. The practical expedient permits entities to assume that current conditions as of the reporting date remain unchanged for the remaining life of the asset. ASU 2025-05 is effective for fiscal years beginning after December 15, 2025, including interim periods within those fiscal years, with early adoption permitted. The provisions under ASU 2025-05 should be applied on a prospective basis. We plan to adopt this pronouncement for the interim periods within our fiscal year beginning July 1, 2026, and we do not expect it to have a material effect on our consolidated financial statements and related disclosures.

In November of 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU requires public companies to disclose, in the notes to financial statements, specified information about certain costs and expenses presented in the consolidated statements of operations and comprehensive loss. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. ASU 2024-03 allows for early adoption and requires prospective application to financial statements issued for reporting periods after the effective date of ASU 2024-03, and it allows for election to retrospectively adopt to any or all comparatively presented prior periods in the financial statements beginning before the effective date. This ASU will be adopted in our annual financial statements for the year ending June 30, 2028. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures.

In October 2023, the FASB issued Accounting Standards Update ("ASU") 2023-06, "Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative". ASU 2023-06 clarifies or improves disclosure and presentation requirements on various disclosure areas, including the statement of cash flows, earnings per share, debt, equity, and derivatives. The amendments will align the requirements in the FASB Accounting Standards Codification (ASC) with the SEC’s regulations. The amendments in this ASU will be effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC, and will not be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027. Early adoption is prohibited. As we are currently subject to these SEC requirements, this ASU is not expected to have a material impact on our consolidated financial statements or related disclosures.

Reclassifications

Certain amounts in the prior period consolidated financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported results of operations.

Going Concern

Management evaluated whether conditions and events, considered in aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date our financial statements are issued.

As of June 30, 2026, we had $7.5 million in cash, cash equivalents and restricted cash of which $6.3 million was held by NAIE. On October 15, 2025, NAIE paid a dividend of $3.1 million to NAI which was subject to a 5% Swiss withholding tax.

On  May 18, 2026, we entered into a new domestic credit facility with Legacy (Note F). The new credit facility includes a fixed charge coverage ratio covenant requirement as defined in the Loan and Security Agreement that is based on only domestic operations and will first be measured for the nine months ending  September 30, 2026. We anticipate we will not be able to comply with the covenant required under the Loan and Security Agreement as of September 30, 2026 due to one of our largest private-label contract manufacturing customer's material downward revisions to their forecast of projected orders and purchases from us during our fiscal year 2027 (Note O). We have informed Legacy of our pending non-compliance with the fixed charge coverage ratio, and there is no assurance that a waiver, amendment, or remedy will be available or what the difference in amount, cost or other factors  may be.

Management identified the following conditions that raised substantial doubt about the Company’s ability to continue as a going concern:

To address these conditions, management has implemented the following actions:

Management has prepared cash flow projections incorporating these plans, as well as projected sales growth reflecting our best estimates of future operating performance and liquidity needs. Management believes these plans will allow the Company to mitigate the current conditions that have raised substantial doubt about the Company’s ability to continue as a going concern. While management plans to take the actions noted above, there can be no assurance we will be successful in our efforts to obtain a waiver, amendment, or obtain alternative financing or avoid future issues maintaining compliance with financial covenants.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Cash, Cash Equivalents, and Restricted Cash

We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Amounts classified as restricted cash are for a lockbox arrangement with our lender.

The following table sets forth the company’s reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statement of cash flows that equals the total of the same amounts shown in the consolidated balance sheets:

(1) Restricted cash is comprised of payment receipts from our customers used to reduce borrowing on the outstanding balance of our line of credit.

Fair Value of Financial Instruments

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

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

As part of the refinancing of our previous credit facility, Wells Fargo required us to extinguish and settle all our remaining outstanding foreign currency hedge contracts. As a result, we did not hold any foreign currency hedge contracts as of  June 30, 2026.

Except for cash, cash equivalents and restricted cash, as of June 30, 2026 and June 30, 2025, 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 values were determined by obtaining pricing from Wells Fargo.

We measure assets held for sale, property and equipment, net, and operating lease right-of-use assets at fair value on a nonrecurring basis and recognize them at the lower of fair value or their carrying amount when they are deemed to be impaired. As of  June 30, 2026, we recognized a non-cash impairment charge of $10.4 million presented as a separate line item, Impairment loss, on the consolidated statements of operations and comprehensive loss to write down property and equipment, net to reflect the lower of their estimated fair values or carrying amount as of June 30, 2026. Our estimates of fair value measurements used to calculate the impairment loss were classified as Level 3 within the fair value hierarchy due to the use of significant unobservable inputs and management's own assumptions regarding future cash flows.

As of  June 30, 2026, we had no derivative instruments classified as Level 2 assets and liabilities.

Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following as of  June 30, 2025 (in thousands):

We also classify any outstanding line of credit and term loan balance as a Level 2 liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets. As of June 30, 2026, we had $7.7 million outstanding on our line of credit and of $10.9 million outstanding on our term loan. As of June 30, 2025, we had $1.9 million outstanding on our line of credit and $8.9 million outstanding on our term loan. As of June 30, 2026 and June 30, 2025, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between these levels during fiscal 2026 or fiscal 2025.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based on payment history and expected future customer credit-worthiness. An allowance for estimated credit losses is maintained based on, but not limited to, historical collection experience, current customer financial condition, current and future economic and market conditions, and age of receivables to identify any customer credit issues. We monitor our expected collections regularly and adjust the allowance for credit loss accounts as necessary to recognize any changes in credit exposure. Upon conclusion that a receivable is uncollectible, we record the respective amount as a charge against allowance for credit losses. To date, such credit loss reserves, in the aggregate, have been adequate to cover collection losses.

Inventories

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

Property and Equipment

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

Impairment Loss

We periodically evaluate the carrying value of long-lived assets to be held and used when events and circumstances indicate that the carrying amount of an asset may not be recovered. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

During fiscal 2026 in our Private-label contract manufacturing segment, we observed a decline in the fair value of our manufacturing facility we own in Carlsbad, California compared to its carrying value, negative cash flow results from operating activities in fiscal years 2026 and 2024, an adverse change in the business climate as a result of one of our largest customer's downward revisions of forecasted orders, and expected negative cash flow results for fiscal year 2027. These factors indicated the carrying value of certain long-lived assets might not be fully recoverable. Consequently, we performed an evaluation of the recoverability of this asset group. Based on this evaluation, we determined the carrying amount of our manufacturing facility in Carlsbad, California exceeded the projected undiscounted future cash flows from that facility. Accordingly, we determined an impairment loss due to the carrying value of this asset group as of  June 30, 2026 being in excess of the sum of expected cash flows over the forecasted useful life of the facility subject to fair value limitations. As a result, we recognized a non-cash impairment charge of $10.4 million presented as a separate line item, Impairment loss, on the consolidated statements of operations and comprehensive loss to write down property and equipment, to reflect the lower of their estimated fair values or carrying amounts as of June 30, 2026. This charge significantly increased our operating loss for fiscal year 2026 but had no immediate impact on our cash position or liquidity. For estimates of fair values, we relied on significant unobservable inputs categorized as Level 3 within the fair value hierarchy such as third-party real estate experts for building and land fair values as of June 5, 2026, and a third-party appraiser's report for Machinery and Equipment as of January 28, 2026, which we received as part of our debt refinancing in May 2026 and do not represent fair values as of June 30, 2026. It is possible the assumptions and underlying estimates used to determine the fair value of this asset group will change in the future, and such changes could result in a material difference from the impairment loss recognized in these financial statements.

During fiscal 2025, we recognized no impairment losses.

Assets Held for Sale

During the fourth quarter of fiscal year 2026 after careful consideration of our financial position and strategic objectives, management determined the sale of the Company's corporate headquarters building was in the best interests of the Company and its stockholders. The Board of Directors concluded that divesting this real property asset would provide us with enhanced financial flexibility and additional liquidity needed to pursue business opportunities. By the end of the fourth quarter of fiscal year 2026, we had met all of the criteria required for treatment of the building, land and other fixed assets as assets held for sale. The assets held for sale are located in Carlsbad, California and are reported at their combined carrying value of $4.0 million as of  June 30, 2026. We estimate the sale of these assets to occur during our fiscal year 2027. No impairment loss was recognized upon classification to assets held for sale.

Derivative Financial Instruments

We may use derivative financial instruments in the management of our foreign currency exchange risk inherent in our forecasted sales denominated in Euros and Swiss Francs, our long-term lease liability denominated in Swiss Francs and our exposure to interest rate fluctuations related to our term-note.

We may hedge our foreign currency exposures by entering into offsetting forward exchange contracts. To the extent we use derivative financial instruments that meet the relevant criteria, we account for them as cash flow hedges. Foreign exchange derivative instruments that do not meet the criteria for cash flow hedge accounting are marked-to-market through the consolidated statements of operations and comprehensive loss. Historically, our cash flow derivative instruments related to our Euro sales have met the criteria for hedge accounting, while our derivative instruments related to our long-term lease liability have not. In the fourth quarter of fiscal 2025, we began hedging our currency risk associated with sales denominated in Swiss Franc and these derivative instruments meet the criteria for cash flow hedge accounting.

We recognize any unrealized gains and losses associated with derivative instruments accounted for as cash flow hedges in income in the period in which the underlying hedged transaction is realized. To the extent the derivative instrument is deemed ineffective we would recognize the resulting gain or loss in income at that time. As of June 30, 2026, we held no derivative contracts designated as cash flow hedges as all contracts were settled on May 11, 2026 resulting in a net settlement loss of $0.2 million when our hedging credit line with Well Fargo was terminated. We are exploring opportunities with other lenders to establish a new foreign currency hedging credit line. 

Defined Benefit Pension Plan

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

Revenue Recognition

We record revenue based on a five-step model which includes: (1) identifying a contract with a customer; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price among the performance obligations; and (5) recognizing revenue as each of the various performance obligations are satisfied.

Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling one or more performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, including estimates for early payment discounts, volume rebates, and contractual discounts. 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 adjustment is recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay the amount of consideration when it is due. Payments of invoices are due as specified in the underlying customer agreement, which typically range from 30 to 60 days from the invoice date. Invoices are generally issued on the date of transfer of control of the products ordered to the customer.

Revenue is recognized at the point in time that each of our performance obligations is fulfilled, and control of the ordered products is transferred to the customer. This transfer occurs when the product is shipped, or in some cases, when the product is delivered to the customer. We recognize revenue in certain circumstances before delivery to the customer has occurred (commonly referred to as bill-and-hold transactions). Products sold under bill-and-hold arrangements are recorded as revenue when risk of ownership has been transferred to the customer, but the product has not shipped due to a substantive reason, typically at the customer’s request. The product must be separately identified as belonging to the customer, ready for physical transfer to the customer, and we cannot have the ability to redirect the product to another customer.

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

Contract liabilities and revenue recognized were as follows (in thousands):

Except for product defects, no right of return exists on the sale of our products, or those we manufacture for our customers. We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of June 30, 2026, we have $0 in our returns reserve.

We currently own and previously owned certain U.S. patents and patent pending applications, and each patent’s corresponding foreign patent applications. All of these patents, pending patents, and patent rights, relate to the ingredient known as beta-alanine marketed and sold under our CarnoSyn®, SR CarnoSyn®, CarnoSyn® 4X and TriBsyn® trademarks. We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $7.9 million during fiscal 2026 and $8.1 million during fiscal 2025. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired its patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $0.2 million during fiscal 2026 and $0.3 million during fiscal 2025. In July 2026, our patents related to instant release beta-alanine expired and the royalty expense agreement terminated.

Cost of Goods Sold

Cost of goods sold includes raw material, labor, manufacturing overhead, royalty expense, shipping, and customer related research and development costs.

Shipping and Handling Costs

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

Research and Development Costs

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

Research and development costs are expensed when incurred. Our research and development expenses were $2.3 million for fiscal 2026 and $1.8 million for fiscal 2025. These costs are included in selling, general and administrative expenses and cost of goods sold.

Advertising Costs

We expense the production costs of advertising the first time the advertising takes place. We incurred and expensed advertising costs in the amount of $0.6 million during the fiscal year ended June 30, 2026 and $0.4 million during fiscal 2025. These costs are included in selling, general and administrative expenses.

Income Taxes

To determine our annual provision for income taxes, we use an estimated annual effective tax rate that is based on annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely than not to be realized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will ultimately be realized based on whether future taxable income will be generated during the periods in which those temporary differences become deductible. During the year ended June 30, 2026, we recorded a valuation allowance against deferred income tax assets of $5.6 million, representing the amount of our deferred income tax assets in excess of our deferred income tax liabilities. We recorded the valuation allowance because management was unable to conclude, in light of the cumulative loss we have realized related to our US-based operations in recent years, that realization of the net deferred income tax asset was more likely than not. The valuation allowance recorded during fiscal 2026 primarily related to fiscal 2026 and changes in other deferred tax items recognized during fiscal 2026. As a result of the recognition of these valuation adjustments, we have a $10.4 million net deferred tax asset offset by a valuation allowance of $10.4 million resulting in a net deferred tax asset of $0 as of June 30, 2026. This valuation allowance did not have any effect on the tax expense and related liability recorded for operating income recognized by NAIE during the year ended June 30, 2026.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are measured and recorded using enacted tax rates for each of the jurisdictions in which we operate, and adjusted using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income or expense in the period that includes the enactment date.

We account for uncertain tax positions using the more-likely-than-not recognition threshold. It is our policy to establish reserves based on management’s assessment of exposure for certain positions taken in previously filed tax returns that may become payable upon audit by tax authorities. Our tax reserves are analyzed quarterly, and adjustments are made as events occur that we believe warrant adjustments to the reserves. Our practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of June 30, 2026 and June 30, 2025, we did not record any tax liabilities for uncertain tax positions.

Stock-Based Compensation

Our current omnibus equity incentive plan that became effective January 1, 2021 (the “2020 Plan”), was approved by our stockholders at the Annual Meeting of Stockholders on December 4, 2020. Under the 2020 Plan, we may grant nonqualified and incentive stock options, restricted stock grants, restricted stock units, stock appreciation rights, and other stock-based awards to employees, non-employee directors and consultants.

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

We recognize forfeiture of stock-based compensation as they occur.

Use of Estimates

Our management has made a number of estimates and assumptions relating to the reporting of assets and liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP). Actual results could differ from those estimates and our assumptions may prove to be inaccurate.

Net Loss per Common Share

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

We exclude the impact of restricted stock from the calculation of diluted net loss per common share in periods where we have a net loss or when their inclusion would be antidilutive. During the year ended June 30, 2026, we excluded 158,538 shares of unvested restricted stock. For the year ended  June 30, 2025, we excluded restricted stock totaling 222,551, as their impact would have been anti-dilutive.

Concentrations of Credit Risk

Financial instruments that subject us to concentrations of credit risk consist primarily of cash, cash equivalents, restricted cash and accounts receivable. We place our cash, cash equivalents and restricted cash with highly rated financial institutions. Credit risk with respect to receivables is primarily concentrated with our two largest customers whose receivable balances collectively represented 59.4% of gross accounts receivable at June 30, 2026 and with our three largest customers whose receivable balances collectively represented 67.8% at June 30, 2025. 

Additionally, amounts due related to our beta-alanine raw material sales were 9.2% of gross accounts receivable at June 30, 2026 and 6.8% of gross accounts receivable at June 30, 2025. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.