NATURAL ALTERNATIVES INTERNATIONAL INC

NOTES 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 Form10-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 thethree andnine months ended* March 31, 2026* arenot 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 are an integral part of the financial statements, together with our audited financial statements included in our Annual Report on Form10-K for the fiscal year ended* June 30, 2025* (“2026 Annual Report”). The accounting policies used to prepare the financial statements included in this Report are the same policies described in the notes to the consolidated financial statements in our2026 Annual Report unless otherwise noted below.

Recently Adopted Accounting Pronouncements

We didnot adopt any accounting pronouncements during thethree andnine months ended* March 31, 2026*.

Recently Issued Accounting and Regulatory Pronouncements

Recently issued accounting pronouncements arenot discussed in this Report as such pronouncements didnot have, and arenot believed by management to have, a material impact on present or future financial statements.

Net Loss per Common Share

We compute net loss per common share using the weighted average number of common shares outstanding during the period, and diluted net loss per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of unvested restricted shares accounts 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 thethree months ended* March 31, 2026*, we excluded 107,845 shares of unvested restricted stock. During thenine months ended* March 31, 2026*, we excluded 149,185 shares of unvested restricted stock. During thethree months ended* March 31, 2025*, we excluded 158,319 shares of unvested restricted stock. During thenine months ended* March 31, 2025*, we excluded 238,739 shares of unvested restricted stock.

Revenue Recognition

We record revenue based on afive-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 fulfillingone or more performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to be received, and revenue recognized includes estimates of variable consideration, including estimates for early payment discounts and volume rebates. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions, experience and expectations. We review and update these estimates at the end of each reporting period and the impact of any adjustments is recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices is due as specified in the underlying customer agreement, which is typically30 days from the invoice date. Invoices are generally issued on the date of transfer of control of the products ordered to the customer.

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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 hasnot 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 contract 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. We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of* March 31, 2026*, we hadno estimated returns liability. As of* June 30, 2025*, we had $11,000 of estimated returns liability.

We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under our CarnoSyn®, SR CarnoSyn®, and TriBsyn® trademarks. We recorded beta-alanine raw material sales, and royalty and licensing income as a component of revenue in the amount of $1.7 million during thethree months ended* March 31, 2026*, and $5.3 million during thenine months ended* March 31, 2026*. We similarly recorded $1.7 million during thethree months ended* March 31, 2025*, and $6.0 million during thenine months ended* March 31, 2025*. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom NAI acquired their patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of approximately $56,000 during thethree months ended* March 31, 2026* and* March 31, 2025*. We recognized royalty expense as a component of cost of goods sold in the amount of approximately $177,000 during thenine months ended* March 31, 2026* and$210,000 during thenine months ended* March 31, 2025*.

Stock-Based Compensation

The Board of Directors approved our current omnibus equity incentive plan that became effective* January 1, 2021 (the“2020* Plan”). The2020 Plan was approved by our stockholders at the Annual Meeting of Stockholders on* December 4, 2020.Under the2020* 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.

At our Annual Meeting of Stockholders held on* December 5, 2025,our stockholders approved an Amendment to the2020* Plan to extend its term forfive more years and increase the number of shares reserved to the Plan by 550,000 shares.

We didnot have any stock option activity or stock options outstanding during thethree andnine months ended* March 31, 2026*, or* March 31, 2025*.

During thethree andnine months ended* March 31, 2026*, we granted a total of 139,000 restricted stock shares to members of our Board of Directors and key members of our management team. During thethree andnine months ended* March 31, 2025*, we granted a total of 24,000 restricted stock shares to members of our Board of Directors. During thethree andnine months ended* March 31, 2026*,10,665 restricted stock shares were forfeited. During thethree andnine months ended* March 31, 2025*, no restricted stock shares were forfeited. Our net losses included stock-based compensation expense from vesting of prior restricted stock grants of $0.1 million for thethree months ended* March 31, 2026* and $0.5 million for thenine months ended* March 31, 2026*. Our net losses included stock-based compensation expense from vesting of prior restricted stock grants of $0.2 million for thethree months ended* March 31, 2025* and $0.8 million for thenine months ended* March 31, 2025*.

Deferred Compensation Plan

Effective* July 16, 2020,the Board of 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 of NAI and eligible consultants (“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 hasnot been done to date.

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During thethree andnine months ended* March 31, 2026*, we granted a total of $0.9 million in deferred cash awards to members of our Board of Directors and certain key members of our management team. During thethree andnine months ended* March 31, 2025,we granted a total of $0.2 million in deferred cash awards to members of our Board of Directors. Each deferred cash award provides forthree* equal cash payments to the applicable Participant to be paid on theone year,two year, andthree year anniversaries of the date of the grant of the Award, (the “Award Date”); provided on the date of each payment (the “Payment Date”), the Participant has been since the Award Date, and continues to be through the 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 are to be made in connection with the Award.

During thethree andnine months ended* March 31, 2026*, a total of $17,000 of deferred cash awards were forfeited. No deferred cash awards were forfeited during thethree andnine months ended* March 31, 2025*.

Fair Value of Financial Instruments

Except for cash and cash equivalents, as of* March 31, 2026*, and* June 30, 2025*, we didnot have any financial assets or liabilities classified as Level1. We classify derivative forward exchange contracts as Level2 assets and liabilities. The fair values were determined by obtaining pricing from our bank and corroborating those values with athird-party bank or pricing service.

Fair value of derivative instruments classified as Level2 assets and liabilities consisted of the following (in thousands):

We also classify any outstanding line of credit and term loan balance as a Level2 liability as the fair value is based on inputs that can be derived from information available in publicly quoted markets. As of* March 31, 2026*, we had $10.0 million outstanding on our line of credit and $8.7 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* March 31, 2026* and* June 30, 2025*, we didnot have any financial assets or liabilities classified as Level3. We didnot transfer any assets or liabilities between these levels during fiscal2026 or fiscal2025.

B. Inventories, net

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

C. Property and Equipment

Property and equipment consisted of the following (in thousands):

Depreciation and amortization expense was approximately $1.2 million during thethree months ended* March 31, 2026* and $1.1 million during thethree months ended* March 31, 2025*. Depreciation and amortization expense was approximately $3.5 million during thenine months ended* March 31, 2026* and $3.4 million during thenine months ended* March 31, 2025*.

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D. Other Comprehensive Loss

Other comprehensive (loss) income (“OCL” and “OCI”) consisted of the following during thethree andnine months ended* March 31, 2026*, and* March 31, 2025* (in thousands):

E. Leases

We currently lease our Vista, California product manufacturing facility and Lugano, Switzerland product manufacturing and support facilities.

On* July 18, 2023,we entered into a Fourth Amendment to the Lease of our Vista, California manufacturing facility. The Fourth Amendment extended the term of the Lease by an additionalten years andfive* months commencing* April 1, 2024.The amended lease coveringtwo* buildings and approximately 162,000 square feet resulted in an increase in base rent to $1.50 per square foot, afterfive free months of base rent beginning at the commencement of the extended term. NAI has constructed substantial improvements to the facilities prior to and since the Fourth Amendment including butnot limited to recent installation of an approximately $2.4 million solar electrical generating system on both buildings, and other substantial improvements. Pursuant to the Fourth Amendment, the Landlord is obligated to reimburse NAI for up to $1.1 million of these recent tenant improvements to the buildings. Our lease liability and Right of Use asset were both increased by approximately $25.9 million as a result of this lease extension effective on the date that the Fourth Amendment was executed.

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On* January 26, 2024,we exercised the early termination of an apartment lease in Lugano, Switzerland. The early termination reduced the lease term by 9 years and8* months which ended on* April 30, 2024.Our lease liability and Right of Use asset were both decreased by approximately $0.3 million as a result of the early termination of the lease agreement. On January 22, 2024,we entered into a lease for a new apartment in Lugano, Switzerland. This lease is for an initial term of 27 months, beginning April 1, 2024and ending on June 30, 2026.*

Our leases are classified as operating leases. Substantially all our operating leases are comprised of payments for the use of manufacturing and office space. We haveno leases classified as finance leases. As of* March 31, 2026*, the weighted average remaining lease term for our operating leases was 7.9 years and the weighted average discount rate for our operating leases was 5.96%. As of* June 30, 2025*, the weighted average remaining lease term for our operating leases was 8.6 years and the weighted average discount rate was 5.94%.

Other information related to leases as of* March 31, 2026*, and* March 31, 2025*, was as follows (in thousands):

F. Debt

As of* March 31, 2026,we had a credit line with Wells Fargo Bank, N.A (“Wells Fargo”), which we have had for many years. The credit line has been amended, modified, and extended several times, most recently on June 20, 2025,when we entered into a Sixth Amendment to Credit Agreement. The Sixth Amendment waived all prior instances of non-compliance and preemptively waived anticipated non-compliance with covenants in the quarter ending June 30, 2025.With this amendment, the maximum borrowing limit was reduced to $10.0 million based on a borrowing base calculation and was secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment, and fixtures. Interest under this credit facility was equal to 3.25% above the applicable Secured Overnight Financing Rate (“SOFR”) and also included an unused commitment fee of 0.375%. We also have had a Term Note with Wells Fargo that we entered into on August 16, 2021to borrow part of the purchase price of our powder processing and warehouse property in Carlsbad, California. The Term Note has been secured by afirst* mortgage on that property. The Term Note was in the original principal amount of $10.0 million and was aseven-year note with payments fully amortized based on atwenty-five year assumed term. Amounts outstanding on this note during the term of the agreement bore interest at the rate of 1.8% above the SOFR rolling30-day average. As of* March 31, 2026*, we had $10.0 million outstanding on the credit line and $8.7 million outstanding under the Term Note. For thethree andnine months ended* March 31, 2026,we werenot* in compliance with the maximum net loss and fixed charge coverage ratio covenants of our credit agreement.

On* May* 18,2026, we entered into a new Loan and Security Agreement with Legacy Corporate Lending, LLC (“Legacy”). This new credit facility includes a new term loan for $11.0 million and a working capital line of credit with a maximum borrowing capacity of*$20.0* million. This new credit facility refinances the credit line and Term Note previously held by Wells Fargo and will be secured by all of the domestic assets of the Company. The line of credit will bear interest at a rate of4.5% above SOFR while the real estate loan will be amortized over15 years and initially bear interest at a rate of14.0% until such time as Legacy completes an appraisal and any necessary other documentation after which the interest rate reverts to 5.0% above SOFR. The credit facility also includes a0.50% unused commitment fee and aone-time closing fee of1.0% of the total committed credit amount. The term of this new credit facility isthree years and includes a fixed charge coverage ratio covenant requirement that will be based on domestic operations only and will befirst measured as of* September 30, 2026.On May**18,* 2026, all of our prior indebtedness with Wells Fargo Bank was repaid in full, our prior term note and credit line with Wells Fargo was terminated, and all of our assets formally securing these debts were released.

We also have historically had a foreign currency hedging credit line with Wells Fargo to hedge foreign currency exposure up to12 months in the future. As part of the above noted refinancing, Wells Fargo required us to extinguish and settle our remaining outstanding foreign currency hedge contracts. As a result, we net settled our remaining contracts as of* May 11, 2026*resulting in a net settlement loss of $0.2 million, and we terminated our hedging line of credit with Wells Fargo. We are currently seeking a replacement hedging line of credit and are in discussions with several lenders.

G. Economic Dependency

We had substantial net sales to certain customers during the periods shown in the following table. The loss of any of these customers, or a significant decline in (i) sales to these customers, (ii) the growth rate of sales to these customers, or (iii) these customers’ ability to make payments when due, each individually could have a material adverse impact on our net sales and net operating results. Net sales to anyone customer representing10% or more of the respective period's consolidated net sales were as follows (in thousands):

(a) Sales were less than10% of the respective period's consolidated net sales.

Accounts receivable from these customers totaled $14.8 million at* March 31, 2026* and $9.9 million at* June 30, 2025*.

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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 results of operations. Raw material purchases from anyone supplier representing10% or more of the respective period’s total raw material purchases were as follows (dollars in thousands):

(a) Purchases were less than10% of the respective period’s total raw material purchases.

H. Segment Information

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

The chief operating decision maker is the Company's Chief Executive Officer, who, in conjunction with senior management, evaluates segment performance based on a number of factors. The primary performance measures for each segment are net sales and income or loss from operations before corporate allocations. Operating income or loss for each segment doesnot include corporate general and administrative expenses, interest expense and other miscellaneous income and expense items. Corporate general and administrative expenses include, but arenot limited to human resources, corporate legal, finance, information technology, and other corporate level related expenses, which arenot allocated to any segment. Transfers of raw materials between segments are recorded at cost. The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note A and in the consolidated financial statements included in our2025 Annual Report.

Our operating results by business segment for thethree months ended* March 31, 2026* were as follows (in thousands):

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Our operating results by business segment for thenine months ended* March 31, 2026* were as follows (in thousands):

Our operating results by business segment for thethree months ended* March 31, 2025* were as follows (in thousands):

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Our operating results by business segment for thenine months ended* March 31, 2025* were as follows (in thousands):

Total assets by segment were as follows (in thousands):

I. Income Taxes

For thethree andnine months ended* March 31, 2026*, we used the discrete effective tax rate method in accordance with Accounting Standards Codification ("ASC")740-270-30-18 which allows for treatment of the interim year-to-date period as if it were the annual period when calculating estimated income tax expense or benefit. For thethree andnine months ended* March 31, 2025*, we used an estimated annual effective tax rate, which is based on expected annual income (or loss), statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject to determine our quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter. We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

As of* March 31, 2026,we maintain a valuation allowance against net domestic deferred income tax assets, representing the amount of our deferred income tax assets in excess of our domestic 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 U.S.-based operations in recent years, that realization of the net domestic deferred income tax asset was more likely thannot.* The valuation allowance recorded as of* March 31, 2026*, related to U.S.-based deferred tax assets attributed to the U.S.-based loss before income taxes during thethree andnine months ended* March 31, 2026*. The valuation allowance didnot have any effect on the tax expense and related liability recorded for operating income recognized by our Swiss subsidiary Natural Alternatives International, ("NAIE") during thethree andnine months ended* March 31, 2026*.

Our effective tax rate for thethree months ended* March 31, 2026* was -1.6%, and our effective tax rate for thethree months ended* March 31, 2025* was 17.3%. Our effective tax rate for thenine months ended* March 31, 2026* was -5.7%, and our effective tax rate for thenine months ended* March 31, 2025* was 19.7%. Our effective tax rates for thethree andnine months ended* March 31, 2026* differs from the fiscal2025 U.S. federal statutory rate of 21% primarily due to a valuation allowance on deferred tax assets, a Swiss withholding tax on a dividend paid by NAIE to NAI, and a foreign income tax rate differential. Our effective tax rate for thethree andnine months ended* March 31, 2025* differs from the fiscal2024 U.S. federal statutory rate of 21% primarily due to restricted stock vesting, Global Intangible Low-taxed Income, forecasted research and development tax credits and foreign income tax rate differential. During thethree andnine months ended* March 31, 2026*, provision for income taxes is comprised of a 5% Swiss withholding tax on a dividend paid by NAIE to NAI and income tax expense associated with pre-tax income from NAIE.

On* July 4, 2025,*congress voted into law the One Big Beautiful Bill Act which restores the immediate expensing of domestic research and development expenses while making permanent the capitalization and amortization rules of research and development conducted abroad.

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J. Treasury Stock

At times we purchase our shares under a stock repurchase plan (“Repurchase Plan”) authorized by the Board of Directors. The current total authorized repurchase amount is $18.0 million and as of* March 31, 2026*, we had approximately $716,000 remaining available under the Repurchase Plan. Under the Repurchase Plan, we* may,from time to time, purchase shares of our common stock, depending upon certain market conditions, in open market or privately negotiated transactions. Our credit agreement with Wells Fargo effective as amended, currently prohibits most stock repurchases. As a result, until that restriction is modified or removed, we donot* intend to purchase our shares other than our longstanding practice of purchasing shares from our employees in exchange for paying the employees’ withholding requirements upon vesting of restricted stock held by the employee. This practice of covering withholding requirements is allowed in our credit agreement with Wells Fargo as amended.

Stock repurchases for thethree months ended* March 31, 2026* were as follows:

Stock repurchases for thethree months ended* March 31, 2025* were as follows:

Stock repurchases for thenine months ended* March 31, 2026* were as follows:

Stock repurchases for thenine months ended* March 31, 2025* were as follows:

Shares acquired from employees for restricted stock vesting* may*be returned to us by the related employees and in return we pay each employee’s required tax withholding resulting from the vesting of restricted shares. The valuation of the shares acquired and thereby the number of shares returned to us is calculated based on the closing share price on the date the shares vested.

K. Derivatives and Hedging

We are exposed to gains and losses resulting from fluctuations in foreign currency exchange rates relating to forecasted product sales denominated in foreign currencies and to other transactions of NAIE, our foreign subsidiary. As part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we* mayuse foreign exchange contracts in the form of forward contracts. There can beno* guarantee any such contract, to the extent we enter into such contracts, will be effective hedges against our foreign currency exchange risk.

As of* March 31, 2026*, we had forward contracts designated as cash flow hedges primarily to protect against the foreign exchange risks inherent in our forecasted sales of products at prices denominated in currencies other than the U.S. Dollar. These contracts were settled on* May 11, 2026 (*see Note M). For derivative instruments that are designated and qualify as cash flow hedges, we record the effective portion of the gain or loss on the derivative in accumulated other comprehensive income or loss (“OCI” or "OCL", respectively) as a separate component of stockholders’ equity and subsequently reclassify these amounts into earnings in the period during which the hedged sales of products are recognized.

For foreign currency contracts designated as cash flow hedges, hedge effectiveness is measured using the spot rate. Changes in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as revenue. We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item as well as ensuring the assumptions we made at hedge inception havenot materially changed. No hedging relationships were terminated as a result of ineffective hedging for thethree andnine months ended* March 31, 2026*, and* March 31, 2025*.

We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis. During thethree andnine months ended* March 31, 2026*, and* March 31, 2025*, we didnot have any losses or gains related to the ineffective portion of our hedging instruments.

As of* March 31, 2026*, the notional amounts of our foreign exchange contracts accounted for as cash flow hedges were $12.1 million (EUR 10.4 million) for Euro sales and $3.3 million (CHF 2.6 million) for Swiss Franc sales. As of* March 31, 2026*, a net loss of approximately $0.1 million offset by approximately $0.4 million of deferred taxes, related to derivative instruments designated as cash flow hedges was recorded in OCI. It is expected that the entire amount of the net loss as of* March 31, 2026*, will be reclassified into earnings in the next12 months along with the earnings effects of the related forecasted transactions. As part of the refinancing of our credit facility, as noted in footnote F Debt, Wells Fargo required the Company to extinguish and settle all remaining outstanding foreign currency hedge contracts. As a result, the Company net settled the remaining contracts as of* May 11, 2026*resulting in a net settlement loss of $0.2 million. In addition, Wells Fargo has cancelled our foreign currency hedging credit line, and we are actively working with other lenders to establish a new foreign currency hedging credit line.

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We are exposed to interest rate fluctuations related to our $10.0 million Term Note with Wells Fargo, which carries a variable interest rate of 1.80% above the SOFR rolling30-day average. For thefirst three years of the Term Note, we managed our exposure to this variable rate, by entering into a floored interest rate swap that fixed our all-in rate on this loan to 2.4%. Fluctuations in the relation of our contractual swap rate to current market rates were recorded as an asset or liability with an offset to OCI at the end of each reporting period. Interest expense was adjusted for the difference between the actual SOFR spread and the swap contractual rate such that our effective interest expense for each period was equal to our hedged rate of 2.4%. This interest rate swap contract expired on* September 3, 2024.*

For foreign currency contractsnot designated as cash flow hedges, changes in the fair value of the hedge are recorded directly to foreign exchange gain or loss in other income in an effort to offset the change in valuation of the underlying hedged item. During thethree andnine months ended* March 31, 2026*, we entered into forward contracts in order to hedge foreign exchange risk associated with our lease liability at NAIE, which is denominated in Swiss Francs (CHF). As of* March 31, 2026*, the notional amounts of our foreign exchange contractsnot designated as cash flow hedges were approximately $11.3 million (CHF 8.7 million).

L. Contingencies

From time to time, we become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. These matters* mayrelate to product liability, employment, intellectual property, tax, regulation, contract or other matters. The resolution of these matters as they arise will be subject to various uncertainties and, even if such claims are without merit, could result in the expenditure of significant financial and managerial resources. While unfavorable outcomes are possible, based on available information, we generally donot* believe the resolution of these matters will result in a material adverse effect on our business, consolidated financial condition, or results of operations and the price of our common stock. 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 donot expect.

Settlement of Legal Proceeding

In* December 2023,we were sued bythree* former employees intwo separate, but substantially identical matters brought by the same law firm. The lawsuits were filed as a putative class action and a California Private Attorney General Act action seeking awards for all similarly situated employees going backten years or more. We responded to these actions and agreed to submit the matters for mediation. On* July 3, 2025,the mediation took place, and a tentative settlement agreement was reached whereby we agreed to contribute a maximum of $1.25 million. The court has consolidated thetwo* actions. The potential settlement has been brought before the court which must approve it, and all similarly situated employees need to be contacted, and they* mayelect to participate ornot.* The process of obtaining court approval of the settlement is estimated to take approximately anotherthree months. We accrued the maximum settlement amount in our results of operations as of* June 30, 2025along with estimated related legal fees of $150,000. During thenine* months ended* March 31, 2026*, we accrued additional estimated related legal fees of $12,000.

Employee Retention Tax Credit

In fiscal2023, we recorded a $3.5 million Employee Retention Tax Credit ("ERTC") net refund associated with the Coronavirus Aid, Relief, and Economic Security Act signed into law in* March 2020and extended with the Taxpayer Certainty and Disaster Tax Relief Act of2020* and the American Rescue Plan Act of2021. These acts provided numerous tax provisions and other stimulus measures, including the ERTC. Under these expanded measures, we determined during fiscal2023 that we qualified for the ERTC for thefirst three quarters of calendar2021 and filed the required amended payroll tax returns to claim this refund. On* December 9, 2024,the Internal Revenue Service ("IRS") sent us a105c* letter informing us that they donot believe we qualify for the tax credit for thethird quarter of calendar2021. We disagreed with the position the IRS noted in their denial letter and responded to their letter to contest their claim. Although we had received this initial denial from the IRS, we believe we were entitled to the refund for these claims and therefore we havenot made any allowances against the accrual for the related refund that was recorded in fiscal2023. We havenot yet received any additional correspondence from the IRS associated with our appeal related to thethird quarter of calendar2021, but in* April 2025,we collected the refund amounts associated with our ERTC filings for thefirst* andsecond quarters of calendar year2021, which totaled $2.9 million.

Geopolitical Uncertainty

Management is monitoring the2026 Iran War in the Middle East, the Russo-Ukrainian war in Eastern Europe, and on-going conflicts in Syria and Sudan, and potential economic effects from these events as they develop. These geographical areas account for a small portion of our global net sales, but we do source multiple raw materials from Israel. We donot anticipate these conflicts will have a significant impact on our net sales. We are continually evaluating options for alternative ingredient sources and/or holding safety stock of impacted materials to limit any impact. There are further concerns regarding overall decreased supplies of commodities that rely on available passage through the Strait of Hormuz, consumer purchasing and consumption behavior, increases in global shipping expenses, greater volatility in foreign exchange and interest rates, and other unforeseen business disruptions due to the current global geopolitical tensions. We will continue to evaluate impacts of these developments on our customers, suppliers, employees, and operations.

Government Trade Tariffs

On* February 20, 2026,the U.S. Supreme Court ruled that the International Emergency Economic Powers Act ("IEEPA") cannot be used to impose tariffs. On February 24, 2026,the Trump administration terminated tariffs imposed under the IEEPA and replaced them with tariffs from10%* to15% under Section122 of the Trade Act of1974. Details of future tariff restrictions seem to continuously evolve thus making changes to them unpredictable. Current and future implementation of tariffs* mayinclude products and ingredients we or our customers require for their products. These goods mayinclude beta-alanine. The commercialization of our beta-alanine patent estate depends on the availability of the raw material beta-alanine. In response to the U.S. imposition of tariffs, China, Canada, the European Union, and other governments have imposed their own tariffs on certain American products. The resulting tariffs could have a significant adverse effect on our customers' businesses, the availability of beta-alanine, and the cost of our products. While we donot* know how potential increased tariffs will unfold, or how any tariffs will impact our business, we believe the imposition of additional tariffs by the U.S. or other governments on products or ingredients we use in the products we manufacture could adversely impact our customers as a result of increased product costs, and such increased costs could have an adverse impact on the availability of beta-alanine, the licensing of our patents and trademarks and our distribution of this raw material. This could adversely impact our ability to license our patents and trademarks, our ability to sell beta-alanine, and our customers’ ability to compete in the marketplace, reducing demand for our products, and products we manufacture for our customers. Any of these events could have a material adverse effect on our business and results of operations.

As a contract manufacturer, we pass through material cost increases to our customers, including increases associated with tariffs. We also work with our customers to identify potential alternative supply sources for key ingredients to help mitigate the impact tariffs* may*have on the cost of their products. We will continue to evaluate the impact of imposed trade tariffs on our customers, suppliers and operations.

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M. Subsequent Events

On* May 18, 2026,we entered into a new Loan and Security Agreement with Legacy Corporate Lending, LLC (“Legacy”). This new credit facility includes a new term loan for $11.0 million and a working capital line of credit with a maximum borrowing capacity of $20.0 million. This new credit facility refinances the credit line and Term Note previously held by Wells Fargo and will be secured by all of the domestic assets of the Company. The line of credit will bear interest at a rate of 4.5% above SOFR while the real estate loan will be amortized over 15 years and initially bear interest at a rate of 14.0% until such time as Legacy completes an appraisal and any necessary other documentation after which the interest rate reverts to 5.0% above SOFR. The credit facility also includes a 0.50% unused commitment fee and aone*-time closing fee of 1.0% of the total committed credit amount. The term of this new credit facility isthree years and includes a fixed charge coverage ratio covenant requirement that will be based on domestic operations only and will befirst measure as of* September 30, 2026.*

We also have historically had a foreign currency hedging credit line with Wells Fargo to hedge foreign currency exposure up to12 months in the future. As part of the refinancing of our existing credit facility, Wells Fargo required us to extinguish and settle our remaining outstanding foreign currency hedge contracts. As a result, we net settled our remaining contracts as of* May 11, 2026*resulting in a net settlement loss of $0.2 million, and our hedging credit line with Wells Fargo has been terminated. We are actively working with other lenders to establish a new foreign currency hedging credit line.

After careful consideration of the Company's current financial position and strategic objectives, management has determined the sale of the Company's corporate headquarters building is in the best interests of the Company and its stockholders. The Board of Directors has concluded that divesting this real property asset will provide the Company with enhanced financial flexibility and additional liquidity needed to pursue business opportunities. In light of the Company's recent operating challenges, management believes unlocking the capital currently held in the headquarters facility will allow the Company to redeploy those proceeds toward new initiatives, fund working capital needs, and better position the Company for sustainable growth. Management believes much of the personnel and systems at the corporate headquarters can be effectively relocated to the Company's other California properties and to the extent required additional facilities can be rented nearby at costs that will be competitive.

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