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Note A - Basis of Presentation and Summary of Significant Accounting Policies | 3 Months Ended
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Sep. 30, 2018
Notes to Financial Statements |
Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block] | 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 applicable rules and regulations. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted pursuant to such rules and regulations. In management’s opinion, all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows have been included and are of a normal, recurring nature. The results of operations for the three months ended September 30, 2018 are not necessarily indicative of the operating results for the full fiscal year or 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 Form 10 -K for the fiscal year ended June 30, 2018 ( “2018 Annual Report”). The accounting policies used to prepare the financial statements included in this report are the same as those described in the notes to the consolidated financial statements in our 2018 Annual Report unless otherwise noted below. Recently Adopted Accounting Pronouncements In April 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017 - 10, Revenue from Contracts with Customers (Topic 606 )(ASU 2017 - 10 ), which amends and adds clarity to certain aspects of the guidance set forth in the upcoming revenue standard (ASU 2014 - 09 ) related to identifying performance obligations and licensing. In May 2017, the FASB issued Accounting Standards Update No. 2017 - 11, Revenue Recognition (Topic 605 ) and Derivatives and Hedging (Topic 815 ) (ASU 2017 - 11 ), which amends and rescinds certain revenue recognition guidance previously released within ASU 2014 - 09. In May 2017, the FASB issued Accounting Standards Update No. 2017 - 12, Revenue from Contracts with Customers (Topic 606 ) (ASU 2017 - 12 ), which provides narrow scope improvements and practical expedients related to ASU 2014 - 09. All of these ASUs have been codified under Accounting Standards Codification (ASC) 606. This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current historical revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods and services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with their respective customers. The new revenue standard is required to be applied either retrospectively to each prior reporting period presented or prospectively with the cumulative effect of initially applying the standard recognized at the date of the initial application, supplemented with certain disclosures related to the effect of adoption on previously reported amounts, if any (the modified retrospective method). We adopted the standard on July 1, 2018 for contracts that were not completed before the adoption date, using the modified retrospective method. We evaluated the effect of the standard and concluded it is not material to the timing or amount of revenues or expenses recognized in our historical consolidated financial statements. As a result, we concluded the application of the standard does not have a material effect that requires a retrospective adjustment for reporting disclosure purposes to any previously reported amounts in our historical consolidated financial statements. On December 22, 2017, the SEC issued guidance under Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118” ) directing taxpayers to consider the impact of the U.S. legislation as “provisional” when the taxpayer does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete its accounting for the change in tax law. In accordance with SAB 118, we calculated our taxes for fiscal 2018 to the best of our ability and we do not expect any significant changes, however our estimated income tax could change once we complete our tax return and thus our tax expense for fiscal 2018 is considered provisional and is expected to be finalized by the end of the one -year measurement period ending December 22, 2018. In February 2018, the FASB issued ASU 2018 - 03, Technical Corrections and Improvements to Financial Instruments—Overall (Subtopic 825 - 10 ): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2018 - 03 is intended to improve certain aspects of recognition, measurement, presentation, and disclosure of certain financial instruments, i.e. forward contracts, purchased options and option liabilities. We do not expect this ASU to have a material impact on our consolidated financial statements. ASU 2018 - 03 is effective for us beginning in this quarter, our first quarter of fiscal 2019. Recently Issued Accounting Pronouncements In March 2016, the FASB issued Accounting Standards Update No. 2016 - 02, Leases (Topic 842 ) (ASU 2016 - 02 ), which amends existing standards for leases to increase transparency and comparability among organizations by requiring recognition of lease assets and liabilities on the balance sheet and requiring disclosure of key information about such arrangements. In July 2018, the FASB issued ASU 2018 - 10, Codification Improvements to Topic 842, Leases. This ASU affects narrow aspects of the guidance issued in the amendments in ASU No. 2016 - 02 including those regarding residual value guarantees, the interest rate implicit in the lease, lessee reassessment of lease classification, lessor reassessment of lease term and purchase option, variable lease payments that depend on an index or a rate, investment tax credits, lease term and purchase option, transition guidance for amounts previously recognized in business combinations, certain transition adjustments, transition guidance for leases previously classified as capital leases under Topic 840, transition guidance for modifications to leases previously classified as direct financing or sales-type leases under Topic 840, transition guidance for sale and leaseback transactions, impairment of net investment in the lease, unguaranteed residual asset, effect of initial direct costs on the interest rate implicit in the lease, and failed sale and leaseback transactions. These ASUs will be effective for us beginning in our first quarter of fiscal 2020. We are currently evaluating the impact these ASUs will have on our consolidated financial statements. In August 2017, the FASB issued ASU 2017 - 12, Derivatives and Hedging (Topic 815 ): Targeted Improvements to Accounting for Hedging Activities. ASU 2017 - 12 is intended to improve and simplify accounting rules around hedge accounting and improve the disclosures of hedging arrangements. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements. ASU 2017 - 12 will be effective for us beginning in our first quarter of fiscal 2020. In February 2018, the FASB issued ASU 2018 - 02, Income Statement-Reporting Comprehensive Income (Topic 220 ): Reclassification of Certain Tax Effect from Accumulated Other Comprehensive Income. ASU 2018 - 02 allows for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. We are currently evaluating the impact of adopting the new standard on our consolidated financial statements. ASU 2018 - 02 will be effective for us beginning in our first quarter of fiscal 2020. In June 2018, the FASB issued ASU 2018 - 07, Compensation-Stock Compensation (Topic 718 ): Improvements to Nonemployee Share-Based Payment Accounting. The ASU clarifies that Topic 718 does not apply to share-based payments used to effectively provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. We are currently evaluating the impact of the new standard. ASU 2018 - 07 will be effective for us beginning in our first quarter of fiscal 2020. Other recently issued accounting pronouncements did not or 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 accounts 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 September 30, |
|  | 2018 |  |  | 2017 |
Numerator |  |  |  |  |  |  |  |
Net income |  | $ | 2,559 |  |  | $ | 1,434 |
Denominator |  |  |  |  |  |  |  |
Basic weighted average common shares outstanding |  |  | 6,765 |  |  |  | 6,607 |
Dilutive effect of stock options |  |  | 200 |  |  |  | 224 |
Diluted weighted average common shares outstanding |  |  | 6,965 |  |  |  | 6,831 |
Basic net income per common share |  | $ | 0.38 |  |  | $ | 0.22 |
Diluted net income per common share |  | $ | 0.37 |  |  | $ | 0.21 |
We excluded shares related to restricted stock totaling 15,000 shares for the three months ended September 30, 2018, as their impact would have been anti-dilutive. No shares related to stock options were excluded for the three months ended September 30, 2018. No shares related to stock options or restricted stock were excluded for the three months ended September 30, 2017. Revenue Recognition We record revenue based on the 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 when the various performance obligations are satisfied. Revenue is measured as the net amount of consideration expected to be received in exchange for fulfilling one of more performance obligations. We identify purchase orders from customers as contracts. The amount of consideration expected to be received and revenue recognized includes estimates of variable consideration, including estimates for early payment discounts and volume rebates. Such estimates are calculated using historical averages adjusted for any expected changes due to current business conditions and experience. We review and update these estimates at the end of each reporting period and the impact of any adjustments is recognized in the period the adjustments are identified. In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay that amount of consideration when it is due. Payment of invoices are due as specified in the underlying customer agreement, typically 30 days from the invoice date, which occurs on the date of transfer of control of the products ordered to the customer. Revenue is recognized at the point in time that our performance obligation is fulfilled, and control of the ordered products is transferred to the customer. This occurs when the product is shipped, or in some cases, when the product is delivered to the customer. We provide early payment discounts to certain customers. Based on historical payment trends, we expect that these customers will take advantage of these early payment discounts. The cost of these discounts is reported as a reduction to the transaction price. If the actual discounts differ from those estimated, the difference is 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 September 30, 2018, we have no known returns liability. On August 7, 2017, we entered into three agreements (“Agreements”), with The Juice Plus+ Company LLC (“Juice Plus+”). The Agreements are an Exclusive Manufacturing Agreement, a Restricted Stock Award Agreement, and an Irrevocable Proxy. Pursuant to the Exclusive Manufacturing Agreement, Juice Plus+ has granted us exclusive rights to manufacture and supply them with certain of their products within 24 countries where Juice Plus+ currently sells those products. Pursuant to the Restricted Stock Award Agreement, NAI granted 500,000 shares of NAI common stock to Juice Plus+, (the “Shares”), and Juice Plus+ agreed the 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 Shares that remain subject to the 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. The expense associated with the Shares granted to Juice Plus+ is recorded as a reduction to revenue. We recorded $245,000 of expense during the three months ended September 30, 2018 and $163,000 for the three months ended September 30, 2017 as a "Non-cash Sales Discount" which is an offset to net sales. We currently own certain U.S. patents, and each patent’s corresponding foreign patent applications. All of these patents and patent rights relate to the ingredient known as beta-alanine marketed and sold under our CarnoSyn® and SR CarnoSyn® trade names. We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $5.4 million during the three months ended September 30, 2018 and $5.9 million during the three months ended September 30, 2017. These royalty income and raw material sale amounts resulted in royalty expense paid to the original patent holders from whom we acquired the patents and patent rights. We recognized royalty expense as a component of cost of goods sold in the amount of $263,000 during the three months ended September 30, 2018, and $284,000 during the three months ended September 30, 2017. Notes Receivable On September 30, 2017, we accepted a 12 -month note (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 Loan Agreement. The First Amendment modifies the Loan Agreement and related promissory note by extending the maturity date from September 30, 2018 to December 28, 2018 in exchange for an extension fee in the amount of $25,000. Kaged Muscle is one of our fastest growing sports nutrition customers and we executed this note receivable conversion, and subsequent amendment, to assist them with their near term financing needs. The note carries an interest rate of fifteen percent ( 15% ) per annum with payments of interest only. Repayment of the note is secured by all of the assets of Kaged Muscle and the note is personally guaranteed by the co-founder and President of Kaged Muscle. Interest is due quarterly and the note can be prepaid in any amount at any time without penalty. In association with this note, we recognized $58,000 in interest income during the three months ended September 30, 2018 and zero interest income during the three months ended September 30, 2017. Stock-Based Compensation We have 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. Under the 2009 Plan, we may grant nonqualified and incentive stock options and other stock-based awards to employees, non-employee directors and consultants. We estimate the fair value of stock option awards at the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. Option valuation models require the use of highly subjective assumptions. Black-Scholes uses assumptions related to volatility, the risk-free interest rate, the dividend yield (which we assume to be zero, as we have not paid any cash dividends) and employee exercise behavior. Expected volatilities used in the model are based on the historical volatility of our stock price. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect in the period of grant. The expected life of stock option grants is derived from historical experience. The fair value of restricted stock shares granted is based on the market price of our common stock on the date of grant. We amortize the estimated fair value of our stock awards to expense over the related vesting periods. We recognize forfeitures as they occur. We did not grant any options during the three months ended September 30, 2018 or the three months ended September 30, 2017. All remaining outstanding stock options are fully vested. During the three months ended September 30, 2018, 5,000 options were exercised. There were no options exercised during the three months ended September 30, 2017. There were no forfeitures during the three months ended September 30, 2018 or the three months ended September 30, 2017. During the three months ended September 30, 2018, we granted a total of 15,000 restricted stock shares to a new member of our management team. We did not grant any shares to employees during the three months ended September 30, 2017. Our net income included stock based compensation expense of approximately $409,000 for the three months ended September 30, 2018, and $301,000 for the three months ended September 30, 2017. Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received to sell an asset or paid to transfer a liability (i.e., the “exit price”) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. We use a three -level hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect our assumptions about the inputs that market participants would use in pricing the asset or liability and are developed based on the best information available under the circumstances. The fair value hierarchy is broken down into three levels based on the source of inputs. In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access. We classify cash, cash equivalents, and marketable securities balances as Level 1 assets. 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 of September 30, 2018, and June 30, 2018, we did not have any financial assets or liabilities classified as Level 1, except for assets and liabilities related to our pension plan. We classify derivative forward exchange contracts as Level 2 assets. The fair value of our forward exchange contracts as of September 30, 2018 was a net asset of $1.0 million. The fair value of our forward exchange contracts as of June 30, 2018 included a net asset of $55,000 and a net liability of $55,000, with no right of offset. As of September 30, 2018, and June 30, 2018, we did not have any financial assets or liabilities classified as Level 3. We did not transfer any assets or liabilities between Levels during fiscal 2018 or the three months ended September 30, 2018. Concentrations of Credit Risk Financial instruments that subject us to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. We place our cash and cash equivalents with highly rated financial institutions. Credit risk with respect to receivables is concentrated with our three largest customers, whose receivable balances collectively represented 67.6% of gross accounts receivable at September 30, 2018 and 76.6% at June 30, 2018. Additionally, amounts due related to our beta-alanine raw material sales were 20.4% of gross accounts receivable at September 30, 2018, and 17.3% of gross accounts receivable at June 30, 2018. Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -URI http://asc.fasb.org/topic&trid=2122149 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 810 -URI http://asc.fasb.org/topic&trid=2197479 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -URI http://asc.fasb.org/topic&trid=2122369 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 275 -URI http://asc.fasb.org/topic&trid=2134479 + Details
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