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Note A - Basis of Presentation and Summary of Significant Accounting Policies | 6 Months Ended
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Dec. 31, 2022
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 with applicable rules and regulations. Pursuant to such rules and regulations, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) have been condensed or omitted. In management’s opinion, all adjustments necessary for a fair presentation of the financial position, results of operations, stockholders’ equity, and cash flows have been included and are of a normal, recurring nature. The results of operations for the three and six months ended December 31, 2022 are not necessarily indicative of the operating results for the full fiscal year or for any future periods. You should read the financial statements and these notes, which notes are an integral part of the financial statements, together with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2022 (“2022 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 our 2022 Annual Report unless otherwise noted below. Recently Adopted Accounting Pronouncements We did not adopt any accounting pronouncements during the three and six months ended December 31, 2022. Recently Issued Accounting and Regulatory Pronouncements Other recently issued accounting pronouncements are not discussed in this Report as such pronouncements did not have, and are not believed by management to have, a material impact on our present or future financial statements. Net Income per Common Share We compute net income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities. The dilutive impact of stock options and unvested restricted shares account for the additional weighted average shares of common stock outstanding for our diluted net income per common share computation. We calculated basic and diluted net income per common share as follows (in thousands, except per share data):
|  | Three Months Ended |  |  | Six Months Ended |
|  | December 31, |  |  | December 31, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Numerator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income |  | $ | 1,813 |  |  | $ | 1,847 |  |  | $ | 2,866 |  |  | $ | 5,103 |
Denominator |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted average common shares outstanding |  |  | 5,866 |  |  |  | 6,212 |  |  |  | 5,893 |  |  |  | 6,250 |
Dilutive effect of stock options and restricted stock |  |  | 7 |  |  |  | 44 |  |  |  | 15 |  |  |  | 54 |
Diluted weighted average common shares outstanding |  |  | 5,873 |  |  |  | 6,256 |  |  |  | 5,908 |  |  |  | 6,304 |
Basic net income per common share |  | $ | 0.31 |  |  | $ | 0.30 |  |  | $ | 0.49 |  |  | $ | 0.82 |
Diluted net income per common share |  | $ | 0.31 |  |  | $ | 0.30 |  |  | $ | 0.49 |  |  | $ | 0.81 |
We excluded 50,377 shares of restricted stock and no shares related to stock options for the three and six months ended December 31, 2022, as their impact would have been anti-dilutive. We did not exclude any stock options or restrictive stock shares for the three and six months ended December 31, 2021, as none would have had an anti-dilutive impact. 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 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 is due as specified in the underlying customer agreement, which is typically 30 days from the invoice date. Invoices are generally issued on the date of transfer of control of the products ordered to the customer. Revenue is recognized at the point in time that each of our performance 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. 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 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):
|  | June 30, 2022 |  |  | Additions |  |  | Revenue Recognized |  |  | Customer Refunds |  |  | December 31, 2022 |
Contract Liabilities (Customer Deposits) |  | $ | 140 |  |  |  | 425 |  |  | $ | (137 | ) |  |  | (3 | ) |  |  | 425 |
|  | June 30, 2021 |  |  | Additions |  |  | Revenue Recognized |  |  | Customer Refunds |  |  | December 31, 2021 |
Contract Liabilities (Customer Deposits) |  | $ | 1,721 |  |  |  | 622 |  |  | $ | (1,721 | ) |  |  | — |  |  |  | 622 |
Except for product defects, no right of return exists on the sale of our products. We estimate returns based on historical experience and recognize a returns liability for any estimated returns. As of December 31, 2022, we have no 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® 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 $1.5 million during the three months ended December 31, 2022, and $2.8 million during the six months ended December 31, 2022. We similarly recorded $4.1 million during the three months ended December 31, 2021, and $8.8 million during the six months ended December 31, 2021. 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 $78,000 during the three months ended December 31, 2022, and $105,000 during the six months ended December 31, 2022. We recorded $163,000 of royalty expense during the three months ended December 31, 2021, and $399,000 during the six months ended December 31, 2021. Stock-Based Compensation The Board of Directors approved our current omnibus equity incentive plan that became effective January 1, 2021 (the “2020 Plan”), which 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. We did not have any option activity or options outstanding during the three and six month periods ended December 31, 2022 or December 31, 2021. We did not grant any restricted stock shares during the three or six months ending December 31, 2022 or December 31, 2021. No restricted stock shares were forfeited during the three or six months ended December 31, 2022. During the three months ended December 31, 2021, 2,100 restricted stock shares were forfeited. During the six months ended December 31, 2021, 18,432 restricted stock shares were forfeited. Our net income included stock-based compensation expense in connection with prior restricted stock grants of approximately $0.2 million for the three months ended December 31, 2022 and $0.5 million for the six month ended December 31, 2022. Our net income included stock based compensation expense in connection with the vesting of prior restricted stock grants of approximately $0.2 million for the three months ended December 31, 2021 and $0.5 million for the six months ended December 31, 2021. 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 and eligible consultants of NAI, (“Participants”). These Awards are made subject to conditions precedent that must be met before NAI is obligated to make the payment. The purpose of the Incentive Plan is to enhance the long-term stockholder value of NAI by providing the Human Resources Committee and the Board of Directors the ability to make deferred cash payments or other cash awards to encourage Participants to serve NAI or to remain in the service of NAI, or to assist NAI to achieve results determined by the Human Resources Committee or the Board of Directors to be in NAI's best interest. The Incentive Plan authorizes the Human Resources Committee or the Board of Directors to grant to, and administer, unsecured and deferred cash Awards to Participants and to subject each Award to whatever conditions are determined appropriate by the Human Resources Committee or the Board of Directors. The terms of each Award, including the amount and any conditions that must be met to be entitled to payment of the Award are set forth in an Award Agreement between each Participant and NAI. The Incentive Plan provides the Board of Directors with the discretion to set aside assets to fund the Incentive Plan although that has not been done to date. No deferred cash awards were granted during the three and six months ended December 31, 2022 and the three and six months ended December 31, 2021. No deferred cash awards were forfeited during the three and six month periods ended December 31, 2022. No deferred cash awards were forfeited during the three months ended December 31, 2021. Awards totaling $191,000 were forfeited during the six months ended December 31, 2021. Fair Value of Financial Instruments Except for cash and cash equivalents, as of December 31, 2022, and June 30, 2022, we did not have any financial assets or liabilities classified as Level 1. We classify derivative forward exchange and interest rate swap contracts as Level 2 assets and liabilities. The fair values were determined by obtaining pricing from our bank and corroborating those values with a third party bank or pricing service. Fair value of derivative instruments classified as Level 2 assets and liabilities consisted of the following (in thousands):
|  | December 31, 2022 |  |  | June 30, 2022 |
Euro Forward Contract– Current Assets |  | $ | 1,448 |  |  | $ | 3,144 |
Swiss Franc Forward Contract – Current Assets |  |  | 297 |  |  |  | 109 |
Total Derivative Contracts – Current Assets |  |  | 1,745 |  |  |  | 3,253 |
Interest Swap – Other noncurrent Assets |  |  | 632 |  |  |  | 453 |
Euro Forward Contract– Other noncurrent Assets |  |  | — |  |  |  | 561 |
Total Derivative Contracts – Other noncurrent Assets |  |  | 632 |  |  |  | 1,014 |
Fair Value Net Asset – all Derivative Contracts |  | $ | 2,377 |  |  | $ | 4,267 |
We also classify any outstanding line of credit and term loan balance as a Level 2 liability. As of December 31, 2022, and June 30, 2022, 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 2022 or the three and six months ended December 31, 2022.

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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 https://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 https://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 https://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 https://asc.fasb.org/topic&trid=2134479 + Details
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