What changed in this filing

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Item 1. Financial Statements

2020-11-10 compared with 2020-05-14 · 205 added, 265 removed, 296 unchanged (61% of the section changed)

3 unchanged sentences

(In thousands, except share and per share data)

September 3 0 ,

Current assets:

Cash and cash equivalents

Accounts receivable - less allowance for doubtful accounts of $3,282 at March 31, 2020 and $25 at June 30, 2019

Accounts receivable - less allowance for doubtful accounts of $3,229 at September 30, 2020 and $3,240 at June 30, 2020

Inventories, net

5 unchanged sentences

Operating lease right-of-use assets

Deferred tax asset – noncurrent

Other noncurrent assets, net

4 unchanged sentences

Accrued compensation and employee benefits

Forward contracts

Income taxes payable

Line of credit – current

Lines of credit – current

Total current liabilities

Long-term liability – operating leases

Noncurrent forward contracts

Long-term pension liability

Deferred rent

Income taxes payable, noncurrent

Deferred income taxes

Total liabilities

8 unchanged sentences

20,000,000 shares authorized;

issued and outstanding (net of treasury shares) 6,791,396 at March 31, 2020 and 7,225,072 at June 30, 2019

issued and outstanding (net of treasury shares) 6,516,290 at September 30, 2020 and 6,752,372 at June 30, 2020

Additional paid-in capital

Retained earnings

Treasury stock, at cost, 2,065,281 shares at March 31, 2020 and 1,626,605 June 30, 2019

Accumulated other comprehensive (loss) gain

Treasury stock, at cost, 2,340,387 shares at September 30, 2020 and 2,104,305 June 30, 2020

Accumulated other comprehensive loss

Total stockholders’ equity

2 unchanged sentences

NATURAL ALTERNATIVES INTERNATIONAL, INC.

Condensed Consolidated Statements of (Loss) Income and Comprehensive (Loss) Income

Condensed Consolidated Statements of Income and Comprehensive Income

(In thousands, except share and per share data)

Three Months Ended

Nine Months Ended

September 30,

Cost of goods sold

Other selling, general and administrative

Provision for uncollectible accounts receivable

Total selling, general and administrative

(Loss) income from operations

Selling, general and administrative

Income (loss) from operations

Other (expense) income:

3 unchanged sentences

Total other (expense) income

(Loss) income before income taxes

Income before income taxes

(Benefit) provision for income taxes

Net (loss) income

Unrealized gain (loss) resulting from change in fair value of derivative instruments, net of tax

Comprehensive (loss) income

Net (loss) income per common share:

Unrealized (loss) gain resulting from change in fair value of derivative instruments, net of tax

Comprehensive income

Net income per common share:

Weighted average common shares outstanding

2 unchanged sentences

Condensed Consolidated Statements Of Stockholders’ Equity

Three-Month Period Ended March 31, 20 20 and 201 9

(Dollars in thousands)

Treasury Stock

Comprehensive

Balance, December 31, 2019

Compensation expense related to stock compensation plans

Repurchase of common stock

Unrealized gain resulting from change in fair value of derivative instruments, net of tax

Balance, March 31, 2020

Balance, December 31, 2018

Issuance of common stock for restricted stock grants

Forfeiture of restricted stock

Compensation expense related to stock compensation plans

Repurchase of common stock

Unrealized gain resulting from change in fair value of derivative instruments, net of tax

Balance, March 31, 2019

Natural Alternatives International, Inc.

Condensed Consolidated Statements Of Stockholders’ Equity

Nine-Month Period Ended March 31, 2020 and 2019

Three -Month Period End ed September 3 0 , 2020 and 201 9

(Dollars in thousands)

1 unchanged sentence

Comprehensive

Income (Loss)

Balance, June 30, 2020

Issuance of common stock for restricted stock grants

Compensation expense related to stock compensation plans

Repurchase of common stock

Forfeiture of restricted stock

Cumulative-effect adjustment pursuant to adoption of ASU 2016-02 (Note E)

Reclassification pursuant to adoption of ASU 2018-02 (Note D)

Unrealized loss resulting from change in fair value of derivative instruments, net of tax

Balance, March 31, 2020

Balance, September 30, 2020

Balance, June 30, 2019

Issuance of common stock for stock option exercise

Issuance of common stock for restricted stock grants

Forfeiture of restricted stock

Compensation expense related to stock compensation plans

Repurchase of common stock

Forfeiture of restricted stock

Cumulative-effect adjustment pursuant to adoption of ASU 2016-02

Reclassification pursuant to adoption of ASU 2018-02

Unrealized gain resulting from change in fair value of derivative instruments, net of tax

Balance, March 31, 2019

Balance, September 30, 2019

See accompanying notes to condensed consolidated financial statements.

NATURAL ALTERNATIVES INTERNATIONAL, INC.

1 unchanged sentence

(In thousands, except share and per share data)

Nine Months Ended

Three Months Ended

September 3 0 ,

Cash flows from operating activities

Net (loss) income

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for uncollectible accounts receivable

Depreciation and amortization

Non-cash lease expense

Non-cash sales discount

Non-cash compensation

Non-cash lease expenses

Deferred income taxes

Pension expense, net of contributions

Loss on disposal of assets

Changes in operating assets and liabilities:

Accounts receivable

Accounts receivable, net

Inventories, net

Operating lease liabilities, net

Forward contracts

Prepaids and other assets

Accounts payable and accrued liabilities

Forward contracts

Accrued compensation and employee benefits

2 unchanged sentences

Purchases of property and equipment

Proceeds from sale of property and equipment

Proceeds from collection of notes receivable

Net cash used in investing activities

1 unchanged sentence

Repurchase of common stock

Borrowings on lines of credit

Issuance of common stock

Net cash provided by (used in) financing activities

Net increase in cash and cash equivalents

Net cash used in financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

5 unchanged sentences

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.

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.

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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 months and nine months ended March 31, 2020 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, 2019 (“2019 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 2019 Annual Report unless otherwise noted below.

Recently Issued Accounting Pronouncements

On December 18, 2019, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

This new standard eliminates certain exceptions in Accounting Standards Codification ("ASC") 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences.

It also clarifies and simplifies other aspects of the accounting for income taxes.

This standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2020, with early adoption permitted in any interim period within that year.

This ASU will be effective for us beginning in our first quarter of fiscal 2022.

We are currently evaluating the impact this ASU will have on our consolidated financial statements.

Net (Loss) Income per Common Share

We compute net (loss) income per common share using the weighted average number of common shares outstanding during the period, and diluted net income per common share using the additional dilutive effect of all dilutive securities.

The dilutive impact of stock options and unvested restricted stock accounts 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 (loss) income per common share as follows (in thousands, except per share data):

The results of operations for the three months ended September 30, 2020 are not necessarily indicative of the operating results for the full fiscal year or for any future periods.

You should read the financial statements and these notes, which notes are an integral part of the financial statements, together with our audited financial statements included in our Annual Report on Form 10-K for the fiscal year ended June 30, 2020 (“2020 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 2020 Annual Report unless otherwise noted below.

Recently Adopted Accounting Pronouncements

We did not adopt any accounting pronouncements during the three months ended September 30, 2020.

Recently Issued Accounting and Regulatory Pronouncements

In November 2020, the SEC issued Release No.

33-10825, Modernization of Regulation S-K Items 101, 103, and 105, which release amends and clarifies certain of our financial reporting requirements.

This release will primarily impact risk factor disclosures in our future Annual Reports.

Other recently issued accounting pronouncements are not discussed in this Report as such pronouncements did not have, 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

Nine Months Ended

Net (loss) income

September 30,

Basic weighted average common shares outstanding

1 unchanged sentence

Diluted weighted average common shares outstanding

Basic net (loss) income per common share

Diluted net (loss) income per common share

In periods where we have a net loss, stock options and restricted stock are excluded from our calculation of diluted net (loss) income per common share, as their inclusion would have an antidilutive effect.

We excluded shares related to stock options totaling 130,000 for the three months and for the nine months ended March 31, 2020.

We excluded shares related to restricted stock totaling 356,998 for the three months ended March 31, 2020.

We excluded shares related to restricted stock totaling 388,988 for the nine months ended March 31, 2020.

No shares related to stock options or restricted stock were excluded for the three and nine months ended March 31, 2019.

Basic net income per common share

Diluted net income per common share

During the three months ended September 30, 2020 we excluded shares related to stock options totaling 90,000 and 116,658 shares of unvested restricted stock, as their impact would have been anti-dilutive.

We did not exclude any stock options or restricted stock shares for the three months ended September 30, 2019 as none would have had an anti-dilutive impact.

Revenue Recognition

We record revenue based on a five-step model which includes:

We record revenue based on a five-step model that 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;

(2) identifying the performance obligations in that contract;

(3) determining the total transaction price;

(4) allocating that transaction price among the performance obligations;

and (5) recognizing revenue as each of the various performance obligations are satisfied.

1 unchanged sentence

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.

The amount of consideration expected to be received, and thus revenue recognized, includes estimates of variable consideration, including estimates for early payment discounts and volume rebates.

Such estimates are calculated using historical averages, adjusted for any expected changes due to current business conditions and experience.

We review and update these estimates at the end of each reporting period and the impact of any adjustments is recognized in the period the adjustments are identified.

We review and update these estimates at the end of each reporting period and the impact of any adjustments is recognized in the period those adjustments are identified.

In assessing whether collection of consideration from a customer is probable, we consider both the customer's ability and intent to pay that amount of consideration when it is due.

Payment of invoices is due as specified in the underlying customer agreement, which is typically 30 days from the invoice date.

Payment of invoices is due as specified in the underlying customer contracts, which is typically 30 days from the invoice date.

Invoices are generally issued on the date of transfer of control of the products ordered to the customer.

Revenue is recognized at the point in time that each of our performance obligation 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, depending on the point at which risk of loss transfers to the customer.

Revenue is recognized at the point in time that each of our performance obligations is fulfilled, and control of ordered products is transferred to the customer.

This transfer occurs when the product is shipped, or in some cases, when the product is delivered to the customer.

We provide early payment discounts to certain customers.

Based on historical payment trends, we expect that these customers will take advantage of these early payment discounts.

The cost of these discounts is reported as a reduction to the transaction price.

Based on historical payment trends, we expect that these customers will continue to take advantage of these early payment discounts.

The cost of these discounts is reported as a reduction to the transaction price of customer contracts.

If the actual discounts differ from those estimated, the difference is also reported as a change in the transaction price.

1 unchanged sentence

We estimate returns based on historical experience and recognize a returns liability for any estimated returns.

As of March 31, 2020, we have no liability recorded for estimated returns of products.

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 “JP Shares”), and Juice Plus+ agreed the JP Shares are subject to certain restrictions and risk of forfeiture.

Pursuant to the Irrevocable Proxy, Juice Plus+ also granted the NAI Board of Directors the right to vote the JP Shares that remain subject to risk of forfeiture.

Each Agreement is for a term of 5 years, and each may be terminated by either party only upon the occurrence of specified events.

On March 31, 2019, we amended our original Agreements with Juice Plus+ and extended the term of the Exclusive Manufacturing Agreement through August 6, 2025.

In addition, pursuant to that Amended and Restated Exclusive Manufacturing Agreement, Juice Plus+ returned 400,000 shares of restricted common stock in exchange for an annual cash sales discount.

The expense associated with the return of those shares and the related cash discount granted to Juice Plus+ were each recorded as a reduction to sales.

As a result of the amendments contained in the Amended and Restated Exclusive Manufacturing Agreement, we made a one-time adjustment to reverse the expense associated with unvested shares that were returned as a result of such amendments.

Amounts associated with the new cash discount began to be recorded in our fourth quarter of fiscal 2019 and will be amortized ratably over extended remaining life of the Amended and Restated Exclusive Manufacturing Agreement based on the full value of the cash discount expected to be given over the same period.

We recorded $395,000 of “Cash Sales Discount” during the three months ended March 31, 2020 and $1.2 million for the nine months ended March 31, 2020.

We recognized $408,000 of “Non-cash Sales Income” during the three months ended March 31, 2019 and $82,000 of “Non-cash Sales Discount” during the nine months ended March 31, 2019.

As of September 30, 2020, we have no liability recorded for estimated returns of products.

We have an Exclusive Manufacturing Agreement with Juice Plus+, as amended and restated on March 31, 2019, (the "JP Agreement").

Pursuant to the JP Agreement, Juice Plus+ has granted us exclusive rights to manufacture and supply them with certain of their products within 24 countries where Juice Plus+ currently sells those products.

The JP Agreement is effective through August 6, 2025.

As part of the JP Agreement, we provide Juice Plus+ a cash discount that is amortized ratably over the remaining life of the JP Agreement based on the full value of the cash discount expected to be given over the same period.

We recorded $0.4 million of cash sales discount during the three months ended September 30, 2020 and $0.4 million during the three months ended September 30, 2019.

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”, which is 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 $2.8 million during the three months ended March 31, 2020 and $10.3 million during the nine months ended March 31, 2020.

We similarly recorded $3.7 million during the three months ended March 31, 2019 and $13.5 million during the nine months ended March 31, 2019.

All of these patents and patent rights relate to the ingredient known as “beta-alanine”, which we market and sell under our CarnoSyn® and SR CarnoSyn® trade names.

We recorded beta-alanine raw material sales and royalty and licensing income as a component of revenue in the amount of $2.7 million during the three months ended September 30, 2020.

We similarly recorded $3.2 million during the three months ended September 30, 2019.

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 $103,000 during the three months ended March 31, 2020 and $462,000 during the nine months ended March 31, 2020.

We similarly recognized $156,000 of royalty expense during the three months ended March 31, 2019 and $597,000 during the nine months ended March 31, 2019.

We recognized royalty expense as a component of cost of goods sold in the amount of $0.1 million during the three months ended September 30, 2020.

We recognized $0.2 million of royalty expense during the three months ended September 30, 2019.

Stock-Based Compensation

2 unchanged sentences

The 2009 Plan expired on October 15, 2019.

The Board of Directors approved a new omnibus equity incentive plan effective October 15, 2019 (“2019 Plan”), subject to stockholder approval.

The Board of Directors approved a new omnibus equity incentive plan to be effective October 15, 2019 (“2019 Plan”), subject to stockholder approval.

However, the 2019 Plan was not approved by our stockholders and therefore did not become effective.

We currently do not have an equity incentive plan but may still be recording exercises and forfeitures under the 2009 Plan.

We did not grant any options during each of the three and nine month periods ended March 31, 2020 and March 31, 2019.

We did not grant any options during each of the three month periods ending September 30, 2020 and September 30, 2019, respectively.

All remaining outstanding stock options are fully vested.

No options were exercised during the three or nine month period ended March 31, 2020.

No options were exercised during the three month period ended March 31, 2019.

During the nine months ended March 31, 2019, 5,000 options were exercised.

There were no option forfeitures during the three or nine month periods ended March 31, 2020 or March 31, 2019.

During the three months ended March 31, 2020 we did not grant any shares of restricted stock shares.

During the nine months ended March 31, 2020, we granted 5,000 shares of restricted stock shares to a new member of our management team.

During the three months ended March 31, 2019, we granted a total of 175,000 restricted stock shares to members of our Board of Directors and certain key members of our management team.

During the nine months ended March 31, 2019, we granted a total of 190,000 restricted stock shares to members of our Board of Directors and certain key members of our management team.

During the three months ended March 31, 2020, there were no restricted stock forfeitures.

During the nine months ended March 31, 2020, 15,000 restricted stock shares were forfeited.

During the three months ended March 31, 2019, there were no restricted stock forfeitures.

During the nine months ended March 31, 2019, 5,000 restricted stock shares were forfeited.

Our net loss included stock based compensation expense in connection with prior restricted stock grants of approximately $459,000 for the three months ended March 31, 2020, and $1.4 million for the nine months ended March 31, 2020.

Our net income included stock based compensation expense in connection with prior restricted stock grants of approximately $400,000 for the three months ended March 31, 2019 and $1.2 million for the nine months ended March 31, 2019.

No options were exercised during the three month period ending September 30, 2020 and September 30, 2019.

There were no option forfeitures during the three month periods ended September 30, 2020 or September 30, 2019.

We did not grant any restricted stock shares during the three months ending September 30, 2020 or September 30, 2019.

No restricted stock shares were forfeited during the three months ended September 30, 2020.

During the three months ended September 30, 2019, 15,000 restricted stock shares were forfeited.

Our net income included stock based compensation expense in connection with prior restricted stock grants of approximately $0.4 million for the three months ended September 30, 2020.

Our net income included stock based compensation expense in connection with prior restricted stock grants of approximately $0.4 million for the three months ended September 30, 2019.

Deferred Compensation Plan

Effective July 16, 2020, the Board of Directors approved and adopted a Non-Qualified Incentive Plan (the “NQ Plan”).

Pursuant to the NQ 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 NQ 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 NQ 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 NQ Plan provides the Board of Directors with the discretion to set aside assets to fund the NQ Plan although that has not been done to date.

On July 16, 2020, deferred cash awards of $1.0 million were granted to various officers, directors and employees of NAI pursuant to the NQ Plan, each providing for three equal cash payments to the Participant, each of which shall be paid on the one year, and two year, and three year anniversary of the date of the grant of such Award (the “Award Date”);

provided that, on the date of each payment (the “Payment Date”), the Participant has been since Award Date, and 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 shall be made in connection with the Award.

Fair Value of Financial Instruments

Except for cash and cash equivalents and assets related to our pension plan, as of March 31, 2020, and June 30, 2019, we did not have any financial assets or liabilities classified as Level 1.

Except for cash and cash equivalents and assets and liabilities related to our pension plan, as of September 30, 2020 and June 30, 2020, we did not have any financial assets or liabilities classified as Level 1.

We classify derivative forward exchange contracts as Level 2 assets and liabilities.

The fair value of our forward exchange contracts as of March 31, 2020 was a net asset of $1.7 million.

The fair value of our forward exchange contracts as of September 30, 2020 was a net liability of $2.4 million.

The fair value of our forward exchange contracts as of June 30, 2020 included a net asset of $0.3 million.

The fair values were determined based on obtaining pricing from our bank and corroborating those values with a third party bank.

We classify our outstanding line of credit balance as a Level 2 liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets.

As of March 31, 2020, and June 30, 2019, 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 2019 or during the three or nine months ended March 31, 2020.

The fair values were determined by obtaining pricing from our bank and corroborating those values with a third party bank.

We also classify our outstanding line of credit balance as a Level 2 liability, as the fair value is based on inputs that can be derived from information available in publicly quoted markets.

As of September 30, 2020, and June 30, 2020, 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 2020 or the three months ended September 30, 2020.

COVID-19 Pandemic

The Company continues to monitor and evaluate the risks to public health and the slowdown in overall business activity related to the COVID-19 pandemic, including potential impacts on our employees, customers, suppliers and financial results.

As the situation remains fluid, it is difficult to predict the duration and scope of the pandemic and its impact on the Company’s business.

However, it may result in a material adverse impact to the Company’s financial position, operations and cash flows if conditions persist or worsen.

We continue to monitor and evaluate the risks to public health and the impact on overall global business activity related to the COVID-19 pandemic, including its potential impacts on our employees, customers, suppliers and financial results.

As the situation remains fluid, it is difficult to predict the duration and scope of the pandemic and its impact on our business.

However, it may result in a material adverse impact to our financial position, operations and cash flows if conditions persist or worsen.

Inventories, net

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

September 3 0 ,

Raw materials

1 unchanged sentence

Finished goods

The inventory reserve as of March 31, 2020 included a reserve of $1.0 million related to one of our former customers, Kaged Muscle.

We are working with this former customer to deliver the remaining products we completed, and to transition to a replacement manufacturer, including the transfer of inventory items we hold specific to this customer.

The inventory reserve includes $0.8 million as of September 30, 2020 and $1.0 million as of June 30, 2020 related to one of our former customers, Kaged Muscle.

We are working with this former customer to transition to a replacement manufacturer, including the transfer of inventory items we hold specific to this customer.

However, due to the uncertainty regarding the future operations of this former customer, we recorded a reserve against inventory specific to this customer equal to the estimated net realizable value of those items.

The inventory reserve as of June 30, 2019, included a reserve of $686,000, related to our first generation SR CarnoSyn® powder.

During the three months ended September 30, 2020 our inventory reserve related to this customer was reduced by $0.2 million due to amounts purchased by the customer and their new contract manufacturer.

Property and Equipment

1 unchanged sentence

Depreciable Life

September 3 0 ,

Building and building improvements

5 unchanged sentences

Property and equipment, net

Other Comprehensive ( Loss ) Income

Other comprehensive (loss) income (“OCL” and “OCI”) consisted of the following during the three and nine months ended March 31, 2020 and March 31, 2019 (in thousands):

Other Comprehensive Loss

Other comprehensive (loss) income (“OCL” and “OCI”) consisted of the following during the three months ended September 30, 2020 and September 30, 2019 (in thousands):

Three Months Ended

Nine Months Ended

March 31, 2020

September 30, 2020

Beginning Balance

ASU 2018-02 Adjustment

OCI/OCL before reclassifications

4 unchanged sentences

Three Months Ended

Nine Months Ended

March 31, 2019

September 30 , 2019

Beginning Balance

ASU 2018-02 Adjustment

OCI/OCL before reclassifications

3 unchanged sentences

Ending Balance

On July 1, 2019, we adopted ASU 2018-02, “ Income Statement-Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ”.

ASU 2018 allows for a reclassification from accumulated other comprehensive income (OCI) to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act.

Under this ASU, we reclassified $128,000 of gains from OCI to retained earnings.

On July 1, 2019, we adopted FASB Accounting Standards Codification, or ASC, Topic 842, Leases , or ASC 842, which requires the recognition of the right-of-use assets and related operating and finance lease liabilities on the balance sheet.

ASU 2018-02, “ Income Statement-Reporting Comprehensive Income (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income ”, allows for a reclassification from accumulated other comprehensive income (OCI) to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act.

Under this ASU, we reclassified $0.1 million of gains from OCI to retained earnings for the three months ended September 30, 2019.

On July 1, 2019, we adopted FASB Accounting Standards Codification (“ASC”), Topic 842, Leases , or ASC 842, which requires the recognition of the “Right of Use Assets” and related operating and finance lease liabilities on the balance sheet.

As permitted by ASC 842, we elected the adoption date of July 1, 2019, which is the date of initial application.

As a result, the consolidated balance sheet prior to July 1, 2019 was not restated and continues to be reported under ASC Topic 840, Leases , or ASC 840, which did not require the recognition of operating lease assets or liabilities on the balance sheet, and is not comparative.

Under ASC 842, all leases are required to be recorded on the balance sheet and are classified as either operating leases or finance leases.

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The most significant impact was the recognition of the operating lease Right of Use Assets and the liability for operating leases.

As of July 1, 2019, we had no finance leases.

Upon adoption, leases that were previously classified as operating leases under ASC 840 were classified as operating leases under ASC 842, and we recorded an adjustment of $20.7 million to operating lease Right of Use Assets and an adjustment of $20.9 million to the related lease liability.

The lease liability is based on the present value of the remaining minimum lease payments, determined under ASC 840, discounted using our secured incremental borrowing rate at the effective date of July 1, 2019, and using the expected lease term, including any optional renewals, as the tenor.

As permitted under ASC 842, we elected several practical expedients that permit us to not reassess (1) whether existing contracts are or contain a lease, (2) the classification of existing leases, and (3) whether previously capitalized costs continue to qualify as initial indirect costs.

The application of the practical expedients did not have a significant impact on the measurement of the operating lease liability.

The impact of the adoption of ASC 842 on the balance sheet at June 30, 2019 was (in thousands):

As Reported June 30, 2019

Adoption of ASC 842

Increase (Decrease)

Balance of July 1, 2019

Operating lease right-of-use assets

Deferred rent

Long-term liability – Operating leases

Retained earnings

Total liabilities and equity

Other information related to leases was as follows (in thousands):

Supplemental Cash Flows Information

Three Months Ended

September 30, 2020

Three Months Ended

September 30, 2019

Cash paid for amounts included in the measurement of operating lease liabilities

Operating lease liabilities arising from obtaining Right of Use Assets for new leases

Operating lease liabilities arising from recording Right of Use Assets upon adoption of ASC 842

We lease substantially all of our product manufacturing and support office space used to conduct our business.

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A lease is classified as an operating lease if it does not meet any of these criteria.

Substantially all our operating leases are comprised of payments for the use of manufacturing space leases.

Substantially all our operating leases are comprised of payments for the use of manufacturing space.

We have no leases classified as finance leases.

As of September 30, 2020, the weighted average remaining lease term for our operating leases was 7.0 years.

The weighted average discount rate for our operating leases was 3.25%.

As of June 30, 2020, the weighted average remaining lease term for our operating leases was 7.2 years.

The weighted average discount rate was 3.24%.

For all leases at the lease commencement date, a Right of Use Asset and a lease liability are recognized.

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We have elected not to recognize Right of Use Assets and lease liabilities for short-term leases that have a term of 12 months or less.

The effect of short-term leases on our right-of-use asset and lease liability was not material.

The effect of short-term leases if we had used Right of Use Assets and lease liabilities would not have been material.

On July 1, 2019, we executed an amendment to our credit facility with Wells Fargo Bank, N.A.

to extend the maturity for our working line of credit from February 1, 2021, to November 1, 2022.

to extend the maturity date for our working line of credit from February 1, 2021, to November 1, 2022.

The Credit Agreement provides us with a credit line of up to $10.0 million.

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Amounts outstanding that are subject to a fixed interest rate may be prepaid at any time in minimum amounts of $100,000, subject to a prepayment fee equal to the sum of the discounted monthly differences between payment under a fixed rate versus payment under the variable rate for each month from the month of prepayment through the month in which the then applicable fixed rate term matures.

On March 31, 2020, we were in compliance with all of the financial and other covenants required under the Credit Agreement.

On September 30, 2020, we were in compliance with all of the financial and other covenants required under the Credit Agreement.

Our obligations under the Credit Agreement are secured by our accounts receivable and other rights to payment, general intangibles, inventory, equipment and fixtures.

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We also have credit approval with Bank of America which allows us to hedge foreign currency exposures up to 24 months in the future.

In light of the current global economic uncertainty related to COVID-19 and as a measure to provide our business with liquidity, and out of an abundance of caution, we withdrew $10 million from our credit facility with Wells Fargo during the three months ended March 31, 2020.

In light of the global economic uncertainty related to COVID-19 and as a preventative measure to provide our business with potentially necessary liquidity, and out of an abundance of caution, we withdrew $10 million from our credit facility with Wells Fargo during the fiscal year ended June 30, 2020.

While we have not yet experienced any significant negative effects related to COVID-19 and notwithstanding our belief that our cash position and working capital excluding this $10.0 million borrowing is sufficient to support our ongoing operations, we deemed it prudent to borrow against our line of credit to ensure that such funds would be available to us if and when we need them.

As of March 31, 2020, we did not have any remaining availability under our credit facilities.

As of September 30, 2020, we did not have any remaining availability under our credit facilities.

Economic Dependency

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Three Months Ended

Nine Months Ended

September 30,

(a) Sales were less than 10% of the respective period’s total net sales.

We buy certain products, including beta-alanine, from a limited number of raw material suppliers who meet our quality standards.

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Three Months Ended

Nine Months Ended

September 30,

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

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We place our cash and cash equivalents with highly rated financial institutions.

Credit risk with respect to receivables is concentrated with two of our largest customers, whose receivable balances collectively represented 65.5% of gross accounts receivable at March 31, 2020 and 59.4% at June 30, 2019.

Additionally, amounts due related to our beta-alanine raw material sales were 8.6% of gross accounts receivable at March 31, 2020, and 8.0% of gross accounts receivable at June 30, 2019.

As of March 31, 2020, we terminated our ongoing relationship with one customer, Kaged Muscle.

We are working with this former customer to deliver the remaining products we completed, and to assist them with their obligations to us, transition to a replacement manufacturer, and the transfer of inventory items we hold specific to this customer.

Due to uncertainty regarding the future operations of this former customer as of March 31, 2020, we reserved $3.3M, or 100% of their outstanding accounts receivable balance.

Credit risk with respect to receivables is concentrated with two of our largest customers, whose receivable balances collectively represented 55.8% of gross accounts receivable at September 30, 2020 and 65.7% at June 30, 2020.

As of September 30, 2020 and June 30, 2020, we had a receivable balance of $3.3 million from a former contract manufacturing customer that we have recorded a bad debt reserve equal to 100% of this outstanding balance and thus did not reflect it in the percentages listed above.

Additionally, amounts due related to our beta-alanine raw material sales were 4.9% of gross accounts receivable at September 30, 2020, and 2.5% of gross accounts receivable at June 30, 2020.

Concentrations of credit risk related to the remaining accounts receivable balances are limited due to the number of customers comprising our remaining customer base.

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The two 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® and SR CarnoSyn® trade names.

We evaluate performance based on a number of factors.

We evaluate performance of these segments based on a number of factors.

The primary performance measures for each segment are net sales and income or loss from operations before the allocation of certain corporate level expenses.

Operating income or loss for each segment does not include corporate general and administrative expenses, interest expense and other miscellaneous income and expense items.

Corporate general and administrative expenses include, but are not limited to:

human resources, corporate legal, finance, information technology, and other corporate level related expenses, which are not allocated to any segment.

Corporate general and administrative expenses include, but are not limited to human resources, corporate legal, finance, information technology, and other corporate level related expenses, which are not 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 above and in the consolidated financial statements included in our 2019 Annual Report.

The accounting policies of our segments are the same as those described in the summary of significant accounting policies in Note A.

above and in the consolidated financial statements included in our 2020 Annual Report.

Our operating results by business segment were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30,

Private-label contract manufacturing

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Three Months Ended

Nine Months Ended

(Loss) Income from Operations

September 30,

Income (Loss) from Operations

Private-label contract manufacturing

Patent and trademark licensing

(Loss) income from operations of reportable segments

Income from operations of reportable segments

Corporate expenses not allocated to segments

Total (Loss) Income from Operations

Total Income (Loss) from Operations

September 30,

Private-label contract manufacturing

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Three Months Ended

Nine Months Ended

September 30,

United States

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Products manufactured by our Swiss subsidiary ("NAIE") accounted for 86% of net sales in markets outside the U.S.

for the three months ended March 31, 2020 and 90% for the nine months ended March 31, 2020.

for the three months ended September 30, 2020.

Products manufactured by NAIE accounted for 89% of net sales in markets outside the U.S.

for the three months ended March 31, 2019 and 78% for the nine months ended March 31, 2019.

for the three months ended September 30, 2019.

No products manufactured by NAIE were sold in U.S.

markets during the three or nine month periods ended March 31, 2020 and 2019.

markets during the three month periods ended September 30, 2020 and 2019.

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

March 3 1 , 2020

September 30, 20 20

June 30, 20 20

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Total Long-Lived Assets

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

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

March 3 1 , 20 20

September 30, 20 20

June 30, 20 20

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

Nine Months Ended

March 3 1 , 20 20

March 3 1 , 201 9

Three Months Ended

September 30, 20 20

September 30, 201 9

United States

Total Capital Expenditures

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States.

The CARES Act and related notices include several significant provisions, including delaying certain payroll tax payments, mandatory transition tax payments under the Tax Cuts and Jobs Act (“TCJ Act”), and estimated income tax payments.

We do not currently expect the CARES Act to have a material impact on our financial results, including on our annual estimated effective tax rate, or on our liquidity.

We will continue to monitor and assess the impact the CARES Act, and similar legislation in other countries, with respect to what impact they may have on our business and financial results.

The effective tax rate for the three months ended March 31, 2020 was a benefit of 6.0% and the effective tax rate for the nine months ended March 31, 2020 was a benefit of 3.7%.

The rates differ from the U.S.

federal statutory rate of 21% due to our net loss and permanent book to tax differences for the three and nine months ended March 31, 2020.

We have recorded our tax benefit commensurate with the tax benefit we expect on an annual basis.

The effective tax rate for the three months ended March 31, 2019 was 18.9% and the effective tax for the nine months ended March 31, 2019 was 20.1%.

Our effective tax rate for the three months ended September 30, 2020 was (28.0%).

Our effective rates differ from the fiscal 2021 U.S.

federal statutory rate of 21% primarily due to a discrete tax benefit discussed below.

Our effective tax rate for the three months ended September 30, 2019 was 21.3%.

To determine our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which we are subject.

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We recognize interest and penalties related to uncertain tax positions, if any, as an income tax expense.

As of March 31, 2020, and June 30, 2019, we had not recorded any liabilities for any uncertain tax positions.

In the three months ended March 31, 2020, we recognized a discrete tax expense of $74,000 related to employee restricted stock vesting.

In the nine months ended March 31, 2020, we recognized a discrete tax expense of $64,000 related to employee restricted stock vesting.

There were no other significant discrete items for the three and nine months ended March 31, 2020.

There were no significant discrete items for the three or nine months ended March 31, 2019.

The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States.

The CARES Act also allows net operating losses (NOL) to be carried back five years.

We expect to use this carryback period for the NOL generated with our June 30, 2020 federal tax return, and have recorded a discrete tax benefit in the current quarter, as discussed below.

On July 23, 2020, the Department of Treasury issued final regulations which provide an exclusion to the global intangible low-taxed income (GILTI) calculation on an elective basis.

These regulations were effective September 21, 2020 and may be retroactively.

Under these new regulations, we are able to exclude the GILTI calculation from our domestic taxable income if the deemed effective tax rate at our foreign subsidiary is greater than 18.9%.

We assessed this rate, including the implementation of certain tax strategies, and we have determined that our effective rate at NAIE is greater than 18.9% as of the year ending June 30, 2020.

We reassessed our estimated taxes for fiscal 2020 and in the three months ended September 30, 2020 we recorded a reduction to our fiscal 2020 estimated taxes of $0.4 million as a discrete benefit.

As a result of this adjustment, we now expect our domestic tax return will reflect a net operating loss and, in accordance with the CARES ACT, we plan on carrying this loss back to fiscal 2015, which reflected a higher federal tax rate.

Due to this rate differential we have recorded a permanent discrete tax benefit of $0.3 million during the three months ended September 30, 2020.

As a result of this tax planning strategy for NAIE, during the three months ended September 30, 2020 we have recorded additional foreign estimated tax expense of $0.4 million and we have reversed our deferred tax liability of $0.5 million.

We record valuation allowances to reduce our deferred tax assets to an amount we believe is more likely than not to be realized.

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The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

During the three or nine months ended March 31, 2020, there was no change to our valuation allowance for our deferred tax assets.

During the three months ended September 30, 2020, there was no change to our valuation allowance for our deferred tax assets.

Income taxes are accounted for under the asset and liability method.

Deferred tax assets and liabilities are measured using enacted tax rates, for each of the jurisdictions in which we operate, expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Deferred tax assets and liabilities are measured using enacted tax rates for each of the jurisdictions in which we operate.

Deferred tax assets and liabilities are expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled using the tax rates then in effect.

The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date for such new rates.

We are subject to taxation in the U.S., Switzerland and various state jurisdictions.

We are subject to taxation in Switzerland and in the U.S.

at the federal level and in various state jurisdictions.

Our tax years for the fiscal year ended June 30, 2017 and forward are subject to examination by the U.S.

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Our tax reserves are analyzed quarterly, and adjustments are made as events occur that we believe warrant adjustments to those reserves.

There were no adjustments to reserves in the three or nine month periods ended March 31, 2020.

There were no adjustments to reserves in the three month periods ended September 30, 2020.

Treasury Stock

On January 8, 2020, the Board of Directors authorized a $2.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $9.0 million.

On March 13, 2020, the Board of Directors authorized an additional $1.0 million increase to our stock repurchase plan bringing the total authorized repurchase amount to $10.0 million.

On September 18, 2020, the Board of Directors authorized a $2.0 million increase to our stock repurchase plan (“Repurchase Plan”), thus bringing the total authorized repurchase amount to $12.0 million.

Under the Repurchase Plan, we may, from time to time, purchase shares of our common stock, depending upon market conditions, in open market or privately negotiated transactions.

During the three months ended March 31, 2020 we repurchased 210,832 shares at a weighted average cost of $8.46 and a total cost of $1.8 million under this repurchase plan.

During the nine months ended March 31, 2020 we repurchased 362,170 shares at weighted average cost of $8.40 and a total cost of $3.0 million under this repurchase plan.

During the three months ended March 31, 2019, we repurchased 5,748 shares at a weighted average cost of $10.17 and a total cost of $58,000 under this repurchase plan.

During the nine months ended March 31, 2019, we repurchased 42,697 shares at a weighted average cost of $9.74 and a total cost of $416,000 under this repurchase plan.

During the three months ended March 31, 2020 we acquired 53,176 shares from employees in connection with restricted stock shares that vested during that period at a weighted average cost of $6.91 per share and a total cost of $367,000.

During the nine months ended March 31, 2020, we acquired 61,506 shares from employees in connection with restricted stock shares that vested during that year at a weighted average cost of $7.14 per share and a total cost of $439,000.

During the three months ended March 31, 2019, we acquired 39,118 shares from employees in connection with restricted stock shares that vested during the period at a weighted average cost of $11.58 per share and a total cost of $453,000.

During the nine months ended March 31, 2019, we acquired 46,656 shares in connection with restricted stock shares that vested during that period at a weighted average cost of $11.27 per share and a total cost of $525,000.

During the three months ended September 30, 2020 we repurchased 235,390 shares at a weighted average cost of $7.38 and a total cost of $1.7 million under this Repurchase Plan.

During the three months ended September 30, 2019 we repurchased 1,031 shares at a weighted average cost of $8.44 and a total cost of $8,700 under this Repurchase Plan.

During the three months ended September 30, 2020, we acquired 692 shares from employees in connection with restricted stock shares that vested during that year at a weighted average cost of $6.74 per share and a total cost of $5,000.

During the three months ended September 30, 2019, we acquired 686 shares from employees in connection with restricted stock shares that vested during the period at a weighted average cost of $9.90 per share and a total cost of $7,000.

These shares were returned to us by the subject employees and in exchange we paid each employee’s required tax withholding liability incurred due to the vesting of their restricted stock shares during that period.

The valuation of the shares acquired and the number of shares returned to us was calculated based on the closing share price on the date the shares vested.

The valuation of the shares we acquired and the number of shares returned to us was calculated based on the closing share price on the date the shares vested.

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 Swiss subsidiary.

As part of our overall strategy to manage the level of exposure to the risk of fluctuations in foreign currency exchange rates, we may use foreign exchange contracts in the form of forward contracts.

To the extent we enter into such contracts, there can be no guarantee any such contracts will be effective hedges against our foreign currency exchange risk.

As of March 31, 2020, 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.

As of September 30, 2020, 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.

These contracts are expected to be settled through August 2022.

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Changes in the spot-forward differential are excluded from the test of hedge effectiveness and are recorded currently in earnings as interest income or expense.

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 have not materially changed.

No hedging relationships were terminated as a result of ineffective hedging for the three or nine months ended March 31, 2020 and March 31, 2019.

We measure effectiveness by comparing the cumulative change in the hedge contract with the cumulative change in the hedged item.

No hedging relationships were terminated as a result of ineffective hedging for the three months ended September 30, 2020 and September 30, 2019.

We monitor the probability of forecasted transactions as part of the hedge effectiveness testing on a quarterly basis.

During the three and nine months ended March 31, 2020 and March 31, 2019, we did not have any losses or gains related to the ineffective portion of our hedging instruments.

As of March 31, 2020, the notional amounts of our foreign exchange contracts designated as cash flow hedges were approximately $30.4 million (EUR 26.0 million).

As of March 31, 2020, a net gain of approximately $713,000 related to derivative instruments designated as cash flow hedges was recorded in OCI.

It is expected that $633,000 will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.

As of March 31, 2020, the fair value of our cash flow hedges was an asset of $1.7 million, of which $1.6 million was classified as forward contracts, and $100,000 was classified in other non-current assets in our Consolidated Balance Sheets.

During the three months ended March 31, 2020, we recognized $990,000 of net gains in OCI, and reclassified $554,000 of gains and forward point amortization from OCI to Net Sales.

During the nine months ended March 31, 2020, we recognized $1.9 million of net gains in OCI, reclassified $2.1 million of gains and forward point amortization from OCI to Net Sales, and reclassified $54,000 of gains from OCI to Other Income.

As of June 30, 2019, $2.0 million of the fair value of our cash flow hedges was classified in forward contracts, and $312,000 was classified in other non-current assets in our Consolidated Balance Sheets.

During the three months ended March 31, 2019, we recognized $1.4 million of net gains in OCI, reclassified $450,000 of gains from OCI to Net Sales, and reclassified $490,000 of gains from OCI to Other Income.

During the nine months ended March 31, 2019, we recognized $4.1 million of net gains in OCI, reclassified $619,000 of gains from OCI to Net Sales and reclassified $1.4 million of gains from OCI to Other Income.

On July 1, 2019, we adopted ASU No.

2017-12, “ Derivatives and Hedging (Topic 815):

Targeted Improvements to Accounting for Hedging Activities .” The ASU attempts to better align an entity’s risk management activities and financial reporting for hedging relationships through changes to both the designation and measurement guidance for qualifying hedging relationships and the presentation of hedge results.

We applied ASU No.

2017-12 using a modified retrospective approach for cash flow and fair value hedges existing at the date of adoption and prospectively for the presentation and disclosure guidance.

As a result of the adoption of this ASU, amortization of forward points is now included as a component of net sales while it was previously included as a component of other income.

We included $209,000 of forward point amortization in Net Sales for the three months ended March 31, 2020, and $707,000 of forward point amortization in Net Sales for the nine months ended March 31, 2020.

We included $368,000 of forward point amortization in Other Income for the three months ended March 31, 2019, and $1.3 million of forward point amortization in Other Income for the nine months ended March 31, 2019.

During the three months ended September 30, 2020 and September 30, 2019, we did not have any losses or gains related to the ineffective portion of our hedging instruments.

As of September 30, 2020, the notional amounts of our foreign exchange contracts designated as cash flow hedges were approximately $75.7 million (EUR 66.2 million).

As of September 30, 2020, a net loss of approximately $1.8 million related to derivative instruments designated as cash flow hedges was recorded in OCI.

It is expected that $1.9 million will be reclassified into earnings in the next 12 months along with the earnings effects of the related forecasted transactions.

As of September 30, 2020, $2.5 million of the fair value of our cash flow hedges was classified as a short term liability, and $0.1 million was classified as other noncurrent assets in our Consolidated Balance Sheets.

During the three months ended September 30, 2020, we recognized $2.1 million of net losses in OCI, and reclassified $0.6 million of losses and forward point amortization from OCI to Sales.

As of June 30, 2020, $0.5 million of the fair value of our cash flow hedges was classified as a current asset, and $0.2 million was classified as a long-term liability in our Consolidated Balance Sheets.

During the three months ended September 30, 2019, we recognized $1.3 million of net gains in OCI, reclassified $0.8 million of gains and forward point amortization from OCI to Sales, and reclassified $54,000 of gains from OCI to Other Income.

Contingencies

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While unfavorable outcomes are possible, based on available information, we currently do not believe the resolution of these matters will result in a material adverse effect on our business, consolidated financial condition, or results of operations.

However, a settlement payment or unfavorable outcome could be greater than we currently anticipate and if they were they could adversely impact our results of operations.

However, a settlement payment or unfavorable outcome could be greater than we currently anticipate and if so, could adversely impact our results of operations.

Our evaluation of the likely impact of these actions could change in the future and we could have unfavorable outcomes we do not expect.

Subsequent Events

In January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus COVID-19 originating in Wuhan, China and the risks to the international community as the virus spread globally beyond its point of origin.

In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure.

As of the date of issuance of these unaudited Condensed Consolidated Financial Statements, our operations have not been significantly impacted.

However, the full impact of the COVID-19 pandemic will continue to evolve subsequent to the three and nine months ended March 31, 2020 and as of the date these unaudited Condensed Consolidated Financial Statements are issued.

As such, the full magnitude that the COVID-19 pandemic will have on our financial condition and future results of operations is uncertain.

Management is actively monitoring the situation on our financial condition, operations, suppliers, industry, customers, and workforce.

As the spread of COVID-19 continues, our ability to meet customer demands for products may be impacted or our customers may experience adverse business consequences due to COVID-19.

Reduced demand for products or ability to meet customer demand (including as a result of disruptions at our suppliers and vendors) could have a material adverse effect on our business operations and financial performance.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements