INTEGRATED BIOPHARMA, INC. Certain statements set forth under this caption constitute "forward-looking statements." See "Disclosure Regarding Forward-Looking Statements" on page 1 of this Quarterly Report on Form 10-Q for additional factors relating to such statements. The following discussion should also be read in conjunction with the condensed consolidated financial statements of the Company and Notes thereto included herein and the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 .
The Company is engaged primarily in the manufacturing, distributing, marketing
and sales of vitamins, nutritional supplements and herbal products. The
Company's customers are located primarily in
Business Outlook Our future results of operations and the other forward-looking statements contained in this Quarterly Report on Form 10-Q, including this "Management's Discussion and Analysis of Financial Condition and Results of Operation", involve a number of risks and uncertainties-in particular, the statements regarding our goals and strategies, new product introductions, plans to cultivate new businesses, future economic conditions, revenue, pricing, gross margin and costs, competition, the tax rate, and potential legal proceedings. We are focusing our efforts to improve operational efficiency and reduce spending that may have an impact on expense levels and gross margin. In addition to the various important factors discussed above, a number of other important factors could cause actual results to differ significantly from our expectations. See the risks described in "Risk Factors" in the Company's Annual Report on Form 10-K for the fiscal year endedJune 30, 2022 . For the three months endedSeptember 30, 2022 , our net sales from operations decreased by$425 to approximately$12,326 from approximately$12,751 in the three months endedSeptember 30, 2021 . Our net sales in the Contract Manufacturing Segment decreased by$774 , offset by an increase in our Other Nutraceuticals Segment of$349 . Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife in the amount of$896 and$156 , respectively. For the three months endedSeptember 30, 2022 and 2021, a significant portion of our consolidated net sales, approximately 85% and 91%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 61% and 30% and 69% and 29%, respectively, of our Contract Manufacturing Segment's net sales in the three months endedSeptember 30, 2022 and 2021, respectively. Revenues in the three months endedSeptember 30, 2022 were higher than the three months endedSeptember 30, 2021 in our Other Nutraceuticals Segment by$349 , primarily due toMDC Warehousing and Distribution, Inc. from increased business from a significant customer in this business segment representing approximately 55% of the revenue in the three months endedSeptember 30, 2022 in our Other Nutraceuticals Segment. This customer only represented 9% of revenues in our Other Nutraceutical Segment in the three months endedSeptember 30, 2021 . The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. For the three months endedSeptember 30, 2022 , we had operating income of approximately$30 , a decrease of approximately$555 from operating income of approximately$585 for the three months endedSeptember 30, 2021 . Our profit margins decreased from approximately 11.2% of net sales in the three months endedSeptember 30, 2021 to approximately 8.1% of net sales in the three months endedSeptember 30, 2022 , primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately$774 . Our consolidated selling and administrative expenses increased by approximately$128 or approximately 15.3% in the three months endedSeptember 30, 2022 compared to the three months endedSeptember 30, 2021 . Our salaries and employee benefits increased by$86 and employee stock compensation expense increased by$44 . Our revenue from our two significant customers in our Contract Manufacturing Segment is dependent on their demand within their respective distribution channels for the products we manufacture for them. As in any competitive market, our ability to match or beat other contract manufacturers pricing for the same items may also alter our outlook and the ability to maintain or increase revenues. We will continue to focus on our core businesses and push forward in maintaining our cost structure in line with our sales and expanding our customer base. -16-
-------------------------------------------------------------------------------- We are still experiencing supply chain disruptions relating to fuel refinery and transportation issues as it pertains to both shipping and production of plastics. These issues first arose as result of the COVID-19 pandemic and other geo-political events. This continues to impact the supply and demand of bottles and caps, key components in our Contract Manufacturing Segment. Transportation, in general, continues to be an issue in the delay of receiving other raw materials and our ability to meet promised delivery dates to our customers in the Contract Manufacturing Segment. Additionally, the significant outbreak of this contagious disease in the human population has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company's products and impact our operating results. While we haven't, to date, seen a significant negative impact in our margins resulting from the coronavirus outbreak, we are experiencing a negative impact on our margins due to inflation and tightened labor markets. During the first quarter of calendar 2022, the war inUkraine affected our customer's business operations inUkraine andRussia , resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions bythe United States , theUnited Kingdom , and theEuropean Union , that affect the cross-border operations of businesses operating inRussia . In addition, many multinational companies ceased or suspended their operations inRussia . Therefore, the ability to continue operations inRussia by our customers is uncertain. Also, there may be a shortage of Sunflower Oil products in the near future and this may cause delays in production of certain raw materials and may require reformulation of products. Additionally, unrelated to the war, a recent export ban of palm oil products fromIndonesia may play a role in reformulation of many products. This may cause delays in finished products as these items will need to be reformulated and labels updated and printed with the changes, which may cause further delays. While we haven't, to date, seen a significant negative impact to our margins resulting from the coronavirus outbreak, we are experiencing a slight negative impact on our margins due to inflation and tightened labor markets.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies in the three months endedSeptember 30, 2022 , except as disclosed in Note 1. Principles of Consolidation and Basis of Presentation of the Condensed Financial Statements of the Company contained in this Quarterly Report on Form 10-Q. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed by management with our Audit Committee. Those policies are discussed under "Critical Accounting Policies" in our "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7 of our Annual Report on Form 10-K for the year endedJune 30, 2022 and in Note 1. Principles of Consolidation and Basis of Presentation of the Condensed Financial Statements of the Company contained in this Quarterly Report on Form 10-Q. -17-
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Results of Operations (in thousands, except share and per share amounts)
Our results from operations in the following table, sets forth the income
statement data of our results as a percentage of net sales for the periods
indicated:
For the three months
ended September 30,
2022 2021
Sales, net 100.0 % 100.0 %
Costs and expenses:
Cost of sales 91.9 % 88.8 %
Selling and administrative 7.8 % 6.6 %
99.7 % 95.4 %
Operating income 0.3 % 4.6 %
Other income (expense), net
Interest expense (0.1% ) (0.2% )
Unrealized loss in investment in iBio Stock (0.0% ) (0.2% )
Other income, net 0.0 % 0.0 %
Other expense, net (0.1% ) (0.4% )
Income before income taxes 0.2 % 4.2 %
Income tax expense, net 0.4 % 0.2 %
Net (loss) income (0.0% ) 4.0 %
For the Three Months Ended
Sales, net. Sales, net, for the three months endedSeptember 30, 2022 and 2021 were$12,326 and$12,751 , respectively, a decrease of 3.3%, and are comprised of the following: Three months ended Dollar Percentage September 30, Change Change 2022 2021 2022 vs 2021 2022 vs 2021 (amounts in thousands) Contract Manufacturing: US Customers$ 9,088 $ 10,145 $ (1,057 ) (10.4% ) International Customers 2,473 2,190 283 12.9 % Net sales, Contract Manufacturing 11,561 12,335 (774 ) (6.3% ) OtherNutraceuticals : US Customers 765 386 379 98.2 % International Customers - 30 (30 ) (100.0% ) Net sales, Other Nutraceuticals 765 416 349 83.9 % Total net sales$ 12,326 $ 12,751 $ (425 ) (3.3% ) For the three months endedSeptember 30, 2022 and 2021, a significant portion of our consolidated net sales, approximately 85% and 91%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 61% and 30% and 69% and 29%, respectively, of our Contract Manufacturing Segment's net sales in the three months endedSeptember 30, 2022 and 2021, respectively. Revenues in the three months endedSeptember 30, 2022 were higher than the three months endedSeptember 30, 2021 in our Other Nutraceuticals Segment by$349 , primarily due toMDC Warehousing and Distribution, Inc. from increased business from a significant customer in this business segment representing approximately 55% of the revenue in the three months endedSeptember 30, 2022 in our Other Nutraceuticals Segment. This customer only represented 9% of revenues in our Other Nutraceutical Segment in the three months endedSeptember 30, 2021 . -18- -------------------------------------------------------------------------------- The decrease in net sales of approximately$425 was primarily the result of decreased net sales in our Contract Manufacturing Segment of$774 primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$895 and$196 , respectively. As noted above, these decreases were offset by the increase in the Other Nutraceutical Segment of$349 . Cost of sales. Cost of sales increased by approximately$2 to$11,329 for the three months endedSeptember 30, 2022 , as compared to$11,327 for the three months endedSeptember 30, 2021 or approximately the same. Cost of sales increased as a percentage of sales to 91.9% for the three months endedSeptember 30, 2022 as compared to 88.8% for the three months endedSeptember 30, 2021 . The substantially the same amount of cost of goods sold amount is due to fixed direct costs increasing in the three months endedSeptember 30, 2022 . The increase in the cost of goods sold as a percentage of net sales, was primarily the result of the decreased net sales available to offset the fixed manufacturing overhead. Selling and Administrative Expenses. Selling and administrative expenses increased by approximately$128 to$967 , approximately 15% in the three months endedSeptember 30, 2022 from$839 in the three months endedSeptember 30, 2021 . As a percentage of sales, net, selling and administrative expenses were approximately 7.8% and 6.6% in the three months endedSeptember 30, 2022 and 2021, respectively. Our salaries and employee benefits increased by$86 and employee stock compensation expense increased by$44 . Salaries and employee benefits increased as a result of generally increases in base pay, approximately 6%, and employee stock compensation expense increased as a result of additional stock option grants in the fiscal year endedJune 30, 2022 . Other income (expense), net. Other income (expense), net was approximately$(14) for the three months endedSeptember 30, 2022 compared to$(46) for the three months endedSeptember 30, 2021 , and is composed of: Three months ended September 30, 2022 2021 (dollars in thousands) Interest expense$ (13 ) $ (32 ) Unrealized loss on investment in iBio Stock (4 ) (20 ) Other income 3 6 Other expense, net$ (14 ) $ (46 ) Our interest expense for the three months endedSeptember 30, 2022 decreased by$19 from the three month period endedSeptember 30, 2021 , primarily as the result of lower average daily balances outstanding under the Senior Credit Facility with PNC Bank in the three month period endedSeptember 30, 2022 from the three month period endedSeptember 30, 2021 . In the three months endedSeptember 30, 2022 , and 2021, we had unrealized losses on the remaining iBio Stock of approximately$4 and$20 , respectively. Other income in the three months endedSeptember 30, 2022 is primarily interest income on the cash in the bank of$3 and in the three months endedSeptember 30, 3021 , income from bookkeeping services provided for a third party entity that is also a customer of MDC Warehousing. Federal and state income tax expense, net. For the three months endedSeptember 30, 2022 and 2021, the Company had federal deferred income tax expense of$21 , and a deferred federal income tax benefit, net of$38 , respectively and state income tax expense, net of approximately$30 and$61 , in the three months endedSeptember 30, 2022 and 2021, respectively. The net federal income tax benefit of$38 in the three months endedSeptember 30, 2021 , includes the release of$128 of the valuation allowance on deferred tax assets. -19-
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Net (loss) income. Our net (loss) income for the three months endedSeptember 30, 2022 and 2021 was approximately$(35) and$516 , respectively. The decrease of approximately$551 was primarily the result of decreased operating income of$555 . Seasonality The nutraceutical business can be seasonal. Due to our current customer base in our contract manufacturing segment, our fiscal quarter endingDecember 31st each year tends to be more than our average quarterly volume for the other three fiscal quarters in the fiscal year. This increase is based on their forecast of their customer base. The Company believes that there are non-seasonal factors that may influence the variability of quarterly results including, but not limited to, general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements. Accordingly, a comparison of the Company's results of operations from consecutive periods is not necessarily meaningful, and the Company's results of operations for any period are not necessarily indicative of future periods.
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, the Company's net
cash flows used in operating, investing and financing activities, its period end
cash and cash equivalents and other operating measures:
For the three months ended
September 30,
2022 2021
(dollars in thousands)
Net cash provided by operating activities $ 992 $ 2,101
Net cash used in investing activities $ (50 ) $ (131 )
Net cash used in financing activities
Cash at end of period$ 1,168 $ 57 AtSeptember 30, 2022 , our working capital was approximately$11,156 , a decrease of$207 from our working capital of$11,363 atJune 30, 2022 . The decrease in our working capital was the result of our current liabilities increasing by of$644 and was offset by an increase in our current assets of$437 . Operating Activities Net cash provided by operating activities of$992 in the three months endedSeptember 30, 2022 includes a net loss of approximately$35 . After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in deferred tax assets, the adjusted cash provided from operations before the effect of the changes in working capital components was$358 . Net cash provided by our operations in the three months endedSeptember 30, 2022 from our working capital assets and liabilities in the amount of approximately$634 was primarily the result of cash provided from a decrease in our accounts receivable of$1,177 and an aggregate increase in accounts payable, accrued expenses and other liabilities of$238 , offset in part, by increases in inventories of approximately$613 and prepaid and other assets of$170 . Net cash provided by operating activities of$2,101 in the three months endedSeptember 30, 2021 includes net income of approximately$516 . After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in deferred tax assets, the adjusted cash provided from operations before the effect of the changes in working capital components was$748 . Net cash provided by our operations in the three months endedSeptember 30, 2021 from our working capital assets and liabilities in the amount of approximately$1,353 was primarily the result of cash provided from a decrease in our accounts receivable of$1,975 and an aggregate increase in accounts payable, accrued expenses and other liabilities of$632 , offset in part, by increases in inventories of approximately$927 and prepaid and other assets of$202 . -20-
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Investing Activities Cash used in investing activities in the three months endedSeptember 30, 2022 and 2021, of approximately$50 and$131 was from the purchase of machinery and equipment, respectively. Financing Activities Cash used in financing activities was approximately$105 for the three months endedSeptember 30, 2022 , and was primarily from repayments of advances under our revolving credit facility of$101 and principal payments under financed lease obligations of$4 . Cash used in financing activities was approximately$2,123 for the three months endedSeptember 30, 2021 , and was primarily from net repayments of advances under our revolving credit facility of$801 and principal payments under our term notes in the amount of$1,326 . As ofSeptember 30, 2022 , we had cash of$1,168 , funds available under our revolving credit facility of approximately$5,237 and working capital of approximately$11,156 . We had income from operations of approximately$30 in the three months endedSeptember 30, 2022 . After taking into consideration our interim results and current projections, management believes that operations, together with the revolving credit facility will support our working capital requirements at least through the period endingNovember 10, 2023 . Our total annual commitments atSeptember 30, 2022 for long term non-cancelable leases of approximately$894 consists of obligations under operating leases for facilities and operating lease agreements for the rental of machinery and equipment and office equipment. Capital Expenditures The Company's capital expenditures for the three months endedSeptember 30, 2022 and 2021 were approximately$50 and$131 , respectively. The Company has budgeted approximately$500 for capital expenditures for fiscal year 2023. The total amount is expected to be funded from lease financing and cash provided from the Company's operations.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Recent Accounting Pronouncements
None. Impact of Inflation
The Company does not believe that inflation has significantly affected its results of operations.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-21---------------------------------------------------------------------------------
Item 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the "Exchange Act") is recorded, processed, summarized, and reported within the time periods specified by theSEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Co-Chief Executive Officers and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as ofSeptember 30, 2022 , and, based upon this evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting occurred during the
three months ended
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, we may become involved in various lawsuits and legal
proceedings that arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties and an adverse result in these or other
matters may arise from time to time that may harm our business. We are currently
not aware of any such legal proceedings or claims that we believe will have a
material adverse effect on our business, financial condition or operating
results.
Item 1A. Risk Factors
There have been no material changes to the risk factors set forth in our Annual
Report on Form 10-K for the fiscal year ended
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of
None
Purchases of
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
-22---------------------------------------------------------------------------------
Item 4. MINE SAFETY DISCLOSURE
Not Applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
(a) Exhibits
Exhibit
Number
31.1 Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 by
Co-Chief Executive Officers.
31.2 Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002 by
Chief Financial Officer.
32.1 Certification of periodic financial
report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Co-Chief
Executive Officers.
32.2 Certification of periodic financial
report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 by Chief
Financial Officer.
101.INS*** Inline XBRL Instance furnished herewith
101.SCH*** Inline XBRL Taxonomy Extension Schema furnished herewith 101.CAL*** Inline XBRL Taxonomy Extension furnished herewith
Calculation
101.DEF*** Inline XBRL Taxonomy Extension furnished herewith
Definition
101.LAB*** Inline XBRL Taxonomy Extension Labels furnished herewith 101.PRE*** Inline XBRL Taxonomy Extension furnished herewith
Presentation
104 Cover Page Interactive Date File
(formatted as Inline XBRL and contained
in Exhibit 101)
-23---------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTEGRATED BIOPHARMA, INC.
Date: November 10, 2022 By: /s/ Christina Kay
Christina Kay ,
Co-Chief Executive Officer
Date: November 10, 2022 By: /s/ Riva Sheppard
Riva Sheppard ,
Co-Chief Executive Officer
Date: November 10, 2022 By: /s/ Dina L. Masi
Dina L. Masi ,
Chief Financial Officer & Senior Vice President
-24-© Edgar Online, source
