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, 2021 . 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 inthe United States , Luxembourg andCanada . 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, 2021 . For the three months endedSeptember 30, 2021 , our net sales from operations decreased by$2,421 to approximately$12,751 from approximately$15,172 in the three months endedSeptember 30, 2020 . Our net sales in the Contract Manufacturing Segment decreased by$2,451 , offset by an increase in our Other Nutraceuticals Segment of$30 . Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife in the amount of$2,245 and$100 , respectively. Revenues in the quarter endedSeptember 30, 2020 were higher than the quarter endedSeptember 30, 2021 due to increased safety stock and consumer demands required by our customers during the height of the COVID-19 pandemic. We also believe the fear of slowdowns in production due to the pandemic were contributing factors in our three-month revenues endedSeptember 30, 2020 . For the three months endedSeptember 30, 2021 , we had operating income of approximately$585 , a decrease of approximately$924 from operating income of approximately$1,509 for the three months endedSeptember 30, 2020 . Our profit margins decreased from approximately 15.6% of net sales in the three months endedSeptember 30, 2020 to approximately 11.2% of net sales in the three months endedSeptember 30, 2021 , primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately$2,451 . Our consolidated selling and administrative expenses decreased by approximately$25 or approximately 3% in the three months endedSeptember 30, 2021 compared to the three months endedSeptember 30, 2020 . 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. The continued global outbreak of COVID-19, or coronavirus, has the potential to cause a disruption in our supply chain. Most of these materials may be obtained from more than one supplier. However, due to port closures and other restrictions resulting from the coronavirus outbreak throughout the world, these suppliers, located both inside and outside ofthe United States , may have limited supply of the materials, which will cause the price of the materials to increase. These and other disruptions would likely impact our sales and operating results. If we are unable to obtain the necessary materials to produce a supplement within our standard lead times, it may delay the production and shipment of those supplements, thereby shifting the timing of recognizing the resulting sale to our customers. Transportation continues to be a factor in obtaining materials in a timely manner. A shortage of containers is making it difficult for suppliers abroad to get materials tothe United States . -16-
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Additionally, a disruption in the supply chain for personal protection equipment
("PPE") and cleaning supplies used in our manufacturing facilities could have an
adverse effect on our operations. In accordance with our standard operating
procedures and the updated guidelines issued by the Centers for Disease Control
and Prevention (the "CDC") for personal safety, adopted by The U.S. Department
of Labor Occupational Safety and Health Administration , we are required to
provide the PPE for our employees to wear while working. The inability to
obtain timely PPE and cleaning supplies may result in temporary closures of
impacted production areas until the needed supplies are obtained.
In addition to supply chain issues resulting from the COVID-19 pandemic, we are
experiencing supply chain disruptions relating to fuel refinery and
transportation issues as it pertains to the production of plastics. This is
impacting 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 materials and our ability to meet promised
delivery dates to our customers in our Contract Manufacturing Segment.
Furthermore, 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.
We do not currently anticipate any negative impact to our margins resulting from
the coronavirus outbreak, however; if we are unable to obtain the necessary
materials to produce a supplement within our standard lead times or the
necessary safety and cleaning supplies it may delay the production and shipment
of those supplements to our customers, thereby shifting the timing of
recognizing the resulting sale to our customers.
Critical Accounting Policies and Estimates
There have been no changes to our critical accounting policies in the three months endedSeptember 30, 2021 , 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, 2021 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,
2021 2020
Sales, net 100.0 % 100.0 %
Costs and expenses:
Cost of sales 88.8 % 84.4 %
Selling and administrative 6.6 % 5.7 %
95.4 % 90.1 %
Operating income 4.6 % 9.9 %
Other income (expense), net
Interest expense (0.2% ) (0.5% )
Realized gain on sale of investment in iBio, Stock - 0.4 %
Unrealized loss in investment in iBio Stock (0.2% ) (0.2% )
Other income, net 0.0 % 0.1 %
Other expense, net (0.4% ) (0.2% )
Income before income taxes 4.2 % 9.7 %
Income tax expense, net 0.2 % 2.8 %
Net income 4.0 % 6.9 %
For the Three Months Ended
Sales, net. Sales, net, for the three months endedSeptember 30, 2021 and 2020 were$12,751 and$15,172 , respectively, a decrease of 16.0%, and are comprised of the following: Three months ended Dollar Percentage September 30, Change Change 2021 2020 2021 vs 2020 2021 vs 2020 (amounts in thousands) Contract Manufacturing: US Customers$ 10,145 $ 13,324 $ (3,179 ) (23.9% ) International Customers 2,190 1,462 728 49.8 % Net sales, Contract Manufacturing 12,335 14,786 (2,451 ) (16.6% ) OtherNutraceuticals : US Customers 386 381 5 1.3 % International Customers 30 5 25 500.0 % Net sales, Other Nutraceuticals 416 386 30 7.8 % Total net sales$ 12,751 $ 15,172 $ (2,421 ) (16.0% ) For the three months endedSeptember 30, 2021 and 2020, a significant portion of our consolidated net sales, approximately 91% and 92%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 65% and 29% and 69% and 25%, respectively, of our Contract Manufacturing Segment's net sales in the three months endedSeptember 30, 2021 and 2020, respectively. Revenues in the quarter endedSeptember 30, 2020 were higher than the quarter endedSeptember 30, 2021 due to increased safety stock and consumer demands required by our customers during the height of the COVID-19 pandemic. We also believe the fear of slowdowns in production due to the pandemic were contributing factors in our three-month revenues endedSeptember 30, 2020 . The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. -18- -------------------------------------------------------------------------------- The decrease in net sales of approximately$2,421 was primarily the result of decreased net sales in our Contract Manufacturing Segment of$2,451 primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$2,245 and$100 , respectively. Cost of sales. Cost of sales decreased by approximately$1,472 to$11,327 for the three months endedSeptember 30, 2021 , as compared to$12,799 for the three months endedSeptember 30, 2020 or approximately 11.5%. Cost of sales increased as a percentage of sales to 88.8% for the three months endedSeptember 30, 2021 as compared to 84.4% for the three months endedSeptember 30, 2020 . The 11.5% decrease in the cost of goods sold amount is consistent with the decrease in net sales of approximately 16%. 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 decreased by approximately$25 , approximately 3% in the three months endedSeptember 30, 2021 from$864 to$839 in the three months endedSeptember 30, 2020 . As a percentage of sales, net, selling and administrative expenses were approximately 6.6% and 5.7% in the three months endedSeptember 30, 2021 and 2020, respectively.
Other income (expense), net. Other income (expense), net was approximately
Three months ended
September 30,
2021 2020
(dollars in thousands)
Interest expense $ (32 ) $ (76 )
Realized gain on sale of investment in iBio Stock - 56
Unrealized loss on investment in iBio Stock (20 ) (29 ) Other income 6 8 Other expense, net$ (46 ) $ (41 ) Our interest expense for the three months endedSeptember 30, 2021 decreased by$44 from the three month period endedSeptember 30, 2020 , 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, 2021 from the three month period endedSeptember 30, 2020 . In the three months endedSeptember 30, 2020 , we sold 16,000 shares of iBio Stock for a gain of$56 with no such sales in the three months endedSeptember 30, 2021 . Also, in the three months endedSeptember 30, 2021 , and 2020, we had unrealized losses on the remaining iBio Stock of approximately$20 and$29 , respectively. Federal and state income tax expense, net. For the three months endedSeptember 30, 2021 and 2020, we had a net federal income tax benefit of$38 and a deferred income tax expense of$273 , respectively and state income tax expense, net of approximately$61 and$154 , in the three months endedSeptember 30, 2021 and 2020, respectively. The net federal benefit of$38 in the three months endedSeptember 30, 2021 , includes the release of$128 of the allowance on deferred tax assets. We continue to maintain a reserve on a portion of our deferred tax assets as it has been determined that based upon past losses, the Company's past liquidity concerns and the current economic environment, it is "more likely than not" that the Company's deferred tax assets may not be fully realized. Net income. Our net income for the three months endedSeptember 30, 2021 and 2020 was approximately$516 and$1,041 , respectively. The decrease of approximately$525 was primarily the result of decreased operating income of$924 offset by the decrease in income taxes of$403 . 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. -19-
-------------------------------------------------------------------------------- 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,
2021 2020
(dollars in thousands)
Net cash provided by operating activities $ 2,101
43
Net cash used in financing activities $ (2,123 ) $ (1,994 )
Cash at end of period $ 57 $ 369
At September 30, 2021 , our working capital was approximately $9,282 , an increase
of $520 from our working capital of $8,762 at June 30, 2021 . The increase in our
working capital was the result of our current liabilities decreasing by of
$1,535 and was offset by a decrease in our current assets of $1,014 . The
decrease in the current assets is primarily from a decrease in accounts
receivable, net of $1,975 offset by an increase in inventories of $927 and the
decrease in current liabilities was primarily the result of the decrease in our
senior credit facility in the amount of $2,121 , offset by an increase accounts
payable and accrued expenses and other current liabilities of $587 .
Operating Activities
Net cash provided by operating activities of $2,101 in the three months ended
September 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 ended September 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 .
Net cash provided by operating activities of $1,918 in the three months ended
September 30, 2020 includes net income of approximately $1,041 . 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 $1,507 . Net
cash provided by our operations in the three months ended September 30, 2020
from our working capital assets and liabilities in the amount of approximately
$411 was primarily the result of cash provided from a decrease in our accounts
receivable of $652 and an aggregate increase in accounts payable, accrued
expenses and other liabilities of $2,745 , offset in part, by increases in
inventories of approximately $2,655 and prepaid and other assets of $211 .
-20-
--------------------------------------------------------------------------------Investing Activities Cash used in investing activities in the three months endedSeptember 30, 2021 of approximately$131 was from the purchase of machinery and equipment. Cash provided by investing activities in the three months endedSeptember 30, 2020 of approximately$43 was from proceeds of$96 from the sale of iBio Stock offset by the purchase of machinery and equipment of$53 . Financing Activities Cash used in financing activities was approximately$2,123 for the three months endedSeptember 30, 2021 , and was primarily from repayments of advances under our revolving credit facility of$14,830 and principal payments under our term notes in the amount of$1,326 , offset by advances under our revolving credit facility of approximately$14,029 . Cash used in financing activities was approximately$1,994 for the three months endedSeptember 30, 2020 , and was primarily from repayments of advances under our revolving credit facility of$15,144 and principal payments under our term notes in the amount of$734 , offset by advances under our revolving credit facility of approximately$13,921 . As ofSeptember 30, 2021 , we had cash of$57 , funds available under our revolving credit facility of approximately$4,257 and working capital of approximately$9,283 . Our working capital includes$1,373 outstanding under our revolving line of credit which is not due untilMay 2024 but classified as current due to a subjective acceleration clause that could cause the advances to become currently due. (See Note 4 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). Additionally, we had income from operations of approximately$585 in the three months endedSeptember 30, 2021 . 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, 2022 . Our total annual commitments atSeptember 30, 2021 for long term non-cancelable leases of approximately$565 consists of obligations under operating leases for facilities and operating lease agreements for the rental of warehouse equipment, office equipment and automobiles. Capital Expenditures The Company's capital expenditures for the three months endedSeptember 30, 2021 and 2020 were approximately$131 and$53 , respectively. The Company has budgeted approximately$500 for capital expenditures for fiscal year 2022. 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.
-21-
--------------------------------------------------------------------------------Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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, 2021 , 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
-22---------------------------------------------------------------------------------
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURE
Not Applicable.
Item 5. OTHER INFORMATION
None.
Item 6. EXHIBITS
(a) Exhibits
Exhibit
Number
31.1 Certification of pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
by Chief Executive Officer.
31.2 Certification of 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 Chief
Executive Officer.
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, 2021 By: /s/ Christina Kay
Christina Kay ,
Co-Chief Executive Officer
Date: November 10, 2021 By: /s/ Riva Sheppard
Riva Sheppard ,
Co-Chief Executive Officer
Date: November 10, 2021 By: /s/ Dina L. Masi
Dina L. Masi ,
Chief Financial Officer & Senior Vice President
-24-© Edgar Online, source
