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 six months endedDecember 31, 2021 , our net sales from operations decreased by$2,084 to approximately$27,345 from approximately$29,429 in the six months endedDecember 31, 2020 . Our net sales in the Contract Manufacturing Segment decreased by$2,261 , offset by an increase in our Other Nutraceuticals Segment of$177 . Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$1,969 and$390 , respectively. For the six months endedDecember 31, 2021 , we had operating income of approximately$1,315 , a decrease of approximately$1,438 from operating income of approximately$2,753 for the six months endedDecember 31, 2020 . Our profit margins decreased from approximately 15.5% of net sales in the six months endedDecember 31, 2020 to approximately 11.6% of net sales in the six months endedDecember 31, 2021 , primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately$2,261 and increased direct manufacturing costs of$541 . Our consolidated selling and administrative expenses increased by approximately$65 or approximately 3.6% in the six months endedDecember 31, 2021 compared to the six months endedDecember 31, 2020 . Our employee stock compensation expense increased by$88 which was offset by a decrease in expected losses on customer receivables of$18 . 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 supply chain issues resulting from the global outbreak of COVID-19, or coronavirus, has caused minor disruptions in our supply chain. Most of the materials required in our manufacturing process could be obtained from more than one supplier, which assisted in mitigating major disruptions in our business. We continue to pursue qualification of new suppliers and new materials. These minor delays have and continue to delay our standard lead times, in the production and shipment of our customers supplements, thereby shifting the timing of recognizing the resulting sale. 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 . -18-
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We also continue to experience supply chain disruptions relating to fuel refinery and transportation issues as it pertains to the production of plastics. 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 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 our products and impact our operating results. 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 endedDecember 31, 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. -19-
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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 For the six months
ended December 31, ended December 31,
2021 2020 2021 2020
Sales, net 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of sales 88.0 % 84.8 % 88.4 % 84.5 %
Selling and administrative 7.0 % 6.5 % 6.8 % 6.1 %
95.0 % 91.3 % 95.2 % 90.6 %
Income from operations 5.0 % 8.7 % 4.8 % 9.4 %
Other income (expense), net
Interest expense (0.3% ) (0.6% ) (0.3% ) (0.5% )
Realized gain on sale of iBio Stock - - - 0.2 %
Unrealized loss on investments (0.2% ) (0.3% ) (0.1% ) (0.3% )
Other income, net 0.2 % 0.1 % 0.1 % 0.0 %
Other expense, net (0.3% ) (0.8% ) (0.3% ) (0.6% )
Income before income taxes 4.7 % 7.9 % 4.5 % 8.8 %
Income tax benefit (expense), net 2.4 % 0.7 % 1.2 % (1.1% )
Net income 7.1 % 8.6 % 5.7 % 7.7 %
For the Six Months Ended
Sales, net. Sales, net, for the six months endedDecember 31, 2021 and 2020 were$27,345 and$29,429 , respectively, a decrease of 7.1%, and were comprised of the following: Six months ended Dollar Percentage December 31, Change Change 2021 2020 2021 vs 2020 2021 vs 2020 (amounts in thousands) Contract Manufacturing: US Customers$ 21,874 $ 25,492 $ (3,618 ) (14.2 %) International Customers 4,523 3,166 1,357 42.9 % Net sales, Contract Manufacturing 26,397 28,658 (2,261 ) (7.9 %) OtherNutraceuticals : US Customers 918 720 198 27.5 % International Customers 30 51 (21 ) (41.2 %) Net sales, Other Nutraceuticals 948 771 177 23.0 % Total net sales$ 27,345 $ 29,429 $ (2,084 ) (7.1 %) In the six months endedDecember 31, 2021 and 2020, a significant portion of our consolidated net sales, approximately 90% and 92%, were concentrated among two customers in our Contract Manufacturing Segment, Life Extension and Herbalife. Life Extension and Herbalife represented approximately 69% and 25% and 70% and 24%, respectively, of our Contract Manufacturing Segment's net sales in the six months endedDecember 31, 2021 and 2020, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. -20-
-------------------------------------------------------------------------------- The decrease in net sales of approximately$2,084 was primarily the result of decreased net sales in our Contract Manufacturing Segment by$2,261 primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$1,969 and$390 , respectively. Cost of sales. Cost of sales decreased by approximately$711 to$24,171 for the six months endedDecember 31, 2021 , as compared to$24,882 for the six months endedDecember 31, 2020 or approximately 3%. Cost of sales increased as a percentage of sales to 88.4% for the six months endedDecember 31, 2021 as compared to 84.5% for the six months endedDecember 31, 2020 . The decrease of 3% in the cost of goods sold amount is the result in the change of the product mix sold in the Contract Manufacturing Segment and the decrease in net sales. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of increased direct manufacturing costs of 9% and secondarily the result of the decreased net sales used to offset the fixed manufacturing overhead. There were no significant changes in the cost of goods sold in our other segment other than the variances in sales. Selling and Administrative Expenses. There was an increase in selling and administrative expenses of$65 , approximately 4% in the six months endedDecember 31, 2021 as compared to the six months endedDecember 31, 2020 . As a percentage of sales, net, selling and administrative expenses were approximately 6.8% and 6.1% in the six months endedDecember 31, 2021 and 2020, respectively. The increase of$65 was primarily from increase in employee stock compensation expense of$88 as a result of issuing stock options inNovember 2021 and 2020 offset, in part, by a decrease in expected losses on customer receivables of$18 . Other income (expense), net. Other income (expense), net was approximately$85 for the six months endedDecember 31, 2021 compared to$156 for the six months endedDecember 31, 2020 , and was composed of: Six months ended December 31, 2021 2020 (dollars in thousands) Interest expense$ (74 ) $ (155 ) Realized gain on sale of investment in iBio Stock -
56
Unrealized loss on investment in iBio Stock (42 ) (73 ) Other income 31
16
Other income (expense), net$ (85 ) $ (156 ) Our interest expense for the six months endedDecember 31, 2021 decreased by$81 from the six month period endedDecember 31, 2020 , primarily resulting from of lower average daily balances outstanding under the Senior Credit Facility with PNC. In the six months endedDecember 31, 2020 , we sold 16,000 shares of iBio Stock for a gain of$56 with no such sales in the six months endedDecember 31, 2021 . Also, in the six months endedDecember 31, 2021 , and 2020, we had an unrealized loss on the remaining iBio Stock of approximately$42 and$73 , respectively. Income tax benefit (expense), net. For the six months endedDecember 31, 2021 and 2020, we had a state income tax provision of approximately$165 and$311 , respectively and a federal income tax benefit of$482 in the six months endedDecember 31, 2021 and federal income tax expense of$21 in the six months endedDecember 31, 2020 . 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 six months endedDecember 31, 2021 and 2020 was approximately$1,547 and$2,265 , respectively. The decrease of approximately$718 was primarily the result of decreased operating income of$1,438 and offset by the decrease in other expense, net of$71 , and the positive change in the provision for income taxes of$649 . -21- --------------------------------------------------------------------------------
For the Three Months Ended
Sales, net. Sales, net, for the three months endedDecember 31, 2021 and 2020 were$14,594 and$14,257 , respectively, an increase of 2.4%, and are comprised of the following: Three months ended Dollar Percentage December 31, Change Change 2021 2020 2021 vs 2020 2021 vs 2020 (amounts in thousands) Contract Manufacturing: US Customers$ 11,729 $ 12,168 $ (439 ) (3.6 %) International Customers 2,333 1,704 629 36.9 % Net sales, Contract Manufacturing 14,062 13,872 190 1.4 % OtherNutraceuticals : US Customers 532 339 193 56.9 % International Customers - 46 (46 ) (100.0 %) Net sales, Other Nutraceuticals 532 385 147 38.2 % Total net sales$ 14,594 $ 14,257 $ 337 2.4 % For the three months endedDecember 31, 2021 and 2020, a significant portion of our consolidated net sales, approximately 90% and 92%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 73% and 21% and 72% and 24%, respectively, of our Contract Manufacturing Segment's net sales in the three months endedDecember 31, 2021 and 2020, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. The increase in net sales of approximately$337 was primarily the result of increased net sales in our Contract Manufacturing Segment by$190 primarily due to increased sales volumes to Life Extension of$276 and all other customers of$203 , offset by decreases in sales volume to Herbalife in the amount$289 , respectively and a combined net increase in net sales in our Other Nutraceuticals Segment of$147 . Cost of sales. Cost of sales were substantially the same in the each of three months endedDecember 31, 2021 and 2020,$12,844 as compared to$12,171 , respectively. Cost of sales increased as a percentage of sales to 88.0% for the three months endedDecember 31, 2021 as compared to 84.8% for the three months endedDecember 31, 2020 . The increase of 6% in the cost of goods sold amount is the result in the change of the product mix sold in the Contract Manufacturing Segment and the increase in net sales. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of increased direct manufacturing costs of 17%. There were no significant changes in the cost of goods sold in our other segment other than the variances in sales. Selling and Administrative Expenses. There was an increase in selling and administrative expenses of$90 , approximately 9.7% in the three months endedDecember 31, 2021 as compared to the three months endedDecember 31, 2020 . As a percentage of sales, net, selling and administrative expenses were approximately 7.0% and 6.5% in the three months endedDecember 31, 2021 and 2020, respectively. The increase of$90 was primarily from increases in (i) employee stock compensation expense of$59 and (ii) salaries and employee benefit costs of$60 . These increases were offset, in part by a decrease in other expenses of$36 which includes an insurance recovery of$38 for damages recovered that were incurred as the result of Hurricane IDA. No other component of selling and administrative expenses increased by more than$10 in the three-month period endedDecember 31, 2021 compared to the same period endedDecember 31, 2020 . -22-
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Other income (expense), net. Other income (expense), net was approximately
Three months ended
December 31,
2021 2020
(dollars in thousands)
Interest expense $ (42 ) $ (79 )
Unrealized loss on investment in iBio Stock (22 ) (44 )
Other income 25 8
Other expense, net $ (39 ) $ (115 )
Our interest expense for the three months ended December 31, 2021 decreased by
$37 from the three month period ended December 31, 2020 , primarily as the result
of lower average daily balances outstanding under the Senior Credit Facility
with PNC.
Income tax benefit (expense), net. For the three months ended December 31, 2021
and 2020, we had a federal deferred income tax benefit of $444 and $252 ,
respectively, and state income tax expense, net of approximately $104 and $157 ,
in the three months ended December 31, 2021 and 2020, respectively. 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 ended December 31, 2021 and 2020
was approximately $1,031 and $1,224 , respectively. The decrease of approximately
$193 was primarily the result of the decrease in operating income of $514 offset
by decreases in other expense, net of $76 and in the provision for income taxes
of $245 .
Seasonality
The nutraceutical business can be seasonal. Due to our current customer base in
our contract manufacturing segment, our fiscal quarter ending December 31st each
year tends to be more than our average quarterly volume for the other three
fiscal quarters in the fiscal year. This increase is based on their forecast of
their customer base.
The Company believes that there are non-seasonal factors that may influence the
variability of quarterly results including, but not limited to, general economic
and industry conditions that affect consumer spending, changing consumer demands
and current news on nutritional supplements. Accordingly, a comparison of the
Company's results of operations from consecutive periods is not necessarily
meaningful, and the Company's results of operations for any period are not
necessarily indicative of future periods.
-23---------------------------------------------------------------------------------
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, the Company's net
cash flows used in operating, investing and financing activities, its period end
cash and cash equivalents and other operating measures:
For the six months ended
December 31,
2021 2020
(dollars in thousands)
Net cash provided by operating activities
Cash at end of period$ 162 $ 43 AtDecember 31, 2021 , our working capital was approximately$9,963 , an increase of$1,201 from our working capital of$8,762 atJune 30, 2021 . Our current assets increased by$1,349 offset by an increase in our current liabilities of$148 . The increase in the current assets is primarily from increases in inventories in the amount of$1,426 , offset, in part, by a decrease in accounts receivable, net of$309 . Operating Activities Net cash provided by operating activities of$713 in the six months endedDecember 31, 2021 includes net income of approximately$1,547 . 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$1,698 . Net cash provided by our operations in the six months endedDecember 31, 2021 was offset by uses in our working capital assets and liabilities in the amount of approximately$985 and was primarily the result of an increase in our inventory of$1,426 , offset by an aggregate increase in accounts payable, accrued expenses and other liabilities of$454 . Net cash provided by operating activities of$1,164 in the six months endedDecember 31, 2020 includes net income of approximately$2,265 . 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$2,832 . Net cash provided by our operations in the six months endedDecember 31, 2020 was offset by uses in our working capital assets and liabilities in the amount of approximately$1,668 and was primarily the result of an increase in our inventory of$3,815 , offset by an aggregate increase in accounts payable, accrued expenses and other liabilities of$1,442 and a decrease in accounts receivable of$970 . Investing Activities Cash used in investing activities in the six months endedDecember 31, 2021 of approximately$287 was for the purchase of machinery and equipment of$308 offset by proceeds from the sale of fully depreciated machinery and equipment of$21 . Cash used in investing activities of$21 in the six months endedDecember 31, 2020 was from proceeds of$96 from the sale of iBio Stock offset by the purchase of machinery and equipment of$117 . Financing Activities Cash used in financing activities was approximately$474 for the six months endedDecember 31, 2021 , and was primarily from repayments of advances under our revolving credit facility of$27,602 and principal payments under our term notes in the amount of$1,453 , offset by advances under our revolving credit facility of approximately$28,574 . -24-
-------------------------------------------------------------------------------- Cash used in financing activities was approximately$1,502 for the six months endedDecember 31, 2020 , and was primarily from repayments of advances under our revolving credit facility of$29,151 and principal payments under our term notes in the amount of$862 , offset by advances under our revolving credit facility of approximately$28,579 . As ofDecember 31, 2021 , we had cash of$162 , funds available under our revolving credit facility of approximately$4,025 and working capital of approximately$9,963 . Our working capital includes$3,146 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$1,315 in the six months endedDecember 31, 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 endingFebruary 10, 2023 . Our total annual commitments atDecember 31, 2021 for long term non-cancelable leases of approximately$574 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 six months endedDecember 31, 2021 and 2020 were approximately$308 and$117 , 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.
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. -25- -------------------------------------------------------------------------------- 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 ofDecember 31, 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
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. MINE SAFETY DISCLOSURE
Not Applicable.
Item 5. OTHER INFORMATION
None.
-26---------------------------------------------------------------------------------
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 Furnished herewith
Instance
101.SCH*** Inline XBRL Furnished herewith
Taxonomy Extension
Schema
101.CAL*** Inline XBRL Furnished herewith
Taxonomy Extension
Calculation
101.DEF*** Inline XBRL Furnished herewith
Taxonomy Extension
Definition
101.LAB*** Inline XBRL Furnished herewith
Taxonomy Extension
Labels
101.PRE*** Inline XBRL Furnished herewith
Taxonomy Extension
Presentation
104 Cover Page Interactive Date File (formatted as Inline XBRL and contained in
Exhibit 101)
-27---------------------------------------------------------------------------------
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: February 10, 2022 By: /s/ Christina Kay
Christina Kay ,
Co-Chief Executive Officer
Date: February 10, 2022 By: /s/ Riva Sheppard
Riva Sheppard ,
Co-Chief Executive Officer
Date: February 10, 2022 By: /s/ Dina L. Masi
Dina L. Masi ,
Chief Financial Officer & Senior Vice President
-28-
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