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 nine months endedMarch 31, 2022 , our net sales from operations decreased by$3,522 to approximately$42,979 from approximately$46,501 in the nine months endedMarch 31, 2021 . Our net sales in the Contract Manufacturing Segment decreased by$3,641 , offset by an increase in our Other Nutraceuticals Segment of$119 . Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$2,959 and$755 , respectively. For the nine months endedMarch 31, 2022 , we had operating income of approximately$2,307 , a decrease of approximately$2,165 from operating income of approximately$4,472 for the nine months endedMarch 31, 2021 . Our profit margins decreased from approximately 15.5% of net sales in the nine months endedMarch 31, 2021 to approximately 12.0% of net sales in the nine months endedMarch 31, 2022 , primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately$3,641 and increased direct manufacturing costs of$841 . Our consolidated selling and administrative expenses increased by approximately$113 or approximately 4.1% in the nine months endedMarch 31, 2022 compared to the nine months endedMarch 31, 2021 . Our employee stock compensation expense increased by$128 which was offset, in part, 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. 18
--------------------------------------------------------------------------------
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 . 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. 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 endedMarch 31, 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, 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
--------------------------------------------------------------------------------
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 nine months
ended March 31, ended March 31,
2022 2021 2022 2021
Sales, net 100.0 % 100.0 % 100.0 % 100.0 %
Costs and expenses:
Cost of sales 87.4 % 84.4 % 88.0 % 84.5 %
Selling and administrative 6.3 % 5.5 % 6.6 % 5.9 %
93.7 % 89.9 % 94.6 % 90.4 %
Income from operations 6.3 % 10.1 % 5.4 % 9.6 %
Other income (expense), net
Interest expense (0.2% ) (0.3% ) (0.2% ) (0.5% )
Realized gain on sale of iBio Stock - - - 0.1 %
Unrealized (loss) gain on investments (0.0% ) 0.1 % (0.0% ) (0.1% )
Other income, net 0.0 % 0.1 % 0.1 % 0.1 %
Other income (expense), net (0.2% ) (0.1% ) (0.3% ) (0.4% )
Income before income taxes 6.1 % 10.0 % 5.1 % 9.2 %
Income tax (expense) benefit, net (1.0% ) (2.7% ) 0.4 % (1.7% )
Net income 5.1 % 7.3 % 5.5 % 7.5 %
For the Nine months Ended
Sales, net. Sales, net, for the nine months endedMarch 31, 2022 and 2021 were$42,979 and$46,501 , respectively, a decrease of 7.6%, and were comprised of the following: Nine months ended Dollar Percentage March 31, Change Change 2022 2021 2022 vs 2021 2022 vs 2021 (amounts in thousands) Contract Manufacturing: US Customers$ 34,559 $ 39,803 $ (5,244 ) (13.2% ) International Customers 7,077 5,474 1,603 29.3 % Net sales, Contract Manufacturing 41,636 45,277 (3,641 ) (8.0% ) OtherNutraceuticals : US Customers 1,281 1,148 133 11.6 % International Customers 62 76 (14 ) (18.4% ) Net sales, Other Nutraceuticals 1,343 1,224 119 9.7 % Total net sales$ 42,979 $ 46,501 $ (3,522 ) (7.6% ) In the nine months endedMarch 31, 2022 and 2021, a significant portion of our consolidated net sales, approximately 91% and 92%, were concentrated among two customers in our Contract Manufacturing Segment, Life Extension and Herbalife. Life Extension and Herbalife represented approximately 69% and 24% and 70% and 24%, respectively, of our Contract Manufacturing Segment's net sales in the nine months endedMarch 31, 2022 and 2021, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. The decrease in net sales of approximately$3,522 was primarily the result of decreased net sales in our Contract Manufacturing Segment by$3,641 primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of$2,959 and$755 , respectively. 20 -------------------------------------------------------------------------------- Cost of sales. Cost of sales decreased by approximately$1,470 to$37,823 for the nine months endedMarch 31, 2022 , as compared to$39,293 for the nine months endedMarch 31, 2021 or approximately 4%. Cost of sales increased as a percentage of sales to 88.0% for the nine months endedMarch 31, 2022 as compared to 84.5% for the nine months endedMarch 31, 2021 . The decrease of 4% 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, offset by an increase in manufacturing expenses of 10%. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of increased manufacturing costs of 10%, largely from increased labor costs of approximately 14% 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$113 , approximately 4% in the nine months endedMarch 31, 2022 as compared to the nine months endedMarch 31, 2021 . As a percentage of sales, net, selling and administrative expenses were approximately 6.6% and 5.9% in the nine months endedMarch 31, 2022 and 2021, respectively. The increase of$113 was primarily from increase in employee stock compensation expense of$128 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$117 for the nine months endedMarch 31, 2022 compared to$169 for the nine months endedMarch 31, 2021 , and was composed of: Nine months ended March 31, 2022 2021 (dollars in thousands) Interest expense$ (104 ) $ (213 ) Realized gain on sale of investment in iBio Stock -
56
Unrealized loss on investment in iBio Stock (48 ) (51 ) Other income 35
39
Other income (expense), net$ (117 ) $ (169 ) Our interest expense for the nine months endedMarch 31, 2022 decreased by$109 from the nine-month period endedMarch 31, 2021 , primarily resulting from of lower average daily balances outstanding under the Senior Credit Facility with PNC. In the nine months endedMarch 31, 2021 , we sold 16,000 shares of iBio Stock for a gain of$56 with no such sales in the nine months endedMarch 31, 2022 . Also, in the nine months endedMarch 31, 2022 , and 2021, we had an unrealized loss on the remaining iBio Stock of approximately$48 and$51 , respectively. Income tax benefit (expense), net. For the nine months endedMarch 31, 2022 and 2021, we had a state income tax provision of approximately$223 and$375 , respectively and a federal deferred income tax benefit of$377 in the nine months endedMarch 31, 2022 and federal deferred income tax expense of$422 in the nine months endedMarch 31, 2021 . 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 nine months endedMarch 31, 2022 and 2021 was approximately$2,344 and$3,506 , respectively. The decrease of approximately$1,162 was primarily the result of decreased operating income of$2,165 and offset by the decrease in other expense, net of$52 , and the positive change in the provision for income taxes of$951 . 21 --------------------------------------------------------------------------------
For the Three Months Ended
Sales, net. Sales, net, for the three months endedMarch 31, 2022 and 2021 were$15,634 and$17,072 , respectively, a decrease of 8.4%, and are comprised of the following: Three months ended Dollar Percentage March 31, Change Change 2022 2021 2022 vs 2021 2022 vs 2021 (amounts in thousands) Contract Manufacturing: US Customers$ 12,686 $ 14,311 $ (1,625 ) (11.4% ) International Customers 2,554 2,308 246 10.7 % Net sales, Contract Manufacturing 15,240 16,619 (1,379 ) (8.3% ) OtherNutraceuticals : US Customers 386 428 (42 ) (9.8% ) International Customers 8 25 (17 ) (68.0% ) Net sales, Other Nutraceuticals 394 453 (59 ) (13.0% ) Total net sales$ 15,634 $ 17,072 $ (1,438 ) (8.4% ) In each of the three months endedMarch 31, 2022 and 2021, a significant portion of our consolidated net sales, approximately 92%, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 70% and 24%, of our Contract Manufacturing Segment's net sales in each of the three months endedMarch 31, 2022 and 2021. The loss of either of these customers could have a significant adverse impact on our financial condition and results of operations. The decrease in net sales of approximately$1,438 in the three-month endedMarch 31, 2022 compared to the three-month endedMarch 31, 2021 was primarily the result of decreased net sales in our Contract Manufacturing Segment of$1,379 . Net sales volumes to Life Extension and Herbalife decreased by approximately$989 and$365 , respectively in the three-month period endedMarch 31, 2022 compared to the three-month period endedMarch 31, 2021 . Cost of sales. Cost of sales were substantially the same in the each of three months endedMarch 31, 2022 and 2021,$13,652 as compared to$14,411 , respectively. Cost of sales increased as a percentage of sales to 87.4% for the three months endedMarch 31, 2022 as compared to 84.4% for the three months endedMarch 31, 2021 . The decrease of 5% 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, offset with an increase in manufacturing expenses of 10%. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of the increased manufacturing costs of 10%, largely from increased labor costs of 13% 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$48 , approximately 5.1% in the three months endedMarch 31, 2022 as compared to the three months endedMarch 31, 2021 . As a percentage of sales, net, selling and administrative expenses were approximately 6.3% and 5.5% in the three months endedMarch 31, 2022 and 2021, respectively. The increase of$48 was primarily from increases in (i) employee stock compensation expense of$40 and (ii) salaries and employee benefit costs of$59 . These increases were offset, in part by a decrease in professional fees of$44 . No other component of selling and administrative expenses increased by more than$11 in the three-month period endedMarch 31, 2022 compared to the same period endedMarch 31, 2021 . 22
-------------------------------------------------------------------------------- Other income (expense), net. Other income (expense), net was approximately$32 for the three months endedMarch 31, 2022 compared to$13 for the three months endedDecember 31, 2021 , and is composed of: Three months ended March 31, 2022 2021 (dollars in thousands) Interest expense$ (30 ) $ (58 ) Unrealized (loss) gain on investment in iBio Stock (6 ) 22 Other income 4 23 Other income (expense), net$ (32 ) $ (13 ) Our interest expense for the three months endedMarch 31, 2022 decreased by$28 from the three-month period endedMarch 31, 2021 , 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 endedMarch 31, 2022 and 2021, we had federal deferred income tax expense of$106 and$401 , respectively, and state income tax expense, net of approximately$57 and$64 , in the three months endedMarch 31, 2022 and 2021, 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 endedMarch 31, 2022 and 2021 was approximately$797 and$1,241 , respectively. The decrease of approximately$444 was primarily the result of the decrease in operating income of$727 offset, primarily by a decrease in the provision for income taxes of$302 . 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 nine months ended
March 31,
2022 2021
(dollars in thousands)
Net cash provided by operating activities $ 1,388 $ 2,338
Net cash used in investing activities $ (430 ) $ (54 )
Net cash used in financing activities $ (904 ) $ (2,581 )
$ 105
Cash at end of period $ 264 $ 105
23-------------------------------------------------------------------------------- AtMarch 31, 2022 , our working capital was approximately$10,810 , an increase of$2,048 from our working capital of$8,762 atJune 30, 2021 . Our current assets in the nine months endedMarch 31, 2022 , increased by$2,045 and our current liabilities decreased by$3 . The increase in the current assets is primarily from increases in inventories and accounts receivable, net in the amounts of$1,401 , and$394 , respectively. Operating Activities Net cash provided by operating activities of$1,388 in the nine months endedMarch 31, 2022 includes net income of approximately$2,344 . 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$2,897 . Net cash provided by our operations in the nine months endedMarch 31, 2022 was offset by uses in our working capital assets and liabilities in the amount of approximately$1,509 and was primarily the result of an increase in our inventory of$1,401 and accounts receivable of$394 , offset by an aggregate increase in accounts payable, accrued expenses and other liabilities and operating lease obligations of$525 . Net cash provided by operating activities of$2,338 in the nine months endedMarch 31, 2021 includes net income of approximately$3,506 . 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$4,717 . Net cash provided by our operations in the nine months endedMarch 31, 2021 was offset by uses in our working capital assets and liabilities in the amount of approximately$2,379 and was primarily the result of an increases in our inventory of$3,321 and accounts receivable of$948 , offset by an aggregate increase in accounts payable, accrued expenses and other liabilities of$2,413 . Investing Activities Cash used in investing activities in the nine months endedMarch 31, 2022 and 2021, of approximately$430 and$54 , respectively, was used primarily for the purchase of machinery and equipment of$451 and$150 , respectively. Additionally, in the nine months endedMarch 31, 2020 , cash used in investing activities was offset, in part, with proceeds in the amount of$85 from the sale of 16,000 shares of iBio Stock. Financing Activities Cash used in financing activities was approximately$904 for the nine months endedMarch 31, 2022 , and was primarily from repayments of advances under our revolving credit facility of$42,109 and principal payments under our term notes in the amount of$1,466 , offset by advances under our revolving credit facility of approximately$42,664 . Cash used in financing activities was approximately$2,581 for the nine months endedMarch 31, 2021 , and was primarily from repayments of advances under our revolving credit facility of$43,288 and principal payments under our term notes in the amount of$990 , offset by advances under our revolving credit facility of approximately$41,758 . As ofMarch 31, 2022 , we had cash of$264 , funds available under our revolving credit facility of approximately$5,134 and working capital of approximately$10,810 . Our working capital includes$2,728 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$2,307 in the nine months endedMarch 31, 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 endingMay 12, 2023 . 24
-------------------------------------------------------------------------------- Our total annual commitments atMarch 31, 2022 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 and office equipment. Capital Expenditures The Company's capital expenditures for the nine months endedMarch 31, 2022 and 2021 were approximately$451 and$150 , 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.
© Edgar Online, source
