Integrated Biopharma Inc 10-Q for FY2022 Q2
Integrated Biopharma Inc (INBP)
About this 10-Q
Integrated Biopharma Inc filed this 10-Q on February 10, 2022, covering the quarter ended December 31, 2021 (FY2022 Q2).
Headline figures
Quarter ended December 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $14.59M
- up 2.4% from $14.26M a year earlier
- Net income
- $1.03M
- down 15.8% from net income of $1.22M a year earlier
- Diluted EPS
- $0.03
- down 25.0% from $0.04 a year earlier
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
____________
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File Number
INTEGRATED BIOPHARMA, INC.
(Exact name of registrant, as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification No.) |
(Address of principal executive offices) (Zip Code)
(
(Registrant’s telephone number, including Area Code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Exchange Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| None | None | None |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Smaller reporting company | ||||||
| Large accelerated filer ☐ | Accelerated filer ☐ | | Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of February 10, 2022, there were
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
FORM 10-Q QUARTERLY REPORT
For the Three Months Ended December 31, 2021
INDEX
| Page |
||
| Part I. Financial Information |
||
| Item 1. |
Condensed Consolidated Statements of Income for the Three and Six Months Ended December 31, 2021 and 2020 (unaudited) |
2 |
| Condensed Consolidated Balance Sheets as of December 31, 2021 and June 30, 2021 (unaudited) |
3 |
|
| Condensed Consolidated Statement of Stockholders’ Equity for the Six Months Ended December 31, 2021 and 2020 (unaudited) |
4 |
|
| Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2021 and 2020 (unaudited) |
5 |
|
| Notes to the Condensed Consolidated Financial Statements (unaudited) |
6 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
| Item 3. |
Quantitative and Qualitative Disclosures about Market Risk |
24 |
| Item 4. |
Controls and Procedures |
25 |
| Part II. Other Information |
||
| Item 1. |
Legal Proceedings |
25 |
| Item 1A. |
Risk Factors |
25 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
| Item 3. |
Defaults Upon Senior Securities |
25 |
| Item 4. |
Mine Safety Disclosure |
26 |
| Item 5. |
Other Information |
26 |
| Item 6. |
Exhibits |
26 |
| Other |
||
| Signatures |
27 |
|
Cautionary Statement Regarding Forward-Looking Statements
Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Integrated BioPharma, Inc. and its subsidiaries (collectively, the “Company”) or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, changes in general economic and business conditions; loss of market share through competition; introduction of competing products by other companies; the timing of regulatory approval and the introduction of new products by the Company; changes in industry capacity; pressure on prices from competition or from purchasers of the Company's products; regulatory changes in the pharmaceutical manufacturing industry and nutraceutical industry; regulatory obstacles to the introduction of new technologies or products that are important to the Company; availability of qualified personnel; the loss of any significant customers or suppliers; the impact of the COVID-19 pandemic; and other factors both referenced and not referenced in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (“Form 10-K”), as filed with the SEC. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words, “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, the risks and uncertainties affecting their businesses described in Item 1A of the Company’s Form 10-K and in other filings by the Company with the SEC. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof and the Company does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Unaudited)
| Three months ended | Six months ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Sales, net | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Selling and administrative expenses | ||||||||||||||||
| Operating income | ||||||||||||||||
| Other income (expense), net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Realized gain on sale of investment in iBio Stock | ||||||||||||||||
| Unrealized loss on investments | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income, net | ||||||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income before income taxes | ||||||||||||||||
| Income tax benefit (expense), net | ( | ) | ||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Basic earnings per common share | $ | $ | $ | $ | ||||||||||||
| Diluted earnings per common share | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares outstanding - basic | ||||||||||||||||
| Add: Equivalent shares outstanding | ||||||||||||||||
| Weighted average common shares outstanding - diluted |
See accompanying notes to condensed consolidated financial statements.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(in thousands, except share and per share amounts)
(Unaudited)
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventories | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease right-of-use assets (includes $ and $ with a related party) | ||||||||
| Deferred tax assets, net | ||||||||
| Security deposits and other assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders' Equity: | ||||||||
| Current Liabilities: | ||||||||
| Advances under revolving credit facility | $ | $ | ||||||
| Accounts payable (includes $ and $ due to related party) | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of long term debt, net | ||||||||
| Current portion of operating lease liabilities (includes $ and $ with a related party) | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities (includes $ and $ with a related party) | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity : | ||||||||
| Common Stock, $ par value; shares authorized; | ||||||||
| and shares issued and | ||||||||
| and and shares outstanding, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
See accompanying notes to condensed consolidated financial statements.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
(in thousands, except share and per share amounts)
(Unaudited)
| FOR THE SIX MONTHS ENDED DECEMBER 31, 2021: | Total | |||||||||||||||||||||||||||
| Common Stock | Additional | Accumulated | Treasury Stock | Stockholders' | ||||||||||||||||||||||||
| Shares | Par Value | Paid-in-Capital | Deficit | Shares | Cost | Equity | ||||||||||||||||||||||
| Balance, July 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Stock compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Shares issued upon exercise of employee stock options | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Shares issued upon exercise of employee stock options | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| FOR THE SIX MONTHS ENDED DECEMBER 31, 2020: | Common Stock | Additional | Accumulated | Treasury Stock | Total Stockholders' | |||||||||||||||||||||||
| Shares | Par Value | Paid-in-Capital | Deficit | Shares | Cost | Equity | ||||||||||||||||||||||
| Balance, July 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Stock compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, September 30, 2020 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Stock compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Shares issued upon exercise of employee stock options | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share and per share amounts)
(Unaudited)
| Six months ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows provided by operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Stock based compensation | ||||||||
| Change in deferred tax assets | ( | ) | ||||||
| Realized gain on sale of investment in iBio Stock | ( | ) | ||||||
| Unrealized loss on investment in iBio Stock | ||||||||
| Other, Net | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in: | ||||||||
| Accounts receivable, net | ||||||||
| Inventories | ( | ) | ( | ) | ||||
| Other current assets | ( | ) | ( | ) | ||||
| Security deposits and other assets | ( | ) | ( | ) | ||||
| (Decrease) increase in: | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ( | ) | ( | ) | ||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from sale of iBio Stock | ||||||||
| Proceeds from sale of machinery and equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances under revolving credit facility | ||||||||
| Proceeds from exercise of employee stock options | ||||||||
| Repayments of advances under revolving credit facility | ( | ) | ( | ) | ||||
| Repayments under term note payables | ( | ) | ( | ) | ||||
| Repayments under finance lease obligations | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net decrease in cash | ( | ) | ( | ) | ||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Income taxes paid | $ | $ |
| Supplemental disclosures of non-cash flow transactions: | ||||||||
| Amount owed on purchase of property and equipment | $ | $ |
See accompanying notes to condensed consolidated financial statements.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Note 1. Principles of Consolidation and Basis of Presentation
Basis of Presentation of Interim Financial Statements
The accompanying condensed consolidated financial statements for the interim periods are unaudited and include the accounts of Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, the “Company”). The interim condensed consolidated financial statements have been prepared in conformity with Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented have been included. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (“Form 10-K”), as filed with the SEC. The June 30, 2021 balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The preparation of the unaudited condensed financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period. Ultimate results could differ from the estimates of management. The results of operations for the three and six months ended December 31, 2021 are not necessarily indicative of the results for the full fiscal year ending June 30, 2022 or for any other period.
Nature of Operations
The Company is engaged primarily in manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily in the United States, Luxembourg and Canada. The Company was previously known as Integrated Health Technologies, Inc. and, prior to that, as Chem International, Inc. The Company was reincorporated in its current form in Delaware in 1995. The Company continues to do business as Chem International, Inc. with certain of its customers and certain vendors.
The Company’s business segments include: (a) Contract Manufacturing operated by Manhattan Drug Company, Inc. (“MDC”), which manufactures vitamins and nutritional supplements for sale to distributors, multilevel marketers and specialized health-care providers and (b) Other Nutraceutical Businesses which includes the operations of (i) AgroLabs, Inc. (“AgroLabs”), which distributes healthful nutritional products for sale through major mass market, grocery and drug and vitamin retailers, under the following brands: Peaceful Sleep, Wheatgrass and other products which are being introduced into the market (these are referred to as our branded products), (ii) The Vitamin Factory (the “Vitamin Factory”), which sells private label MDC products, as well as our AgroLabs products, through the Internet, (iii) IHT Health Products, Inc. (“IHT”) a distributor of fine natural botanicals, including multi minerals produced under a license agreement, (iv) MDC Warehousing and Distribution, Inc., a service provider for warehousing and fulfillment services and (v) Chem International, Inc. (“Chem”), a distributor of certain raw materials for DSM Nutritional Products LLC.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Accounting Policies
Accounting Pronouncements Recently Adopted
On August 28, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. This ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and the range and weighted average of unobservable inputs used in Level 3 fair value measurements. ASU 2018-13 is effective for the fiscal year beginning July 1, 2021, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. This new guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.
Aside from the adoption of ASUs, as described above, there have been no material changes during fiscal year 2021 in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
Significant Accounting Policies
Revenue Recognition. The Company recognizes product sales revenue, the prices of which are fixed and determinable, when title and risk of loss have transferred to the customer, when estimated provisions for product returns, rebates, charge-backs and other sales allowances are reasonably determinable, and when collectability is reasonably assured. Accruals for these items are presented in the consolidated financial statements as reductions to sales. The Company’s net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns, rebates, charge-backs and other allowances. Cost of sales includes the cost of raw materials and all labor and overhead associated with the manufacturing and packaging of the products. Gross margins are affected by, among other things, changes in the relative sales mix among our products and valuation and/or charge off of slow moving, expired or obsolete inventories. To perform revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps:
| ● | identification of the promised goods or services in the contract; |
| ● | determination of whether the promised goods or serves are performance obligations including whether they are distinct in the context of the contract; |
| ● | measurement of the transaction price, including the constraint on variable consideration; |
| ● | allocation of the transaction price to the performance obligations based on estimated selling prices; and |
| ● | recognition of revenue when (or as) the Company satisfies each performance obligation. A performance obligation is a promise to transfer a distinct good or service to the customer and is the unit of account in ASC 606. |
Income Taxes. The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
For the three months ended December 31, 2021 and 2020, the Company had a federal income tax benefit of $
Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, current portion of long term debt, and long-term debt obligation on our consolidated statement of financial condition.
Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component.
Earnings Per Share. Basic earnings per common share amounts are based on weighted average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options, subject to anti-dilution limitations using the treasury stock method.
The following options and potentially dilutive shares for stock options were included in the computation of weighted average diluted common shares outstanding as the effect of doing so would be anti-dilutive for the three and six months ended December 31, 2021 and 2020:
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Anti-dilutive stock options | ||||||||||||||||
| Total anti-dilutive shares | ||||||||||||||||
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Note 2. Inventories
Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method and consist of the following:
| December 31, |
June 30, |
|||||||
| 2021 |
2021 |
|||||||
| Raw materials |
$ | $ | ||||||
| Work-in-process |
||||||||
| Finished goods |
||||||||
| Total |
$ | $ | ||||||
Note 3. Property and Equipment, net
Property and equipment, net consists of the following:
| December 31, |
June 30, |
|||||||
| 2021 |
2021 |
|||||||
| Land and building |
$ | $ | ||||||
| Leasehold improvements |
||||||||
| Machinery and equipment |
||||||||
| Transportation equipment |
||||||||
| Less: Accumulated depreciation and amortization |
( |
) | ( |
) | ||||
| Total |
$ | $ | ||||||
Depreciation and amortization expense recorded on property and equipment was $
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Note 4. Senior Credit Facility
As of December 31, 2021 and June 30, 2021, the Company had the following debt outstanding:
| Principal Amount | Interest Rate | Maturity Date | |||||||||||
| As of December 31, 2021 | As of June 30, 2021 | ||||||||||||
| Revolving advances under Senior Credit | |||||||||||||
| Facility with PNC Bank, National Association | $ | $ | % | 5/15/2024 | |||||||||
| Installment Note with PNC Bank, National Association | % | 1/3/2022 | |||||||||||
| Total outstanding debt | |||||||||||||
| Less: Revolving Advances | ( | ) | ( | ) | |||||||||
| Prepaid financing costs | ( | ) | |||||||||||
| Current portion of long term debt, net | ( | ) | ( | ) | |||||||||
| Long term debt, net | $ | $ | |||||||||||
SENIOR CREDIT FACILITY
On May 15, 2019, the Company, MDC, AgroLabs, IHT, IHT Properties Corp. (“IHT Properties”) and Vitamin Factory (collectively, the “Borrowers”) amended the Revolving Credit, Term Loan and Security Agreement (the “Amended Loan Agreement”) with PNC Bank, National Association as agent and lender (“PNC”) and the other lenders party thereto entered into on June 27, 2012, as amended on February 19, 2016, and May 15, 2019.
The Amended Loan Agreement provides for a total of $
Upon and after the occurrence of any event of default under the Amended Loan Agreement, and during the continuation thereof, interest shall be payable at the interest rate then applicable plus
The principal balance of the Revolving Advances is payable on the Senior Maturity Date, subject to acceleration, based upon a material adverse event clause, as defined, subjective accelerations for borrowing base reserves, as defined or upon the occurrence of any event of default under the Amended Loan Agreement or earlier termination of the Amended Loan Agreement pursuant to the terms thereof. The Term Loan shall be repaid in (84) consecutive monthly installments of principal, the first (83) of which shall be in the amount of $
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
The Revolving Advances are subject to the terms and conditions set forth in the Amended Loan Agreement and are made in aggregate amounts at any time equal to the lesser of (x) $
The Amended Loan Agreement contains customary mandatory prepayment provisions, including, without limitation the requirement to use any sales proceeds from the sale of iBio Stock to repay the Term Loan and to prepay the outstanding amount of the Term Note in an amount equal to twenty-five percent (
In connection with the Senior Credit Facility, the following loan documents were executed: (i) a Stock Pledge Agreement with PNC, pursuant to which the Company pledged to PNC the iBio Stock; (ii) a Mortgage and Security Agreement with PNC with IHT Properties; and (iii) an Environmental Indemnity Agreement with PNC.
Note 5. Significant Risks and Uncertainties
(a) Major Customers. In the three months ended December 31, 2021 and 2020, approximately
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
(b) Other Business Risks. Approximately
The continued supply chain issues resulting from the global outbreak of COVID-19, or coronavirus, has caused minor disruptions in the Company's supply chain. Most of the materials required in the Company's manufacturing process could be obtained from more than one supplier, which assisted in mitigating major disruptions in the Company's business. The Company continues to pursue qualification of new suppliers and new materials. These minor delays have and continue to delay the Company's standard lead times, in the production and shipment of the Company's 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 to the United States.
The Company also continues 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 the Company's Contract Manufacturing Segment. Transportation, in general, continues to be an issue in the delay of receiving materials and the Company's ability to meet promised delivery dates to the Company's 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 the Company’s operating results.
While the Company hasn’t, to date, seen a significant negative impact in its margins resulting from the coronavirus outbreak, it is experiencing a slight negative impact on its margins due to inflation and tightened labor markets.
Note 6. Leases and other Commitments and Contingencies
(a) Leases. The Company has operating and finance leases for its corporate and sales offices, warehousing and packaging facilities and certain machinery and equipment, including office equipment. The Company’s leases have remaining terms of approximately
The components of lease expense for the three months ended December 31, 2021 and 2020, were as follows:
| Three months ended December 31, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Related Party - Vitamin Realty | Other Leases | Totals | Related Party - Vitamin Realty | Other Leases | Totals | |||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Finance Operating Lease Costs: | ||||||||||||||||||||||||
| Amortization of right-of use assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest on operating lease liabilities | ||||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
The components of lease expense for the six months ended December 31, 2021 and 2020, were as follows:
| Six months ended December 31, | ||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||
| Related Party - Vitamin Realty | Other Leases | Totals | Related Party - Vitamin Realty | Other Leases | Totals | |||||||||||||||||||
| Operating lease costs | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Finance Operating Lease Costs: | ||||||||||||||||||||||||
| Amortization of right-of use assets | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Interest on operating lease liabilities | ||||||||||||||||||||||||
| Total finance lease cost | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Operating Lease Liabilities
Related Party Operating Lease Liabilities. Warehouse and office facilities are leased from Vitamin Realty Associates, LLC (“Vitamin Realty”), which is
Rent expense and lease amortization costs for the three months ended December 31, 2021 and 2020 on these leases were $
Other Operating Lease Liabilities. The Company has entered into certain non-cancelable operating lease agreements expiring up through May, 2023, related to machinery and equipment and office equipment.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
As of December 31, 2021, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases were as follows:
| Right-of-use Assets | Current Portion of Operating Lease Obligations | Operating Lease Obligations | Remaining Cash Commitment | |||||||||||||
| Vitamin Realty Leases | $ | $ | $ | $ | ||||||||||||
| Machinery and equipment leases | ||||||||||||||||
| Office equipment leases | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As of June 30, 2021, the Company’s ROU assets, lease obligations and remaining cash commitment on these leases were as follows:
| Right-of-use Assets | Current Portion Operating Lease Obligations | Operating Lease Obligations | Remaining Cash Commitment | |||||||||||||
| Vitamin Realty Leases | $ | $ | $ | $ | ||||||||||||
| Machinery and equipment leases | ||||||||||||||||
| Office equipment leases | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As of December 31, 2021 and June 30, 2021, the Company’s weighted average discount rate and remaining term on lease liabilities were approximately
Supplemental cash flows information related to leases for the six months ended December 31, 2021, is as follows:
| Related Party - Vitamin Realty | Other Leases | Totals | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | |||||||||
| Operating cash flows from finance leases | ||||||||||||
| Financing cash flows from finance lease obligations | ||||||||||||
Supplemental cash flows information related to leases for the six months ended December 31, 2020, is as follows:
| Related Party - Vitamin Realty | Other Leases | Totals | ||||||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||||||
| Operating cash flows from operating leases | $ | $ | $ | |||||||||
| Operating cash flows from finance leases | ||||||||||||
| Financing cash flows from finance lease obligations | ||||||||||||
In the six months ended December 31, 2021, the Company renewed, for year, an operating lease for office space with an annual commitment of $
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Maturities of operating lease liabilities as of December 31, 2021 were as follows:
| Operating | Related Party | |||||||||||
| Year ending | Lease | Operating Lease | ||||||||||
| June 30, | Commitment | Commitment | Total | |||||||||
| 2022, remaining | $ | $ | $ | |||||||||
| 2023 | ||||||||||||
| 2024 | ||||||||||||
| 2025 | ||||||||||||
| 2026 | ||||||||||||
| Total minimum lease payments | ||||||||||||
| Imputed interest | ( | ) | ( | ) | ( | ) | ||||||
| Total | $ | $ | $ | |||||||||
Total rent expense, lease amortization costs and interest expense, including real estate taxes and maintenance charges, was approximately $
(b) Legal Proceedings.
The Company is subject, from time to time, to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.
Note 7. Related Party Transactions
See Note 6(a). Leases for related party lease transactions.
Note 8. Equity Transactions and Stock-Based Compensation
In November, 2021, the Board of Directors authorized the issuance of
The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the six months ended December 31, 2021:
| Risk Free Interest Rate | % | |||
| Volatility | % | |||
| Term | 4 1/2 to 10 years | |||
| Dividend Rate | % | |||
| Closing Price of Common Stock | $ | |||
The Company calculates expected volatility for a stock-based grant based on historic daily stock price observations of its common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. The expected term of the options is estimated based on the Company’s historical exercise rate and forfeiture rates are estimated based on employment termination experience. The risk free interest rate is based on U.S. Treasury yields for securities in effect at the time of grants with terms approximating the term of the grants. The assumptions used in the Black-Scholes option valuation model are highly subjective, and can materially affect the resulting valuations.
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
A summary of the Company’s stock option activity, and related information for the six months ended December 31, 2021 follows:
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Outstanding as of June 30, 2021 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Terminated | ( | ) | ||||||
| Expired | ||||||||
| Outstanding as of December 31, 2021 | $ | |||||||
| Exercisable at December 31, 2021 | $ | |||||||
Note 9. Segment Information and Disaggregated Revenue
The basis for presenting segment results generally is consistent with overall Company reporting. The Company reports information about its operating segments in accordance with GAAP which establishes standards for reporting information about a company’s operating segments.
The Company has divided its operations into reportable segments as follows: Contract Manufacturing, and Other Nutraceutical Businesses. International sales, concentrated primarily in Europe, for the three months ended December 31, 2021 and 2020 were $
Financial information relating to the three months ended December 31, 2021 and 2020 operations by business segment and disaggregated revenues was as follows:
| Sales, Net | Segment | ||||||||||||||||||||||||
| U.S. | International | Gross | Capital | ||||||||||||||||||||||
| Customers | Customers | Total | Profit | Depreciation | Expenditures | ||||||||||||||||||||
| Contract Manufacturing | 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
| Other Nutraceutical Businesses | 2021 | ||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
| Total Company | 2021 | ||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(Unaudited)
Financial information relating to the six months ended December 31, 2021 and 2020 operations by business segment and disaggregated revenues was as follows:
| Sales, Net | Segment | ||||||||||||||||||||||||
| U.S. | International | Gross | Capital | ||||||||||||||||||||||
| Customers | Customers | Total | Profit | Depreciation | Expenditures | ||||||||||||||||||||
| Contract Manufacturing | 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
| Other Nutraceutical Businesses | 2021 | ||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
| Total Company | 2021 | ||||||||||||||||||||||||
| 2020 | |||||||||||||||||||||||||
| Total Assets as of | ||||||||
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| Contract Manufacturing | $ | $ | ||||||
| Other Nutraceutical Businesses | ||||||||
| Total Company | $ | $ | ||||||
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION (dollars in thousands)
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 ended June 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 in the United States, Luxembourg and Canada.
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 ended June 30, 2021.
For the six months ended December 31, 2021, our net sales from operations decreased by $2,084 to approximately $27,345 from approximately $29,429 in the six months ended December 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 ended December 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 ended December 31, 2020. Our profit margins decreased from approximately 15.5% of net sales in the six months ended December 31, 2020 to approximately 11.6% of net sales in the six months ended December 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 ended December 31, 2021 compared to the six months ended December 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 to the United States.
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 ended December 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 ended June 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.
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 December 31, 2021 compared to the Six Months Ended December 31, 2020
Sales, net. Sales, net, for the six months ended December 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 | %) | ||||||||||
| Other Nutraceuticals: |
||||||||||||||||
| 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 ended December 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 ended December 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 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 ended December 31, 2021, as compared to $24,882 for the six months ended December 31, 2020 or approximately 3%. Cost of sales increased as a percentage of sales to 88.4% for the six months ended December 31, 2021 as compared to 84.5% for the six months ended December 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 ended December 31, 2021 as compared to the six months ended December 31, 2020. As a percentage of sales, net, selling and administrative expenses were approximately 6.8% and 6.1% in the six months ended December 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 in November 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 ended December 31, 2021 compared to $156 for the six months ended December 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 ended December 31, 2021 decreased by $81 from the six month period ended December 31, 2020, primarily resulting from of lower average daily balances outstanding under the Senior Credit Facility with PNC.
In the six months ended December 31, 2020, we sold 16,000 shares of iBio Stock for a gain of $56 with no such sales in the six months ended December 31, 2021. Also, in the six months ended December 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 ended December 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 ended December 31, 2021 and federal income tax expense of $21 in the six months ended December 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 ended December 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.
For the Three Months Ended December 31, 2021 compared to the Three Months Ended December 31, 2020
Sales, net. Sales, net, for the three months ended December 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 | % | |||||||||||
| Other Nutraceuticals: |
||||||||||||||||
| 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 ended December 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 ended December 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 ended December 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 ended December 31, 2021 as compared to 84.8% for the three months ended December 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 ended December 31, 2021 as compared to the three months ended December 31, 2020. As a percentage of sales, net, selling and administrative expenses were approximately 7.0% and 6.5% in the three months ended December 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 ended December 31, 2021 compared to the same period ended December 31, 2020.
Other income (expense), net. Other income (expense), net was approximately $39 for the three months ended December 31, 2021 compared to $115 for the three months ended December 31, 2020, and is composed of:
| 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.
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 |
$ | 713 | $ | 1,164 | ||||
| Net cash used in investing activities |
$ | (287 | ) | $ | (21 | ) | ||
| Net cash used in financing activities |
$ | (474 | ) | $ | (1,502 | ) | ||
| Cash at end of period |
$ | 162 | $ | 43 | ||||
At December 31, 2021, our working capital was approximately $9,963, an increase of $1,201 from our working capital of $8,762 at June 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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 ended December 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.
Cash used in financing activities was approximately $1,502 for the six months ended December 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 of December 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 until May 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 ended December 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 ending February 10, 2023.
Our total annual commitments at December 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 ended December 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 the SEC’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 of December 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 December 31, 2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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 June 30, 2021.
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Recent Sales of Unregistered Securities
None
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None
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 Calculation |
Furnished herewith |
| 101.DEF*** |
Inline XBRL Taxonomy Extension Definition |
Furnished herewith |
| 101.LAB*** |
Inline XBRL Taxonomy Extension Labels |
Furnished herewith |
| 101.PRE*** |
Inline XBRL Taxonomy Extension Presentation |
Furnished herewith |
| 104 |
Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101) |
|
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 |