Integrated Biopharma Inc 10-K for FY2022
Integrated Biopharma Inc (INBP)
About this 10-K
Integrated Biopharma Inc filed this 10-K on September 13, 2022, covering the fiscal year ended June 30, 2022 (FY2022).
Headline figures
Fiscal year ended June 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $56.25M
- down 11.5% from $63.56M a year earlier
- Net income
- $3.84M
- down 52.1% from net income of $8.01M a year earlier
- Diluted EPS
- $0.12
- down 52.0% from $0.25 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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FORM
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| For the fiscal year ended | |
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| For the transition period from to |
Commission File Number
INTEGRATED BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
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| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip code) |
Registrant’s telephone number: (
Securities registered under Section 12(b) of the Exchange Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange on Which Registered |
| None | N/A | None |
Securities registered under Section 12(g) of the Exchange Act:
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
| Yes ☐ | |
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
| Yes ☐ | |
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 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.
| | No ☐ |
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).
| | No | | |
Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, an accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “accelerated filer,” “large accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated Filer ☐ | Accelerated Filer ☐ | | Emerging Growth Company | Smaller reporting 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 mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
| Yes | No ☒ |
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant based on the last sale price of the Registrant’s Common Stock on December 31, 2021 was $
The number of shares outstanding of each of the Registrant’s classes of common equity, as of the latest practicable date:
| Class | Outstanding at September 13, 2022 |
| Common Stock, $.002 par value |
DOCUMENTS INCORPORATED BY REFERENCE
The information required by part III will be incorporated by reference from certain portions of a definitive Proxy Statement which is expected to be filed by the Registrant within 120 days after the close of its fiscal year.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
FORM 10-K ANNUAL REPORT
INDEX
| Part I |
Page |
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| Item 1. |
Description of Business |
4 |
| Item 1A. |
Risk Factors |
9 |
| Item 1B. |
Unresolved Staff Comments |
14 |
| Item 2. |
Properties |
14 |
| Item 3. |
Legal Proceedings |
14 |
| Item 4. |
Mine Safety Disclosure |
14 |
| Part II |
||
| Item 5. |
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
15 |
| Item 6. |
[Reserved] |
16 |
| Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
| Item 7A. |
Quantitative and Qualitative Disclosures About Market Risk |
24 |
| Item 8. |
Financial Statements and Supplementary Data |
24 |
| Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
24 |
| Item 9A. |
Controls and Procedures |
25 |
| Item 9B. |
Other Information |
26 |
| Item 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 26 |
| Part III |
||
| Item 10. |
Directors, Executive Officers and Corporate Governance |
26 |
| Item 11. |
Executive Compensation |
26 |
| Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
26 |
| Item 13. |
Certain Relationships and Related Transactions and Director Independence |
26 |
| Item 14. |
Principal Accountant Fees and Services |
26 |
| Part IV |
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| Item 15. |
Exhibits and Financial Statement Schedules |
27 |
| Item 16. |
Form10-K Summary |
29 |
| Signatures |
54 |
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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in this Annual Report on Form 10-K 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, as amended (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; the war in Ukraine and other factors both referenced and not referenced in this Annual Report. 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 this Annual Report on 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 Annual Report on Form 10-K 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.
PART I
Item 1. Description of Business
General
Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, 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 and Luxembourg. The Company was originally incorporated in the state of Delaware on August 31, 1995 under the name Chem International, Inc., on December 5, 2000, changed its name to Integrated Health Technologies, Inc. and, on January 29, 2003, changed its name to Integarted BioPharma, Inc. The Company restated its certificate of incorporation in Delaware in June 2006. 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 distributed healthful nutritional products for sale through major mass market, grocery and drug and vitamin retailers under the following brands: Peaceful Sleep, and Wheatgrass and other products introduced into the market using the AgroLabs name (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 fulfilment services and (v) Chem International, Inc., a distributor of certain raw materials for DSM Nutritional Products LLC. The Vitamin Factory had no products available for sale and AgroLabs had no sales of its branded products in the fiscal years ended June 30, 2022 and 2021.
Significant Revenues from Major Customers
In the fiscal years ended June 30, 2022 and 2021, a significant portion of our consolidated net sales, approximately 90% and 92%, respectively, were concentrated among two customers, Life Extension Quality Supplements and Vitamins, Inc. (“Life Extension”) and Herbalife Nutrition LTD (“Herbalife”), both customers in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 67% and 26% and 69% and 26%, respectively, of our Contract Manufacturing Segment’s net sales in the fiscal years ended June 30, 2022 and 2021, respectively. Thermosource Tooling and Manufacturing and ThermoFisher Scientific, (customers of our Other Nutraceutical Businesses Segment), while not significant customers of our consolidated net sales, represented approximately 40% and 19% and 1% and 30%, respectively, of the Other Nutraceutical Businesses net sales in the fiscal years ended June 30, 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.
Raw Materials
The principal raw materials used in the manufacturing process in the Company’s business are natural and synthetic vitamins, minerals, herbs, related nutritional supplements, vegetable and gelatin capsules, coating materials, organic and natural fruit extracts, fruit juices and the necessary components for packaging the finished products. The raw materials are available from numerous sources within the United States and abroad. The vegetable and gelatin capsules, coating materials and packaging materials are similarly widely available. The Company generally purchases its raw materials, on a purchase order basis, without long-term commitments in each of its operating segments. We have one principal supplier for our Other Nutraceutical Businesses segment, DSM Nutritional Products LLC and several suppliers in our Contract Manufacturing Segment.
Development and Supply Agreement
Effective July 15, 2009, the Company entered into development and supply agreements with Herbalife International of America, Inc. and Herbalife International of Luxembourg S.à.R.L, subsidiaries of Herbalife, pursuant to which the Company develops, manufactures and supplies certain nutritional products to Herbalife. This agreement was amended on May 14, 2019 to extend the term through December 31, 2022. This agreement does not, however, obligate the Company to supply any particular amount of goods to Herbalife, nor does it obligate Herbalife to commit to a minimum order, if any. In its ordinary course of business, the Company enters into similar agreements with other customers in connection with its contract manufacturing business.
Seasonality
The nutraceutical business tends to be seasonal. We have found that in our first fiscal quarter ending on September 30th of each year, orders for our branded proprietary nutraceutical products usually slow (absent the addition of new customers or a new product launch with a significant first time order), as buyers in various markets may have purchased sufficient inventory to carry them through the summer months. Conversely, in our second fiscal quarter, ending on December 31st of each year, orders for our products increase as the demand for our branded nutraceutical products, as well as sales orders from our customers in our contract manufacturing segment, seem to increase in late December to early January as consumers become health conscious as they enter the new year.
The Company believes that there are other non-seasonal factors that also 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.
Government Regulations
The manufacturing, processing, formulation, packaging, labeling and advertising of our products are subject to regulation by a number of federal agencies, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the United States Postal Service, the Consumer Product Safety Commission and the United States Department of Agriculture. Our activities are also regulated by various state and local agencies in states where our products are sold. The FDA is primarily responsible for the regulation of the manufacturing, labeling and sale of our products. The operation of our vitamin manufacturing facility is subject to regulation by the FDA as a dietary supplement manufacturing facility. The United States Postal Service and the FTC regulate advertising claims with respect to the Company’s products. In addition, we manufacture and market certain of our products in compliance with the guidelines promulgated by the United States Pharmacopoeia Convention, Inc. (“USP”) and other voluntary standards organizations.
The Dietary Supplement Health and Education Act of 1994 (“DSHEA”) was enacted on October 25, 1994. The Dietary Supplement Act amends the U.S. Federal Food, Drug and Cosmetic Act (“FFD&CA”) by defining dietary supplements, which include vitamins, minerals, nutritional supplements and herbs, and by providing a regulatory framework to ensure safe, quality dietary supplements and the dissemination of accurate information about such products. The FDA is generally prohibited from regulating the active ingredients in dietary supplements as food additives, or as drugs unless product claims trigger drug status. The DSHEA requires the FDA to regulate dietary supplements so as to guarantee consumer access to beneficial dietary supplements, allowing only truthful and proven claims. Generally, dietary ingredients that were on the market before October 15, 1994 may be sold without FDA pre-approval and without notifying the FDA. However, new dietary ingredients (those not used in dietary supplements marketed before October 15, 1994) require pre-market submission to the FDA of evidence of a history of their safe use, or other evidence establishing that they are reasonably expected to be safe. There can be no assurance that the FDA will accept the evidence of safety for any new dietary ingredient we may decide to use. The FDA’s refusal to accept such evidence could result in regulation of such dietary ingredients as food additives, requiring the FDA pre-approval based on newly conducted, costly safety testing.
DSHEA provides for specific nutritional labeling requirements for dietary supplements effective January 1, 1997. The Dietary Supplement Act permits substantiated, truthful and non-misleading statements of nutritional support to be made in labeling, such as statements describing general well-being from consumption of a dietary ingredient or the role of a nutrient or dietary ingredient in affecting or maintaining the structure or function of the body. The FDA requires the Company to notify the FDA of such statements. There can be no assurance that the FDA will not consider particular labeling statements used by us to be drug claims rather than acceptable statements of nutritional support, necessitating approval of a costly new drug application, or re-labeling to delete such statements. It is also possible that the FDA could allege false statements were submitted to it if structure/function claim notifications were either non-existent or so lacking in scientific support as to be plainly false.
As authorized by DSHEA, the FDA adopted Good Manufacturing Practices (“GMP”) specifically for dietary supplements (21 CFR Part 111). These GMP regulations, which became effective in June 2008, are more detailed than the GMPs that previously applied to dietary supplements and require, among other things, dietary supplements to be prepared, packaged and held in compliance with specific rules, and require quality controls similar to those required by GMP regulations for drugs. We believe our manufacturing and distribution practices comply with these rules.
Dietary supplements are also subject to the Nutrition, Labeling and Education Act (“NLEA”), which regulates health claims, ingredient labeling and nutrient content claims characterizing the level of a nutrient in a product. NLEA prohibits the use of any health claim for dietary supplements unless the health claim is supported by significant agreement within the scientific community and is pre-approved by the FDA.
In certain markets, including the United States, claims made with respect to dietary supplements may change the regulatory status of our products. For example, in the United States, the FDA could possibly take the position that claims made for some of our products classify those products as new drugs requiring pre-approval by the FDA. The FDA could also place those products within the scope of its over-the-counter (“OTC”) drug regulations and require us to comply with a published FDA OTC monograph. OTC monographs dictate permissible ingredients, appropriate labeling language and require the marketer or supplier of the products to register and file annual drug listing information with the FDA. We do not, at present, sell OTC drug products. If the FDA were to assert that our product claims cause them to be considered new drugs or to fall within the scope of OTC regulations, we would be required to either; file a new drug application, comply with the applicable monographs, or change the claims made in connection with those products.
The FTC regulates the marketing practices and advertising of all our products. In recent years, the FTC instituted enforcement actions against several dietary supplement companies for false and misleading marketing practices and advertising of certain products. These enforcement actions have resulted in consent decrees and monetary payments by the companies involved. Under FTC standards, the dissemination of any false advertising constitutes an unfair or deceptive act or practice actionable under Section 45 of the Fair Trade Commission Act and a false advertisement actionable under Section 52 of that Act. A false advertisement is one that is “misleading in a material respect.” In determining whether an advertisement or labeling information is misleading in a material respect, the FTC determines not only whether overt and implied representations are false but also whether the advertisement fails to reveal material facts. Under the FTC’s standards, any health benefit representation made in advertising must be backed by “competent and reliable scientific evidence” by which the FTC means: “tests, analyses, research studies, or other evidence based upon the expertise of professionals in the relevant area, that have been conducted and evaluated in an objective manner by persons qualified to do so, using procedures generally accepted by the profession to yield accurate and reliable results.”
The FTC has increased its review of the use of the type of testimonials that may be used to market our products. The FTC requires competent and reliable evidence substantiating claims and testimonials at the time that such claims of health benefit are first made. The failure to have this evidence when product claims are first made violates the Federal Trade Commission Act. Although the FTC has never threatened an enforcement action against the Company for the advertising of its products, there can be no assurance that the FTC will not question the advertising for our products in the future.
We believe we are currently in compliance with all applicable government regulations. We cannot predict what new legislation or regulations governing our operations will be enacted by legislative bodies or promulgated by agencies that regulate its activities. The FDA is expected to increase its enforcement activity against dietary supplements that it considers to be in violation of FFD&CA. In particular, the FDA is increasing its enforcement of DSHEA provisions. Those activities will be enhanced by the appropriation for increased FDA budgets for dietary supplement regulation enforcement.
We believe we may become subject to additional laws or regulations administered by the FDA or other federal, state, or foreign regulatory authorities. We also believe the laws or regulations which are considered favorable may be repealed, or more stringent interpretations of current laws or regulations may be implemented. Any or all of such requirements could be a burden to us. Future regulations could require us to:
● change the way we conduct business;
● use expanded or different labeling;
● recall, reformulate or discontinue certain products;
● keep additional records;
● increase the available documentation of the properties of its products; and/or
● increase the scientific proof of product ingredients, safety, and/or usefulness.
Competition
The business of manufacturing, distributing and marketing vitamins and nutritional supplements is highly competitive. Many of our competitors are substantially larger and have greater financial resources with which to manufacture and market their products. In particular, the retail segment is highly competitive. Many direct marketers not only focus on selling their own branded products, but offer national brands at discounts as well. Many competitors have established brand names recognizable to consumers. In addition, major pharmaceutical companies offer nationally advertised multivitamin products.
Many of our competitors in the retailing segment have the financial resources to advertise freely, to promote sales and to produce sophisticated catalogs and websites. In many cases, such competitors are able to offer price incentives for retail purchasers and to offer participation in frequent buyers programs. Some retail competitors also manufacture their own products whereby they have the ability and financial incentive to sell their own product.
We intend to compete by stressing the quality of our manufactured products, providing prompt service, competitive pricing of products in our marketing segment and by focusing on niche products in international retail markets.
Research and Development Activities
We do not conduct any significant research and development activities.
Environmental Compliance
We are subject to regulation under Federal, state and local environmental laws. While we believe we are in material compliance with applicable environmental laws, continued compliance may require substantial capital expenditures. We have not incurred any major costs for any environmental compliance during the years ended June 30, 2022 and 2021.
Employees
As of September 13, 2022, we had approximately 147 full time employees, including 108 who are members of the local unit of the Teamsters Union and are covered by a collective bargaining agreement which expires on September 30, 2022, as extended. The remaining 39 employees, not covered by a collective bargaining agreement, consist of approximately 14 administrative and professional personnel, 15 laboratory and quality assurance personnel, 3 sales and marketing personnel and 7 production and shipping personnel. We consider our relations with our employees to be good.
In December 2020, we entered into an agreement with a Professional Employer Organization (“PEO”) and terminated our agreement with the previous PEO. The PEO agreements established a three-way relationship between our non-union employees, the PEO and us. We and the PEO are co-employers of our non-union employees. The PEO has taken responsibility for our Human Resources administration and compliance, which allows us to continue to exercise control over our business while accessing quality employee benefits. We have been using PEOs since January 2007.
Available Information
We file annual, quarterly and current reports, proxy statements and other information with the SEC. These filings are available to the public via the Internet at the SEC's website located at http://www.sec.gov.
Our website is located at ir.ibiopharma.com. You may request a copy of our filings with the SEC (excluding exhibits) at no cost by writing or telephoning us at the following address or telephone number:
Integrated BioPharma, Inc.
225 Long Avenue, Bldg. 15
Hillside, New Jersey 07205
Attn: Investor Relations
Tel: 888-319-6962
Item 1A. Risk Factors
Please carefully consider the following risk factors which could materially adversely affect our business, financial condition, operating results and cash flows. The risk factors described below are not the only ones we face. Risks and uncertainties not known to us currently, or that we currently deem immaterial, also may materially adversely affect our business, financial condition, operating results and cash flows.
Our revenue could decline significantly if we lose one or more of our most significant customers, which could have a significant adverse impact on us.
A significant portion of our revenues are concentrated among four customers, Life Extension, Herbalife (customers in our Contract Manufacturing Segment), and Thermosource Tooling and Manufacturing and ThermoFisher Scientific, (customers of our Other Nutraceutical Businesses Segment). In the fiscal years ended June 30, 2022 and 2021, approximately 90% and 92% of our consolidated net sales, respectively, were derived from the two major customers in our Contract Manufacturing Segment. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations.
Supply chain disruptions resulting from the COVID-19 pandemic and other geo-political events could have an impact on our financial results and ability to timely ship products to our customers.
We are still experiencing supply chain disruptions relating to fuel refinery and transportation issues as it pertains to both shipping and production of plastics. These issues first arose as result of the COVID-19 pandemic and other geo-political events. This continues to impact the supply and demand of bottles and caps, key components in our Contract Manufacturing Segment. Transportation, in general, continues to be an issue in the delay of receiving other raw materials and our ability to meet promised delivery dates to our customers in the Contract Manufacturing Segment
Additionally, the significant outbreak of this contagious disease in the human population has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and impact our operating results.
While we haven’t, to date, seen a significant negative impact in our margins resulting from the coronavirus outbreak, we are experiencing a slight negative impact on our margins due to inflation and tightened labor markets.
During the first quarter of calendar 2022, the war in Ukraine affected our customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom and the European Union that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia 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 from Indonesia may play a role in the 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 have indebtedness, which may decrease our flexibility, increase our borrowing costs and adversely affect our liquidity.
We currently have an $11.6 million in senior secured financing ( the “Senior Credit Facility”) under the Loan Agreement, dated as of June 27, 2012 and as amended on May 15, 2019 (the "Amended Loan Agreement"), by and among the Company, MDC, AgroLabs, IHT Health Products, Inc., IHT Properties Corp. (“IHT Properties”), and Vitamin Factory (collectively, the “Borrowers”) and PNC Bank, National Association ("PNC") and $2.6 million in operating lease obligations. As of June 30, 2022, we have an aggregate of $0.1 million outstanding with PNC under the Senior Credit Facility.
Our level of indebtedness can have important consequences. For example, it may require a substantial portion of our cash flow from operations for the payment of principal of, and interest on, our indebtedness and reduce our ability to use our cash flow to fund working capital, capital expenditures and general corporate requirements or to pay dividends; and limit our flexibility to adjust to changing business and market conditions and make us more vulnerable to a downturn in general economic conditions as compared to our competitors.
There are various financial covenants and other restrictions in the Senior Credit Facility. If we fail to comply with any of these requirements, the related indebtedness (and other unrelated indebtedness) could become due and payable prior to its stated maturity. A default under the Senior Credit Facility may also significantly affect our ability to obtain additional or alternative financing. For example, PNC's ongoing obligation to extend credit under the Amended Loan Agreement is dependent upon our compliance with these covenants and restrictions.
Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness will depend on our operating and financial performance, which, in turn, is subject to prevailing economic conditions and to financial, business and other factors beyond our control. Our inability to refinance our indebtedness when necessary or to do so upon attractive terms would materially and adversely affect our liquidity and our ongoing results of operations.
Complying with new and existing government regulation, both in the U.S. and abroad, could increase our costs significantly and adversely affect our financial results.
The processing, formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by several U.S. federal agencies, including the FDA, the FTC, the Consumer Product Safety Commission, the Department of Agriculture and the EPA, as well as various state, local and international laws and agencies of the localities in which our products are sold. Government regulations may prevent or delay the introduction, or require the reformulation, of our products. Some agencies, such as the FDA or state agencies, could require us to remove a particular product from the market, delay or prevent the import of raw materials for the manufacture of our products, or otherwise disrupt the marketing of our products. Any such government actions would result in additional costs to us, including lost revenues from any additional products that we are required to remove from the market, which additional costs could be material. Any such government actions also could lead to liability, substantial costs and reduced growth prospects. Moreover, there can be no assurance that new laws or regulations imposing more stringent regulatory requirements on the dietary supplement industry will not be enacted or issued. In addition, complying with adverse event reporting requirements imposes additional costs on us, which costs could become significant in the event more demanding reporting requirements are put into place.
Additional or more stringent regulations of dietary supplements and other products have been considered from time to time. These developments could require reformulation of certain products to meet new standards, recalls or discontinuance of certain products that cannot be reformulated, additional record-keeping requirements, increased documentation of the properties of certain products, additional or different labeling, additional scientific substantiation, adverse event reporting or other new requirements. These developments also could increase our costs significantly. For example, the FDA issued rules which became effective in 2008 that imposed substantial new regulatory requirements for dietary supplements, including GMPs. Congress also passed legislation requiring adverse event reporting and related record keeping which imposed additional costs on us. See Item 1. "Description of Business—Government Regulations" for additional information.
We may be exposed to or the target of legal proceedings initiated by regulators or third parties either in the United States or abroad which could increase our costs and adversely affect our reputation, revenues and operating income.
In the United States and abroad, non-compliance with relevant legislation can result in regulators bringing administrative or, in some cases, criminal proceedings. As manufacturers of nutraceutical products, our products are regulated by various governments and it is common for regulators to prosecute retailers and manufacturers for non-compliance with legislation governing foodstuffs and medicines. Failures by us or our subsidiaries to comply with applicable legislation could occur from time to time and prosecution for any such violations could have a material adverse effect on our business, results of operations, financial condition and cash flows. Additionally, we are 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 our liquidity, financial condition and cash flows.
We depend on our senior management, the loss of whom would have an adverse effect on us.
We presently are dependent upon the executive abilities of our Executive Chairman of the Board and President, E. Gerald Kay, our Co-Chief Executive Officers, Christina Kay and Riva Sheppard, and our Chief Financial Officer, Dina L. Masi. Our business and operations to date chiefly have been implemented under the direction of these individuals, who presently are, and in the future will be, responsible for the implementation of our anticipated plans and programs. The loss or unavailability of the services of one or more of our principal executives would have an adverse effect on us. We may encounter difficulty in our ability to recruit and ultimately hire any replacement or additional executive officers having similar background, experience and qualifications as those of our current executive officers.
There is no assurance that we will remain quoted or listed on an active trading market.
As of January 22, 2021, the Company’s common stock was upgraded to the OTCQX® Best Market of the OTC Markets Group, Inc. and commenced quotation under the symbol “INBP.” In order to maintain quotation on the OTCQX, the Company will be required to comply with certain minimum qualitative and quantitative requirements, including with respect to corporate governance. There can be no assurances that the Company will be able to comply with these qualitative and quantitative requirements for continued quotation of its common stock on the OTCQX. If the Company doesn’t maintain compliance with the OTCQX rules, the Company’s common stock may resume listing on the OTCQB and holders of the Company’s common stock may find it more difficult to sell their shares.
From September 23, 2009 until January 21, 2021, our common stock was quoted on the OTQB. From February 27, 2009 through September 22, 2009, our common stock was quoted on the Pink Sheets. Prior to February 27, 2009, our common stock was listed on the NASDAQ Global Market, and there can be no assurance that we will, in the future, be able to meet all the requirements for reinstatement on that or any other national securities exchange. The delisting of our common stock from the NASDAQ Global Market has adversely affected, and may in the future continue to adversely affect, the liquidity and trading of our common stock.
We have entered into several transactions with entities controlled by some of our officers and directors, which could pose a conflict of interest.
We have several agreements and arrangements, described in our previous SEC filings and to be described in our proxy statement for our 2022 annual meeting of stockholders, including the lease of real property from Vitamin Realty Associates, L.L.C. (“Vitamin Realty”), the sale of our financial debt securities, and issuance of our common stock, which involved transactions with entities owned, in whole or in part, by members of the family of our Executive Chairman and our Co-Chief Executive Officers and other of our significant shareholders and/or directors, who collectively own a majority of our shares of common stock. Although we believe that these transactions were advantageous to us and were on terms no less favorable to us than could have been obtained from unaffiliated third parties, transactions with related parties can potentially pose a conflict of interest.
Our Executive Officers and Directors have majority voting power and may take actions that may not be in the best interest of other stockholders, but in their own interest.
Collectively, our Executive Officers, Directors and one other significant stockholder, beneficially own approximately 73% of our outstanding shares of common stock as of September 13, 2022. If these stockholders act together, they would be able to exert significant control over our management and affairs since significant corporate transactions require stockholder approval. This concentration of ownership may have the effect of delaying or preventing a change in control and might adversely affect the market price of our common stock. This concentration of ownership may not be in the best interests of all our stockholders.
We have a staggered Board of Directors, which could impede an attempt to acquire the Company or remove our management.
Our Board of Directors is divided into three classes, each of which serves for a staggered term of three years. This division of our Board of Directors could have the effect of impeding an attempt to take over our company or change or remove management, since only one class will be elected annually. Thus, only approximately one-third of the existing Board of Directors could be replaced at any election of directors.
Our product liability insurance may be insufficient to cover possible claims against us.
Our company, like other manufacturers, wholesalers and distributors of vitamin and nutritional supplement products, faces an inherent risk of exposure to product liability claims if, among other things, the use or ingestion of our products, results in sickness or injury. We currently maintain a product liability insurance policy that provides a total of $5.0 million of coverage per occurrence and $5.0 million of coverage in the aggregate. However, there can be no assurance that existing or future insurance coverage will be sufficient to cover any possible product liability risks or that such insurance will continue to be available to us on economically feasible terms.
Our nutraceutical products are manufactured using various raw materials consisting of vitamins, minerals, herbs, fruit extracts and other ingredients that we regard as safe when taken as recommended by us and that various scientific studies have suggested may provide health benefits. We could be adversely affected if any of our products or any similar products distributed by other companies should prove or be asserted to be harmful to consumers or should scientific studies provide unfavorable findings regarding the effectiveness of our products.
We may not be able to obtain raw materials used in certain of our manufactured products.
The principal raw materials used in the manufacturing process in the Company’s nutraceutical business are natural and synthetic vitamins, minerals, herbs, related nutritional supplements, vegetable and gelatin capsules, coating materials, fruit extracts, fruit juices and the necessary components for packaging the finished products. The raw materials are available from numerous sources within the United States and abroad. The vegetable and gelatin capsules, coating materials and packaging materials are similarly widely available. We generally purchase our raw materials, on a purchase order basis, without long-term commitments.
We have one principal supplier for our Other Nutraceutical Businesses Segment, DSM Nutritional Products LLC and several suppliers in our Contract Manufacturing Segment. If we are unable to maintain our relationships with our suppliers, we may not be able to find alternate sourcing of our raw materials or at the same pricing that we receive from our current suppliers and/or quickly enough to make timely shipments to our customers. This could decrease our sales and/or increase our cost of sales.
Current economic conditions may cause a decline in business and consumer spending which could adversely affect our business and financial performance.
Our operating results are impacted by the health of the North American economies. Our business and financial performance, including collection of our accounts receivable, recoverability of assets including investments, may be adversely affected by current and future economic conditions, such as a reduction in the availability of credit, financial market volatility, recession, etc. Additionally, we may experience difficulties in scaling our operations to react to economic pressures in the United States.
We may incur significant professional service fees and other control costs that impact our financial condition.
As a publicly traded corporation, we incur certain costs to comply with regulatory requirements. If regulatory requirements were to become more stringent or if controls thought to be effective later fail, we may be forced to make additional expenditures, the amounts of which could be material. Some of our competitors are privately owned so their accounting and control costs can be a competitive disadvantage for us. Should our sales decline or if we are unsuccessful at increasing prices to cover higher expenditures for internal controls, audits, consultants and legal, our costs associated with regulatory compliance will rise as a percentage of sales.
Other issues and uncertainties may include:
● New accounting pronouncements or changes in accounting policies; and
● Legislation or other governmental action that detrimentally impacts our expenses or reduces sales by adversely affecting our customers.
If we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult.
If we fail to comply with the rules under the Sarbanes-Oxley Act, related to disclosure controls and procedures, or if we discover material weaknesses and other deficiencies in our internal control and accounting procedures, our stock price could decline significantly and raising capital could be more difficult. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important in helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly. While we have not identified any material weakness in our internal control over financial reporting, we cannot be certain that material weaknesses or significant deficiencies in our internal controls will not be discovered in the future.
We have not paid dividends on our common stock in the past and do not expect to pay dividends on our common stock for the foreseeable future. Any return on investment may be limited to the value of our common stock.
We have never paid any cash dividends on our common stock. We expect that any income received from operations will be devoted to our future operations and growth. We do not expect to pay cash dividends on our common stock in the near future. Payment of dividends would depend upon our profitability at the time, cash available for those dividends, and other factors that our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on an investor’s investment will only occur if our stock price appreciates. Investors in our common stock should not rely on an investment in our company if they require dividend income.
A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline and may impair our ability to raise capital in the future.
Our common stock is quoted on the OTCQX® Best Market and could be considered “thinly-traded,” meaning that the number of investors interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. Finance transactions resulting in a large amount of newly issued shares that become readily tradable, or other events that cause current stockholders to sell shares, could place downward pressure on the trading price of our common stock. In addition, the lack of a robust resale market may require a stockholder who desires to sell a large number of shares of common stock to sell the shares in increments over time to mitigate any adverse impact of the sales on the market price of our stock.
If our stockholders sell, or the market perceives that our stockholders may sell for various reasons, including the ending of restriction on resale, substantial amounts of our common stock in the public market, including shares issued upon the exercise of outstanding options or warrants, the market price of our common stock could fall. Sales of a substantial number of shares of our common stock may make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
Item 1B. Unresolved Staff Comments
Not applicable.
Item 2. Properties
Warehouse and office facilities are leased from Vitamin Realty, which is 100% owned by our Executive Chairman of the Board, President and major stockholder of the Company and our Co-Chief Executive Officers who are also directors of the Company. On January 5, 2012, MDC, a wholly-owned subsidiary of the Company, entered into a second amendment of the lease (the “Second Lease Amendment”) with Vitamin Realty for its office and warehouse space in Hillside, New Jersey increasing its rentable square footage from an aggregate of 74,898 square feet to 76,161 square feet and extending the expiration date to January 31, 2026. On July 15, 2022, MDC entered into a third amendment of the lease (the “Third Lease Amendment”) with Vitamin Realty, increasing its rentable square footage to 116,175. This Third Lease Amendment provides for minimum annual rental payments of $842, plus increases in real estate taxes and the building operating expenses allocation percentage and is effective as of July 1, 2022.
Also on January 5, 2012, AgroLabs, a wholly-owned subsidiary of the Company, entered into a lease agreement with Vitamin Realty (the “AgroLabs Lease”) for an additional 2,700 square feet of warehouse space in Hillside, New Jersey. The term of this lease was originally to expire on January 31, 2020, however, this lease was amended on May 19, 2014 to extend the term thereof to June 1, 2024. The AgroLabs Lease provided for minimum annual lease payments of $27,000 with annual increases plus the proportionate share of operating expenses. The AgroLabs Lease was mutually terminated on July 15, 2022 with an effective date of July 1, 2022.
We also own a 40,000 square foot manufacturing facility in Hillside, New Jersey. The space is utilized for MDC’s tablet and capsule manufacturing operations.
On October 22, 2014, AgroLabs entered into a lease agreement for an office suite located in Miami, Florida. On December 18, 2021, AgroLabs renewed this lease with minimum annual payments of approximately $11,800. This renewed lease will expire in February 2023.
Item 3. 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 4. Mine Safety Disclosure
Not Applicable
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Effective January 22, 2021, our common stock was upgraded to the OTCQX® Best Market of the OTC Markets Group, Inc. and commenced quotation under the symbol “INBP” on the OTCQX® Best Market. Prior to January 22, 2021, our common stock was quoted on the OTCQB under the symbol INBP.
Set forth below are the high and low bid quotation of the Company’s common stock as quoted on the OTCQB and effective January 22, 2021, on the OTCQX® Best Market, for each of the fiscal quarters in the fiscal years ended June 30, 2022 and 2021. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
| COMMON STOCK |
HIGH |
LOW |
||||||
| FISCAL YEAR ENDED June 30, 2021 |
||||||||
| First Quarter |
$ | 0.460 | $ | 0.311 | ||||
| Second Quarter |
$ | 0.781 | $ | 0.400 | ||||
| Third Quarter |
$ | 1.070 | $ | 0.640 | ||||
| Fourth Quarter |
$ | 1.200 | $ | 0.940 | ||||
| FISCAL YEAR ENDED June 30, 2022 |
||||||||
| First Quarter |
$ | 1.150 | $ | 0.900 | ||||
| Second Quarter |
$ | 1.090 | $ | 0.880 | ||||
| Third Quarter |
$ | 1.020 | $ | 0.750 | ||||
| Fourth Quarter |
$ | 0.800 | $ | 0.410 | ||||
| July 1, 2022 to September 12, 2022 | $ | 0.550 | $ | 0.450 | ||||
Holders
As of September 13, 2022, there were approximately 78 holders of record of the Company’s common stock. This number does not include beneficial owners holding shares through nominee names.
Dividends
We have not declared or paid a dividend with respect to our common stock during the fiscal years ended June 30, 2022 and 2021, nor do we anticipate paying dividends in the foreseeable future.
Equity Compensation Plans
The following table provides information, as of June 30, 2022, about the Company's equity compensation plans:
| Equity Compensation Plan Information |
||||||||||||
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities |
||||||||||
| (a) |
(b) |
reflected in column (a)) |
||||||||||
| Equity compensation plans approved by security holders |
4,443,933 | $ | 0.36 | 6,807,069 | ||||||||
| Equity compensation plans not approved by security holders |
- | - | - | |||||||||
| Totals |
4,443,933 | $ | 0.36 | 6,807,069 | ||||||||
Recent Sales of Unregistered Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the quarter ended June 30, 2022, neither we nor any “affiliated purchaser,” as that term is defined in Rule 10b-18(a)(3) under the Exchange Act, purchased any of our common stock or other securities.
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollars in thousands).
Certain statements set forth under this caption constitute “forward-looking statements.” See “Cautionary Statement Regarding Forward-Looking Statements” on page 3 of this Annual Report on Form 10-K for additional factors relating to such statements.
The Company is engaged primarily in the manufacturing, distributing, marketing and sale of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily throughout the United States and Luxembourg.
Our financial results are substantially dependent on net sales. Net sales are partly dependent on the mix of contract manufactured products and other nutraceutical sales, which are difficult to forecast. Factors that could cause demand to be different from our expectations include: customer acceptance of our pricing and our competitors’ pricing; changes in customer order patterns; changes in the level of customer inventory; and changes in business and economic conditions, including conditions in the credit market that could affect consumer confidence and result in lower than expected demand for our manufactured products and to a lesser extent, our other nutraceutical business products and services.
We believe that we have established and developed business relationships, facilities, personnel, product offerings, and competitive and financial resources in place for business success; however, future revenue, costs, gross margins, and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast. Except as otherwise noted, all dollar amounts below are “in thousands”.
In the fiscal year ended June 30, 2022, our net sales from operations decreased by $7,313 to approximately $56,246 from approximately $63,559 in the fiscal year ended June 30, 2021. Our net sales in the Contract Manufacturing Segment decreased by $7,743 and net sales in our Other Nutraceuticals Segment increased by $431. Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife, our two significant customers, in the amount of $6,212 and $1,943, respectively. In the fiscal year ended June 30, 2022, our gross profit decreased by approximately $2,928 to $6,552 from approximately $9,480 for the fiscal year ended June 30, 2021. Our profit margins decreased by 3.3% in the fiscal year ended June 30, 2022, from 14.9% to 11.6% primarily as a result of the decreased sales volume in the fiscal year ended June 30, 2022 compared to the fiscal year ended June 30, 2021. We had consolidated selling and administrative expenses of approximately $3,807 and $3,696 in the fiscal years ended June 30, 2022 and 2021, respectively. The increase in the consolidated selling and administrative expenses of $111, or approximately 3.0%, was primarily from the increase in stock compensation expense, a non-cash item, of $139 and salaries and employee benefits of $60, offset in part, by a decrease in professional and consulting fees of $57 and insurance costs of $22. In the fiscal years ended June 30, 2022 and 2021, we had operating income of approximately $2,745 and $5,784, respectively.
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.
We are still experiencing supply chain disruptions relating to fuel refinery and transportation issues as it pertains to both shipping and production of plastics. These issues first arose as result of the COVID-19 pandemic and other geo-political events. This continues to impact the supply and demand of bottles and caps, key components in our Contract Manufacturing Segment. Transportation, in general, continues to be an issue in the delay of receiving other raw materials and our ability to meet promised delivery dates to our customers in the Contract Manufacturing Segment.
Additionally, the significant outbreak of this contagious disease in the human population has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and impact our operating results.
While we haven’t, to date, seen a significant negative impact in our margins resulting from the coronavirus outbreak, we are experiencing a slight negative impact on our margins due to inflation and tightened labor markets.
During the first quarter of calendar 2022, the war in Ukraine affected our customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia 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 from Indonesia may play a role in reformulation of many products. This may cause delays in finished products as these items will need to be reformulated and labels updated and printed with the changes, which may cause further delays.
While we haven’t, to date, seen a significant negative impact to our margins resulting from the coronavirus outbreak, we are experiencing a slight negative impact on our margins due to inflation and tightened labor markets.
Critical Accounting Policies and Estimates
Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include:
● sales returns and allowances;
● allowance for doubtful accounts;
● inventory valuation;
● valuation and recoverability of long-lived assets;
● income taxes and valuation allowances on deferred income taxes; and
● accruals for, and the probability of, the outcome of current litigation, if any.
On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Allowances for Doubtful Accounts and Sales Returns
Our management makes judgments as to its ability to collect outstanding receivables and provides allowances for the portion of receivables for which collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding amounts. We continuously monitor payments from our customers and maintain allowances for estimated losses for doubtful accounts in the period they become known.
If the historical data we use to calculate the allowance provided for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. In recording any additional allowances, a respective charge against income is reflected in the general and administrative expenses; and would reduce the operating results in the period in which the increase is recorded.
Our return policy in our contract manufacturing business is to only accept returns for defective products. If defective products are returned, our agreement with our customers is to cure the defect and re-ship the product. Based on this policy, when the product is shipped we make an estimate of any potential returns or allowances. With respect to our branded proprietary nutraceutical products, our return policy is also to accept returns for defective products and re-ship replacement items for the damaged product. In most instances, the damaged goods are a small portion of the overall order and we instruct our customer to dispose of the damaged product and we issue them a credit for the dollar amount of the damaged goods plus any cost of disposal. We also estimate and make allowances at the time of shipment.
Inventory Valuation
Inventories are stated at the lower of cost or net realizable value, which reflects management’s estimates of net realizable value. Cost is determined using the first-in, first-out method. As a result of our inventory being manufactured primarily on a purchase order basis, the quantity of both raw materials and finished goods inventory provides for minimal risk of potential overstock or obsolescence.
Mail and Internet order inventory is expiration date sensitive. Accordingly, we review this inventory, consider sales levels (by SKU), term to expiration date, potential for retesting to extend expiration date, and evaluate potential for obsolescence or overstock.
Long Lived Assets
We record impairment losses on long lived assets when events and circumstances indicate that such assets might be impaired and the estimated fair value of any such asset is less than its recorded amount. The Company reviews the value of its long-lived assets for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Conditions that would necessitate an impairment assessment include material adverse changes in operations, significant adverse differences in actual results in comparison with initial valuation forecasts prepared at the time of acquisition, a decision to abandon certain acquired products, services, or marketplaces, or other significant adverse changes that would indicate the carrying amount of the recorded asset might not be recoverable. Tests for impairment or recoverability are performed at least annually and require significant management judgment and the use of estimates which the Company believes are reasonable and appropriate at the time of the impairment test. The Company also re-evaluates the periods of amortization to determine whether circumstances warrant revised estimates of current useful lives. No impairment losses were identified in the fiscal years ended June 30, 2022 or 2021.
Income Taxes
The Company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating losses and tax credit carry-forwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company reduces deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.
The Company uses a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.
General Litigation
From time to time, the Company is a defendant or plaintiff in various legal actions which arise in the normal course of business. As such, the Company is required to assess the likelihood of any adverse outcomes to these matters as well as potential ranges of probable losses. A determination of the amount of the provision required for these commitments and contingencies, if any, which would be charged to earnings, is made after careful analysis of each matter. The provision may change in the future due to new developments or changes in circumstances. Changes in the provision could increase or decrease the Company’s earnings in the period the changes are made. In the opinion of management, after consultation with legal counsel, the ultimate resolution of these matters cannot be determined at this time as to the whether there could be material adverse effect on our financial condition or results of operations.
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. |
Results of Operations (in thousands, except share and per share amounts)
The following table sets forth the income statement data of the Company as a percentage of net sales for the periods indicated:
| For the Fiscal Year Ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| Sales, net |
100.0 | % | 100.0 | % | ||||
| Costs and expenses: |
||||||||
| Cost of sales |
88.3 | % | 85.1 | % | ||||
| Selling and administrative |
5.8 | % | 5.8 | % | ||||
| Total costs and expenses |
95.1 | % | 90.9 | % | ||||
| Income from operations |
4.9 | % | 9.1 | % | ||||
| Other expense, net: |
||||||||
| Interest expense |
(0.3 | %) | (0.4 | %) | ||||
| Other income (expense): |
||||||||
| PPP Note forgiveness |
- | 2.6 | % | |||||
| Unrealized loss on investment in iBio, Inc. |
(0.1 | %) | (0.1 | %) | ||||
| Realized gains on sale of iBio, Inc. common stock |
- | 0.1 | % | |||||
| Other income (expense), net |
0.1 | % | 0.1 | % | ||||
| Total other income (expense) |
0.0 | % | 2.7 | % | ||||
| Total other income (expense), net |
(0.3 | %) | 2.3 | % | ||||
| Income before income taxes |
4.6 | % | 11.4 | % | ||||
| Federal and state income tax benefit, net |
2.2 | % | 1.2 | % | ||||
| Net income |
6.8 | % | 12.6 | % | ||||
Year ended June 30, 2022 Compared to the Year ended June 30, 2021
Sales, net. Net sales for the fiscal year ended June 30, 2022 and 2021 were $56,246 and $63,559, respectively, a decrease of $7,313 or 11.5%. The decrease is comprised of the following:
| Fiscal Year Ended |
Dollar Increase |
Percentage |
||||||||||||||
| June 30, |
(Decrease) |
Change |
||||||||||||||
| 2022 |
2021 |
2022 vs 2021 |
2022 vs 2021 | |||||||||||||
| (dollars in thousands) |
||||||||||||||||
| Contract Manufacturing: |
||||||||||||||||
| US Customers |
$ | 44,450 | $ | 52,763 | $ | (8,313 | ) | (15.8 | %) | |||||||
| International Customers |
9,641 | 9,072 | 369 | 6.3 | % | |||||||||||
| Net sales, Contract Manufacturing |
54,091 | 61,835 | (7,744 | ) | (12.5 | %) | ||||||||||
| Other Nutraceuticals: |
||||||||||||||||
| US Customers |
2,067 | 1,624 | 443 | 27.3 | % | |||||||||||
| International Customers |
88 | 100 | (12 | ) | (12.0 | %) | ||||||||||
| Net sales, Other Nutraceuticals |
2,155 | 1,724 | 431 | 25.0 | % | |||||||||||
| Total net sales |
$ | 56,246 | $ | 63,559 | $ | (7,313 | ) | (11.5 | %) | |||||||
In the fiscal years ended June 30, 2022 and 2021, a significant portion of our consolidated net sales, approximately 90% and 92%, respectively, were concentrated among two customers, Life Extension and Herbalife, customers in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 67% and 26% and 69% and 26%, respectively, of our Contract Manufacturing Segment’s net sales in the fiscal years ended June 30, 2022 and 2021, respectively. Two other customers, Thermosource Tooling and Manufacturing and ThermoFisher Scientific, (customers of our Other Nutraceutical Businesses Segment), while not significant customers of our consolidated net sales, represented 40% and 19% and 1% and 30%, respectively, of the Other Nutraceutical Businesses net sales in the fiscal years ended June 30, 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 $7,313 was primarily the result of decreased net sales in our Contract Manufacturing Segment by approximately $7,744 which was primarily due to decreased sales volumes to each of our major customers, Life Extension and Herbalife, in the amounts of $6,212 and $1,943, respectively, in the fiscal year ended June 30, 2022, compared to the comparable prior year. Net sales increased by $431 in the Other Nutraceuticals Segment primarily as a result of increased sales of $487 in MDC Warehousing and Distribution, Inc.
Cost of sales. Cost of sales decreased by $4,385 to $49,694 for the fiscal year ended June 30, 2022, as compared to $54,079 for the fiscal year ended June 30, 2021, a decrease of approximately 8.1%. Cost of sales as a percentage of sales was approximately 88% and 85% for the fiscal years ended June 30, 2022 and 2021, respectively. The decrease in the cost of goods sold amount is consistent and expected with the decrease in net sales. The increase in the cost of goods sold as a percentage of net sales and the resulting decrease in gross profit, was primarily the result of the decreased net sales not generated to offset the 9% increase in manufacturing overhead, which was primarily from increased labor costs of approximately 12%.
Selling and Administrative Expenses. There was an increase in selling and administrative expenses of $111 or approximately 3.0% in the fiscal year ended June 30, 2022 as compared to the fiscal year ended June 30, 2021. As a percentage of sales, net, selling and administrative expenses were approximately 6.8% and 5.8% for the fiscal year ended June 30, 2022 and 2021, respectively. The increase was primarily from increases in employee stock compensation expense, a non-cash expense, of $139 as a result of issuing stock options in November 2020 and 2021 and salaries and employee benefits of $60. These increases were offset in part by decreases in professional and consulting fees of $57 and insurance costs of $22.
Other income (expense), net. Other income (expense), net was approximately $(148) for the fiscal year ended June 30, 2022 compared to $1,463 for the fiscal year ended June 30, 2021, and is composed of:
| Fiscal Year Ended |
||||||||
| June 30, |
||||||||
| 2022 |
2021 |
|||||||
| (dollars in thousands) |
||||||||
| Interest expense |
$ | (128 | ) | $ | (256 | ) | ||
| Other income (expense): |
||||||||
| PPP Note forgiveness |
- | 1,659 | ||||||
| Unrealized loss on investment |
(55 | ) | (53 | ) | ||||
| Realized gain on sale of investment |
- | 56 | ||||||
| Other income (expense), net |
35 | 57 | ||||||
| Total other income (expense), net |
(20 | ) | 1,719 | |||||
| Other income (expense), net |
$ | (148 | ) | $ | 1,463 | |||
Our interest expense in the fiscal year ended June 30, 2022 decreased by $128 from the fiscal year ended June 30, 2021, primarily resulting from of lower average daily balances outstanding under the Senior Credit Facility with PNC and and having no other debt outstanding in the fiscal year ending June 30, 2022 compared to the fiscal year ended June 30, 2021.
The PPP Note forgiveness amount of $1,659 represents principal of $1,639 and interest of $20 that qualified for loan forgiveness under the SBA guidelines and was paid to PNC Bank by the SBA on June 28, 2021, resulting in the other income of $1,659 recorded in the fiscal year ended June 30, 2021.
In the fiscal years ended June 30, 2021, we sold 16,000 shares of iBio Stock (SeeNote 2 to the consolidated financial statements included in this Annual Report on Form 10-K) for a gain of $56. There were no sales of the iBio Stock in the fiscal year ended June 30, 2022. Also, in the fiscal years ended June 30, 2022 and 2021, we had unrealized losses on the remaining iBio Stock of approximately $55 and $53, respectively.
In the fiscal years ended June 30, 2022 and 2021, we had other income of $12 and $42, respectively from providing back office and operational support for unrelated entities that sell consumer products through retail and internet-based outlets. The balance of other income (expense), net was primarily from the disposition of property and equipment.
Federal and state income tax, net. In the fiscal years ended June 30, 2022 and 2021, we released the valuation reserves for the deferred tax assets related to our federal net operating losses in the amount of $2,118 and $2,282, respectively. Management determined that the amount of the release was more likely than not to be realized by the Company. In the fiscal year ended June 30, 2022 and 2021, we had deferred income tax benefits of $1,530 and $1,385, respectively and current state tax expense of approximately $289 and $619, 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.
The increase in the state tax expense from 2020 to 2021 was the result of increased taxable income for the combined group.
Net income. Our net income for the fiscal year ended June 30, 2022 and 2021 was approximately $3,838 and $8,013, respectively. The decrease of approximately $4,175 was primarily the result of decreased operating income of $3,039, the PPP Note forgiveness in the amount of $1,659 in the fiscal year ended June 30, 2021 with no such forgiveness in the fiscal year ended June 30, 2022 and an increase in the income tax benefit, net in amount $475.
Liquidity and Capital Resources
The following table sets forth, for the periods indicated, the Company’s net cash flows provided by or used in operating, investing and financing activities:
| For the fiscal year ended June 30, |
||||||||
| 2022 |
2021 |
|||||||
| (dollars in thousands) |
||||||||
| Net cash provided by operating activities |
$ | 4,091 | $ | 3,050 | ||||
| Net cash used in investing activities |
$ | (465 | ) | $ | (199 | ) | ||
| Net cash used in financing activities |
$ | (3,505 | ) | $ | (3,043 | ) | ||
| Cash at end of year |
$ | 331 | $ | 210 | ||||
At June 30, 2022 and 2021, the Company had working capital of $11,363 and $8,762, respectively. Our current liabilities decreased by approximately $3,973 offset by a decrease in our current assets of $1,372 from June 30, 2021 to June 30, 2022. The decrease in current liabilities is primarily from the decrease of $2,072 in advances under revolving credit facility and the decrease in current portion of long term debt, net in the amount of $1,425 and the decrease in the current assets is primarily from decreases in accounts receivable, net and inventories in the amounts of $888 and $640, respectively.
Operating Activities
Net cash provided by operating activities of $4,091 in the fiscal year ended June 30, 2022 includes net income of approximately $3,838. After excluding the effects of non-cash expenses and income, depreciation and amortization, compensation expense for employee stock options, accretion of financial instruments, changes in deferred tax assets and unrealized gains on investments, the adjusted cash used in operations before the effect of the changes in working capital components was an increase of approximately $3,526. Cash in the amount of approximately $564 from our working capital assets and liabilities was provided from our operating activities and was primarily the result of decreases in accounts receivable of approximately $927 and inventories of $640, offset, by decreases in operating lease obligations of $501 and accounts payable and accrued expenses and other liabilities of $417, and an increase in prepaid expenses and other assets of approximately $84.
Net cash provided by operating activities of $3,050 in the fiscal year ended June 30, 2021 includes net income of approximately $8,013. After excluding the effects of non-cash expenses and income, including PPP Note forgiveness, depreciation and amortization, compensation expense for employee stock options, accretion of financial instruments, changes in deferred tax assets and unrealized gains on investments, the adjusted cash used in operations before the effect of the changes in working capital components was an increase of approximately $6,096. Cash in the amount of approximately $3,046 from our working capital assets and liabilities was used in our operating activities and was primarily the result of increases in inventories of approximately $1,594, accounts receivable of $294, and decreases in operating lease obligations of $490 and accounts payable and accrued expenses and other liabilities of $711, offset by a decrease in prepaid expenses and other assets of approximately $43.
Investing Activities
Cash used in investing activities was used for the purchase of machinery and equipment for approximately $486 and $295 in the fiscal years ended June 30, 2022 and 2021, respectively, offset in the fiscal year ended June 30, 2022 and 2021 by proceeds (i) received from the sale of fixed assets of $21 and $0, and (ii) from the sale of iBio, Stock of $0 and $96, respectively, a net use of cash approximately $465 and $199, respectively.
Financing Activities
Cash used in financing activities was approximately $3,505 for the fiscal year ended June 30, 2022 and consists of; (i) $54,618 received from advances under our revolving credit facility, and (ii) $34 received from the exercise of employee stock options, offset by (i) repayments under our revolving credit facility of $56,691 (See Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K) and (ii) repayments of principal under our term notes in the amount of $1,466 (See Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K).
Cash used in financing activities was approximately $3,043 for the fiscal year ended June 30, 2021 and consists of; (i) $57,662 received from advances under our revolving credit facility, and (ii) $23 received from the exercise of employee stock options, offset by (i) repayments under our revolving credit facility of $59,535 (See Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K), (ii) repayments of principal under our term notes in the amount of $1,118 (See Note 5 to the consolidated financial statements included in this Annual Report on Form 10-K) and (iii) repayments of $75 under our financed lease obligations.
As of June 30, 2022, we had cash of approximately $331, funds available under our revolving credit facility of approximately $6,419 and working capital of $11,363. Our working capital includes approximately $101 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 5 to the consolidated financial statements included in this Annual Report on Form 10-K). Furthermore, we had income from operations of approximately $2,745 in the fiscal year ended June 30, 2022 and net income of approximately $3,838. After taking into consideration our interim results and current projections, management believes that operations, together with the revolving credit facility and equipment financing will support our working capital requirements at least through the twelve-month period ending September 13, 2023.
Our total annual commitments at June 30, 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 in the fiscal years ended June 30, 2022 and 2021 were approximately $486 and $295, respectively. The Company has budgeted approximately $500 for capital expenditures for the fiscal year ending June 30, 2023. The total amount is expected to be funded from cash provided from the Company’s operations and from lease financing.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Impact of Inflation
The Company does not believe that inflation has significantly affected its results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and is not required to provide the information required under this item.
Item 8. Financial Statements and Supplementary Data
For a list of financial statements filed as part of this Annual Report on Form 10-K, see the index to consolidated financial statements on page 30.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not Applicable
Item 9A. 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 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 June 30, 2022, and, based upon this evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.
Management’s Annual Report On Internal Control Over Financial Reporting
The Company’s management is responsible for establishing and maintaining an adequate system of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Internal control over financial reporting is a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
• Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
• Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
• Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies and procedures may deteriorate.
The Company’s management, including the Co-Chief Executive Officers and Chief Financial Officer, has conducted an evaluation of the effectiveness of its internal control over financial reporting as of June 30, 2022 based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013) (the “COSO Framework”). Based on that evaluation, management concluded that our internal control over financial reporting was effective as of June 30, 2022.
Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, the Company has evaluated changes in internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2022 and have concluded that no change has materially affected, or is reasonably likely to materially affect, internal control over financial reporting.
Item 9B. Other Information
None.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
N/A
PART III
Item 10. Directors, Executive Officers and Corporate Governance of the Registrant.
Incorporated by reference from the Company’s Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended June 30, 2022.
Item 11. Executive Compensation
Incorporated by reference from the Company’s Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended June 30, 2022.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Incorporated by reference from the Company’s Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended June 30, 2022.
Item 13. Certain Relationships and Related Transactions and Director Independence
Incorporated by reference from the Company’s Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended June 30, 2022.
Item 14. Principal Accountant Fees and Services
Incorporated by reference from the Company’s Proxy Statement for Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the close of the fiscal year ended June 30, 2022.
PART IV
Item 15. Exhibits and Financial Statement Schedules
| (a) |
Exhibits and Index |
| (1) |
A list of the financial statements filed as part of this Annual Report on Form 10-K is set forth in the index to consolidated financial statements on Page 31 and is incorporated herein by reference. |
(2) An index of exhibits incorporated by reference or filed with this Annual Report on Form 10-K is provided below.
| Number |
Description |
| 3.1 |
Certificate of Incorporation of Integrated BioPharma, Inc., as amended (7) |
| 3.2 |
Certificate of Amendment to the Restated Certificate of Incorporation of Integrated BioPharma, Inc. (7) |
| 3.3 |
|
| 4.1 |
|
| 4.2 |
|
| 10.1 |
Lease Agreement between the Company and Vitamin Realty Associates, dated January 10, 1997 (2) |
| 10.1.1 |
|
| 10.1.2 | Third Amendment of Lease, dated as of July 15, 2022, between Vitamin Realty Associates, L.L.C. and Manhattan Drug Company, Inc. (16) |
| 10.2 |
|
| 10.2.1 |
|
| 10.2.2 | Termination of Lease Agreement, dated as of July 15, 2022, between Vitamin Realty Associates, L.L.C. and AgroLabs, Inc. (16) |
| 10.3 |
Integrated Health Technologies, Inc. 2001 Stock Option Plan, as amended (8) |
| 10.4 |
|
| 10.5 |
|
| 10.5.1 |
|
| 10.5.2 |
|
| 10.6 |
|
| 10.6.1 |
|
| 10.6.2 |
| 10.7 |
|
| 10.7.1 |
|
| 10.7.2 |
|
| 10.8 |
|
| 10.9 |
|
| 10.10 |
| 10.11 |
|
| 10.11.1 |
|
| 14 |
|
| 21 |
|
| 23.1 |
Consent of Independent Registered Public Accounting Firm (16) |
| 31.1 |
|
| 31.2 |
|
| 32.1 |
|
| 32.2 |
|
| 101 |
The following financial information from Integrated BioPharma, Inc.’s Annual Report on Form 10-K for the fiscal year ended June 30, 2022, formatted in XBRL (extensible Business Reporting Language): (i) Consolidated Statements of Income for the fiscal years ended June 30, 2022 and 2021, (ii) Consolidated Balance Sheets as of June 30, 2022 and 2021, (iii) Consolidated Statements of Changes in Stockholders’ Equity for the fiscal years ended June 30, 2022 and 2021 , (iv) Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2022 and 2021, and (v) the Notes to Consolidated Statements. (16) |
|
104
|
Cover Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101)
|
__________________________
| (1) |
Incorporated herein by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2003, filed with the SEC on September 29, 2003. |
| (2) |
Incorporated herein by reference to the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 1997, filed with the SEC on September 29, 1997. |
| (3) |
Incorporated herein by reference to the Company’s Current Report on Form 8-K filed with the SEC on May 12, 2022. |
| (4) |
Incorporated herein by reference to the Company's Current Report on Form 8-K filed with the SEC on November 19, 2007. |
| (5) |
Incorporated herein by reference to the Company's Current Report on Form 8-K filed with the SEC on February 14, 2008. |
| (6) |
Incorporated herein by reference to the Company's Current Report on Form 8-K filed with the SEC on February 22, 2008. |
| (7) |
Incorporated herein by reference to the Company's Current Report on Form 8-K filed with the SEC on May 12, 2008 and to the Company’s Annual Report on Form 10-KSB for the fiscal year ended June 30, 2002 filed with the SEC on September 29, 2003. |
| (8) |
Incorporated herein by reference to the Company's Definitive Proxy Statement on Form DEF 14A, as revised, filed with the SEC on October 28, 2009. |
| (9) |
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 filed with the SEC on May 21, 2012. |
| (10) |
Incorporated herein by reference to the Company's Current Report on Form 8-K filed with the SEC on June 29, 2012. |
| (11) |
Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2014, filed with the SEC on September 8, 2014. |
| (12) |
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2015 filed with the SEC on February 19, 2016. |
| (13) |
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2019 filed with the SEC on May 15, 2019. |
| (14) |
Incorporated herein by reference to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 filed with the SEC on May 13, 2020. |
| (15) |
Incorporated herein by reference to the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020 filed with the SEC on September 23, 2020. |
| (16) |
Filed herewith. |
Item 16. Form 10-K Summary
None.
Item 8: Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| Report of Independent Registered Public Accounting Firm (PCAOB Firm ID | 31 | |
| Consolidated Statements of Income for the fiscal years ended June 30, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 33 | |
| Consolidated Balance Sheets as of June 30, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 34 | |
| Consolidated Statements of Stockholders’ Equity for the fiscal years ended June 30, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 35 | |
| Consolidated Statements of Cash Flows for the fiscal years ended June 30, 2022 and 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 36 | |
| Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . | 37 |
. . . . . . . . .
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Integrated BioPharma, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Integrated BioPharma, Inc. and Subsidiaries (the “Company”) as of June 30, 2022 and 2021, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Accounting for Income Taxes
| Critical Audit Matter Description | As described in notes 2 and 7 of the consolidated financial statements, the Company’s deferred tax assets arise primarily due to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases, as well as, net operating losses and other carryforwards. The Company records a valuation allowance on the deferred tax assets not expected to be recoverable. In assessing the recoverability of the deferred tax assets, the Company considers both historical and forecasted taxable income and expected timing of when temporary differences will reverse. Auditing the Company’s income taxes required significant auditor judgement and subjectivity involved in evaluating the recoverability of the Company’s deferred tax assets, as well as, the use of professionals with specialized skill and knowledge. |
| How We Addressed the Matter in Our Audit | We evaluated management’s significant accounting policies and assumptions related to accounting for income taxes for reasonableness. We evaluated management’s significant assumptions used to forecast taxable income and compared the Company’s previous forecasts to actual results. We involved our firms tax professionals with specialized skills and knowledge, who assisted in assessing the Company’s application of the relevant tax regulations. |
/s/
We have served as the Company’s auditor since 2009
September 13, 2022
| INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES | ||||||
| CONSOLIDATED STATEMENTS OF INCOME | ||||||
| FOR THE FISCAL YEARS ENDED JUNE 30, | ||||||
| (in thousands, except share and per share amounts) | ||||||
| 2022 | 2021 | |||||
| Sales, net | $ | $ | ||||
| Cost of sales | ||||||
| Gross profit | ||||||
| Selling and administrative expenses | ||||||
| Operating income | ||||||
| Other income (expense), net: | ||||||
| PPP Note forgiveness | ||||||
| Interest expense | ( | ) | ( | ) | ||
| Unrealized loss on investment in iBio Stock | ( | ) | ( | ) | ||
| Realized gains on sale of investment in iBio Stock | ||||||
| Other income | ||||||
| Total other income (expense), net | ( | ) | ||||
| Income before income taxes | ||||||
| Income tax benefit, net | ||||||
| Net income | $ | $ | ||||
| Basic net income per common share | $ | $ | ||||
| Diluted net income per common share | $ | $ | ||||
| Weighted average common shares outstanding - basic | ||||||
| Add: Equivalent shares outstanding - stock options | ||||||
| Weighted average common shares outstanding - diluted | ||||||
See accompanying notes to consolidated financial statements.
| INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED BALANCE SHEETS | ||||||||
| AS OF JUNE 30, | ||||||||
| (in thousands, except share and per share amounts) | ||||||||
| 2022 | 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 a related party) | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current portion of long term debt, net | ||||||||
| Current portion of operating lease liabilities (includes $ and $ due to a related party) | ||||||||
| Total current liabilities | ||||||||
| Long term debt, net | ||||||||
| Operating lease liabilities (includes $ and $ due to a related party) | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Stockholders' Equity | ||||||||
| Common Stock, $ par value; shares authorized; | ||||||||
| and shares issued; and | ||||||||
| and shares outstanding | ||||||||
| Additional paid-in-capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Less: Treasury stock, at cost, shares | ( | ) | ( | ) | ||||
| Total Stockholders' Equity | ||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES | ||||||||||||||||||||||||||||
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY | ||||||||||||||||||||||||||||
| FOR THE FISCAL YEARS ENDED JUNE 30, | ||||||||||||||||||||||||||||
| (in thousands, except shares) | ||||||||||||||||||||||||||||
| Common Stock | Additional | Accumulated | Treasury Stock | Total Stockholders' | ||||||||||||||||||||||||
| Shares | Par Value | Paid-in-Capital | Deficit | Shares | Cost | Equity | ||||||||||||||||||||||
| Balance, July 1, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
| Compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Shares issued upon exercise of stock options | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Compensation expense for employee stock options | - | - | ||||||||||||||||||||||||||
| Shares issued upon exercise of stock options | ||||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||||||
See accompanying notes to consolidated financial statements.
| INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| FOR THE FISCAL YEARS ENDED JUNE 30, | ||||||||
| (in thousands) | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash from operating activities: | ||||||||
| Amortization of operating lease right-of-use assets | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( | ) | ( | ) | ||||
| Accretion of financing instruments, amortization of prepaid financing costs and other | ||||||||
| Compensation expense on employee stock options | ||||||||
| Unrealized loss on investment in iBio Stock | ||||||||
| Realized gain on sale of iBio Stock | ( | ) | ||||||
| Allowance for doubtful accounts | ( | ) | ||||||
| Gain on disposal of fixed assets | ( | ) | ( | ) | ||||
| PPP Note forgiveness | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease (increase) in: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other assets | ( | ) | ||||||
| (Decrease) increase in: | ||||||||
| Operating lease obligations | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ( | ) | ||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| 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 fixed assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Advances under revolving credit facility | ||||||||
| Repayments of advances under revolving credit facility | ( | ) | ( | ) | ||||
| Proceeds from exercises of stock options | ||||||||
| Repayments under term notes payable | ( | ) | ( | ) | ||||
| Repayments under financed lease obligations | ( | ) | ||||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net increase (decrease) in cash | ( | ) | ||||||
| Cash at beginning of fiscal year | ||||||||
| Cash at end of fiscal year | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the periods for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosures of non-cash transactions: | ||||||||
| Amount owed on purchase of fixed assets | $ | $ | ||||||
| Financing on financed lease obligation | $ | $ | ||||||
| Acquisition of right-of-use asset | $ | $ | ||||||
| Trade in value on like-kind exchanges | $ | $ | ||||||
| Interest forgiven on PPP Note | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 1. Business
Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, 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 and Luxembourg. The Company was originally incorporated in the state of Delaware on August 31, 1995 under the name Chem International, Inc., on December 5, 2000, changed its name to Integrated Health Technologies, Inc. and, on January 29, 2003, changed its name to Integarted BioPharma, Inc. The Company restated its certificate of incorporation in Delaware in June 2006. 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 distributed 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 introduced into the market using the AgroLabs name (these are referred to as our branded products), (ii) The Vitamin Factory (the “Vitamin Factory”), which did sell 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. The Vitamin Factory had no products available for sale and AgroLabs had no sales of its branded products in the fiscal years ended June 30, 2022 and 2021.
Note 2. Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany transactions and accounts have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The most significant estimates include:
● sales returns and allowances;
● allowance for doubtful accounts;
● inventory valuation;
● valuation and recoverability of long-lived assets;
● income taxes and valuation allowance on deferred income taxes, and;
● accruals for, and the probability of, the outcome of current litigation, if any.
On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
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. |
Shipping and Handling Costs. Shipping and handling costs were approximately $
Stock-Based Compensation. The Company has two stock-based compensation plans that have outstanding options issued in accordance with such plans. The Company periodically grants stock options to employees and directors in accordance with the provisions of its stock option plans, with the exercise price of the stock options being set at the closing market price of the common stock on the date of grant. Stock based compensation expense is recognized based on the estimated fair value, utilizing a Black-Scholes option pricing model, of the instrument on the date of grant over the requisite vesting period, which is generally years.
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.
The Company files a U.S. federal income tax return as well as returns for various states. The Company’s income taxes have not been examined by any tax authorities for the periods subject to review by such taxing authorities, except for the State of New Jersey tax filings for MDC and CII which were reviewed by the State of New Jersey for the then open tax periods of
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
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.
Fair Value of Financial Instruments. Generally accepted accounting principles require disclosing the fair value of financial instruments to the extent practicable for financial instruments which are recognized or unrecognized in the balance sheet. The fair value of the financial instruments disclosed herein is not necessarily representative of the amount that could be realized or settled, nor does the fair value amount consider the tax consequences of realization or settlement.
In assessing the fair value of financial instruments, the Company uses a variety of methods and assumptions, which are based on estimates of market conditions and risks existing at the time. For certain instruments, including cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses, it was estimated that the carrying amount approximated fair value because of the short maturities of these instruments. All debt is based on current rates at which the Company could borrow funds with similar remaining maturities and approximates fair value.
Accounts Receivable and Allowance for Doubtful Accounts. In the normal course of business, the Company extends credit to customers. Accounts receivable, less the allowance for doubtful accounts, reflect the net realizable value of receivables, and approximate fair value. The Company believes there is no concentration of credit risk with any single customer whose failure or nonperformance would materially affect the Company’s results other than as discussed in Note 9(c) – Significant Risks and Uncertainties – Major Customers. On a regular basis, the Company evaluates its accounts receivables and establishes an allowance for doubtful accounts based on a combination of specific customer circumstances, credit conditions, and historical write-offs and collections. The allowance for doubtful accounts as of June 30, 2022 and 2021 was $
Inventories. Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Allowances for obsolete and overstock inventories are estimated based on “expiration dating” of inventory and projection of sales.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Property and Equipment. Property and equipment are recorded at cost and are depreciated using the straight line method over the following estimated useful lives:
| Building | |
| Leasehold Improvements | Shorter of estimated useful life or term of lease |
| Machinery and Equipment | |
| Transportation Equipment |
Impairment of Long-Lived Assets. Long-lived assets are reviewed for impairment when circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to the future net cash flows estimated by the Company to be generated by such assets. If such assets are considered to be impaired, the impairment to be recognized is the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are recorded as held for sale at the lower of carrying value or estimated net realizable value. Tests for impairment or recoverability are performed at least annually and require significant management judgment and the use of estimates which the Company believes are reasonable and appropriate at the time of the impairment test. Future unanticipated events affecting cash flows and changes in market conditions could affect such estimates and result in the need for an impairment charge. The Company also re-evaluates the periods of amortization to determine whether circumstances warrant revised estimates of current useful lives.
Investment in iBio, Inc. Prior to the adoption of ASU 2016-01 on July 1, 2018, the Company accounted for its investment in iBio, Inc. (“iBio”) common stock on the cost basis as it retained approximately
Accounting Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 “Financial Instruments-Credit Losses-Measurement of Credit Losses on Financial Instruments”. This guidance replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The guidance applies to loans, accounts receivable, trade receivables and other financial assets measured at amortized cost, loan commitments, debt securities and beneficial interests in securitized financial assets, but the effect on the Company is projected to be limited to accounts receivable. The guidance will be effective for the fiscal year beginning on July 1, 2023, including interim periods within that year. The adoption of this standard is not expected to have a material impact on the Company’s Consolidated Financial Statements.
In May 2019, the FASB issued ASU 2020-05 “Financial Instruments-Credit Losses (Topic 326)” which provides transition relief for companies adopting ASU 2016-13. This guidance amends ASU 2016-13 to allow companies to elect, upon adoption of ASU 2016-13, the fair value option on financial instruments that were previously recorded at amortized cost under certain circumstances. Companies are required to make this election on and instrument by instrument basis. The guidance will be effective for the fiscal year beginning on July 1, 2023, including interim periods within that year. The adoption of this standard is not expected to have a material impact on the Company’s Consolidated Financial Statements.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. The guidance contains improvements to the Codification by ensuring that all guidance that requires or provides an option or an entity to provide information in the notes to the financial statements is codified in the Disclosure Section of the Codification. The guidance also contains Codifications that are varied in nature and may affect the application of the guidance in cases in which the original guidance may have been unclear. For public business entities, the amendments in the ASU are effective for annual periods beginning after December 15, 2021, and interim periods within annual periods beginning after December 15, 2022. Early adoption is permitted. The Company does not expect the adoption of ASU 2020-10 to have a material impact on is consolidated financial statements.
Note 3. 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:
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Note 4. Property and Equipment, net
Property and equipment consists of the following:
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Land and building | $ | $ | ||||||
| Leasehold improvements | ||||||||
| Machinery and equipment | ||||||||
| Transportation equipment | ||||||||
| Less: Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation and amortization expense was $
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 5. Senior Credit Facility and other Long Term Debt
As of June 30, 2022 and 2021, the Company had the following debt outstanding:
| Principal Amount | Interest Rate | Maturity Date | |||||||||||
| June 30, | |||||||||||||
| 2022 | 2021 | ||||||||||||
| Revolving advances under Senior Credit Facility with PNC Bank, National Association | $ | $ | % | 5/15/2024 | |||||||||
| Installment Note with PNC Bank | % | 1/3/2022 | |||||||||||
| Financed lease obligations | % | 9/15/2024 | |||||||||||
| 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.
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
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
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.
OTHER LONG TERM DEBT
Paycheck Protection Program Term Note. On June 30, 2022, the Company was notified by PNC Bank, that on June 28, 2021, PNC Bank received $
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
There were no payments of interest or principal amortization due under the PPP Note while the PPP Note was in the Deferral Period, which began on the date of the PPP Note, April 29, 2020, and ended on the June 28, 2021 (the “Deferral Expiration Date”). The Deferral Expiration Date was the date any forgiven amount was remitted to PNC or the date that a final determination was made that no portion of the PPP Note would be forgiven.
Financed Lease Obligations. On June 15, 2022, the Company entered into a financed lease obligation with LEAF Capital Funding, LLC in the amount of $
On December 1, 2020, the financed lease obligation entered into by the Company on February 1, 2019 with First American Equipment Finance in the amount of $
On December 1, 2020, the financed lease obligation entered into by the Company on December 8, 2015 with Wells Fargo Equipment Finance, Manufacturer Services Group in the amount of $
Note 6. Interest Expense
The components of interest expense for the fiscal years ended June 30, 2022 and 2021 are presented below:
| For the Fiscal Year Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Interest on Senior Debt | $ | $ | ||||||
| Amortization of prepaid financing costs | ||||||||
| Interest on PPP Note | ||||||||
| Interest on financed lease obligations | ||||||||
| Other interest expense | ||||||||
| Interest Expense | $ | $ | ||||||
The weighted average interest rate paid was
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 7. Income Taxes
The components of the provision for income taxes consists of the following:
| For the fiscal year | ||||||||
| ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Current - Federal | $ | $ | ||||||
| Current - State and local | ( | ) | ( | ) | ||||
| Deferred - Federal and state | ( | ) | ( | ) | ||||
| Change in valuation allowance | ||||||||
| Income tax benefit, net | $ | $ | ||||||
A reconciliation of the statutory tax rate to the effective tax rate is as follows:
| For the fiscal year | ||||||||
| ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Statutory federal income tax rate | ( | )% | ( | )% | ||||
| Statutory state income tax rate | ( | )% | ( | )% | ||||
| Other state income tax rate | ( | )% | ( | )% | ||||
| Change in valuation allowance | % | % | ||||||
| PPP Note forgiveness | % | |||||||
| Other temporary differences | ( | )% | % | |||||
| Non-deductible expenses | ( | )% | % | |||||
| Effective income tax rate | % | % | ||||||
Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial accounting purposes and the amounts used for income tax reporting. Significant components of the Company’s net deferred tax assets are as follows:
| June 30, | ||||||||
| 2022 | 2021 | |||||||
| Deferred Tax Assets | ||||||||
| Net operating loss | $ | $ | ||||||
| Capital loss carryover | ||||||||
| Valuation adjustment on investment in iBio, Inc. | ||||||||
| Depreciation | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Other | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total deferred tax asset, net | $ | $ | ||||||
The Company has net operating losses (“NOL”) of approximately $
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Realization of the NOL carryforwards and other deferred tax temporary differences is contingent on future taxable earnings. The Company’s deferred tax asset was reviewed for expected utilization using a “more likely than not” approach by assessing the available positive and negative evidence surrounding its recoverability. Accordingly, a valuation allowance has been recorded against the Company’s deferred tax asset, as it was determined based upon past taxable losses and inconsistent taxable income in the past few years, that it was “more likely than not” that the Company’s deferred tax assets would not be realized. As of June 30, 2022 and 2021, management determined that certain of the Company’s deferred tax assets were “more likely than not” to be realizable and the Company recognized deferred tax benefits related to the release of the valuation allowance on those assets of approximately $
The Company will continue to assess and evaluate strategies that will enable the deferred tax asset, or portion thereof, to be utilized, and will reduce the valuation allowance appropriately at such time when it is determined that the “more likely than not” criteria is satisfied.
There were
The latest three years of Federal and four years of state tax returns filed for the fiscal years ended through June 30, 2021 are currently open except for the State of New Jersey tax filings for CII which have been reviewed for the tax periods of 2018 and The tax returns for the year ended June 30, 2022 will be filed by March 15, 2023.
Note 8. Profit-Sharing Plan
The Company maintains a profit-sharing plan, which qualifies under Section 401(k) of the Internal Revenue Code, covering all nonunion employees meeting age and service requirements. Contributions are determined by matching a percentage of employee contributions. For the fiscal years ended June 30, 2022 and 2021, the Company contributed approximately $
Note 9. Significant Risks and Uncertainties
(a) Concentrations of Credit Risk-Cash. The Company maintains balances at several financial institutions. Deposits at each institution are insured by the Federal Deposit Insurance Corporation up to $
(b) Concentrations of Credit Risk-Receivables. The Company routinely assesses the financial strength of its customers and, based upon factors surrounding the credit risk of its customers, establishes an allowance for uncollectible accounts and, as a consequence, believes that its accounts receivable credit risk exposure beyond such allowances is limited. The Company does not require collateral in relation to its trade accounts receivable credit risk.
(c) Major Customers. In the fiscal years ended June 30, 2022 and 2021, approximately
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(d) Business Risks. The Company insures its business and assets against insurable risks, to the extent that it deems appropriate, based upon an analysis of the relative risks and costs. The Company believes that the risk of loss from non-insurable events would not have a material adverse effect on the Company’s operations as a whole.
The raw materials used by the Company are primarily commodities and agricultural-based products. Raw materials used by the Company in the manufacture of its nutraceutical products are purchased from independent suppliers. Raw materials are available from numerous sources and the Company believes that it will continue to obtain adequate supplies.
As of June 30, 2022, approximately
The Company is still experiencing supply chain disruptions relating to fuel refinery and transportation issues as it pertains to both shipping and production of plastics. These issues first arose as result of the COVID-19 pandemic and other geo-political events. This continues to impact the supply and demand of bottles and caps, key components in the Company's Contract Manufacturing Segment. Transportation, in general, continues to be an issue in the delay of receiving other raw 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.
During the first quarter of calendar 2022, the war in Ukraine affected the Company’s customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia by the Company’s 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 from Indonesia 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.
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Note 10. 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 less than
The components of lease expense for the fiscal year ended June 30, 2022 and 2021 were as follows:
| 2022 | 2021 | |||||||||||||||||||||||
| 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 Costs | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
Operating Lease Liabilities
Related Party Operating Lease Liabilities. Warehouse and office facilities are leased from Vitamin Realty, which is
On May 19, 2014, AgroLabs entered into an amendment to the lease agreement entered into on January 5, 2012, with Vitamin Realty for an additional
Rent expense, lease amortization costs and imputed interest costs on these related party 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 SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
As of June 30, 2022, the Company’s ROU assets, lease obligations and remaining cash commitment on these leases is as follows:
| Right-of-use Assets | Current Portion Operating Lease Obligations | Operating Lease Obligations | Remaining Cash Commitment | |||||||||||||
| Vitamin Realty Leases | $ | $ | $ | $ | ||||||||||||
| Office equipment leases | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
As of June 30, 2021, the Company’s ROU assets, lease obligations and remaining cash commitment on these leases is 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 June 30, 2022 and 2021, the Company’s weighted average discount rate is
Supplemental cash flows information related to leases for the fiscal year ended June 30, 2022 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 lease obligations | ||||||||||||
| Financing cash flows from finance lease obligations | ||||||||||||
Supplemental cash flows information related to leases for the fiscal year ended June 30, 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 lease obligations | ||||||||||||
| Financing cash flows from finance lease obligations | ||||||||||||
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
In the fiscal year ended June 30, 2022, the Company renewed, for year, an operating lease for office space with an annual commitment of $
Maturities of operating lease liabilities as of June 30, 2022 were as follows:
| Year ending June 30, | Operating Lease Commitment | Related Party Operating Lease Commitment | Finance Lease Obligations | Total | ||||||||||||
| 2023 | $ | $ | $ | $ | ||||||||||||
| 2024 | ||||||||||||||||
| 2025 | ||||||||||||||||
| 2026 | ||||||||||||||||
| 2027 | ||||||||||||||||
| Total minimum lease payments | ||||||||||||||||
| Imputed interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Total rent 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 11. Related Party Transactions
See Note 10(a) - Leases for related party lease transactions.
Note 12. Equity Transactions and Stock-Based Compensation
Stock Option Plans. The Company has adopted a stock option plan for the granting of options or restricted shares to employees, officers, directors and consultants of the Company that originally provided for the issuance of up to
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
In the fiscal year ended June 30, 2022, 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 year ended June 30, 2022:
| Risk Free Interest Rate | % | |||
| Volatility | % | |||
| Term | 4.5 to 10 years | |||
| Dividend Rate | % | |||
| Closing Price of Common Stock | $ | |||
| 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.
In November, 2020, there were
In each of the fiscal years ended June 30, 2022 and 2021, stock options in the aggregate amount of
The intrinsic value of options outstanding and exercisable at June 30, 2022 and 2021 was $
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
A summary of the Company’s stock option activity, and related information for the years ended June 30, follows:
| Weighted | ||||||||
| Average | ||||||||
| Exercise | ||||||||
| Options | Price | |||||||
| Outstanding as of July 1, 2020 | $ | |||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Terminated | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding as of June 30, 2021 | ||||||||
| Granted | ||||||||
| Exercised | ( | ) | ||||||
| Terminated | ( | ) | ||||||
| Expired | ( | ) | ||||||
| Outstanding as of June 30, 2022 | $ | |||||||
| Exercisable at June 30, 2021 | $ | |||||||
| Exercisable at June 30, 2022 | $ | |||||||
The following table summarizes the range of exercise prices and weighted-average exercise prices for stock options outstanding and exercisable as of June 30, 2022 under the Company’s stock option plans:
| Weighted | ||||||||||||||||||
| Weighted | Weighted Average | Average | ||||||||||||||||
|
| Average | Remaining | Exercise | |||||||||||||||
| Range of Exercise Price | Outstanding | Exercise Price | Contractual Life (years) | Exercisable | Price | |||||||||||||
| $ | - | $ | $ | $ | ||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | ||||||||||||||||
| $ | - | $ | $ | $ | ||||||||||||||
Note 13. Segment Information
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; Contract Manufacturing and Other Nutraceutical Businesses. The international sales, concentrated primarily in Europe, for the fiscal years ended June 30, 2022 and 2021 were $
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
Financial information relating to the fiscal years ended June 30, 2022 and 2021 operations by business segment are as follows:
| Sales, Net | Segment | ||||||||||||||||||||||||||||
| U.S. | International | Gross | Capital | Total | |||||||||||||||||||||||||
| Customers | Customers | Total | Profit | Depreciation | Expenditures | Assets | |||||||||||||||||||||||
| Contract Manufacturing | 2022 | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Other Nutraceutical Businesses | 2022 | ||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
| Total Company | 2022 | ||||||||||||||||||||||||||||
| 2021 | |||||||||||||||||||||||||||||
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: September 13, 2022 | By: /s/ Christina Kay |
| Christina Kay | |
| Co-Chief Executive Officer | |
| Date: September 13, 2022 | By: /s/ Dina L. Masi |
| Dina L. Masi | |
| Chief Financial Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
| Name |
Title |
Date |
||
| /s/ Christina Kay |
Co-Chief Executive Officer and Director |
September 13, 2022 |
||
| Christina Kay |
(Principal Executive Officer) |
|||
| /s/ Riva Sheppard |
Co-Chief Executive Officer and Director |
September 13, 2022 |
||
| Riva Sheppard |
(Principal Executive Officer) |
|||
| /s/ Dina L. Masi |
Chief Financial Officer |
September 13, 2022 |
||
| Dina L. Masi |
(Principal Financial Officer and |
|||
| Principal Accounting Officer) |
||||
| /s/ E. Gerald Kay |
Executive Chairman |
September 13, 2022 |
||
| E. Gerald Kay |
||||
| /s/ Robert Canarick |
Director |
September 13, 2022 |
||
| Robert Canarick |
||||
| /s/ Damon DeSantis |
Director |
September 13, 2022 |
||
| Damon DeSantis |
||||
| /s/ William H. Milmoe |
Director |
September 13, 2022 |
||
| William H. Milmoe |
||||
| /s/ Eric Friedman | Director | September 13, 2022 | ||
| Eric Friedman | ||||
Exhibit 10.1.2
THIRD AMENDMENT OF LEASE
This THIRD AMENDMENT OF LEASE (this "Amendment") is made as of the 15th day of July 2022, between VITAMIN REALTY ASSOCIATES LLC (the LESSOR"), a New Jersey limited liability company, and MANHATTAN DRUG COMPANY, INC (the LESSEE"), a New Jersey corporation, having an address at 225 Long Avenue, Hillside, New Jersey 07205.
WITNESSETH
WHEREAS, pursuant to that certain Lease dated January 10, 1997, (the "Lease") by and between Vitamin Realty Associates LLC, (LESSOR) and LESSEE, LESSOR leased to LESSEE certain premises consisting of approximately 58,521 rentable square feet of warehouse space on the first floor of the building known as 225 Long Avenue, Hillside, New Jersey (the "Building", approximately 14,563 rentable square feet of office space on the second floor of the building and approximately 10,800 rentable square feet of space on the third floor of the building (collectively the "Demised Premises"); and
WHEREAS, LESSOR and LESSEE have previously agreed orally to substitute space on the second floor of the building to replace equivalent space on the first floor of the building that was leased to other tenants; and
WHEREAS, LESSOR and LESSEE in the AMENDMENT OF LEASE dated April 28, 2000, agreed to amend the Lease to provide that LESSOR will lease to LESSEE a total of approximately 40,471 rentable square feet of warehouse space on the first floor of the building, approximately 23,627 rentable square feet of office space on the second floor of the building, and approximately 10,800 rentable square feet of space on the third floor of the building; and
WHEREAS, LESSOR and LESSEE have agreed to amend the Lease to provide that LESSOR will lease to LESSEE a total of approximately 40,471 rentable square feet of warehouse space on the first floor of the building, approximately 24,890 rentable square feet of office space on the second floor of the building, and Approximately 10,800 rentable square feet of space on the third floor of the building; and
WHEREAS, LESSOR and LESSEE have agreed to amend the Lease to provide that LESSOR will lease to LESSEE a total of approximately 79,750 rentable square feet of warehouse space on the first floor of the building, and approximately 36,935 rentable square feet of office space on the second floor of the building; and
WHEREAS, LESSOR and LESSEE have agreed to amend the Lease to include a provision for Additional Rent for property tax increases to the LESSOR in excess of 2.5% of the base annual property taxes; and
WHEREAS all capitalized terms defined in the Lease and not otherwise defined herein shall have their respective meanings set forth in the Lease.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration; the receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree that the Lease is hereby amended as follows:
1. (a) Commencing as of July 1, 2022 (the "Amendment Commencement Date"), LESSOR shall demise to LESSEE and LESSEE shall lease from LESSOR, the space depicted in Schedule A, attached hereto (the "Amended Space"). For all purposes of the Lease, and this Amendment, the term "Demised Premises" shall, as of the Amendment Commencement Date, mean the Amended Space.
(b) LESSOR and LESSEE each hereby agrees that the Demised Premises shall, as of the Amended Commencement Date, consist of a total of 79,750 rentable square feet of warehouse space on the first floor of the building, and a total of 36,935 rentable square feet of space on the second floor of the Building.
2. (a) Schedule B of the Lease is hereby superseded and replaced with Schedule B annexed hereto.
(b) LESSEE's Proportionate Share with respect to the Demised Premises shall be 74% as of the Amendment Commencement Date.
(c) LESSEE shall pay LESSEE’s Proportionate Share of any increase in the annual property taxes of $390,100 (“Property Taxes”) in excess of 2.5% or $9,752.50 as Additional Rent. For purposes of clarity, if Property Taxes increase by $15,000 per annum, LESSEE would owe Additional Rent for Property Taxes in the amount of $3,883.15, ($15,000 less $9,752.50 times 74%).
3. LESSEE agrees that it has inspected the Demised Premises, and agrees to occupy any additional portions thereof in their "AS IS" condition.
4. LESSOR and LESSEE each represents to each other that it has not dealt with any broker or agent with respect to the Demised Premises or this Lease and each shall indemnify and hold harmless the other from and against any and all liabilities, claims, suits, demands, judgments, costs, interests and expenses to which it may be subject or suffer by reason of any claim made by the other person, firm or corporation for any commission, expense or other compensation as a result of the execution and delivery of this Lease and based on alleged conversations or negotiations by said person, firm or corporation with either LESSOR or LESSEE as the case may be.
5. As hereby modified and amended, the Lease shall remain in full force and effect.
6. This Amendment and the Lease embody and constitute the entire understanding between the parties with respect to the subject matter hereof, and all prior agreements, representations, and statements, oral or written, relating to the subject matter hereof are merged into this Amendment.
7. Neither this Amendment nor any provision contained herein may be amended, modified, or extended except by an instrument signed by the party against whom enforcement of such amendment, modification or extension is sought.
8. This amendment may be executed in counterparts, each of which shall be deemed a duplicate original hereof.
IN WITNESS WHEREOF, this THIRD AMENDMENT has been executed by LESSOR and LESSEE as of the day and year first written above.
| VITAMIN REALTY ASSOCIATES LLC | |
| By: /s/ E Gerald Kay | |
| Name: E Gerald Kay | |
| Title: Managing Member | |
| MANHATTAN DRUG COMPANY, INC | |
| By: /s/ Dina L Masi | |
| Name: Dina L Masi | |
| Title: Chief Financial Officer |
SCHEDULE B
BASIC RENT
The Basic Rent shall be payable in equal monthly installments, in advance, on the Basic Rent Payment Dates. The Basic Rent for the Term shall be as follows:
(a) (i) for the period from the Commencement Date to, but not including, the fifth anniversary of the Commencement Date, the Basic Rent shall be $346,000.00 per annum, payable in equal monthly installments of $28,833.33; and
(ii) for the period from the Second Amendment Commencement Date to, but not including the fifth anniversary of the Second Amendment Commencement Date, the Basic Rent shall be $533,127.00 per annum, payable in monthly installments of $44,427.25; and
(iii) for the period from the Third Amendment Commencement Date to and including the Termination Date, the Basic Rent shall be $842,268.75 per annum, payable in monthly installments of $70,189.06 and shall include the LESSE’s Proportionate Share of the LESSOR’s monthly operating expenses; and
(b) Paragraph b is intentionally omitted; and
(c) Paragraph c is intentionally omitted
Exhibit 10.2.2
Agreement to Cancel Lease
This Agreement to cancel lease (the “Agreement”) is made and effective July 1, 2022,
BETWEEN: Vitamin Realty Associates LLC (the “Landlord”), with offices located at 225 Long Avenue, Hillside, NJ 07205
AND: Agrolabs, Inc. (the “Tenant”), with offices located at 225 Long Avenue, Hillside, NJ 07205
WHEREAS the Landlord and the Tenant executed a lease dated May 4, 2012 (the “Lease”), as amended, of warehouse and office space located at 225 Long Avenue, Hillside, NJ (the “Premises”) but the parties now wish to cancel the Lease;
It is agreed as follows:
TERMS
Tenant and Landlord do hereby mutually agree to terminate and cancel said Lease effective July 1, 2022, and all rights and obligations under said Lease shall thereupon be cancelled excepting only for any obligations under the Lease accruing prior to the effective termination date.
This agreement shall be binding upon the parties, their successors, and representatives.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above
| Tenant: Agrolabs, Inc | Landlord: Vitamin Realty Associates, LLC |
| Signature: /s/ Dina L Masi | Signature: /s/ Christina Kay |
| Name: Dina L Masi | Name: Christina Kay |
| Title: Chief Financial Officer | Title: Member |
| Dated: July 15, 2022 | Dated: July 15, 2022 |
EXHIBIT 21
INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES
SUBSIDIARIES OF THE REGISTRANT
|
Subsidiary Name |
State of Incorporation |
|
|
|
|
Manhattan Drug Company, Inc. |
New Jersey |
|
AgroLabs, Inc. |
New Jersey |
|
IHT Health Products, Inc. |
Delaware |
|
Vitamin Factory, Inc. |
Delaware |
|
IHT Properties, Inc. |
Delaware |
|
MDC Warehousing and Distribution, Inc. (f/k/a The Organic Beverage Company) |
New Jersey |
|
InB:Paxis Pharmaceuticals, Inc. (f/k/a Paxis Pharmaceuticals, Inc.) - inactive |
Delaware |
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements of Integrated BioPharma, Inc. on Form S-8 (File Nos. 333-229069, 333-37509, 333-87456 and 333-87458) and Form S-3 (File Nos. 333-144155 and 333-149855) of our report dated September 13, 2022, with respect to our audits of the consolidated financial statements as of June 30, 2022 and 2021, and for each of the years in the two year period ended June 30, 2022, which was included in the Company’s Annual Report on Form 10-K filed on September 13, 2022.
/s/ Friedman LLP
East Hanover, New Jersey
September 13, 2022
Exhibit 31.1
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
We, Christina Kay and Riva Sheppard, Co-Chief Executive Officers, certify that:
|
|
1. |
We have reviewed this annual report on Form 10-K of Integrated BioPharma, Inc.; |
|
|
2. |
Based on our knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on our knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant's other certifying officer(s) and we are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
|
5. |
The registrant's other certifying officer(s) and we have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: September 13, 2022 |
By: /s/ Christina Kay |
|
|
Name: Christina Kay |
|
|
Title: Co-Chief Executive Officer |
|
Date: September 13, 2022 |
By: /s/ Riva Sheppard |
|
|
Name: Riva Sheppard |
|
|
Title: Co-Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Dina L. Masi, Senior Vice President & Chief Financial Officer, certify that:
|
|
1. |
I have reviewed this annual report on Form 10-K of Integrated BioPharma, Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; and |
|
|
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
c) |
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
d) |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
|
|
5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors: |
|
|
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
|
|
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
|
Date: September 13, 2022 |
By: /s/ Dina L. Masi |
|
|
Name: Dina L. Masi |
|
|
Title: Senior Vice President & Chief Financial Officer |
Exhibit 32.1
CERTIFICATION
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 of Integrated BioPharma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Christina Kay and Riva Sheppard, Co-Chief Executive Officers of Integrated BioPharma, Inc. (the "Company"), certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to their knowledge:
|
(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
|
(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
|
Date: September 13, 2022 |
By: /s/ Christina Kay |
|
|
Christina Kay |
|
|
Co-Chief Executive Officer |
|
Date: September 13, 2022 |
By: /s/ Riva Sheppard |
|
|
Riva Sheppard |
|
|
Co-Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF PERIODIC REPORT
As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 of Integrated BioPharma, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Dina L. Masi, the Senior Vice President and Chief Financial Officer of Integrated BioPharma, Inc. (the "Company"), certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to her knowledge:
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(1) |
the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and |
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(2) |
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended.
A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
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Date: Date: September 13, 2022 |
By: /s/ Dina L. Masi |
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Dina L. Masi |
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Senior Vice President and Chief Financial Officer |