inbp20180331_10q.htm
 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

____________

 

FORM 10-Q

 

☒ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended March 31, 2018

 

OR

 

☐  Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from to

 

 

Commission File Number 001-31668

 

INTEGRATED BIOPHARMA, INC.

(Exact name of registrant, as specified in its charter)

 

Delaware

22-2407475

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)   Identification No.)

 

225 Long Ave., Hillside, New Jersey

07205

(Address of principal executive offices) (Zip Code)

 

(888) 319-6962

(Registrant’s telephone number, including Area Code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes X    No ____    

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

   

 

Large accelerated filer 

 

Accelerated filer 

 

Non-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 whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes       No __X__    

 

Applicable only to Corporate Issuers:

The number of shares outstanding of each of the issuer’s class of common stock, as of the latest practicable date:

Class

Outstanding at May 9, 2018

Common Stock, $0.002 par value  21,135,174 Shares

                                             

 

 

 

 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

 

FORM 10-Q QUARTERLY REPORT

For the Nine Months Ended March 31, 2018

INDEX

 

 

   

Page

 

Part I. Financial Information

 

Item 1.

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2018 and 2017 (unaudited)

2

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and June 30, 2017 (unaudited)

3

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2018 and 2017 (unaudited)

4

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

5

     

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

16

     

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

24

     

Item 4.

Controls and Procedures

24

     
 

Part II. Other Information

 
     

Item 1.

Legal Proceedings

24

     

Item 1A.

Risk Factors

24

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

25

     

Item 3.

Defaults Upon Senior Securities

25

     

Item 4.

Mine Safety Disclosure

25

     

Item 5.

Other Information

25

     

Item 6.

Exhibits

25

 

 

Other

 

Signatures

 

26

     
     
     

 

 

 

 

 

 

Cautionary Statement Regarding Forward-Looking Statements.

 

Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities 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 (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 including, 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; and other factors both referenced and not referenced in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (“Form 10-K”), as filed with the SEC. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words, “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, the risks and uncertainties affecting its businesses described in Item 1 of the Company’s Annual Report filed on Form 10-K for the year ended June 30, 2017 and in other securities filings by the Company. 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 the forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof and the Company does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

 

 

-1-

 

 

 

 

ITEM 1. FINANCIAL STATEMENTS

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 

(in thousands, except for share and per share amounts)

 

(Unaudited)

 
                                 
    Three months ended     Nine months ended  
   

March 31,

   

March 31,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Sales, net

  $ 10,575     $ 10,654     $ 31,145     $ 35,707  
                                 

Cost of sales

    9,106       9,315       27,623       30,747  
                                 

Gross profit

    1,469       1,339       3,522       4,960  
                                 

Selling and administrative expenses

    809       910       2,453       2,603  
                                 

Operating income

    660       429       1,069       2,357  
                                 

Other income (expense), net:

                         

Interest expense

    (232 )     (225 )     (694 )     (684 )

Change in fair value of derivative liabilities

    54       92       121       (639 )

Impairment on investment in iBio, Inc.

    -       -       (251 )     -  

Other income, net

    9       10       13       41  

Other income (expense), net

    (169 )     (123 )     (811 )     (1,282 )
                                 

Income before income taxes

    491       306       258       1,075  
                                 

Income tax expense, net

    103       68       397       265  
                                 

Net income (loss)

    388       238       (139 )     810  

Change in fair value of derivative liability

    (54 )     (92 )     -       -  

Interest expense on Convertible debt - CD Financial, LLC

    55       80       -       -  

Accretion of Convertible debt - CD Financial, LLC

    9       10       -       -  

Diluted net income (loss)

  $ 398     $ 236     $ (139 )   $ 810  
                                 

Basic net income (loss) per common share

  $ 0.02     $ 0.01     $ (0.01 )   $ 0.04  
                                 

Diluted net income (loss) per common share

  $ 0.01     $ 0.01     $ (0.01 )   $ 0.04  
                                 

Weighted average common shares outstanding - basic

    21,135,174       21,125,952       21,135,174       21,113,696  

Add:   Equivalent shares outstanding - stock options

    836,428       1,434,853       -       856,927  

Shares issuable upon conversion of Convertible Debt - CD Financial, LLC

    8,230,769       8,230,769       -       -  

Weighted average common shares outstanding - diluted

    30,202,371       30,791,574       21,135,174       21,970,623  

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

-2-

 

 

 

 

 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(in thousands, except for share and per share amounts)

 

(Unaudited)

 
                 
   

March 31,

   

June 30,

 
   

2018

   

2017

 

Assets

               

Current Assets:

         

Cash

  $ 62     $ 132  

Accounts receivable, net

    3,198       4,020  

Inventories

    8,555       7,645  

Other current assets

    479       754  

Total current assets

    12,294       12,551  
                 

Property and equipment, net

    1,670       1,601  

Deferred tax assets, net

    533       823  

Security deposits and other assets

    124       221  

Total Assets

  $ 14,621     $ 15,196  
                 

Liabilities and Stockholders' Deficiency:

         

Current Liabilities:

         

Advances under revolving credit facility

  $ 4,319     $ 4,676  

Accounts payable (includes $141 and $77 due to related party)

    4,878       4,177  

Accrued expenses and other current liabilities

    1,264       1,184  

Current portion of long term debt, net

    852       1,118  

Total current liabilities

    11,313       11,155  
                 

Long term debt, net

    3,725       4,246  

Subordinated convertible note, net - CD Financial, LLC

    5,257       5,221  

Derivative liabilities

    382       503  

Total liabilities

    20,677       21,125  
                 

Commitments and Contingencies

         
                 

Stockholders' Deficiency:

         

Common Stock, $0.002 par value; 50,000,000 shares authorized;

         

21,170,074 and 21,135,174 shares issued and outstanding, respectively

    42       42  

Additional paid-in capital

    44,771       44,759  

Accumulated deficit

    (50,770 )     (50,631 )

Less: Treasury stock, at cost, 34,900 shares

    (99 )     (99 )

Total Stockholders' Deficiency

    (6,056 )     (5,929 )

Total Liabilities and Stockholders' Deficiency

  $ 14,621     $ 15,196  

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

-3-

 

 

 

 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands, except share and per share amounts)

 

(Unaudited)

 
                 
   

Nine months ended

 
   

March 31,

 
   

2018

   

2017

 

Cash flows from operating activities:

         

Net (loss) income

  $ (139 )   $ 810  

Adjustments to reconcile net income to net cash

         

from operating activities:

               

Depreciation and amortization

    264       298  

Accretion of financing instruments and other non-cash interest

    79       78  

Impairment charge on investment in iBio, Inc.

    251       -  

Change in deferred tax assets, net

    290       -  

Stock based compensation

    12       37  

Change in fair value of derivative liabilities

    (121 )     639  

Gain on sale of fixed assets

    (5 )     -  

Changes in operating assets and liabilities:

         

Decrease (increase) in:

               

Accounts receivable

    822       429  

Inventories

    (910 )     (124 )

Other current assets

    24       (69 )

(Decrease) increase in:

               

Accounts payable

    697       (792 )

Accrued expenses and other liabilities

    79       (91 )

Net cash provided by operating activities

    1,343       1,215  
                 

Cash flows from investing activities:

         

Purchase of property and equipment

    (216 )     (310 )

Cash proceeds from sale of equipment

    6       -  

Net cash used in investing activities

    (210 )     (310 )
                 

Cash flows from financing activities:

         

Advances under revolving credit facility

    30,123       34,454  

Proceeds from sales/lease back of equipment

    143       158  

Proceeds from exercises of stock options

    -       2  

Repayments of advances under revolving credit facility

    (30,480 )     (34,958 )

Repayments under term note payables

    (814 )     (659 )

Repayments under capitalized lease obligations

    (175 )     (101 )

Net cash used in financing activities

    (1,203 )     (1,104 )
                 

Net decrease in cash

    (70 )     (199 )

Cash at beginning of period

    132       395  

Cash at end of period

  $ 62     $ 196  
                 

Supplemental disclosures of cash flow information:

         

Cash paid during the periods for:

         

Interest

  $ 596     $ 676  

Income taxes

  $ 130     $ 294  
                 

Supplemental disclosures of non-cash transactions:

         

Financing on capitalized lease obligations

  $ 38     $ -  

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

-4-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

 

Note 1. Principles of Consolidation and Basis of Presentation

 

Basis of Presentation of Interim Financial Statements

 

The accompanying condensed consolidated financial statements for the interim periods are unaudited and include the accounts of Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, the “Company”). The interim condensed consolidated financial statements have been prepared in conformity with Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America. However, all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented have been included. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017 (“Form 10-K”), as filed with the SEC. The June 30, 2017 balance sheet was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America. The results of operations for the three and nine months ended March 31, 2018 are not necessarily indicative of the results for the full fiscal year ending June 30, 2018 or for any other period.

 

Nature of Operations

 

The Company is engaged primarily in manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily in the United States, Luxembourg and Canada. The Company was previously known as Integrated Health Technologies, Inc. and, prior to that, as Chem International, Inc. The Company was reincorporated in its current form in Delaware in 1995. The Company continues to do business as Chem International, Inc. with certain of its customers and certain vendors.

 

The Company’s business segments include: (a) Contract Manufacturing operated by InB:Manhattan Drug Company, Inc. (“MDC”), which manufactures vitamins and nutritional supplements for sale to distributors, multilevel marketers and specialized health-care providers; (b) Branded Proprietary Products operated by AgroLabs, Inc. (“AgroLabs”), which distributes healthful nutritional products for sale through major mass market, grocery, drug and vitamin retailers, under the following brands: Naturally Noni, Peaceful Sleep, Green Envy, FiberCal, Wheatgrass and other products which are being introduced into the market (these are referred to as our branded proprietary nutraceutical business and/or products); and (c) Other Nutraceutical Businesses which includes the operations of (i) The Vitamin Factory (the “Vitamin Factory”), which sells private label MDC products, as well as our AgroLabs products, through the Internet, (ii) IHT Health Products, Inc. (“IHT”), a distributor of fine natural botanicals, including multi minerals produced under a license agreement, (iii) MDC Warehousing and Distribution, Inc., a service provider for warehousing and fulfilment services and (iv) Chem International, Inc. (“Chem”), a distributor of certain raw materials for DSM Nutritional Products LLC.

 

Significant Accounting Policies

 

In July 2015, the Financial Accounting Standards Board issued ASU No. 2015-11, Simplifying the Measurement of Inventory (Topic 330), an accounting standard that requires inventory be measured at the lower of cost and net realizable value and options that currently exist for market value be eliminated. The standard defines net realizable value as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This new guidance was effective for the Company on July 1, 2017. There was no impact on the Company’s condensed consolidated financial statements as the result of the adoption of this ASU.

 

 

-5-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

Aside from the adoption of ASU No. 2015-11, as described above, there have been no material changes during fiscal year 2018 in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017.

 

Investment in iBio, Inc. The Company accounts for its investment in iBio, Inc. (“iBio”) common stock on the cost basis as it retained approximately 6% of its interest in iBio (1,266,706 common shares) (the “iBio Stock”) at the time of the spin-off of this subsidiary in August 2008.  The Company reviews its investment in iBio for impairment and records a loss when there is deemed to be a permanent impairment of the investment. To date, there were cumulative impairment charges of approximately $2,454. The market value of the iBio Stock as of March 31, 2018 was approximately $263 based on the trade price at the close of trading on March 31, 2018. The investment in iBio, Inc. is included in other current assets in the accompanying Condensed Consolidated Balance Sheet.

 

Pursuant to the Company’s Amended Loan Agreement with PNC Bank, National Association (“PNC”), as amended on February 19, 2016, all the net proceeds from the sale of any of the iBio Stock is to be used to prepay the outstanding principal of the term loan outstanding under the Amended Loan Agreement. (See Note 4. Senior Credit Facility, Subordinated Convertible Note, net - CD Financial, LLC and other Long Term Debt).

 

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, warrants, and convertible debt, subject to anti-dilution limitations using the treasury stock method and if converted method.

 

The following options and potentially dilutive shares for convertible notes payable (see Note 4. Senior Credit Facility, Subordinated Convertible Note, net - CD Financial, LLC and other Long Term Debt) were not included in the computation of weighted average diluted common shares outstanding as the effect of doing so would be anti-dilutive for the three and nine months ended March 31, 2018 and 2017:

 

 

   

Three Months Ended

   

Nine Months Ended

 
   

March 31,

   

March 31,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Anti-dilutive stock options

    150,000       213,100       2,487,584       313,100  

Anti-dilutive shares for convertible note payable

    -       -       8,230,769       8,230,769  

Anti-dilutive shares

    150,000       213,100       10,718,353       8,543,869  

 

 

 

 

 

 

 

-6-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

 

Note 2. Inventories

 

Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method and consist of the following:

 

   

March 31,

   

June 30,

 
   

2018

   

2017

 
                 

Raw materials

  $ 4,438     $ 3,847  

Work-in-process

    1,993       1,963  

Finished goods

    2,124       1,835  

Total

  $ 8,555     $ 7,645  

 

 

 

Note 3. Property and Equipment, net

 

Property and equipment, net consists of the following:

   

March 31,

   

June 30,

 
   

2018

   

2017

 
                 

Land and building

  $ 1,250     $ 1,250  

Leasehold improvements

    1,268       1,268  

Machinery and equipment

    5,889       5,777  

Transportation equipment

    7       11  
      8,414       8,306  

Less: Accumulated depreciation and amortization

    (6,744 )     (6,705 )

Total

  $ 1,670     $ 1,601  

 

 

Depreciation and amortization expense recorded on property and equipment was $57 and $71 for the three months ended March 31, 2018 and 2017, respectively, and $189 and $223 for the nine months ended March 31, 2018 and 2017, respectively. Additionally, the Company disposed of fully depreciated machinery and equipment of $146 and another $4 in transportation equipment with a remaining basis of $1 at the time of sale and $10 in the nine months ended March 31, 2018 and 2017, respectively. The Company sold the transportation equipment for a gain of $3 and sold fully depreciation machinery and equipment for a gain of $2 in the nine months ended March 31, 2018.

 

 

 

 

 

-7-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

 

 

 Note 4. Senior Credit Facility, Subordinated Convertible Note, net - CD Financial, LLC and other Long Term Debt

 

As of March 31, 2018 and June 30, 2017, the Company had the following debt outstanding:

 

   

Principal Amount

   

Interest Rate

 

Maturity Date

    As of    

As of

           
    March 31,     June 30,            
    2018     2017            

Revolving advances under Senior Credit 

                         

Facility with PNC Bank, National Association

  $ 4,319     $ 4,676       4.75 %

2/19/2020

Installment Note with PNC Bank

    1,794       2,542       5.25 %

2/19/2020

Installment Note with PNC Equipment Finance

    124       190       4.57 %

7/29/2019

Promissory Note with CD Financial, LLC

    1,714       1,714       6.00 %

2/29/2020

Promissory Note with Vitamin Realty, LLC

    686       686       4.00 %

2/29/2020

Capitalized lease obligations 

 
 
 
 
312   
 
 
 
 
 
307  
 
 
 
 
 
3.86% -9.26  %

6/17/2018 -

12/8/2020

Total outstanding debt

    8,949       10,115            

Less:  Revolving Advances

    (4,319 )     (4,676 )          

          Prepaid financing costs

    (53 )     (75 )          

          Current portion of long term debt

    (852 )     (1,118 )          

Long term debt

  $ 3,725     $ 4,246            
                           

Convertible Note payable - CD Financial, LLC

  $ 5,350     $ 5,350       6.00 %

2/29/2020

Less:  Discount for embedded derivative

    (76 )     (105 )          

          Prepaid financing costs

    (17 )     (24 )          

Convertible Note payable, net - CD Financial, LLC

  $ 5,257     $ 5,221            
                           

 

 

SENIOR CREDIT FACILITY

 

On February 19, 2016, 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 dated as of June 27, 2012 (as amended, “Amended Loan Agreement”) with PNC Bank, National Association as agent and lender (“PNC”) and the other lenders party thereto.

 

The Amended Loan Agreement provides for a total of $11,422 in senior secured financing (the “Senior Credit Facility”) as follows: (i) discretionary advances (“Revolving Advances”) based on eligible accounts receivable and eligible inventory in the maximum amount of $8,000 (the “Revolving Credit Facility”) and (ii) a term loan in the amount of $3,422 (the “Term Loan”). The Senior Credit Facility is secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT Properties, and common stock of iBio owned by the Company. Revolving Advances bear interest at PNC’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus 2.75% (4.75% and 4.25% as of March 31, 2018 and June 30, 2017, respectively). The Term Loan bears interest at PNC’s Base Rate or the Eurodollar Rate, at Borrowers’ option, plus 3.25% (5.25% and 4.75% as of March 31, 2018 and June 30, 2017, respectively). 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 2%. The Senior Credit Facility matures on February 19, 2020 (the “Senior Maturity Date”).

 

-8-

 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

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 eighty-four (84) consecutive monthly installments of principal, the first eighty-three (83) of which shall be in the amount of $41, commencing on the first business day of March, 2016, and continuing on the first business day of each month thereafter, with a final payment of any unpaid balance of principal and interest payable on the Senior Maturity Date. The foregoing is subject to customary mandatory prepayment provisions and acceleration 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 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) $8.0 million or (y) an amount equal to the sum of: (i) up to 85%, subject to the provisions in the Amended Loan Agreement, of eligible accounts receivables (“Receivables Advance Rate”), plus (ii) up to the lesser of (A) 75%, subject to the provisions in the Amended Loan Agreement, of the value of the eligible inventory (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates” ), (B) 85% of the appraised net orderly liquidation value of eligible inventory (as evidenced by the most recent inventory appraisal reasonably satisfactory to PNC in its sole discretion exercised in good faith) and (C) the inventory sublimit in the aggregate at any one time, minus (iii) the aggregate Maximum Undrawn Amount (as defined in the Amended Loan Agreement) of all outstanding Letters of Credit, minus (iv) such reserves as PNC may reasonably deem proper and necessary from time to time.

 

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 Revolving Advances in an amount equal to twenty-five percent (25%) of Excess Cash Flow for each fiscal year commencing with the fiscal year ended June 30, 2016, payable upon delivery of the financial statements to PNC referred to in and required by the Amended Loan Agreement for such fiscal year but in any event not later than one hundred twenty (120) days after the end of each such fiscal year, which amount shall be applied ratably to the outstanding principal installments of the Term Loan in the inverse order of the maturities thereof. The Amended Loan Agreement also contains customary representations and warranties, covenants and events of default, including, without limitation, (i) a fixed charge coverage ratio maintenance requirement and (ii) an event of default tied to any change of control as defined in the Amended Loan Agreement. As of March 31, 2018, the Company was in compliance with the fixed charge coverage ratio maintenance requirement and with the required annual payments of 25% of the Excess Cash Flow for each fiscal year commencing with the fiscal year ended June 30, 2016.

 

In connection with the Senior Credit Facility, PNC and CD Financial entered into the Intercreditor and Subordination Agreement (the “Intercreditor Agreement”), which was acknowledged by the Borrowers, pursuant to which, among other things, (a) the lien of CD Financial on assets of the Borrowers is subordinated to the lien of PNC on such assets during the effectiveness of the Senior Credit Facility, and (b) priorities for payment of the debt for the Company and its subsidiaries (as described in this Note 4) are established.

-9-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

In addition, 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 between PNC and IHT Properties; and (iii) an Environmental Indemnity Agreement with PNC.

 

CD FINANCIAL, LLC

 

On June 27, 2012, the Company entered into an Amended and Restated Securities Purchase Agreement (the “CD SPA”) with CD Financial, which amended and restated the Securities Purchase Agreement, dated as of February 21, 2008, between the Company and CD Financial, pursuant to which the Company issued to CD Financial a 9.5% Convertible Senior Secured Note in the original principal amount of $4,500 (the “Original CD Note”). Pursuant to the CD SPA, the Company issued to CD Financial (i) the Amended and Restated Convertible Promissory Note in the principal amount of $5,350 (the “CD Convertible Note”) and (ii) the Promissory Note in the principal amount of $1,714 (the “Liquidity Note”, and collectively with the CD Convertible Note, the “CD Notes”). The CD Notes originally matured on July 7, 2017, however, on February 19, 2016, the CD Notes were amended to extend the maturity date to February 29, 2020.

 

The CD Notes are secured by all assets of the Borrowers, including, without limitation, machinery and equipment, real estate owned by IHT Properties, and iBio Stock owned by the Company. The CD Notes bear interest at an annual rate of 6% and have a default rate of 10%.

 

The CD Convertible Note is convertible at the option of CD Financial into common stock of the Company at a conversion price of $0.65 per share, subject to customary adjustments including conversion price protection provisions.

Pursuant to the terms of the Amended Loan Agreement and the Intercreditor Agreement, during the effectiveness of the Senior Credit Facility, (i) the principal of the CD Convertible Note may not be repaid, (ii) the principal of the Liquidity Note may only be repaid if certain conditions under the Amended Loan Agreement are satisfied, and (iii) interest in respect of the CD Notes may only be paid if certain conditions under the Intercreditor Agreement are satisfied.

 

The CD SPA contains customary representations and warranties, covenants and events of default, including, without limitation, an event of default tied to any change of control as defined in the CD SPA.

 

In connection with the CD SPA, the Borrowers entered into an Amended and Restated Security Agreement and Amended and Restated Subsidiary Guaranty.

 

As of March 31, 2018 and June 30, 2017, the related embedded derivative liability with respect to conversion price protection provisions on the CD Convertible Note has an estimated fair value of $382 and $503, respectively.

 

The Company used the following assumptions to calculate the fair value of the derivative liability using the Black-Scholes option pricing model:

 

   

March 31,

   

June 30,

 
   

2018

   

2017

 
                 

Risk Free Interest Rate

    2.26 %     1.49 %

Volatility

    110.80 %     98.11 %

Term

 

1 year 11 months

   

 2 years 8 months

 

Dividend Rate

    0.00 %     0.00 %

Closing Price of Common Stock

  $ 0.17     $ 0.19  

 

 

 

-10-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

OTHER LONG TERM DEBT

 

Related Party Debt. On June 27, 2012, MDC and the Company entered into a promissory note with Vitamin Realty Associates, LLC (“Vitamin Realty”) in the principal amount of approximately $686 (the “Vitamin Note”). The principal amount of the Vitamin Note represents the aggregate amount of unpaid, past due rent owed by MDC under the Lease Agreement, dated as of January 10, 1997, between MDC, as lessor, and Vitamin Realty, as landlord, pertaining to the real property located at 225 Long Avenue, Hillside, New Jersey. (See Note 6. Commitments and Contingencies (a) Leases – Related Parties Leases). The Vitamin Note matures on February 29, 2020, as amended on February 19, 2016. The Vitamin Note accrues interest at an annual rate of 4% per annum. Interest in respect of the Vitamin Note is payable on the first business day of each calendar month. Pursuant to the terms of the Amended Loan Agreement, during the effectiveness of the Senior Credit Facility, the Vitamin Note may only be repaid or prepaid if certain conditions set forth in the Amended Loan Agreement are satisfied.

 

Capitalized Lease Obligations. On December 22, 2017, the Company entered into a capitalized lease obligation with First American Equipment Finance (“First American”) in the amount of $143, which lease is secured by certain machinery and equipment and matures on December 1, 2019. The Company sold certain machinery, purchased from equipment suppliers other than First American in the aggregate amount of $143, to First American for $143 and leased the sold equipment back from First American for monthly payments in the amount of approximately $6 with an imputed interest rate of 6.56%.

 

On February 14, 2018 and April 17, 2018, the Company entered into two separate capitalized lease obligations with Marlin Equipment Finance in the amount of $38 and $15, respectively, which leases are secured by certain machinery and equipment and mature on February 25, 2020 and April 25, 2020, respectively. The lease payments in the amounts of approximately $2 and $1, respectively, are payable monthly and each have an imputed interest rate of 9.26%.

 

On March 6, 2018, the capitalized lease obligation the Company entered into on March 21, 2016, with Regents Capital Corporation which lease was secured by certain machinery and equipment in the amount of $123, was satisfied with all payments being made under the capitalized lease obligation. The quarterly lease payment was approximately $16 and had an imputed interest rate of 11.43%.

 

 

Note 5. Significant Risks and Uncertainties

 

(a) Major Customers. For the three months ended March 31, 2018 and 2017, approximately 91% and 87%, respectively, of consolidated net sales, were derived from two customers. These two customers are in the Company’s Contract Manufacturing Segment and represent approximately 74% and 21% and 65% and 24% of this Segment’s net sales in the three months ended March 31, 2018 and 2017, respectively.  One customer in the Branded Nutraceutical Segment, while not a significant customer of the Company’s consolidated net sales, represented approximately 21% and 5% of net sales of the Branded Nutraceutical Segment in the three months ended March 31, 2018 and 2017, respectively.

 

-11-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

 

For the nine months ended March 31, 2018 and 2017, approximately 91% and 90%, respectively, of consolidated net sales, were derived from two customers. These two customers are in the Company’s Contract Manufacturing Segment and represent approximately 72% and 22% and 58% and 37% of this Segment’s net sales in the nine months ended March 31, 2018 and 2017, respectively. Accounts receivable from these two major customers represented approximately 86% and 61% of total net accounts receivable as of March 31, 2018 and June 30, 2017, respectively. Two other customers in the Branded Nutraceutical Segment, while not significant customers of the Company’s consolidated net sales, represented approximately 33% and 13% and 73% and 0% of net sales of the Branded Nutraceutical Segment in the nine months ended March 31, 2018 and 2017, respectively. The loss of any of these customers could have an adverse affect on the Company’s operations. Major customers are those customers who account for more than 10% of net sales.

 

(b) Other Business Risks. Approximately 68% of the Company’s employees are covered by a union contract and are employed in its New Jersey facilities. The contract was renewed on September 1, 2015 and will expire on August 31, 2018.

 

 

Note 6. Commitments and Contingencies

 

(a) Leases

 

Related Party Leases. Warehouse and office facilities are leased from Vitamin Realty, which is 100% owned by the Company’s chairman, Chief Executive Officer and major stockholder and certain of his family members, who are also executive officers and directors of the Company. On January 5, 2012, MDC, entered into a second amendment of lease (the “Second Lease Amendment”) with Vitamin Realty for its office and warehouse space in 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. This Second Lease Amendment provides for minimum annual rental payments of $533, plus increases in real estate taxes and building operating expenses. 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 2,700 square feet of warehouse space in New Jersey, the term of which was to expire on January 31, 2019 to extend the expiration date to January 1, 2024. This additional lease provides for minimum lease payments of $27 with annual increases plus the proportionate share of operating expenses.

 

Rent expense for the three months ended March 31, 2018 and 2017 on these leases was $204 and $195, respectively, and for the nine months ended March 31, 2018 and 2017, was $619 and $606, respectively, and are included in both cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of March 31, 2018 and June 30, 2017, the Company had an outstanding obligation to Vitamin Realty of $827 and $763, respectively, included in accounts payable, accrued expenses and other liabilities and long term debt in the accompanying Condensed Consolidated Balance Sheet.

 

Other Lease Commitments. The Company has entered into certain non-cancelable operating lease agreements expiring up through January 31, 2026, related to office and warehouse space, equipment and vehicles (inclusive of the related party lease with Vitamin Realty).

 

-12-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

 

The minimum rental commitments for long-term non-cancelable leases are as follows:

 

   

Operating

   

Related Party

         

Year ending

 

Lease

   

Lease

         

June 30,

 

Commitment

   

Commitment

   

Total

 
                         

2018, remaining

  $ 16     $ 141     $ 157  

2019

    31       563       594  

2020

    22       563       585  

2021

    21       563       584  

2022

    8       563       571  

2023

    -       563       563  

Thereafter

    -       1,392       1,392  

Total

  $ 98     $ 4,348     $ 4,446  
                         

 

Total rent expense, including real estate taxes and maintenance charges, was approximately $245 and $226 and $741 and $718 for the three months and nine months ended March 31, 2018 and 2017, respectively. Rent expense is included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

 

(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.

 

(c) Other Claims.

 

On May 15, 2012, Cedarburg Pharmaceuticals, Inc. ("Cedarburg") sent the Company a letter (the "Demand Letter") setting forth a demand for indemnification under the Stock Purchase Agreement, dated March 17, 2009 (the "Cedarburg SPA"), by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demanded payment by the Company of $0.6 million in respect of the Company's indemnification obligations under the Cedarburg SPA. In addition, in the Demand Letter, Cedarburg informed the Company that there are also environmental issues pending which may lead to additional costs to Cedarburg which will likely be in excess of $0.3 million.

 

On May 30, 2012, the Company sent a letter responding to the Demand Letter and setting forth the Company’s position that it has no obligation to indemnify Cedarburg as demanded. On June 18, 2012, Cedarburg responded to the Company’s letter and, on July 27, 2012, the Company sent another letter to Cedarburg reiterating its position that the Company has no obligation to indemnify Cedarburg as demanded. On December 18, 2012, Cedarburg responded to the Company’s letter and, on January 15, 2013, the Company sent another letter to Cedarburg reiterating its position that the Company has no obligation to indemnify Cedarburg as demanded. As of May 9, 2018, the Company has not received any further communication from Cedarburg with respect to its demand for indemnification as set forth in the Demand Letter. The Company intends to vigorously contest Cedarburg's demand as set forth in the Demand Letter.

 

 

Note 7. Related Party Transactions

 

See Note 4. Senior Credit Facility, Subordinated Convertible Note, net - CD Financial, LLC and other Long Term Debt for related party securities transactions.

 

See Note 6(a). Leases for related party lease transactions.

 

-13-

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

           

 

Note 8. Income Taxes

 

On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018. During the three month and nine month periods ended March 31, 2018, the Company recognized a provision for income taxes of $103 and $397, respectively, of which, $250 in the nine month period ended March 31, 2018, was considered a one time provisional estimate under the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 118. The Company’s provisional one time estimate of $250 included $263 related to the impact of re-measuring the Company’s deferred tax balances to reflect the new tax rate.

 

The Company re-measured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse. In addition, the Company elected to record certain deferred tax assets and liabilities related to the alternative minimum tax carry forward credits now allowed to be utilized in future taxable years. The provisional estimate of $263 incorporates assumptions made based upon the best available interpretation of the Act and may change as the Company receives additional clarification and implementation guidance.

 

 

Note 9. 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 three reportable segments as follows: Contract Manufacturing, Branded Proprietary Products and Other Nutraceutical Businesses. The international sales, concentrated primarily in Europe and Canada, for the three months ended March 31, 2018 and 2017 were $891 and $2,005, respectively, and for the nine months ended March 31, 2018 and 2017 were $3,797 and $6,678, respectively.

 

Financial information relating to the three months ended March 31, 2018 and 2017 operations by business segment are as follows:

 

 

 
              Sales, Net       Segment                  
              U.S.       International               Gross               Capital
              Customers       Customers       Total       Profit (loss)       Depreciation       Expenditures  
                                                         

Contract

   

2018

    $ 9,333     $ 879     $ 10,212     $ 1,363     $ 55     $ 42  

Manufacturing

   

2017

      8,358       1,983       10,341       1,243       70       219  
                                                         

Branded Proprietary

   

2018

      -       9       9       (2 )     1       -  

Products

   

2017

      31       4       35       (20 )     -       -  
                                                         

Other Nutraceutical

   

2018

      351       3       354       108       1       -  

Businesses

   

2017

      260       18       278       116       1       7  
                                                         

Total

   

2018

      9,684       891       10,575       1,469       57       42  

Company

   

2017

      8,649       2,005       10,654       1,339       71       226  

 

 

 

-14-

 

 

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (in thousands, except share and per share amounts)

(Unaudited)

             

Financial information relating to the nine months ended March 31, 2018 and 2017 operations by business segment are as follows:

 

 

        Sales, Net       Segment                  
        U.S.       International               Gross               Capital  
        Customers       Customers       Total       Profit (loss)       Depreciation       Expenditures  
                                                   

Contract

2018

  $ 26,314     $ 3,661     $ 29,975     $ 3,094     $ 184     $ 244  

Manufacturing

2017

    27,885       6,381       34,266       4,483       222       302  
                                                   

Branded Proprietary

2018

    181       30       211       95       3       13  

Products

2017

    123       199       322       30       -       -  
                                                   

Other Nutraceutical

2018

    853       106       959       333       2       1  

Businesses

2017

    1,021       98       1,119       447       1       7  
                                                   

Total

2018

    27,348       3,797       31,145       3,522       189       258  

Company

2017

    29,029       6,678       35,707       4,960       223       309  

 

 

   

Total Assets as of

 
   

March 31,

   

June 30,

 
   

2018

   

2017

 

Contract Manufacturing

  $ 12,251     $ 12,134  

Branded Proprietary Products

    589        784  

Other Nutraceutical Businesses

    1,781       2,278  

Total Company

  $ 14,621     $ 15,196  

 

 

-15-

 

 

 

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION

 

Certain statements set forth under this caption constitute “forward-looking statements.” See “Disclosure Regarding Forward-Looking Statements” on page 1 of this Quarterly Report on Form 10-Q for additional factors relating to such statements. The following discussion should also be read in conjunction with the condensed consolidated financial statements of the Company and Notes thereto included herein and the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2017.

 

The Company is engaged primarily in the manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily in the United States, Luxembourg and Canada.

 

Business Outlook

 

Our future results of operations and the other forward-looking statements contained in this Quarterly Report on Form 10-Q, including this MD&A, involve a number of risks and uncertainties—in particular, the statements regarding our goals and strategies, new product introductions, plans to cultivate new businesses, future economic conditions, revenue, pricing, gross margin and costs, the tax rate, and potential legal proceedings. We are focusing our efforts to improve operational efficiency and reduce spending that may have an impact on expense levels and gross margin. In addition to the various important factors discussed above, a number of other important factors could cause actual results to differ significantly from our expectations. See the risks described in “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q.

 

For the nine months ended March 31, 2018, our net sales from operations decreased by $4.6 million to approximately $31.1 million from approximately $35.7 million in the nine months ended March 31, 2017. Substantially all the decrease in net sales was from the Contract Manufacturing Segment with a decrease of $4.3 million ($6.7 million from one of our significant customers, Herbalife, offset by increased sales of $2.0 million from Life Extension), while our other two segments, Branded Nutraceutical Segment and Other Nutraceuticals Segment, had decreased sales of $0.1 million and $0.2 million, respectively. The decline in sales in the nine months ended March 31, 2018 from Herbalife, was primarily due to decreased orders received from Herbalife for items that we manufacture for Herbalife and secondarily from decreases of (i) approximately $0.6 million as a result of a scheduled shut down of Herbalife’s logistics software in August 2017, which caused Herbalife to request shipments originally scheduled for the three months ended September 30, 2017 to be shipped in June 2017 and (ii) approximately $1.0 million as a result of discontinued items by Herbalife which were manufactured by MDC. For the nine months ended March 31, 2018, we had operating income of approximately $1.1 million, a decrease of approximately $1.3 million from the nine months ended March 31, 2017 of approximately $2.4 million. Our profit margins decreased from approximately 14% of net sales in the nine months ended March 31, 2017 to 11% of net sales in the nine months ended March 31, 2018, primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately $4.3 million. This decline in margins was the direct result of the decreased sales in the Contract Manufacturing Segment while our fixed manufacturing costs remained substantially the same in the year over year reporting period. Our consolidated selling and administrative expenses decreased by approximately $0.1 million to approximately $2.5 million in the nine months ended March 31, 2018 from $2.6 million in the nine months ended March 31, 2017.

 

Critical Accounting Policies and Estimates

 

There have been no changes to our critical accounting policies in the nine months ended March 31, 2018. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed by management with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2017.

 

-16-

 

 

Results of Operations

 

Our results from operations in the following table sets forth the income statement data of our results as a percentage of net sales for the periods indicated:

 

   

For the three months

   

For the nine months

 
   

ended March 31,

   

ended March 31,

 
   

2018

   

2017

   

2018

   

2017

 
                                 

Sales, net

    100.0 %     100.0 %     100.0 %     100.0 %
                                 

Costs and expenses:

                               

Cost of sales

    86.1 %     87.5 %     88.7 %     86.1 %

Selling and administrative

    7.7 %     8.5 %     7.9 %     7.3 %
      93.8 %     96.0 %     96.6 %     93.4 %

Income from operations

    6.2 %     4.0 %     3.4 %     6.6 %

Other income (expense), net

                               

Interest expense

    (2.2% )     (2.1% )     (2.2% )     (1.9% )

Change in fair value of derivative liabilities

    0.5 %     0.9 %     0.4 %     (1.8% )

Impairment charge on investment in iBio, Inc.

    -       -       (0.8% )     -  

Other income, net

    0.1 %     0.1 %     0.0 %     0.1 %

Other income (expense), net

    (1.6% )     (1.1% )     (2.6% )     (3.6% )
                                 

Income before income taxes

    4.6 %     2.9 %     0.8 %     3.0 %
                                 

Federal and state income taxes, net

    1.0 %     0.7 %     1.3 %     0.7 %
                                 

Net income (loss)

    3.6 %     2.2 %     (0.5% )     2.3 %

 

 

For the Nine Months Ended March 31, 2018 compared to the Nine Months Ended March 31, 2017

 

Sales, net. Sales, net, for the nine months ended March 31, 2018 and 2017 were $31.1 million and $35.7 million, respectively, a decrease of 12.8%, and are comprised of the following:

 

   

Nine Months Ended

   

Dollar

   

Percentage

 
   

March 31,

   

Change

   

Change

 
   

2018

   

2017

   

2018 vs 2017

   

2018 vs 2017

 
   

(amounts in thousands)

         

Contract Manufacturing:

                               

US Customers

  $ 26,314     $ 27,885     $ (1,571 )     (5.6% )

International Customers

    3,661       6,381       (2,720 )     (42.6% )

Net sales, Contract Manufacturing

    29,975       34,266       (4,291 )     (12.5% )
                                 

Branded Nutraceutical Products:

                               

US Customers

    181       123       58       47.2 %

International Customers

    30       199       (169 )     (84.9% )

Net sales, Branded Nutraceutical Products

    211       322       (111 )     (34.5% )
                                 

Other Nutraceuticals:

                               

US Customers

    853       1,021       (168 )     (16.5% )

International Customers

    106       98       8       8.2 %

Net sales, Other Nutraceuticals

    959       1,119       (160 )     (14.3% )
                                 

Total net sales

  $ 31,145     $ 35,707     $ (4,562 )     (12.8% )

 

-17-

 

 

For the nine months ended March 31, 2018 and 2017, a significant portion of our consolidated net sales, approximately 91% and 90%, respectively, were concentrated among two customers, Life Extension and Herbalife, customers in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 72% and 22% and 58% and 37%, respectively, of our Contract Manufacturing Segment’s net sales in the nine months ended March 31, 2018 and 2017, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. Costco Wholesale Corporation (“Costco”) and BJ's Wholesale Club ("BJ's") (customers of our Branded Nutraceutical Products Segment), while not significant customers of our consolidated net sales represented approximately 33% and 13% and 73% and 0% respectively, of the Branded Nutraceutical Products Segment net sales in the nine months ended March 31, 2018 and 2017, respectively.

 

The decrease in net sales of approximately $4.6 million was primarily the result of:

 

 

Net sales decreased in our Contract Manufacturing Segment by $4.3 million primarily due to decreased sales volumes to Herbalife of approximately $6.7 million in the nine months ended March 31, 2018 compared to the nine months ended March 31, 2017. The decline in sales in the nine months ended March 31, 2018 from Herbalife, was primarily due to decreased orders received from Herbalife for items that we manufacture for them and secondarily from (i) approximately $0.6 million in shipments originally scheduled for the three months ended September 30, 2017 were requested by Herbalife to be shipped in the month of June 2017 due to a scheduled shut down of Herbalife’s logistics software in August 2017 and (ii) approximately $1.0 million of discontinued items by Herbalife which were manufactured by MDC. Offsetting the decline of net sales to Herbalife was an increase of sales volume to Life Extension of approximately $2.0 million in the nine months ended March 31, 2018 compared to the nine months ended March 31, 2017.

 

Net sales in our Branded Nutraceutical Products Segment decreased by approximately $0.1 million in the nine months ended March 31, 2018, primarily as the result of decreased sales of $166,000 to Costco resulting from pricing pressures from the strong US Dollar versus the Canadian Dollar, offset, in part, by an initial net sale to BJ’s in the amount of $28,000.

 

Net sales in our Other Nutraceuticals segment decreased by $0.2 million primarily as a result of the timing of shipments to our regular customers and a backlog of orders with our supplier, DSM. We expect $0.1 million of these sales to occur in the next three months ending June 30, 2018.

 

Cost of sales. Cost of sales decreased by $3.1 million to $27.6 million for the nine months ended March 31, 2018, as compared to $30.7 million, a decrease of 10%, for the nine months ended March 31, 2017. Cost of sales increased as a percentage of sales to 89% for the nine months ended March 31, 2018 as compared to 86% for the nine months ended March 31, 2017. The decrease in the cost of goods sold amount is consistent with the decreased net sales of approximately 13%. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of the increased sales to Life Extension as a percentage of total sales in our Contract Manufacturing Segment. The cost of the raw materials for the Life Extension finished goods, on average, cost more per bottle than goods produced for our other customers in the Contract Manufacturing Segment as Life Extension tends to use raw materials with trademarked characteristics which limits the ability to negotiate pricing. Secondarily, the cost of sales increased as a percentage of sales, net as a result of the fixed manufacturing costs in our Contract Manufacturing Segment decreasing by approximately 7% from the comparable period a year ago, while our sales decreased by approximately 13%. There were no significant changes in the cost of goods sold in our other two segments other than the decreased sales in each of the other two segments.

 

Selling and Administrative Expenses. There was a decrease in selling and administrative expenses of $150,000 or approximately 6% in the nine months ended March 31, 2018 as compared to the nine months ended March 31, 2017. As a percentage of sales, net, selling and administrative expenses were approximately 7.9% and 7.3% for the nine months ended March 31, 2018 and 2017, respectively. The decrease was primarily due to a decrease in salaries and employees benefits of approximately $150,000, as the result of decreasing our sales support by two people in our Branded Nutraceutical Products Segment and a corresponding decrease in our vacation pay expense.

 

 

-18-

 

 

No other component of our selling and administrative expenses changed by more than $13,500 other than non-cash compensation which decreased by approximately $26,000 as there were no stock options granted in the nine month period ended March 31, 2018, whereas in the nine month period ended March 31, 2017, stock options were granted to Board Members not employed by the Company, which vested monthly over our fiscal year ended June 30, 2017.

 

Other income (expense), net. Other income (expense), net was approximately $0.8 million for the nine months ended March 31, 2018 as compared to $1.3 million for the nine months ended March 31, 2017, and is composed of:

 

   

Nine months ended

 
   

March 31,

 
   

2018

   

2017

 
   

(dollars in thousands)

 

Interest expense

  $ (694 )   $ (684 )

Change in fair value of derivative instruments

    121       (639)  

Impairment charge on investment in iBio, Inc.

    (251 )     -  

Other income

    13       41  

Other income (expense), net

  $ (811 )   $ (1,282 )
                 

 

The variance in the change in fair value of derivative liabilities between the nine months ended March 31, 2017 and the nine months ended the March 31, 2018 was mainly the result of the decreased closing trading price of our common stock from $0.19 as of June 30, 2017 to $0.17 as of March 31, 2018 and the change in the volatility of the closing trading price of our common stock from 98.11% as of June 30, 2017 to 110.80% as of March 31, 2018. The closing trading price and the volatility of the closing trading price of our common stock are two of the variables used to calculate the estimated fair value of our derivative liabilities associated with the underlying derivative instrument.

 

Our interest expense for the nine months ended March 31, 2018, was approximately $10,000 more than the nine months ended March 31, 2017. The increase in interest expense was the result of an increase in interest rates of 0.75% from the nine month period ended March 31, 2017 to the nine month period ended March 31, 2018 on our Senior Credit Facility (See Note 4 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q), offset by, a decrease in our outstanding debt in the amount of $1.1 million from June 30, 2017 to March 31, 2018.

 

In the nine months ended March 31, 2018 we determined that there was an impairment on the carrying value of our investment in iBio, Inc. in the amount of approximately $0.3 million resulting from the decline in the closing trading price of their common stock on the NYSE American Exchange in the six month period ended December 31, 2017 from $0.39 per share as of June 30, 2017 to $0.18 per share as of December 31, 2017. There was no such impairment in the three month period ended March 31, 2018.

 

Other income decreased by approximately $28,000 as the result of earning less income due to the inability of our service client to pay for the services the Company provided for back office support, logistics and operational support for a start-up company which sells over the counter pharmaceutical and nutraceutical products through retail and internet based outlets.

 

Federal and state income tax, net. For the nine months ended March 31, 2018 and 2017, we had state income tax, net expense of approximately $111,000 and $237,000, respectively, and a federal deferred and current income tax expense of $287,000 and $28,000, 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, that it is “more likely than not” the Company’s deferred tax assets may not be fully realized. The state tax expense is the result of MDC using all of its state net operating losses in the fiscal year ended 2013 tax period. All of our other subsidiaries still have adequate net operating losses for state income tax purposes to absorb any taxable income for state tax purposes.

 

 

-19-

 

 

The decrease in state income tax expense of $126,000 is the result of the decreased net income for MDC. The increase in the federal income tax expense of $287,000 is the result of the one-time charge for the change in the effective federal tax rate from 34% as of December 31, 2017 to 21% as of January 1, 2018, which resulted in a decrease to our deferred tax assets of $263,000 offset by a deferred federal tax expense of approximately $24,000.

 

Net (loss) income. Our net loss for the nine months ended March 31, 2018 was $0.1 million compared to net income of $0.8 million in the nine months ended March 31, 2017, a decrease of $0.9 million. The decrease was primarily the result of our decreased operating income of $1.3 million, the impairment charge on our investment in iBio, Inc. of $0.3 million and an increased income tax expense, net of $0.1 million, offset by the change in fair value of derivative instruments of approximately $0.8 million.

 

For the Three Months Ended March 31, 2018 compared to the Three Months Ended March 31, 2017

 

Sales, net. Sales, net, for the three months ended March 31, 2018 and 2017 were substantially the same amount of approximately $10.6 million and are comprised of the following:

 

   

Three months ended

   

Dollar

   

Percentage

 
   

March 31,

   

Change

   

Change

 
   

2018

   

2017

   

2018 vs 2017

   

2018 vs 2017

 
   

(amounts in thousands)

         

Contract Manufacturing:

                               

US Customers

  $ 9,333     $ 8,358     $ 975       11.7 %

International Customers

    879       1,983       (1,104 )     (55.7% )

Net sales, Contract Manufacturing

    10,212       10,341       (129 )     (1.2% )
                                 

Branded Nutraceutical Products:

                               

US Customers

    -       31       (31 )     (100.0% )

International Customers

    9       4       5       125.0 %

Net sales, Branded Nutraceutical Products

    9       35       (26 )     (74.3% )
                                 

Other Nutraceuticals:

                               

US Customers

    351       260       91       35.0 %

International Customers

    3       18       (15 )     (83.3% )

Net sales, Other Nutraceuticals

    354       278       76       27.3 %
                                 

Total net sales

  $ 10,575     $ 10,654     $ (79 )     (0.7% )

 

For the three months ended March 31, 2018 and 2017, a significant portion of our consolidated net sales, approximately 91% and 87%, respectively, were concentrated among two customers, Life Extension and Herbalife, customers in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 74% and 21% and 65% and 24%, respectively, of our Contract Manufacturing Segment’s net sales in the three months ended March 31, 2018 and 2017, respectively. The loss of these customers could have a significant adverse impact on our financial condition and results of operations.

 

The decrease in net sales of approximately $79,000 was primarily the result of net sales decreasing in our Contract Manufacturing Segment of $129,000 primarily due to decreased sales volumes to one of our major customers, Herbalife, of approximately $1.2 million, in the three months ended March 31, 2018, compared to the comparable prior period, offset by increases of approximately $0.8 million to our other major customer, Life Extension, and increases to our other customers of $0.3 million. In the three months ended March 31, 2018, there was a change in estimate of the net sales to BJ’s that occurred in the three months ended December 31, 2017, resulting in an adjustment in promotional costs from a form of advertising expense classified as selling and administrative expenses to an adjustment in the estimate sales returns and allowances in the amount of $31,000 offsetting other sales from other US customers.

 

Cost of sales. Cost of sales decreased by $0.2 million, approximately 2%, to $9.1 million for the three months ended March 31, 2018, as compared to $9.3 million for the three months ended March 31, 2017. Cost of sales decreased as a percentage of sales to 86.1% for the three months ended March 31, 2018 as compared to 87.5% for the three months ended March 31, 2017. The decrease in the cost of goods sold amount of approximately 2.2% is consistent with the decreased net sales of approximately 1%.

 

 

-20-

 

 

The increase in the cost of goods sold as a percentage of net sales, was primarily the result of the change in the product mix sold in our Contracting Manufacturing Segment resulting in a higher cost of raw materials in the products sold. There were no significant changes in the cost of goods sold in our other two segments.

 

Selling and Administrative Expenses. There was a decrease in selling and administrative expenses of approximately $101,000 in the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 or approximately 11.1%. As a percentage of sales, net, selling and administrative expenses were approximately 7.7% and 8.5% for the three months ended March 31, 2018 and 2017, respectively. The decrease was primarily due to a decrease in salaries and employees benefits of approximately $70,000, as the result of decreasing our sales support by two people in our Branded Nutraceutical Products Segment and a corresponding decrease in our vacation pay expense, a decrease in stock option compensation expense of $8,000 as a result of no new stock options being granted in the three month period ended March 31, 2018, and a decrease of $12,500 in our provision for doubtful accounts receivable. No other expense within our selling and administrative expenses changed by more than $10,000.

 

Other income (expense), net. Other income (expense), net was approximately $0.2 million and $0.1 million for the three months ended March 31, 2018 and 2017, respectively, and is composed of:

 

   

Three months ended

 
   

March 31,

 
   

2018

   

2017

 
   

(dollars in thousands)

 

Interest expense

  $ (232 )   $ (225 )

Change in fair value of derivative instruments

    54       92  
Impairment charge on investment in iBio, Inc.     -       -  

Other income

    9       10  

Other income (expense), net

  $ (169 )   $ (123 )

 

Our interest expense in the three months ended March 31, 2018 increased by approximately $7,000 from the three months ended March 31, 2017, primarily as the result of the increase in interest rates of 0.75% from the three month period ended March 31, 2017 to the three month period ended March 31, 2018 on our Senior Credit Facility (See Note 4 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q).

 

The variance in the change in fair value of derivative liabilities between the three months ended March 31, 2017 to the three months ended March 31, 2018 was mainly the result of the increased closing trading price of our common stock from $0.23 as of December 31, 2016 to $0.21 as of March 31, 2017 and a subsequent decrease in the closing trading price of our common stock in the three month period ended March 31, 2018 to $0.17 from $0.18 as of December 31, 2017 to $0.17.  The volatility of the closing trading price of our stock is one of the variables used to calculate the estimated fair value of our derivative liabilities associated with the underlying derivative instrument.

 

Federal and state income tax, net. For the three months ended March 31, 2018 and 2017, we had state income tax expense of approximately $67,000 and $68,000, respectively, and federal deferred income tax expense of $36,000 and $0, 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, that it is “more likely than not” the Company’s deferred tax assets may not be fully realized. The state tax expense is the result of MDC using all of its state net operating losses in the fiscal year ended 2013 tax period. All of our other subsidiaries still have adequate net operating losses for state income tax purposes to absorb any taxable income for state tax purposes.

 

Net income. Our net income for the three months ended March 31, 2018 and 2017 was approximately $0.4 million and $0.2 million, respectively. The increase of approximately $0.2 million was primarily the result of increased operating income of $0.2 million, decreased selling and administrative expenses of $0.1 million, offset by increases in other expenses, net and federal and state income taxes, net aggregating $0.1 million.

 

 

 

-21-

 

 

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 are 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.

 

Liquidity and Capital Resources

 

The following table sets forth, for the periods indicated, the Company’s net cash flows used in operating, investing and financing activities, its period end cash and cash equivalents and other operating measures:

 

   

For the nine months ended

 
   

March 31,

 
   

2018

   

2017

 
   

(dollars in thousands)

 
                 

Net cash provided by operating activities

  $ 1,343     $ 1,215  

Net cash used in investing activities

  $ (210 )   $ (310 )

Net cash used in financing activities

  $ (1,203 )   $ (1,104 )
                 

Cash at end of period

  $ 62     $ 196  

 

At March 31, 2018 and June 30, 2017, our working capital was approximately $1.0 million and $1.4 million, respectively. Our current assets decreased by $0.3 million and current liabilities increased by approximately $0.1 million, resulting in a decrease in our working capital of $0.4 million.

 

Net cash provided by operating activities of $1.3 million in the nine months ended March 31, 2018, includes a net loss of approximately $0.1 million. After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in the fair value of derivative liabilities, the adjusted cash provided from operations before the effect of the changes in working capital components was $0.6 million. Cash was provided by operations from our working capital assets and liabilities in the amount of approximately $0.7 million and was primarily the result of a net increase in accounts payable and accrued expenses and other liabilities of approximately $0.8 million and a decrease in accounts receivable of $0.8 million offset, in part, by an increase in inventories of $0.9 million.

 

Net cash provided by operating activities of $1.2 million in the nine months ended March 31, 2017, includes net income of approximately $0.8 million. After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in the fair value of derivative liabilities, the adjusted cash provided from operations before the effect of the changes in working capital components was $1.9 million. Cash was used in operations from our working capital assets and liabilities in the amount of approximately $0.7 million and was primarily the result of a net decrease in accounts payable and accrued expenses and other liabilities of approximately $0.9 million and an increase in inventories of $0.1 million offset, in part, by a decrease in accounts receivable of $0.4 million.

 

-22-

 

 

Net cash used in investing activities of $210,000 and $310,000 in the nine months ended March 31, 2018 and 2017, respectively, was used for the purchase of property and equipment primarily in our Contract Manufacturing Segment.

 

Cash used in financing activities was approximately $1.2 million for the nine months ended March 31, 2018, primarily as a result of repayments of advances under our revolving credit facility of approximately $30.5 million, repayments of principal under our term notes in the amount of $0.8 million and $0.2 million of payments under capitalized lease obligations, offset, with $30.1 million received from advances under our revolving credit facility and $0.1 million in proceeds received in a sales-lease back financing for machinery and equipment in our Contract Manufacturing Segment.

 

Cash used in financing activities was approximately $1.1 million for the nine months ended March 31, 2017, primarily a result of repayments of advances under our revolving credit facility of $35.0 million and principal payments made under our term notes in the amount of $0.7 million, offset, in part, with $34.5 million received from advances under our revolving credit facility.

 

As of March 31, 2018, we had cash of $62,000, funds available under our revolving credit facility of approximately $1.5 million and working capital of approximately $1.0 million. Our working capital includes $4.3 million outstanding under our revolving line of credit which is not due until February 2020 but classified as current due to a subjective acceleration clause that could cause the advances to become currently due. (See Note 4 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). Furthermore, we had income from operations of approximately $1.1 million in the nine months ended March 31, 2018.  Additionally, as of March 31, 2018, the Company was in compliance with the fixed charge coverage ratio maintenance requirement and with the required annual payments of 25% of the Excess Cash Flow for each fiscal year commencing with the fiscal year ended June 30, 2016.  After taking into consideration our interim results and current projections, management believes that operations, together with the revolving credit facility will support our working capital requirements at least through the period ending May 9, 2019.

 

Our total annual commitments at March 31, 2018 for long term non-cancelable leases of approximately $594,000 consists of obligations under operating leases for facilities and operating lease agreements for the rental of warehouse equipment, office equipment and automobiles.

 

On May 15, 2012, Cedarburg Pharmaceuticals, Inc. ("Cedarburg") sent us a letter (the "Demand Letter") setting forth a demand for indemnification under the Stock Purchase Agreement, dated March 17, 2009 (the "Cedarburg SPA"), by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demanded payment by us of $0.6 million in respect of the Company's indemnification obligations under the Cedarburg SPA. In addition, in the Demand Letter, Cedarburg informed us that there are also environmental issues pending which may lead to additional costs to Cedarburg which will likely be in excess of $0.3 million.

 

On May 30, 2012, we sent a letter responding to the Demand Letter and setting forth our position that we have no obligation to indemnify Cedarburg as demanded. On June 18, 2012, Cedarburg responded to our letter and, on July 27, 2012, we sent another letter to Cedarburg reiterating our position that we have no obligation to indemnify Cedarburg as demanded. On December 18, 2012, Cedarburg responded to our letter and, on January 15, 2013, we sent another letter to Cedarburg reiterating our position that we have no obligation to indemnify Cedarburg as demanded. As of May 9, 2018, we have not received any further communication from Cedarburg with respect to its demand for indemnification as set forth in the Demand Letter. We intend to vigorously contest Cedarburg's demand as set forth in the Demand Letter.

 

Capital Expenditures

 

The Company's capital expenditures for the nine months ended March 31, 2018 and 2017 were approximately $258,000 ($38 financed with capitalized lease obligations) and $0.3 million, respectively. The Company has budgeted approximately $0.3 million for capital expenditures for fiscal year 2018. The total amount is expected to be funded from lease financing and cash provided from the Company’s operations.

 

-23-

 

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

None.

 

Impact of Inflation

 

The Company does not believe that inflation has significantly affected its results of operations.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

Item 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of management, including the Chief Executive Officer and the 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 March 31, 2018, and, based upon this evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.

 

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the nine months ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II – OTHER INFORMATION

 

Item 1. LEGAL PROCEEDINGS

 

None.

 

Item 1A. Risk Factors

 

The risks described in Item 1A, Risk Factors, in our Annual Report on Form 10-K for the year ended June 30, 2017, could materially and adversely affect our business, financial condition and results of operations. The risk factors discussed in that Form 10-K do not identify all risks that we face because our business operations could also be affected by additional factors that are not presently known to us or that we currently consider to be immaterial to our operations. There have been no material changes to our risk factors from those disclosed in our Form 10-K for the year ended June 30, 2017.

 

-24-

 

 

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

Item 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

Item 4. MINE SAFETY DISCLOSURE

 

Not Applicable.

 

Item 5. OTHER INFORMATION

 

None.

 

Item 6. EXHIBITS

 

(a)     Exhibits

 

Exhibit

Number

31.1

Certification of pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.

31.2

Certification of pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.

32.1

Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.

32.2

Certification of periodic financial report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.

101

The following financial information from Integrated BioPharma, Inc.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Statements of Operations for the three and nine months ended March 31, 2018 and 2017, (ii) Condensed Consolidated Balance Sheets as of March 31, 2018 and June 30, 2017, (iii) Condensed Consolidated Statements of Cash Flows for the nine months ended March 31, 2018 and 2017, and (iv) the Notes to Condensed Consolidated Statements.

 

-25-

 

 

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:   May 9, 2018 By: /s/ E Gerald Kay
  E. Gerald Kay,
  President and Chief Executive Officer

         

Date:   May 9, 2018

By: /s/ Dina L. Masi

 

Dina L. Masi,

 

Chief Financial Officer & Senior Vice President

 

 

 

 

 

 

 

 

 

 

 

 

-26-