UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
----------
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 2003 Commission File Number 000-28876
INTEGRATED BIOPHARMA, INC.
(f/k/a Integrated Health Technologies, 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 Avenue
Hillside, New Jersey 07205
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (973) 926-0816
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding as of April 30, 2003
----------------------- --------------------------------
Common Stock, Par Value 10,156,439
INTEGRATED BIOPHARMA, INC.
INDEX
--------------------------------------------------------------------------------
Part I: Financial Information
Item 1: Consolidated Financial Statements
Independent Accountant's Review Report ............................ 1
Consolidated Balance Sheet as of March 31, 2003 [Unaudited] ....... 2 - 3
Consolidated Statements of Operations for the three and nine months
ended March 31, 2003 and 2002 [Unaudited] ......................... 4 -
Consolidated Statement of Stockholders' Equity for the nine months
ended March 31, 2003 [Unaudited] .................................. 5 -
Consolidated Statements of Cash Flows for nine months ended
March 31, 2003 and 2002 [Unaudited] ............................... 6 - 7
Notes to Consolidated Financial Statements [Unaudited] ............ 8 - 15
Item 2: Management's Discussion and Analysis of Financial Condition
And Results of Operations ......................................... 16 - 19
Item 3: Controls and Procedures ........................................... 20
Part II: Other Information ................................................ 21
Signature ................................................................. 22
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Independent Accountants' Review Report
We have reviewed the accompanying condensed consolidated balance sheet of
Integrated BioPharma, Inc. and Subsidiaries (formerly Integrated Health
Technologies, Inc.) as of March 31, 2003, and the related condensed consolidated
statements of operations for the three and nine months ended March 31, 2003 and
2002, and condensed consolidated statements of cash flows for the nine months
ended March 31, 2003 and 2002, and condensed consolidated statement of
stockholders' equity for the nine months ended March 31, 2003. These condensed
consolidated financial statements are the responsibility of the company's
management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles in the United States of
America.
/s/ Amper, Politziner & Mattia P.C.
April 30, 2003
Edison, New Jersey
1
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2003
[UNAUDITED]
--------------------------------------------------------------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 1,637,213
Accounts Receivable - Net 1,480,133
Deferred Income Taxes 52,000
Inventories 4,279,216
Prepaid Federal and State Income Taxes 81,231
Prepaid Expenses and Other Current Assets 753,245
-----------
Total Current Assets 8,283,038
-----------
Property and Equipment - Net 2,325,167
-----------
Other Assets:
Deferred Tax Asset 82,000
Investment in Natex, LLC 1,167,970
Patents and Unpatented Technological Expertise 497,000
Security Deposits and Other Assets 92,149
-----------
Total Other Assets 1,839,119
-----------
Total Assets $12,447,324
===========
See accompanying notes to condensed consolidated financial statements.
2
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2003
[UNAUDITED]
--------------------------------------------------------------------------------
Liabilities and Stockholder's Equity:
Current Liabilities:
Accounts Payable $ 2,181,964
Accrued Expenses and Other Current Liabilities 151,290
Customer Advances 425,881
Capital Lease Obligation 8,597
------------
Total Current Liabilities 2,767,732
------------
Non-Current Liabilities:
Capital Lease Obligation 5,593
------------
Total Non-Current Liabilities 5,593
------------
Commitments and Contingencies [9] --
------------
Stockholders' Equity:
Preferred Stock - Authorized 1,000,000 Shares,
$.002 Par Value, No Shares Issued --
Common Stock - Authorized 25,000,000 Shares,
$.002 Par Value, 10,156,439 Shares Issued and Outstanding 20,313
Additional Paid-in Capital 7,463,864
Retained Earnings 2,218,653
------------
9,702,830
Less, Treasury Stock at cost, 25,800 shares (28,831)
------------
Total Stockholders' Equity 9,673,999
------------
Total Liabilities and Stockholders' Equity $ 12,447,324
============
See accompanying notes to condensed consolidated financial statements.
3
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
[UNAUDITED]
--------------------------------------------------------------------------------
Three months ended Nine months ended
March 31, March 31,
------------------ -----------------
2003 2002 2003 2002
---- ---- ---- ----
Sales $ 6,670,254 $ 5,278,366 $ 17,464,163 $ 16,739,241
Cost of Sales 5,266,734 4,072,267 13,564,430 13,245,102
------------ ----------- ------------ ------------
Gross Profit 1,403,520 1,206,099 3,899,733 3,494,139
Selling and Administrative Expenses 1,111,528 984,936 2,868,664 2,966,444
------------ ----------- ------------ ------------
Operating Income 291,992 221,163 1,031,069 527,695
------------ ----------- ------------ ------------
Other Income [Expense]:
Other Income 103,982 82,994 268,148 269,050
Gain on Settlement of Lawsuit -- -- -- 1,157,960
Interest Expense (840) (1,860) (4,469) (41,584)
Interest and Investment Income 4,491 3,666 21,799 13,482
------------ ----------- ------------ ------------
Total Other Income [Expense] 107,633 84,800 285,478 1,398,908
------------ ----------- ------------ ------------
Income Before Income Taxes 399,625 305,963 1,316,547 1,926,603
Federal and State Income Tax Expense 181,871 164,650 585,461 755,892
------------ ----------- ------------ ------------
Net Income $ 217,754 $ 141,313 $ 731,086 $ 1,170,711
============ =========== ============ ============
Net Income Per Common Share:
Basic $ .03 $ .02 $ .11 $ .19
============ =========== ============ ============
Diluted $ .02 $ .02 $ .09 $ .17
============ =========== ============ ============
Average Common Shares Outstanding 7,543,034 6,228,720 6,660,429 6,228,720
Dilutive Potential Common Shares:
Options 2,533,775 1,141,578 1,551,781 864,091
------------ ----------- ------------ ------------
Average Common Shares
Outstanding-assuming dilution 10,076,809 7,370,298 8,212,210 7,092,811
============ =========== ============ ============
See accompanying notes to condensed consolidated financial statements.
4
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED
MARCH 31, 2003
[UNAUDITED]
--------------------------------------------------------------------------------
Additional Total
Common Stock Preferred Paid-in Retained Treaury Stock Stockholders'
Shares Par Value Stock Capital Earnings Shares Cost Equity
------ --------- ----- ------- -------- ------ ---- ------
Balance-
July 1, 2002 6,228,720 $12,457 $ -- $ 6,113,582 $1,487,567 25,800 $(28,831) $ 7,584,775
Exercise of
Stock Options
for Cash 1,100,000 2,200 -- 99,050 -- -- -- 101,250
Acquisition of
NuCycle Therapy
Inc. for
Common Shares 368,833 738 -- (115,820) -- -- -- (115,082)
Acquisition of
Natex LLC for
Common Shares 2,458,886 4,918 -- 1,163,052 -- -- -- 1,167,970
Income Tax
Benefit From
Exercise of
Stock Options -- -- -- 204,000 -- -- -- 204,000
Net Income
for the nine
months ended
March 31, 2003 -- -- -- -- 731,086 -- -- 731,086
---------- ------- --------- ----------- ---------- ------ -------- -----------
Balance-
March 31, 2003 10,156,439 $20,313 $ -- $ 7,463,864 $2,218,653 25,800 $(28,831) $ 9,673,999
========== ======= ========= =========== ========== ====== ======== ===========
See accompanying notes to condensed consolidated financial statements.
5
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
--------------------------------------------------------------------------------
Nine months ended March 31,
---------------------------
2003 2002
---- ----
Operating Activities:
Net Income $ 731,086 $ 1,170,711
----------- -----------
Adjustments to Reconcile Net Income to Net Cash
[Used for] Provided By Operating Activities:
Depreciation and Amortization 341,766 262,912
Deferred Income Taxes 30,000 109,000
Bad Debt Expense -- 89,391
Income Tax Benefit from Exercise of Stock Options 204,000 --
Changes in Assets and Liabilities (excludes impact of acquisitons)
[Increase] Decrease in:
Accounts Receivable 797,499 494,535
Inventories (1,573,555) 488,841
Refundable Federal Income Taxes (81,231) 625,000
Due From NuCycle Therapy, Inc. - Related Party 92,646 (53,051)
Prepaid Expenses and Other Current Assets (547,159) (97,079)
Security Deposits and Other Assets 1,141 (18,592)
[Decrease] Increase in:
Accounts Payable 289,139 (626,457)
Federal and State Income Taxes Payable (106,262) 238,850
Accrued Expenses and Other Liabilities (79,486) (487,859)
----------- -----------
Total Adjustments (631,502) 1,025,491
----------- -----------
Net Cash - Operating Activities - Forward 99,584 2,196,202
----------- -----------
Investing Activities:
Net Book Value of Fixed Assets Sold 15,654 --
Exercise of Stock Options 101,250 --
Patents (355,000) --
Loans to Stockholders (9,505) (68,746)
Repayment of Note Receivable -- 173,993
Note Receivable -- (141,050)
Purchase of Property and Equipment (325,060) (259,067)
----------- -----------
Net Cash - Investing Activities - Forward (572,661) (294,870)
----------- -----------
Financing Activities:
Proceeds from Notes Payable 2,255,954 2,507,245
Repayment of Notes Payable (2,269,989) (3,258,313)
----------- -----------
Net Cash - Financing Activities - Forward (14,035) (751,068)
----------- -----------
See accompanying notes to condensed consolidated financial statements.
6
INTEGRATED BIOPHARMA, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
[UNAUDITED]
--------------------------------------------------------------------------------
Nine months ended March 31,
---------------------------
2003 2002
---- ----
Net Cash - Operating Activities - Forwarded 99,584 2,196,202
Net Cash - Investing Activities - Forwarded (572,661) (294,870)
Net Cash - Financing Activities - Forwarded (14,035) (751,068)
----------- -----------
Net Increase/[Decrease] in Cash and Cash Equivalents (487,112) 1,150,264
Cash and Cash Equivalents - Beginning of Periods 2,124,325 375,584
----------- -----------
Cash and Cash Equivalents - End of Periods $ 1,637,213 $ 1,525,848
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the periods for:
Interest $ 4,469 $ 41,584
Income Taxes $ 523,301 $ 405,425
Supplemental Schedule of Investing and Financial Activities:
Common Stock issued for acquisition of NuCycle Therapy, Inc. $ 175,196 --
Common Stock issued for acquisition of Natex, LLC $ 1,167,970 --
See accompanying notes to condensed consolidated financial statements.
7
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[UNAUDITED]
--------------------------------------------------------------------------------
[1] Business
Effective April 16, 2003, the Company amended its corporate charter and changed
its name to "Integrated BioPharma, Inc." (formerly Integrated Health
Technologies, Inc.) and began trading on the American Stock Exchange using the
symbol INB for its common stock.
Integrated BioPharma, Inc. [the "Company"] is engaged primarily in the
manufacturing, marketing and sales of vitamins, nutritional supplements and
herbal products. Its customers are located primarily throughout the United
States. The Company considers all operations as one segment of business.
[2] Summary of Significant Accounting Policies
Principles of Consolidation - The accompanying consolidated financial statements
include the accounts of the Company and its subsidiaries, all of which are
wholly owned. Inter-company transactions and balances have been eliminated in
consolidation.
Basis of Reporting - The accompanying unaudited interim financial statements
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Item 310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, such interim
statements include all adjustments, which are considered necessary in order to
make the interim financial statements not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and
notes thereto, together with management's discussion and analysis of financial
condition and results of operations, contained in the Company's annual report to
stockholders incorporated by reference in the Company's annual report on Form
10-KSB for the fiscal year ended June 30, 2002. The results of operations for
the nine months ended March 31, 2003 are not necessarily indicative of the
results for the entire fiscal year ending June 30, 2003.
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.
8
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #2
[UNAUDITED]
--------------------------------------------------------------------------------
[2] Summary of Significant Accounting Policies (Continued)
Cash and Cash Equivalents - Cash equivalents are comprised of certain highly
liquid investments with a maturity of three months or less when purchased.
Inventories - Inventory is valued by the first-in, first-out method, at the
lower of cost or market.
Depreciation - The Company follows the general policy of depreciating the cost
of property and equipment over the following estimated useful lives:
Building 15 Years
Leasehold Improvements 15 Years
Machinery and Equipment 7 Years
Machinery and Equipment Under Capital Leases 7 Years
Transportation Equipment 5 Years
Machinery and equipment are depreciated using accelerated methods while
leasehold improvements are amortized on a straight-line basis. Depreciation
expense was $291,766 and $262,912 for the nine months ended March 31, 2003 and
2002, respectively. Amortization of equipment under capital leases is included
with the depreciation expense.
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 or revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition - The Company generally recognizes revenue upon shipment of
the product. All returns and allowances are estimated and recorded on a timely
basis.
Advertising - Costs incurred for producing and communicating advertising are
expensed when incurred. Advertising expense was $5,837 and $90,596 for the nine
months ended March 31, 2003 and 2002 respectively.
[3] Inventories
Inventories consist of the following at March 31, 2003:
Raw Materials $1,485,469
Work-in-Process 1,000,781
Finished Goods 1,792,966
----------
Total $4,279,216
==========
9
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #3
[UNAUDITED]
--------------------------------------------------------------------------------
[4] Property and Equipment
Property and equipment comprise the following at March 31, 2003:
Land and Building $1,250,000
Leasehold Improvements 1,163,360
Machinery and Equipment 2,866,307
Machinery and Equipment Under Capital Leases 156,561
Transportation Equipment 37,714
----------
Total 5,473,942
Less: Accumulated Depreciation and Amortization 3,148,775
----------
Total $2,325,167
==========
[5] Notes Payable
On January 21, 2003 the Company terminated its existing credit line agreement
with Merchants Bank. At the termination date there were no balances due.
[6] Capital Lease
The Company acquired warehouse and office equipment under the provisions of two
long-term leases. The leases expire in July 2003, and February 2005,
respectively. The equipment under the capital leases as of March 31, 2003 has a
cost of $47,016 and accumulated depreciation of $21,971 with a net book value of
$25,045.
The future minimum lease payments under capital leases and the net present value
of the future minimum lease payments at March 31, 2003 are as follows:
Total Minimum Lease Payments $ 47,016
Amount Representing Interest (32,826)
--------
Present Value of Net Minimum Lease Payment 14,190
Current Portion (8,597)
--------
Long-Term Capital Lease Obligation $ 5,593
========
10
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #4
[UNAUDITED]
--------------------------------------------------------------------------------
[6] Capital Lease (Continued)
The following are maturities of long-term capital lease obligations:
March 31,
2004 $ 8,597
2005 5,593
2006 --
2007 --
-------
Total $14,190
=======
[7] Significant Risks and Uncertainties
[A] Concentrations of Credit Risk - Cash - The Company maintains balances at
several financial institutions. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. At March 31, 2003 the
Company's uninsured cash balances totaled approximately $1,850,000.
[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. The amount
of the allowance for uncollectible accounts at March 31, 2003 is $29,460.
[8] Major Customer
For the nine months ended March 31, 2003 and 2002 approximately 68% and 56% of
revenues were derived from one customer. The loss of this customer would have an
adverse effect on the Company's operations. Two other customers accounted for
11% of consolidated sales for the nine months ended March 31, 2003 and 16% of
consolidated sales for the nine months ended March 31, 2002. Accounts receivable
from these customers comprised approximately 58% and 38% of total accounts
receivable at March 31, 2003 and 2002, respectively.
11
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #5
[UNAUDITED]
--------------------------------------------------------------------------------
[9] Commitments and Contingencies
[A] Leases
Related Party Leases - Warehouse and office facilities are leased from Vitamin
Realty Associates, L.L.C., a limited liability company, which is 90% owned by
the Company's Chairman of the Board and principal stockholder and certain family
members and 10% owned by the Company's Chief Financial Officer. The lease was
effective on January 10, 1997 and provides for a minimum annual rental of
$346,000 through January 10, 2002 plus increases in real estate taxes and
building operating expenses. At its option, the Company has the right to renew
the lease for an additional five year period. On April 28, 2000 the lease was
amended reducing the square footage and extending the lease to May 31, 2015.
Rent expense for the nine months ended March 31, 2003 and 2002 on this lease was
approximately $350,000 and $340,000 respectively.
Other Lease Commitments - The Company leases warehouse equipment for a five-year
period providing for an annual rental of $15,847 and office equipment for a five
year period providing for an annual rental of $8,365.
The Company leases automobiles under non-cancelable operating lease agreements,
which expire through 2006.
The minimum rental commitment for long-term non-cancelable leases is as follows:
Related
Lease Party Lease
March 31, Commitment Commitment Total
--------- ---------- ------------ ----------
2004 $ 56,083 $ 323,559 $ 379,642
2005 34,465 323,559 358,024
2006 24,012 323,559 347,571
2007 7,697 323,559 331,256
2008 -- 323,559 323,559
Thereafter -- 2,283,687 2,283,687
-------- ---------- ----------
Total $122,257 $3,901,482 $4,023,739
======== ========== ==========
Total rent expense, including real estate taxes and maintenance charges, was
approximately $420,000 and $387,000 for the nine months ended March 31, 2003 and
2002, respectively. Rent expense is stated net of sublease income of
approximately $6,700 and $800 for the nine months ended March 31, 2003 and 2002,
respectively.
12
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #6
[UNAUDITED]
--------------------------------------------------------------------------------
[9] Commitments and Contingencies (Continued)
[B] Employment Agreement - Effective February 24, 2003, the Company entered into
an employment agreement with an executive, which expires on December 31, 2004
and provides for an aggregate annual salary of $100,000.
[C] Development and Supply Agreement - On April 9, 1998, the Company signed a
development and supply agreement with Herbalife International of America, Inc.
["Herbalife"] whereby the Company will develop, manufacture and supply certain
nutritional products to Herbalife through December 31, 2004. On December 31,
2002 the agreement was modified extending the term of the agreement to December
31, 2005 and providing that Herbalife is required to purchase a minimum quantity
of Supplied Products each year for the term of the agreement of $18,000,000. If
Herbalife purchases the minimum amount then Herbalife will be entitled to
certain rebates.
[10] Related Party Transactions
During the year ended June 30, 1997, the Company entered into a consulting
agreement with the brother of the Company's chairman of the board on a month to
month basis for $1,100 per month. The total consulting expense recorded per this
verbal agreement for the nine months ended March 31, 2003 and 2002, by the
Company was $9,900 and $9,900, respectively. See note 9(A) and notes 12(C) and
12(D).
[11] New Accounting Pronouncements
In July 2001, FAS No. 141, "Business Combinations" (FAS 141) and FAS No. 142
"Goodwill and Other Intangible Assets" (FAS 142) were issued. FAS 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001. FAS 141 also specifies the criteria that
intangible assets acquired in a purchase method business combination must meet
to be recognized and reported apart from goodwill. FAS 142 requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but instead be tested for impairment, at least annually, in
accordance with the provisions of FAS 142. FAS 142 will also require that
intangible assets with definite useful lives be amortized over their respective
estimated useful lives to their estimated residual values, and be reviewed for
impairment in accordance with FAS No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed of". The provisions of
FAS 141 are effective immediately, except with regard to business combinations
prior to July 1, 2001. FAS 142 was effective as of July 1, 2002. Goodwill and
other intangible assets acquired in business combinations completed before July
1, 2001, will continue to be amortized prior to the adoption of FAS 142. The
adoption of FAS 142 did not have a material impact on the financial position and
results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be disposed of." SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed of by
sale and requires that those long-lived assets be measured at the lower of
carrying amount of fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. SFAS No. 144 is effective for fiscal
years beginning after December 15, 2001. The adoption of this statement did not
have a material impact on its financial position and results of operations.
13
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #7
[UNAUDITED]
--------------------------------------------------------------------------------
[12] Equity Transactions
[A] Incentive Stock Options-On February 4, 2003, the Company granted 117,647
incentive stock options for a term of ten years commencing on February 4, 2003
to an employee at the exercise price of $.85 (representing the market price) per
share and on February 24, 2003 the Company granted 57,142 incentive stock
options for a term of ten years commencing on February 24, 2003 to an employee
at the exercise price of $1.75 (representing the market price) per share.
[B] Non-Statutory Stock Options-On January 31, 2003 the Company granted 4,000
non-statutory stock options to members of its scientific advisory board at the
exercise price of $.75 (representing the market price) per share for a term of
ten years commencing on January 31, 2003. On February 4, 2003, the Company
granted 332,353 non-statutory stock options to an employee and a consultant at
the exercise price of $.85 (representing the market price) per share for a term
of ten years commencing on February 4, 2003 and on February 24, 2003 the Company
granted 92,858 non-statutory stock options for a term of ten years commencing on
February 4, 2003 to an employee at the exercise price of $1.75 (representing the
market price) per share.
[C] Acquisitions-NuCycle Transaction
On February 21, 2003, the Company completed a merger pursuant to an Agreement
and Plan of Merger dated as of February 21, 2003 between and among the Company,
NAC-NJ Acquisition Corp., a wholly-owned subsidiary of the Company (Acquisition
Sub") and NuCycle Acquisition Corp. ("NuCycle") pursuant to which the Company
acquired 100 percent of NuCycle Common Stock in exchange for the shareholders of
NuCycle receiving from the Company 368,833 shares of common stock at a market
value of $175,196 and a contingent consideration of twenty-five percent (25%) of
the after-tax profits of NuCycle until the shareholders of NuCycle have
received, in the aggregate, an additional $5,000,000 commencing with the first
fiscal quarter following the date of filing of the Certificate of Merger with
the New Jersey Department of Treasury. As of March 31, 2003 the likelihood of
such additional payments was not probable and in accordance with SFAS 141, no
such amount was recorded.
The NuCycle acquisition allows the Company to enter the field of genetically
engineered human therapeutics through NuCycle's expertise and its grant from the
National Cancer Institute.
The Company acquired assets of $153,709 and liabilities of $268,791. Due to this
related party transaction, the excess amount paid over book value of $290,278
has reduced additional paid-in capital. The transactions of NuCycle for the
month ended March 31, 2003 have been included in the consolidated financial
statements of the Company.
E.Gerald Kay, the Chairman of the Board of the Company, and a principal
stockholder of the Company, Seymour Flug, the President and Chief Executive
Officer of the Company, and Carl DeSantis, the father of Dean DeSantis who is a
director of the Company, collectively own approximately seventy-four percent
(74%) of NuCycle.
14
INTEGRATED BIOPHARMA, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Sheet #8
[UNAUDITED]
--------------------------------------------------------------------------------
[12] Equity Transactions (Continued)
[D] Acquisitions-Natex LLC Acquisition
On February 24, 2003, the Company completed the acquisition of the membership
interests of Natex Georgia, LLC, a limited liability company formed under the
laws of the Republic of Georgia ("Natex") from Trade Investment Services, L.L.C.
("TIS") representing fifty percent (50)% of the membership interests of Natex.
Pursuant to the terms of a purchase agreement dated as of February 1, 2003 by
and between the Company and TIS, TIS received 2,458,886 shares of the Company's
common stock at a market value of $1,167,970. Such acquisition was attributable
primarily to the license agreement described below.
Natex is a recently formed company engaged in the business of harvesting and
collecting taxis bacatta botanical materials from government properties in the
Republic of Georgia, pursuant to a license from and supervision by the Georgian
government. Natex processes the materials to extract Paclitaxel and intends to
sell the extract to Paxis Pharmaceuticals Inc. ("Paxis") pursuant to an
exclusive supply contract with Paxis. Paxis is a Delaware company formed to
convert the extract to finished U.S.P. Paclitaxel in its Boulder, Colorado
facilities with the intention of selling that bulk Paclitaxel to other entities
which, in turn, convert it to dosage form or combine it with other substances,
in both cases for sale and distribution as a cancer therapy drug. Both Natex and
Paxis were formed last year. Neither company has any revenue to date.
Significant additional capital will be needed by both companies to begin selling
the bulk Paclitaxel. Both companies will be subject to various risks associated
with a new venture including, among others: operating in a foreign country which
may have political, economic, legal and regulatory environment which may differ
significantly from the U.S including the exporting of products, repatriation of
capital and exchange rate fluctuations; setting up manufacturing facilities;
complying with regulatory requirements for manufacturing pharmaceutical
products; marketing and selling the product; and operating profitably. There can
be no assurance that these companies can be operated profitably.
E. Gerald Kay, the Chairman of the Board of the Company and beneficial owner of
approximately fifty percent (50%) of the stock of the Company (or, approximately
sixty-two percent (62%) if family trusts of which he is a trustee are attributed
to him), is the owner of one-third (1/3) of the equity of TIS. Carl DeSantis,
the father of Dean DeSantis who is a director of the Company, is the owner of
one-third (1/3) of the equity of TIS.
[E] Acquisitions-Paxis Acquisition
The Company and Trade Investment Services, L.L.C. ("TIS") have entered into a
purchase agreement dated as of February 1, 2003 (the "Paxis Purchase Agreement")
pursuant to which the Company has agreed to purchase all of the interests of TIS
in TisorEx, Inc. (to be renamed Paxis Pharmaceuticals, Inc. or "Paxis") which
consists of fifty percent (50%) of the common stock of Paxis in exchange for
$500,000 payable at the closing and a contingent consideration of twenty-five
percent (25%) of the after-tax profits of Paxis commencing with the first
calendar quarter following the closing date until TIS has received an additional
$49,500,000 in the aggregate. The agreement has not closed.
15
INTEGRATED BIOPHARMA, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Item 2.
The following discussion should be read in conjunction with the historical
information of the Company and notes thereto.
Nine months ended March 31, 2003 Compared to nine months ended March 31, 2002
Results of Operations
The Company's net income for the nine months ended March 31, 2003 was $731,086
as compared to net income of $1,170,711 for the nine months ended March 31,
2002. This decrease in net income of approximately $440,000 is primarily the
result of a $505,000 increase in operating income resulting from a corresponding
increase in gross profit of approximately $405,000, a decrease in other income
of approximately $1,100,000 due to the settlement of a Class Action Lawsuit and
a decrease in Federal and state income taxes of approximately $170,000.
Sales for the nine months ended March 31, 2003 and 2002 were $17,464,163 and
$16,739,241 respectively, an increase of approximately $725,000 or 4%. For the
nine months ended March 31, 2003 the Company had sales to one customer, who
accounted for 68% of net sales in 2003 and 56% in 2002. The loss of this
customer would have an adverse affect on the Company's operations.
Retail and mail order sales for the nine months ended March 31, 2003 totaled
$80,290 as compared to $145,316 for the nine months ended March 31, 2002, a
decrease of 45%. The Company has been experiencing a decline in mail order sales
due to increased competition. The Company closed its retail store on March 2,
2001.
Sales under the Roche Vitamins, Inc. distribution agreement were $1,687,244 for
the nine months ended March 31, 2003 as compared to $1,834,634 for the nine
months ended March 31, 2002, a decrease of $147,390 or 8%.
On August 31, 2000, the Company began the distribution and sale of fine
chemicals through a new subsidiary, IHT Health Products, Inc. Sales for the nine
months ended March 31, 2003 totaled $1,537,835 as compared to $2,520,932 for the
nine months ended March 31, 2002, decrease of $983,097 or 39%. The decrease in
sales is due to Company's desire to pursue greater gross profit at the risk of
lower sales.
On February 21, 2003 the Company merged with NuCycle Acquisition Corp.
("NuCycle"). NuCycle through its wholly-owned subsidiary, NuCycle Therapy, Inc.
is engaged in the development and sale of nutritional formulations based on
plant-derived minerals through patented hyperaccumulation technology. Sales for
the month ended March 31, 2003 totaled $ 9,120.
Cost of sales increased to $13,564,430 for the nine months ended March 31, 2003
as compared to $13,245,102 for the nine months ended March 31, 2002. Cost of
sales decreased as a percentage of sales to 78% for the nine months ended March
31, 2003 from 79% for the nine months ended March 31, 2002. The
16
INTEGRATED BIOPHARMA, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Results of Operations (Continued)
decrease in cost of sales is due to greater manufacturing efficiencies. Selling
and administrative expenses for the nine months ended March 31, 2003 were
$2,868,664 versus $2,966,444 for the same period a year ago. The decrease of
$97,780 was primarily attributable to a decrease in advertising of $84,759, a
decrease in bad debt expense of $84,367, a decrease in royalty and commission
expense of $26,638, an increase in officers salaries of $118,621, an increase in
auto, travel and entertainment of $73,335, a decrease in office expenses of
$46,917, a decrease in office salaries of $214,591 due to a reduction of office
personnel, a decrease in public relations fees of $23,457, an increase in
consulting fees of $145,923, an increase in depreciation and amortization of
$50,164, and a decrease in freight out of $88,822.
Other income [expense] was $285,478 for the nine months ended March 31, 2003 as
compared to $1,398,908 for the nine months ended March 31, 2002. The decrease of
$1,113,430 is primarily the result of the proceeds received of $1,157,960 from
the settlement of a Class Action Lawsuit in 2001.
Three months ended March 31, 2003 Compared to three months ended March 31, 2002
Results of Operations
The Company's net income for the three months ended March 31, 2003 was $217,754
as compared to net income of $141,313 for the three months ended March 31, 2002.
This increase in net income of approximately $76,000 is primarily the result of
a $70,000 increase in operating income resulting from a corresponding increase
in gross profit of approximately $200,000, an increase in selling and
administrative expenses of approximately $125,000 and an increase in Federal and
state income taxes of approximately $17,000.
Sales for the three months ended March 31, 2003 and 2002 were $6,670,254 and
$5,278,366 respectively, an increase of approximately $1,390,000 or 26%. For the
three months ended March 31, 2003 the Company had sales to one customer, who
accounted for 72% of net sales in 2003 and 62% in 2002. The loss of this
customer would have an adverse affect on the Company's operations.
Retail and mail order sales for the three months ended March 31, 2003 totaled
$26,465 as compared to $45,504 for the three months ended March 31, 2002, a
decrease of 42%. The Company has been experiencing a decline in mail order sales
due to increased competition. The Company closed its retail store on March 2,
2001.
Sales under the Roche Vitamins, Inc. distribution agreement were $679,096 for
the three months ended March 31, 2003 as compared to $599,256 for the three
months ended March 31, 2002, an increase of $79,840 or 13%.
IHT Health Products, Inc. sales for the three months ended March 31, 2003
totaled $570,567 as compared to $825,484 for the three months ended March 31,
2002, a decrease of $254,917 or 31%. The decrease in sales is due to the
Company's desire to pursue greater gross profit at the risk of lower sales.
17
INTEGRATED BIOPHARMA, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Results of Operations (Continued)
Cost of sales increased to $5,266,734 for the three months ended March 31, 2003
as compared to $4,072,267 for the three months ended March 31, 2002. Cost of
sales increased as a percentage of sales to 79% for the three months ended March
31, 2003 from 77% for the three months ended March 31, 2002. The increase in
cost of sales is due to differences in the product mix.
Selling and administrative expenses for the three months ended March 31, 2003
were $1,111,528 versus $984,936 for the same period a year ago. The increase of
$126,592 was primarily attributable to a decrease in advertising expenses of
$73,063, an increase in officers salaries of $37,353, a decrease in bad debt
expense of $34,478, a decrease in freight out of $44,670, a decrease in office
salaries of $56,303, an increase in professional fees of $59,846, an increase in
auto, travel, and entertainment of $23,272 and an increase in consulting fees of
$150,212.
Other income [expense] was $107,633 for the three months ended March 31, 2003 as
compared to $84,800 for the three months ended March 31, 2002. The increase of
$22,833 is primarily the result of the gain on the sale of fixed assets of
$24,346.
Liquidity and Capital Resources
At March 31, 2003 the Company's working capital was $5,515,306 an increase of
$615,742 over working capital at June 30, 2002. Cash and cash equivalents were
$1,637,213 at March 31, 2003, a decrease of $487,112 from June 30, 2002. The
Company generated $99,584 and $2,196,202 from operations for the nine months
ended March 31, 2003 and 2002, respectively.
The primary reasons for the decrease in cash provided for operations for the
nine months ended March 31, 2003 are net income of approximately $730,000, a
decrease in accounts receivable of approximately $800,000, an increase in
inventories of approximately $1,600,000, an increase in prepaid expenses of
approximately $550,000, an increase in accounts payable of approximately
$300,000 and a decrease in Federal and State Income Taxes Payable of
approximately $100,000.
The Company utilized $572,661 and $294,870 in investing activities for the nine
months ended March 31, 2003 and 2002, respectively. The Company utilized net
cash of $14,035 and $751,068 from debt financing activities for the nine months
ended March 31, 2003 and 2002, respectively.
The Company had a $1,000,000 revolving line of credit agreement, which bore
interest at 4% above the prime interest rate and expires on December 21, 2003.
On January 21, 2003 the Company terminated its credit line agreement.
The Company's total annual commitment at March 31, 2003 for the next five years
of $1,740,052 consists of obligations under operating leases for facilities and
lease agreements for the rental of warehouse equipment and automobiles.
18
INTEGRATED BIOPHARMA, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OPERATIONS
--------------------------------------------------------------------------------
Liquidity and Capital Resources (Continued)
The Company does not anticipate having to provide additional working capital for
the NuCycle Therapy acquisition and the Natex LLC acquisition. (See notes 12(C)
and 12(D)).
19
INTEGRATED BIOPHARMA, INC.
--------------------------------------------------------------------------------
Item 3.
CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. An evaluation was
performed under the supervision and with the participation of the
Company's management, including the Chief Executive Officer (CEO)
and Chief Financial Officer (CFO), of the effectiveness of the
design and operation of the Company's disclosure controls and
procedures within 90 days before the filing date of this Form
10-QSB. Based on their evaluation, the Company's principal executive
officer and principal financial officer have concluded that the
Company's disclosure controls and procedures (as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934
(the "Exchange Act") are effective to ensure that information
required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in Securities and
Exchange Commission rules and forms.
(b) Changes in internal controls. There have been no significant changes
in the Company's internal controls or in other factors that could
significantly affect internal controls subsequent to their
evaluation. There were no significant deficiencies or material
weaknesses, and therefore there were no corrective actions taken.
20
Part II: Other Information
INTEGRATED BIOPHARMA, INC.
--------------------------------------------------------------------------------
Item 1: Legal Proceeding
None
Item 2: Changes in Securities
None
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
Current Report on Form 8-K filed January 2, 2003 pursuant to Item 5
(Other Events).
Current Report on Form 8-K filed January 14, 2003 pursuant to Item 5
(Other Events).
Current Report on Form 8-K filed February 21, 2003 pursuant to Item
5 (Other Events).
Current Report on Form 8-K filed February 24, 2003 pursuant to Item
2 (Acquisition of Assets).
Current Report on Form 8-K/A filed April 24, 2003 pursuant to Item 7
(Financial Statements, Pro Forma Financial Statements and Exhibits).
21
SIGNATURES
--------------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INTEGRATED BIOPHARMA, INC.
Date: April 30, 2003 By: /s/ Seymour Flug
----------------
Seymour Flug,
President and Chief Executive Officer
Date: April 30, 2003 By: /s/ Eric Friedman
-----------------
Eric Friedman,
Chief Financial Officer
22
Certification of CFO
I, Eric Friedman, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Integrated
BioPharma Inc. (f/k/a Integrated Health Technologies, Inc.);
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 45 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 30, 2003 By: /s/ Eric Friedman
-----------------
Name: Eric Friedman
Title: Vice President & Chief Financial Officer
23
Certification of CEO
I, Seymour Flug, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Integrated
BioPharma, Inc. (f/k/a Integrated Health Technologies, Inc.);
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
have:
a) designed such disclosure controls and procedures 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 45 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date.
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: April 30, 2003 By:/s/ Seymour Flug
-------------------
Name: Seymour Flug
Title: President & Chief Executive Officer
24
CERTIFICATION OF PERIODIC REPORT
I, Seymour Flug, the President & Chief Executive Officer of Integrated
BioPharma, Inc. (f/k/a Integrated Health Technologies, Inc.) (the "Company"),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that:
(1) the Quarterly Report on Form 10-QSB of the Company for the quarterly
period ended March 31, 2003 (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.
Dated: April 30, 2003
By: /s/ Seymour Flug
----------------
Seymour E. Flug
President & Chief Executive Officer
CERTIFICATION OF PERIODIC REPORT
I, Eric Friedman, the Vice President and Chief Financial Officer of Integrated
BioPharma, Inc. (f/k/a Integrated Health Technologies, Inc.) (the "Company"),
certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350, that:
(1) the Quarterly Report on Form 10-QSB of the Company for the quarterly
period ended March 31, 2003 (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.
Dated: April 30, 2003
By: /s/ Eric Friedman
-----------------
Eric Friedman
Vice President and Chief Financial Officer
25