INTEGRATED BIOPHARMA INC - Quarter Report: 2022 March (Form 10-Q)

INTEGRATED BIOPHARMA, INC. AND SUBSIDIARIES

FORM 10-Q QUARTERLY REPORT

For the Three Months Ended March 31, 2022

INDEX

Cautionary Statement Regarding Forward-Looking Statements Certain statements in this Quarterly Report on Form 10-Q may constitute “forward-looking” statements as defined in Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, (the “Exchange Act”), the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) or in releases made by the Securities and Exchange Commission (“SEC”), all as may be amended from time to time. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of Integrated BioPharma, Inc. and its subsidiaries (collectively, the “Company”) or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, changes in general economic and business conditions; loss of market share through competition; introduction of competing products by other companies; the timing of regulatory approval and the introduction of new products by the Company; changes in industry capacity; pressure on prices from competition or from purchasers of the Company's products; regulatory changes in the pharmaceutical manufacturing industry and nutraceutical industry; regulatory obstacles to the introduction of new technologies or products that are important to the Company; availability of qualified personnel; the loss of any significant customers or suppliers; the impact of the COVID-19 pandemic; and other factors both referenced and not referenced in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (“Form 10-K”), as filed with the SEC. Statements that are not historical fact are forward-looking statements. Forward-looking statements can be identified by, among other things, the use of forward-looking language, such as the words, “plan”, “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “may”, “will”, “would”, “could”, “should”, “seeks”, or “scheduled to”, or other similar words, or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. These cautionary statements are being made pursuant to the Securities Act, the Exchange Act and the PSLRA with the intention of obtaining the benefits of the “safe harbor” provisions of such laws. The Company cautions investors that any forward-looking statements made by the Company are not guarantees or indicative of future performance. Important assumptions and other important factors that could cause actual results to differ materially from those forward-looking statements with respect to the Company, include, but are not limited to, the risks and uncertainties affecting their businesses described in Item 1A of the Company’s Form 10-K and in other filings by the Company with the SEC. Although the Company believes that its plans, intentions and expectations reflected in or suggested by such forward-looking statements are reasonable, actual results could differ materially from a projection or assumption in any of its forward-looking statements. The Company’s future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties. The forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date hereof and the Company does not have or undertake any obligation to update or revise any forward-looking statements whether as a result of new information, subsequent events or otherwise, unless otherwise required by law.

ITEM 1. FINANCIAL STATEMENTS

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share amounts)

(Unaudited)

                     See accompanying notes to condensed consolidated financial statements.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share and per share amounts)

(Unaudited)

  See accompanying notes to condensed consolidated financial statements.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED MARCH 31, 2022 AND 2021

(in thousands, except share and per share amounts)

(Unaudited)

FOR THE NINE MONTHS ENDED MARCH 31,  2022:

FOR THE NINE MONTHS ENDED MARCH 31,  2021:

See accompanying notes to condensed consolidated financial statements.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except share and per share amounts)

(Unaudited)

   See accompanying notes to condensed consolidated financial statements.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Note 1. Nature of Operations, Principles of Consolidation and Basis of Presentation of Interim Financial Statements

Nature of Operations

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

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

Principles of Consolidation

The accompanying condensed consolidated financial statements for the interim periods are unaudited and include the accounts of Company.  Intercompany transactions and accounts have been eliminated in consolidation.

Basis of Presentation of Interim Financial Statements

The interim condensed consolidated financial statements have been prepared in conformity with Rule 8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and therefore do not include information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the periods presented have been included. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021 (“Form 10-K”), as filed with the SEC. The June 30, 2021 balance sheet was derived from audited financial statements but does not include all disclosures required by GAAP. The preparation of the unaudited condensed financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the period. Ultimate results could differ from the estimates of management. The results of operations for the three and nine months ended March 31, 2022 are not necessarily indicative of the results for the full fiscal year ending June 30, 2022 or for any other period.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Accounting Policies

Accounting Pronouncements Recently Adopted

On August 28, 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-13, Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (Topic 820), which changes the fair value measurement disclosure requirements of ASC 820. This ASU removes certain disclosure requirements regarding the amounts and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy and the policy for timing of transfers between the levels. This ASU also adds disclosure requirements regarding unrealized gains and losses included in Other Comprehensive Income for recurring Level 3 fair value measurements and the range and weighted average of unobservable inputs used in Level 3 fair value measurements. ASU 2018-13 is effective for the fiscal year beginning July 1, 2021, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of ASU 2018-13. This new guidance did not have a material impact on the Company’s Condensed Consolidated Financial Statements.

Aside from the adoption of ASUs, as described above, there have been no material changes during fiscal year 2021 in the Company’s significant accounting policies to those previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

Significant Accounting Policies

Revenue Recognition. The Company recognizes product sales revenue, the prices of which are fixed and determinable, when title and risk of loss have transferred to the customer, when estimated provisions for product returns, rebates, charge-backs and other sales allowances are reasonably determinable, and when collectability is reasonably assured. Accruals for these items are presented in the consolidated financial statements as reductions to sales. The Company’s net sales represent gross sales invoiced to customers, less certain related charges for discounts, returns, rebates, charge-backs and other allowances. Cost of sales includes the cost of raw materials and all labor and overhead associated with the manufacturing and packaging of the products. Gross margins are affected by, among other things, changes in the relative sales mix among our products and valuation and/or charge off of slow moving, expired or obsolete inventories. To perform revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps:

Income Taxes. The Company accounts for income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rate is recognized in income or expense in the period that the change is effective. Tax benefits are recognized when it is probable that the deduction will be sustained. A valuation allowance is established when it is more likely than not that all or a portion of a deferred tax asset will not be realized. For the three months ended March 31, 2022 and 2021, the Company had a federal deferred income tax expense of $106 and $401, respectively and state income tax expense, net of approximately $57 and $64, respectively. For the nine months ended March 31, 2022 and 2021, the Company had a federal income tax benefit of $377 and a federal deferred tax expense of $422, respectively and state income tax expense, net of approximately $223 and $375, respectively.  The net federal income tax benefit of $377, in the nine months ended March 31, 2022, includes the release of $622 of the allowance on deferred tax assets.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Leases. We determine if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, current portion of long term debt, and long-term debt obligation on our consolidated statement of financial condition.  

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, we account for the lease and non-lease components as a single lease component.

Earnings Per Share. Basic earnings per common share amounts are based on weighted average number of common shares outstanding. Diluted earnings per share amounts are based on the weighted average number of common shares outstanding, plus the incremental shares that would have been outstanding upon the assumed exercise of all potentially dilutive stock options, subject to anti-dilution limitations using the treasury stock method.

The following options and potentially dilutive shares for stock options were 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, 2022 and 2021:

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Note 2. Inventories

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

Note 3. Property and Equipment, net

Property and equipment, net consists of the following:

Depreciation and amortization expense recorded on property and equipment was $83 in each of the three months ended March 31, 2022 and 2021 and $247 and $253 for nine months ended March 31, 2022 and 2021, respectively. Additionally, the Company disposed of depreciated property of $147 and $216 in the nine months ended March 31, 2022 and 2021, respectively and recognized net gain on disposals of $22 in the nine months ended March 31, 2022 and a loss on disposal of $13 on property disposed of in the nine months ended March 31, 2021.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Note 4. Senior Credit Facility

As of March 31, 2022 and June 30, 2021, the Company had the following debt outstanding:

SENIOR CREDIT FACILITY

On May 15, 2019, the Company, MDC, AgroLabs, IHT, IHT Properties Corp. (“IHT Properties”) and Vitamin Factory (collectively, the “Borrowers”) amended the Revolving Credit, Term Loan and Security Agreement (the “Amended Loan Agreement”) with PNC Bank, National Association as agent and lender (“PNC”) and the other lenders party thereto entered into on June 27, 2012, as amended on February 19, 2016, and May 15, 2019.

The Amended Loan Agreement provides for a total of $11,585 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 $3,585 (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, Inc. (“iBio Stock”) owned by the Company. Revolving Advances bear interest at PNC’s Base Rate (3.50% and 3.25% as of March 31, 2022 and June 30, 2021, respectively) or the Eurodollar Rate, at Borrowers’ option, plus 2.50%. The Term Loan bore interest at PNC’s Base Rate (3.50% as of June 30, 2021) or the Eurodollar Rate at Borrowers’ option, plus 3.00%.

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 May 15, 2024 (the “Senior Maturity Date”).

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 $43, commencing on the first business day of June, 2019, 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.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

The Revolving Advances are subject to the terms and conditions set forth in the Amended Loan Agreement and are made in aggregate amounts at any time equal to the lesser of (x) $8,000 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 (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), minus (iii) the aggregate Maximum Undrawn Amount 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 Term Note in an amount equal to twenty-five percent (25%) of Excess Cash Flow (as defined in the Amended Loan Agreement) 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, 2022, 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 and used the proceeds of $96 from the sale of iBio Stock in the nine months ended March 31, 2021 to repay the Term Loan. Additionally, with the required annual payment of 25% of Excess Cash Flow for the fiscal year ended June 30, 2021, together with the required monthly installments of $43, the Company satisfied all the remaining principal payments required under the Term Note on January 3, 2022.

In connection with the Senior Credit Facility, the following loan documents were executed: (i) a Stock Pledge Agreement with PNC, pursuant to which the Company pledged to PNC the iBio Stock; (ii) a Mortgage and Security Agreement with PNC with IHT Properties; and (iii) an Environmental Indemnity Agreement with PNC.

Note 5. Significant Risks and Uncertainties

(a) Major Customers. In each of the three months ended March 31, 2022 and 2021, approximately 92% of consolidated net sales were derived from two customers. These two customers are in the Company’s Contract Manufacturing Segment and represented approximately 70% and 24% in each of the three months ended March 31, 2022 and 2021, of the Contract Manufacturing Segment net sales. In the nine months ended March 31, 2022 and 2021, approximately 91% and 92% of consolidated net sales, respectively, were derived from the same two customers and net sales to these two customers represented approximately 69% and 24% in the nine months ended March 31, 2022 and 70% and 24% of net sales in the nine months ended March 31, 2021, respectively of the Contract Manufacturing Segment net sales. Accounts receivable from these two major customers represented approximately 89% and 93% of total net accounts receivable as of March 31 and June 30, 2021, respectively. The loss of any of these customers could have an adverse effect on the Company’s operations. Major customers are those customers who account for more than 10% of net sales.

(b) Other Business Risks. Approximately 72% 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, 2018 and will expire on August 31, 2022.

The continued supply chain issues resulting from the global outbreak of COVID-19, or coronavirus, has caused minor disruptions in the Company's supply chain.  Most of the materials required in the Company's manufacturing process could be obtained from more than one supplier, which assisted in mitigating major disruptions in the Company's business.  The Company continues to pursue qualification of new suppliers and new materials. These minor delays have and continue to delay the Company's standard lead times, in the production and shipment of the Company's customers' supplements, thereby shifting the timing of recognizing the resulting sale.  Transportation continues to be a factor in obtaining materials in a timely manner.  A shortage of containers is making it difficult for suppliers abroad to get materials to the United States. 

The Company also continues to experience supply chain disruptions relating to fuel refinery and transportation issues as it pertains to the production of plastics.  This continues to impact the supply and demand of bottles and caps, key components in the Company's Contract Manufacturing Segment.   Transportation, in general, continues to be an issue in the delay of receiving materials and the Company's ability to meet promised delivery dates to the Company's customers in the Contract Manufacturing Segment. 

Additionally, the significant outbreak of this contagious disease in the human population has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for the Company’s products and impact the Company’s operating results.

While the Company hasn’t, to date, seen a significant negative impact in its margins resulting from the coronavirus outbreak, it is experiencing a slight negative impact on its margins due to inflation and tightened labor markets.

During the first quarter of calendar 2022, the war in Ukraine affected our customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia by our customers is uncertain. Also, there may be a shortage of Sunflower Oil products in the near future and this may cause delays in production of certain raw materials and may require reformulation of products.

Additionally, unrelated to the war, a recent export ban of palm oil products from Indonesia may play a role in reformulation of many products.  This may cause delays in finished products as these items will need to be reformulated and labels updated and printed with the changes, which may cause further delays.

Note 6. Leases and other Commitments and Contingencies

(a) Leases. The Company has operating and finance leases for its corporate and sales offices, warehousing and packaging facilities and certain machinery and equipment, including office equipment. The Company’s leases have remaining terms of approximately 2 to 4 years.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

The components of lease expense for the three months ended March 31, 2022 and 2021, were as follows:

The components of lease expense for the nine months ended March 31, 2022 and 2021, were as follows:

Operating Lease Liabilities

Related Party Operating Lease Liabilities. Warehouse and office facilities are leased from Vitamin Realty Associates, LLC (“Vitamin Realty”), which is 100% owned by the Company’s executive chairman and major stockholder and certain of his family members, who are the Co-Chief 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 June 1, 2024. This additional lease provides for minimum annual lease payments of $27 with annual increases plus the proportionate share of operating expenses.

Rent expense and lease amortization costs for the three months ended March 31, 2022 and 2021 on these leases were $223 and $221, respectively and $667 and $664 for the nine-month periods ended March 31, 2022 and 2021, respectively and are included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of March 31, 2022 and June 30, 2021, the Company had outstanding current obligations to Vitamin Realty of $11 and $65, respectively, included in accounts payable in the accompanying Condensed Consolidated Balance Sheet. Additionally, the Company has operating lease obligations of $1,965 and $2,327 with Vitamin Realty as noted in the accompany Condensed Consolidated Balance Sheet as of March 31, 2022 and June 30, 2021, respectively.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Other Operating Lease Liabilities. The Company has entered into certain non-cancelable operating lease agreements expiring up through May, 2023, related to machinery and equipment and office equipment.

As of March 31, 2022, the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases were as follows:

As of June 30, 2021, the Company’s ROU assets, lease obligations and remaining cash commitment on these leases were as follows:

As of March 31, 2022 and June 30, 2021, the Company’s weighted average discount rate and remaining term on lease liabilities were approximately 3.86% and 3.75% and 3.7 years and 4.4 years, respectively.

Supplemental cash flows information related to leases for the nine months ended March 31, 2022, is as follows:

Supplemental cash flows information related to leases for the nine months ended March 31, 2021, is as follows:

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

In the nine months ended March 31, 2022, the Company renewed, for one year, an operating lease for office space with an annual commitment of $12.

Maturities of operating lease liabilities as of March 31, 2022 were as follows:

Total rent expense, lease amortization costs and interest expense, including real estate taxes and maintenance charges, was approximately $263 and $264 in the three months ended March 31, 2022 and 2021, respectively and $793 and $794 for the nine months ended March 31, 2022 and 2021, respectively. Rent and lease amortization is included in cost of sales, selling and administrative expenses in the accompanying Condensed Consolidated Statements of Income.

(b) Legal Proceedings.

The Company is subject, from time to time, to claims by third parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company’s liquidity, financial condition and cash flows.

Note 7. Related Party Transactions

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

Note 8. Equity Transactions and Stock-Based Compensation

In November, 2021, the Board of Directors authorized the issuance of 564,700 stock options to Company officers, employees and directors with an exercise price ranging from $0.95 to $1.045, vesting over one or three years, with terms of either five or ten years. For the three and nine months ended March 31, 2022 and 2021, the Company incurred stock-based compensation expense of $49 and $94, and $290 and $162, respectively. The Company expects to record additional stock-based compensation of $616 over the remaining vesting period of approximately three years. 

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

The Company used the following assumptions to calculate the fair value of the stock option grants using the Black-Scholes option pricing model on the measurement date during the nine months ended March 31, 2022:

The Company calculates expected volatility for a stock-based grant based on historic daily stock price observations of its common stock during the period immediately preceding the grant that is equal in length to the expected term of the grant. The expected term of the options is estimated based on the Company’s historical exercise rate and forfeiture rates are estimated based on employment termination experience. The risk free interest rate is based on U.S. Treasury yields for securities in effect at the time of grants with terms approximating the term of the grants. The assumptions used in the Black-Scholes option valuation model are highly subjective, and can materially affect the resulting valuations.

A summary of the Company’s stock option activity, and related information for the nine months ended March 31, 2022 follows:

On May 6, 2022, 100,000 vested stock options, with a strike price of $0.23, dated May 24, 2019 were exercised by E Gerald Kay, the Company's Executive Chairman and President.

Note 9. Segment Information and Disaggregated Revenue

The basis for presenting segment results generally is consistent with overall Company reporting. The Company reports information about its operating segments in accordance with GAAP which establishes standards for reporting information about a company’s operating segments.

The Company has divided its operations into two reportable segments as follows: Contract Manufacturing, and Other Nutraceutical Businesses. International sales, concentrated primarily in Europe, for the three months ended March 31, 2022 and 2021 were $2,562 and $2,333, respectively and for the nine months ended March 31, 2022 and 2021 were $7,139 and $5,550, respectively.

INTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share amounts)

(Unaudited)

Financial information relating to the three months ended March 31, 2022 and 2021 operations by business segment and disaggregated revenues was as follows:

Financial information relating to the nine months ended March 31, 2022 and 2021 operations by business segment and disaggregated revenues was as follows:

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANICAL CONDITION AND RESULTS OF OPERATION (dollars in thousands)

Certain statements set forth under this caption constitute “forward-looking statements.” See “Disclosure Regarding Forward-Looking Statements” on page 1 of this Quarterly Report on Form 10-Q for additional factors relating to such statements. The following discussion should also be read in conjunction with the condensed consolidated financial statements of the Company and Notes thereto included herein and the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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

Business Outlook

Our future results of operations and the other forward-looking statements contained in this Quarterly Report on Form 10-Q, including this “Management’s Discussion and Analysis of Financial Condition and Results of Operation”, involve a number of risks and uncertainties—in particular, the statements regarding our goals and strategies, new product introductions, plans to cultivate new businesses, future economic conditions, revenue, pricing, gross margin and costs, competition, the tax rate, and potential legal proceedings. We are focusing our efforts to improve operational efficiency and reduce spending that may have an impact on expense levels and gross margin. In addition to the various important factors discussed above, a number of other important factors could cause actual results to differ significantly from our expectations. See the risks described in “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

For the nine months ended March 31, 2022, our net sales from operations decreased by $3,522 to approximately $42,979 from approximately $46,501 in the nine months ended March 31, 2021. Our net sales in the Contract Manufacturing Segment decreased by $3,641, offset by an increase in our Other Nutraceuticals Segment of $119. Net sales decreased in our Contract Manufacturing Segment primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of $2,959 and $755, respectively. For the nine months ended March 31, 2022, we had operating income of approximately $2,307, a decrease of approximately $2,165 from operating income of approximately $4,472 for the nine months ended March 31, 2021. Our profit margins decreased from approximately 15.5% of net sales in the nine months ended March 31, 2021 to approximately 12.0% of net sales in the nine months ended March 31, 2022, primarily as a result of the decreased sales in our Contract Manufacturing Segment of approximately $3,641 and increased direct manufacturing costs of $841. Our consolidated selling and administrative expenses increased by approximately $113 or approximately 4.1% in the nine months ended March 31, 2022 compared to the nine months ended March 31, 2021. Our employee stock compensation expense increased by $128 which was offset, in part, by a decrease in expected losses on customer receivables of $18.

Our revenue from our two significant customers in our Contract Manufacturing Segment is dependent on their demand within their respective distribution channels for the products we manufacture for them. As in any competitive market, our ability to match or beat other contract manufacturers pricing for the same items may also alter our outlook and the ability to maintain or increase revenues. We will continue to focus on our core businesses and push forward in maintaining our cost structure in line with our sales and expanding our customer base.

The continued supply chain issues resulting from the global outbreak of COVID-19, or coronavirus, has caused minor disruptions in our supply chain.  Most of the materials required in our manufacturing process could be obtained from more than one supplier, which assisted in mitigating major disruptions in our business. We continue to pursue qualification of new suppliers and new materials.  These minor delays have and continue to delay our standard lead times, in the production and shipment of our customers supplements, thereby shifting the timing of recognizing the resulting sale.  Transportation continues to be a factor in obtaining materials in a timely manner.  A shortage of containers is making it difficult for suppliers abroad to get materials to the United States. 

During the first quarter of calendar 2022, the war in Ukraine affected our customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia by our customers is uncertain. Also, there may be a shortage of Sunflower Oil products in the near future and this may cause delays in production of certain raw materials and may require reformulation of products.

Additionally, unrelated to the war, a recent export ban of palm oil products from Indonesia may play a role in reformulation of many products.  This may cause delays in finished products as these items will need to be reformulated and labels updated and printed with the changes, which may cause further delays.

We also continue to experience supply chain disruptions relating to fuel refinery and transportation issues as it pertains to the production of plastics.  This continues to impact the supply and demand of bottles and caps, key components in our Contract Manufacturing Segment.   Transportation, in general, continues to be an issue in the delay of receiving materials and our ability to meet promised delivery dates to our customers in the Contract Manufacturing Segment. 

Additionally, the significant outbreak of this contagious disease in the human population has resulted in a widespread health crisis that could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect demand for our products and impact our operating results.

While we haven’t, to date, seen a significant negative impact to our margins resulting from the coronavirus outbreak, we are experiencing a slight negative impact on our margins due to inflation and tightened labor markets.

Critical Accounting Policies and Estimates

There have been no changes to our critical accounting policies in the three months ended March 31, 2022, except as disclosed in Note 1. Principles of Consolidation and Basis of Presentation of the Condensed Financial Statements of the Company contained in this Quarterly Report on Form 10-Q. Critical accounting policies and the significant estimates made in accordance with them are regularly discussed by management with our Audit Committee. Those policies are discussed under “Critical Accounting Policies” in our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2021 and in Note 1. Principles of Consolidation and Basis of Presentation of the Condensed Financial Statements of the Company contained in this Quarterly Report on Form 10-Q.

Results of Operations (in thousands, except share and per share amounts)

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

For the Nine months Ended March 31, 2022 compared to the Nine months ended March 31, 2021

Sales, net. Sales, net, for the nine months ended March 31, 2022 and 2021 were $42,979 and $46,501, respectively, a decrease of 7.6%, and were comprised of the following:

In the nine months ended March 31, 2022 and 2021, a significant portion of our consolidated net sales, approximately 91% and 92%, were concentrated among two customers in our Contract Manufacturing Segment, Life Extension and Herbalife. Life Extension and Herbalife represented approximately 69% and 24% and 70% and 24%, respectively, of our Contract Manufacturing Segment’s net sales in the nine months ended March 31, 2022 and 2021, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations.

The decrease in net sales of approximately $3,522 was primarily the result of decreased net sales in our Contract Manufacturing Segment by $3,641 primarily due to decreased sales volumes to Life Extension and Herbalife in the amounts of $2,959 and $755, respectively.

Cost of sales. Cost of sales decreased by approximately $1,470 to $37,823 for the nine months ended March 31, 2022, as compared to $39,293 for the nine months ended March 31, 2021 or approximately 4%. Cost of sales increased as a percentage of sales to 88.0% for the nine months ended March 31, 2022 as compared to 84.5% for the nine months ended March 31, 2021. The decrease of 4% in the cost of goods sold amount is the result in the change of the product mix sold in the Contract Manufacturing Segment and the decrease in net sales, offset by an increase in manufacturing expenses of 10%. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of increased manufacturing costs of 10%, largely from increased labor costs of approximately 14% and secondarily the result of the decreased net sales used to offset the fixed manufacturing overhead. There were no significant changes in the cost of goods sold in our other segment other than the variances in sales.

Selling and Administrative Expenses. There was an increase in selling and administrative expenses of $113, approximately 4% in the nine months ended March 31, 2022 as compared to the nine months ended March 31, 2021. As a percentage of sales, net, selling and administrative expenses were approximately 6.6% and 5.9% in the nine months ended March 31, 2022 and 2021, respectively. The increase of $113 was primarily from increase in employee stock compensation expense of $128 as a result of issuing stock options in November 2021 and 2020 offset, in part, by a decrease in expected losses on customer receivables of $18.

Other income (expense), net. Other income (expense), net was approximately $117 for the nine months ended March 31, 2022 compared to $169 for the nine months ended March 31, 2021, and was composed of:

Our interest expense for the nine months ended March 31, 2022 decreased by $109 from the nine-month period ended March 31, 2021, primarily resulting from of lower average daily balances outstanding under the Senior Credit Facility with PNC.

In the nine months ended March 31, 2021, we sold 16,000 shares of iBio Stock for a gain of $56 with no such sales in the nine months ended March 31, 2022. Also, in the nine months ended March 31, 2022, and 2021, we had an unrealized loss on the remaining iBio Stock of approximately $48 and $51, respectively.

Income tax benefit (expense), net. For the nine months ended March 31, 2022 and 2021, we had a state income tax provision of approximately $223 and $375, respectively and a federal deferred income tax benefit of $377 in the nine months ended March 31, 2022 and federal deferred income tax expense of $422 in the nine months ended March 31, 2021. We continue to maintain a reserve on a portion of our deferred tax assets as it has been determined that based upon past losses, the Company’s past liquidity concerns and the current economic environment, it is “more likely than not” that the Company’s deferred tax assets may not be fully realized.

Net income. Our net income for the nine months ended March 31, 2022 and 2021 was approximately $2,344 and $3,506, respectively. The decrease of approximately $1,162 was primarily the result of decreased operating income of $2,165 and offset by the decrease in other expense, net of $52, and the positive change in the provision for income taxes of $951.

For the Three Months Ended March 31, 2022 compared to the Three Months Ended March 31, 2021

Sales, net. Sales, net, for the three months ended March 31, 2022 and 2021 were $15,634 and $17,072, respectively, a decrease of 8.4%, and are comprised of the following:

In each of the three months ended March 31, 2022 and 2021, a significant portion of our consolidated net sales, approximately 92%, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 70% and 24%, of our Contract Manufacturing Segment’s net sales in each of the three months ended March 31, 2022 and 2021. The loss of either of these customers could have a significant adverse impact on our financial condition and results of operations.

The decrease in net sales of approximately $1,438 in the three-month ended March 31, 2022 compared to the three-month ended March 31, 2021 was primarily the result of decreased net sales in our Contract Manufacturing Segment of $1,379. Net sales volumes to Life Extension and Herbalife decreased by approximately $989 and $365, respectively in the three-month period ended March 31, 2022 compared to the three-month period ended March 31, 2021.

Cost of sales. Cost of sales were substantially the same in the each of three months ended March 31, 2022 and 2021, $13,652 as compared to $14,411, respectively. Cost of sales increased as a percentage of sales to 87.4% for the three months ended March 31, 2022 as compared to 84.4% for the three months ended March 31, 2021. The decrease of 5% in the cost of goods sold amount is the result in the change of the product mix sold in the Contract Manufacturing Segment and the decrease in net sales, offset with an increase in manufacturing expenses of 10%. The increase in the cost of goods sold as a percentage of net sales, was primarily the result of the increased manufacturing costs of 10%, largely from increased labor costs of 13% and secondarily the result of the decreased net sales used to offset the fixed manufacturing overhead. There were no significant changes in the cost of goods sold in our other segment other than the variances in sales.

Selling and Administrative Expenses. There was an increase in selling and administrative expenses of $48, approximately 5.1% in the three months ended March 31, 2022 as compared to the three months ended March 31, 2021. As a percentage of sales, net, selling and administrative expenses were approximately 6.3% and 5.5% in the three months ended March 31, 2022 and 2021, respectively. The increase of $48 was primarily from increases in (i) employee stock compensation expense of $40 and (ii) salaries and employee benefit costs of $59. These increases were offset, in part by a decrease in professional fees of $44. No other component of selling and administrative expenses increased by more than $11 in the three-month period ended March 31, 2022 compared to the same period ended March 31, 2021.

Other income (expense), net. Other income (expense), net was approximately $32 for the three months ended March 31, 2022 compared to $13 for the three months ended December 31, 2021, and is composed of:

Our interest expense for the three months ended March 31, 2022 decreased by $28 from the three-month period ended March 31, 2021, primarily as the result of lower average daily balances outstanding under the Senior Credit Facility with PNC.

Income tax benefit (expense), net. For the three months ended March 31, 2022 and 2021, we had federal deferred income tax expense of $106 and $401, respectively, and state income tax expense, net of approximately $57 and $64, in the three months ended March 31, 2022 and 2021, respectively. We continue to maintain a reserve on a portion of our deferred tax assets as it has been determined that based upon past losses, the Company’s past liquidity concerns and the current economic environment, it is “more likely than not” that the Company’s deferred tax assets may not be fully realized.

Net income. Our net income for the three months ended March 31, 2022 and 2021 was approximately $797 and $1,241, respectively. The decrease of approximately $444 was primarily the result of the decrease in operating income of $727 offset, primarily by a decrease in the provision for income taxes of $302.

Seasonality

The nutraceutical business can be seasonal. Due to our current customer base in our contract manufacturing segment, our fiscal quarter ending December 31st each year tends to be more than our average quarterly volume for the other three fiscal quarters in the fiscal year. This increase is based on their forecast of their customer base.

The Company believes that there are non-seasonal factors that may influence the variability of quarterly results including, but not limited to, general economic and industry conditions that affect consumer spending, changing consumer demands and current news on nutritional supplements. Accordingly, a comparison of the Company’s results of operations from consecutive periods is not necessarily meaningful, and the Company’s results of operations for any period are not necessarily indicative of future periods.

Liquidity and Capital Resources

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

At March 31, 2022, our working capital was approximately $10,810, an increase of $2,048 from our working capital of $8,762 at June 30, 2021. Our current assets in the nine months ended March 31, 2022, increased by $2,045 and our current liabilities decreased by $3. The increase in the current assets is primarily from increases in inventories and accounts receivable, net in the amounts of $1,401, and $394, respectively.

Operating Activities

Net cash provided by operating activities of $1,388 in the nine months ended March 31, 2022 includes net income of approximately $2,344. After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in deferred tax assets, the adjusted cash provided from operations before the effect of the changes in working capital components was $2,897. Net cash provided by our operations in the nine months ended March 31, 2022 was offset by uses in our working capital assets and liabilities in the amount of approximately $1,509 and was primarily the result of an increase in our inventory of $1,401 and accounts receivable of $394, offset by an aggregate increase in accounts payable, accrued expenses and other liabilities and operating lease obligations of $525.

Net cash provided by operating activities of $2,338 in the nine months ended March 31, 2021 includes net income of approximately $3,506. After excluding the effects of non-cash expenses, including depreciation and amortization, and changes in deferred tax assets, the adjusted cash provided from operations before the effect of the changes in working capital components was $4,717. Net cash provided by our operations in the nine months ended March 31, 2021 was offset by uses in our working capital assets and liabilities in the amount of approximately $2,379 and was primarily the result of an increases in our inventory of $3,321 and accounts receivable of $948, offset by an aggregate increase in accounts payable, accrued expenses and other liabilities of $2,413.

Investing Activities

Cash used in investing activities in the nine months ended March 31, 2022 and 2021, of approximately $430 and $54, respectively, was used primarily for the purchase of machinery and equipment of $451 and $150, respectively. Additionally, in the nine months ended March 31, 2020, cash used in investing activities was offset, in part, with proceeds in the amount of $85 from the sale of 16,000 shares of iBio Stock.

Financing Activities

Cash used in financing activities was approximately $904 for the nine months ended March 31, 2022, and was primarily from repayments of advances under our revolving credit facility of $42,109 and principal payments under our term notes in the amount of $1,466, offset by advances under our revolving credit facility of approximately $42,664.

Cash used in financing activities was approximately $2,581 for the nine months ended March 31, 2021, and was primarily from repayments of advances under our revolving credit facility of $43,288 and principal payments under our term notes in the amount of $990, offset by advances under our revolving credit facility of approximately $41,758.

As of March 31, 2022, we had cash of $264, funds available under our revolving credit facility of approximately $5,134 and working capital of approximately $10,810. Our working capital includes $2,728 outstanding under our revolving line of credit which is not due until May 2024 but classified as current due to a subjective acceleration clause that could cause the advances to become currently due. (See Note 4 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q). Additionally, we had income from operations of approximately $2,307 in the nine months ended March 31, 2022. After taking into consideration our interim results and current projections, management believes that operations, together with the revolving credit facility will support our working capital requirements at least through the period ending May 12, 2023.

Our total annual commitments at March 31, 2022 for long term non-cancelable leases of approximately $574 consists of obligations under operating leases for facilities and operating lease agreements for the rental of warehouse equipment and office equipment.

Capital Expenditures

The Company's capital expenditures for the nine months ended March 31, 2022 and 2021 were approximately $451 and $150, respectively. The Company has budgeted approximately $500 for capital expenditures for fiscal year 2022. The total amount is expected to be funded from lease financing and cash provided from the Company’s operations.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

Recent Accounting Pronouncements

None.

Impact of Inflation

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

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

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

Under the supervision and with the participation of management, including the Co-Chief Executive Officers and Chief Financial Officer, the Company has evaluated the effectiveness of its disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2022, and, based upon this evaluation, the Co-Chief Executive Officers and Chief Financial Officer have concluded that these controls and procedures are effective in providing reasonable assurance of compliance.

Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during the three months ended March 31, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.

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

Recent Sales of Unregistered Securities

None

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

None

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURE         

Not Applicable.

Item 5. OTHER INFORMATION         

None.

Item 6. EXHIBITS

(a)         Exhibits

Exhibit

Number