INTEGRATED BIOPHARMA INC

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share amounts)

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CONDENSED CONSOLIDATED STATEMENTS OF****FINANCIAL CONDITION

(in thousands, except share and per share amounts)

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CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF STOCKHOLDERS’** EQUITY**

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2024 and 2023

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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Note1. 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 the business of manufacturing, distributing, marketing and sales of vitamins, nutritional supplements and herbal products. The Company’s customers are located primarily in the United States and Luxembourg. The Company was originally incorporated in the state of Delaware on* August 31, 1995under the name Chem International, Inc. On December 5, 2000,the Company changed its name to Integrated Health Technologies, Inc. and on January 29, 2003changed its name to Integrated BioPharma, Inc. The Company restated its certificate of incorporation in Delaware in June 2006.*The Company continues to do business as Chem International, Inc. with certain of its customers and certain vendors.

The Company’s business segments include: (a) Contract Manufacturing operated by Manhattan Drug Company, Inc. (“MDC”), which manufactures vitamins and nutritional supplements for sale to distributors, multilevel marketers and specialized health-care providers and (b) Other Nutraceutical Businesses which includes the operations of (i) AgroLabs, Inc. (“AgroLabs”), which distributed healthful nutritional products for sale through major mass market, grocery and drug and vitamin retailers under the following brands: Peaceful Sleep, and Wheatgrass and other products introduced into the market using the AgroLabs name (these are referred to as our branded products); (ii) The Vitamin Factory (the “Vitamin Factory”), which sells private label MDC products, as well as our AgroLabs products, through the Internet, (iii) IHT Health Products, Inc. (“IHT”) a distributor of fine natural botanicals, including multi minerals produced under a license agreement, (iv) MDC Warehousing and Distribution, Inc. (“MDC WHD“), a service provider for warehousing and fulfilment services and (v) Chem International, Inc., ("Chem") a distributor of certain raw materials for DSM Nutritional Products LLC. The Vitamin Factory hadno products available for sale and AgroLabs hadno sales of its branded products in thethree months ended* September 30, 2024and2023.*

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 accompanying condensed consolidated financial statements for the interim periods are unaudited and include the accounts of Integrated BioPharma, Inc., a Delaware corporation (together with its subsidiaries, the “Company”). The interim condensed consolidated financial statements have been prepared in conformity with Rule8-03 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and therefore donot 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 Form10-K for the fiscal year ended* June 30, 2024 (“Form10*-K”), as filed with the SEC. The* June 30, 2024balance sheet was derived from audited financial statements, but doesnot* include all disclosures required by GAAP.

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I

NTEGRATED BIOPHARMA, INC. AND ITS SUBSIDIARIES

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 thethree months ended* September 30, 2024arenot* necessarily indicative of the results for the full fiscal year ending* June 30, 2025*or for any other period.

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 ASC606, the Company performs the followingfive 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 thannot that all or a portion of a deferred tax asset willnot be realized.

For thethree months ended* September 30, 2024and2023,* the Company had federal income tax expense of $190 and $6, respectively and state income tax expense, net of approximately $54 and $7, in thethree months ended* September 30, 2024and2023,* respectively.

Leases. The Company determines 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 its consolidated balance sheets. Finance leases are included in property and equipment, current portion of long term debt, and long-term debt obligation on our condensed 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 donot 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.

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The Company has lease agreements with lease and non-lease components, which are generally accounted for separately. For certain equipment leases, such as vehicles, the Company accounts 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 werenot included in the computation of weighted average diluted common shares outstanding as the effect of doing so would be anti-dilutive for thethree months ended* September 30, 2024and2023:*

Accounting PronouncementsNot Yet Adopted**

In* November 2023,FASB issued ASU2023*-07 - Segment Reporting (Topic280): Improvements to Reportable Segment Disclosures, which requires public entities with a single reportable segment to provide all the disclosures required by this standard and all existing segment disclosures in Topic280 on an interim and annual basis, including new requirements to disclose significant segment expenses that are regularly provided to the CODM and included within the reported measure(s) of a segment's profit or loss, the amount and composition of any other segment items, the title and position of the CODM, and how the CODM uses the reported measure(s) of a segment's profit or loss to assess performance and decide how to allocate resources. The guidance is effective for our annual period beginning* July 1, 2024,*and interim periods thereafter, applied retrospectively with early adoption permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

In* December 2023,the FASB issued ASU2023*-09 - Income Taxes (Topic740): Improvements to Income Tax Disclosures, which requires public entities to provide greater disaggregation within their annual rate reconciliation, including new requirements to present reconciling items on a gross basis in specified categories, disclose both percentages and dollar amounts, and disaggregate individual reconciling items by jurisdiction and nature when the effect of the items meet a quantitative threshold. The guidance also requires disaggregating the annual disclosure of income taxes paid, net of refunds received, by federal (national), state, and foreign taxes, with separate presentation of individual jurisdictions that meet a quantitative threshold. The guidance is effective for the Company's annual periods beginning* July 1, 2025*on a prospective basis, with a retrospective option, and early adoption is permitted. The Company is currently evaluating the impact of adoption of this standard on its consolidated financial statements and disclosures.

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Note2. Inventories**

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

Note3. Property and Equipment, net**

Property and equipment, net consists of the following:

Depreciation and amortization expense recorded on property and equipment was $88 and $77 for thethree months ended* September 30, 2024and2023,* respectively. Additionally, the Company disposed of property of $0 and $8 in thethree months ended* September 30, 2024and2023,* respectively.

Note4. Senior Credit Facility**

As of* September 30, 2024and June 30, 2024,*the Company hadno debt outstanding under its Senior Credit Facility.

On* May 9, 2024,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,** May 15, 2019,** June 28, 2019and March 16, 2023.*

The Amended Loan Agreement provides for a total of $5,000 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 $5,000 (the “Revolving Credit Facility”). The Senior Credit Facility is secured by all assets of the Borrowers, including, without limitation, machinery and equipment, and real estate owned by IHT Properties. Revolving Advances bear interest at PNC’s Base Rate (8.25% and 8.50% as of* September 30, 2024and June 30, 2024)or the Term SOFR Rate plus the SOFR Adjustment. The Term SOFR Rate, for any day, shall be equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate). The SOFR Adjustment is defined as 10 basis points (0.10%). As of November 7, 2024,*the PNC Base Rate was 8.00%.

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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 9, 2026 (*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 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) $5,000 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 anyone time (“Inventory Advance Rate” and together with the Receivables Advance Rate, collectively, the “Advance Rates”), minus (iii) the aggregate Maximum Undrawn Amount, as defined in the Amended Loan Agreement, of all outstanding letters of credit, minus (iv) such reserves as PNC* may*reasonably deem proper and necessary from time to time.

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 shares of common stock that it owned of iBio, Inc. Stock; (ii) a Mortgage and Security Agreement with PNC with IHT Properties; and (iii) an Environmental Indemnity Agreement with PNC.

Note5. Significant Risks and Uncertainties**

(a) Major Customers. For thethree months ended* September 30, 2024and2023,* approximately 85% and 91% of consolidated net sales, respectively, were derived fromtwo customers. Thesetwo customers are in the Company’s Contract Manufacturing Segment and represented approximately 68% and 21% and 76% and 19% in thethree months ended* September 30, 2024and2023,* respectively. Accounts receivable from thesetwo major customers represented approximately 76% and 84% of total net accounts receivable as of* September 30and June 30, 2024,respectively. Three other customers in the other Nutraceutical Segment, whilenot* significant customers of the Company’s consolidated net sales, represented approximately39%, 28% and 10% and 0% and 43% and 10%, respectively, of net sales of the Other Nutraceutical Segment in thethree months ended* September 30, 2024and2023,* 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 than10% of net sales.

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 than10% of net sales.

**(b) Other Business Risks.Approximately 76% of the Company’s full time employees are covered by a union contract and are employed in its New Jersey facilities. The contract was renewed effective September 1, 2022and will expire on August 31, 2026.

The Company has seen a negative impact in its margins due to inflation and tightened labor markets. The Company* may**not* be able to timely increase its selling prices to its customer resulting from price increases from its suppliers due to various economic factors, including inflation, labor and shipping costs and its own increases in shipping, labor and other operating costs. The Company’s results of operations* mayalso be affected by economic conditions, including inflationary pressures, that can impact consumer disposable income levels and spending habits, thereby reducing the orders it may*receive from the Company’s significant customers.

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The Company continues to experience minimal supply chain disruptions relating to fuel refinery and transportation issues as it pertains to shipping. These issuesfirst arose as result of the COVID-19 pandemic and other geo-political events. Additionally, the East Coast port strike threatened the supply of goods and continues to threaten as the contract was extended through* January 15, 2025*and U.S. shippers are steering clear of the East and Gulf Coast ports amid worries that the dockworkers at these ports will go on strike again.

During thefirst calendar quarter2022, the war in Ukraine affected the Company’s customer’s business operations in Ukraine and Russia, resulting in the cancelation of some future orders. The war resulted in the imposition of sanctions by the United States, the United Kingdom, and the European Union, that affect the cross-border operations of businesses operating in Russia. In addition, many multinational companies ceased or suspended their operations in Russia. Therefore, the ability to continue operations in Russia by the Company’s customers is uncertain.

Additionally, the current Israel-Hamas war in the Middle East could negatively impact the sales and margins of the Company. Certain customers sell into Israel and the Company sources certain raw materials from Israel. If the Israel-Hamas war carries on for a significant time frame, it could have a negative impact on the sales and margins of the Company if the Company is unable to replace these sales with other sales and/or obtain the same raw materials at substantially the same price as currently paid.

Note6. 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 less than 1 year to less than 5 years.

The components of lease expense for thethree months ended* September 30, 2024and2023,* were as follows:

Rent and lease amortization costs are included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

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 estate of the Company’s former chairman, and a 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 asecond* amendment to the 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 provided for minimum annual rental payments of $533, plus increases in real estate taxes and building operating expenses. On July 15, 2022,MDC entered into athird* amendment to the lease (the “Third Lease Amendment”) with Vitamin Realty, increasing its rentable square footage to 116,175. The Third Lease Amendment provides for minimum annual rental payments of $842, plus increases in real estate taxes and the building operating expenses allocation percentage and is effective as of* July 1, 2022.*

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Rent expense and lease amortization costs for thethree months ended* September 30, 2024and2023* on these leases were $328 and $304 respectively, and are included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of* September 30, 2024and June 30, 2024,the Company hadno outstanding current obligations to Vitamin Realty. The Company has operating lease obligations of $1,091 and $1,289 with Vitamin Realty as noted in the accompanying Condensed Consolidated Balance Sheet as of September 30, 2024and June 30, 2024,*respectively.

Other Operating Lease Liabilities. The Company has entered into certain non-cancelable operating lease agreements expiring up through* May 9, 2027,*related to machinery and equipment and office equipment.

As of* September 30, 2024,*the Company’s right-of-use assets, lease obligations and remaining cash commitment on these leases were as follows:

As of* June 30, 2024,*the Company’s ROU assets, lease obligations and remaining cash commitment on these leases were as follows:

As of* September 30, 2024and June 30, 2024,*the Company’s weighted average discount rate for operating leases is approximately 5.21% and 5.00%, respectively, and the remaining term on lease liabilities is approximately 1.8 years and 2.0 years, respectively.

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Financed Lease Obligation.

On* June 15, 2022,the Company entered into a financed lease obligation with LEAF Capital Funding, LLC in the amount of $85, which lease is secured by certain machinery and equipment and matured on August 15, 2024.The lease payment in the amount of approximately $4 was payable monthly, beginning September 15, 2022*and had a stated interest rate of 0.0%.

As of* June 30, 2024,*the Company’s weighted average discount rate for the outstanding finance lease obligation is 0% and the remaining term on the finance lease obligation was approximately 0.2 years. The ROU asset related to the finance lease obligation is included in Property and equipment, net in the accompanying Consolidated Balance Sheet.

Supplemental cash flows information related to leases for thethree months ended* September 30, 2024,*is as follows:

Supplemental cash flows information related to leases for thethree months ended* September 30, 2023,*is as follows:

Maturities of operating lease liabilities as of* September 30, 2024*were as follows:

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(b) Legal Proceedings.

The Company is subject, from time to time, to claims bythird 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.

Note7. Related Party Transactions**

Information related to related party transactions are disclosed in Note6(a). Leases for related party lease transactions.

Note8. Equity Transactions and Stock-Based Compensation**

In* August 2024,the Board of Directors authorized the issuance of 200,000 stock options (50,000 each) to the non-executive directors of with an exercise price of $0.18 and $0.20, vesting overone year,25% at the end of each quarter ending September 30, 2024,** December 31, 2024,** March 31, 2025and June 30, 2025.For thethree* months ended* September 30, 2024and2023,* the Company incurred stock-based compensation expense of $53 and $71, respectively. The Company expects to record additional stock-based compensation of $187 over the remaining vesting periods of approximatelyone tothree years for all non-vested stock options.

For thethree months ended* September 30, 2024and2023,* the Company incurred stock-based compensation expense of $53 and $71, respectively. The Company expects to record additional stock-based compensation of $187 over the remaining vesting periods of approximatelyone tothree years for all non-vested stock options.

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 thethree months ended* September 30, 2024:*

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.

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A summary of the Company’s stock option activity, and related information for thethree months ended* September 30, 2024*follows:

Note9. 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 intotwo reportable segments as follows: Contract Manufacturing, and Other Nutraceutical Businesses. The international sales, concentrated primarily in Europe, for thethree months ended* September 30, 2024and2023* were $2,185 and $1,609, respectively.

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Financial information relating to thethree months ended* September 30, 2024and2023* operations by business segment and disaggregated revenues was as follows:

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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, 2024.

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

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, 2024.

For the three months ended September 30, 2024, our net sales from operations increased by $702 to approximately $13,617 from approximately $12,915 in the three months ended September 30, 2023. Our net sales in the Contract Manufacturing Segment increased by $536, and in Other Nutraceuticals, increased by $166. The increase in net sales in our Contract Manufacturing Segment of $536 was primarily due to increased sales volumes to Herbalife in the amount of $393 and other customers of $776, offset by decreased sales volumes to Life Extension of $632 and an increase of sales in the other Nutraceuticals Segment of $166 compared to the year ago comparable period. For the three months ended September 30, 2024 and 2023, a significant portion of our consolidated net sales, approximately 85% and 91%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 68% and 21% and 76% and 19%, respectively, of our Contract Manufacturing Segment’s net sales in the three months ended September 30, 2024 and 2023, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations. Revenues in the three months ended September 30, 2024 were higher than the three months ended September 30, 2023 in our Other Nutraceuticals Segment by $166, due to increased sales in MDC WHD and Chem’s distributor business in the amount of $104 and $62, respectively.

Our net income for the three months ended September 30, 2024 was approximately $259 compared to a net loss of approximately $59 in the three months ended September 30, 2023. The change of approximately $318 was primarily the result of increased operating income of $544, offset by the increase income tax expense of $232. Our profit margins increased from approximately 6.4% of net sales in the three months ended September 30, 2023 to approximately 10.1% of net sales in the three months ended September 30, 2024, primarily as a result of the increased cost of sales of approximately 5.4% while our cost of goods sold increased by approximately 1%. were substantially the same for the three months ended September 30 2024 and 2023, approximately $881 to $886, respectively.

Our revenue from our two significant customers in our Contract Manufacturing Segment is dependent on their demand within their respective distribution channels for the products we manufacture for them. As in any competitive market, our ability to match or beat other contract manufacturers pricing for the same items may also alter our outlook and the ability to maintain or increase revenues. We will continue to focus on our core businesses and push forward in maintaining our cost structure in line with our sales and expanding our customer base. We believe that this focus will produce a reduction of the reliance on our two significant customers in our fiscal year ending June 30, 2025.

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We have seen a negative impact in our margins due to inflation and tightened labor markets. We may not be able to timely increase our selling prices to our customers resulting from price increases from our suppliers due to various economic factors, including inflation, labor and shipping costs and our own increases in shipping, labor and other operating costs. Our results of operations may also be affected by economic conditions, including inflationary pressures, that can impact consumer disposable income levels and spending habits, thereby reducing the orders we may receive from our significant customers.

We continue to experience minimal supply chain disruptions relating to fuel refinery and transportation issues as it pertains to shipping. These issues first arose as result of the COVID-19 pandemic and other geo-political events. Additionally, the East Coast port strike threatened the supply of goods and continues to threaten as the contract was extended through January 15, 2025 and U.S. shippers are steering clear of the East and Gulf Coast ports amid worries that the dockworkers at these ports will go on strike again.

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.

Additionally, the current Israel-Hamas war in the Middle East could negatively impact our sales and margins. Certain of our customers sell into Israel and we source certain raw materials from Israel. If the Israel-Hamas war carries on for a significant time frame, it could have a negative impact on our sales and margins if we are unable to replace these sales with other sales and/or obtain the same raw materials at substantially the same price as currently paid.

Critical Accounting Estimates

There have been no changes to our critical accounting estimates in the three months ended September 30, 2024. Critical accounting estimates made in accordance with our accounting policies are regularly discussed by management with our Audit Committee. Those estimates are discussed under “Critical Accounting Estimates” 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, 2024.

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

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

For the Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023

Sales, net. Sales, net, for the three months ended September 30, 2024 and 2023 were $13,617 and $12,915, respectively, an increase of 5.4%, and are comprised of the following:

For the three months ended September 30, 2024 and 2023, a significant portion of our consolidated net sales, approximately 85% and 91%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 68% and 21% and 76% and 19%, respectively, of our Contract Manufacturing Segment’s net sales in the three months ended September 30, 2024 and 2023, respectively.

The increase in net sales of approximately $702 in the three months ended September 30, 2024, was primarily the result of increased net sales in our Contract Manufacturing Segment of $536 primarily due to increased sales volumes to Herbalife in the amount of $393 and other customers of $776, respectively, offset by decreased sales volumes to Life Extension of $632 and an increase of sales in the other Nutraceuticals Segment of $166 compared to the year ago comparable period.

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Revenues in the three months ended September 30, 2024 were higher than the three months ended September 30, 2023 in our Other Nutraceuticals Segment by $166, primarily due to increased sales in MDC WHD and Chem’s distributor business in the amount of $104 and $62, respectively. Three other customers in the other Nutraceutical Segment, while not significant customers of the Company’s consolidated net sales, represented approximately 39%, 28% and 10% and 0%, 41% and 2%, respectively, of net sales of the Other Nutraceutical Segment in the three months ended September 30, 2024 and 2023, respectively.

Cost of sales. Cost of sales increased by approximately $163 to $12,246 for the three months ended September 30, 2024, as compared to $12,083 for the three months ended September 30, 2023, or approximately 1.3%. Cost of sales decreased as a percentage of sales to 89.9% for the three months ended September 30, 2024 as compared to 93.6% for the three months ended September 30, 2023. The decrease of 1.3% in the dollar amount of cost of goods sold is lower than the increase in sales due to the prior year issue of not being able to bill all the freight costs in the Other Nutraceutical Segment to our customers. This benefit was offset by an increase in our Contract Manufacturing costs of 15%, including; labor costs, increased costs to run our laboratory, including increased pricing from our outside testing facilities and other factory expenses.

Selling and Administrative Expenses. Selling and administrative expenses were substantially the same for the three months ended September 30 2024 and 2023, approximately $881 to $886, respectively. As a percentage of sales, net, selling and administrative expenses were approximately 6.5% and 6.8% in the three months ended September 30, 2024 and 2023, respectively. Our non-cash stock compensation decreased by $19 and was offset by an increase in all other general expenses of $13, with no one expense increasing or decreasing by more than $10. Non-cash stock compensation decreased due to fewer stock options issued in the fiscal year ended June 30, 2024, compared to prior years. Our stock options generally vest over three years and are granted each year to our Directors, officers and other key employees in our Company as additional compensation and to align the goals with our shareholders’.

Interest Income, net. Interest income, net was approximately $14 and $8 for the three months ended September 30, 2024 and 2023 and represents interest earned on our cash in the bank offset by interest expense and other financing costs under our Senior Credit Facility with PNC.

Income tax expense, net. For the three months ended September 30, 2024 and 2023, the Company had federal income tax expense of $190 and $6, respectively and state income tax expense, net of approximately $54 and $7, in the three months ended September 30, 2024 and 2023, respectively.

Net income (loss). Our net income for the three months ended September 30, 2024 was approximately $259 compared to a net loss of approximately $59 in the three months ended September 30, 2023. The change of approximately $318 was primarily the result of increased operating income of $544, offset by the increase income tax expense of $232.

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.

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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 September 30, 2024, our working capital was approximately $12,283, an increase of $531 from our working capital of $11,772 at June 30, 2024. The increase in our working capital was the result of our current assets increasing by $437 and our current liabilities decreasing by $94. The increase in our currents assets was from $594 and $146 in cash and other current assets, respectively, offset by decreases in accounts receivable and inventories of $283 and $20, respectively.

Operating Activities

Net cash provided by operating activities of $657 in the three months ended September 30, 2024 includes net income of approximately $259. 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 $832. Net cash used in our operations in the three months ended September 30, 2024 from our working capital assets and liabilities was approximately $175 and was primarily the result of cash used from an aggregate decrease in accounts payable, accrued expenses and other liabilities of $329, offset by a decrease in our accounts receivable and inventories of $283 and $20, respectively.

Net cash provided by operating activities of $1,313 in the three months ended September 30, 2023 includes a net loss of approximately $59. 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 $321. Net cash provided by our operations in the three months ended September 30, 2023 from our working capital assets and liabilities in the amount of approximately $992 was primarily the result of cash provided from a decrease in our accounts receivable of $339 and an aggregate increase in accounts payable, accrued expenses and other liabilities of $1,104, offset in part, by increases in inventories of approximately $250 and prepaid and other assets of $201.

Investing Activities

Cash used in investing activities in the three months ended September 30, 2024 and 2023, of approximately $56 and $38 was from the purchase of machinery and equipment, respectively.

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Financing Activities

Cash used in financing activities was approximately $7 of principal payments under financed lease obligations for the three months ended September 30, 2024

Cash provided by financing activities was approximately $3 for the three months ended September 30, 2023, and was from proceeds from the exercise of stock options in the amount of $13, offset by principal payments under financed lease obligations of $10.

As of September 30, 2024, we had cash of $2,271, funds available under our revolving credit facility of approximately $5,000 and working capital of approximately $12,283 and operating income of $490 in the three months ended September 30, 2024. 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 November 13, 2025.

Our current total annual commitments at September 30, 2024 for long term non-cancelable leases of approximately $660 consists of obligations under operating leases for office and warehouse facilities and for the rental of machinery, transportation and office equipment.

Capital Expenditures

The Company's capital expenditures for the three months ended September 30, 2024 and 2023 were approximately $56 and $38, respectively. The Company has budgeted approximately $500 for capital expenditures for fiscal year 2025. 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 may not be able to timely increase its selling prices to its customer resulting from price increases from its suppliers due to various economic factors, including inflation, labor and shipping costs and its own increases in shipping, labor and other operating costs. The Company’s results of operations may also be affected by economic conditions, including inflationary pressures, that can impact consumer disposable income levels and spending habits, thereby reducing the orders it may receive from the Company’s significant customers.