INTEGRATED BIOPHARMA INC

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Certain statements set forth under this caption constitute “forward-looking statements.” See “Cautionary Statement Regarding Forward-Looking Statements” on page 3 of this Annual Report on Form 10-K for additional factors relating to such statements.

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

Our financial results are substantially dependent on net sales. Net sales are partly dependent on the mix of contract manufactured products and other nutraceutical sales, which are difficult to forecast. Factors that could cause demand to be different from our expectations include: customer acceptance of our pricing and our competitors’ pricing; changes in customer order patterns; changes in the level of customer inventory; and changes in business and economic conditions, including conditions in the credit market that could affect consumer confidence and result in lower than expected demand for our manufactured products and to a lesser extent, our other nutraceutical business products and services.

We believe that we have established and developed business relationships, facilities, personnel, product offerings, and competitive and financial resources in place for business success; however, future revenue, costs, gross margins, and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast. Except as otherwise noted, all dollar amounts below are “in thousands”.

In the fiscal year ended June 30, 2026, our net sales from operations decreased by $10,481 to approximately $43,872 from approximately $54,353 in the fiscal year ended June 30, 2025. Our net sales decreased by approximately $9,294 and $1,187 in our Contract Manufacturing Segment and Other Business Lines Segment, respectively. These decreases were primarily from decreased sales to the two major customers and all other customers in the Contract Manufacturing Segment in the amounts of $6,310 and $2,984, respectively. The decrease in all others was concentrated in one customer in the amount of $2,045. The decrease in the Other Business Lines Segment was the result of the loss of three major customers in this segment which amounted to $1,509 and was offset by a net increase in other customers of $322 in the fiscal year ended June 30, 2026 compared to the fiscal year ended June 30, 2025. As a result of the decline in sales our profit margins decreased by 8.4% in the fiscal year ended June 30, 2026, from 10.2% in the fiscal year ended June 30, 2025 to 1.8% in the fiscal year ended June 30, 2026. While our sales declined, our fixed manufacturing costs remained approximately the same year over year.

We had consolidated selling and administrative expenses of approximately $3,505 and $3,542 in the fiscal years ended June 30, 2026 and 2025, respectively. The decrease in the consolidated selling and administrative expenses of $37, or approximately 1.1%, was primarily from decreases in salaries and employee benefits of $99 offset by increases in professional and consulting fees and all other selling and administrative expenses of $36 and $25, respectively. Our salaries decreased by $127 and was offset by an increase in employee benefits of $28. The major decrease in salaries was from lower commission payouts of $104 which are based on a percentage of sales and a net decrease of $23 resulting from decreases in salaries from layoffs of $69, offset by a net increase in salaries of $46 for the remaining employees. The employee benefit increase was primarily from increases in our medical insurance premiums for our non-union employees.

In the fiscal years ended June 30, 2026 and 2025, we had an operating loss of $2,705 and operating income of approximately $2,020, 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.

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We have seen a negative impact in our margins due to inflation, tariffs and to a lesser extent, tightened labor markets as we strive to increase prices to our customers as our operating costs increase. 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 tariffs and other inflationary costs, 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 tariffs and other inflationary pressures, that can impact consumer disposable income levels and spending habits, thereby reducing the orders we may receive from our significant customers.

Critical Accounting Estimates

The preparation of financial statements are prepared in conformity with generally accepted accounting principles in the United States of America (“GAAP”). In preparing these financial statements, we make assumptions, judgements and estimates that involve a level of estimation uncertainty and could affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The most significant estimates include:

● revenue recognition and allowances for credit losses;

● inventory valuation; and

● income taxes and valuation allowances on deferred income taxes.

On a continual basis, management reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.

Revenue Recognition and Allowances for Credit Losses

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:

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Our return policy in our contract manufacturing business is to only accept returns for defective products. If defective products are returned, our agreement with our customers is to cure the defect and re-ship the product. Based on this policy, when the product is shipped we make an estimate of any potential returns or allowances.

Our management makes judgments as to its ability to collect outstanding receivables and provides allowances for the portion of receivables for which collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding amounts. We continuously monitor payments from our customers and maintain allowances for estimated credit losses and other allowances for uncollectible accounts receivable in the period they become known.

If the historical data we use to calculate the allowance provided for credit losses does not reflect the future ability to collect outstanding receivables, additional provisions for credit losses may be needed and the future results of operations could be materially affected. In recording any additional allowances, a respective charge against income is reflected in the general and administrative expenses; and would reduce the operating results in the period in which the increase is recorded. Amounts determined to be uncollectible are written off against the credit loss or other reserve accounts. In each of the fiscal years ended June 30, 2026 and 2025, we had an allowance for credit losses of less than $20.

Inventory Valuation

Inventories are stated at the lower of cost or net realizable value, which reflects management’s estimates of net realizable value. Cost is determined using the first-in, first-out method based on specific lots. As a result of our inventory being manufactured primarily on a purchase order basis, the quantity of both raw materials and finished goods inventory provides for minimal risk of potential overstock or obsolescence. Another component of our inventory valuation includes the estimation of our inventory overhead costs that are capitalized and included in the cost of our inventory.

Income Taxes

The Company records deferred tax assets and liabilities for the estimated future tax effects of temporary differences between tax bases of assets and liabilities and amounts reported in the accompanying consolidated balance sheets, as well as operating losses and tax credit carry-forwards. The Company measures deferred tax assets and liabilities using enacted tax rates expected to be applied to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company reduces deferred tax assets by a valuation allowance if, based on available evidence, it is more likely than not that these benefits will not be realized.

The Company uses a recognition threshold and measurement attribute for financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.

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

The following table sets forth the income statement data of the Company as a percentage of net sales for the periods indicated:

Year ended June 30, 2026 Compared to the Year ended June 30, 2025

Sales, net. Net sales for the fiscal year ended June 30, 2026 and 2025 were $43,482 and $54,353, respectively, a decrease of $10,481 or 19.3%. The decrease is comprised of the following:

In the fiscal years ended June 30, 2026 and 2025, a significant portion of our consolidated net sales, approximately 90% and 84%, respectively, were concentrated among two customers, Life Extension and Herbalife, customers in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 68% and 25% and 62% and 26%, respectively, of our Contract Manufacturing Segment’s net sales in the fiscal years ended June 30, 2026 and 2025, respectively. One customer, Life Technologies, Inc. (“Life Tech”) and four customers, Trusted Influencers Inc., Thermosource Tooling and Manufacturing, Life Tech and Eastern Drayage (customers of our Other Business Lines Segment), while not significant customers of our consolidated net sales, represented 29% and 32%, 25%, 11%, and 10%, respectively, of the Other Business Lines Segment net sales in the fiscal years ended June 30, 2026 and 2025, respectively. The loss of any of these customers could have a significant adverse impact on our financial condition and results of operations.

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The decrease in net sales of approximately $10,481 was the result of decreased sales of approximately $9,294 and $1,187 in our Contract Manufacturing and Other Business Lines Segments, respectively. These decreases were primarily from decreased sales to the two major customers and all other customers in the Contract Manufacturing Segment in the amounts of $6,310 and $2,984, respectively. The decrease in all others was concentrated in one customer in the amount of $2,045. The decrease in the Other Business Lines Segment was the result of the loss of three major customers in this segment which amounted to $1,509 and was offset by a net increase in other customers of $322 in the fiscal year ended June 30, 2026 compared to the fiscal year ended June 30, 2025.

**Cost of sales.**Cost of sales decreased by $5,719 to $43,072 for the fiscal year ended June 30, 2026, as compared to $48,791 for the fiscal year ended June 30, 2025, a decrease of approximately 11.7%. Cost of sales as a percentage of sales was approximately 98.2% and 89.8% for the fiscal years ended June 30, 2026 and 2025, respectively. The decrease in the cost of goods sold amount is consistent and expected with the decrease in net sales as well as the increase in the cost of goods sold as a percentage of net sales as our fixed manufacturing costs remained approximately the same year over year.

**Selling and Administrative Expenses.**There was a decrease in selling and administrative expenses of $37 or approximately 1.1% in the fiscal year ended June 30, 2026 as compared to the fiscal year ended June 30, 2025. As a percentage of sales, net, selling and administrative expenses were approximately 8.0% and 6.5% for the fiscal year ended June 30, 2026 and 2025, respectively. We had decreases in salaries and employee benefits of $99 offset by increases in professional and consulting fees and all other selling and administrative expenses of $36 and $25, respectively. Our salaries decreased by $127 and was offset by an increase in employee benefits of $28. The major decrease in salaries was from lower commission payouts of $104 which are based on a percentage of sales and a net decrease of $23 resulting from decreases in salaries from layoffs of $69, offset by a net increase in salaries of $46 for the remaining employees. The employee benefit increase was primarily from increases in our medical insurance premiums for our non-union employees.

Other income, net. Other income, net was approximately $142 and $42 for the fiscal years ended June 30, 2026 and 2025, respectively and is composed of:

Our interest income, net increased by $115 in the fiscal year ended June 30 2026 primarily due to higher average daily cash balances in our cash operating accounts resulting in increased interest credited to our account in fiscal year ended June 30, 2026 compared to the comparable prior period. Interest income was offset by interest expense of $14 and $46 in the fiscal years ended June 30, 2026 and 2025, respectively.

Other income (expense), net is from recognizing impairment charges of $30 and $28 in the fiscal years ended June 30, 2026 and 2025 respectively, offset by gain on disposal of $6 of machinery and equipment and other income of $12 in the fiscal year ended June 30, 2026 and a net gain of $31 on disposals of machinery and equipment and other business assets in the fiscal year ended June 30, 2025.

**Federal and state income tax expense, net.**In the fiscal year ended June 30, 2026 and 2025, we had a federal and state income tax expense, net of $279 and $1,254, respectively. The fiscal year ended June 30, 2026 and 2025 federal and state income tax expense includes changes in the valuation allowance on deferred tax assets in the amounts of $779 and $505, respectively.

We continue to maintain a reserve on a portion of our deferred tax assets as it has been determined that it is “more likely than not” that the Company’s deferred tax assets, other than federal net operating losses, may not be fully realized.

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**Net (loss) income.**In the fiscal year ended June 30, 2026, we had a net loss of $2,842 compared to net income of $808 in the fiscal year ended June 30, 2025. The decrease of approximately $3,650 was primarily the result of decreased operating income of $4,725, offset by the decrease in income tax expense of $975.

Liquidity and Capital Resources

The following table sets forth, for the periods indicated, the Company’s net cash flows provided by or used in operating, investing and financing activities:

At June 30, 2026 and 2025, we had working capital of $11,577 and $14,515, respectively. Our current assets decreased by $1,384 and our current liabilities increased by $1,554, respectively, from June 30, 2025 to June 30, 2026. The decrease in current assets was primarily from decreases in accounts receivable and inventories of $2,096 and $220, respectively, offset by an increase in cash of $856. Our current liabilities increased primarily from increases of $933 and $527 in accounts payable and the current portion of our operating lease liabilities, respectively.

Our Loan Agreement provides a committed line of credit under which we may request, and PNC will make advances to us from time to time until April 14, 2027, in an aggregate amount of $4,000 (the “Line of Credit”) and a Convertible Line of Credit Note (Daily SOFR) payable to the order of PNC in an amount in the aggregate at any time outstanding not to exceed $250 (the "Convertible ELOC"). Advances under the Convertible ELOC will be used for the purchase of equipment and/or vehicles.

Operating Activities

Net cash provided by operating activities of $1,241 in the fiscal year ended June 30, 2026 includes a net loss of approximately $2,842. After adjusting the net loss for noncash expenses, including depreciation and amortization, compensation expense for employee stock options, allowances for credit losses and changes in deferred tax assets, the adjusted cash used in operations before the effect of the changes in working capital components was a decrease of approximately $968. Cash in the amount of approximately $2,209 from our working capital assets and liabilities was provided for in our operating activities and was primarily the result of decreases in accounts receivable and inventories of $2,096 and $220, respectively and an increase in accounts payable of $933. These increases were offset, in part, by a decrease in operating lease obligations of $1,034 and an increase in other assets of $89.

Net cash provided by operating activities of $2,065 in the fiscal year ended June 30, 2025 includes a net income of approximately $808. After excluding the effects of non-cash expenses and income, such as depreciation and amortization, compensation expense for employee stock options, allowances for credit losses and changes in deferred tax assets, the adjusted cash used in operations before the effect of the changes in working capital components was an increase of approximately $3,567. Cash in the amount of approximately $1,502 from our working capital assets and liabilities was used in our operating activities and was primarily the result of decreases in accrued expenses and other liabilities of $1,355, operating lease obligations of approximately $945, accounts payable of $211 and increases in accounts receivable of $781 and other assets of $92, offset by a decrease in inventories of $1,882.

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Investing Activities

Cash used in investing activities was used for the purchase of machinery and equipment for approximately $346 and $205 in the fiscal years ended June 30, 2026 and 2025, respectively. Additionally, in the fiscal year ended June 30, 2026, we received cash proceeds of $6 for the sale of machinery and equipment.

Financing Activities

Cash used in financing activities was approximately $45 for the fiscal year ended June 30, 2026, and was for payments under our financed lease obligations.

Cash provided by financing activities was approximately $78 for the fiscal year ended June 30, 2025, and was primarily from proceeds from the exercise of stock options of $86, offset by payments under our financed lease obligations of $8.

As of June 30, 2026, we had cash of approximately $4,471, funds available under our Line of Credit and Convertible ELOC of approximately $4,250 and working capital of $11,577. We had a loss from operations of approximately $2,705 in the fiscal year ended June 30, 2026 and a net loss of approximately $2,842. After taking into consideration our interim results and current projections, management believes that operations, together with our credit facilities and equipment financing will support our working capital requirements at least through the twelve-month period ending in September 2027.

Our current total annual commitments as of June 30, 2026, for long term non-cancelable leases are approximately $1,345 consisting of obligations under operating leases for office and warehouse facilities and operating and finance lease obligations for the use of machinery and office equipment.

Capital Expenditures

The Company's capital expenditures in the fiscal years ended June 30, 2026 and 2025 were approximately $346 and $205, respectively. The Company has budgeted approximately $500 for capital expenditures for the fiscal year ending June 30, 2027. The total amount is expected to be funded from cash provided from the Company’s operations and from lease financing or use of the Convertible ELOC.

Off-Balance Sheet Arrangements

The Company has no off-balance sheet arrangements.

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.