Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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, 2025.

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, 2025.

For the three months ended September 30, 2025, our net sales from operations decreased by $928 to approximately $12,689 from approximately $13,617 in the three months ended September 30, 2024. Our net sales in the Contract Manufacturing Segment and in Other Business Lines decreased by $806 and $122, respectively. The decrease in net sales in our Contract Manufacturing Segment of $806 was primarily due to decreased sales volumes to Herbalife and Life Extension in the amounts of $307 and $215 and other customers of $284. For the three months ended September 30, 2025 and 2024, a significant portion of our consolidated net sales, approximately 87% and 85%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife represented approximately 71% and 20% and 68% and 21%, respectively, of our Contract Manufacturing Segment's net sales in the three months ended September 30, 2025 and 2024, 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, 2025 were lower than the three months ended September 30, 2024 in our Other Business Lines Segment by $122 due to decreased sales in MDC WHD in the amount of $175, offset by an increase in sales from Chem's distributor business in the amount of $53.

Our net income for the three months ended September 30, 2025 was approximately $123 compared to a net income of approximately $259 in the three months ended September 30, 2024, a decrease of approximately $136. The decrease was primarily the result of decreased operating income of $327, offset by the decrease in income tax expense of $172. Our profit margins decreased from approximately 10.1% of net sales in the three months ended September 30, 2024 to approximately 8.0% of net sales in the three months ended September 30, 2025, primarily as a result of the decrease in net sales of approximately 6.8% while our cost of goods sold decreased by approximately 4.7%, resulting in less sales available to cover our fixed manufacturing expenses. Our selling and administrative expenses were substantially the same for the three months ended September 30 2025 and 2024, approximately $856 to $881, 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 have seen a slight negative impact in our margins due to inflation and 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

There have been no changes to our critical accounting estimates in the three months ended September 30, 2025. 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, 2025.

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				2024
Sales, net			100.0	%			100.0	%
Costs and expenses:
Cost of sales			92.9	%			89.9	%
Selling and administrative			6.7	%			6.5	%
			98.7	%			96.4	%
Operating income			1.3	%			3.6	%
Interest income, net			0.2	%			0.1	%
Income before income taxes			1.5	%			3.7	%
Income tax expense, net			0.5	%			1.8	%
Net income			1.0	%			1.9	%

For the Three Months Ended September 30, 2025 compared to the Three Months Ended September 30, 2024

Sales, net. Sales, net, for the three months ended September 30, 2025 and 2024 were $12,689 and $13,617, respectively, a decrease of 6.8%, and are comprised of the following:

		Three Months ended								Dollar				Percentage
		September 30,								Change				Change
		2025				2024				2025 vs 2024				2025 vs 2024
		(amounts in thousands)
Contract Manufacturing:
US Customers		$	10,131			$	10,788			$	(657	)			(6.1%	)
International Customers			2,036				2,185				(149	)			(6.8%	)
Net sales, Contract Manufacturing			12,167				12,973				(806	)			(6.2%	)
Other Nutraceuticals:
US Customers			522				644				(122	)			(18.9%	)
International Customers			-				-				-				-
Net sales, Other Nutraceuticals			522				644				(122	)			(18.9%	)
Total net sales		$	12,689			$	13,617			$	(928	)			(6.8%	)

For the three months ended September 30, 2025 and 2024, a significant portion of our consolidated net sales, approximately 87% and 85%, respectively, were concentrated among two customers, Life Extension and Herbalife, in our Contract Manufacturing Segment. Life Extension and Herbalife, represented approximately 71% and 20% and 68% and 21%, respectively, of our Contract Manufacturing Segment's net sales in the three months ended September 30, 2025 and 2024, respectively.

The decrease in net sales in our Contract Manufacturing Segment of $806 was primarily due to decreased sales volumes to Herbalife and Life Extension in the amounts of $307 and $215 and other customers of $284.

Revenues in the three months ended September 30, 2025 were lower than the three months ended September 30, 2024 in our Other Business Lines Segment by $122 due to decreased sales in MDC WHD in the amount of $175, offset by an increase in sales from Chem's distributor business in the amount of $53. Three other different customers in the Other Business Lines Segment, while not significant customers of the Company's consolidated net sales, represented approximately 21%, 19% and 12% and 10%, 28% and 39%, respectively, of net sales of the Other Business Lines Segment in the three months ended September 30, 2025 and 2024, respectively.

Cost of sales. Cost of sales decreased by approximately $576 to $11,670 for the three months ended September 30, 2025, as compared to $12,246 for the three months ended September 30, 2024, or approximately 4.7%. Cost of sales increased as a percentage of sales to 92.0% for the three months ended September 30, 2025 as compared to 89.9% for the three months ended September 30, 2024. The increase in the cost of sales as a percentage of sales of approximately 2.1% increased primarily as the result of decreased sales while our cost to manufacture increased by approximately 2.5%.

Selling and Administrative Expenses. Selling and administrative expenses were substantially the same for the three months ended September 30 2025 and 2024, approximately $856 to $881, respectively. As a percentage of sales, net, selling and administrative expenses were approximately 6.7% and 6.5% in the three months ended September 30, 2025 and 2024, respectively. The decrease of $25 was primarily from decreases in our employee salaries and benefits in the amount of $43 and all other general expenses in the amount of $28, offset by an increase in professional and consulting fees of $46. No other general expense decreased or increased by more than $14.

Interest Income, net. Interest income, net was approximately $33 and $14 for the three months ended September 30, 2025 and 2024 and represents interest earned on our cash in the bank offset by interest expense and other financing costs under our Lines of Credit with PNC.

Income tax expense, net. For the three months ended September 30, 2025 and 2024, the Company had federal income tax expense of $51 and $190, respectively and state income tax expense, net of approximately $22 and $55, in the three months ended September 30, 2025 and 2024, respectively.

Net income. Our net income for the three months ended September 30, 2025 and 2024 was approximately $123 and $259, respectively, a decrease of approximately $136. The decrease of approximately $136 was primarily the result of decreased operating income of $327, offset by the decrease income tax expense of $172.

Seasonality

The nutraceutical business can be seasonal. Due to our current customer base in our contract manufacturing segment, we have not experienced a seasonality impact on our sales volumes as we had seen in the past. In the past we had experienced some seasonality in the December quarters based on the demands of our customer base at the time.

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:

		For the Three Months ended
		September 30,
		2025				2024
		(dollars in thousands)
Net cash provided by operating activities		$	1,301			$	657
Net cash used in investing activities		$	(173	)		$	(56	)
Net cash used in financing activities		$	(11	)		$	(7	)
Cash at end of period		$	4,732			$	2,271

As of September 30, 2025, our working capital was approximately $14,860, an increase of $345 from our working capital of $14,515 as of June 30, 2025. The increase in our working capital was the result of our current assets increasing by $861 and our current liabilities decreasing by $516. The increase in our currents assets was from $1,117, $1,107, and $84 in cash, inventories and other current assets, respectively, offset by a decrease in accounts receivable of $1,447.

Operating Activities

Net cash provided by operating activities of $1,301 in the three months ended September 30, 2025 includes net income of approximately $123. 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 $570. Net cash provided from our operations in the three months ended September 30, 2025 from our working capital assets and liabilities was approximately $731 and was primarily the result of cash provided by a decrease in accounts receivable of $1,447 and an aggregate increase in accounts payable, accrued expenses and other liabilities of $721, offset by increases in our inventories and other current assets of $1,107 and $87, respectively and a decrease in obligations under operating leases of $243.

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.

Investing Activities

Cash used in investing activities in the three months ended September 30, 2025 and 2024, of approximately $173 and $56 was for the purchase of machinery and equipment, respectively.

Financing Activities

Cash used in financing activities was approximately $11 and $7 of principal payments under financed lease obligations for the three months ended September 30, 2025 and 2024, respectively.

As of September 30, 2025, we had cash of $4,732, funds available under our credit lines of approximately $4,500 and working capital of approximately $14,860 and operating income of $163 in the three months ended September 30, 2025. 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 10, 2026.

Our current total annual commitments as of September 30, 2025 for long term non-cancelable leases of approximately $505 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, 2025 and 2024 were approximately $173 and $56, respectively. The Company has budgeted approximately $500 for capital expenditures for fiscal year 2026. 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

See Note 1. Nature of Operations, Principles of Consolidation and Basis of Presentation of Interim Financial Statements to the Condensed Consolidated Financial Statements in Item 1 in this Quarterly Report,

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 tariffs and other inflationary factors, 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 tariffs and other 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.