----

# SECURITIES AND EXCHANGECOMMISSION 

# Washington, D.C. 20549 

# FORM 10-QSB 

QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) 

OF THE SECURITIES EXCHANGE ACT OF1934 

| **For the fiscal quarter ended    September 30, 2004** |   | **Commission file number:    000-28876** |
|--------------------------------------------------------|--------|------------------------------------------|

        

# INTEGRATED BIOPHARMA, INC. 

        (Exact name of smallbusiness issuer as specified in its charter) 

 

| **Delaware** ** 22-2407475**(State or other    jurisdiction of incorporation or organization)  (I.R.S. Employer    Identification No.)       **225 Long    Avenue, Hillside, New Jersey** **07205**(Address of    principal executive offices)       (Zip Code)          
 

Check whether the issuer filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during thepreceding 12 months (or for such shorter period that the issuer was required tofile such reports), and (2) has been subject to the filing requirements for thepast 90 days. Yes [X] No [  ] 

The number of shares outstanding of the issuer'sCommon Stock as of October 28, 2004 was 12,589,190 shares. 
 **INTEGRATED BIOPHARMA, INC.** **INDEX**
 
Part I:Financial    Information Item 1: Consolidated    Financial Statements Report of    Independent Registered Public Accounting Firm1Consolidated Balance    Sheet as of September 30, 2004 [Unaudited] 2...3Consolidated    Statements of Operations for the three months ended September 30, 2004 and    2003 [Unaudited] 4Consolidated    Statement of Stockholders' Equity for the three months ended September 30,    2004 [Unaudited]5Consolidated    Statements of Cash Flows for three months ended September 30, 2004 and 2003    [Unaudited]6...7Notes to    Consolidated Financial Statements [Unaudited]8...17Item 2:Management's    Discussion and Analysis or Plan of Operation 18...21Item 3:Controls and    Procedures22Part II:Other Information23Signatures25
      

 

Report of Independent RegisteredPublic Accounting Firm 

We have reviewed the accompanying consolidatedbalance sheets of Integrated BioPharma, Inc. and Subsidiaries as of September30, 2004 and for the three-month periods then ended. This interim financialinformation is the responsibility of the Company's management. 

We conducted our review in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Areview of interim financial information consists principally of applyinganalytical procedures and making inquiries of persons responsible for financialand accounting matters. It is substantially less in scope than an auditconducted in accordance with the standards of the Public Company AccountingOversight Board, the objective of which is the expression of an opinionregarding the financial statements taken as a whole. Accordingly, we do notexpress such an opinion. 

Based on our review, we are not aware of anymaterial modifications that should be made to the accompanying interim financialstatements for them to be in conformity with U.S. generally accepted accountingprinciples. 
 /s/ Amper, Politziner & Mattia    P.C. October 22, 2004  Edison, New Jersey     
1

 
**Part 1-FINANCIAL INFORMATION** **Item 1. Financial Statements** **INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED BALANCE SHEET    AS OF SEPTEMBER 30, 2004****[UNAUDITED]** 
 
Assets:      Current Assets:          Cash    and Cash Equivalents $4,600,219           Accounts Receivable - Net 3,177,414           Inventories-Net   8,376,009        Prepaid    Expenses and Other Current Assets 1,396,673        Other    Assets 274,809           Deferred Income Taxes  80,000   **Total Current Assets** 17,905,124   Property and Equipment - Net      7,676,804   Other Assets:          Goodwill   688,138     Intangible Assets, Net 3,489,711     Investment in Joint Venture   96,022     Deferred Tax Asset  61,000     Security Deposits and Other Assets  253,460   **Total Other Assets** 4,588,331   Total Assets  $30,170,259   
See accompanying notes to condensed consolidatedfinancial statements. 

2

 
**INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED BALANCE SHEET    AS OF SEPTEMBER 30, 2004****[UNAUDITED]** 
 
Liabilities and    Stockholders' Equity: Current Liabilities:         Note Payable-Bank$    4,500,000     Accounts Payable    1,875,182      Accrued Expenses and Other Current Liabilities    834,341     Federal and State Income Taxes Payable75,075     Capital Lease Obligation6,266      Loan Payable-Trade Investment Services, LLC,    related party172,260 Total Current    Liabilities7,463,124    Commitments and    Contingencies (See Note 12) --Series B 7%    Redeemable Convertible Preferred Stock net of beneficial conversion Feature,    warrants issued and issuance costs - $.002 Par Value; 1,250 shares    Authorized; 700 shares issued and outstanding - Liquidation Preference of    $7,000,000  
1,043,000Stockholders'    Equity:           Preferred Stock - Authorized 1,000,000    Shares,$.002 Par Value, No Shares Issued --     Common Stock - Authorized 25,000,000    Shares,$.002 Par Value, 12,588,190 Shares Issued        and Outstanding 25,176     Additional Paid-in-Capital    28,216,572     Accumulated Deficit    (6,478,274)     Less, Treasury Stock at cost, 34,900 shares(99,339)    Total Stockholders'    Equity21,664,135Total Liabilities    and Stockholders' Equity$30,170,259    
See accompanying notes to condensed consolidatedfinancial statements. 

3

 
**INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED STATEMENTS OF    OPERATIONS****[UNAUDITED]** 
 
**Three months ended****September 30,****2004****2003****Sales**$    6,116,036$    4,980,006**Cost of Sales** 5,599,511   3,962,680    **Gross Profit**  516,525  1,017,326    **Selling and    Administrative Expenses**     Paxis Pharmaceuticals, Inc. Start Up Costs     --     620,307     Selling and Administrative Expenses   2,302,937   1,263,067      **Total Selling and    Administrative Expenses**  2,302,937 1,883,374**Operating [Loss]** (1,786,412)   (866,048)    **Other Income    [Expense]:**          Other Income 40,000     60,000     Consulting Fee Income  4,000    12,000     Interest Expense    (33,699)    (23,679)     Interest and Investment Income 24,246   38,527    **Total Other    Income** 34,547  86,578**[Loss] Income Before Income Taxes**(1,751,865) (779,470)**Federal and State Income Tax [Benefit]** (253)    (23,175)    **Net [Loss] **(1,751,612)  (756,295)Accretion of Preferred Stock Dividends      -- (95,000)Deemed  dividend  from     beneficial  conversion  feature of    Series B Preferred Stock (583,000)    --Series B Preferred Stock Dividend (123,507)  --    **Net [Loss]  applicable to common     shareholders**$(2,458,119) $(851,295)  **Net [Loss] Income Per Common Share:**Basic   $(.20)$(.08)Diluted$(.20) $(.08)**Average Common Shares Outstanding **12,552,698 10,306,335**Dilutive Potential Common Shares:**Warrants and Options ----**Average Common Shares****Outstanding-assuming dilution**12,552,69810,306,335
See accompanying notes to condensed consolidatedfinancial statements.

4

 
**INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED STATEMENT OF    STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004****[UNAUDITED]**                                       Convertible Additional         Total  Common Stock     Preferred     Preferred Paid-In (Accumulated Treasury Stock Stockholders'SharesPar ValueStockStockCapitalDeficit)SharesCostEquityBalance - July 1,    200412,510,690$25,021$                  --$                      --$ 27,961,003$(4,020,155)25,800$(28,831)$  23,937,038Exercise of Stock    Options for cash   50,500101  69,323   69,424Issuance of Common    Stock for consulting fees    27,000 54186,246186,300Deemed dividend from    beneficial conversion feature of Series B Preferred Stock(583,000)  (583,000)Dividends  Paid    on Series B Preferred Stock (123,507) (123,507)Stock Repurchase    Plan9,100(70,508)(70,508)Net Loss for the    three months ended September 30, 2004  (1,751,612) (1,751,612)Balance- September    30, 2004   12,588,190 25,176$                  --$                      --$28,216,572$(6,478,274) 34,900$(99,339)$21,664,135      
 

 

 

See accompanying notes to condensed consolidatedfinancial statements.

5

 
**INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED STATEMENT OF    STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004****[UNAUDITED]** 
 

**Three months ended**
**September 30,**
**2004****2003****Operating    Activities:**   Net    [Loss] Income   $(1,751,612) $(756,295)      Adjustments to Reconcile Net Income (Loss) to Net Cash         [Used for] Provided by Operating Activities:         Depreciation and Amortization     343,940    109,877         Deferred Income Taxes     (12,000)    (4,000)         Allowance for Inventory 2,5002,500         Bad Debt Expense2,500    2,500         Issuance of Common Stock for consulting services    186,300--            Changes    in Assets and Liabilities:          [Increase] Decrease in:         Refundable Federal Income Taxes --     (44,640)         Accounts Receivable    (754,560)    (137,035)         Inventories    (1,302,379)     652,041         Deposit for Inventory  --    (112,000)         Due From Paxis Pharmaceuticals, Inc. - Related Party--    (908,000)         Prepaid Expenses and Other Current Assets     (469,963)      (17,983)         Security Deposits and Other Assets     (20,480)74,839         [Decrease] Increase in:         Accounts Payable     (61,851)     (125,580)         Federal and State Income Taxes Payable(450)     (17,049)         Accrued Expenses and Other Liabilities119,81065,282   Total    Adjustments (1,966,633)(459,248)**Net Cash -    Operating Activities** (3,718,245) (1,215,543)**Investing    Activities:**      Investment in Joint Venture--     (123,879)      Acquisition of Paxis Pharmaceuticals, Inc., less cash received--      (483,256)      Purchase of Property and Equipment(1,094,220) (1,122,509)**Net    Cash-Investing Activities**(1,094,220)(1,729,644)**Financing    Activities:**       Proceeds from Exercise of Stock Options     69,424 70,300       Dividends Paid      (123,507) --       Treasury Stock         (70,508)  --       Repayment of Notes Payable (10,771)(28,878)**Net    Cash-Financing Activities** (135,362)    41,422**Net [Decrease] in    Cash and Cash Equivalents**    (4,947,827)      (2,903,765)**Cash and Cash    Equivalents - Beginning of Periods**9,548,046 10,406,390**Cash and Cash    Equivalents - End of Periods**4,600,219 7,502,625
See accompanying notes to condensed consolidatedfinancial statements.
 **INTEGRATED BIOPHARMA, INC.** **CONSOLIDATED STATEMENTS OF    CASH FLOWS****[UNAUDITED]**   
**Three months ended**  
**September 30,**  **2004** **2003** **Supplemental Disclosures of    Cash Flow Information:**           Cash paid during the periods for:            Interest $31,659 $12,187      Income Taxes$11,389 $ 32,114     
See accompanying notes to condensed consolidatedfinancial statements. 

7
 **INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***1] Business***

***Basis of Reporting**-***Theaccompanying unaudited interim financial statements have been prepared inaccordance with generally accepted accounting principles for interim financialinformation and with the instructions to Form 10-QSB and Item 310(b) ofRegulation S-B. Accordingly, they do not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements. In the opinion of management, such interim statementsinclude all adjustments, which are considered necessary in order to make theinterim financial statements not misleading. It is suggested that thesefinancial statements be read in conjunction with the financial statements andnotes thereto, together with management's discussion and analysis of financialcondition and results of operations, contained in the Company's annual report tostockholders incorporated by reference in the Company's annual report on Form10-KSB for the fiscal year ended June 30, 2004. The results of operations forthe three months ended September 30, 2004 are not necessarily indicative of theresults for the entire fiscal year ending June 30, 2005. 

Integrated BioPharma, Inc. (the "Company") isengaged primarily in the manufacturing, marketing and sales of vitamins,nutritional supplements and herbal products; the manufacture and distribution ofPaclitaxel, which is the primary chemotherapeutic agent in the treatment ofbreast cancer; and technical services through its recently acquired contractresearch organization, InB: Hauser Pharmaceutical Services, Inc.("Hauser") TheCompany's customers are located primarily throughout the United States. 

Paxis Pharmaceuticals, Inc. completed setting upits manufacturing facilities prior to the end of fiscal 2004. The operatingresults of Paxis for the three months ended September 30, 2004 have beenincluded in the consolidated sales, gross profit and selling and administrativeexpenses. Because the Paxis subsidiary was a start up operation for the threemonths ended September 30, 2003, the start up expenses were shown separately forthe comparative period. 

On September 16, 2004 the Company completed thepurchase of substantially all of the assets of Hauser, including substantiallyall of its laboratories, development and manufacturing facilities and equipment;its intellectual property, including that related to Paclitaxel and othertaxanes; goodwill, professional staff and certain of its ongoing contracts. Aspart of the transaction, the Company also acquired Hauser's rights under a priorcontract to receive royalties and other payments from the Company's subsidiary,Paxis Pharmaceuticals for Hauser intellectual property used by Paxis in themanufacture of Paclitaxel. Transactions for the period beginning September 10,2004 through September 30, 2004 have been included in the Company's consolidatedfinancial statements. The acquisition price of $1,697,076 was allocated asfollows: 
Inventory$780,524 Machinery & Equipment 916,552     Total$1,697,076     
***[2] Summary of SignificantAccounting Policies***

***Principles of Consolidation "*** Theaccompanying consolidated financial statements include the accounts of theCompany and its subsidiaries, all of which are wholly-owned. Intercompanytransactions and balances have been eliminated in consolidation. 

Fair Value of Financial Instruments

Generally accepted accounting principles requiredisclosing the fair value of financial instruments to the extent practicable forfinancial instruments which are recognized or unrecognized in the balance sheet.The fair value of the financial instruments disclosed herein is not necessarilyrepresentative of the amount that could be realized or settled, nor does thefair value amount consider the tax consequences of realization or settlement.

8

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[2] Summary of SignificantAccounting Policies [Continued]***

In assessing the fair value of financialinstruments, the Company uses a variety of methods and assumptions, which arebased on estimates of market conditions and risks existing at the time. Forcertain instruments, including cash and cash equivalents, accounts receivable,accounts payable, and accrued expenses, it was estimated that the carryingamount approximated fair value because of the short maturities of theseinstruments. All debt is based on current rates at which the Company couldborrow funds with similar remaining maturities and approximates fair value.

***Cash and Cash Equivalents -*** Cashequivalents are comprised of certain highly liquid investments with a maturityof three months or less when purchased. 

***Inventories -*** Inventory is valuedby the first-in, first-out method, at the lower of cost or market. 

***Depreciation -***The Company followsthe general policy of depreciating the cost of property and equipment over thefollowing estimated useful lives: 
Building15 YearsLeasehold Improvements15 Years Machinery and Equipment 7 Years Machinery and Equipment Under    Capital Leases 7 YearsTransportation Equipment5 Years
Machinery and equipment are depreciated usingaccelerated methods while leasehold improvements are amortized on astraight-line basis. Depreciation expense was $274,396 and $99,877 for the threemonths ended September 30, 2004 and 2003, respectively. 

***Estimates -***The preparation offinancial statements in conformity with accounting principles generally acceptedin the United States of America requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts or revenues and expenses during thereporting period. Actual results could differ from those estimates. 

***Revenue Recognition -***The Companyrecognizes revenue upon shipment of the product. The Company believes thatrecognizing revenue at shipment is appropriate because the Company's salespolicies meet the four criteria of SAB 101, which are: (i) persuasive evidencethat an arrangement exists, (ii) delivery has occurred, (iii) the seller's priceto the buyer is fixed and determinable and (iv) collectability is reasonablyassured. The Company's sales policy is to require customers to provide purchaseorders establishing selling prices and shipping terms, which are F.O.B shippingpoint with the title and risk of loss passing to the customer at point ofshipment. The Company evaluates the credit risk of each customer and establishesan allowance of doubtful accounts for any credit risk. Sales returns andallowances are estimated upon shipment.The Company recognizes income in itsContract Research Organization upon monthly customer invoicing. The invoiceamount is based upon on time and materials spent in the month. 

The Company realized fee income from managingwarehouse and office operations for an unrelated company of $40,000 and $60,000for the three months ended September 30, 2004 and 2003, respectively. Suchamounts are included in "Other income." 

***Investment in Joint Venture*** - Paxisentered into a joint venture as of July 16, 2003 with Chatham Biotec, Ltd.("Chatham"), a Canadian company which harvests and dries biomass, to form aCanadian-based joint venture to produce extract and intermediate precursorPaclitaxel from Canadian Taxus biomass. Chatham supplies the Canadian bio-massand the joint venture processes it, using Paxis' extraction expertise in afacility currently controlled by the joint venture. The joint venture suppliesPaxis' requirements for extract at cost, from which Paxis produces itsPaclitaxel and related products. The joint venture may sell extract andintermediate products to third parties. The Company has a 50% interest in thisjoint venture. The management agreement provides for profits and losses to beallocated based on the Company's 50% interest. As of September 30, 2004, the$96,022 represents the Company's investment. The Company can give no assurancethat the joint venture can be operated successfully. The investment in the jointventure is reflected using the equity method. The results of operations were notsignificant for the three months ended September 30, 2004. 

9

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[2] Summary of SignificantAccounting Policies [Continued]***

***Goodwill and Other IntangibleAssets*** - The Financial Accounting Standards Board ("FASB") has issuedStatement of Financial Accounting Standards No. 142 ("SFAS 142"), "Goodwill andOther Intangible Assets." SFAS 142 requires that goodwill and intangible assetswith indefinite lives no longer be amortized against earnings, but insteadtested for impairment at least annually based on a fair-value approach asdescribed in SFAS 142. The Company performed the annual test as of May 13, 2004,and determined that there were no indications of goodwill impairment. 

Intangible assets with finite lives are amortizedover their estimated useful lives. The useful life of an intangible asset is theperiod over which the asset is expected to contribute directly or indirectly tofuture cash flows. The carrying value of intangible assets with finite lives isevaluated whenever events or circumstances indicate that the carrying value maynot be recoverable. The carrying value is not recoverable when the projectedundiscounted future cash flows are less than the carrying value. Tests forimpairment or recoverability require significant management judgment, and futureevents affecting cash flows and market conditions could result in impairmentlosses. 

Other Intangible assets consist of intellectualproperty, trademarks, license fees, and unpatented technology. Amortization isbeing recorded on the straight line basis over periods ranging from 10 years to20 years based on contractual or estimated lives. 

***Long-Lived Assets*** - The Companyreviews the carrying values of its long-lived assets for possible impairment onan annual basis and whenever circumstances indicate the carrying amount of anasset may not be recoverable. 

***Advertising -***Costs incurred forproducing and communicating advertising are expensed when incurred. Advertisingexpense was $200,832 and $17,090 for the three months ended September 30, 2004and 2003, respectively. 

***Stock-Based Compensation -***TheCompany has adopted the disclosure-only provisions of SFAS No.148, "Accountingfor Stock-Based Compensation." Accordingly, no compensation cost has beenrecognized for the stock option plan because the exercise price of employeestock options equals the market prices of the underlying stock on the date ofgrant. Had compensation cost been determined based on the fair value at thegrant date for awards in the three months ended September 30, 2004 and 2003,respectively, consistent with the provision of SFAS No. 123, the Company's netincome and earnings per share would have been reduced to the pro forma amountsindicated below. 

10

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[2] Summary of SignificantAccounting Policies [Continued]***

 
 
**Three months ended**  
**September 30,**  
**2004** 
**2003**        Net (loss), income available to    common stockholders, as reported$(2,458,119) $(851,295) Add: Stock based employee    compensation expense included in net (loss), income net of related tax    effects --  -- Deduct: Total stock based    employee compensation expense determined under fair value based method for    all awards, net of related tax effects (1,284,726)  --        Pro forma net (loss) income    available to common stockholders$ (3,742,845) $(851,295)            Earnings per share:               Basic-as reported$(0.30) $(0.08)             Basic-pro forma$(0.30)  $(0.08)                    Diluted-as reported$(0.30)  $(0.08)             Diluted-pro forma$(0.30)  $(0.08)            
***Earnings Per Share*** - Inaccordance with FASB Statement No. 128, "Earnings Per Share," basic earnings percommon share are based on weighted average number of common shares outstanding.Diluted earnings per share amounts are based on the weighted average number ofcommon shares outstanding, plus the incremental shares that would have beenoutstanding upon the assumed exercise of all potentially dilutive stock options,warrants and convertible preferred stock, subject to antidilution limitations.As of September 30, 2004, options and warrants with exercise pricesbelow average market price in the amount of 4,962,621 shares and ConvertibleSeries B Preferred Stock in the amount of 7,000,000 shares were not included inthe computation of diluted earnings per share as they are antidilutive as aresult of net losses during the periods presented. As of September 30, 2004 and 2003, options and warrants to purchase1,321,000 shares and 707,597 shares of common stock, respectively, wereoutstanding but were not included in the computation of diluted earnings pershare because their exercise price was greater that the average market price ofthe common shares.

 ***[3] Goodwill and other Intangible Assets***In accordance with SFAS No. 142, goodwill is not amortized. The Companycompleted its annual impairment test prescribed by SFAS 142 at May 13, 2004 andconcluded that no impairment of goodwill existed. At September 30, 2004, goodwill consisted of: 
Goodwill - Paxis acquisition$542,728Goodwill - Aloe acquisition 145,410    Total$688,138    
11

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[3] Goodwill and otherIntangible Assets [Continued]***

At September 30, 2004 intangible assets are madeup of the following: 
 **Gross Carrying** **Accumulated**     **Amount** **Amortization** **Net**           Intellectual Property$1,327,455 $120,099 $1,207,356 License Fee 90,000  11,250  78,750  Trade Names 1,508,000  69,117  1,438,883 Unpatented Technology 547,000  110,000   437,000 License Agreement - Aloe  347,000  19,278   327,722               Total$ 3,819,455 $ 329,744 $3,489,711               
Amortization expense recorded on the intangibleassets for the three months ended September 30, 2004 and 2003 was $69,544 and$47,583 respectively. Amortization expense is recorded on the straight linemethod of periods ranging from 10 years to 20 years. 

The estimated annual amortization expense forintangible assets for the five succeeding fiscal years is as follows: 
  
**Amortization** **September 30,** 
**Expense**     2005$278,176 2006 278,176 2007 278,176 2008 278,176 2009 278,176 Thereafter  2,098,831         Total$3,489,711     
The Company records impairment losses on otherintangible assets when events and circumstances indicate that such assets mightbe impaired and the estimated fair value of the asset is less than its recordedamount in accordance with SFAS No 144, "Accounting for the Impairment orDisposal of Long-Lived Assets." The Company reviews the value of its long-livedassets for impairment whenever events or changes in business circumstancesindicate that the carrying amount of the assets may not be fully recoverable orthat the useful lives of these assets are no longer appropriate. Conditions thatwould necessitate an impairment assessment include material adverse changes inoperations, significant adverse differences in actual results in comparison withinitial valuation forecasts prepared at the time of acquisition, a decision toabandon certain acquired products, services or marketplaces, or othersignificant adverse changes that would indicate the carrying amount of therecorded asset might not be recoverable. 

12

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[4] Inventories***

Inventories consist of the following at September30, 2004: 
Raw Materials$5,392,061 Work-in-Process 888,158  Finished Goods 2,095,790         Total$8,376,009     
***[5] Property and Equipment***Property and equipment comprise the following at September 30, 2004:
Land and Building$1,250,000 Leasehold Improvements 2,133,845  Machinery and Equipment 8,093,096 Machinery and Equipment Under    Capital Leases 162,827 Transportation Equipment 37,714             Total 11,677,482  Less: Accumulated Depreciation and Amortization 4,000,678         Total$7,676,804     
***[6] Notes Payable***Notes Payable are summarized as follows at September 30, 2004: Revolving line of credit loan provided by Bank of America dated August6, 2003 in the amount of $4,500,000 with interest at a variable rate based on1.25% over the current LIBOR rate. The loan was due on September 4, 2004 andsubsequently has been renewed through September 2005. The loan is guaranteed byMr. Carl DeSantis, a shareholder of the Company. At September 30, 2004, theinterest rate was 3.09%. 

***[7] Loan Payable-Trade Investment Services***

Demand loan provided by Trade InvestmentServices, LLC ("TIS"), a former shareholder of Paxis Pharmaceuticals, Inc.,dated July 1, 2002 with interest at 9%. 

***[8] Research and Development Expense***

Research and development costs are expenses asincurred. The Company incurred $45,068 and $37,583 for the quarter endedSeptember 30, 2004 and 2003, respectively. Such costs are included in sellingand administrative expenses. 

***[9] Captial Lease***

The Company acquired laboratory equipment underthe provisions of a short-term lease. The lease expires in December 2004. Theequipment under the capital lease as of September 30, 2004 has a cost of $36,525and accumulated depreciation of $9,695 with a net book value of $26,830. 

13

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[9] Capital Lease [Continued]***

The future minimum lease payments under capitalleases and the net present value of the future minimum lease payments atSeptember 30, 2004 are as follows: 
Total Minimum Lease Payments$6,321 Amount Representing Interest  (55)     Present Value of Net Minimum    Lease Payment  6,266     Current Portion  (6,266)     Long-Term Capital Lease Obligation$11,677,482 
***[10] Significant Risks andUncertainties***

***[A]  Concentrations of Credit Risk -Cash -*** The Company maintains balances at several financial institutions.Accounts at each institution are insured by the Federal Deposit InsuranceCorporation up to $100,000. At September 30, 2004 the Company's uninsured cashbalances totaled approximately $4,266,077. The Company does not requirecollateral in relation to cash credit risk. 

***[B]  Concentrations of Credit Risk -Receivables -***The Company routinely assesses the financial strength ofits customers and, based upon factors surrounding the credit risk of itscustomers, establishes an allowance for uncollectible accounts and, as aconsequence, believes that its accounts receivable credit risk exposure beyondsuch allowances is limited. The Company does not require collateral in relationto its trade accounts receivable credit risk. The amount of the allowance foruncollectible accounts at September 30, 2004 is $45,113. 

***[11] Major Customer***

For the three months ended September 30, 2004 and2003, approximately 42% and 69% of revenues were derived from one customer. Theloss of this customer would have an adverse effect on the Company's operations.One other customer accounted for 23% of consolidated sales for the three monthsended September 30, 2004, and two other customers accounted for 11% ofconsolidated sales for the three months ended September 30, 2003. Accountsreceivable from these customers comprised approximately 36% and 71% of totalaccounts receivable at September 30, 2004 and 2003, respectively. 

***[12] Commitments andContingencies***

***[A] Leases***

***Related Party Leases***- Warehouseand office facilities are leased from Vitamin Realty Associates, L.L.C., alimited liability company, which is 90% owned by the Company's Chairman of theBoard and principal stockholder and certain family members and 10% owned by theCompany's Chief Financial Officer. The lease was effective on January 10, 1997and provides for a minimum annual rental of $323,559 through May 31, 2015 plusincreases in real estate taxes and building operating expenses. On July 1, 2004the Company leased an additional 24,810 square feet of warehouse space on amonth-to-month basis. Rent expense for the three months ended September 30, 2004and 2003 on this lease was approximately $216,000 and $124,000, respectively,and is included in both manufacturing and selling and administrative expenses.

***Other Lease Commitments -*** TheCompany leases manufacturing and office facilities through March 31, 2007. Thelease was effective on April 1, 2002 and provided for minimum monthly rental of$32,500 per month through March 31, 2007 plus increases in real estate taxes andbuilding operating expenses. Rent expense has been straight-lined over the lifeof the lease. At its option, the Company has the right to renew the lease for anadditional five year period. On August 27, 2002 the lease was amended reducingthe square footage from approximately 32,500 to 22,500 and reducing the monthlyrent to $22,483 per month for the balance of the lease. Rent expense for thethree months ended September 30, 2004 and 2003 was $116,684 and $90,218,respectively, and are included in manufacturing expense. 

14

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[12] Commitments andContingencies [Continued]***

The Company leases warehouse andoffice facilities through March 31, 2006. The lease was effective on March 6,2004 and provides for a minimum monthly rental of $5,925 in year one and $6,133in year two. 

The Company leases office space through September30, 2005. The lease was effective on June 1, 2004, and provides for a minimummonthly rental of $2,248. 

The Company leases warehouse equipment for afive-year period providing for an annual rental of $15,847 and office equipmentfor a five year period providing for an annual rental of $8,365. 

The Company leases automobiles undernon-cancelable operating lease agreements which expire through 2006. 

The minimum rental commitment for long-termnon-cancelable leases is as follows: 
 **Lease** **Related Party Lease**    **September 30,****Commitment** **Commitment** **Total**           2005$437,162 $ 323,559 $ 760,721 2006 213,596  323,559  537,155 2007 8,745  323,559  332,304 2008 --   323,559  323,559 2009 --  323,559  323,559  Thereafter --  1,883,501  1,883,501               Total$659,503 $3,501,296 $4,160,799               
Total rent expense, including real estate taxesand maintenance charges, was approximately $382,000 and $154,000 for the threemonths ended September 30, 2004 and 2003, respectively. Rent expense is statednet of sublease income of approximately $600 and $4,000 for the three monthsended September 30, 2004 and 2003, respectively. 

***[B]     Development andSupply Agreement -*** On March 13, 1998, the Company signed a developmentand supply agreement with Herbalife International of America, Inc. ("Herbalife")whereby the Company will develop, manufacture and supply certain nutritionalproducts to Herbalife. The agreement was renewed through December 31, 2006. Theagreement provides that Herbalife is required to purchase a minimum quantity ofSupplied Products each year for the term of the agreement in order to be elgiblefor rebate incentives. If Herbalife purchases the minimum amount, then Herbalifewill be entitled to certain rebates of an amount not exceeding $300,000 peryear. For the three months ended September 30, 2004, there were no rebates due.

***[C]     ConsultantAgreement-*** On October 20, 2003, the Company entered into a one yearconsultant agreement with an investor relations consultant. The Company paid$80,000 over the length of the agreement. In addition, the Company will issue tothe consultant 36,000 shares of common stock. On July 13, 2004 the Companyterminated the agreement. Under the terms of the termination agreement, theCompany will not be obligated to pay the $10,000 per month fee after July 15,2004. Additionally the Company will issue to the consultant 27,000 shares ofcommon stock valued at the fair market price on the date of issuance in lieu ofthe original 36,000 shares. The 27,000 shares of common stock were valued at$186,300 and is included in consulting fee expense. 

15

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***[12]     Commitmentsand Contingencies [Continued]***

***[D]     IntellectualProperty Agreement -***In connection with the acquisition in January 2004of intellectual property developed by the Center for Molecular Biotechnology ofFraunhofer USA, Inc., the Company will pay up to a maximum of $2,500,000 forservices to be performed by Fraunhofer USA, Inc. over a five year period. 

***[13]     Related PartyTransactions***

The Company has two consulting agreements withthe brothers of the Company's Chairman of the Board. One agreement is on a monthto month basis for $1,100 per month. The total consulting expense recorded perthis verbal agreement for the three months ended September 30, 2004 and 2003 was$3,300 respectively. 

The second agreement is with EVJ, LLC a limitedliability company controlled by Robert Kay, an employee of the Company. Thetotal consulting expense under this agreement was $45,000 for the three monthsended September 30, 2004 and was $30,000 for the two months ended September 30,2003. 

***[14] New AccountingPronouncements***

In January 2003, the FASB issued FIN 46,"Consolidation of Variable Interest Entities," as revised in December 2003 (FIN46R) which is effective for the first reporting period that ends after December15, 2004. This interpretation changes the method of determining whether certainentities should be included in the Company's consolidated financial statements.An entity is subject to FIN 46 and is called a variable interest entity ("VIE")if it has (1) equity that is insufficient to permit the entity to finance itsactivities without additional subordinated financial support from other parties,or (2) equity investors that cannot make significant decisions about theentity's operations or that do not absorb the expected losses or receive theexpected returns of the entity. All other entities are evaluated forconsolidation under SFAS No. 94, "Consolidation of All Majority-OwnedSubsidiaries." A VIE is consolidated by its primary beneficiary, which is theparty involved with the VIE that has a majority of the expected losses or amajority of the expected residual returns or both. The Company has determinedthat there is no impact from the adoption of this statement. 

On May 15, 2003, the FASB issued SFAS No. 150,"Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity." SFAS 150 establishes standards for classifying andmeasuring as liabilities certain financial instruments that embody obligationsof the issuer and have characteristics of both liabilities and equity. SFAS 150represents a significant change in practice in the accounting for a number offinancial instruments, including mandatorily redeemable equity instruments andcertain equity derivatives that frequently are used in connection with sharerepurchase programs. SFAS 150 is effective for all financial instruments createdor modified after May 31, 2003. The Company has determined that there is noimpact from the adoption of this statement. 

In April 2004, the Emerging Issues Task Forceissued Statement No. 03-06 ("EITF 03-06"), "Participating Securities and theTwo-Class Method Under FASB Statement No. 128, Earnings Per Share." EITF 03-06addresses a number of questions regarding the computation of earnings per shareby companies that have issued securities other than common stock thatcontractually entitle the holder to participate in dividends and earnings of thecompany when, and if, it declares dividends on its common stock. The issue alsoprovides further guidance in applying the two-class method of calculatingearnings per share, clarifying what constitutes a participating security and howto apply the two-class method of computing earnings per share once it isdetermined that a security is participating, including how to allocateundistributed earnings to such a security. EITF 03-06 is effective for fiscalperiods beginning after March 31, 2004. The Company does not expect the adoptionof this statement to have a material impact on its financial position or resultsof operations. 

In June 2004, the Emerging Issues Task Force ("EITF")issued EITF No. 03-01, "The Meaning of Other-Than-Temporary Impairment and itsApplication to Certain Investments" ("EITF 03-01"). EITF 03-01 includes newguidance for evaluating and recording impairment losses on debt and equityinvestments, as well as new disclosure requirements for investments that aredeemed to be temporarily impaired. The accounting guidance of EITF 03-01 iseffective for reporting periods beginning after June 15, 2004, while thedisclosure requirements for debt and equity securities accounted for under SFAS115, Accounting for Certain Investments in Debt and Equity Securities, areeffective for annual periods ending after December 15, 2003. Adoption of EITF03-01 will not have a material impact on the Company's consolidated financialposition or results of operations. 

16

 
**INTEGRATED BIOPHARMA, INC.** **NOTES TO CONSOLIDATED    FINANCIAL STATEMENTS****[UNAUDITED]** 
***15] Equity Transactions***

On September 21, 2004, the Company granted 95,238incentive stock options and 657,262 non-statutory stock options for a period often years at an exercise price equal to the market price of $6.30 and 14,430incentive stock options for a term of five years at $6.93 representing 110% ofthe market price and 110,570 non-statutory stock options for a period of tenyears at $6.93 representing 110% of the market price. 

***Treasury Stock Purchases -***Through the Company's stock repurchase plan, duringJuly 2004, the Company purchased an aggregate of 9,100 shares of its commonstock for a purchase price of $70,508. 

***[16] Segment Information***

The basis for presenting segment resultsgenerally is consistent with overall Company reporting. The Company reportsinformation about its operating segments in accordance with Financial AccountingStandard Board Statement No. 131, "Disclosure About Segments of an Enterpriseand Related Information," which establishes standards for reporting informationabout a company's operating segments. 

The Company has divided its operations into threereportable segments as follows: Sales of vitamins and nutritional supplements,sales of its pharmaceutical drug Paclitaxel and sales of technical servicesthrough its CRO. Because Paxis Pharmaceuticals, Inc. was not acquired untilfiscal 2004, the Company operated one business segment in fiscal 2003. Theinternational sales for the three months ended September 30, 2004 were$1,658,963. 

Financial information relating to quarter endingSeptember 30, 2004 operations by business segment follows: 
**Nutraceutical****Pharmaceutical****Technical Services**
**Total**Revenues     U.S.    Customers$    4,188,372$211,660$57,041$4,457,073        International1,658,963----1,658,963 Total Revenues5,847,335211,66057,0416,116,036Segment operating profit/(loss)     (445,055)    (1,269,682)     (71,675)(1,786,412)Depreciation105,592168,803--274,395Capital Expenditures 31,433  146,235  916,552  1,094,220        Total Assets 19,927,714  8,228,470 2,014,07530,170,259        17
 

 
**Item 2.** **MANAGEMENT'S DISCUSSION AND    ANALYSIS OR PLAN OF OPERATIONS** 
The following discussion should be read inconjunction with the historical information of the Company and notes thereto.

***Critical Accounting Estimates***

***Allowances for DoubtfulAccounts and Sales Returns***

The Company makes judgments as to its ability tocollect outstanding receivables and provides allowances for the portion ofreceivables when collection becomes doubtful. Provisions are made based upon aspecific review of all significant outstanding invoices. The Companycontinuously monitors payments from its customers and maintains allowances fordoubtful accounts for estimated losses in the period they become known. 

The Company's sales policy is to requirecustomers to provide purchase orders establishing selling prices and shippingterms. Shipping terms are F.O.B. shipping point with title and risk of losspassing to the customer at point of shipment. 

The Company's return policy is to only acceptreturns for defective products. If defective products are returned, it is theCompany's agreement with its customers that the Company cure the defect andreship the product. The policy is that when the product is shipped the Companymakes an estimate of any potential returns or allowances. 

If the historical data the Company uses tocalculate the allowance provided for doubtful accounts does not reflect thefuture ability to collect outstanding receivables, additional provisions fordoubtful accounts may be needed and the future results of operations could bematerially affected. In recording any additional allowances, a respective chargeagainst income is reflected in the general and administrative expenses, andwould reduce the operating results in the period in which the increase isrecorded. 

***Inventory Valuation***

Inventories are stated at the lower of cost ormarket ("LCM"), which reflects management's estimates of net realizable value.The Company is a contract manufacturer and distributor, and only producesfinished goods or purchases raw materials on a purchase order basis.Consequently, the Company has minimal risk for slow-moving or obsoleteinventory. Raw materials are ordered from suppliers when needed to completecustomer's orders. Detail inventory levels and composition are reviewed andevaluated for potential overstock or obsolescence in light of current operationsand sales. Any appropriate reserve is recorded on a current basis. 

Mail order inventory is expiration datesensitive. The Company reviews this inventory and considers sales levels (bySKU), term to expiration date, potential for retesting to extend expiration dateand evaluates potential for obsolescence or overstock. 

***Intangible Assets***

Purchased intangibles consisting of patents andunpatented technological expertise, intellectual property, license fees andtrade names purchased as part of business acquisitions are presented net ofrelated accumulated amortization and are being amortized on a straight-linebasis over the remaining useful lives. 

The Company records impairment losses on otherintangible assets when events and circumstances indicate that such assets mightbe impaired and the estimated fair value of the asset is less than its recordedamount in accordance with SFAS No 144, "Accounting for the Impairment orDisposal of Long-Lived Assets." The Company reviews the value of its long-livedassets for impairment whenever events or changes in business circumstancesindicate that the carrying amount of the assets may not be fully recoverable orthat the useful lives of these assets are no longer appropriate. Conditions thatwould necessitate an impairment assessment include material adverse changes inoperations, significant adverse differences in actual results in comparison withinitial valuation forecasts prepared at the time of acquisition, a decision toabandon certain acquired products, services or marketplaces, or othersignificant adverse changes that would indicate the carrying amount of therecorded asset might not be recoverable. 

18

 
**MANAGEMENT'S DISCUSSION AND    ANALYSIS OR PLAN OF OPERATIONS** 
***Results of Operations***

***Three months ended September30, 2004 Compared to three months ended September 30, 2003***

The Company's net loss for the three months endedSeptember 30, 2004 was $(1,751,612) as compared to net loss of $(756,295) forthe three months ended September 30, 2003. This increase in net loss ofapproximately $995,000 is primarily the result of a decrease in gross profit ofapproximately $500,000, an increase in selling and administrative expenses ofapproximately $420,000, a decrease in other income of approximately $52,000, andan increase in federal income and state income taxes of approximately $23,000.

Sales for the three months ended September 30,2004 and 2003 were $6,116,036 and $4,980,006, respectively, an increase ofapproximately $1,100,000 or 23%. Gross profit for the three months endedSeptember 30, 2004 was $500,801 lower than gross profit for the three monthsended September 30, 2003. This decrease in gross profit is attributable to theinclusion of Paxis Pharmaceuticals manufacturing expenses. Exclusive of thePaxis subsidiary, the gross profit percentage for the quarter ended September30, 2004 was 24% as compared to 20% for the quarter ended September 30, 2003.For the three months ended September 30, 2004, the Company had sales to onecustomer, who accounted for 42% of net sales in 2004 and 69% in 2003. The lossof this customer would have an adverse affect on the Company's operations.

Manufacturing sales for the quarter endedSeptember 30, 2004 and 2003 were $5,150,561 and $4,053,322, respectively, anincrease of $1,097,239 or 27%. The increase in sales can be primarilyattributable to the acquisition in October 2003, of new product lines from AloeCommodities International, Inc. ("Aloe"). 

The Company has an agreement with DSM NutritionalProducts, Inc. (a successor to Roche Vitamins, Inc.). Sales under this agreementwere $532,892 for the three months ended September 30, 2004 as compared to$609,111 for the three months ended September 30, 2003, a decrease of $76,219 or13%. 

The Company offers distribution and sale of finechemicals through a subsidiary, IHT Health Products, Inc. Sales for the threemonths ended September 30, 2004 totaled $145,478 as compared to $451,039 for thethree months ended September 30, 2003, a decrease of $305,561 or 68%. 

On February 21, 2003 the Company acquired NuCycleTherapy, Inc. ("NuCycle"). NuCycle is engaged in the development and sale ofnutritional formulations based on plant-derived minerals through patentedhyperaccumulation technology. Sales for the three months ended September 30,2004 were $4,981. Sales for the three months ended September 30, 2003 were$9,231 and grant proceeds received for the three months ended September 30, 2003totaled $82,661. 

Paxis completed setting up its manufacturingfacilities and operations and began production in the fourth quarter of 2004. Inanticipation of fulfilling orders, Paxis has built up raw material and work inprocess inventories of approximately $2,600,000. Current orders are beingfulfilled on a purchase order basis. Sales for the three months ended September30, 2004 totaled $211,660. 

19

 
**MANAGEMENT'S DISCUSSION AND    ANALYSIS OR PLAN OF OPERATIONS** 
***Results of Operations[Continued]***

Cost of sales increased to $5,599,511 for thethree months ended September 30, 2004 as compared to $3,962,680 for the threemonths ended September 30, 2003. Cost of sales increased as a percentage ofsales to 91.5% for the three months ended September 30, 2004 as compared to a79.6% for the three months ended September 30, 2003. The increase in cost ofsales is due to the inclusion of $1,146,589 attributable to PaxisPharmaceuticals, Inc. Exclusive of Paxis Pharmaceuticals, Inc. cost of saleswould have been 73% for the three months ended September 30, 2004 as compared to80% for the three months ended September 30, 2003. 

A tabular presentation of the changes in sellingand administrative expenses is as follows: 
 Three Months Ended    September 30,  2004 2003 Change           Advertising Expense$200,832 $17,050 $183,782 Bad Debt Expense  (2,654)  (3,032)  378  Royalty & Commission Expense 49,837  4,558  45,279  Officers Salaries 98,398  123,782   (25,384) Auto, Travel & Entertainment  227,100  247,765  (20,665) Office Salaries 555,175  184,265  370,910 Freight Out  137,296  112,650   24,646 Depreciation & Amortization 100,196  50,444  49,752 Consulting Fees 235,717   78,865  156,852 Regulatory Fees 3,758  10,500  (6,742) Professional Fees 219,680  253,941  (34,261) Research & Development Expense 45,068  37,583  7,485 Other selling and administrative    expenses  432,534  233,392  199,142 Paxis Pharmaceuticals, Inc. --  620,307   (620,307)               Total$2,302,937 $1,883,374 $419,563               
The increase in advertising expense is due to anincrease in print advertising relating to the sales of the Naturally Noni TM,Naturally Aloe TM and Avera Sport TM lines. Royalty and commission expenseincreased as a result of the sales of the Naturally Noni TM, Naturally Aloe TMand Avera Sport TM lines. Office salaries have increased due to the addition oftwo new sales and marketing employees and the inclusion of Paxis salary expensesreflected in the current quarter. In previous quarters these costs were includedin Paxis startup expenses. The increase in freight out can be primarilyattributable the sales of the Naturally Noni TM, Naturally Aloe TM and AveraSport TM lines. The increase in depreciation and amortization expenses is aresult of the inclusion of Paxis Pharmaceuticals, Inc. Consulting fees haveincreased as a result of the termination of the agreement made on July 8, 2004,which resulted with the issuance of 27,000 shares of common stock. 

Other income [expense] was $34,547 for the threemonths ended September 30, 2004 as compared to $86,578 for the three monthsended September 30, 2003, a decrease of $52,031. The decrease is due to adecrease in consulting fee income of $8,000, a decrease in other income of$20,000, a decrease in interest and investment income of $14,281 and an increasein interest expense of approximately $10,000 due to the payment of three monthsof interest as compared to two months during the first quarter of 2003. 

20

 
**MANAGEMENT'S DISCUSSION AND    ANALYSIS OR PLAN OF OPERATIONS** 
***Inventories***

The inventory at September 30, 2004 increased by$1,299,879 from the inventory at June 30, 2004. The increase can be attributablean increase of the Naturally Noni TM, Naturally Aloe TM and Avera Sport TM linesof approximately $430,000 and the acquisition of the Hauser CRO's inventory ofapproximately $786,000. 

***Prepaid Expenses***

Prepaid expenses and other current assetsincreased by $175,154 from June 30, 2004. The increase is attributable to theinclusion of InB: Hauser Pharmaceutical Services, Inc.

***Liquidity and CapitalResources***

At September 30, 2004 the Company's workingcapital was $10,442,000, a decrease of $2,471,661 over working capital at June30, 2004. Cash and cash equivalents were $4,600,219 at September 30, 2004, adecrease of $4,947,827 from June 30, 2004. The Company utilized $3,718,245 and$1,215,543 from operations for the three months ended September 30, 2004 and2003, respectively. 

The primary reasons for the decrease in cash usedin operations for the three months ended September 30, 2004 are net loss ofapproximately $1,751,612, an increase in accounts receivable of approximately$755,000, an increase in inventories of approximately $1,300,000 and a decreasein accounts payable of approximately $62,000. Based upon the increase in theCompany's vitamin and supplement sales and an increase in its paxlitaxelbusiness the Company anticipates that cash flows from operations and existingcash balances will be sufficient to fund operations through fiscal 2005. 

The Company utilized $1,094,220 and $1,729,644 ininvesting activities for the three months ended September 30, 2004 and 2003,respectively. The Company utilized $135,362 and generated $41,422 from debtfinancing activities for the three months ended September 30, 2004 and 2003,respectively. 

The Company's total annual commitment atSeptember 30, 2004 for the next five years of $4,160,799 consists of obligationsunder operating leases for facilities and lease agreements for the rental ofwarehouse equipment, office equipment and automobiles. 

***Capital Expenditures***

The Company's capital expenditures for the threemonths ended September 30 2004 and 2003 were $1,094,220 and $1,122,509respectively. The capital expenditures during these periods are primarilyattributable to the purchase of machinery and equipment. 

The Company has budgeted approximately $725,000for capital expenditures for the remaining nine months of fiscal 2004. Suchamount will be funded from current cash balances. 

***Off-Balance Sheet Arrangements***

The Company has no off-balance sheetarrangements. 

21

 
**Item 3.** **INTEGRATED BIOPHARMA, INC.** 
 
(a) 
Evaluation of disclosure    controls and procedures. An evaluation was performed under the supervision    and with the participation of the Company's management, including the Chief    Executive Officer (CEO) and Chief Financial Officer (CFO), of the    effectiveness of the design and operation of the Company's disclosure    controls and procedures within 45 days before the filing date of this Form    10-QSB. Based on their evaluation, the Company's principal executive officer    and principal financial officer have concluded that the Company's disclosure    controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under    the Securities Exchange Act of 1934 (the "Exchange Act") are effective to    ensure that information required to be disclosed by the Company in reports    that it files or submits under the Exchange Act is recorded, processed,    summarized and reported within the time periods specified in Securities and    Exchange Commission rules and forms.    (b) 
Changes in Internal Control Over    Financial Reporting. There have been no significant changes in the Company's    internal controls over financial reporting or in other factors that could    significantly affect internal controls subsequent to their evaluation. There    were no significant deficiencies or material weaknesses, and therefore there    were no corrective actions taken. 
22

 
**Part II.  Other    Information** **INTEGRATED BIOPHARMA, INC.** Item 1: Legal Proceedings 
The three separate actions against the Companybrought by NatEx Georgia LLC, Wolfe Axelrod Weinberger Associates, LLC and BodySystems Technology, Inc., respectively, each described in the Company's AnnualReport on Form 10-KSB for the year ended June 30, 2004, filed with the U.S.Securities and Exchange Commission on September 28, 2004, are each stillpending. The Company's motion to dismiss in the Body Systems Technology, Inc.matter was denied, and the Company plans to defend vigorously the claims in thisaction. 
Item 2: Unregistered Sales ofEquity Securities and Use of Proceeds None Item 3: Defaults Upon SeniorSecurities None Item 4: Submission of Matters to aVote of Security Holders None Item 5: Other Information None Item 6: Exhibits and Reports onForm 8-K (a)Exhibits    31.1 Certification of Periodic    Report by Chief Executive Officer Pursuant to Rules 13a-14 and 15d-14 of the    Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of    the Sarbanes-Oxley Act of 2002    31.2 Certification of Periodic    Report by Chief Financial Officer Pursuant to Rules 13a-14 and 15d-14 of the    Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of    the Sarbanes-Oxley Act of 2002    32.1 Certification of Periodic    Report by Chief Executive Officer Pursuant to 18 U.S.C Section 1350, as    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    32.2 Certification of Periodic    Report by Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   (b)Reports on Form 8-K    Current Report on Form 8-K filed    on July 9, 2004 pursuant to Item 5 (Other Events and Regulation FD    Disclosure) and Item 7 (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on July 14, 2004 pursuant to Item 5 (Other Events and Regulation FD    Disclosure) and Item 7 (Financial Statements and Exhibits). Current Report    on Form 8-K filed on July 15, 2004 pursuant to Item 5 (Other Events and    Regulation FD Disclosure) and Item 7 (Financial Statements and Exhibits).      
 

23
 Current Report on Form 8-K filed    on August 4, 2004 pursuant to Item 5 (Other Events and Regulation FD    Disclosure) and Item 7 (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on August 5, 2004 pursuant to Item 5 (Other Events and Regulation FD    Disclosure) and Item 7 (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on August 13, 2004 pursuant to Item 5 (Other Events and Regulation FD    Disclosure) and Item 7 (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on September 14, 2004 pursuant to Item 7.01 (Regulation FD) and Item 9.01    (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on September 15, 2004 pursuant to Item 7.01 (Regulation FD) and Item 9.01    (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on September 20, 2004 pursuant to Item 7.01 (Regulation FD) and Item 9.01    (Financial Statements and Exhibits).    Current Report on Form 8-K filed    on September 23, 2004 pursuant to Item 7.01 (Regulation FD) and Item 9.01    (Financial Statements and Exhibits).   24
 
SIGNATURES 
Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Registrant has duly caused this report to be 

signed on its behalf by the undersigned thereuntoduly authorized. 

 
 INTEGRATED BIOPHARMA, INC.        Date: November 15, 2004By: /s/ E. Gerald Kay  E. Gerald Kay  Chief Executive Officer       Date: November 15, 2004By: /s/ Eric Friedman  Eric Friedman  Chief Financial Officer 
25

 

 

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