FITLIFE BRANDS, INC. - Quarter Report: 2019 June (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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☒
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT
For the transition period from N/A to N/A
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Commission File No. 000-52369
FITLIFE BRANDS, INC.
(Name of small business issuer as specified in its
charter)
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Nevada
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20-3464383
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(State or other jurisdiction of incorporation)
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(IRS Employer Identification No.)
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5214 S.
136th Street, Omaha, NE 68137
(Address of principal executive offices)
(402) 991-5618
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed
all reports required by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements
for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes ☒ No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer,
smaller reporting company or emerging growth company. See
definitions of “large accelerated filer,”
“accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule
12b-2 of the Exchange Act:
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Large accelerated filer
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☐
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Accelerated filer
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☐
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Non–Accelerated filer
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☒
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Small reporting company
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☒
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Emerging growth company
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☐
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b–2 of the Exchange
Act). Yes ☐ No ☒
Securities registered under Section 12(b) of the Exchange
Act:
None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
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Title
of each class
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Trading
Symbol(s)
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Name
of each exchange on which registered
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Common
Stock, par value $0.01 per share
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FTLF
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OTC
Pink Marketplace
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Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest
practicable date.
As of August 8, 2019, a total of 1,015,120 shares of the
Registrant’s Common Stock, par value $0.01 per share, were
issued and outstanding.
FITLIFE
BRANDS,
INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
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Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly
Report”), including “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in
Item 2 of Part I of this report, includes forward-looking
statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results,
levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance,
or achievements expressed or implied by forward-looking
statements.
In some cases, you can identify forward-looking statements by
terminology such as “may,” “should,”
“expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential,” “proposed,”
“intended,” or “continue” or the negative
of these terms or other comparable terminology. You should read
statements that contain these words carefully, because they discuss
our expectations about our future operating results or our future
financial condition or state other “forward-looking”
information. There may be events in the future that we are not able
to accurately predict or control. Before you invest in our
securities, you should be aware that the occurrence of any of the
events described in this Quarterly Report could substantially harm
our business, results of operations and financial condition, and
that upon the occurrence of any of these events, the trading price
of our securities could decline and you could lose all or part of
your investment. Although we believe that the expectations
reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, growth rates, levels of activity,
performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this Quarterly
Report to conform these statements to actual results.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
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FITLIFE BRANDS, INC.
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CONDENSED CONSOLIDATED BALANCE SHEETS
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June 30,
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December 31,
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2019
|
2018
|
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ASSETS:
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(Unaudited)
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CURRENT
ASSETS
|
|
|
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Cash
|
$917,000
|
$259,000
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Accounts
receivable, net of allowance of doubtful accounts, product
returns,
|
|
|
|
sales
returns and incentive programs of $294,000 and $455,000,
respectively
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3,220,000
|
1,433,000
|
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Inventories,
net of allowance for obsolescence of $131,000 and $107,000,
respectively
|
2,712,000
|
3,523,000
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Prepaid
expense and other current assets
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96,000
|
223,000
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Total
current assets
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6,945,000
|
5,438,000
|
|
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|
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Property
and equipment, net
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161,000
|
189,000
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|
Right
of use asset, net of amortization of $187,000
|
293,000
|
-
|
|
Goodwill
|
225,000
|
225,000
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|
Security
deposits
|
10,000
|
10,000
|
|
TOTAL
ASSETS
|
$7,634,000
|
$5,862,000
|
|
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LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
|
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CURRENT
LIABILITIES:
|
|
|
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Accounts
payable
|
$2,625,000
|
$2,628,000
|
|
Accrued
expense and other liabilities
|
445,000
|
420,000
|
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Lease
liability - current portion
|
70,000
|
-
|
|
Notes
payable - related parties
|
693,000
|
500,000
|
|
Total
current liabilities
|
3,833,000
|
3,548,000
|
|
|
|
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LONG-TERM
LEASE LIABILITY, net of current portion
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227,000
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-
|
|
|
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TOTAL
LIABILITIES
|
4,060,000
|
3,548,000
|
|
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CONTINGENCIES
AND COMMITMENTS
|
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STOCKHOLDERS'
EQUITY:
|
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Preferred
stock, $0.01 par value, 10,000,000 shares authorized; none
outstanding
|
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as
of June 30, 2019 and December 31, 2018
|
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Preferred
stock Series A Preferred, $0.01, par value 1,000 shares
authorized;
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600 shares issued and outstanding as of June 30, 2019 and December
31, 2018
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-
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-
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Common
stock, $.01 par value, 15,000,000 shares authorized; 1,015,120 and
1,111,943
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issued and outstanding as
of June 30, 2019 and December 31, 2018, respectively
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11,000
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11,000
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Treasury
stock, 99,238 shares
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(566,000)
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-
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Additional
paid-in capital
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32,199,000
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32,107,000
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Accumulated
deficit
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(28,070,000)
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(29,804,000)
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Total
stockholders' equity
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3,574,000
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2,314,000
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TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
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$7,634,000
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$5,862,000
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The accompanying notes are an integral part of these condensed
consolidated financial statements
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FITLIFE BRANDS, INC.
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND
2018
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(Unaudited)
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(Unaudited)
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Three Months Ended
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Six Months Ended
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June 30
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June
30
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2019
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2018
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2019
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2018
|
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Revenue
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$4,618,000
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$4,379,000
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$10,496,000
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$8,993,000
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Cost
of goods sold
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2,764,000
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2,573,000
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6,101,000
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5,271,000
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Gross
profit
|
1,854,000
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1,806,000
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4,395,000
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3,722,000
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OPERATING
EXPENSE:
|
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General
and administrative
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796,000
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856,000
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1,570,000
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1,709,000
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Selling
and marketing
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616,000
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718,000
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1,166,000
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1,523,000
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Depreciation
and amortization
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13,000
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18,000
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28,000
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38,000
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Total
operating expense
|
1,425,000
|
1,592,000
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2,764,000
|
3,270,000
|
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OPERATING
INCOME
|
429,000
|
214,000
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1,631,000
|
452,000
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OTHER
EXPENSE (INCOME)
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Interest
expense
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18,000
|
44,000
|
33,000
|
65,000
|
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Other
income
|
-
|
-
|
-
|
(1,000)
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Gain on settlement
|
(142,000)
|
-
|
(142,000)
|
-
|
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Total
other expense (income)
|
(124,000)
|
44,000
|
(109,000)
|
64,000
|
|
|
|
|
|
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NET
INCOME BEFORE INCOME TAXES
|
553,000
|
170,000
|
1,740,000
|
388,000
|
|
|
|
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INCOME
TAXES
|
6,000
|
-
|
6,000
|
-
|
|
|
|
|
|
|
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NET
INCOME
|
547,000
|
170,000
|
1,734,000
|
388,000
|
|
|
|
|
|
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PREFERRED
STOCK DIVIDEND
|
(18,000)
|
-
|
(18,000)
|
-
|
|
|
|
|
|
|
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NET
INCOME AVAILABLE TO COMMON SHAREHOLDERS
|
$529,000
|
$170,000
|
$1,716,000
|
$388,000
|
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NET
INCOME PER SHARE AVAILABLE TO COMMON SHAREHOLDERS:
|
||||
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Basic
|
$0.51
|
$0.16
|
$1.59
|
$0.36
|
|
|
|
|
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Diluted
|
$0.43
|
$0.16
|
$1.36
|
$0.36
|
|
|
|
|
|
|
|
Basic
weighted average common shares
|
1,047,447
|
1,095,510
|
1,079,517
|
1,084,091
|
|
|
|
|
|
|
|
Diluted
weighted average common shares
|
1,239,875
|
1,095,510
|
1,258,520
|
1,084,091
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
|
FITLIFE BRANDS,
INC.
|
|
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’
EQUITY
|
|
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A Preferred
|
Common Stock
|
Treasury
|
Additional
Paid-in
|
Accumulated
|
|
||
|
|
Shares
|
Amount
|
Shares
|
Amount
|
Stock
|
Capital
|
Deficit
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED JUNE 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH
31, 2019
|
600
|
$-
|
1,113,952
|
$11,000
|
$-
|
$32,156,000
|
$(28,617,000)
|
$3,550,000
|
|
Fair
value of common stock issued for services
|
|
|
406
|
|
|
16,000
|
|
16,000
|
|
Repurchase
of common stock
|
-
|
-
|
(99,238)
|
-
|
(566,000)
|
-
|
|
(566,000)
|
|
Dividends
payments on preferred stock
|
|
|
|
-
|
|
(18,000)
|
-
|
(18,000)
|
|
Fair
value of vested common shares and options issued for
services
|
|
|
|
|
|
45,000
|
|
45,000
|
|
Net
income
|
|
|
|
|
|
-
|
547,000
|
547,000
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2019
|
600
|
$-
|
1,015,120
|
$11,000
|
$(566,000)
|
$32,199,000
|
$(28,070,000)
|
$3,574,000
|
|
|
|
|
|
|
|
|
|
|
|
THREE
MONTHS ENDED JUNE 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MARCH
31, 2018
|
-
|
$-
|
1,095,510
|
$11,000
|
$-
|
$31,103,000
|
$(29,990,000)
|
$1,224,000
|
|
Fair
value of common stock issued for services
|
|
|
4,286
|
-
|
|
15,000
|
|
15,000
|
|
Fair
value of vested common shares and options issued for
services
|
|
|
|
|
|
9,000
|
|
9,000
|
|
Net
income
|
|
|
|
|
|
-
|
170,000
|
170,000
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2018
|
-
|
$-
|
1,099,796
|
$11,000
|
$-
|
$31,127,000
|
$(29,820,000)
|
$1,418,000
|
|
|
|
|
|
|
|
|
|
|
|
SIX
MONTHS ENDED JUNE 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2018
|
600
|
$-
|
1,111,943
|
$11,000
|
$-
|
$32,107,000
|
$(29,804,000)
|
$2,314,000
|
|
Fair
value of common stock issued for services
|
|
|
2,415
|
-
|
|
39,000
|
|
39,000
|
|
Repurchase
of Common Stock
|
-
|
-
|
(99,238)
|
-
|
(566,000)
|
-
|
|
(566,000)
|
|
Dividends
Payments on Preferred Stock
|
|
|
|
-
|
|
(18,000)
|
|
(18,000)
|
|
Fair
value of vested common shares and options issued for
services
|
|
|
|
|
|
71,000
|
|
71,000
|
|
Net
income
|
|
|
|
|
|
-
|
1,734,000
|
1,734,000
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2019
|
600
|
$-
|
1,015,120
|
$11,000
|
$(566,000)
|
$32,199,000
|
$(28,070,000)
|
$3,574,000
|
|
|
|
|
|
|
|
|
|
|
|
SIX
MONTHS ENDED JUNE 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2017
|
|
$-
|
1,068,171
|
$8,000
|
$-
|
$31,113,000
|
$(30,208,000)
|
$913,000
|
|
Fair
value of common stock issued for services
|
|
|
31,625
|
3,000
|
|
95,000
|
|
98,000
|
|
Fair
value of vested common shares and options issued for
services
|
|
|
|
|
|
19,000
|
|
19,000
|
|
Net
income
|
|
|
|
|
|
-
|
388,000
|
388,000
|
|
|
|
|
|
|
|
|
|
|
|
JUNE
30, 2018
|
-
|
-
|
1,099,796
|
$11,000
|
$-
|
$31,227,000
|
$(29,820,000)
|
$1,418,000
|
The
accompanying notes are an integral part of these condensed
consolidated financial statements.
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
|
|
(Unaudited)
|
|
|
|
2019
|
2018
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
Net
income
|
$1,734,000
|
$388,000
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||
|
Depreciation
and amortization
|
28,000
|
38,000
|
|
Decrease in allowance for sales returns and doubtful
accounts
|
(161,000)
|
(521,000)
|
|
Increase
(decrease) in allowance for inventory obsolescence
|
24,000
|
(25,000)
|
|
Common
stock issued for services
|
39,000
|
98,000
|
|
Fair
value of options issued for services
|
71,000
|
19,000
|
|
Gain on disposal of assets
|
-
|
(1,000)
|
|
Right
of use asset - amortization
|
50,000
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
Accounts
receivable - trade
|
(1,626,000)
|
2,097,000
|
|
Accounts
receivable - factored
|
-
|
(1,466,000)
|
|
Inventories
|
787,000
|
142,000
|
|
Prepaid
expense
|
127,000
|
139,000
|
|
Customer
note receivable
|
-
|
5,000
|
|
Accounts
payable
|
(3,000)
|
43,000
|
|
Accrued
interest on notes
|
33,000
|
-
|
|
Accrued
liabilities and other liabilities
|
(69,000)
|
(74,000)
|
|
Right of use asset - lease liability
|
(46,000)
|
-
|
|
Net
cash provided by operating activities
|
988,000
|
882,000
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Proceeds
from the sale of assets
|
-
|
2,000
|
|
Net
cash provided by investing activities
|
-
|
2,000
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from issuance of notes payable
|
300,000
|
-
|
|
Dividend
payments on preferred stock
|
(18,000)
|
-
|
|
Secured
payable to factor
|
-
|
1,159,000
|
|
Repurchases
of common stock
|
(472,000)
|
-
|
|
Repayment
of line of credit
|
-
|
(1,950,000)
|
|
Repayments
of term loan
|
-
|
(415,000)
|
|
Repayments
of note payable
|
(140,000)
|
-
|
|
Net
cash used in financing activities
|
(330,000)
|
(1,206,000)
|
|
|
|
|
|
INCREASE
IN CASH
|
658,000
|
(322,000)
|
|
CASH,
BEGINNING OF PERIOD
|
259,000
|
1,262,000
|
|
CASH,
END OF PERIOD
|
$917,000
|
$940,000
|
|
|
|
|
|
Supplemental disclosure operating activities
|
|
|
|
Cash
paid for interest
|
$33,000
|
$65,000
|
|
|
|
|
|
Non-cash investing and financing activities
|
|
|
|
Recording
of lease asset and liability upon adoption of
ASU-2016-02
|
$343,000
|
$-
|
|
Accrued
liability for stock buyback
|
$94,000
|
$0
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
FITLIFE BRANDS,
INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
FitLife Brands, Inc. (the
“Company”) is a national provider of innovative and
proprietary nutritional supplements for health-conscious consumers
marketed under the brand names NDS Nutrition, PMD, SirenLabs,
CoreActive, and Metis Nutrition (together,
“NDS
Products”). In September
2015, the Company acquired iSatori, Inc.
(“iSatori”)
and as a result, the Company added three brands to its product
portfolio, including iSatori, BioGenetic Laboratories, and
Energize (together, “iSatori
Products”). The NDS
Products are distributed principally through franchised General
Nutrition Centers, Inc. (“GNC”) stores located both domestically and
internationally, and, with the launch of Metis Nutrition, through
corporate GNC stores in the United States. The iSatori
Products are sold through more than 25,000 retail locations, which
include specialty, mass, and online.
The Company was incorporated in the State of
Nevada on July 26, 2005. In October 2008, the Company acquired the
assets of NDS Nutritional Products, Inc., a Nebraska corporation,
and moved those assets into its wholly owned subsidiary NDS
Nutrition Products, Inc., a Florida corporation
(“NDS”). The Company’s NDS Products are
sold through NDS and the iSatori Products are sold through iSatori,
Inc., a Delaware corporation and a wholly owned subsidiary of the
Company.
FitLife Brands is headquartered in Omaha,
Nebraska. For more information on the Company, please go
to http://www.fitlifebrands.com.
The Company’s common stock trades under the symbol
“FTLF” on the OTC:PINK market.
Reverse/Forward Split
On April 11, 2019, the Company filed two
Certificates of Change with the Secretary of State of the State of
Nevada, the first to effect a reverse stock split of both the
Company’s issued and outstanding and authorized common stock,
par value $0.01 per share (“Common
Stock”), at a ratio of
1-for-8,000 (the “Reverse
Split”), and the second
to effect a forward stock split of both the Company’s issued
and outstanding and authorized Common Stock at a ratio of 800-for-1
(the “Forward
Split,” and together with
the Reverse Split, the “Reverse/Forward
Split”). The
Reverse/Forward Split became effective, and the Company’s
Common Stock began trading on a post-split basis, on Tuesday, April
16, 2019.
The
Company did not issue any fractional shares as a result of the
Reverse/Forward Split. Holders of fewer than 8,000 shares of the
Common Stock immediately prior to the Reverse/Forward Split
received cash in lieu of fractional shares based on the 5-day
volume weighted average price of the Company’s Common Stock
immediately prior to the Reverse/Forward Split, which was $0.57 per
pre-split share. As a result, such holders ceased to be
stockholders of the Company. Holders of more than 8,000 shares of
Common Stock immediately prior to the Reverse/Forward Split did not
receive fractional shares; instead any fractional shares resulting
from the Reverse/Forward Split were rounded up to the next whole
share.
As
a result of the Reverse/Forward Split, the number of shares of
Company Common Stock authorized for issuance under the
Company’s Articles of Incorporation, as amended, was
decreased from 150,000,000 shares to 15,000,000 shares. The
Reverse/Forward Split did not affect the Company’s preferred
stock, nor did it affect the par value of the Company’s
Common Stock.
The
share and per share amounts included in these unaudited interim
condensed consolidated financial statements and footnotes have been
retroactively adjusted to reflect the 1-for-10 aspect of the
Reverse/Forward Split as if it occurred as of the earliest period
presented.
NOTE 2 - BASIS OF PRESENTATION
The
accompanying interim condensed unaudited consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q and Article 8 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In our opinion, all adjustments
(consisting of normal recurring accruals) considered necessary for
a fair presentation are included. Operating results for the
six-month period ended June 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2019. Although management of the Company believes the
disclosures presented herein are adequate and not misleading, these
interim consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
the footnotes thereto included in our Annual Report on Form 10-K
for the fiscal year ended December 31, 2018, as filed with the
Securities and Exchange Commission on March 22, 2019.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in
accordance with accounting principles generally accepted in the
United States (“GAAP”). Significant accounting policies are
as follows:
Principles of Consolidation
The
condensed consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. Intercompany
accounts and transactions have been eliminated in the consolidated
condensed financial statements.
Use of Estimates
The
preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect
(i) the reported amounts of assets and liabilities,
(ii) the disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published, and
(iii) the reported amount of net sales and expense recognized
during the periods presented. Adjustments made with respect to the
use of estimates often relate to improved information not
previously available. Uncertainties with respect to such estimates
and assumptions are inherent in the preparation of financial
statements; accordingly, actual results could differ from these
estimates.
These estimates and assumptions also affect the
reported amounts of accounts receivable, inventories, goodwill,
revenue, costs and expense and valuations of long term assets,
realization of deferred tax assets and fair value of equity
instruments issued for services during the reporting
period. Management evaluates these estimates and assumptions
on a regular basis. Actual results could differ from those
estimates.
Basic and Diluted Income (loss) Per Share
Our
computation of earnings per share (“EPS”) includes basic and diluted
EPS. Basic EPS is measured as the income (loss) available to common
stockholders divided by the weighted average common shares
outstanding for the period. Diluted income (loss) per share
reflects the potential dilution, using the treasury stock method,
that could occur if securities or other contracts to issue common
stock were exercised or converted into common stock or resulted in
the issuance of common stock that then shared in the income (loss)
of the Company as if they had been converted at the beginning of
the periods presented, or issuance date, if later. In computing
diluted income (loss) per share, the treasury stock method assumes
that outstanding options and warrants are exercised and the
proceeds are used to purchase common stock at the average market
price during the period. Options and warrants may have a dilutive
effect under the treasury stock method only when the average market
price of the common stock during the period exceeds the exercise
price of the options and warrants. Potential common shares that
have an antidilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation
of diluted EPS.
|
Basic
and Diluted Income Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended June 30,
|
Six
Months Ended June 30,
|
||
|
|
2019
|
2018
|
2019
|
2018
|
|
|
|
|
|
|
|
Net
income
|
$529,000
|
$170,000
|
$1,716,000
|
$388,000
|
|
|
|
|
|
|
|
Weighted
average common shares - basic
|
1,047,447
|
1,095,510
|
1,079,517
|
1,084,091
|
|
|
|
|
|
|
|
Dilutive
effect of outstanding warrants and stock options
|
192,428
|
-
|
179,003
|
-
|
|
|
|
|
|
|
|
Weighted
average common shares - diluted
|
1,239,875
|
1,095,510
|
1,258,520
|
1,084,091
|
|
Net
income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$0.51
|
$0.16
|
$1.59
|
$0.36
|
|
Diluted
|
$0.43
|
$0.16
|
$1.36
|
$0.36
|
Lease
We
lease certain corporate office space and office equipment under
lease agreements with monthly payments over a period of 36 to 84
months. We determine if an arrangement is a lease at
inception. Lease assets are presented as operating lease
right-of-use assets and the related liabilities are presented as
lease liabilities in our consolidated balance
sheets.
Prior
to January 1, 2019, the Company accounted for leases under ASC 840,
Accounting for
Leases. Effective January 1, 2019, the Company
adopted the guidance of ASC 842, Leases, which requires an entity to
recognize a right-of-use asset and a lease liability for virtually
all leases. The Company adopted ASC 842 using a modified
retrospective approach. As a result, the comparative financial
information has not been updated and the required disclosures prior
to the date of adoption have not been updated and continue to be
reported under the accounting standards in effect for those
periods. The adoption of ASC 842 on January 1, 2019 resulted in the
recognition of operating lease right-of-use assets of and, lease
liabilities for operating leases of $480,000 and $480,000,
respectively. There was no cumulative-effect adjustment to
accumulated deficit. See Note 7 for further information regarding
the adoption of ASC 842 on the Company’s condensed financial
statements.
Goodwill
The Company had goodwill of $225,000 as
of June 30, 2019 and December 31, 2018, respectively, as a result
of the acquisition of NDS in October 2008. The Company adopted ASC
Topic 350 – Goodwill and Other
Intangible Assets.
In accordance with ASC Topic 350, goodwill, which represents the
excess of purchase price and related costs over the value assigned
to net tangible and identifiable intangible assets of businesses
acquired and accounted for under the purchase method, acquired in
business combinations is assigned to reporting units that are
expected to benefit from the synergies of the combination as of the
acquisition date. Under this standard, goodwill and intangibles
with indefinite useful lives are no longer amortized. The Company
assesses goodwill and indefinite-lived intangible assets for
impairment annually during the fourth quarter, or more frequently
if events and circumstances indicate impairment may have occurred
in accordance with ASC Topic 350. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, the
Company records an impairment loss equal to the difference. ASC
Topic 350 also requires that the fair value of indefinite-lived
purchased intangible assets be estimated and compared to the
carrying value. The Company recognizes an impairment loss when the
estimated fair value of the indefinite-lived purchased intangible
assets is less than the carrying value.
As of
June 30, 2019 and December 31, 2018, there were no indicators of
impairment for the recorded goodwill of $225,000,
respectively.
Customer Concentration
Gross sales prior to reduction for vendor funded discounts and
coupons to GNC during the six-month periods ended June 30, 2019 and
2018 were $9,184,000 and $8,380,000, respectively, representing
78.1% and 80.3% of total gross revenue, respectively.
Gross accounts receivable attributable
to GNC as of June 30, 2019 and June 30, 2018 were $3,228,000 and
$2,015,000, respectively, representing 93.3% and 78.6% of the Company’s total
accounts receivable balance, respectively.
For the quarters ended June 30, 2019 and 2018, online sales
accounted for 13.5% and 4.5% of the Company’s net revenue,
respectively.
Revenue Recognition
The
Company’s revenue is comprised of sales of nutritional
supplements to consumers, primarily through GNC
stores.
The
Company accounts for revenues in accordance with Accounting
Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.
The underlying principle of ASC 606 is to recognize revenue to
depict the transfer of goods or services to customers at the amount
expected to be collected. ASC 606 creates a five-step model that
requires entities to exercise judgment when considering the terms
of contract(s), which includes (1) identifying the contract(s) or
agreement(s) with a customer, (2) identifying our performance
obligations in the contract or agreement, (3) determining the
transaction price, (4) allocating the transaction price to the
separate performance obligations, and (5) recognizing revenue as
each performance obligation is satisfied. Under ASC 606, revenue is
recognized when performance obligations under the terms of a
contract are satisfied, which occurs for the Company upon shipment
or delivery of products or services to our customers based on
written sales terms, which is also when control is transferred.
Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring the products or services to a
customer.
All
products sold by the Company are distinct individual products and
consist of nutritional supplements and related supplies. The
products are offered for sale solely as finished goods, and there
are no performance obligations required post-shipment for customers
to derive the expected value from them. Other than promotional
activities, which can vary from time to time but nevertheless are
entirely within the Company’s control, contracts with
customers contain no incentives or discounts that could cause
revenue to be allocated or adjusted over time.
Control
of products we sell transfers to customers upon shipment from our
facilities, and the Company’s performance obligations are
satisfied at that time. Shipping and handling activities are
performed before the customer obtains control of the goods and
therefore represent a fulfillment activity rather than promised
goods to the customer. Payment for sales are generally made by
check, credit card, or wire transfer. Historically the Company has
not experienced any significant payment delays from
customers.
We
provide a 30-day right of return for our products. A right of
return does not represent a separate performance obligation, but
because customers are allowed to return products, the consideration
to which the Company expects to be entitled is variable. Upon
evaluation of returns, the Company determined that substantially
less than 5% of products are returned, and therefore believes it is
probable that such returns will not cause a significant reversal of
revenue in the future. We assess our contracts and the
reasonableness of our conclusions on a quarterly
basis.
Income Taxes
As of June 30, 2019, the Company had Federal net
operating loss (“NOL”) carry forwards available to offset future
taxable income of approximately $29.1 million. Approximately $19.8 million of the NOL can
be used in fiscal 2019, while the remaining $9.4 million can be
used after fiscal 2019, subject to Internal Revenue Services
(“IRS”) statutory
limitations.
As a
result of the Company’s significant NOL, which can be
utilized in fiscal 2019, there was no provision for income tax
recorded during the period ended June 30, 2019.
The Company accounts for income taxes using the
asset and liability method, whereby deferred tax assets are
recognized for deductible temporary differences, and deferred tax
liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized before the Company is
able to realize their benefits, or that future deductibility is
uncertain. Authoritative guidance issued by the ASC Topic 740
– Income
Taxes requires that a
valuation allowance be established when it is more likely than not
that all or a portion of deferred tax assets will not be realized.
As a result of the limitations related to Internal Revenue Code and
the Company’s lack of history of profitable operations, the
Company recorded a 100% valuation allowance against its net
deferred tax assets as of June 30, 2019 and December 31,
2018.
In
assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this
assessment.
Recent Accounting Pronouncements
Recent
accounting pronouncements issued by the FASB, including its
Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission are
not believed by management to have a material impact on the
Company’s present or future financial
statements.
NOTE 4 – INVENTORIES
The
Company’s inventories as of June 30, 2019 and December 31,
2018 were as follows:
|
|
June 30,
|
|
|
|
2019
|
December 31,
|
|
|
(unaudited)
|
2018
|
|
Finished
goods
|
$2,442,000
|
$3,168,000
|
|
Components
|
401,000
|
462,000
|
|
Allowance
for obsolescence
|
(131,000)
|
(107,000)
|
|
Total
|
$2,712,000
|
$3,523,000
|
NOTE 5 - PROPERTY AND EQUIPMENT
The
Company’s fixed assets as of June 30, 2019 and December 31,
2018 were as follows:
|
|
June 30,
|
|
|
|
2019
|
December 31,
|
|
|
(unaudited)
|
2018
|
|
Equipment
|
$902,000
|
$902,000
|
|
Accumulated
depreciation
|
(741,000)
|
(713,000)
|
|
Total
|
$161,000
|
$189,000
|
Depreciation
expense for the six months ended June 30, 2019 and 2018 was $28,000
and $38,000, respectively.
NOTE 6 – NOTES PAYABLE
Notes Payable – Related Parties
On December 26, 2018, the Company issued a line of
credit promissory note to Sudbury Capital Fund, LP, an entity
controlled by Dayton Judd, the Company’s CEO, in the
principal amount of $600,000, with an initial advance to the
Company in the amount of $300,000 which was outstanding at December
31, 2018. During the six
months ended June 30, 2019, an additional $300,000 was advanced to
the Company, resulting in aggregate borrowings of $600,000. In
addition, on December 26, 2018, the Company also issued a
promissory note to Mr. Judd in the principal amount of $200,000
(collectively, the “Notes”). During the six months ended June
30, 2019, the Company repaid principal and interest in the
aggregate of $140,000 on these Notes. As of June 30, 2019 and
December 31, 2018, the aggregate balance of the Notes amounted to
$693,000 and $500,000, respectively, including accrued interest of
$15,000 and $1,000, respectively.
The
Notes are unsecured and mature on the earlier to occur of a Change
in Control of the Company, as defined in the Notes, or December 31,
2019, and require monthly principal payments of approximately 5% of
the accreted balance beginning April 1, 2019, with a final payment
of unpaid principal and interest due December 31, 2019. The Notes
bear interest at a rate of 9.0% per annum. Interest due under the
terms of the Notes may be paid in cash or, up to and including
March 31, 2019, can be accrued and added to the outstanding
principal and accrued interest due and payable under the terms of
the Notes. All amounts due and payable under the terms of the Notes
are guaranteed by NDS and iSatori, the wholly-owned subsidiaries of
the Company.
NOTE 7 - RIGHT OF USE ASSETS AND LIABILITIES
In prior years, the Company entered into several
non-cancellable leases for its office facilities and equipment. The
lease agreements range from 36 months to 84 months, and require
monthly payments ranging between $200 and $7,000 through October
2024. On January 1, 2019, the Company adopted ASU 2016-02,
Leases
which requires a lessee to record a
right-of-use asset and a corresponding lease liability at the
inception of the lease initially measured at the present value of
the lease payments. The Company classified the leases as operating
leases and determined that the fair value of the lease assets and
liability at the inception of the leases was $480,000 using a
discount rate of 9%.
During
the six months ended June 30, 2019, the Company made payments of
$46,000 towards the lease liability. As of June 30, 2019,
lease liability amounted to $297,000. ASU 2016-02 requires
recognition in the statement of operations of a single lease cost,
calculated so that the cost of the lease is allocated over the
lease term, generally on a straight-line basis. Rent expense,
including real estate taxes, for the six months ended June 30, 2019
was $47,000. The right-of-use asset at June 30, 2019 was $293,000,
net of amortization of $187,000.
|
|
Six Months Ended
|
|
Lease
Cost
|
June 30, 2019
|
|
|
|
|
Operating
lease cost (included in general and administrative in the Company's
unaudited
|
|
|
and
consolidated statement of operations)
|
$50,000
|
|
|
|
|
Other
Information
|
|
|
Cash
paid for amounts included in the measurement of lease liabilities
for the first quarter 2019
|
$-
|
|
Weighted
Average remaining lease term - operating leases (in
years)
|
5.3
|
|
Average
discount rate - operating leases
|
9%
|
|
Operating
Leases
|
At June
30, 2019
|
|
Long-term
right-of-use assets
|
$293,000
|
|
Short-term
operating lease liabilities
|
$70,000
|
|
Long-term
operating lease liabilities
|
227,000
|
|
Total
operating lease liabilities
|
$297,000
|
|
Maturities
of the Company's lease liabilities are as follows:
|
|
|
|
|
|
Year
Ending
|
Operating
Leases
|
|
2019
(remaining 6 months)
|
$59,000
|
|
2020
|
67,000
|
|
2021
|
67,000
|
|
2022
|
67,000
|
|
2023
|
61,000
|
|
Less:
Imputed interest/present value discount
|
(24,000)
|
|
Present
value of lease liabilities
|
$297,000
|
NOTE 8 - EQUITY
Common Stock
a.
Common
Stock Issued for Services
The
Company is authorized to issue 15 million shares of Common Stock,
par value $0.01 per share, of which 1,015,120 shares of Common
Stock were issued and outstanding as of June 30, 2019.
During the six-month period ended June 30, 2019,
the Company issued 2,415
shares of Common Stock with a fair value of $15,000 to directors
for services rendered. The shares were valued at their respective
dates of issuance.
In July
2018, in connection with the appointment of Mr. Dayton Judd as
Chief Executive Officer, the Company granted Mr. Judd an aggregate
of 45,000 shares of restricted Common Stock, which include vesting
conditions subject to the achievement of certain market prices of
the Company’s Common Stock. Such shares are also subject to
forfeiture in the event Mr. Judd resigns from his position or is
terminated by the Company. As the vesting of the 45,000 shares of
restricted Common Stock is subject to certain market conditions,
pursuant to current accounting guidelines, the Company determined
the fair value to be $105,000, computed using the Monte Carlo
simulations on a binomial model with the assistance of a valuation
specialist with a derived service period of six years. During the
six months ended June 30, 2019, the Company recorded compensation
expense of $24,000 to amortize the fair value of these restricted
common shares based upon the prorated derived service
period.
During
the six month period ended June 30, 2018, the Company issued 31,625
shares of Common Stock with a fair value of $98,000 to employees
and directors for services rendered. The shares were valued at
their respective dates of issuance.
b.
Repurchase of
Common Stock
In
April 2019, the Company purchased 99,238 shares of Common Stock for
the aggregate purchase price of $566,000, of which $471,000 was
paid as of June 30, 2019 and the remaining $94,000 remains unpaid
and was recorded as part of accrued expenses and other liabilities
in the accompanying balance sheet until such amounts are claimed by
the shareholders. The Company is accounting for these shares as
treasury stock.
Options
Information regarding options outstanding as of
June 30, 2019 is as follows:
|
|
|
Weighted
|
Weighted
|
|
|
|
Average
|
Average
|
|
|
Number of
|
Exercise
|
Remaining
|
|
|
Options
|
Price
|
Life (Years)
|
|
Outstanding,
December 31, 2018
|
154,521
|
$13.10
|
5.69
|
|
Issued
|
8,000
|
6.85
|
4.26
|
|
Exercised
|
-
|
|
|
|
Forfeited
|
(11,500)
|
22.50
|
|
|
Outstanding,
June 30, 2019
|
151,021
|
$12.05
|
5.52
|
|
|
Outstanding
|
Exercisable
|
|||
|
|
|
|
|
|
|
|
Exercise Price Per share
|
Total Number of Options
|
Weighted Average Remaining Life (Years)
|
Weighted Average Exercise Price
|
Number of Vested Options
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
$2.80- $23.00
|
144,580
|
5.56
|
$8.75
|
83,372
|
$12.66
|
|
$23.10 - $144.34
|
6,441
|
4.47
|
$85.99
|
6,441
|
$85.99
|
|
|
151,021
|
5.52
|
$12.05
|
89,813
|
$17.92
|
During
the six-month periods ended June 30, 2019 and 2018, the Company
recognized compensation expense of $71,000 and $19,000,
respectively, to account for the fair value of stock options that
vested during the period.
Total
intrinsic value of outstanding stock options as of June 30, 2019
amounted to $560,000. Future
unamortized compensation expense on the unvested outstanding
options at June 30, 2019 amounted to $93,000, which will be
recognized through October 2020.
Warrants
Total
outstanding warrants to purchase shares of Company Common Stock as
of June 30, 2019 and December 31, 2018 amounted to
39,130
shares. Total intrinsic value as of
June 30, 2019 amounted to $182,000.
During
the period ended June 30, 2019, no warrants were granted and no
warrants expired unexercised.
|
Outstanding
|
|
Exercise Price
|
|
Issuance Date
|
|
Expiration Date
|
|
Vesting
|
|
39,130
|
|
$ 4.60
|
|
11/13/18
|
|
11/13/23
|
|
Yes
|
NOTE 9 – COMMITMENTS
AND CONTINGENCIES
Legal Proceedings
On December 31, 2014, various plaintiffs,
individually and on behalf of a purported nationwide and sub-class
of purchasers, filed a lawsuit in the U.S. District Court for the
Northern District of California, captioned Ryan et al. v. Gencor
Nutrients, Inc. et al., Case
No.: 4:14-CV-05682. The lawsuit includes claims made against the
manufacturer and various producers and sellers of products
containing a nutritional supplement known as Testofen, which is
manufactured and sold by Gencor Nutrients, Inc.
(“Gencor”). Specifically, the Ryan plaintiffs allege
that various defendants have manufactured, marketed and/or sold
Testofen, or nutritional supplements containing Testofen, and in
doing so represented to the public that Testofen had been
clinically proven to increase free testosterone levels. According
to the plaintiffs, those claims are false and/or not statistically
proven. Plaintiffs seek relief under violations of the Racketeering
Influenced Corrupt Organizations Act, breach of express and implied
warranties, and violations of unfair trade practices in violation
of California, Pennsylvania, and Arizona law. NDS utilizes Testofen
in a limited number of nutritional supplements it manufactures and
sells pursuant to a license agreement with
Gencor.
On
February 19, 2015, this matter was transferred to the Central
District of California to the Honorable Manuel Real. Judge Real had
previously issued an order dismissing a similar lawsuit that had
been filed by the same lawyer who represents the plaintiffs in the
Ryan matter. The United States Court of Appeals reversed part of
the dismissal issued by Judge Real and remanded the case back down
to the district court for further proceedings. As a result, the
parties in the Ryan matter issued a joint status report and that
matter is again active. However, on June 14, 2019, the Central
District of California issued an order staying the Ryan matter
pending the second appeal of a previously filed related case
captioned O’Toole, et al.,
v. Gencor Nutrients Inc. et al., Case
No.:2:12-cv-03754.
During
the six months ended June 30, 2019, the Company settled a trademark
infringement suit resulting in a gain of
$142,000.
We
are currently not involved in any litigation except as noted above,
that we believe could have a material adverse effect on our
financial condition or results of operations. Other than described
above, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of the Company or any of its
subsidiaries, threatened against or affecting the Company, our
Common Stock, any of our subsidiaries or of the Company’s or
our subsidiaries’ officers or directors in their capacities
as such, in which an adverse decision could have a material adverse
effect.
ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
financial statements and the related notes appearing elsewhere in
this Quarterly Report. This discussion and analysis may contain
forward-looking statements based on assumptions about our future
business.
Overview
FitLife Brands, Inc. (the
“Company”) is a national provider of innovative and
proprietary nutritional supplements for health-conscious consumers
marketed under the brand names NDS Nutrition, PMD, SirenLabs, Core
Active, and Metis Nutrition (together, “NDS
Products”). In September
2015, the Company acquired iSatori, Inc.
(“iSatori”)
and as a result, the Company added three brands to its product
portfolio, including iSatori, BioGenetic Laboratories, and
Energize (together, “iSatori
Products”). The NDS
Products are distributed principally through franchised General
Nutrition Centers, Inc. (“GNC”) stores located both domestically and
internationally, and, with the launch of Metis Nutrition, through
corporate GNC stores in the United States. The iSatori
Products are sold through more than 25,000 retail locations, which
include specialty, mass, and online.
The Company was incorporated in the State of
Nevada on July 26, 2005. In October 2008, the Company acquired the
assets of NDS Nutritional Products, Inc., a Nebraska corporation,
and moved those assets into its wholly owned subsidiary NDS
Nutrition Products, Inc., a Florida corporation
(“NDS”). The Company’s NDS Products are
sold through NDS and the iSatori Products are sold through iSatori,
Inc., a Delaware corporation and a wholly owned subsidiary of the
Company.
FitLife Brands is headquartered in Omaha,
Nebraska. For more information on the Company, please go
to http://www.fitlifebrands.com.
The Company’s common stock trades under the symbol
“FTLF” on the OTC:PINK market.
Reverse/Forward Split
On April 11, 2019, the Company filed two
Certificates of Change with the Secretary of State of the State of
Nevada, the first to effect a reverse stock split of both the
Company’s issued and outstanding and authorized common stock,
par value $0.01 per share (“Common
Stock”), at a ratio of
1-for-8,000 (the “Reverse
Split”), and the second
to effect a forward stock split of both the Company’s issued
and outstanding and authorized Common Stock at a ratio of 800-for-1
(the “Forward
Split,” and together with
the Reverse Split, the “Reverse/Forward
Split”). The
Reverse/Forward Split became effective, and the Company’s
Common Stock began trading on a post-split basis, on Tuesday, April
16, 2019.
The
Company did not issue any fractional shares as a result of the
Reverse/Forward Split. Holders of fewer than 8,000 shares of the
Common Stock immediately prior to the Reverse/Forward Split
received cash in lieu of fractional shares based on the 5-day
volume weighted average price of the Company’s Common Stock
immediately prior to the Reverse/Forward Split, which was $0.57 per
pre-split share. As a result, such holders ceased to be
stockholders of the Company. Holders of more than 8,000 shares of
Common Stock immediately prior to the Reverse/Forward Split did not
receive fractional shares; instead any fractional shares resulting
from the Reverse/Forward Split were rounded up to the next whole
share.
As
a result of the Reverse/Forward Split, the number of shares of
Company Common Stock authorized for issuance under the
Company’s Articles of Incorporation, as amended, was
decreased from 150,000,000 shares to 15,000,000 shares. The
Reverse/Forward Split did not affect the Company’s preferred
stock, nor did it affect the par value of the Company’s
Common Stock.
All
share and per share amounts have been retroactively adjusted to
reflect the 1-for-10 aspect of the Reverse/Forward
Split.
Results of Operations
Comparison of the three and six months ended June 30, 2019 to the
three and six months ended June 30, 2018
|
|
Three
Months Ended
|
|
Six
Months Ended
|
|
||||
|
|
June
30, 2019
|
June
30, 2018
|
Change
|
|
June
30, 2019
|
June
30, 2018
|
Change
|
|
|
Revenue
|
$4,618,000
|
$4,379,000
|
$239,000
|
5%
|
$10,496,000
|
$8,993,000
|
$1,503,000
|
17%
|
|
Cost
of goods sold
|
(2,764,000)
|
(2,573,000)
|
(191,000)
|
7%
|
(6,101,000)
|
(5,271,000)
|
(830,000)
|
16%
|
|
Gross
profit
|
1,854,000
|
1,806,000
|
48,000
|
3%
|
4,395,000
|
3,722,000
|
673,000
|
18%
|
|
Operating
expenses
|
(1,425,000)
|
(1,592,000)
|
167,000
|
-10%
|
(2,764,000)
|
(3,270,000)
|
506,000
|
-15%
|
|
Income
from operations
|
429,000
|
214,000
|
215,000
|
100%
|
1,631,000
|
452,000
|
1,179,000
|
261%
|
|
Other
expense (income)
|
(124,000)
|
44,000
|
(168,000)
|
|
(109,000)
|
64,000
|
(173,000)
|
|
|
Provision
for income tax
|
6,000
|
-
|
6,000
|
|
6,000
|
-
|
6,000
|
|
|
Net income
|
$547,000
|
$170,000
|
$377,000
|
222%
|
$1,734,000
|
$388,000
|
$1,346,000
|
347%
|
Net
Sales. Revenue for
the three months ended June 30, 2019 increased 5% to $4,618,000 as compared
to $4,379,000
for the three months ended June 30,
2018. Revenue for the six months ended June 30, 2019
increased 17% to $10,496,000 as
compared to $8,993,000 for the six months ended June 30, 2018.
Revenue for the three- and six-month periods ended June 30, 2019
compared to the prior three- and six-month periods, in part,
reflects stabilizing trends in our wholesale business and growth in
our online direct-to-consumer offering.
Online revenue during the three months ended June
30, 2019 was approximately 13.5% of total revenue, compared to
roughly 4.5% of total revenue during the same three-month period in
2018. Online revenue
during the six months ended June 30, 2019 was approximately 11.5%
of total revenue, compared to roughly 2.8% of total revenue in the
same three-month period during 2018.
Cost of Goods
Sold. Cost of goods
sold for the three months ended June 30, 2019 increased
to $2,764,000 as compared to
$2,573,000 for the three months ended June 30, 2018. Cost of goods
sold for the six months ended June 30, 2019 increased
to $6,101,000 as compared to
$5,271,000 for the six months ended June 30, 2018. The
increase during the three- and six-month period is principally
attributable to higher revenue.
Gross Profit
Margin. Gross profit for
the three months ended June 30, 2019 increased to $1,854,000 as
compared to $1,806,000 for the three months ended June 30, 2018.
Gross profit for the six months ended June 30, 2019 increased to
$4,395,000 as compared to
$3,722,000 for the six months ended June 30, 2018. The increase
during the three- and six- month period is principally attributable
to higher revenue.
Gross margin for the three months ended June 30,
2019 declined to 40.1% compared to 41.2% during the same
period last year. The decline
was primarily attributable to greater promotional activity in our
iSatori wholesale business, partially offset by an increase in
higher margin online revenue. Gross margin for the six months ended
June 30, 2019 was 41.9% compared to 41.4% for the same period last
year. The increase was primarily attributable to the increase in
higher margin online revenue.
General and Administrative
Expense. General and
administrative expense for the three months ended June 30,
2019 decreased to $796,000 as
compared to $856,000 for the
three months ended June 30, 2018. For the six-month period ended
June 30, 2019, general and administrative expense declined to
$1,570,000, from $1,709,000 during the same period in the prior
year. The decreases in both the three- and six- month periods ended
June 30, 2019 reflect initiatives the Company put in place during
2018 to reduce operating expense.
Selling and Marketing
Expense. Selling and
marketing expense for the three months ended June 30, 2019
decreased to $616,000 as compared to
$718,000 for the three months ended June 30, 2018. Selling and
marketing expense for the six months ended June 30, 2019
decreased to $1,166,000 as compared to
$1,523,000 for the six months ended June 30, 2018. The
decreases in both the three- and six-month periods ended June 30,
2019 reflect efforts to reduce and optimize our sales and marketing
expense.
Depreciation and
Amortization. Depreciation and amortization for the
three months ended June 30, 2019 decreased to $13,000 as compared to $18,000 for the three months ended June 30,
2018. Depreciation and amortization for the six months ended
June 30, 2019 decreased to
$28,000 as compared to $38,000 for the six months ended June 30,
2018. The decrease in
both periods was primarily attributable to a decrease in
amortization expense due to the write-off of certain intangible
assets during the fourth quarter of 2018.
Net
Income. We generated
net income of $547,000 for the three-month period ended June 30,
2019 as compared to net income of $170,000 for the three months
ended June 30, 2018. We generated a net income of $1,734,000 for the six-month period
ended June 30, 2019 as compared to a net income of $388,000 for the
six months ended June 30, 2018. The increase in net income
for the three- and six-month periods ended June 30, 2019 compared
to the same periods in 2018 was primarily attributable to higher
revenue, lower operating expense, and reduced interest expense. In
addition, a gain from a legal settlement boosted net income during
the second quarter by $142,000.
Liquidity and Capital Resources
At June
30, 2019, we had positive working capital of approximately
$3,112,000, compared to $1,890,000 at December 31, 2018. Our
principal sources of liquidity at June 30, 2019 consisted of
$917,000 of cash and $3,220,000 from accounts
receivable.
On December 26, 2018, the Company issued a
line of credit promissory note to Sudbury Capital Fund, LP, an
entity controlled by Dayton Judd, the Company’s CEO, in the
principal amount of $600,000, with an initial advance to the
Company in the amount of $300,000. In addition, on December 26,
2018, the Company also issued a promissory note to Mr. Judd in the
principal amount of $200,000 (collectively, the
“Notes”). As of June 30, 2019, the aggregate
balance of the Notes amounted to $693,000 including accrued
interest of $15,000
The
Notes are unsecured and mature on the earlier to occur of a Change
in Control of the Company, as defined in the Notes, or December 31,
2019, and require monthly principal and interest payments beginning
April 1, 2019, with a final payment of unpaid principal and
interest due December 31, 2019. The Notes bear interest at a rate
of 9.0% per annum. Interest due under the terms of the Notes may be
paid in cash or, up to and including March 31, 2019, can be accrued
and added to the outstanding principal and accrued interest due and
payable under the terms of the Notes. All amounts due and payable
under the terms of the Notes are guaranteed by NDS and iSatori, the
wholly-owned subsidiaries of the Company.
The Company has historically financed its
operations primarily through cash flow from operations and equity
and debt financings. The Company has also provided for its
cash needs by issuing Common Stock, options and warrants for
certain operating costs, including consulting and professional
fees. The Company currently anticipates that cash derived
from operations and existing cash resources, including the cash
received by the Company as a result of the recent financing will be
sufficient to provide for the Company’s liquidity for the
next twelve months.
The
Company is dependent on cash flow from operations and amounts
available under the Notes to satisfy its working capital
requirements. No assurances can be given that cash flow from
operations and/or that the Company will have access to additional
capital under the terms of the Notes necessary to provide for the
Company’s liquidity for the next twelve months. Should the
Company be unable to generate sufficient revenue in the future to
achieve positive cash flow from operations, and/or should capital
be unavailable under the terms of the Notes, additional working
capital will be required. Management at present has no intention to
raise additional working capital through the sale of equity or debt
securities and believes the Notes will provide sufficient capital
necessary to operate the business over the next twelve months. In
the event the Company fails to achieve positive cash flow from
operations, additional capital is unavailable under the terms of
the Notes, and management is otherwise unable to secure additional
working capital through the issuance of equity or debt securities,
the Company’s business would be materially and adversely
harmed.
Cash Provided by
Operations. Our cash
provided by operating activities for the six months ended June 30,
2019 was $988,000, as compared to $882,000 for the six months ended
June 30, 2018.
Cash Provided by Investing
Activities. Cash
provided by investing activities for the six months ended June 30,
2019 was $0, as compared to $2,000 provided by investing activities
for the six months ended June 30,
2018.
Cash Used in Financing
Activities. Cash used in
financing activities for the six months ended June 30,
2019 was $(330,000) as compared to cash used in financing
activities of $(1,206,000) during the six months ended June 30,
2018. The primary
difference between the 2019 and 2018 periods was the payoff of all
amounts owed under a prior credit agreement during the six months
ended June 30, 2018.
Critical Accounting Policies and Estimates
Our
discussion and analysis of financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation
of these consolidated financial statements and related disclosures
requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, expense, and related
disclosure of contingent assets and liabilities. We evaluate, on an
on-going basis, our estimates and judgments, including those
related to the useful life of the assets. We base our estimates on
historical experience and assumptions that we believe 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.
Actual results may differ from these estimates.
The
methods, estimates and judgments we use in applying our most
critical accounting policies have a significant impact on the
results that we report in our consolidated financial statements.
The SEC considers an entity’s most critical accounting
policies to be those policies that are both most important to the
portrayal of a company’s financial condition and results of
operations and those that require management’s most
difficult, subjective or complex judgments, often as a result of
the need to make estimates about matters that are inherently
uncertain at the time of estimation. For a more detailed discussion
of the accounting policies of the Company, see Note 3 of the Notes
to the Condensed Consolidated Financial Statements included in this
Quarterly Report, “Summary
of Significant Accounting Policies.”
We
believe the following critical accounting policies, among others,
require significant judgments and estimates used in the preparation
of our consolidated financial statements.
Use of Estimates
The preparation of financial
statements in conformity with accounting principles generally
accepted in the United States (“GAAP”) requires management to make estimates and
assumptions that affect (i) the reported amounts of assets and
liabilities, (ii) the disclosure of contingent assets and
liabilities known to exist as of the date the financial statements
are published, and (iii) the reported amount of net sales and
expense recognized during the periods presented. Adjustments made
with respect to the use of estimates often relate to improved
information not previously available. Uncertainties with respect to
such estimates and assumptions are inherent in the preparation of
financial statements; accordingly, actual results could differ from
these estimates.
These estimates and assumptions also
affect the reported amounts of accounts receivable, inventories,
goodwill, revenue, costs and expense and valuations of long term
assets, allowance for deferred tax assets and equity instruments
issued for services during the reporting period. Management
evaluates these estimates and assumptions on a regular
basis. Actual results could differ from those
estimates.
Goodwill
The Company had goodwill with a
carrying value of $225,000 as of June 30, 2019 and December 31,
2018, respectively, as a result of the acquisition of NDS in
October 2008. The Company adopted ASC Topic 350 –
Goodwill and Other
Intangible Assets.
In accordance with ASC Topic 350, goodwill, which represents the
excess of purchase price and related costs over the value assigned
to net tangible and identifiable intangible assets of businesses
acquired and accounted for under the purchase method, acquired in
business combinations is assigned to reporting units that are
expected to benefit from the synergies of the combination as of the
acquisition date. Under this standard, goodwill and intangibles
with indefinite useful lives are no longer amortized. The Company
assesses goodwill and indefinite-lived intangible assets for
impairment annually during the fourth quarter, or more frequently
if events and circumstances indicate impairment may have occurred
in accordance with ASC Topic 350. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value, the
Company records an impairment loss equal to the difference. ASC
Topic 350 also requires that the fair value of indefinite-lived
purchased intangible assets be estimated and compared to the
carrying value. The Company recognizes an impairment loss when the
estimated fair value of the indefinite-lived purchased intangible
assets is less than the carrying value.
Identifiable intangible assets are stated at cost and accounted for
based on whether the useful life of the asset is finite or
indefinite. Identified intangible assets with finite useful lives
are amortized using the straight-line methods over their estimated
useful lives, which was originally ten years. Intangible assets
with indefinite lives are not amortized to operations, but instead
are reviewed for impairment at least annually, or more frequently
if there is an indicator of impairment.
As of
June 30, 2019 and December 31, 2018, there were no indicators of
impairment for the recorded goodwill of
$225,000.
Revenue Recognition
The
Company’s revenue is comprised of sales of nutritional
supplements to consumers, primarily through GNC
stores.
The
Company accounts for revenues in accordance with Accounting
Standards Codification (“ASC”) 606, Revenue from Contracts
with Customers. The underlying principle of ASC 606 is to recognize
revenue to depict the transfer of goods or services to customers at
the amount expected to be collected. ASC 606 creates a five-step
model that requires entities to exercise judgment when considering
the terms of contract(s), which includes (1) identifying the
contract(s) or agreement(s) with a customer, (2) identifying our
performance obligations in the contract or agreement, (3)
determining the transaction price, (4) allocating the transaction
price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. Under ASC 606,
revenue is recognized when performance obligations under the terms
of a contract are satisfied, which occurs for the Company upon
shipment or delivery of products or services to our customers based
on written sales terms, which is also when control is transferred.
Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring the products or services to a
customer.
All
products sold by the Company are distinct individual products and
consist of nutritional supplements and related supplies. The
products are offered for sale solely as finished goods, and there
are no performance obligations required post-shipment for customers
to derive the expected value from them. Other than promotional
activities, which can vary from time to time but nevertheless are
entirely within the Company’s control, contracts with
customers contain no incentives or discounts that could cause
revenue to be allocated or adjusted over time.
Control
of products we sell transfers to customers upon shipment from our
facilities, and the Company’s performance obligations are
satisfied at that time. Shipping and handling activities are
performed before the customer obtains control of the goods and
therefore represent a fulfillment activity rather than promised
goods to the customer. Payment for sales are generally made by
check, credit card, or wire transfer. Historically the Company has
not experienced any significant payment delays from
customers.
We
provide a 30-day right of return for our products. A right of
return does not represent a separate performance obligation, but
because customers are allowed to return products, the consideration
to which the Company expects to be entitled is variable. Upon
evaluation of returns, the Company determined that substantially
less than 5% of products are returned, and therefore believes it is
probable that such returns will not cause a significant reversal of
revenue in the future. We assess our contracts and the
reasonableness of our conclusions on a quarterly
basis.
Recent Accounting Pronouncements
See
Note 3 of the Notes to the Condensed Consolidated Financial
Statements included in this Quarterly Report for a description of
recent accounting pronouncements believed by management to have a
material impact on our present or future financial
statements.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Quarterly Report in
conjunction with other reports and documents that we file from time
to time with the SEC. In particular, please read our Quarterly
Reports on Form 10-Q, Annual Report on Form 10-K, and Current
Reports on Form 8-K that we file from time to time. You may obtain
copies of these reports directly from us or from the SEC at the
SEC’s Public Reference Room at 100 F. Street, N.E.
Washington, D.C. 20549, and you may obtain information about
obtaining access to the Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains information for
electronic filers at its website http://www.sec.gov.
ITEM 3. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Our
business is currently conducted principally in the United States.
As a result, our financial results are not affected by factors such
as changes in foreign currency exchange rates or economic
conditions in foreign markets. We do not engage in hedging
transactions to reduce our exposure to changes in currency exchange
rates, although as the geographical scope of our business broadens,
we may do so in the future.
Our
exposure to risk for changes in interest rates relates primarily to
our investments in short-term financial instruments. Investments in
both fixed rate and floating rate interest earning instruments
carry some interest rate risk. The fair value of fixed rate
securities may fall due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest
rates fall. Partly as a result of this, our future interest income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if we are forced to sell
securities that have fallen in estimated fair value due to changes
in interest rates. However, as substantially all of our cash
equivalents consist of bank deposits and short-term money market
instruments, we do not expect any material change with respect to
our net income as a result of an interest rate change.
We
do not hold any derivative instruments and do not engage in any
hedging activities.
ITEM
4. CONTROLS AND
PROCEDURES
(a) Evaluation
of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange
Commission’s rules and forms and that such information is
accumulated and communicated to our Chief Executive Officer and
Chief Financial Officer, as appropriate, to allow for timely
decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management
recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management is
required to apply its judgment in evaluating the cost-benefit
relationship of possible controls and procedures. Our disclosure
controls and procedures were designed to provide reasonable
assurance that the controls and procedures would meet their
objectives. As required by SEC Rule 13a-15(b), our Chief Executive
Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of the design and operation of our disclosure
controls and procedures as of the end of the period covered by this
report. Based on the foregoing, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and
procedures were effective at the reasonable assurance
level.
Our Chief Executive Officer and Chief Financial
Officer are responsible for establishing and maintaining adequate
internal control over our financial reporting. In order to evaluate
the effectiveness of internal control over financial reporting, as
required by Section 404 of the Sarbanes-Oxley Act, management has
conducted an assessment, including testing, using the criteria in
Internal Control — Integrated Framework, issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Our system of internal control over
financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Management has
used the framework set forth in the report entitled Internal
Control-Integrated Framework published by the COSO to evaluate the
effectiveness of our internal control over financial reporting.
Based on this assessment, our Chief Executive Officer and Chief
Financial Officer have concluded that our internal control over
financial reporting was effective as of June 30, 2019. This
Quarterly Report does not include an attestation report of our
independent registered public accounting firm regarding internal
control over financial reporting. Our internal control over
financial reporting was not subject to attestation by our
independent registered public accounting firm pursuant to temporary
rules of the SEC that permit us to provide only management’s
report in this Quarterly Report. There has been no change in our
internal controls over financial reporting during our most recent
fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal controls over financial
reporting.
(b) Changes
in Internal Controls Over Financial Reporting
There
have been no changes in our internal controls over financial
reporting or in other factors that could materially affect, or are
reasonably likely to affect, our internal controls over financial
reporting during the quarter ended June 30, 2019. There have not
been any significant changes in the Company’s critical
accounting policies identified since the Company filed its Annual
Report on Form 10-K for the year ended December 31,
2018.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 31, 2014, various plaintiffs,
individually and on behalf of a purported nationwide and sub-class
of purchasers, filed a lawsuit in the U.S. District Court for the
Northern District of California, captioned Ryan et al. v. Gencor
Nutrients, Inc. et al., Case
No.: 4:14-CV-05682. The lawsuit includes claims made against the
manufacturer and various producers and sellers of products
containing a nutritional supplement known as Testofen, which is
manufactured and sold by Gencor Nutrients, Inc.
(“Gencor”). Specifically, the Ryan plaintiffs allege
that various defendants have manufactured, marketed and/or sold
Testofen, or nutritional supplements containing Testofen, and in
doing so represented to the public that Testofen had been
clinically proven to increase free testosterone levels. According
to the plaintiffs, those claims are false and/or not statistically
proven. Plaintiffs seek relief under violations of the Racketeering
Influenced Corrupt Organizations Act, breach of express and implied
warranties, and violations of unfair trade practices in violation
of California, Pennsylvania, and Arizona law. NDS utilizes Testofen
in a limited number of nutritional supplements it manufactures and
sells pursuant to a license agreement with
Gencor.
On
February 19, 2015 this matter was transferred to the Central
District of California to the Honorable Manuel Real. Judge Real had
previously issued an order dismissing a similar lawsuit that had
been filed by the same lawyer who represents the plaintiffs in the
Ryan matter. The United States Court of Appeals reversed part of
the dismissal issued by Judge Real and remanded the case back down
to the district court for further proceedings. As a result, the
parties in the Ryan matter issued a joint status report and that
matter is again active. However,
on June 14, 2019, the Central District of California issued an
order staying the Ryan matter pending the second appeal of a
previously filed related case captioned O’Toole, et al., v. Gencor Nutrients
Inc. et al., Case
No.:2:12-cv-03754.
During
the six months ended June 30, 2019, the Company settled a trademark
infringement suit resulting in a gain of
$142,000.
We
are currently not involved in any litigation except as noted above
that we believe could have a material adverse effect on our
financial condition or results of operations. Other than described
above, there is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the
knowledge of the executive officers of the Company or any of its
subsidiaries, threatened against or affecting the Company, our
common stock, any of our subsidiaries or of the Company’s or
our subsidiaries’ officers or directors in their capacities
as such, in which an adverse decision could have a material adverse
effect.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition
are subject to numerous risks and uncertainties described in our
Annual Report on Form 10-K for our fiscal year ended December 31,
2018, filed on March 22, 2019. You should carefully consider these
risk factors in conjunction with the other information contained in
this Quarterly Report. Should any of these risks materialize, our
business, financial condition and future prospects could be
negatively impacted. As of June 30, 2019, there are no risk factors
identified by the Company in addition to the risk factors
previously disclosed in Part I, Item 1A, “Risk
Factors” in our Annual
Report on Form 10-K for the year ended December 31,
2018.
ITEM 2. UNREGISTERED SALES OF EQUITY
SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR
SECURITIES
There
were no defaults upon senior securities during the six-month period
ended June 30, 2019.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
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Certificates of Change, dated April 11, 2019 (incorporated by
reference to Exhibit 3.1 filed with Form 8-K on April 15,
2019).
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Certification
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act.
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Certification
of Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act.
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Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act.
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Certification
of Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act.
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101.INS
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XBRL
Instance Document
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101.SCH
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XBRL
Taxonomy Extension Schema
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101.CAL
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XBRL
Taxonomy Extension Calculation Linkbase
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101.DEF
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XBRL
Taxonomy Extension Definition Linkbase
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101.LAB
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XBRL
Taxonomy Extension Label Linkbase
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101.PRE
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XBRL
Taxonomy Extension Presentation Linkbase
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SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized.
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Registrant
Date: August 9, 2019
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FitLife Brands, Inc.
By: /s/
Dayton Judd
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Dayton Judd
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Chief Executive Officer and Director
(Principal Executive Officer)
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Registrant
Date: August 9, 2019
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FitLife Brands, Inc.
By: /s/ Susan
Kinnaman
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Susan Kinnaman
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Chief Financial Officer
(Principal Financial Officer)
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