UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT |
For the transition period from N/A to N/A
Commission File No.
| FITLIFE BRANDS, INC. |
| (Name of small business issuer as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
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:
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).
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:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Small reporting company | |
| Emerging growth company | |
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 10, 2022, a total of
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
| PAGE |
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| PART I - FINANCIAL INFORMATION |
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| Item 1. |
1 | |
| 1 | ||
| 2 | ||
| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
3 | |
| 4 | ||
| Notes to Condensed Consolidated Financial Statements (unaudited) |
5 | |
| Item 2. |
Management’s Discussion & Analysis of Financial Condition and Results of Operations |
13 |
| Item 3. |
19 | |
| Item 4. |
19 | |
| PART II - OTHER INFORMATION |
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| Item 1. |
22 | |
| Item 1A. |
22 | |
| Item 2. |
22 | |
| Item 3. |
22 | |
| Item 5. |
22 | |
| Item 6. |
22 | |
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 Quarterly 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.
FINANCIAL INFORMATION
Item 1. Financial Statements
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| ASSETS: | September 30, | December 31, | ||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net of allowance of doubtful accounts of $ and $, respectively | ||||||||
| Inventories, net of allowance for obsolescence of $ and $, respectively | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset, net of amortization of $ and $, respectively | ||||||||
| Intangibles, net of amortization of $ and $, respectively | ||||||||
| Goodwill | ||||||||
| Deferred tax asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expense and other liabilities | ||||||||
| Product returns | ||||||||
| Lease liability - current portion | ||||||||
| Total current liabilities | ||||||||
| Long-term lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $ par value, shares authorized, outstanding as of September 30, 2022 and December 31, 2021 | ||||||||
| Common stock, $ par value, shares authorized; and issued and outstanding as of September 30, 2022 and December 31, 2021, respectively | ||||||||
| Treasury stock, and shares, respectively | ( | ) | ||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Three months ended | Nine months ended | |||||||||||||||
| September 30 | September 30 | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| OPERATING EXPENSES: | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| OPERATING INCOME | ||||||||||||||||
| OTHER INCOME | ||||||||||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gain on debt forgiveness | ( | ) | ||||||||||||||
| Total other income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| PRE-TAX NET INCOME | ||||||||||||||||
| PROVISION FOR INCOME TAXES | ||||||||||||||||
| NET INCOME | $ | $ | $ | $ | ||||||||||||
| NET INCOME PER SHARE | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
| Basic weighted average common shares | ||||||||||||||||
| Diluted weighted average common shares | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Additional | ||||||||||||||||||||||||
| Common Stock | Treasury | Paid-in | Accumulated | |||||||||||||||||||||
| Shares | Amount | Stock | Capital | Deficit | Total | |||||||||||||||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2022 | ||||||||||||||||||||||||
| JUNE 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||
| SEPTEMBER 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| THREE MONTHS ENDED SEPTEMBER 30, 2021 | ||||||||||||||||||||||||
| JUNE 30, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||
| SEPTEMBER 30, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2022 | ||||||||||||||||||||||||
| DECEMBER 31, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Retirement of treasury shares | ( | ) | ||||||||||||||||||||||
| Exercise of stock options | ||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||
| SEPTEMBER 30, 2022 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||
| NINE MONTHS ENDED SEPTEMBER 30, 2021 | ||||||||||||||||||||||||
| DECEMBER 31, 2020 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
| Repurchase of common stock | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Exercise of stock options | - | |||||||||||||||||||||||
| Repurchase of options | - | - | ( | ) | ( | ) | ||||||||||||||||||
| Stock-based compensation | ||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||
| SEPTEMBER 30, 2021 | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(Unaudited)
| Nine months ended September 30 | ||||||||
| 2022 | 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Right of use asset amortization and lease liability | ||||||||
| Allowance for doubtful accounts | ( | ) | ||||||
| Allowance for inventory obsolescence | ( | ) | ||||||
| Stock compensation expense | ||||||||
| Forgiveness of PPP loan | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ( | ) | ||||
| Deferred tax asset | ||||||||
| Prepaid expense and other current assets | ( | ) | ||||||
| Accounts payable | ||||||||
| Lease liability | ( | ) | ( | ) | ||||
| Accrued expense and other liabilities | ( | ) | ||||||
| Product returns | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Cash paid for acquisition of Nutrology | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Repurchases of common stock and options | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| CHANGE IN CASH | ||||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(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 following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"). The Company distributes the NDS Products 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
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $
Recent Developments
Filing of Form 15
On July 18, 2022, the Company filed a Form 15-12G (the “Form 15”) with the Securities and Exchange Commission (the “SEC”) whereby, under Rule 12g-4(a)(1), the Company certified the deregistration of its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and terminated its duty to file reports under Sections 13 and 15(d) of the Exchange Act. On October 14, 2022, the Company withdrew the Form 15 and has returned to current filer status.
Restatement of Financial Statements
On August 24, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company was advised by Weaver and Tidwell, L.L.P. (“Weaver”), its registered independent public accounting firm as of that date, that the Company’s previously issued financial statements included in its Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in its Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021 and June 30, 2021 (collectively, the “Restated Periods”) should be restated to correct historical errors related to the recognition of revenue, and should therefore no longer be relied upon (the “Restatement”).
The Restatement followed the determination that the revenue associated for all customers with standard FOB destination terms, as reported in the Company’s prior period consolidated financial statements, was incorrectly recognized at the time of shipment instead of when the performance obligation was satisfied upon delivery. In addition, the accounting treatment related to the recognition of corresponding accounts receivables, inventory and expensing of cost of goods sold was also restated. The Company’s errors in the misapplication of revenue recognition resulted in certain errors recorded in various account balances in the Company’s consolidated balance sheets, statements of operations, statements of stockholders’ equity, statement of cash flows, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements) for the Restated Periods.
The Company restated the financial statements for the Restated Periods in its comprehensive Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 (the “2020 Form 10K/A”), and a comprehensive Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), which reports were filed with the SEC on October 13, 2022.
Forward Stock Split
The Board of Directors of the Company (the “Board”) approved a forward stock split of the Company’s authorized, issued and outstanding shares of Common Stock, at a ratio of
All references in this Quarterly Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Forward Split on a retroactive basis as of the earliest period presented, unless otherwise noted.
Share Repurchase Plan
On February 1, 2021, the Board approved an additional amendment to the previously authorized share repurchase program initially approved by the Board on August 16, 2019, as amended on September 23, 2019 and November 6, 2019 (“Share Repurchase Program”). Under the terms of the amendment, the Company is authorized to repurchase up to $
During the nine months ended September 30, 2022, the Company did repurchase any Securities under the Share Repurchase Program.
COVID-19 Pandemic
The COVID-19 pandemic has had an effect on the Company’s employees, business and operations and those of its customers, vendors and business partners. In this respect, the temporary or permanent closure of some of our retail partners’ store locations and the stay-at-home orders that occurred early in the pandemic negatively affected our results from operations, although much of the impact has been offset by an increase in revenue attributable to online sales, and increased sales during the more recent quarters. Our future financial position and operating results could be materially and adversely affected in the event that a resurgence of COVID-19 cases leads to new stay-at-home orders and/or further disruptions in both our supply chain and manufacturing lead-times, which could lower demand for the Company’s products and/or prevent the Company from producing and delivering its products in a timely manner, although the extent of these effects cannot be determined at this time. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business and operations accordingly.
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 nine-month period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 2021 Form 10-K.
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 and Assumptions
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.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income 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 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 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.
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
|
| ||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| Weighted average common shares - basic | ||||||||||||||||
| Dilutive effect of outstanding warrants and stock options | ||||||||||||||||
| Weighted average common shares - diluted | ||||||||||||||||
| Net income per common share: | ||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||
Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of
Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
| ● | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ● | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data. |
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
Goodwill
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.
While we have concluded that a triggering event did not occur during the nine months ended September 30, 2022, a worsening of the severity of the COVID-19 pandemic could result in future goodwill impairment charges. We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
Customer Concentration
Net sales to GNC during the three-month periods ended September 30, 2022 and 2021 represent
Gross accounts receivable attributable to GNC as of September 30, 2022 and September 30, 2021 represent
For the three months ended September 30, 2022 and 2021, online sales accounted for
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 FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products 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.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, 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. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
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 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
The Company recorded federal income tax expense of $
As of September 30, 2022, the Company had federal NOL carryforwards available to offset future taxable income of approximately $
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, or that future deductibility is uncertain.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or 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 inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.
The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of September 30, 2022 and December 31, 2021 amounted to $
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Finished goods | $ | $ | ||||||
| Components | ||||||||
| Allowance for obsolescence | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of September 30, 2022 and December 31, 2021 as follows:
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) | ||||||||
| Equipment | $ | $ | ||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total | $ | $ | ||||||
Depreciation expense for the three months ended September 30, 2022 and 2021 was $
NOTE 6 – NOTES PAYABLE
Line of Credit – CIT Bank
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the “Line of Credit Agreement”) with Mutual of Omaha Bank, (the “Lender”), subsequently acquired by CIT Bank N.A., providing the Company with a $
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month SOFR rate plus
On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. All other terms of the Line of Credit Agreement remain unchanged.
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. On April 27, 2020, the Company received proceeds from a loan in the amount of $
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
During the nine months ended September 30, 2022, the Company made payments resulting in a $
| Nine months ended | ||||
| September 30, 2022 | ||||
| Lease Cost | ||||
| Operating lease cost (included in general and administrative in the Company's unaudited and consolidated statement of operations) | $ | |||
| Other information | ||||
| Weighted average remaining lease term - operating leases (in years) | ||||
| Average discount rate - operating leases | % | |||
The supplemental balance sheet information related to leases for the period is as follows:
| Operating leases | At September 30, 2022 | |||
| Long-term right-of-use assets | $ | |||
| Current operating lease liabilities | $ | |||
| Noncurrent operating lease liabilities | ||||
| Total operating lease liabilities | $ | |||
Maturities of the Company's lease liabilities are as follows:
| Year ending | Operating leases | |||
| 2022 (remaining three months) | ||||
| 2023 | ||||
| 2024 | ||||
| Less: Imputed interest/present value discount | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 8 - EQUITY
The Board approved a forward stock split of the Company’s Common Stock at a ratio of
Common Stock Issued for Services
In February 2021, the Company granted Mr. Dayton Judd, Chief Executive Officer, an aggregate of
The Company recorded $
Share Repurchase Program
On August 16, 2019, the Company's Board authorized management to repurchase up to $
During the nine months ended September 30, 2022, the Company did not repurchase any shares of Common Stock under the Share Repurchase Program.
Treasury Shares
In January 2022, the Company retired all treasury shares. As of September 30, 2022, there are
Options
Information regarding options outstanding as of September 30, 2022 is as follows:
| Number of | Weighted Average Exercise | Weighted Average Remaining Life | ||||||||||
| Options | Price | (Years) | ||||||||||
| Outstanding, December 31, 2020 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited | ||||||||||||
| Repurchased | ( | ) | ||||||||||
| Outstanding, December 31, 2021 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ( | ) | ||||||||||
| Forfeited | ( | ) | ||||||||||
| Repurchased | ||||||||||||
| Outstanding, September 30, 2022 | $ | |||||||||||
| 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 | |||||||||||||||||||
| $ | 0.70 | - | | | | $ | | | $ | | ||||||||||||||
| $ | 5.25 | - | | | | $ | | | $ | | ||||||||||||||
| | | $ | | | $ | | ||||||||||||||||||
The closing stock price for the Company’s stock on September 30, 2022 was $
On August 15, 2022, the Company granted Mr. Jakob York, Chief Financial Officer, options to purchase
The Company recorded $
Warrants
Total outstanding warrants to purchase shares of Common Stock as of September 30, 2022 and December 31, 2021 amounted to
| Outstanding | Exercise Price | Issuance Date | Expiration Date | Vesting | ||||||
| 143,480 | $ | | 11/13/18 | 11/13/23 |
| |||||
NOTE 9 – COMMITMENTS AND CONTINGENCIES
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. 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.
NOTE 10 – SUBSEQUENT EVENT
Subsequent to the end of the quarter, the Company repurchased
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 on Form 10-Q (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 following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"). The Company distributes the NDS Products 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 17,000 retail locations, which include specialty, mass, and online.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $0.01 per share (“Common Stock”), trades under the symbol “FTLF” on the over-the-counter market.
Recent Developments
Filing of Form 15
On July 18, 2022, the Company filed a Form 15-12G (the “Form 15”) with the Securities and Exchange Commission (the “SEC”) whereby, under Rule 12g-4(a)(1), the Company certified the deregistration of its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and terminated its duty to file reports under Sections 13 and 15(d) of the Exchange Act. On October 14, 2022, the Company withdrew the Form 15 and has returned to current filer status.
Restatement of Financial Statements
On August 24, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company was advised by Weaver and Tidwell, L.L.P. (“Weaver”), its registered independent public accounting firm as of the date, that the Company’s previously issued financial statements included in its Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in its Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021 and June 30, 2021 (collectively, the “Restated Periods”) should be restated to correct historical errors related to the recognition of revenue, and should therefore no longer be relied upon (the “Restatement”).
The Restatement followed the determination that the revenue associated for all customers with standard FOB destination terms, as reported in the Company’s prior period consolidated financial statements, was incorrectly recognized at the time of shipment instead of when the performance obligation was satisfied upon delivery. In addition, the accounting treatment related to the recognition of corresponding accounts receivables, inventory and expensing of cost of goods sold was also restated. The Company’s errors in the misapplication of revenue recognition resulted in certain errors recorded in various account balances in the Company’s consolidated balance sheets, statements of operations, statements of stockholders’ equity, statement of cash flows, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements) for the Restated Periods.
The Company restated the financial statements for the Restated Periods in its comprehensive Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 (the “2020 Form 10K/A”), and a comprehensive Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), which reports were filed with the SEC on October 13, 2022.
Forward Stock Split
The Board of Directors of the Company (the “Board”) approved a forward stock split of the Company’s authorized, issued and outstanding shares of Common Stock, at a ratio of 4-for-1 (the “Forward Split”). The Forward Split was effective as of December 2, 2021 and began trading on such basis on December 8, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock. The Forward Split did not have any effect on the stated par value of the Common Stock and did not affect the Company’s authorized preferred stock.
All references in this Quarterly Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Forward Split on a retroactive basis as of the earliest period presented, unless otherwise noted.
Share Repurchase Plan
On February 1, 2021, the Board approved an additional amendment to the previously authorized share repurchase program initially approved by the Board on August 16, 2019, as amended on September 23, 2019 and November 6, 2019 (“Share Repurchase Program”). Under the terms of the amendment, the Company is authorized to repurchase up to $5.0 million of the Company's Common Stock, warrants to purchase shares of the Company's Common Stock (“Warrants”), and other securities issued by the Company (“Securities”) over the 24 months following the Board approval date of February 1, 2021 at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Warrants and Securities, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
During the nine months ended September 30, 2022, the Company did not repurchase any Securities under the Share Repurchase Program. Under the Share Repurchase Program, the Company may purchase $3,170,000 of Securities as of September 30, 2022.
COVID-19 Pandemic
The COVID-19 pandemic has had an effect on the Company’s employees, business and operations and those of its customers, vendors and business partners. In this respect, the temporary or permanent closure of some of our retail partners’ store locations and the stay-at-home orders that occurred early in the pandemic negatively affected our results from operations, although much of the impact has been offset by an increase in revenue attributable to online sales, and increased sales during the more recent quarters. Our future financial position and operating results could be materially and adversely affected in the event that a resurgence of COVID-19 cases leads to new stay-at-home orders and/or further disruptions in both our supply chain and manufacturing lead-times, which could lower demand for the Company’s products and/or prevent the Company from producing and delivering its products in a timely manner, although the extent of these effects cannot be determined at this time. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business and operations accordingly.
Inflation
The Company has experienced inflationary pressure with regard to the procurement of many of its products. Thus far, the Company has been able to offset the impact of inflation through price increases to its customers. In the future, however, further inflationary pressure could adversely affect the Company's operating performance if market conditions no longer permit the Company to pass through price increases to its customers.
Results of Operations
Comparison of the three months ended September 30, 2022 to the three months ended September 30, 2021
| Three months ended |
||||||||||||||||
| September 30, 2022 |
September 30, 2021 |
Change ($) |
Change (%) |
|||||||||||||
| (Unaudited) |
||||||||||||||||
| Revenue |
$ | 8,314,000 | $ | 6,705,000 | $ | 1,609,000 | 24 | % |
||||||||
| Cost of goods sold |
5,070,000 | 3,760,000 | 1,310,000 | 35 | % |
|||||||||||
| Gross profit |
3,244,000 | 2,945,000 | 299,000 | 10 | % |
|||||||||||
| Gross margin percentage |
39.0 | % | 43.9 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, general and administrative |
1,686,000 | 1,496,000 | 190,000 | 13 | % |
|||||||||||
| Depreciation and amortization |
17,000 | 18,000 | (1,000 | ) | (6 | )% |
||||||||||
| Total operating expenses |
1,703,000 | 1,514,000 | 189,000 | 12 | % |
|||||||||||
| Income from operations |
1,541,000 | 1,431,000 | 110,000 | 8 | % |
|||||||||||
| Other income |
43,000 | 7,000 | 36,000 | NM | % |
|||||||||||
| Provision for income tax |
(364,000 | ) | (313,000 | ) | (51,000 | ) | 16 | % |
||||||||
| Net income |
$ | 1,220,000 | $ | 1,125,000 | $ | 95,000 | 8 | % |
||||||||
Revenue. Revenue for the three months ended September 30, 2022 increased 24% to $8,314,000 as compared to $6,705,000 for the three months ended September 30, 2021. Revenue for the three months ended September 30, 2022 compared to the prior period reflects increased demand from both wholesale and online channels.
Online revenue during the three months ended September 30, 2022 and 2021 was approximately 26% and 25% of total revenue, respectively. Due to the ongoing shift to online purchasing by consumers, e-commerce sales have accounted for a growing percentage of our domestic revenue. Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.
Cost of Goods Sold. Cost of goods sold for the three months ended September 30, 2022 increased to $5,070,000 as compared to $3,760,000 for the three months ended September 30, 2021. This 35% increase is principally attributable to higher revenue, partially offset by increased product procurement cost due to inflationary pressures.
Gross Profit. Gross profit for the three months ended September 30, 2022 was $3,244,000 compared to $2,945,000 for the three months ended September 30, 2021. The increase in gross profit is principally attributable to higher revenue. Gross margin as a percentage of sales for the three months ended September 30, 2022 decreased to 39.0% from 43.9% for the comparable period last year. The decrease in gross margin is primarily attributable to higher product costs associated with disruptions in the supply chain. Product costs have largely stabilized in recent months and, for certain ingredients, have begun to decline. We expect that the recent margin pressure will be temporary as production costs decline and as higher-margin online sales become a larger percentage of the Company’s total revenue.
Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended September 30, 2022 increased to $1,686,000 as compared to $1,496,000 for the three months ended September 30, 2021. The increase in selling, general and administrative expense was primarily due to $220,000 of non-recurring expenses relating to the Company’s Restatement effort.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended September 30, 2022 decreased to $17,000 as compared to $18,000 for the three months ended September 30, 2021.
Net Income. We generated net income of $1,220,000 for the three-month period ended September 30, 2022 as compared to net income of $1,125,000 for the three months ended September 30, 2021. The increase in net income for the three-month period ended September 30, 2022 compared to the same period in 2021 was primarily attributable to a combination of higher revenue, partially offset by increased general and administrative expense resulting from costs associated with the Company’s Restatement.
Comparison of the nine months ended September 30, 2022 to the nine months ended September 30, 2021
| Nine months ended |
||||||||||||||||
| September 30, 2022 |
September 30, 2021 |
Change ($) |
Change (%) |
|||||||||||||
| (Unaudited) |
||||||||||||||||
| Revenue |
$ | 23,433,000 | $ | 20,710,000 | $ | 2,723,000 | 13 | % | ||||||||
| Cost of goods sold |
13,587,000 | 11,289,000 | 2,298,000 | 20 | % | |||||||||||
| Gross profit |
9,846,000 | 9,421,000 | 425,000 | 5 | % | |||||||||||
| Gross margin percentage |
42.0 | % | 45.5 | % | ||||||||||||
| Operating expenses: |
||||||||||||||||
| Selling, general and administrative |
4,834,000 | 4,655,000 | 179,000 | 4 | % | |||||||||||
| Depreciation and amortization |
49,000 | 41,000 | 8,000 | 20 | % | |||||||||||
| Total operating expenses |
4,883,000 | 4,696,000 | 187,000 | 4 | % | |||||||||||
| Income from operations |
4,963,000 | 4,725,000 | 238,000 | 5 | % | |||||||||||
| Other income |
59,000 | 471,000 | (412,000 | ) | NM | % | ||||||||||
| Provision for income tax |
(1,066,000 | ) | (1,034,000 | ) | (32,000 | ) | 3 | % | ||||||||
| Net income |
$ | 3,956,000 | $ | 4,162,000 | $ | (206,000 | ) | (5 | )% | |||||||
Revenue. Revenue for the nine months ended September 30, 2022 increased 13% to $23,433,000 as compared to $20,710,000 for the nine months ended September 30, 2021. Revenue for the nine months ended September 30, 2022 compared to the prior period reflects increased sales through both our wholesale and online channels.
Online revenue during the nine months ended September 30, 2022 and 2021 was approximately 26% and 24% of total revenue, respectively. Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.
Cost of Goods Sold. Cost of goods sold for the nine months ended September 30, 2022 increased to $13,587,000 as compared to $11,289,000 for the nine months ended September 30, 2021. This 20% increase is principally attributable to higher revenue.
Gross Profit. Gross profit for the nine months ended September 30, 2022 was $9,846,000 compared to $9,421,000 for the nine months ended September 30, 2021. The increase in gross profit is principally attributable to higher revenue. Gross margin as a percentage of sales for the nine months ended September 30, 2022 decreased to 42.0% from 45.5% for the comparable period last year. The decrease in gross margin is primarily attributable to higher product costs associated with disruptions in the supply chain. Product costs have largely stabilized in recent months and, for certain ingredients, have begun to decline. We expect that the recent margin pressure will be temporary as production costs decline and as higher-margin online sales become a larger percentage of the Company’s total revenue.
Selling, General and Administrative Expense. Selling, general and administrative expense for the nine months ended September 30, 2022 increased to $4,834,000 as compared to $4,655,000 for the nine months ended September 30, 2021. The increase in selling, general and administrative expense was primarily due to Restatement and Merger and Acquisition (M&A) related expenses.
Depreciation and Amortization Expense. Depreciation and amortization expense for the nine months ended September 30, 2022 increased to $49,000 as compared to $41,000 for the nine months ended September 30, 2021. The increase is primarily attributable to the amortization of intangibles acquired in the Nutrology acquisition.
Net Income. We generated net income of $3,956,000 for the nine months ended September 30, 2022 as compared to net income of $4,162,000 for the nine months ended September 30, 2021. The decrease in net income for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily attributable to increased general and administrative expense resulting from M&A activities and Restatement-related costs during the nine months ended September 30, 2022, as well as forgiveness of the PPP Loan (as defined in "Liquidity and Capital Resources" below), that occurred during the first nine months of 2021.
Non-GAAP Measures
The financial presentation below contains certain financial measures not in accordance with accounting principles generally accepted in the United States (“GAAP”), defined by the SEC as “non-GAAP financial measures”, including non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Quarterly Report in accordance with GAAP.
As presented below, non-GAAP EBITDA excludes interest, income taxes, and depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to interest, taxes, depreciation and amortization, stock-based compensation, M&A/integration expenses, Restatement-related costs and non-recurring gains or losses. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation below allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance.
| For the three months ended September 30, |
For the nine months ended September 30, |
|||||||||||||||
| 2022 |
2021 |
2022 |
2021 |
|||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
| Net income |
$ | 1,220,000 | $ | 1,125,000 | $ | 3,956,000 | $ | 4,162,000 | ||||||||
| Interest income, net |
(43,000 | ) |
(7,000 | ) |
(59,000 | ) |
(18,000 | ) |
||||||||
| Provision for income taxes |
364,000 | 313,000 | 1,066,000 | 1,034,000 | ||||||||||||
| Depreciation and amortization |
17,000 | 18,000 | 49,000 | 41,000 | ||||||||||||
| EBITDA |
1,558,000 | 1,449,000 | 5,012,000 | 5,219,000 | ||||||||||||
| Non-cash and non-recurring adjustments |
||||||||||||||||
| Stock compensation expense |
91,000 | 107,000 | 295,000 | 345,000 | ||||||||||||
| M&A/integration expenses |
6,000 | 109,000 | 214,000 | 204,000 | ||||||||||||
| Restatement-related costs |
220,000 | - | 275,000 | - | ||||||||||||
| Non-recurring gains |
- | - | - | (453,000 | ) |
|||||||||||
| Adjusted EBITDA |
$ | 1,875,000 | $ | 1,665,000 | $ | 5,796,000 | $ | 5,315,000 | ||||||||
Liquidity and Capital Resources
At September 30, 2022, we had positive working capital of approximately $19,009,000, compared to $13,626,000 at December 31, 2021. Our principal sources of liquidity at September 30, 2022 consisted of $14,929,000 of cash and $1,535,000 of accounts receivable.
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the “Line of Credit Agreement”) with Mutual of Omaha Bank (the “Lender”), subsequently acquired by CIT Bank N.A., providing the Company with a $2.5 million revolving line of credit (the “Line of Credit”). The Line of Credit allows the Company to request advances thereunder and to use the proceeds of such advances for working capital purposes until the Maturity Date, or unless renewed at maturity upon approval by the Company’s Board and the Lender. The Line of Credit is secured by all assets of the Company.
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month SOFR rate plus 2.75%, and each advance will be payable on the Maturity Date with the interest on outstanding advances payable monthly. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to the Maturity Date, without premium or penalty. No borrowings are outstanding as of September 30, 2022.
On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. All other terms of the Line of Credit Agreement remain unchanged.
On April 27, 2020, the Company received proceeds from a loan in the amount of $449,700 from its lender, CIT Bank, N.A. (the “PPP Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the PPP Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA (the “Loan Agreement”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021.
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, along with available borrowings under the Line of Credit, 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 Line of Credit to satisfy its working capital requirements. No assurances can be given that cash flow from operations and/or the Line of Credit will be sufficient 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 Line of Credit, additional working capital will be required. Management currently has no intention to raise additional working capital through the sale of equity or debt securities and believes that the cash flow from operations and available borrowings under the Line of Credit 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 Line of Credit, 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. Cash provided by operating activities for the nine months ended September 30, 2022 was $5,003,000, as compared to cash provided by operations of $3,200,000 for the nine months ended September 30, 2021. The increase in cash provided by operating activities is primarily attributable to the company’s efforts in 2021 to increase inventory levels to ensure availability of products due to global supply chain constraints resulting from the COVID-19 pandemic.
Cash Used in Investing Activities. There was no cash used in investing activities for the nine months ended September 30, 2022. The Company used $529,000 for the nine months ended September 30, 2021 for the acquisition of Nutrology.
Cash Provided by (Used in) Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2022 was $29,000 as compared to cash used in financing activities of $390,000 during the nine months ended September 30, 2021.
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 GAAP. 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 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
In January 2017, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.
While we have concluded that a triggering event did not occur during the three months ended September 30, 2022, a worsening of the severity of the COVID-19 pandemic could result in future goodwill impairment charges. We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
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 FASB Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 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 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.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, 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. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
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 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 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.
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 materially 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 any borrowings under our existing Line of Credit, and our investments in short-term financial instruments. As of September 30, 2022, the Company had a zero balance under its existing Line of Credit.
Investments of our existing cash balances 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 will vary due to changes in interest rates and 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
In connection with the filing of this Form 10-Q for the period ended September 30, 2022, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below, which resulted in reporting errors requiring a restatement of our financial statements for the years ended December 31, 2020 and 2019 and our interim financial information for the quarterly periods ended June 30, 2021, March 31, 2021, September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019, June 30, 2019 and March 31, 2019.
Notwithstanding the material weaknesses described in Management's Report on Internal Control Over Financial Reporting, our management has concluded that our consolidated financial statements for the periods covered by and included in this Quarterly Report are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management’s establishing and maintaining adequate internal control over financial reporting is based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). A system of internal control over financial reporting should be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements.
A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this definition, our management, with the participation of our CEO and CFO, evaluated the effectiveness and design of our internal control over financial reporting against the COSO Framework and concluded that our internal control over financial reporting was not effective as of September 30, 2022 due to material weaknesses arising from flaws in our control environment, risk oversight measures, control activities, information processing and communication and our monitoring systems, each of which is described in more detail below. The material weaknesses resulted in reporting errors requiring a restatement of our financial statements for Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in our Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021, and June 30, 2021 (collectively, the "Restated Periods").
Control environment. We concluded that we did not maintain effective controls in the following areas: (i) managerial functions, procedures and oversight; (ii) organizational structure, delegation of authority and responsibilities; (iii) segregation of duties; (iv) adequacy of trained accounting and financial reporting personnel to ensure that internal control responsibilities were performed effectively and material accounting errors were detected; and (v) maintenance and enforcement of internal control responsibilities, including holding individuals accountable for their internal control responsibilities.
Risk oversight environment. We did not maintain adequate risk oversight measures related to the (i) identification and assessment of risks that could impact achieving our objectives and (ii) identification and analysis of the potential changes that could affect our internal controls environment.
Control activities. We concluded that we did not have effective control activities in the following areas: (i) selecting and developing control policies, procedures and activities to mitigate risks, including with respect to the methodologies used to calculate and report financial information and results; and (ii) selecting and implementing information technology and related systems supportive to our internal control over financial reporting.
Information processing and communication. We identified deficiencies associated with information processing and communication within our internal control framework. Specifically, we did not effectively communicate objectives and internal control responsibilities throughout the organization which contributed to inadequate documentation of processes and methodologies used to recognize revenue, costs of goods sold, inventory and accounts receivable, hindering clear communication with management, the Board of Directors and our independent auditor.
Monitoring activities. We concluded that we did not design and implement effective monitoring activities related to (i) selecting, developing, and performing separate evaluations of our internal control over financial reporting; and (ii) evaluating and communicating internal control deficiencies in a timely manner to parties responsible for taking corrective actions.
The issues described above resulted in the following errors in our financial statements previously filed with the SEC: improper recognition of revenue, cost of sales, accounts receivable, inventory and the provision for income taxes.
Our management, including our CFO, has worked with expert accounting consultants and our Audit Committee to design and implement both a short-term and a long-term remediation plan to correct the material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. The following activities highlight our commitment to remediating our identified material weaknesses.
Since March 2022 and through the filing date of this Form 10-Q, we have hired expert accounting consultants to assess our control environment and recommend improvements. In addition, we hired a new highly qualified CFO in August 2022 with extensive public-company experience.
In addition to the items noted above, as we continue to evaluate, remediate, and improve our internal control over financial reporting, our management expects to continue to implement additional measures to address control deficiencies and further refine and improve the remediation efforts described above. Specifically, we are developing a checklist of activities based on the criteria established in the COSO Framework against which we will assess the design of entity-level and activity-level controls, and the operational effectiveness of such controls. Deficiencies identified in this process will be addressed by management, including our CEO and CFO. This assessment, any deficiencies, and any remedial actions will be shared and discussed with our Audit Committee and our independent auditors on a quarterly basis.
(b) Changes in Internal Controls Over Financial Reporting
We are still in the process of implementing our remedial actions throughout 2022. Also, during August 2022, we hired a new CFO, a highly qualified individual with public company experience. Management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. 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’ directors or officers 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 comprehensive Annual Report on Form 10-K for our fiscal year ended December 31, 2021, filed on October 13, 2022. Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2021. 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.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the three-month period ended September 30, 2022.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| 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 |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
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.
| Registrant |
FitLife Brands, Inc. |
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| Date: November 10, 2022 |
By: |
/s/ Dayton Judd |
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| Dayton Judd |
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| Chief Executive Officer and Chair (Principal Executive Officer) |
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| Registrant |
FitLife Brands, Inc. |
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| Date: November 10, 2022 |
By: |
/s/ Jakob York |
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| Jakob York |
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| Chief Financial Officer (Principal Financial Officer) |
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Exhibit 31.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934
I, Dayton Judd, Chief Executive Officer of the Company, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of FitLife Brands, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations: and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Registrant.
Date: November 10, 2022 |
FitLife Brands, Inc.
By: /s/ Dayton Judd |
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Dayton Judd |
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Chief Executive Officer and Chair (Principal Executive Officer) |
Exhibit 31.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934
I, Jakob York, Chief Financial Officer of the Company, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of FitLife Brands, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations: and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Registrant
Date: November 10, 2022 |
FitLife Brands, Inc.
By: /s/ Jakob York |
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Jakob York |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FitLife Brands, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dayton Judd, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Registrant
Date: November 10, 2022 |
FitLife Brands, Inc.
By: /s/ Dayton Judd |
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Dayton Judd |
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Chief Executive Officer and Chair (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FitLife Brands, Inc. (the "Company") on Form 10-Q for the period ending September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jakob York, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Registrant
Date: November 10, 2022 |
FitLife Brands, Inc.
By: /s/ Jakob York |
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Jakob York |
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|
Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Allowance of doubtful accounts | $ 50,000 | $ 55,000 |
| Allowance for obsolescence | 203,000 | 56,000 |
| Right of use asset amortization | 363,000 | 322,000 |
| Intangibles amortization | $ 62,000 | $ 30,000 |
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 10,000,000 | 10,000,000 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 60,000,000 | 60,000,000 |
| Common stock, shares issued (in shares) | 4,555,957 | 4,552,485 |
| Common stock, shares outstanding (in shares) | 4,555,957 | 4,552,485 |
| Treasury stock, shares (in shares) | 0 | 881,311 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Revenue | $ 8,314,000 | $ 6,705,000 | $ 23,433,000 | $ 20,710,000 |
| Cost of goods sold | 5,070,000 | 3,760,000 | 13,587,000 | 11,289,000 |
| Gross profit | 3,244,000 | 2,945,000 | 9,846,000 | 9,421,000 |
| OPERATING EXPENSES: | ||||
| Selling, general and administrative | 1,686,000 | 1,496,000 | 4,834,000 | 4,655,000 |
| Depreciation and amortization | 17,000 | 18,000 | 49,000 | 41,000 |
| Total operating expenses | 1,703,000 | 1,514,000 | 4,883,000 | 4,696,000 |
| OPERATING INCOME | 1,541,000 | 1,431,000 | 4,963,000 | 4,725,000 |
| OTHER INCOME | ||||
| Interest income | (43,000) | (7,000) | (59,000) | (18,000) |
| Gain on debt forgiveness | (0) | (0) | (0) | 453,000 |
| Total other income | (43,000) | (7,000) | (59,000) | (471,000) |
| PRE-TAX NET INCOME | 1,584,000 | 1,438,000 | 5,022,000 | 5,196,000 |
| PROVISION FOR INCOME TAXES | 364,000 | 313,000 | 1,066,000 | 1,034,000 |
| NET INCOME | $ 1,220,000 | $ 1,125,000 | $ 3,956,000 | $ 4,162,000 |
| NET INCOME PER SHARE | ||||
| Basic (in dollars per share) | $ 0.27 | $ 0.25 | $ 0.87 | $ 0.95 |
| Diluted (in dollars per share) | $ 0.24 | $ 0.23 | $ 0.79 | $ 0.87 |
| Basic weighted average common shares (in shares) | 4,555,957 | 4,422,760 | 4,555,347 | 4,374,212 |
| Diluted weighted average common shares (in shares) | 4,988,271 | 4,818,096 | 4,978,828 | 4,808,708 |
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - USD ($) |
Common Stock Outstanding [Member] |
Common Stock [Member] |
Treasury Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Total |
|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2020 | 4,243,272 | |||||
| Balance at Dec. 31, 2020 | $ 42,000 | $ (1,790,000) | $ 32,174,000 | $ (18,552,000) | $ 11,874,000 | |
| Stock-based compensation | 0 | 0 | 345,000 | 0 | 345,000 | |
| Net income | 0 | 0 | 4,162,000 | 4,162,000 | ||
| Stock-based compensation (in shares) | 280,000 | |||||
| Exercise of stock options (in shares) | 15,580 | |||||
| Exercise of stock options | 0 | 54,000 | 0 | 54,000 | ||
| Repurchase of common stock (in shares) | (36,092) | |||||
| Repurchase of common stock | 0 | (260,000) | 0 | 0 | (260,000) | |
| Repurchase of options | 0 | (184,000) | 0 | (184,000) | ||
| Balance (in shares) at Sep. 30, 2021 | 4,502,760 | |||||
| Balance at Sep. 30, 2021 | 42,000 | (2,050,000) | 32,389,000 | (14,390,000) | 15,991,000 | |
| Balance (in shares) at Dec. 31, 2020 | 4,243,272 | |||||
| Balance at Dec. 31, 2020 | 42,000 | (1,790,000) | 32,174,000 | (18,552,000) | $ 11,874,000 | |
| Exercise of stock options (in shares) | 68,000 | |||||
| Balance (in shares) at Dec. 31, 2021 | 4,552,485 | |||||
| Balance at Dec. 31, 2021 | 46,000 | (2,087,000) | 32,529,000 | (13,142,000) | $ 17,346,000 | |
| Balance (in shares) at Jun. 30, 2021 | 4,422,760 | |||||
| Balance at Jun. 30, 2021 | 42,000 | (2,050,000) | 32,282,000 | (15,515,000) | 14,759,000 | |
| Stock-based compensation | 0 | 0 | 107,000 | 0 | 107,000 | |
| Net income | 0 | 0 | 1,125,000 | 1,125,000 | ||
| Stock-based compensation (in shares) | 80,000 | |||||
| Balance (in shares) at Sep. 30, 2021 | 4,502,760 | |||||
| Balance at Sep. 30, 2021 | 42,000 | (2,050,000) | 32,389,000 | (14,390,000) | 15,991,000 | |
| Balance (in shares) at Dec. 31, 2021 | 4,552,485 | |||||
| Balance at Dec. 31, 2021 | 46,000 | (2,087,000) | 32,529,000 | (13,142,000) | 17,346,000 | |
| Stock-based compensation | 0 | 295,000 | 0 | 295,000 | ||
| Net income | 0 | 0 | 3,956,000 | 3,956,000 | ||
| Retirement of treasury shares (in shares) | 0 | |||||
| Retirement of treasury shares | 0 | 2,087,000 | (2,087,000) | 0 | $ 0 | |
| Exercise of stock options (in shares) | 3,472 | 3,472 | ||||
| Exercise of stock options | 0 | 0 | 29,000 | 0 | $ 29,000 | |
| Repurchase of common stock (in shares) | 0 | |||||
| Balance (in shares) at Sep. 30, 2022 | 4,555,957 | |||||
| Balance at Sep. 30, 2022 | 46,000 | 0 | 30,766,000 | (9,186,000) | $ 21,626,000 | |
| Balance (in shares) at Jun. 30, 2022 | 4,555,957 | |||||
| Balance at Jun. 30, 2022 | 46,000 | 0 | 30,675,000 | (10,406,000) | 20,315,000 | |
| Stock-based compensation | 0 | 91,000 | 0 | 91,000 | ||
| Net income | 0 | 0 | 1,220,000 | 1,220,000 | ||
| Balance (in shares) at Sep. 30, 2022 | 4,555,957 | |||||
| Balance at Sep. 30, 2022 | $ 46,000 | $ 0 | $ 30,766,000 | $ (9,186,000) | $ 21,626,000 |
Note 1 - Description of Business |
9 Months Ended |
|---|---|
Sep. 30, 2022 | |
| Notes to Financial Statements | |
| Nature of Operations [Text Block] |
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 following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"). The Company distributes the NDS Products 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 17,000 retail locations, which include specialty, mass, and online.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $0.01 per share (“Common Stock”), trades under the symbol “FTLF” on the over-the-counter market.
Recent Developments
Filing of Form 15
On July 18, 2022, the Company filed a Form 15-12G (the “Form 15”) with the Securities and Exchange Commission (the “SEC”) whereby, under Rule 12g-4(a)(1), the Company certified the deregistration of its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and terminated its duty to file reports under Sections 13 and 15(d) of the Exchange Act. On October 14, 2022, the Company withdrew the Form 15 and has returned to current filer status.
Restatement of Financial Statements
On August 24, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company was advised by Weaver and Tidwell, L.L.P. (“Weaver”), its registered independent public accounting firm as of that date, that the Company’s previously issued financial statements included in its Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in its Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021 and June 30, 2021 (collectively, the “Restated Periods”) should be restated to correct historical errors related to the recognition of revenue, and should therefore no longer be relied upon (the “Restatement”).
The Restatement followed the determination that the revenue associated for all customers with standard FOB destination terms, as reported in the Company’s prior period consolidated financial statements, was incorrectly recognized at the time of shipment instead of when the performance obligation was satisfied upon delivery. In addition, the accounting treatment related to the recognition of corresponding accounts receivables, inventory and expensing of cost of goods sold was also restated. The Company’s errors in the misapplication of revenue recognition resulted in certain errors recorded in various account balances in the Company’s consolidated balance sheets, statements of operations, statements of stockholders’ equity, statement of cash flows, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements) for the Restated Periods.
The Company restated the financial statements for the Restated Periods in its comprehensive Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 (the “2020 Form 10K/A”), and a comprehensive Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), which reports were filed with the SEC on October 13, 2022.
Forward Stock Split
The Board of Directors of the Company (the “Board”) approved a forward stock split of the Company’s authorized, issued and outstanding shares of Common Stock, at a ratio of 4-for-1 (the “Forward Split”). The Forward Split was effective as of December 2, 2021 and began trading on such basis on December 8, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock. The Forward Split did not have any effect on the stated par value of the Common Stock and did not affect the Company’s authorized preferred stock.
All references in this Quarterly Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Forward Split on a retroactive basis as of the earliest period presented, unless otherwise noted.
Share Repurchase Plan
On February 1, 2021, the Board approved an additional amendment to the previously authorized share repurchase program initially approved by the Board on August 16, 2019, as amended on September 23, 2019 and November 6, 2019 (“Share Repurchase Program”). Under the terms of the amendment, the Company is authorized to repurchase up to $5.0 million of the Company's Common Stock, warrants to purchase shares of the Company's Common Stock (“Warrants”), and other securities issued by the Company (“Securities”) over the 24 months following the Board approval date of February 1, 2021 at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Warrants and Securities, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
During the nine months ended September 30, 2022, the Company did repurchase any Securities under the Share Repurchase Program.
COVID-19 Pandemic
The COVID-19 pandemic has had an effect on the Company’s employees, business and operations and those of its customers, vendors and business partners. In this respect, the temporary or permanent closure of some of our retail partners’ store locations and the stay-at-home orders that occurred early in the pandemic negatively affected our results from operations, although much of the impact has been offset by an increase in revenue attributable to online sales, and increased sales during the more recent quarters. Our future financial position and operating results could be materially and adversely affected in the event that a resurgence of COVID-19 cases leads to new stay-at-home orders and/or further disruptions in both our supply chain and manufacturing lead-times, which could lower demand for the Company’s products and/or prevent the Company from producing and delivering its products in a timely manner, although the extent of these effects cannot be determined at this time. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business and operations accordingly. |
Note 2 - Basis of Presentation |
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| Basis of Accounting [Text Block] |
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 nine-month period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 2021 Form 10-K. |
Note 3 - Summary of Significant Accounting Policies |
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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 and Assumptions
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.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income 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 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 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.
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.
Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
Goodwill
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.
While we have concluded that a triggering event did not occur during the nine months ended September 30, 2022, a worsening of the severity of the COVID-19 pandemic could result in future goodwill impairment charges. We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
Customer Concentration
Net sales to GNC during the three-month periods ended September 30, 2022 and 2021 represent 69% and 68% of total net revenue, respectively. Net sales to GNC during the nine-month periods ended September 30, 2022 and 2021 represent 69% and 69% of total net revenue, respectively.
Gross accounts receivable attributable to GNC as of September 30, 2022 and September 30, 2021 represent 71% and 77% of the Company’s total accounts receivable balance, respectively.
For the three months ended September 30, 2022 and 2021, online sales accounted for 26% and 25% of the Company’s net revenue, respectively. For the nine months ended September 30, 2022 and 2021, online sales accounted for 26% and 24% 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 FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products 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.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, 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. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
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 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
The Company recorded federal income tax expense of $360,000 and $311,000 during the three months ended September 30, 2022 and 2021, respectively. The federal income tax expense is non-cash due to the Company’s utilization of federal net operating loss (“NOL”) carryforwards. The Company recorded state income tax expense of $4,000 and $2,000 for the three months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the Company had federal NOL carryforwards available to offset future taxable income of approximately $10.3 million. These NOL carryforwards, along with other book-tax basis differences, resulted in a gross deferred tax asset of approximately $2.5 million. A valuation allowance of $537,000 has been recorded to reflect the portion of the deferred tax asset that is not expected to be realized under IRS statutory limitations, resulting in a net deferred tax asset of approximately $2.0 million.
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, or that future deductibility is uncertain.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
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Note 4 - Inventories |
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NOTE 4 – INVENTORIES
The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.
The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of September 30, 2022 and December 31, 2021 amounted to $203,000 and $56,000 respectively. The Company’s inventories as of September 30, 2022 and December 31, 2021 were as follows:
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Note 5 - Property and Equipment |
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NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of September 30, 2022 and December 31, 2021 as follows:
Depreciation expense for the three months ended September 30, 2022 and 2021 was $7,000 and $7,000, respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $17,000 and $20,000, respectively. |
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Note 6 - Notes Payable |
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NOTE 6 – NOTES PAYABLE
Line of Credit – CIT Bank
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the “Line of Credit Agreement”) with Mutual of Omaha Bank, (the “Lender”), subsequently acquired by CIT Bank N.A., providing the Company with a $2.5 million line of credit (the “Line of Credit”). The Line of Credit allows the Company to request advances thereunder and to use the proceeds of such advances for working capital purposes until the Maturity Date, unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit is secured by all assets of the Company.
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month SOFR rate plus 2.75%, and each advance will be payable on the Maturity Date with the interest on outstanding advances payable monthly. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to the Maturity Date, without premium or penalty. There were no advances on this line outstanding as of September 30, 2022 or December 31, 2022
On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. All other terms of the Line of Credit Agreement remain unchanged.
Paycheck Protection Program Loan
The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted on March 27, 2020 in the United States. On April 27, 2020, the Company received proceeds from a loan in the amount of $449,700 from its lender, CIT Bank, N.A. (the “PPP Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the PPP Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES ACT administered by the SBA (the “Loan Agreement”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021. |
Note 7 - Right of Use Assets and Liabilities |
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| Lessee, Operating Leases [Text Block] |
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.
During the nine months ended September 30, 2022, the Company made payments resulting in a $41,000 reduction in the lease liability. As of September 30, 2022, lease liability amounted to $117,000. ASC 842 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 nine months ended September 30, 2022 was $39,000. The right-of-use asset at September 30, 2022 was $117,000, net of amortization of $363,000.
The supplemental balance sheet information related to leases for the period is as follows:
Maturities of the Company's lease liabilities are as follows:
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Note 8 - Equity |
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NOTE 8 - EQUITY
The Board approved a forward stock split of the Company’s Common Stock at a ratio of 4-for-1 (the “Forward Split”), effective as of December 2, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock, $0.01 par value per share, of which 4,555,957 and 4,552,485 shares of Common Stock were issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. The Forward Split did not have any effect on the stated par value of the Common Stock and did affect the Company’s authorized preferred stock.
Common Stock Issued for Services
In February 2021, the Company granted Mr. Dayton Judd, Chief Executive Officer, an aggregate of 160,000 restricted share units (“RSUs”). Each RSU converted into one share of the Company’s Common Stock upon vesting. The RSUs vested as follows: (1) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $7.50, (ii) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $9.00, (iii) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $10.50, and (iv) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $12.00. The RSUs were subject to forfeiture in the event Mr. Judd resigned from his position or was terminated by the Company. As the vesting of the RSUs was subject to certain market conditions, pursuant to current accounting guidelines, the Company determined the fair value to be $666,000, computed using Monte Carlo simulations on a binomial model with the assistance of a valuation specialist.
The Company recorded $54,000 and $95,000 of stock compensation expense related to RSUs during the three months ended September 30, 2022 and 2021, respectively. The Company recorded $234,000 and $256,000 of stock compensation expense related to RSUs during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was $82,000 of unamortized compensation expense associated with the grant of the RSUs.
Share Repurchase Program
On August 16, 2019, the Company's Board authorized management to repurchase up to $500,000 of the Company's Common Stock over the following 24 months, which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. On September 23, 2019, the Board approved an amendment to the Company’s Share Repurchase Program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Preferred, and Warrants, over the 24 months following the Board approval date of February 1, 2021 at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management. On November 6, 2019, the Company’s Board of Directors amended the previously approved Share Repurchase Program to increase the amount of authorized repurchases to $2.5 million, and on February 1, 2021, the Company’s Board of Directors amended previously approved Share Repurchase Program to increase the amount of authorized repurchases to $5.0 million. All other terms of the Share Repurchase Program remain unchanged.
During the nine months ended September 30, 2022, the Company did not repurchase any shares of Common Stock under the Share Repurchase Program.
Treasury Shares
In January 2022, the Company retired all treasury shares. As of September 30, 2022, there are no shares held in treasury.
Options
Information regarding options outstanding as of September 30, 2022 is as follows:
The closing stock price for the Company’s stock on September 30, 2022 was $16.00, resulting in an intrinsic value of outstanding options of $4,949,000.
On August 15, 2022, the Company granted Mr. Jakob York, Chief Financial Officer, options to purchase 10,000 shares of Common Stock with an exercise price of $15.65, which vested (i) one immediately on the date of the grant, and (ii) in equal annual installments thereafter, and which expire on August 16, 2027.
The Company recorded $37,000 and $12,000 of stock compensation expense related to stock options during the three months ended September 30, 2022 and 2021, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company recognized stock compensation expense of $61,000 and $89,000, respectively, related to stock options.
Warrants
Total outstanding warrants to purchase shares of Common Stock as of September 30, 2022 and December 31, 2021 amounted to 143,480. Total intrinsic value as of September 30, 2022 amounted to $2,131,000. During the three months ended September 30, 2022 and year ended December 31, 2021, no warrants were granted and no warrants expired.
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Note 9 - Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2022 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 9 – COMMITMENTS AND CONTINGENCIES
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. 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. |
Note 10 - Subsequent Events |
9 Months Ended |
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Sep. 30, 2022 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
NOTE 10 – SUBSEQUENT EVENT
Subsequent to the end of the quarter, the Company repurchased 12,000 shares at a price of $15.50 per share in a private transaction.
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidation, Policy [Policy Text Block] | 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.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates and Assumptions
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.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
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| Earnings Per Share, Policy [Policy Text Block] | Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income 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 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 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.
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| Lessee, Leases [Policy Text Block] | 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.
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| Fair Value Measurement, Policy [Policy Text Block] | Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
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| Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | Goodwill
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.
While we have concluded that a triggering event did not occur during the nine months ended September 30, 2022, a worsening of the severity of the COVID-19 pandemic could result in future goodwill impairment charges. We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | Customer Concentration
Net sales to GNC during the three-month periods ended September 30, 2022 and 2021 represent 69% and 68% of total net revenue, respectively. Net sales to GNC during the nine-month periods ended September 30, 2022 and 2021 represent 69% and 69% of total net revenue, respectively.
Gross accounts receivable attributable to GNC as of September 30, 2022 and September 30, 2021 represent 71% and 77% of the Company’s total accounts receivable balance, respectively.
For the three months ended September 30, 2022 and 2021, online sales accounted for 26% and 25% of the Company’s net revenue, respectively. For the nine months ended September 30, 2022 and 2021, online sales accounted for 26% and 24% of the Company’s net revenue, respectively.
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| Revenue [Policy Text Block] | 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 FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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 to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products 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.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, 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. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
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 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.
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| Income Tax, Policy [Policy Text Block] | Income Taxes
The Company recorded federal income tax expense of $360,000 and $311,000 during the three months ended September 30, 2022 and 2021, respectively. The federal income tax expense is non-cash due to the Company’s utilization of federal net operating loss (“NOL”) carryforwards. The Company recorded state income tax expense of $4,000 and $2,000 for the three months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the Company had federal NOL carryforwards available to offset future taxable income of approximately $10.3 million. These NOL carryforwards, along with other book-tax basis differences, resulted in a gross deferred tax asset of approximately $2.5 million. A valuation allowance of $537,000 has been recorded to reflect the portion of the deferred tax asset that is not expected to be realized under IRS statutory limitations, resulting in a net deferred tax asset of approximately $2.0 million.
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, or that future deductibility is uncertain.
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements. |
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Note 3 - Summary of Significant Accounting Policies (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 4 - Inventories (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 8 - Equity (Tables) |
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| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Share-Based Payment Arrangement, Option, Exercise Price Range [Table Text Block] |
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| Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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Note 3 - Summary of Significant Accounting Policies - Basic and Diluted Income (Loss) Per Share (Details) - USD ($) |
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| Net income | $ 1,220,000 | $ 1,125,000 | $ 3,956,000 | $ 4,162,000 |
| Weighted average common shares - basic (in shares) | 4,555,957 | 4,422,760 | 4,555,347 | 4,374,212 |
| Dilutive effect of outstanding warrants and stock options (in shares) | 432,314 | 395,336 | 423,481 | 434,496 |
| Weighted average common shares - diluted (in shares) | 4,988,271 | 4,818,096 | 4,978,828 | 4,808,708 |
| Basic (in dollars per share) | $ 0.27 | $ 0.25 | $ 0.87 | $ 0.95 |
| Diluted (in dollars per share) | $ 0.24 | $ 0.23 | $ 0.79 | $ 0.87 |
Note 4 - Inventories (Details Textual) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Inventory Valuation Reserves | $ 203,000 | $ 56,000 |
Note 4 - Inventories - Summary of Inventory (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Finished goods | $ 6,867,000 | $ 5,908,000 |
| Components | 914,000 | 668,000 |
| Allowance for obsolescence | (203,000) | (56,000) |
| Total | $ 7,578,000 | $ 6,520,000 |
Note 5 - Property and Equipment (Details Textual) - USD ($) |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2022 |
Sep. 30, 2021 |
Sep. 30, 2022 |
Sep. 30, 2021 |
|
| Depreciation, Total | $ 7,000 | $ 7,000 | $ 17,000 | $ 20,000 |
Note 5 - Property and Equipment - Property and Equipment (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Equipment | $ 902,000 | $ 902,000 |
| Accumulated depreciation | (849,000) | (832,000) |
| Total | $ 53,000 | $ 70,000 |
Note 6 - Notes Payable (Details Textual) - USD ($) |
Apr. 27, 2020 |
Sep. 24, 2019 |
|---|---|---|
| Paycheck Protection Program CARES Act [Member] | ||
| Proceeds from Issuance of Unsecured Debt | $ 449,700 | |
| Revolving Credit Facility [Member] | ||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 2,500,000 | |
| Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member] | ||
| Debt Instrument, Basis Spread on Variable Rate | 2.75% |
Note 7 - Right of Use Assets and Liabilities (Details Textual) - USD ($) |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2022 |
Dec. 31, 2021 |
|
| Operating Lease, Payments | $ 41,000 | |
| Operating Lease, Liability, Total | 117,000 | |
| Lessee, Operating Lease, Rent Expense | 39,000 | |
| Operating Lease, Right-of-Use Asset | 117,000 | $ 158,000 |
| Operating Lease, Right-of-Use Asset, Accumulated Amortization | $ 363,000 | $ 322,000 |
| Minimum [Member] | ||
| Lessee, Operating Lease, Term of Contract (Year) | 36 years | 36 months |
| Operating Lease, Monthly Payments | $ 200 | |
| Maximum [Member] | ||
| Lessee, Operating Lease, Term of Contract (Year) | 84 years | 84 months |
| Operating Lease, Monthly Payments | $ 7,000 |
Note 7 - Right of Use Assets and Liabilities - Lease Cost (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2022
USD ($)
| |
| Operating lease cost (included in general and administrative in the Company's unaudited and consolidated statement of operations) | $ 39,000 |
| Weighted average remaining lease term - operating leases (in years) (Year) | 1 year 10 months 24 days |
| Average discount rate - operating leases | 9.00% |
Note 7 - Right of Use Assets and Liabilities - Supplemental Balance Sheet Information (Details) - USD ($) |
Sep. 30, 2022 |
Dec. 31, 2021 |
|---|---|---|
| Long-term right-of-use assets | $ 117,000 | $ 158,000 |
| Current operating lease liabilities | 54,000 | 55,000 |
| Noncurrent operating lease liabilities | 63,000 | $ 103,000 |
| Total operating lease liabilities | $ 117,000 |
Note 7 - Right of Use Assets and Liabilities - Maturity of Lease Liabilities (Details) |
Sep. 30, 2022
USD ($)
|
|---|---|
| 2022 (remaining three months) | $ 14,000 |
| 2023 | 61,000 |
| 2024 | 51,000 |
| Less: Imputed interest/present value discount | (9,000) |
| Present value of lease liabilities | $ 117,000 |
Note 8 - Equity - Warrants (Details) |
Sep. 30, 2022
$ / shares
shares
|
|---|---|
| Exercise price (in dollars per share) | $ / shares | $ 1.15 |
| Outstanding (in shares) | shares | 143,480 |
Note 10 - Subsequent Events (Details Textual) - $ / shares |
1 Months Ended | 9 Months Ended |
|---|---|---|
Nov. 10, 2022 |
Sep. 30, 2022 |
|
| Treasury Stock, Shares, Acquired (in shares) | 0 | |
| Subsequent Event [Member] | ||
| Treasury Stock, Shares, Acquired (in shares) | 12,000 | |
| Treasury Stock Acquired, Average Cost Per Share (in dollars per share) | $ 15.50 |