SEC Connect
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2016
OR
[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission
File Number: 000-52369
FitLife Brands, Inc.
(Name
of small business issuer as specified in its charter)
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Nevada
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20-3464383
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(State
of Incorporation)
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(IRS
Employer Identification No.)
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4509 S. 143rd Street, Suite 1, Omaha, Nebraska 68137
(Address
of principal executive offices)
(402)
884-1894
(Issuer’s
telephone number)
Securities registered under Section 12(b) of the Exchange
Act:
None
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, $0.01 par value per share
(Title of Class)
Common Stock, $.01 Par Value
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes
[ ] No [X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the
Act. Yes [ ] No [X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No
[ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (Sec.232.405 of this chapter) during the
preceding 12 months (or for such a shorter period that the
registrant was required to submit and post such files). Yes
[X] No [ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or smaller reporting
company. See definition of “accelerated filer”,
“large accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act.
(Check
one):
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Large accelerated filer
Non-accelerated filer
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[
]
[
]
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Accelerated filer
Smaller
reporting company
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[
]
[X]
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State
the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at
which the common equity was last sold, or the average bid and asked
price of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal
quarter: $11,704,042.
State
the number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date: As of
April 16, 2017, there were 10,441,469 shares of common stock, $0.01
par value per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Items 10, 11, 12, 13 and 14 of Part III incorporate by
reference information from the registrant’s definitive proxy
statement to be filed with the Securities and Exchange Commission
in connection with the solicitation of proxies for the
registrant’s 2016 annual meeting of
stockholders.
FORM 10-K ANNUAL REPORT
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016 and 2015
TABLE OF CONTENTS
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CERTIFICATIONS
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Exhibit 31 –
Certification pursuant to Rule 13a-14(a) and 15d-14(a)
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Exhibit 32 –
Certification pursuant to 18 U.S.C 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
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Forward
Looking Statements — Cautionary Language
This Annual Report on Form 10-K contains various “forward
looking statements“ within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, regarding future
events or the future financial performance of the Company that
involve risks and uncertainties. Certain statements included
herein, including, without limitation, statements related to
anticipated cash flow sources and uses, and words including but not
limited to “anticipates“, “believes“,
“plans“, “expects“, “future“
and similar statements or expressions, identify forward looking
statements. Any forward-looking statements herein are subject to
certain risks and uncertainties in the Company’s business,
including but not limited to, reliance on key customers and
competition in its markets, market demand, product performance,
technological developments, maintenance of relationships with key
suppliers, difficulties of hiring or retaining key personnel and
any changes in current accounting rules, all of which may be beyond
the control of the Company. The Company adopted at
management’s discretion, the most conservative recognition of
revenue based on the most astringent guidelines of the SEC.
Management will elect additional changes to revenue recognition to
comply with the most conservative SEC recognition on a forward
going accrual basis as the model is replicated with other similar
markets. The Company’s actual results could differ materially
from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth
therein.
This Annual Report on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and other documents filed with the SEC
include additional factors, which could impact FitLife Brands,
Inc.'s business and financial performance. Moreover, FitLife
Brands, Inc. operates in a rapidly changing and competitive
environment. New risk factors emerge from time to time and it is
not possible for management to predict all such risk factors.
Further, it is not possible to assess the impact of all risk
factors on FitLife Brands, Inc.'s business or the extent to which
any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors should
not place undue reliance on forward-looking statements as a
prediction of actual results. In addition, FitLife Brands, Inc.
disclaims any obligation to update any forward-looking statements
to reflect events or circumstances that occur after the date of the
report.
ITEM 1. BUSINESS
As used
in this Annual Report, “we“, “us“, “our“, “FitLife“, “FitLife Brands“
“Company“ or
“our company“
refers to FitLife Brands, Inc. and all of its
subsidiaries.
Overview
FitLife
Brands, Inc. (the “Company”) is a national provider
of innovative and proprietary nutritional supplements for health
conscious consumers marketed under the brand names NDS Nutrition
ProductsTM
(“NDS”)
(www.ndsnutrition.com), PMDTM
(www.pmdsports.com), SirenLabsTM
(www.sirenlabs.com), CoreActiveTM
(www.coreactivenutrition.com), and Metis NutritionTM
(www.metisnutrition.com) (together, “NDS Products”). With the
consummation of the merger with iSatori, Inc. (“iSatori”) on September 30, 2015,
which became effective on October 1, 2015, described below (the
“Merger”), the
Company added several brands to its product portfolio, including
iSatori (www.isatori.com), BioGenetic Laboratories
(www.biogeneticlabs.com), and Energize (www.tryenergize.com)
(together, “iSatori
Products”). The NDS Products are distributed
principally through franchised General Nutrition Centers, Inc.
(“GNC”) stores
located both domestically and internationally, and, with the
addition of Metis Nutrition, through corporate GNC stores in the
United States. The iSatori Products are sold through more than
25,000 retail locations, which include specialty, mass, and
online.
The
Company was incorporated in the State of Nevada on July 26, 2005.
In October 2008, the Company acquired the assets of NDS Nutritional
Products, Inc., a Nebraska corporation, and moved those assets into
its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida
corporation (“NDS”). The Company’s NDS
Products are sold through NDS and the iSatori Products are sold
through iSatori, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company.
FitLife
Brands is headquartered in Omaha, Nebraska and maintains an office
in Golden, Colorado, which it acquired in connection with the
Merger. For more information on the Company, please go to
http://www.fitlifebrands.com. The Company’s common stock
currently trades under the symbol FTLF on the OTC:PINK
market.
iSatori Merger
On
September 30, 2015, the Company consummated the Merger contemplated
by the Agreement and Plan of Merger, dated May 18, 2015 (the
“Merger
Agreement“), among the Company, ISFL Merger Sub, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company
(“Merger Sub“),
and iSatori, pursuant to which iSatori merged with and into Merger
Sub, with iSatori surviving as a wholly-owned subsidiary of the
Company. The Merger was approved by iSatori shareholders at a
special meeting held on September 29, 2015 and became effective on
October 1, 2015 (the “Closing
Date“).
In
connection with the closing of the Merger, each share of iSatori common stock
outstanding on the Closing Date became exchangeable for 0.1732
shares of the Company's common stock (the
“Exchange
Ratio“). In
the event any iSatori shareholder would otherwise be entitled to a
fractional share of the Company's common stock, the Company agreed
to pay the value of those fractional interests in cash. The
Company issued a total of 2,315,644 shares of common stock and
paid a total of $239 for remaining fractional interests to former
iSatori shareholders in connection with the
Merger.
Recent Developments
None.
Industry Overview
We compete principally in the nutrition industry. The Nutrition
Business Journal categorizes the industry in the following
segments:
●
Natural &
Organic Foods (products such as cereals, milk, non-dairy beverages
and frozen meals);
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Functional Foods
(products with added ingredients or fortification specifically for
health or performance purposes); and
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Natural &
Organic Personal Care and Household Products.
Management believes that the following factors drive growth in the
nutrition industry:
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The general
public’s awareness and understanding of the connection
between diet and health;
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The aging
population in the Company’s markets who tend to use more
nutritional supplements as they age;
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Increasing
healthcare costs and the consequential trend toward preventative
medicine and non-traditional medicines; and
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Product
introductions in response to new scientific studies.
Our Products
The Company currently focuses its sales and marketing efforts
on its full line of sports, weight loss and general nutrition
products that are currently marketed and sold nationally as well as
internationally. The Company currently markets approximately
60 different NDS Products to more than 900 GNC franchise locations
located in the United States, as well as to approximately 900
additional franchise locations in more than 15 countries, both of
which are distributed primarily through GNC’s distribution
system. In addition, as a result of the launch of Metis Nutrition,
we distribute products through more than 3,000 corporate GNC stores
in the United States, and with the completion of the Merger, we
sell iSatori Products through more than 25,000 retail locations,
which include specialty, mass, and online. A complete
product list is available on our websites at fitlifebrands.com, ndsnutrition.com, pmdsports.com, sirenlabs.com, coreactivenutrition.com,
metisnutrition.com,
and isatori.com.
NDS Products
The
Company’s NDS Products sold through GNC franchise locations
include:
●
NDS –
Innovative weight loss, general health and sports nutrition
supplements, examples include Censor, Cardio Cuts and LipoRUSH
DS;
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PMD –
Precision sports nutrition formulations for professional muscular
development, examples include Amplify XL, Pump Fuel and Flex
Stack;
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Siren Labs –
Weight loss and sports nutrition performance enhancing supplements
for fitness enthusiasts, examples include Isolate, Shock’d
and NeuroLean; and
●
Metis Nutrition
– multifaceted men’s health and weight loss
formulations, including JXT5 and PyroStim, currently distributed
through more than 3,000 corporate stores and 500 franchise stores
nationally.
NDS
Products also include innovative diet, health and sports nutrition
supplements and related products marketed through its Core Active
Nutrition product line (“Core Active Nutrition
Products“). Core Active Nutrition Products
provide essential support for accelerated fitness and nutrition
goals sold directly to athletic facilities, gyms, and independent
retailers nationwide.
iSatori Products
iSatori
Products include scientifically engineered nutritional products
that are sold through online marketing, Fortune 500 retailers, and
thousands of retail stores around the
world. iSatori Products
include:
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Sports
Nutritionals: Products including Bio-Active Peptides
product (Bio-GroTM), advanced
branched-chain amino acids powder with Bio-Active Peptides
(Amino-GroTM), advanced creatine
powder supercharged with Agmatine and Betaine (5XLTM), natural
testosterone booster in both pill and powder form
(Isa-TestTM and Isa-Test
DA3TM),
and a pre-workout muscle-building powdered drink mix
(Pre-GroTM);
●
Energy & Sports
Drink Products: iSatori’s energy supplements, Energize
and Energize BulletsTM, are tablets and
drinks whose primary purpose is to safely “boost
energy“ provided by a combination of time-released caffeine,
vitamins, and herbal formulations;
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Meal Replacements:
protein-based products related to health nutrition and performance,
includes iSatori’s 100% Bio-Active Whey, a premium protein
blend with Bio-Active Peptides; and
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Weight Loss
Products: iSatori’s weight loss
products are principally sold under the BioGenetics Laboratories
brand, and include Forskohlin Lean & ToneTM and Garcinia Trim,
as well as iSatori’s newest thermogenic,
LIPO-DREXTM
with C3G nutrient partitioning technology.
Manufacturing, Sources and Availability of Raw
Materials
All of
the Company’s products are manufactured by pre-selected
FDA-regulated contract manufacturers. The Company utilizes
third-party manufacturers to provide its finished products, within
the United States and Canada. Each contract manufacturer is
required by the Company to abide by current Good Manufacturing
Practices (“cGMPs“) to ensure quality and
consistency, and to manufacture its products according to the
Company’s strict specifications, and nearly all our contract
manufacturers are certified through a governing body such as the
NPA (“Natural Products
Association“) or NSF International. In most
cases, contract manufacturers purchase the raw materials based on
the Company’s specifications; however, from time to time, the
Company will license particular raw material ingredients and supply
its own source to the manufacturer. Once produced, in
addition to in-house testing performed by the contract
manufacturer, the Company may also perform independent analysis and
testing. The contract manufacturer ships the finished product to
one of our fulfillment centers in either Omaha, Nebraska or Denver,
Colorado, or to our distributors. The Company has
implemented vendor qualification programs for all of its suppliers
and manufacturers, including analytical testing of purchased
products. As part of the vendor program, the Company also
periodically inspects vendors’ facilities to monitor quality
control and assurance procedures.
Product
Reformulations and New Product Identification
From
time to time we reformulate existing products to address market
developments and trends, and to respond to customer
requests. We also continually expand our product line
through the development of new products. New product ideas are
derived from a number of sources, including internally, trade
publications, scientific and health journals, consultants,
distributors, and other third parties. Prior to reformulating
existing products or introducing new products, we investigate
product formulations as they relate to regulatory compliance and
other issues. We introduced a total of 55 new products during the
year ended December 31, 2016, which included 24 completely new
products, and 31 product reformulations and flavor extensions. We
anticipate launching a similar number of new and reformulated
products during 2017 across all brands.
Management
continually assesses and analyzes developing market trends to
detect and proactively address what they believe are areas of unmet
or growing demand that represent an opportunity for the Company
and, where deemed appropriate, attempts to introduce new products
and/or packaging solutions in direct response to meet that
demand.
Sales, Marketing and Distribution
NDS Products
NDS
Products are sold through more than 900 GNC franchise locations
located throughout the United States. The Company also currently
distributes NDS Products to approximately 900 GNC international
franchise locations in more than 15 countries. On May 1, 2014, the
Company transitioned the majority of its distribution of NDS
Products to GNC’s centralized distribution platform for all
NDS Products, excluding protein, which transitioned in
mid-September 2014. Prior to the change, the majority of the
Company’s revenue was realized upon direct shipment of NDS
Products to individual franchise locations. For the year ended
December 31, 2016, virtually all sales of NDS Products were
attributable to sales through GNC’s centralized distribution
platform.
Our
sales and marketing efforts are designed to expand sales of NDS
Products to additional GNC franchise locations both domestically
and internationally, as well as developing a broader retail
presence for our Core Active Nutrition Products and continued
expansion of our Metis Nutrition brand during 2017. The launch of
Metis is an exciting milestone for the Company and represents a
compelling growth platform for the Company. Management believes
that substantial growth opportunities exist to increase revenue
attributable to NDS Products with GNC, especially given GNC’s
stated goal of “refranchising“ (i.e., converting
corporate owned stores into franchise locations) up to 1,000 total
stores over the next three or four years, continued expansion in
the international franchise system, and additional domestic growth
in GNC’s corporate stores with Metis Nutrition. The domestic
franchise market remains a strong business and the core of our
operations. Management is excited to continue to work
collaboratively with the franchisees to build on our established
track records of growth and innovation.
iSatori Products
iSatori
Products are distributed directly to consumers through its websites
and a proprietary online direct marketing system,
as well as through wholesalers, specialty, online-only, grocery,
convenience, drug and mass-market distribution channels. Through
established distribution channel networks, iSatori has created
channel access to over 120,000 domestic and international retail
locations. iSatori products are currently sold in over 25,000
retail locations. iSatori creates marketing, promotion, and
packaging devices in its efforts to drive demand for its products
through its established retail distribution.
In some
cases, iSatori utilizes independent brokers, who work in
conjunction with iSatori’s experienced sales employees and
management to oversee the grocery, drug and mass market channels.
iSatori sells its products to mass-market merchandisers either
directly or through distributors of nutritional supplement
products. Major distributor, grocery, drug, convenience, club and
mass-market customers are and/or have included: Albertsons, Amazon,
Bally’s Total Fitness, BodyBuilding.com, Costco, CVS,
Drugstore.com, Europa Sports, GNC, Kroger, Rite Aid, Super Value,
24 Hour Fitness, 7-Eleven, Vitamin Shoppe, Vitamin World, Walgreens
and Wal-Mart.
iSatori’s
core strategy is to build brands within its channels of
distribution that are appropriate for each product brand and to
develop increased brand awareness and strong brand recognition
among consumers seeking products with a reputation for quality and
innovation. iSatori has utilized social media campaigns, coupons,
print, radio, online and television advertising, plus cooperative
and other incentive programs to build consumer awareness and
generate trial and repeat purchases to drive sales revenue.
Marketing and sales groups regularly review the media mix for its
effectiveness in creating consumer demand and the highest return on
investment dollars.
In
addition, iSatori’s conventional distribution marketing and
its proprietary internet marketing strategy are designed to
increase awareness of proprietary brands and drive targeted traffic
to iSatori’s websites to make purchases. Through
iSatori’s online marketing system, its network affiliates use
a multi-channel approach which includes search engine marketing,
email campaigns, banner advertisements and additional affiliate
programs to acquire new customers and retain a repeatable customer
base.
Product Returns
We
currently have a 30-day product return policy for NDS Products,
which allows for a 100% sales price refund, less a 20% restocking
fee, for the return of unopened and undamaged products purchased
from us online through one of our websites. Product sold
to GNC may be returned from store shelves or the distribution
center in the event product is damaged, short dated, expired or
recalled. GNC maintains a customer satisfaction program
which allows customers to return product to the store for credit or
refund. Subject to certain terms and restrictions, GNC may
require reimbursement from vendors for unsaleable returned product
through either direct payment or credit against a future invoice.
We also support a product return policy for iSatori Products,
whereby customers can return product for credit or refund.
Historically, with a few noted exceptions, product returns have
been immaterial. That said, despite the best efforts of
management, product returns can and do occur from time to time and
can be material.
Competition
The
Company competes with many companies engaged in the nutritional
supplement industry. The Company also competes with companies who
sell products similar to the Company’s products online. Many
of the Company’s competitors have significantly greater
financial and human resources than our own. The Company
seeks to differentiate its products and marketing from its
competitors based on product quality, benefits, and functional
ingredients. Patent and trademark applications that cover new
formulas and embody new technologies will be pursued whenever
possible. While we cannot assure that such measures will
block competitive products, we believe our continued emphasis on
innovation and new product development targeted at the needs of the
consumer will enable the Company to effectively compete in the
marketplace.
Regulatory Matters
Our
business is subject to varying degrees of regulation by a number of
government authorities in the U.S., including the FDA, the Federal
Trade Commission (“FTC“), the Consumer Product
Safety Commission, the U.S. Department of Agriculture, and the
Environmental Protection Agency. Various agencies of the states and
localities in which we operate and in which our products are sold
also regulate our business, such as the California Department of
Health Services, Food and Drug Branch. The areas of our business
that these and other authorities regulate include, among
others:
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product
claims and advertising;
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product
ingredients; and
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how we
manufacture, package, distribute, import, export, sell and store
our products.
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The
FDA, in particular, regulates the formulation, manufacturing,
packaging, storage, labeling, promotion, distribution and sale of
vitamins and other nutritional supplements in the U.S., while the
FTC regulates marketing and advertising claims. In August 2007, a
new rule issued by the FDA went into effect requiring companies
that manufacture, package, label, distribute or hold nutritional
supplements to meet cGMPs to ensure such products are of the
quality specified and are properly packaged and labeled. We are
committed to meeting or exceeding the standards set by the FDA and
believe we are currently operating within the FDA mandated
cGMPs.
The FDA
also regulates the labeling and marketing of dietary supplements
and nutritional products, including the following:
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the
identification of dietary supplements or nutritional products and
their nutrition and ingredient labeling;
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requirements
related to the wording used for claims about nutrients, health
claims, and statements of nutritional support;
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labeling
requirements for dietary supplements or nutritional products for
which “high potency“ and “antioxidant“
claims are made;
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notification
procedures for statements on dietary supplements or nutritional
products; and
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premarket
notification procedures for new dietary ingredients in nutritional
supplements.
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The
Dietary Supplement Health and Education Act of 1994
(“DSHEA“)
revised the provisions of the Federal Food, Drug and Cosmetic Act
concerning the composition and labeling of dietary supplements and
defined dietary supplements to include vitamins, minerals, herbs,
amino acids and other dietary substances used to supplement diets.
DSHEA generally provides a regulatory framework to help ensure
safe, quality dietary supplements and the dissemination of accurate
information about such products. The FDA is generally prohibited
from regulating active ingredients in dietary supplements as drugs
unless product claims, such as claims that a product may heal,
mitigate, cure or prevent an illness, disease or malady, trigger
drug status.
DSHEA
also permits statements of nutritional support to be included in
labeling for nutritional supplements without FDA premarket
approval. These statements must be submitted to the FDA within 30
days of marketing and must bear a label disclosure that “This
statement has not been evaluated by the FDA. This product is not
intended to diagnose, treat, cure, or prevent any disease.“
These statements may describe a benefit related to a nutrient
deficiency disease, the role of a nutrient or nutritional
ingredient intended to affect the structure or function in humans,
the documented mechanism by which a nutrient or dietary ingredient
acts to maintain such structure or function, the general well-being
from consumption of a nutrient or dietary ingredient, but may not
expressly or implicitly represent that a nutritional supplement
will diagnose, cure, mitigate, treat or prevent a disease. An
entity that uses a statement of nutritional support in labeling
must possess scientific evidence substantiating that the statement
is truthful and not misleading. If the FDA determines that a
particular statement of nutritional support is an unacceptable drug
claim or an unauthorized version of a disease claim for a food
product, or if the FDA determines that a particular claim is not
adequately supported by existing scientific data or is false or
misleading, we would be prevented from using the
claim.
In
addition, DSHEA provides that so-called “third-party
literature,“ e.g., a reprint of a peer-reviewed scientific
publication linking a particular nutritional ingredient with health
benefits, may be used in connection with the sale of a nutritional
supplement to consumers without the literature being subject to
regulation as labeling. Such literature must not be false or
misleading; the literature may not promote a particular
manufacturer or brand of nutritional supplement; the literature
must present a balanced view of the available scientific
information on the nutritional supplement; if displayed in an
establishment, the literature must be physically separate from the
nutritional supplement; and the literature may not have appended to
it any information by sticker or any other method. If the
literature fails to satisfy each of these requirements, we may be
prevented from disseminating it with our products, and any
dissemination could subject our products to regulatory action as an
illegal drug. Moreover, any written or verbal representation by us
that would associate a nutrient in a product that we sell with an
effect on a disease will be deemed evidence of intent to sell the
product as an unapproved new drug, a violation of the
FDCA.
In
December 2006, the Dietary Supplement and Nonprescription Drug
Consumer Protection Act (“DSNDCPA“) was passed, which
further revised the provisions of the Federal Food, Drug and
Cosmetic Act. Under the act, manufacturers, packers or
distributors whose name appears on the product label of a
dietary supplement or nonprescription drug are required to
include contact information on the product label for consumers to
use in reporting adverse events associated with the product’s
use and for us to notify the FDA of any serious adverse event
report within 15 business days of receiving such
report. Events reported to the FDA would not be considered an
admission from a company that its product caused or contributed to
the reported event. We are committed to meeting or exceeding the
requirements of the DSNDCPA.
We are
also subject to a variety of other regulations in the U.S.,
including those relating to bioterrorism, taxes, labor and
employment, import and export, the environment and intellectual
property. All of these regulations require significant financial
and operational resources to ensure compliance, and we cannot
assure you that we will always be in compliance despite our best
efforts to do so.
Our
operations outside the U.S. are similarly regulated by various
agencies and entities in the countries in which we operate and in
which our products are sold. The regulations of these countries may
conflict with those in the U.S. and may vary from country to
country. The sale of our products in certain European countries is
subject to the rules and regulations of the European Union, which
may be interpreted differently among the countries within the
European Union. In other markets outside the U.S., we may be
required to obtain approvals, licenses or certifications from a
country’s ministry of health or comparable agency before we
begin operations or the marketing of products in that country.
Approvals or licenses may be conditioned on reformulation of our
products for a particular market or may be unavailable for certain
products or product ingredients. These regulations may limit our
ability to enter certain markets outside the U.S. As with the costs
of regulatory compliance in the U.S., foreign regulations require
significant financial and operational resources to ensure
compliance, and we cannot assure you that we will always be in
compliance despite our best efforts to do so. Our failure to
maintain regulatory compliance within and outside the U.S. could
impact our ability to sell our products and thus, materially impact
our financial position and results of operations.
Patents, Trademarks and Proprietary Rights
The
Company regards intellectual property, including its trademarks,
service marks, website URLs (domains) and other
proprietary rights, as valuable assets and part of their revered
brand equity. The Company believes that protecting such
intellectual property is crucial to its business strategy. The
Company pursues registrations of the registrable trademarks,
service marks and patents, associated with its key products in the
United States, Canada, Europe and other places it distributes its
products.
The
Company formulates its products using proprietary ingredient
formulations, flavorings and delivery systems. To further protect
its product formulations and flavors, the Company enters into
agreements with manufacturers which provide exclusivity to certain
products formulations and delivery technologies. When appropriate,
the Company will seek to protect its research and development
efforts by filing patent applications for proprietary product
technologies or ingredient combinations. We have
abandoned or not pursued efforts to register certain other patents
and marks identifying other items in our product line for various
reasons including the inability of some names to qualify for
registration or patent applications to qualify for patent
protection, and due to our abandonment of certain such products.
All trademark registrations are protected for a period of ten
years and then are renewable thereafter if still in
use.
Employees
We had
32 full-time employees (20 for NDS and 12 for iSatori) and one
part-time employee as of December 31, 2016. We consider our
employee relations to be good. In addition to the above, the
Company retains consultants for certain services on an as needed
basis.
Environmental Regulation
Our
business does not require us to comply with any particular
environmental regulations.
An investment in our common stock involves a high degree of risk.
You should carefully consider the following information about these
risks, together with the other information contained in this Annual
Report on Form 10-K, before investing in our common stock. If any
of the events anticipated by the risks described below occur, our
results of operations and financial condition could be adversely
affected which could result in a decline in the market price of our
common stock, causing you to lose all or part of your
investment.
The Company was profitable during the year ended December 31, 2016,
however we may not be able to achieve sustained
profitability. The Company’s failure to sustain
profitability or effectively manage growth could result in
continued net losses, and therefore negatively affect the
Company’s financial condition.
To achieve continual and consistent profitable operations, the
Company must maintain growth in revenue from its products,
including sales of NDS Products to GNC franchisees, and sales of
iSatori Products. In the event of any decrease in sales,
if the Company is not able to maintain growth, or if the Company is
unable to effectively manage its growth, the Company may not be
able to sustain profitability, and may incur net losses in the
future, and those net losses could be material. In the
event the Company achieves net losses, its financial condition
could be negatively affected, and such affect could be
material.
We were not in compliance with certain bank covenants at December
31, 2016, and, although a waiver was obtained with respect to such
non-compliance, in the event we are subsequently in violation of
such covenants, and we are unable to obtain a waiver, we will be in
default.
As of
December 31, 2016, the Company was not in compliance with certain
financial covenants with a four-quarter look-back period in its
existing term loan and revolving line of credit with U.S. Bank (the
“Bank”),
principally due to decreased revenue received during the third
quarter of fiscal 2016. The Company received a waiver for all
covenant defaults on both the existing five-year term loan and
revolving line of credit with the Bank for the quarter ended
December 31, 2016. No consideration was paid or payable in
connection with such waiver. Receipt of the waiver for the current
period notwithstanding, no assurances can be given with respect to
either the Company’s ability to secure and maintain
compliance with the covenants in future periods, or, in the event
the Company is not compliant, that the Bank with provide a waiver
of compliance for such covenants in future periods. In the event
the Company is not in compliance with the covenants in future
periods and the Bank fails to provide a waiver, declares the term
loan or revolving line of credit to be in default, and terminates
the term loan or the revolving line of credit, any amounts due the
Bank at such time would become immediately due and payable. In such
event, our financial condition will be negatively affected, and
such affect could be material.
We are currently dependent on sales to GNC for a substantial
portion of our total sales.
Sales
to GNC’s centralized distribution platform accounted for
approximately 82% of total sales including indirect distribution of
product to domestic and international
franchisees. GNC’s franchisees are not required to
purchase product from the Company. In the event GNC
ceases purchasing products from the Company, or otherwise reduce
their purchases, the Company’s total revenues would be
negatively impacted, and such impact will be material. Moreover,
the transition to GNC’s centralized distribution system has
had the effect of concentrating the majority of our accounts
receivable with a single payor. Prior to the transition,
the Company collected receivables directly from over 300
franchisees on an annual basis representing approximately 900 store
locations. While the acquisition of iSatori has reduced
the percentage of total accounts receivable attributable to GNC,
the Company anticipates that GNC will continue to represent a
substantial portion of all accounts receivable for the foreseeable
future. In the event that GNC stops paying or there are
other issues affecting the Company’s relationship with GNC,
the inability of the Company to collect on its outstanding accounts
receivable would have a material adverse impact on its financial
position and ability to support continued operations.
Our ability to materially increase sales is largely dependent on
the ability to increase sales of product to GNC, as well as
increasing sales of our Core Active Nutrition Products and
iSatori Products. We may invest significant amounts in
these expansions with little success.
We
currently are focusing our marketing efforts on increasing the sale
of products to GNC, both domestically and internationally, as well
as increasing the number of retailers selling Core Active Nutrition
Products and iSatori Products. We may not be successful
increasing sales to GNC, or contracting with additional
distributors or retailers to market and sell Core Active Nutrition
Products or iSatori Products. In addition, although we
continue efforts to expand international distribution for our
products in the year ended December 31, 2016, we have no assurance
that any further efforts to sell our products outside the United
States will result in material increased revenue. We may need to
overcome significant regulatory and legal barriers in order to
continue to sell our products internationally, and we cannot give
assurance as to whether we will be able to comply with such
regulatory or legal requirements.
We are affected by extensive laws, governmental regulations,
administrative determinations, court decisions and similar
constraints, which can make compliance costly and subject us to
enforcement actions by governmental agencies.
The
formulation, manufacturing, packaging, labeling, holding, storage,
distribution, advertising and sale of our products are affected by
extensive laws, governmental regulations and policies,
administrative determinations, court decisions and similar
constraints at the federal, state and local levels, both within the
United States and in any country where we conduct business. There
can be no assurance that we or our independent distributors will be
in compliance with all of these regulations. A failure by us or our
distributors to comply with these laws and regulations could lead
to governmental investigations, civil and criminal prosecutions,
administrative hearings and court proceedings, civil and criminal
penalties, injunctions against product sales or advertising, civil
and criminal liability for the Company and/or its principals, bad
publicity, and tort claims arising out of governmental or judicial
findings of fact or conclusions of law adverse to the Company or
its principals. In addition, the adoption of new regulations and
policies or changes in the interpretations of existing regulations
and policies may result in significant new compliance costs or
discontinuation of product sales, and may adversely affect the
marketing of our products, resulting in decreases in
revenues.
We are currently dependent on a limited number of independent
suppliers and manufacturers of our products, which may affect
our ability to deliver our products in a timely manner. If we are
not able to ensure timely product deliveries, potential
distributors and customers may not order our products, and our
revenues may decrease.
We rely
entirely on a limited number of third parties to supply and
manufacture our products. Our products are manufactured on a
purchase order basis only and manufacturers can terminate their
relationships with us at will. These third party
manufacturers may be unable to satisfy our supply
requirements, manufacture our products on a timely basis, fill and
ship our orders promptly, provide services at competitive costs or
offer reliable products and services. The failure to meet any of
these critical needs would delay or reduce product shipment and
adversely affect our revenues, as well as jeopardize our
relationships with our distributors and customers. In the event any
of our third party manufacturers were to become unable or unwilling
to continue to provide us with products in required volumes and at
suitable quality levels, we would be required to identify and
obtain acceptable replacement manufacturing sources. There is no
assurance that we would be able to obtain alternative manufacturing
sources on a timely basis. Additionally, all our third party
manufacturers source the raw materials for our products, and if we
were to use alternative manufacturers we may not be able to
duplicate the exact taste and consistency profile of the product
from the original manufacturer. An extended interruption in the
supply of our products would result in decreased product sales and
our revenues would likely decline. We believe that we can meet our
current supply and manufacturing requirements with our current
suppliers and manufacturers or with available substitute suppliers
and manufacturers. Historically, we have not experienced any delays
or disruptions to our business caused by difficulties in obtaining
supplies.
We are dependent on our third party manufacturers to supply our
products in the compositions we require, and we do not
independently analyze our products. Any errors in our product
manufacturing could result in product recalls, significant legal
exposure, and reduced revenues and the loss of
distributors.
While
we require that our manufacturers verify the accuracy of the
contents of our products, we do not have the expertise or personnel
to monitor the production of products by these third parties. We
rely exclusively, without independent verification, on certificates
of analysis regarding product content provided by our third party
suppliers and limited safety testing by them. We cannot be assured
that these outside manufacturers will continue to supply products
to us reliably in the compositions we require. Errors in the
manufacture of our products could result in product recalls,
significant legal exposure, adverse publicity, decreased revenues,
and loss of distributors and endorsers.
We face significant competition from existing suppliers of products
similar to ours. If we are not able to compete with these companies
effectively, we may not be able to return to or maintain
profitability.
We face
intense competition from numerous resellers, manufacturers and
wholesalers of protein shakes and nutritional supplements similar
to ours, including retail, online and mail order
providers. Many of our competitors have longer operating
histories, established brands in the marketplace, revenues
significantly greater than ours and better access to capital than
us. We expect that these competitors may use their resources
to engage in various business activities that could result in
reduced sales of our products. Companies with greater capital and
research capabilities could re-formulate existing products or
formulate new products that could gain wide marketplace acceptance,
which could have a depressive effect on our future sales. In
addition, aggressive advertising and promotion by our competitors
may require us to compete by lowering prices because we do not
have the resources to engage in marketing campaigns against these
competitors, and the economic viability of our operations likely
would be diminished.
Adverse publicity associated with our products, ingredients, or
those of similar companies, could adversely affect our sales and
revenue.
Our
customers’ perception of the safety and quality of our
products or even similar products distributed by others can be
significantly influenced by national media attention, publicized
scientific research or findings, product liability claims and other
publicity concerning our products or similar products distributed
by others. Adverse publicity, whether or not accurate, that
associates consumption of our products or any similar products with
illness or other adverse effects, will likely diminish the
public’s perception of our products. Claims that any products
are ineffective, inappropriately labeled or have inaccurate
instructions as to their use, could have a material adverse effect
on the market demand for our products, including reducing our sales
and revenues.
The efficiency of nutritional supplement products is supported by
limited conclusive clinical studies, which could result in less
market acceptance of these products and lower revenues or lower
growth rates in revenues.
Our
nutritional supplement products are made from various ingredients
including vitamins, minerals, amino acids, herbs, botanicals,
fruits, berries and other substances for which there is a long
history of human consumption. However, there is little long-term
experience with human consumption of certain product ingredients or
combinations of ingredients in concentrated form. Although we
believe all of our products fall within the generally known safe
limits for daily doses of each ingredient contained within them,
nutrition science is imperfect. Moreover, some people have peculiar
sensitivities or reactions to nutrients commonly found in foods,
and may have similar sensitivities or reactions to nutrients
contained in our products. Furthermore, nutrition science is
subject to change based on new research. New scientific evidence
may disprove the efficacy of our products or prove our
products to have effects not previously known. We could be
adversely affected by studies that may assert that our products are
ineffective or harmful to consumers, or if adverse effects are
associated with a competitor’s similar products.
Our products may not meet health and safety standards or could
become contaminated.
We do
not have control over all of the third parties involved in the
manufacturing of our products and their compliance
with government health and safety
standards. Even if our products meet these standards
they could otherwise become contaminated. A failure to meet these
standards or contamination could occur in our operations or those
of our distributors or suppliers. This could result in expensive
production interruptions, recalls and liability claims. Moreover,
negative publicity could be generated from false, unfounded or
nominal liability claims or limited recalls. Any of these failures
or occurrences could negatively affect our business and financial
performance.
The sale of our products involves product liability and related
risks that could expose us to significant insurance and loss
expenses.
We face
an inherent risk of exposure to product liability claims if the use
of our products results in, or is believed to have resulted in,
illness or injury. Most of our products contain combinations of
ingredients, and there is little long-term experience with the
effect of these combinations. In addition, interactions of these
products with other products, prescription medicines and
over-the-counter drugs have not been fully explored or understood
and may have unintended consequences. While our third party
manufacturers perform tests in connection with the
formulations of our products, these tests are not designed to
evaluate the inherent safety of our products.
Although we
maintain product liability insurance, it may not be sufficient
to cover all product liability claims and such claims that may
arise, could have a material adverse effect on our business. The
successful assertion or settlement of an uninsured claim, a
significant number of insured claims or a claim exceeding the
limits of our insurance coverage would harm us by adding further
costs to our business and by diverting the attention of our senior
management from the operation of our business. Even if we
successfully defend a liability claim, the uninsured litigation
costs and adverse publicity may be harmful to our
business.
Any
product liability claim may increase our costs and adversely
affect our revenues and operating income. Moreover, liability
claims arising from a serious adverse event may increase our
costs through higher insurance premiums and deductibles, and
may make it more difficult to secure adequate insurance
coverage in the future. In addition, our product liability
insurance may fail to cover future product liability claims,
which, if adversely determined, could subject us to substantial
monetary damages.
If the products we sell do not have the healthful effects intended,
our business may suffer.
In
general, our products sold consist of nutritional supplements,
which are classified in the United States as “dietary
supplements“ which do not currently require approval from the
FDA or other regulatory agencies prior to sale. Although
many of the ingredients in such products are vitamins, minerals,
herbs and other substances for which there is a long history of
human consumption, they contain innovative ingredients or
combinations of ingredients. Although we believe all of
such products and the combinations of ingredients in them are safe
when taken as directed by the Company, there is little long-term
experience with human or other animal consumption of certain of
these ingredients or combinations thereof in concentrated
form. The products could have certain side effects if
not taken as directed or if taken by a consumer that has certain
medical conditions. Furthermore, there can be no assurance
that any of the products, even when used as directed, will have the
effects intended or will not have harmful side
effects.
A slower growth rate in the nutritional supplement industry could
lessen our sales and make it more difficult for us to sustain
consistent growth.
The
nutritional supplement industry has been growing at a strong pace
over the past ten years, despite continued negative impacts of
popular supplements like Echinacea and ephedra on the supplement
market. However, any reported medical concerns with
respect to ingredients commonly used in nutritional supplements
could negatively impact the demand for our
products. Meanwhile, low-carb products, affected liquid
meal replacements and similar competing products addressing
changing consumer tastes and preferences could affect the market
for certain categories of supplements. All these factors
could have a negative impact on our sales growth.
Compliance with changing corporate governance regulations and
public disclosures may result in additional risks and
exposures.
Changing laws,
regulations and standards relating to corporate governance and
public disclosure, including the Sarbanes-Oxley Act of 2002 and new
regulations from the SEC, have created uncertainty for public
companies such as ours. These laws, regulations, and
standards are subject to varying interpretations in many cases and
as a result, their application in practice may evolve over time as
new guidance is provided by regulatory and governing bodies.
This could result in continuing uncertainty regarding compliance
matters and higher costs necessitated by ongoing revisions to
disclosure and governance practices. As a result, our efforts
to comply with evolving laws, regulations, and standards have
resulted in, and are likely to continue to result in, increased
expenses and significant management time and
attention.
Loss of key personnel could impair our ability to
operate.
Our
success depends on hiring, retaining and integrating senior
management and skilled employees. We are currently dependent on
certain current key employees, including John Wilson, our Chief
Executive Officer, who is vital to our ability to grow our business
and maintain profitability. As with all personal service providers,
our officers can terminate their relationship with us at will. Our
inability to retain these individuals may result in our
reduced ability to operate our business.
A limited trading market currently exists for our securities and we
cannot assure you that an active market will ever develop, or if
developed, will be sustained.
There
is currently a limited trading market for our securities on the
OTCBB marketplace. An active trading market for the
common stock may not develop. Consequently, we cannot assure you
when and if an active-trading market in our shares will be
established, or whether any such market will be sustained or
sufficiently liquid to enable holders of shares of our common stock
to liquidate their investment in our company. If an active public
market should develop in the future, the sale of unregistered and
restricted securities by current shareholders may have a
substantial impact on any such market.
The price of our securities could be subject to wide fluctuations
and your investment could decline in value.
The
market price of the securities of a company such as ours with
little name recognition in the financial community and without
significant revenues can be subject to wide price swings. For
example, the adjusted closing price of our common stock has ranged
from a high of $1.92 to a low of $0.87 during the period commencing
January 1, 2016 and ending December 31, 2016. The market price
of our securities may be subject to wide changes in response to
quarterly variations in operating results, announcements of new
products by us or our competitors, reports by securities analysts,
volume trading, or other events or factors. In addition, the
financial markets have experienced significant price and volume
fluctuations for a number of reasons, including the failure of
certain companies to meet market expectations. These broad market
price swings, or any industry-specific market fluctuations, may
adversely affect the market price of our securities.
Companies that have
experienced volatility in the market price of their stock have been
the subject of securities class action litigation. If we were to
become the subject of securities class action litigation, it could
result in substantial costs and a significant diversion of our
management’s attention and resources.
Because
our common stock may be classified as “penny stock,“
trading may be limited, and the share price could
decline. Because our common stock may fall under the
definition of “penny stock,“ trading in the common
stock, if any, may be limited because broker-dealers would be
required to provide their customers with disclosure documents prior
to allowing them to participate in transactions involving the
common stock. These disclosure requirements are burdensome to
broker-dealers and may discourage them from allowing their
customers to participate in transactions involving our common
stock.
We may issue preferred stock with rights senior to the common
stock.
Our
articles of incorporation authorize the issuance of up to
10,000,000 shares of preferred stock in the aggregate. 10,000,000
shares of Series A Preferred Stock, par value $0.01 per share,
1,000 shares of Series B Preferred Stock, par value $0.01 per
share, and 500 shares of Series C Preferred Stock par value $0.01
per share, are currently authorized (the “Preferred Stock“) and, therefore,
could be issued without shareholder approval subject to the
10,000,000 share limitation. Currently, there are no shares of
Preferred Stock issued and outstanding, and we have no existing
plans to issue any shares of Preferred Stock. However, the rights
and preferences of any such class or series of Preferred Stock,
were we to issue it, would be established by our Board of Directors
in its sole discretion and may have dividend, voting, liquidation
and other rights and preferences that are senior to the rights of
the common stock.
You should not rely on an investment in our common stock for the
payment of cash dividends.
We have
never paid cash dividends on our stock and do not anticipate paying
any cash dividends in the foreseeable future. You should not make
an investment in our common stock if you require dividend income.
Any return on investment in our common stock would only come from
an increase in the market price of our stock, which is uncertain
and unpredictable.
SHOULD ONE OR MORE OF THE FOREGOING RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT,
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED, INTENDED OR PLANNED.
ITEM 1B. UNRESOLVED
STAFF COMMENTS
None.
The
Company is headquartered in Omaha, Nebraska and maintains a lease
at a cost of $4,403 per month, which lease is currently set to
expire in June 30, 2017. The Omaha facility is a total of 4,720
square feet inclusive of approximately 1,000 square feet of on-site
warehouse space. iSatori currently leases 10,444 square
feet of space at 15000 W. 6th Avenue, Suite 202, Golden, Colorado
80401, at a cost of $10,890 per month. The Golden, Colorado lease,
which includes 7,200 square feet of office space and 3,244 square
feet of attached warehouse space, was set to expire on January 31,
2017, but was extended by agreement with the landlord pending
build-out of a smaller space also owned by the landlord. Prior to
January 2, 2016, iSatori also leased 17,426 square feet of space at
6200 North Washington Street, Unit 10, Denver, Colorado 80216, for
its distribution center, at a cost of $10,819 per month. The lease
is currently sublet through December 31, 2018, and otherwise set to
expire on December 31, 2018.
The
Company also leases some office equipment for aggregate total cost
of $193 per month at the Omaha, Nebraska facility and $625 per
month at the Golden, Colorado facility for an aggregate monthly
expense of $818.
ITEM 3. LEGAL
PROCEEDINGS
On
December 31, 2014, various plaintiffs, individually and on behalf
of a purported nationwide and sub-class of purchasers, filed a
lawsuit in the U.S. District Court for the Northern District of
California, captioned Ryan et al. v. Gencor Nutrients, Inc. et al.,
Case No.: 4:14-CV-05682. The lawsuit includes claims made against
the manufacturer and various producers and sellers of products
containing a nutritional supplement known as Testofen, which is
manufactured and sold by Gencor Nutrients, Inc.
(“Gencor”).
Specifically, the Ryan plaintiffs allege that various defendants
have manufactured, marketed and/or sold Testofen, or nutritional
supplements containing Testofen, and in doing so represented to the
public that Testofen had been clinically proven to increase free
testosterone levels. According to the plaintiffs, those claims are
false and/or not statistically proven. Plaintiffs seek relief under
violations of the Racketeering Influenced Corrupt Organizations
Act, breach of express and implied warranties, and violations of
unfair trade practices in violation of California, Pennsylvania,
and Arizona law. NDS utilizes Testofen in a limited number of
nutritional supplements it manufactures and sells pursuant to a
license agreement with Gencor.
On February 19, 2015 this matter was transferred
to the Central District of California to the Honorable Manuel
Real. Judge Real had previously issued an order
dismissing a previously filed but similar lawsuit that had been
filed by the same lawyer who represents the plaintiffs in the Ryan
matter. That related lawsuit is on appeal to
the U.S. Court of Appeals
for the Ninth Circuit, and in June of 2016, the Ninth Circuit
reversed the District Court's dismissal of the companion case,
specifically as to the plaintiff's false advertising claim. As of
the date hereof, the Ryan case has not yet been reinstated, but we
expect reinstatement of the case in the near
future.
On October 27, 2015, the Company filed a
declaratory judgment in the U.S. District Court for the District of
Nebraska, captioned Fitlife Brands, Inc. v.
Met-Rx Substrate Technology, Inc., Case No. 8:15-cv-00388, seeking a declaration
that its METIS NUTRITION trademark was not likely to cause
confusion with various MET-RX trademarks owned by Met-Rx Substrate
Technology, Inc. (“Met-Rx”). This dispute originally began as
an action in front of the U.S. Patent and Trademark Office
(“USPTO”) when the Company first filed for the
METIS NUTRITION trademark, and Met-Rx filed a Notice of Opposition
to the Company’s application, arguing that the METIS
NUTRITION mark was likely to cause confusion with various MET-RX
trademarks owned by Met-Rx. At the Company’s request,
the USPTO stayed the matter, and the Company initiated
the aforementioned
proceeding. On August 29, 2016, the parties entered into a
Settlement Agreement, pursuant to which the case was dismissed, and
the Company is allowed to use the METIS NUTRITION trademark in
certain circumstances.
We are
currently not involved in any litigation except noted above that we
believe could have a material adverse effect on our financial
condition or results of operations. Other than described above,
there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge
of the executive officers of the Company or any of its
subsidiaries, threatened against or affecting the Company, our
common stock, any of our subsidiaries or of the Company’s or
our subsidiaries’ officers or directors in their capacities
as such, in which an adverse decision could have a material adverse
effect.
ITEM 4. MINE SAFETY
DISCLOSURES
None.
ITEM 5. MARKET FOR REGISTRANT’S COMMON STOCK,
RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY
SECURITIES
Our
common stock is traded in the over-the-counter market, and quoted
on the OTCBB market under the symbol FTLF.
At
December 31, 2016, there were 10,449,520 shares of common stock
outstanding and there were approximately 231 shareholders of record
of the Company’s common stock in additional to an
undetermined number of holders for whose shares are held in
“street name“. In addition to the foregoing, 33,869
shares of common stock were subscribed and another 41,920 were
pending cancellation from treasury.
The
following table sets forth for the periods indicated the high and
low closing prices for our common stock. These
quotations represent inter-dealer quotations, without adjustment
for retail markup, markdown or commission and may not represent
actual transactions.
|
|
|
|
|
Fiscal
Year 2016
|
|
|
|
First Quarter
(January - March 2016)
|
$1.57
|
1.03
|
|
Second Quarter
(April - June 2016)
|
$1.56
|
1.00
|
|
Third Quarter (July
- September 2016)
|
$1.92
|
1.35
|
|
Fourth Quarter
(October - December 2016)
|
$1.87
|
0.87
|
|
|
|
|
|
Fiscal
Year 2015
|
|
|
|
First Quarter
(January - March 2015)
|
$2.58
|
$1.95
|
|
Second Quarter
(April - June 2015)
|
$2.15
|
$1.56
|
|
Third Quarter (July
- September 2015)
|
$1.75
|
$1.47
|
|
Fourth Quarter
(October - December 2015)
|
$1.90
|
$1.34
|
On
April 12, 2017, the closing price of our common stock was
$0.56.
Share Repurchase Program
On June
30, 2014, the Company’s Board of Directors approved the
Repurchase Program, pursuant to which the Company is authorized to
purchase up to $600,000 of our common stock per annum, subject to
maximum repurchases of $50,000 per month. Additional purchases
under the Repurchase Program may be made from time to time at the
discretion of management as market conditions warrant and subject
to certain regulatory restrictions and other considerations. In
March 2015, the Board of Director’s approved an extension of
the Repurchase Program, which enabled the Company to purchase a
substantial number of shares in a single transaction on March 6,
2015. The extension did not affect the terms or conditions of the
existing Repurchase Program. As of March 31, 2017, the Company had
repurchased an aggregate total of 207,909 shares of our common
stock, at an average purchase price of $1.83 per
share.
The
Company repurchased 41,920 shares of common stock under the
Repurchase Program during the quarter ended December 31,
2016.
Dividends
We have
not and may never pay any dividends to our shareholders. We did not
declare any dividends for the year ended December 31, 2016. Our
Board of Directors does not intend to distribute dividends in the
near future. The declaration, payment and amount of any future
dividends will be made at the discretion of the Board of Directors,
and will depend upon, among other things, the results of our
operations, cash flows and financial condition, operating and
capital requirements, and other factors as the Board of Directors
considers relevant. There is no assurance that future dividends
will be paid, and if dividends are paid, there is no assurance with
respect to the amount of any such dividend.
Transfer Agent
Our
transfer agent and registrar for the common stock is Colonial Stock
& Transfer located in Salt Lake City, Utah.
ITEM 6. SELECTED
FINANCIAL DATA
Not a
required disclosure for Smaller Reporting Companies.
ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR
PLAN OF OPERATION
The
following is management’s discussion and analysis of certain
significant factors that have affected our financial position and
operating results during the periods included in the accompanying
consolidated financial statements, as well as information relating
to the plans of our current management. This report includes
forward-looking statements. Generally, the words
“believes,“ “anticipates,“
“may,“ “will,“ “should,“
“expect,“ “intend,“ “estimate,“
“continue,“ and similar expressions or the negative
thereof or comparable terminology are intended to identify
forward-looking statements. Such statements are subject to certain
risks and uncertainties, including the matters set forth in this
report or other reports or documents we file with the Securities
and Exchange Commission from time to time, which could cause actual
results or outcomes to differ materially from those projected.
Undue reliance should not be placed on these forward-looking
statements, which speak only as of the date hereof. We undertake no
obligation to update these forward-looking statements.
The
following discussion and analysis should be read in conjunction
with our consolidated financial statements and the related notes
thereto and other financial information contained elsewhere in this
Form 10-K.
Critical Accounting Policies
Principle of Consolidation
The
consolidated financial statements include the accounts of FitLife
Brands, Inc. and NDS Nutrition Products, Inc. for the full-year
ended December 31, 2016, as well as the accounts of iSatori,
Inc. for the quarterly period ended December 31, 2016. All
intercompany accounts and transactions have been eliminated in the
consolidated financial statements.
Use of Estimates and Assumptions
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States
(“GAAP“)
requires management to make estimates and assumptions that affect
(i) the reported amounts of assets and liabilities,
(ii) the disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published, and
(iii) the reported amount of net sales and expenses 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
revenues, costs and expenses during the reporting
period. Management evaluates these estimates and
assumptions on a regular basis. Actual results could
differ from those estimates.
Revenue Recognition
Revenue
is derived from product sales. The Company recognizes revenue from
product sales in accordance with Accounting Standards Codification
(“ASC“) Topic
605 “Revenue
Recognition in Financial
Statements“ which assesses revenue upon: (i) the time
customers are invoiced at shipping point provided title and risk of
loss has passed to the customer, (ii) evidence of an arrangement
exists, (iii) fees are contractually fixed or determinable, (iv)
collection is reasonably assured through historical collection
results and regular credit evaluations, and (v) there are no
uncertainties regarding customer acceptance.
The
Company offers discounts on sales to GNC franchises on many of its
products. Discounts are updated monthly and made
available to all franchisees. Revenue is recorded net of
all discounts taken at the time of sale for all direct
sales. Indirect sales involve sales through GNC’s
centralized distribution platform. Fulfillment to
franchisees from GNC’s distribution centers often spans
several months and accounting periods after the initial indirect
sale. Given that the discount programs change monthly,
it is impossible to predict with any certainty what discounts will
be taken on which products and at what time. As a
result, prior to 2015, the Company had historically booked gross
revenue through the indirect channel upon shipment to
GNC. Discounts taken by franchisees upon fulfillment
from GNC’s distribution center are billed back to the Company
as a credit to a future invoice. The Company accounted
for these deductions (“Vendor Funded Discounts“) as a
selling and marketing expense in the period that the deduction was
taken by GNC. Management believes this approach was the
best way to match the expense to the timing of actual product
fulfillment at the store level when the discounts are actually
taken. In an effort to ensure consistent accounting
policies across all operating divisions after the acquisition of
iSatori, the Company elected to modify its accounting policy for
Vendor Funded Discounts for the fiscal year ended December 31, 2015
and therafter. As a result, for all indirect distribution, the
Company estimates anticipated discounts at the time product is
shipped to GNC’s distribution center(s) and recognizes that
estimate as a deduction from gross revenue at the time of
shipment to GNC. Actual discounts are compared to the
estimate each accounting period and adjusted as necessary. Total
revenue and selling and marketing expense is reduced by the amount
of the estimate, and the new policy has no effect on operating or
net income. Results of operations for the years ended
December 31, 2015 and 2016 were both reported using the net revenue
approach. The change had no impact on operating income or net
income.
Accounts Receivable
All of
the Company’s accounts receivable balance is related to trade
receivables which, during the year ended December 31, 2016,
increased due principally to the transition to GNC’s
centralized distribution platform. Trade accounts receivable are
recorded at the invoiced amount and do not bear interest. The
allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in its existing
accounts receivable. The Company will maintain allowances for
doubtful accounts, estimating losses resulting from the inability
of its customers to make required payments for products. Accounts
with known financial issues are first reviewed and specific
estimates are recorded. The remaining accounts receivable balances
are then grouped in categories by the amount of days the balance is
past due, and the estimated loss is calculated as a percentage of
the total category based upon past history. Account balances are
charged off against the allowance when it is probable the
receivable will not be recovered. We maintain an insurance policy
for iSatori Products for international shipments, which protects
the Company in the event the international distributor does not or
cannot remit payment. The Company recorded an expense of $3,553
related to bad debt and doubtful accounts during the year ended
December 31, 2016.
Allowance for Doubtful Accounts
The
determination of collectability of the Company’s accounts
receivable requires management to make frequent judgments and
estimates in order to determine the appropriate amount of allowance
needed for doubtful accounts. The Company’s allowance for
doubtful accounts is estimated to cover the risk of loss related to
accounts receivable. This allowance is maintained at a level we
consider appropriate based on historical and other factors that
affect collectability. These factors include historical trends of
write-offs, recoveries and credit losses, the careful monitoring of
customer credit quality, and projected economic and market
conditions. Different assumptions or changes in economic
circumstances could result in changes to the
allowance.
Cash and Cash Equivalents
The
Company considers all highly liquid investments with an original
maturity of three months or less to be cash
equivalents. At December 31, 2016, cash and cash
equivalents include cash on hand and cash in the bank.
Inventory
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 raw
material and finished goods for all of its product offerings across
all of the Company’s operating subsidiaries. At December 31,
2016 and 2015, the value of the Company’s inventory was
$3,756,716 (which included $1,132,256 from iSatori) and $4,790,301,
respectively.
Property and Equipment
Property and
equipment is recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. When
items are retired or otherwise disposed of, income is charged or
credited for the difference between net book value and proceeds
realized. Ordinary maintenance and repairs are charged
to expense as incurred, and replacements and betterments are
capitalized.
The
range of estimated useful lives used to calculate depreciation for
principal items of property and equipment are as
follows:
|
Asset
Category
|
|
Depreciation
/ Amortization Period
|
|
Furniture
and Fixture
|
|
3
Years
|
|
Office
equipment
|
|
3
Years
|
|
Leasehold
improvements
|
|
5
Years
|
The
Company adopted Statement of Financial Accounting Standard
(“FASB“)
ASC Topic 350 Goodwill and
Other Intangible Assets. In accordance with ASC Topic 350,
goodwill, which represents the excess of the purchase price and
related costs over the value assigned to net tangible and
identifiable intangible assets of businesses acquired and accounted
for under the purchase method, acquired in business combinations is
assigned to reporting units that are expected to benefit from the
synergies of the combination as of the acquisition date. Under this
standard, goodwill and intangibles with indefinite useful lives are
no longer amortized. The Company assesses goodwill and
indefinite-lived intangible assets for impairment annually during
the fourth quarter, or more frequently if events and circumstances
indicate impairment may have occurred in accordance with ASC Topic
350. If the carrying value of a reporting unit's goodwill exceeds
its implied fair value, the Company records an impairment loss
equal to the difference. ASC Topic 350 also requires that the fair
value of indefinite-lived purchased intangible assets be estimated
and compared to the carrying value. The Company recognizes an
impairment loss when the estimated fair value of the
indefinite-lived purchased intangible assets is less than the
carrying value.
Impairment of Long-Lived Assets
In
accordance with ASC Topic 3605, “Long-Lived Assets,“ such as
property, plants, equipment, and purchased intangibles are reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Goodwill and other intangible assets are tested for impairment.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount
in which the carrying amount of the asset exceeds the fair value of
the asset. There were no events or changes in circumstances that
necessitated an impairment of long-lived assets.
Income Taxes
Deferred income
taxes are provided based on the provisions of ASC Topic 740,
“Accounting for Income
Taxes,“ to reflect the tax consequences in future
years of differences between the tax bases of assets and
liabilities and their financial reporting amounts based on enacted
tax laws and statutory tax rates applicable to the periods in which
the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48
– “Accounting For
Uncertainty In Income Taxes“–an interpretation
of ASC Topic 740 (“FIN
48“). FIN 48 contains a two-step approach to
recognizing and measuring uncertain tax positions. The first step
is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates it is more likely than
not, that the position will be sustained on audit, including
resolution of related appeals or litigation processes, if any. The
second step is to measure the tax benefit as the largest amount,
which is more than 50% likely of being realized upon ultimate
settlement. The Company considers many factors when evaluating and
estimating the Company's tax positions and tax benefits, which may
require periodic adjustments. At December 31, 2016, the Company did
not record any liabilities for uncertain tax
positions.
Concentration of Credit Risk
The
Company maintains its operating cash balances in a bank located in
Nebraska. The Federal Depository Insurance Corporation
(“FDIC“)
insures accounts up to $250,000.
Earnings Per Share
Basic
income (loss) per share is computed by dividing net income (loss)
available to common shareholders by the weighted average number of
common shares outstanding during the reporting period. Diluted
earnings per share reflects the potential dilution that could occur
if stock options, warrants, and other commitments to issue common
stock were exercised or equity awards vest resulting in the
issuance of common stock that could share in the earnings of the
Company. In the event of a loss, diluted loss per share is the same
as basic loss per share, because of the effect of the additional
securities, a net loss would be anti-dilutive.
Fair Value of Financial Instruments
The
fair value of a financial instrument is the amount at which the
instrument could be exchanged in a current transaction between
willing parties other than in a forced sale or
liquidation.
The
carrying amounts of the Company’s financial instruments,
including cash, accounts payable and accrued liabilities, income
tax payable and related party payable, if any, approximate fair
value.
Recent Accounting Pronouncements
None.
RESULTS OF OPERATIONS
Fiscal Year Ended December 31, 2016 Compared to Fiscal Year Ended
December 31, 2015
Net Sales. Revenue for the year ended
December 31, 2016 increased 41.2% to $25,313,601 as compared to
$17,931,464 for the year ended December 31, 2015. Revenue for the
Company’s NDS Nutrition division increased 10.7% to
$18,259,853 as compared $16,492,701 for the year ended December 31,
2015. This increase was principally the result of continued
improvement in sales of product through GNC, and the addition of
revenue attributable to iSatori Products, which contributed
$7,094,068 in sales for the year ended December 31,
2016.
The
Company continually reformulates and introduces new products, as
well as seeks to increase both the number of stores and number of
approved products that can be sold within the GNC franchise system
that comprise its domestic and international distribution footprint
and, while no assurances can be given, anticipates that such
efforts together with anticipated sales growth attributable to
iSatori Products will continue to drive future revenue
growth. While currently not a material component of revenue,
management anticipates that continued international expansion
within the GNC franchise system, as well as the introduction of new
NDS Products and iSatori Products. will also contribute to future
growth.
Cost of Goods Sold. Cost of goods sold
for the year ended December 31, 2016 increased 30.8% to $15,242,537
as compared to $11,653,057 for the year ended December 31, 2015.
This increase is principally attributable to increased sales
volumes, including sales of iSatori Products.
General and Administrative Expense.
General and administrative expense for the year ended December 31,
2016 increased by $860,212 to $5,002,149 as compared to $4,141,937
for the year ended December 31, 2015. The increase in general and
administrative expense for the year ended December 31, 2016 is
principally attributable to the continued integration of iSatori
operations following completion of the Merger.
Selling and Marketing Expense. Selling
and marketing expense for the year ended December 31, 2016
increased to $4,118,414 as compared to $2,926,063 for the year
ended December 31, 2015. This increase is principally attributable
to the addition of iSatori
Products. As net sales increase, selling and marketing expense is
anticipated to simultaneously increase, although management
anticipates that selling and marketing expense will increase at a
slower rate.
Depreciation and Amortization.
Depreciation and amortization for the years ended December 31, 2016
and 2015 increased to $478,235 from $300,141, respectively. The
increase is principally attributable to the addition of iSatori
Products.
Net Income/
(Loss). Net income
was $368,078 for the year ended December 31, 2016, as compared to a
net loss of $(1,165,940) for the year ended December 31,
2015. The increase in net income for the year ended December
31, 2016 compared to the year ended December 31, 2015 is
principally attributable to increased sales volume of NDS Products,
sales of iSatori Products and continued strong gross
margins.
Financial Position, Liquidity and Capital Resources
The
Company has historically financed its operations primarily through
equity and debt financings, and more recently, cash flow from
operations. 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 did
not engage in any financing activities during the year ended
December 31, 2016. The anticipated cash derived from operations,
availability under the current line of credit with U.S. Bank and
existing cash resources are expected to provide for the
Company’s liquidity for the next 12
months.
Cash Provided by (Used in) Operating Activities
Net
cash used in operating activities was $(88,416) in the fiscal year ended December 31,
2016, compared to cash used in operating activities of
$(2,455,421) for the year ended December 31, 2015. The increase is
attributable to increased revenue, including increased accounts
receivables and inventories balances due, in part, to the addition
of iSatori operations and sales, as well as variations in certain
working capital accounts consistent with normal business practices
and outcomes. Net working capital increased to $3,090,440 as
of the year ended December 31, 2016 from $3,003,051 as of December
31, 2015.
Cash Provided by (Used in) Investing Activities
Cash
used in investing activities for the fiscal year ended December 31,
2016 was $(70,995) as compared to $(411,042) used in investing
activities during the year ended
December 31, 2015. The primary difference was related to
a temporary reduction in activity related to the Company’s
stock buyback program.
Cash Provided by (Used in) Financing Activities
Cash
used in financing activities for the year ended December 31,
2016 was $(80,099), as compared to $(660,201) cash used in
financing activities during the year ended December 31, 2015. We
drew down a net amount of $459,695 during the year ended December
31, 2016 from our existing line of credit with U.S. Bank. We expect
to pay back all amounts borrowed under this line of credit, as well
as any outstanding principal under the Company’s existing
term loan with U.S. Bank as soon as practicable. While no
assurances can be given, other than the fiscal 2013 activity
related to the recapitalization of the balance sheet and drawdowns
on our line of credit consistent with normal operating procedures,
we have not needed to seek or secure additional financing to
operate and grow the business since the fourth quarter of
2010.
Working Capital
The
Company currently believes that it has adequate cash resources to
fund its working capital requirements for the remainder of 2016.
However, should the Company be unable to generate sufficient
revenue in the future to continue to achieve positive cash flow
from operations, additional working capital will be
required. In the event the Company fails to achieve
positive cash flow from operations, and management is unable to
secure additional working capital, the Company’s business
would be materially and adversely harmed.
As of
September 30, 2016, NDS, the Company’s wholly owned
subsidiary, was not in compliance with certain financial covenants
with a four-quarter look-back period in its existing term loan and
revolving line of credit with U.S. Bank (the “Bank”), principally due to
decreased revenue received during the third quarter of fiscal 2016,
as well as increased operating expenses as a result of the Merger
incurred in the third quarter of fiscal 2015. On or around November
11, 2016, the Company received a waiver for all covenant defaults
on both the existing five-year term loan and revolving line of
credit with the Bank for the quarter ended September 30, 2016. No
consideration was paid or payable in connection with such waiver.
Receipt of the waiver for the current period notwithstanding, no
assurances can be given with respect to either the Company’s
ability to secure and maintain compliance with the covenants in
future periods, or, in the event the Company is not compliant, that
the Bank with provide a waiver of compliance for such covenants in
future periods. In the event the Company is not in compliance with
the covenants in future periods and the Bank fails to provide a
waiver, declares the term loan or revolving line of credit to be in
default, and terminates the term loan or the revolving line of
credit, any amounts due the Bank at such time would become
immediately due and payable. In such event, our financial condition
will be negatively affected, and such affect could be
material.
ITEM 7A. 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
our investments in short-term financial instruments. Investments in
both fixed rate and floating rate interest earning instruments
carry some interest rate risk. The fair value of fixed rate
securities may fall due to a rise in interest rates, while floating
rate securities may produce less income than expected if interest
rates fall. Partly as a result of this, our future interest income
may fall short of expectations due to changes in interest rates or
we may suffer losses in principal if we are forced to sell
securities that have fallen in estimated fair value due to changes
in interest rates. However, as substantially all of our cash
equivalents consist of bank deposits and short-term money market
instruments, we do not expect any material change with respect to
our net income as a result of an interest rate change.
We do
not hold any derivative instruments and do not engage in any
hedging activities.
ITEM 8. FINANCIAL
STATEMENTS
The
information required hereunder in this Annual Report on Form 10-K
is set forth in the financial statements and the notes thereto
beginning on Page F-1.
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND
PROCEDURES
(a) Evaluation of Disclosure Controls and
Procedures.
Under
the supervision and with the participation of our Management,
including our principal executive officer and principal financial
officer, we conducted an evaluation of the effectiveness of the
design and operations 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 of December 31, 2016. Based on this
evaluation, the Company’s Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information required to be
disclosed in the reports submitted under the Securities and
Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms,
including to ensure that information required to be disclosed by
the Company is accumulated and communicated to management,
including the principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding
required disclosure.
(b) Management's Annual Report on Internal Control over
Financial Reporting.
We are
responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f)
under the Exchange Act). Our internal control over financial
reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes of
accounting principles generally accepted in the United
States.
This
Annual Report does not include an attestation report of our
registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to
attestation by our registered public accounting firm pursuant to an
exemption for smaller reporting companies under Section 989G of the
Dodd-Frank Wall Street Reform and Consumer Protection
Act.
Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Therefore, even
those systems determined to be effective can provide only
reasonable assurance of achieving their control
objectives.
Our
Chief Executive Officer and Chief Financial Officer evaluated the
effectiveness of our internal control over financial reporting as
of December 31, 2016. In making this assessment, we used the
criteria set forth by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO“) in Internal
Control—Integrated Framework. Based on this evaluation, our
Chief Executive Officer and Chief Financial Officer concluded that,
as of December 31, 2016, our internal control over financial
reporting was effective.
(c) Changes in Internal Controls over Financial
Reporting.
The
Company’s Chief Executive Officer and Chief Financial Officer
have determined that there have been no changes, in the
Company’s internal control over financial reporting during
the period covered by this report identified in connection with the
evaluation described in the above paragraph that have materially
affected, or are reasonably likely to materially affect,
Company’s internal control over financial
reporting.
ITEM 9B. OTHER
INFORMATION
None.
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
The information required by this item will be set forth in our
definitive proxy statement for our 2017 annual meeting of
stockholders to be filed within 120 days after our fiscal year end
and is incorporated in this report by reference.
ITEM 11. EXECUTIVE
COMPENSATION
The information required by this item will be set forth in our
definitive proxy statement for our 2017 annual meeting of
stockholders to be filed within 120 days after our fiscal year end
and is incorporated in this report by reference.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be set forth in our
definitive proxy statement for our 2017 annual meeting of
stockholders to be filed within 120 days after our fiscal year end
and is incorporated in this report by reference.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this item will be set forth in our
definitive proxy statement for our 2017 annual meeting of
stockholders to be filed within 120 days after our fiscal year end
and is incorporated in this report by reference.
ITEM 14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
The information required by this item will be set forth in our
definitive proxy statement for our 2017 annual meeting of
stockholders to be filed within 120 days after our fiscal year end
and is incorporated in this report by reference.
ITEM 15. EXHIBITS AND REPORTS
Exhibits
|
2.1
|
|
Agreement
and Plan of Merger, by and among the Company, iSatori, Inc., and
ISFL Merger Sub, Inc., dated May 18, 2015 (incorporated by
reference to Exhibit 2.1 filed with Form 8-K on May 18,
2015).
|
|
2.2
|
|
Voting
and Standstill Agreement dated May 18, 2015 (incorporated by
reference to Exhibit 4.1 of Schedule 13D (Commission File No.
005-47773) filed by the Company, Stephen Adelé Enterprises,
Inc., Stephen Adelé, RENN Universal Growth Investment Trust,
PLC, RENN Global Entrepreneurs Fund, Inc. and Russell
Cleveland).
|
|
3.1
|
|
Articles
of Incorporation (incorporated by reference to Exhibit 3.1 filed
with Amendment No. 3 to the Company’s Registration Statement
on Form SB2 (Commission File No. 333-137170)).
|
|
3.2
|
|
Amendments
to Articles of Incorporation (incorporated by reference to Exhibit
3.2 filed with Amendment No. 3 to the Company’s Registration
Statement on Form SB2 (Commission File No.
333-137170)).
|
|
3.3
|
|
Bylaws
of the Corporation (incorporated by reference to Exhibit 3.3 filed
with Amendment No. 3 to the Company’s Registration Statement
on Form SB2 (Commission File No. 333-137170).
|
|
3.4
|
|
Certificate
of Amendment to Articles of Incorporation (incorporated by
reference to Exhibit 3.1 filed with Form 8-K on September 13,
2010).
|
|
3.5
|
|
Certificate
of Amendment to Articles of Incorporation to change name to FitLife
Brands, Inc. (incorporated by reference to Exhibit 3.1
filed with Form 8-K on October 1, 2013).
|
|
3.6
|
|
Certificate
of Amendment to Articles of Incorporation to effect 1-for-10
reverse split (incorporated by reference to Exhibit 3.1 filed with
Form 8-K on October 1, 2013).
|
|
3.7
|
|
Certificate
of Designations of Series A Convertible Preferred Stock
(incorporated by reference to Exhibit 4.2 filed with Form 8-K on
June 30, 2008).
|
|
3.8
|
|
Certificate
of Designations of Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 10.1 filed with Form 8-K on
January 23, 2009).
|
|
3.9
|
|
Certificate
of Designations of Series C Convertible Preferred Stock.
(incorporated by reference to Exhibit 4.3 filed with Form 10-K on
April 15, 2011).
|
|
10.1
|
|
Asset
Purchase Agreement between the Company and NDS Nutritional
Products, Inc. (incorporated by reference to Exhibit 10.1 filed
with Form 8-K on October 15, 2008).
|
|
10.2
|
|
Settlement
Agreement (incorporated by reference to Exhibit 10.1 filed with
Form 8-K on October 6, 2009).
|
|
10.3
|
|
Secured
Promissory Note (incorporated by reference to Exhibit 10.2 filed
with Form 8-K on October 6, 2009).
|
|
10.4
|
|
Second
Amendment to Asset Purchase Agreement (incorporated by reference to
Exhibit 10.3 filed with Form 8-K on October 6, 2009).
|
|
10.5
|
|
Amendment
No. 1 to Security Agreement (incorporated by reference to Exhibit
10.4 filed with Form 8-K on October 6, 2009).
|
|
10.6
|
|
Amendment
No. 1 to Supply, License and Transition Agreement (incorporated by
reference to Exhibit 10.5 filed with Form 8-K on October 6,
2009).
|
|
10.7
|
|
Assignment
of Name (incorporated by reference to Exhibit 10.6 filed with Form
8-K on October 6, 2009).
|
|
10.8
|
|
Consulting
Agreement for Services between the Company and Burnham Hill
Advisors LLC, dated August 20, 2009 (incorporated by reference to
Exhibit 99.1 filed with the Form 8-K on August 26,
2009).
|
|
10.9
|
|
Consulting
Agreement for Services between the Company and Burnham Hill
Advisors LLC, dated August 20, 2010 (incorporated by reference to
Exhibit 99.1 filed with Form 8-K on August 23, 2010).
|
|
10.10
|
|
Amendment
No. 1 to Consulting Agreement between the Company and Burnham Hill
Advisors LLC, dated September 15, 2010. (incorporated by
reference to Exhibit 10.12 filed with Form 10-K on April 15,
2011).
|
|
10.11
|
|
Amendment
No. 2 to Consulting Agreement between the Company and Burnham Hill
Advisors LLC, dated November 18, 2010. (incorporated by
reference to Exhibit 10.13 filed with Form 10-K on April 15,
2011).
|
|
10.12
|
|
Employment
Agreement, dated December 31, 2009, between the Company and John
Wilson. (incorporated by reference to Exhibit 10.14 filed
with Form 10-K on April 15, 2011).
|
|
10.13
|
|
2010
Equity Incentive Plan (incorporated by reference to Exhibit 10.18
filed with Form 10-K on April 15, 2011).
|
|
10.14
|
|
Form of
Exchange Agreement (incorporated by reference to Exhibit 10.1 filed
with Form 8-K on October 7, 2013).
|
|
10.15
|
|
Employment
Agreement, dated May 1, 2013, by and between the Company and
Michael Abrams (incorporated by reference to Exhibit 10.15 filed
with the Annual Report on Form 10-K on March 28,
2014).
|
|
10.16
|
|
Amendment
No. 2 to Employment Agreement, dated July 14, 2014 between the
Company and John Wilson. (incorporated by reference to
Exhibit 10.1 filed with Form 8-K on July 15, 2014).
|
|
10.17
|
|
Demand
Promissory Note (incorporated by reference to Exhibit 10.1 filed
with Form 8-K on September 11, 2015).
|
|
10.18
|
|
Security
Agreement by and among the Company, Stephen Adele Enterprises, and
Stephen Adele, dated September 11, 2015 (incorporated by reference
to Exhibit 10.2 filed with Form 8-K on September 11,
2015).
|
|
10.19
|
|
Employment
Agreement between the Company, and Stephen Adelй
(incorporated by reference to Exhibit 2.3 filed with Form S-4 on
July 7, 2015).
|
|
10.20
|
|
Employment
Agreement, by and between FitLife Brands, Inc. and Patrick Ryan,
dated June 7, 2016 (incorporated by reference to Exhibit 10.1 filed
with Form 8-k on June 13, 2016).
|
|
|
|
|
|
14.1
|
|
Code of
Ethics (incorporated by reference to 14.1 filed with Form 10-K on
March 27, 2009).
|
|
21
|
|
List of
Subsidiaries.
|
|
31.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act.
|
|
31.2
|
|
Certification
of Principal Financial and Accounting Officer Pursuant to Section
302 of the Sarbanes-Oxley Act.
|
|
32.1
|
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act.
|
|
32.2
|
|
Certification
of Chief Accounting Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act.
|
In
accordance with 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, there unto duly
authorized.
|
Registrant
Date:
April 17, 2017
|
|
FitLife Brands, Inc.
By: /s/ John Wilson
|
|
|
|
John
Wilson
|
|
|
|
Chief
Executive Officer (Principal Executive Officer),
President
|
|
Date:
April 17, 2017
|
|
By: /s/ Michael Abrams
|
|
|
|
Michael
Abrams
|
|
|
|
Chief
Financial Officer (Principal Financial Officer)
|
In
accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
Company and in the capacities and on the dates
indicated.
|
Date:
April 17, 2017
|
|
By: /s/ John Wilson
|
|
|
|
John
Wilson
|
|
|
|
Chief
Executive Officer (Principal Executive Officer), President,
Director
|
|
Date:
April 17, 2017
|
|
By: /s/ Michael Abrams
|
|
|
|
Michael
Abrams
|
|
|
|
Chief
Financial Officer (Principal Financial Officer)
|
|
|
|
|
|
Date:
April 17, 2017
|
|
By: /s/ Lewis Jaffe
|
|
|
|
Lewis
Jaffe
|
|
|
|
Chairman
of the Board
|
|
Date:
April 17, 2017
|
|
By: /s/ Grant Dawson
|
|
|
|
Grant
Dawson
|
|
|
|
Director
|
|
Date: April 17,
2017
|
|
By: /s/ Stephen Adele
|
|
|
|
Stephen
Adele
|
|
|
|
Director
|
|
|
|
|
|
Date:
April 17, 2017
|
|
By: /s/ Seth Yakatan
|
|
|
|
Seth
Yakatan
|
|
|
|
Director
|
|
Date:
April 17, 2017
|
|
By: /s/ Todd Ordal
|
|
|
|
Todd
Ordal
|
|
|
|
Director
|
ITEM 8. FINANCIAL STATEMENTS
FITLIFE BRANDS, INC.
|
TABLE OF CONTENTS
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
F-1
|
|
|
|
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The
Board of Directors and Stockholders
FitLife
Brands, Inc.
We have
audited the accompanying consolidated balance sheets of FitLife
Brands, Inc. and subsidiaries (“FitLife Brands, Inc.”
or “the Company”) as of December 31, 2016 and 2015, and
the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the two-year period
ended December 31, 2016. FitLife Brands, Inc.’s management is responsible for these
financial statements. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the effectiveness of the
company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
FitLife Brands, Inc. as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for each of the years
in the two-year period ended December 31, 2016, in conformity with
accounting principles generally accepted in the United States of
America.
/s/ Tarvaran, Askelson & Company, LLP
Tarvaran,
Askelson & Company, LLP
Dana
Point, California
April
14, 2017
FITLIFE BRANDS, INC.
CONSOLIDATED BALANCE SHEETS
|
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS
|
|
|
|
Cash
|
$1,293,041
|
$1,532,550
|
|
Accounts
receivable, net
|
2,792,649
|
2,684,567
|
|
Security
deposits
|
24,956
|
26,077
|
|
Inventory
|
3,756,716
|
4,790,301
|
|
Note
receivable, current portion
|
2,782
|
16,517
|
|
Prepaid
income tax
|
120,000
|
152,000
|
|
Prepaid
expenses and other current assets
|
136,014
|
334,483
|
|
Total
current assets
|
8,126,158
|
9,536,493
|
|
|
|
|
|
PROPERTY
AND EQUIPMENT, net
|
171,004
|
226,804
|
|
|
|
|
|
Note
receivable, net of current portion
|
52,695
|
52,695
|
|
Deferred
Taxes
|
689,000
|
812,879
|
|
Intangibles
assets, net
|
6,507,505
|
6,929,505
|
|
TOTAL
ASSETS
|
$15,546,363
|
$17,558,378
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
Accounts
payable
|
$1,596,748
|
$3,363,906
|
|
Accrued
expenses and other liabilities
|
539,765
|
1,003,832
|
|
Litigation
Reserve
|
-
|
95,775
|
|
Line
of credit
|
1,950,000
|
1,490,305
|
|
Term
loan agreement, current portion
|
544,825
|
525,589
|
|
Notes
payable
|
12,700
|
54,036
|
|
Total
current liabilities
|
4,644,038
|
6,533,443
|
|
|
|
|
|
LONG-TERM
DEBT, net of current portion
|
369,177
|
914,138
|
|
|
|
|
|
TOTAL
LIABILITIES
|
5,013,215
|
7,447,581
|
|
|
|
|
|
CONTINGENCIES
AND COMMITMENTS
|
-
|
-
|
|
|
|
|
|
STOCKHOLDERS'
EQUITY:
|
|
|
|
Preferred
stock, $0.01 par value, 10,000,000 shares authorized as of
December 31,
2016 and 2015:
|
|
|
|
Preferred
Stock Series A; 10,000,000 shares authorized; 0 shares issued and
outstanding as of December 31, 2016 and 2015
|
-
|
-
|
|
Preferred Stock Series B; 1,000 shares authorized;
0
shares issued and outstanding as of December 31, 2016 and
2015
|
-
|
-
|
|
Preferred Stock Series C; 500 shares authorized;
0 shares issued and outstanding as of December 31, 2016 and
2015
|
-
|
-
|
|
Common
stock, $.01 par value, 150,000,000 shares authorized;
|
|
|
|
10,449,520
and 10,444,257 issued and outstanding
|
|
|
|
as
of December 31, 2016 and December 31, 2015,
respectively
|
104,495
|
104,443
|
|
Subscribed
common stock; 33,869 and 9,688 shares pending issuance as of
December 31, 2016 and December 31, 2015,
respectively
|
339
|
97
|
|
Treasury
stock
|
(44,417)
|
(142,228)
|
|
Additional
paid-in capital
|
30,919,289
|
30,963,122
|
|
Accumulated
deficit
|
(20,446,559)
|
(20,814,637)
|
|
Total
stockholders' equity
|
$10,533,147
|
$10,110,797
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$15,546,363
|
$17,558,378
|
The accompanying notes are an integral part of these consolidated
financial statements
FITLIFE BRANDS,
INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
|
|
|
|
|
|
|
Revenue
|
$25,313,601
|
$17,931,464
|
|
Total
|
25,313,601
|
17,931,464
|
|
|
|
|
|
Cost
of Goods Sold
|
15,242,537
|
11,653,057
|
|
Gross
Profit
|
10,071,064
|
6,278,407
|
|
|
|
|
|
OPERATING
EXPENSES:
|
|
|
|
General
and administrative
|
5,002,149
|
4,141,937
|
|
Selling
and marketing
|
4,118,414
|
2,926,063
|
|
Depreciation
and amortization
|
478,235
|
300,141
|
|
Total
operating expenses
|
9,598,798
|
7,368,141
|
|
OPERATING
INCOME (LOSS)
|
472,265
|
(1,089,734)
|
|
|
|
|
|
OTHER
(INCOME) AND EXPENSES
|
|
|
|
Interest
expense
|
109,391
|
90,410
|
|
Other
expense (income)
|
(5,204)
|
13,768
|
|
Total
other (income) expense
|
104,187
|
104,178
|
|
|
|
|
|
INCOME
TAXES (BENEFIT)
|
-
|
(27,972)
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$368,078
|
$(1,165,940)
|
|
|
|
|
|
NET
INCOME (LOSS) PER SHARE:
|
|
|
|
Basic
|
$0.04
|
$(0.13)
|
|
|
|
|
|
Diluted
|
$0.03
|
$(0.13)
|
|
|
|
|
|
Basic
|
10,429,452
|
8,677,433
|
|
|
|
|
|
Diluted
|
11,521,344
|
8,677,433
|
The
accompanying notes are an integral part of these consolidated
financial statements
FITLIFE BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015
|
|
|
|
|
|
|
|
|
Net
income
|
$368,078
|
$(1,165,940)
|
|
Adjustments
to reconcile net income to net cash
|
|
|
|
used
in operating activities:
|
|
|
|
Depreciation
and amortization
|
478,235
|
300,141
|
|
Capitalization
of select merger costs
|
-
|
(57,507)
|
|
Common
stock issued (cancelled) for services
|
40,508
|
453,779
|
|
Warrants
and options issued (cancelled) for services
|
58,178
|
-
|
|
Gain
on write-up of investment
|
-
|
-
|
|
Intercompany
transfer
|
-
|
(746,784)
|
|
Changes
in operating assets and liabilities:
|
-
|
|
|
Accounts
receivable
|
(108,082)
|
(116,269)
|
|
Inventory
|
1,033,585
|
(1,559,392)
|
|
Deferred
tax asset
|
123,879
|
(66,565)
|
|
Prepaid
income tax
|
32,000
|
(152,000)
|
|
Prepaid
expenses
|
198,469
|
195,430
|
|
Note
receivable
|
13,735
|
4,074
|
|
Deposits
|
-
|
1,060
|
|
Accounts
payable
|
(1,767,159)
|
522,591
|
|
Accrued
liabilities
|
(464,067)
|
(123,814)
|
|
Litigation
reserve
|
(95,775)
|
95,775
|
|
Income
tax payable
|
-
|
(40,000)
|
|
Net
cash provided by (used in) operating activities
|
(88,416)
|
(2,455,421)
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
Purchase
of property and equipment
|
(23,405)
|
(12,833)
|
|
Proceeds
from sale of assets
|
(3,177)
|
-
|
|
Repurchases
of common stock
|
(44,413)
|
(398,209)
|
|
Net
cash provided by (used in) investing activities
|
(70,995)
|
(411,042)
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
Proceeds
from issuance of long-term debt
|
459,695
|
-
|
|
Payments
for redemption of preferred stock
|
-
|
-
|
|
Repayments
of note payable
|
(539,794)
|
(660,201)
|
|
Net
cash provided by (used in) financing activities
|
(80,099)
|
(660,201)
|
|
|
|
|
|
INCREASE
(DECREASE) IN CASH
|
(239,510)
|
(3,526,665)
|
|
CASH,
BEGINNING OF PERIOD
|
1,532,551
|
5,059,215
|
|
CASH,
END OF PERIOD
|
$1,293,041
|
$1,532,550
|
|
|
|
|
|
Supplemental disclosure operating activities
|
|
|
|
|
|
|
|
Cash
paid for interest
|
$109,391
|
$90,410
|
The accompanying notes are an integral part of these consolidated
financial statements
FITLIFE BRANDS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2014
|
8,202,362
|
$82,024
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$26,280,388
|
$(19,648,697)
|
$6,713,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
83,605
|
836
|
|
|
|
|
|
|
163,166
|
|
164,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock cancelled for services
|
(37,000)
|
(370)
|
|
|
|
|
|
|
(73,630)
|
|
(74,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed
common stock
|
9,688
|
97
|
|
|
|
|
|
|
15,104
|
|
15,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for merger consideration
|
2,315,644
|
23,156
|
|
|
|
|
|
|
|
|
23,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock repurchased and cancelled
|
(120,354)
|
(1,204)
|
|
|
|
|
|
|
(254,778)
|
|
(255,981)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock
|
|
|
|
|
|
|
|
|
|
|
(142,228)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
price merger accounting for combination with iSatori,
Inc.
|
|
|
|
|
|
|
|
|
4,484,295
|
|
4,484,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
315,741
|
|
315,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
vested during the period
|
|
|
|
|
|
|
|
|
32,838
|
|
32,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
(1,165,940)
|
(1,165,940)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2015
|
10,453,945
|
$104,540
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$30,963,122
|
$(20,814,637)
|
$10,110,797
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock issued for services
|
82,853
|
829
|
|
|
|
|
|
|
104,673
|
|
105,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock cancelled for services
|
(86,534)
|
(865)
|
|
|
|
|
|
|
(111,629)
|
|
(112,494)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subscribed
common stock
|
33,869
|
339
|
|
|
|
|
|
|
47,421
|
|
47,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock repurchased and cancelled
|
(85,833)
|
(858)
|
|
|
|
|
|
|
(141,370)
|
|
(142,228)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury
stock
|
|
|
|
|
|
|
|
|
4
|
|
97,815
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless
exercise of options
|
85,089
|
851
|
|
|
|
|
|
|
(851)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
issued for services
|
|
|
|
|
|
|
|
|
58,178
|
|
58,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
|
|
|
|
|
|
|
368,078
|
368,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DECEMBER
31, 2016
|
10,483,389
|
$104,834
|
-
|
$-
|
-
|
$-
|
-
|
$-
|
$30,919,289
|
$(20,446,559)
|
$10,533,148
|
The
accompanying notes are an integral part of these consolidated
financial statements.
FITLIFE BRANDS, INC. AND
SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2016 AND 2015
NOTE 1. DESCRIPTION OF BUSINESS
Summary
FitLife
Brands, Inc. (the “Company”) is a national provider
of innovative and proprietary nutritional supplements for health
conscious consumers marketed under the brand names NDS Nutrition
ProductsTM
(“NDS”)
(www.ndsnutrition.com), PMDTM
(www.pmdsports.com), SirenLabsTM
(www.sirenlabs.com), CoreActiveTM
(www.coreactivenutrition.com), and Metis NutritionTM
(www.metisnutrition.com) (together, “NDS Products”). With the
consummation of the merger with iSatori, Inc. (“iSatori”) on September 30, 2015,
which became effective on October 1, 2015, described below (the
“Merger”), the
Company added several brands to its product portfolio, including
iSatori (www.isatori.com), BioGenetic Laboratories
(www.biogenetics.com), and Energize (www.tryenergize.com)
(together, “iSatori
Products”). The NDS Products are distributed
principally through franchised General Nutrition Centers, Inc.
(“GNC”) stores
located both domestically and internationally, and, with the
addition of Metis Nutrition, through corporate GNC stores in the
United States. The iSatori Products are sold through more than
25,000 retail locations, which include specialty, mass, and
online.
The
Company was incorporated in the State of Nevada on July 26, 2005.
In October 2008, the Company acquired the assets of NDS Nutritional
Products, Inc., a Nebraska corporation, and moved those assets into
its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida
corporation (“NDS”). The Company’s NDS
Products are sold through NDS and the iSatori Products are sold
through iSatori, Inc., a Delaware corporation and a wholly owned
subsidiary of the Company.
FitLife
Brands is headquartered in Omaha, Nebraska and maintains an office
in Golden, Colorado, which it acquired in connection with the
Merger. For more information on the Company, please go to
http://www.fitlifebrands.com. The Company’s common stock
currently trades under the symbol FTLF on the OTC:PINK
market.
iSatori Merger
On
September 30, 2015, the Company consummated the Merger contemplated
by the Agreement and Plan of Merger, dated May 18, 2015 (the
“Merger
Agreement“), among the Company, ISFL Merger Sub, Inc.,
a Delaware corporation and a wholly-owned subsidiary of the Company
(“Merger Sub“),
and iSatori, pursuant to which iSatori merged with and into Merger
Sub, with iSatori surviving as a wholly-owned subsidiary of the
Company. The Merger was approved by iSatori shareholders at a
special meeting held on September 29, 2015 and became effective on
October 1, 2015 (the “Closing Date“).
In
connection with the closing of the Merger, each share of iSatori
common stock outstanding on the Closing Date became exchangeable
for 0.1732 shares of the Company's common stock (the
“Exchange
Ratio“). In the event any iSatori shareholder would
otherwise be entitled to a fractional share of the Company's common
stock, the Company agreed to pay the value of those fractional
interests in cash. The Company issued a total of 2,315,644 shares
of common stock and paid a total of $239 for remaining fractional
interests to former iSatori shareholders in connection with the
Merger.
Pursuant to the
terms and conditions of the Merger Agreement, the Company increased
the size of its Board of Directors (the “Board“) from five to seven
members, appointed Stephen Adele, Chief Executive Officer of
iSatori, to serve on the Board, and appointed two independent
directors, Messrs. Seth Yakatan and Todd Ordal, each of whom were
designated by iSatori, to the Board. Concurrently with these
appointments, Dr. Fadi Aramouni resigned from the
Board.
In
addition to the foregoing, the Company secured an option to
purchase, on or before December 31, 2015, approximately 600,000
shares of the Company’s common stock, otherwise issuable to
the two largest shareholders of iSatori, and secured a right of
first refusal to purchase approximately 460,000 shares of the
Company’s common stock issuable to a certain iSatori
shareholder in the connection with the Merger. After careful
consideration of many factors, including available cash resources,
the Company’s Board of Directors elected not to exercise the
purchase option prior to its expiration. The right of first
refusal, however, remains outstanding.
On
September 11, 2015, the Company loaned iSatori $750,000 pursuant to
a Demand Promissory Note ("Note"), due and payable on demand after
October 15, 2015 in the event the Merger was not consummated on or
before such date. The proceeds from the Note were to be used by
iSatori for the payment, in the ordinary course of business, of
payroll and accounts payable of iSatori pending consummation of the
Merger. The Note was deemed satisfied in full in connection with
the Closing Date of the Merger and was included as an element of
the total purchase price, which also included the assumption of
outstanding debt of approximately $1.1 million and the issuance of
approximately 2.3 million shares of Company common stock. In
connection with the Merger, the Company also converted all issued
and outstanding options and warrants of iSatori into options and
warrants of FitLife in an amount equal to the number of iSatori
options and warrants issued and outstanding multiplied by the
Exchange Ratio, at an exercise equal to the original exercise price
divided by the Exchange Ratio. The treasury stock net equivalent of
all issued and outstanding options and warrants were factored into
the calculation of the final Exchange Ratio, the vast majority of
which were and remain significantly out of the money.
At
closing, in connection with adjustment provisions outlined in the
Merger Agreement, iSatori established certain reserves and
write-offs totaling approximately $1.8 million, which write-offs,
together with the issuance of the Note and other variances of
certain working capital accounts, resulted in a reduction of the
Exchange Ratio under the terms of the Merger Agreement from 0.3000
to 0.1732 shares of common stock of the Company for each share of
iSatori common stock issued and outstanding.
NOTE 2. BASIS OF PRESENTATION
The
accompanying financial statements represent the consolidated
financial position and results of operations of the Company and
include the accounts and results of operations of the Company and
its wholly owned subsidiaries. The accompanying
consolidated financial statements include the active entity of
FitLife Brands, Inc. and its wholly owned
subsidiaries.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The
Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States of
America. Significant accounting policies are as
follows:
Principle of Consolidation
The
consolidated financial statements include the accounts of the
Company and NDS Nutrition Products, Inc. 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 accounting
principles generally accepted in the United States
(“GAAP“)
requires management to make estimates and assumptions that affect
(i) the reported amounts of assets and liabilities,
(ii) the disclosure of contingent assets and liabilities known
to exist as of the date the financial statements are published, and
(iii) the reported amount of net sales and expenses 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
revenues, costs and expenses during the reporting
period. Management evaluates these estimates and
assumptions on a regular basis. Actual results could
differ from those estimates.
Revenue Recognition
Revenue
is derived from product sales. The Company recognizes revenue from
product sales in accordance with Accounting Standards Codification
(“ASC“) Topic
605 “Revenue
Recognition in Financial
Statements“ which assesses revenue upon: (i) the time
customers are invoiced at shipping point provided title and risk of
loss has passed to the customer, (ii) evidence of an arrangement
exists, (iii) fees are contractually fixed or determinable, (iv)
collection is reasonably assured through historical collection
results and regular credit evaluations, and (v) there are no
uncertainties regarding customer acceptance.
The
Company offers discounts on sales to GNC franchises on many of its
products. Discounts are updated monthly and made
available to all franchisees. Revenue is recorded net of
all discounts taken at the time of sale for all direct
sales. Indirect sales involve sales through GNC’s
centralized distribution platform. Fulfillment to
franchisees from GNC’s distribution centers often spans
several months and accounting periods after the initial indirect
sale. Given that the discount programs change monthly,
it is impossible to predict with any certainty what discounts will
be taken on which products and at what time. As a
result, prior to 2015, the Company had historically booked gross
revenue through the indirect channel upon shipment to
GNC. Discounts taken by franchisees upon fulfillment
from GNC’s distribution center are billed back to the Company
as a credit to a future invoice. The Company accounted
for these deductions (“Vendor Funded Discounts“) as a
selling and marketing expense in the period that the deduction was
taken by GNC. Management believes this approach was the
best way to match the expense to the timing of actual product
fulfillment at the store level when the discounts are actually
taken. In an effort to ensure consistent accounting
policies across all operating divisions after the acquisition of
iSatori, the Company elected to modify its accounting policy for
Vendor Funded Discounts for the fiscal year ended December 31, 2015
and therafter. As a result, for all indirect distribution, the
Company estimates anticipated discounts at the time product is
shipped to GNC’s distribution center(s) and recognizes that
estimate as a deduction from gross revenue at the time of
shipment to GNC. Actual discounts are compared to the
estimate each accounting period and adjusted as necessary. Total
revenue and selling and marketing expense is reduced by the amount
of the estimate, and the new policy has no effect on operating or
net income. Results of operations for the years ended
December 31, 2015 and 2016 were both reported using the net revenue
approach. The change had no impact on operating income or net
income.
Customer
Concentration
Total
sales to GNC during 2016 and 2015 were $21,897,633 and $16,989,536,
respectively representing 87% and 95% of total revenue
respectively. Accounts receivable attributible to GNC as of
December 31, 2016 and 2015 were $2,327,689 and $2,577,577,
respectively representing 83% and 96% of the Company's total
accounts receivable balance, respectively.
Product
Returns
We currently have a 30-day
product return policy for NDS Products, which allows for a 100%
sales price refund, less a 20% restocking fee, for the return of
unopened and undamaged products purchased from us online throught
one of our websites. Product sold to GNC may be returned from
store shelves or the distribution center in the event product is
damaged, short dated, expired or recalled. GNC maintains a
customer satisfaction program which allows customers to return
product to the store for credit or refund. Subject to certain
terms and restrictions, GNC may require reimbursement from vendors
for unsaleable returnted product through either direct payment or
credit against a future invoice. We also support a product
return policy for iSatori Products, whereby customers can return
product for credit or refund. Historically, with a few noted
exceptions, product returns have been immaterial. That said,
despite the best of management, product returns can and do
occur from time to time and can be material.
Information for product returns is predictabel and
received on regular basis and adjusted for accordingly.
Adjustments for returns are based on factual information and
historical trends for both NDS products and iSatori products and
special to each distribution channel. We monitor, among other
things, remaining shelflife and sell through data on a weekly
basis. If we determine there are any risks or issues with any
specific products we accrue sales return allowances based on
management's assessment of the overal risk and liklihood of returns
in light of all information available.
Accounts Receivable
All of
the Company’s accounts receivable balance is related to trade
receivables. Trade accounts receivable are recorded at the invoiced
amount and do not bear interest. The allowance for doubtful
accounts is the Company’s best estimate of the amount of
probable credit losses in its existing accounts receivable. The
Company will maintain allowances for doubtful accounts, estimating
losses resulting from the inability of its customers to make
required payments for products. Accounts with known financial
issues are first reviewed and specific estimates are recorded. The
remaining accounts receivable balances are then grouped in
categories by the amount of days the balance is past due, and the
estimated loss is calculated as a percentage of the total category
based upon past history. Account balances are charged off against
the allowance when it is probable the receivable will not be
recovered. We maintain an insurance policy for iSatori Products for
international shipments, which protects the Company in the event
the international distributor does not or cannot remit payment. The
Company recorded an expense of $3,552 related to bad debt and
doubtful accounts during the year ended December 31,
2016.
Note Receivable
In connection with iSatori's sale of its Living Orchard product
line in 2010, the Company recorded a note receivable representing
all or a portion of the purchase price. The term of the note
receivable were amended in 2013. Since that time, the buyer
has continued to make bi-weekly payments in satisfaction of the
note receivable. Each payment is approximately $750.
The Company does not record any interest income in connection with
this receivable.
Allowance for Doubtful Accounts
The
determination of collectability of the Company’s accounts
receivable requires management to make frequent judgments and
estimates in order to determine the appropriate amount of allowance
needed for doubtful accounts. The Company’s allowance for
doubtful accounts is estimated to cover the risk of loss related to
accounts receivable. This allowance is maintained at a level we
consider appropriate based on factors that affect collectability.
These factors include historical trends of write-offs, recoveries
and credit losses, the careful monitoring of customer credit
quality, and projected economic and market conditions. Different
assumptions or changes in economic circumstances could result in
changes to the allowance.
Allowance for Sales Returns and
Incentive Programs
The Company
currently does not establish reserve allowances against accounts
receivable related to sales returns or incentive programs.
Sales returns are captured on a weekly basis and accounts
receivable are updated accordingly. Given the real-time
nature of the information, an allowance account for sales returns
is not necessary. Regarding incentives, the Company accrues
an estimate of 8% for promotional expenses it calls “vendor
funded discounts” at the time of sale. The expense is
recorded as a contra-revenue account, and the expected incentive
costs are never included in accounts receivable. As such, an
allowance account for incentives is not required or
necessary. Actual incentive costs are reconciled to the
estimate on a regular basis.
Cash and Cash Equivalents
The
Company maintains cash balances in several financial institutions
that are insured by the Federal Deposit Insurance Corporation up to
certain federal limitations. At times, the Company's cash
balance exceeds these federal limitations. The amount in
excess was $1,085,992 and $1,212,535 as of December 31, 2016 and
2015, respectively.
Deposits
Deposits are security deposits for
leased properties in Nebraska and Colorado. The deposits will be
returned at the end of the lease term.
Inventory
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 raw
material and finished goods for all of its product offerings across
all of the Company’s operating subsidiaries. At December 31,
2016, the value of the Company’s inventory was $3,756,716, of
which $2,624,461 and $1,132,256 was related to NDS Products and
iSatori Products, respectively. At December 31, 2015, the value of
the Company’s inventory was $4,790,301.
Property and Equipment
Property and
equipment is recorded at cost and depreciated over the estimated
useful lives of the assets using the straight-line method. When
items are retired or otherwise disposed of, income is charged or
credited for the difference between net book value and proceeds
realized. Ordinary maintenance and repairs are charged
to expense as incurred, and replacements and betterments are
capitalized.
The
range of estimated useful lives used to calculate depreciation for
principal items of property and equipment are as
follows:
|
Asset
Category
|
|
Depreciation
/ Amortization Period
|
|
Furniture
and Fixture
|
|
3
Years
|
|
Office
equipment
|
|
3
Years
|
|
Leasehold
improvements
|
|
5
Years
|
The
Company adopted FASB ASC Topic 350, Goodwill and Other Intangible Assets.
In accordance with ASC Topic 350, goodwill, which represents the
excess of the purchase price and related costs over the value
assigned to net tangible and identifiable intangible assets of
businesses acquired and accounted for under the purchase method,
acquired in business combinations is assigned to reporting units
that are expected to benefit from the synergies of the combination
as of the acquisition date. Under this standard, goodwill and
intangibles with indefinite useful lives are no longer amortized.
The Company assesses goodwill and indefinite-lived intangible
assets for impairment annually during the fourth quarter, or more
frequently if events and circumstances indicate impairment may have
occurred in accordance with ASC Topic 350. If the carrying value of
a reporting unit's goodwill exceeds its implied fair value, the
Company records an impairment loss equal to the difference. ASC
Topic 350 also requires that the fair value of indefinite-lived
purchased intangible assets be estimated and compared to the
carrying value. The Company recognizes an impairment loss when the
estimated fair value of the indefinite-lived purchased intangible
assets is less than the carrying value.
Impairment of Long-Lived Assets
In
accordance with ASC Topic 3605, Long-Lived Assets, such as property,
plant, and equipment, and purchased intangibles, are reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Goodwill and other intangible assets are tested for impairment.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to estimate
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of an asset exceeds its estimated
future cash flows, an impairment charge is recognized by the amount
by which the carrying amount of the asset exceeds the fair value of
the asset. There were no events or changes in circumstances that
necessitated an impairment of long-lived assets.
Income Taxes
Deferred income
taxes are provided based on the provisions of ASC Topic 740,
Accounting for Income
Taxes, to reflect the tax consequences in future years of
differences between the tax bases of assets and liabilities and
their financial reporting amounts based on enacted tax laws and
statutory tax rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
The
Company adopted the provisions of FASB Interpretation No. 48;
Accounting For Uncertainty In
Income Taxes - An Interpretation of ASC Topic 740
("FIN 48"). FIN 48 contains
a two-step approach to recognizing and measuring uncertain tax
positions. The first step is to evaluate the tax position for
recognition by determining if the weight of available evidence
indicates it is more likely than not, that the position will be
sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax
benefit as the largest amount, which is more than 50% likely of
being realized upon ultimate settlement. The Company considers many
factors when evaluating and estimating the Company's tax positions
and tax benefits, which may require periodic adjustments. At
December 31, 2016, the Company did not record any liabilities for
uncertain tax positions.
In
November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet
Classification of Deferred Taxes (“ASU 2015-17”), which simplifies
the presentation of deferred income taxes. ASU 2015-17 requires
that deferred tax assets and liabilities be classified as
noncurrent in a classified statement of financial position. ASU
2015-17 is effective for financial statements issued for fiscal
years beginning after December 15, 2016 (and interim periods within
those fiscal years) with early adoption permitted. ASU 2015-17 may
be either applied prospectively to all deferred tax assets and
liabilities or retrospectively to all periods presented. We have
elected to early adopt ASU 2015-17 prospectively effective 2016. As
a result, we have presented all deferred tax assets and liabilities
as noncurrent on our consolidated balance sheet as of December 31,
2016, but have not reclassified current deferred tax assets and
liabilities on our consolidated balance sheet as of December 31,
2015. There was no impact on our results of operations as a result
of the adoption of ASU 2015-17.
Concentration of Business and Credit Risk
The Company maintains cash balances in several
financial institutions that are insured by the Federal Deposit
lnsurance Corporation up to certain federal limitations. At times,
the Company's cash balance exceeds these federal limitations. The
amount in excess was $1,085,992 and $1,212,535 as of December 31,
2016 and 2015, respectively.
The Company provides credit in the normal course of business to
customers located throughout the U.S. The Company performs ongoing
credit evaluations of its customers and maintains allowances for
doubtful accounts based on factors surrounding the credit risk of
specific customers, historical trends, and other
information.
One customer
comprised
82% and 91% of the
Company’s revenues for the years ended December 31, 2016 and
2015, respectively. The loss of this customer would have a material
adverse effect on the Company’s business, financial
condition, or results of
operation.
Earnings Per Share
Basic income (loss)
per share is computed by dividing net income (loss) available to
common shareholders by the weighted average number of common shares
outstanding during the reporting period. Diluted earnings per share
reflects the potential dilution that could occur if stock options,
warrants, and other commitments to issue common stock were
exercised or equity awards vest resulting in the issuance of common
stock that could share in the earnings of the Company. In the event
of a loss, diluted loss per share is the same as basic loss per
share, because of the effect of the additional securities, a result
of the net loss would be anti-dilutive.
Fair Value of Financial Instruments
The fair value of a
financial instrument is the amount at which the instrument could be
exchanged in a current transaction between willing parties other
than in a forced sale or liquidation.
The carrying
amounts of the Company’s financial instruments, including
cash, accounts payable and accrued liabilities, income tax payable
and related party payable, if any, approximate fair
value.
Recent Accounting Pronouncements
Stock
Compensation - Employee Share-Based Payments –
In March 2016, the FASB issued guidance to amend certain aspects of
accounting for employee share-based awards, including accounting
for income taxes related to those transactions. This guidance will
require recognizing excess tax benefits and deficiencies (that
result from an increase or decrease in the fair value of an award
from grant date to the vesting date or exercise date) on
share-based compensation arrangements in the tax provision, instead
of in equity as under the current guidance. In addition, these
amounts will be classified as an operating activity in the
statement of cash flows, instead of as a financing activity. In
addition, cash paid for shares withheld to satisfy employee taxes
will be classified as a financing activity, instead of as an
operating activity. The guidance is effective beginning in the
first quarter of the Company’s 2018 fiscal year (with early
adoption permitted) and is required to be adopted as
follows:
|
|
●
|
Prospectively
for the recognition of excess tax benefits and deficiencies in the
tax provision.
|
|
|
●
|
Retrospectively
or prospectively for the classification of excess tax benefits and
deficiencies in the statement of cash flows.
|
|
|
●
|
Retrospectively
for the classification of cash paid for shares withheld to satisfy
employee taxes in the statement of cash flows.
|
Leases – In
February 2016, the FASB issued Accounting Standards Update
(“ASU”) No.
2016-02, “Leases (Topic
842)” (“ASU
2016-02”). ASU 2016-02 requires entities to recognize
right-of-use assets and lease liabilities on the balance sheet for
the rights and obligations created by all leases, including
operating leases, with terms of more than 12 months. The new
standard also requires additional disclosures on the amount,
timing, and uncertainty of cash flows arising from leases. These
disclosures include qualitative and quantitative information. The
new standard will be effective for the Company on January 1, 2019.
Early adoption is permitted. The Company is in the process of
evaluating the impact the adoption of this standard will have on
its consolidated financial statements and related
disclosures.
Inventory Measurement –
In July 2015, the FASB issued ASU No.
2015-11, “Inventory (Topic 330):
Simplifying the Measurement of Inventory” (“ASU
2015-11”), which requires entities to measure
inventory at the lower of cost and net realizable value
(“NRV”). ASU
2015-11 defines NRV as the estimated selling price in the ordinary
course of business, less reasonably predictable costs of
completion, disposal, and transportation. The ASU will not apply to
inventories that are measured by using either the last-in,
first-out method or the retail inventory method. The guidance in
ASU 2015-11 is effective prospectively for fiscal years beginning
after December 15, 2016, and interim periods therein. Early
adoption is permitted. Upon transition, entities must disclose the
nature of and reason for the accounting change. The Company does
not expect that the adoption of this standard will have a material
effect on its consolidated financial
statements.
Going Concern
Disclosures –
In August 2014, the FASB issued ASU No.
2014-15, “Disclosure of
Uncertainties About an Entity’s Ability to Continue as a
Going Concern” (“ASU
2014-15”). ASU 2014-15 requires management to perform
interim and annual assessments of an entity’s ability to
continue as a going concern within one year of the date the
financial statements are issued and provides guidance on
determining when and how to disclose going concern uncertainties in
the financial statements. Certain disclosures will be required if
conditions give rise to substantial doubt about an entity’s
ability to continue as a going concern. ASU 2014-15 is effective
for annual and interim reporting periods ending after December 15,
2016, with early adoption permitted. The Company’s adoption
of this standard did not have a material effect on its consolidated
financial statements.
NOTE 4. PREPAID EXPENSES
The
Company has prepaid expenses as of December 31, 2016 and 2015 as
follows:
|
|
|
|
|
|
|
|
Prepaid
Expenses
|
136,014
|
334,483
|
|
Total
|
$136,014
|
$334,483
|
NOTE 5. INVENTORIES
The
Company inventories as of December 31, 2016 and 2015 consists as
follows:
|
|
|
|
|
|
|
|
Finished
goods
|
$3,069,531
|
$3,381,973
|
|
Components
|
687,185
|
1,408,328
|
|
Total
|
$3,756,716
|
$4,790,301
|
NOTE 6. PROPERTY AND EQUIPMENT
The
Company has fixed assets as of December 31, 2016 and 2015 as
follows:
|
|
|
|
|
|
|
|
Equipment
|
$792,930
|
$808,324
|
|
Accumulated
depreciation
|
$(621,926)
|
$(581,520)
|
|
Total
|
$171,004
|
$226,804
|
Depreciation
expense was $56,236 for December 31, 2016 compared to $29,830 for
December 31, 2015.
Intangible assets and amortization expense required,
see example for updates and inclusion:
NOTE
7. ACQUISITION
iSatori, Inc. On September 30,
2015, the Company consummated the Merger contemplated by the Merger
Agreement, among the Company, Merger Sub, and iSatori, pursuant to
which iSatori merged with and into Merger Sub, with iSatori
surviving as a wholly-owned subsidiary of the Company. The
Merger was approved by iSatori shareholders at a special meeting
held on September 29, 2015 and became effective on October 1,
2015.
In
connection with the closing of the Merger, each share of iSatori common stock
outstanding on the Closing Date became exchangeable for 0.1732
shares of the Company's common stock. In the event any iSatori
shareholder would otherwise be entitled to a fractional share of
the Company's common stock, the Company agreed to pay the value of
those fractional interests in cash.
In
addition to the foregoing, the Company secured an option to
purchase, on or before December 31, 2015, almost 600,000 shares of
the Company’s common stock, otherwise issuable to the two
largest shareholders of iSatori, and secured a right of first
refusal to purchase approximately 460,000 shares of the
Company’s common stock issuable to a certain iSatori
shareholder in the connection with the Merger. After careful
consideration of many factors, including available cash resources,
the Company’s Board of Directors elected not to exercise the
purchase option prior to its expiration. The right of first
refusal, however, remains outstanding.
On
September 11, 2015, the Company loaned iSatori $750,000 pursuant to
the Note, due and payable on demand after October 15, 2015 in the
event the Merger was not consummated on or before such
date. The proceeds from the Note were to be used by
iSatori for the payment, in the ordinary course of business, of
payroll and accounts payable of iSatori pending consummation of the
Merger. The Note was deemed satisfied in full in
connection with the Closing Date of the Merger and was included as
an element of the total purchase price, which also included the
assumption of outstanding debt of approximately $1.1 million and
the issuance of approximately 2.3 million shares of Company common
stock. In connection with the Merger, the Company also converted
all issued and outstanding options and warrants of iSatori into
options and warrants of FitLife in an amount equal to the number of
iSatori options and warrants issued and outstanding multiplied by
the Exchange Ratio, at an exercise equal to the original exercise
price divided by the Exchange Ratio. The treasury stock
net equivalent of all issued and outstanding options and warrants
were factored into the calculation of the final Exchange Ratio, the
vast majority of which were and remain significantly out of the
money.
At
closing, in connection with adjustment provisions outlined in the
Merger Agreement, iSatori established certain reserves and
write-offs totaling approximately $1.8 million, which write-offs,
together with the issuance of the Note and other variances of
certain working capital accounts, resulted in a reduction of the
Exchange Ratio under the terms of the Merger Agreement from 0.3000
to 0.1732 shares of common stock of the Company for each share of
iSatori common stock issued and
outstanding.
The
fair value of consideration transferred on the date of acquisition
consisted of the following:
|
Pre-closing note
issued by iSatori and forgiven by FitLife at closing:
|
$750,000
|
|
Fair value of
shares issued to iSatori shareholders:
|
$3,566,092
|
|
Fair value of
replacement options and warrants issued to iSatori
employees
|
$191,121
|
|
Capitalized S-4
costs
|
$57,507
|
|
Cash paid to
shareholders of iSatori in lieu of fractional shares
|
$239
|
|
Total
consideration
|
$4,564,959
|
The
acquisition has been accounted for as a business combination in
accordance with the requirements of ASC 805, Business Combinations.
The following table sets forth the estimated fair value of assets
acquired and liabilities assumed for the acquisitions as of the
acquisition date.
|
Current
assets
|
$3,117,459
|
|
Current Liabilities
|
$(5,009,760)
|
|
Property Plant and
Equipment
|
$237,498
|
|
Intangible
Assets
|
|
|
Customer
Relationship (10-year life)
|
$593,000
|
|
Trade names
(10-year life)
|
$504,000
|
|
Intellectual Property (10-year life)
|
$868,000
|
|
Other non-current
assets
|
$57,314
|
|
Goodwill
|
$4,197,448
|
|
|
|
|
Net assets acquired
|
$4,564,959
|
The
assessment of fair value is based on information available to
management at the time the condensed consolidated financial
statements were prepared and reflect the as recorded book value as
management does not expect any material adjustments. The goodwill
reflects future economic benefits expected to arise from the
expanded presence in the nutritional supplement industry and
notable increase in our distribution footprint both in-store and
on-line. We do not expect to deduct goodwill for income tax
purposes. The amount of goodwill will be periodically assessed and
tested for impairment. In the event fair value of the
goodwill is exceeded by its carried value, the company will record
an impairment expense. Intangible assets include
intellectual property, trade names and customer relationships with
an estimated fair value of $868,000, $504,000 and $593,000,
respectively, along with $57,507 in capitalized costs related to
the preparation of the registration statement on Form S-4 in
connection with the acquisition. All such intangibles
have an estimated useful life of 10 years after December 31,
2015.
The
amortization expense for all intangible assets is grouped with the
depreciation expense for the related reporting period, and reported
in the Statements of Operations and the Statements of Cash Flows as
“Depreciation and amortization“ expense. The Company
calculates the weighted average of the average amortization period,
in total and by major define-lived intangible asset on a
straight-line basis over the estimated useful lives.
The
Company had total amortization expense of $421,999 and
$270,311 for December 31, 2016 and December 31, 2015.
During
the year ended December 31, 2015, the Company incurred transaction
costs of $745,203 of which $57,507 were related the registration
statement on Form S-4 and capitalized as an element of purchase
price. The remaining $687,696 was recorded as an
operating expense.
The
Company’s consolidated results of operations for the year
ended December 31, 2015 include $1.4 million of revenues and a net
loss of $(0.7) million associated with the operating results of
iSatori from October 1, 2015 to December 31, 2015. These iSatori
operating results include certain accelerated stock-based
compensation.
The
following unaudited pro forma information presents a summary of the
Company’s combined results of operations for the year ended
December 31, 2015 as if the iSatori acquisition had occurred on
January 1, 2015. The following pro forma financial
information is not necessarily indicative of the results of
operations as they would have been had the transaction been
effected on the assumed date, nor is it necessarily an indication
of trends in future results for a number of reasons, including, but
not limited to, differences between the assumptions used to prepare
the pro forma information, basic shares outstanding and dilutive
equivalents, cost savings from operating efficiencies, potential
synergies, and the impact of the incremental costs incurred in
integrating the businesses.
|
(in thousands, except per share data)
|
|
|
Total
revenue
|
$24,842
|
|
Income from
continuing operations
|
(4,813)
|
|
Basic earnings per
share from continuing operations
|
$(0.44)
|
|
Diluted earnings
per share from continuing operations
|
$(0.44)
|
The Company
engaged a third-party valuation expert to determine if there had
been any impairment to indefinite-lived intangible assets as of
December 31, 2016. The analysis and report concluded that the
valuation of the indefinite-lived intangible assets exceeded the
carrying value of such assets. As such, no impairment was deemed
necessary of December 31, 2016.
NOTE 8. INTELLECTUAL PROPERTY
The Company actively pursues intellectual property through both
patent applications and trade secrets in an effort to differentiate
its products. While no assurances can be given, the Company will
continue to pursue the protections afforded by intellectual
property going forward as a core element of its product development
initiatives. The Company received a notice of allowance related to
the extraction of protein from kaniwa from the USPTO on April 19,
2016 and maintains a patent pending application related to the
methods and use of bioactive peptides.
NOTE 9. NOTE PAYABLES
Notes
payable consist of the following as of December 31, 2016 and
December 31, 2015:
|
|
|
|
|
Revolving line of
credit of $3,000,000 from U.S. Bank, dated April 9, 2009, as
amended July 15, 2010, May 25, 2011, August 22, 2012, April 29,
2013, May 22, 2014, June 25, 2014, May 15, 2015 and August 15, 2016
at an interest rate of 3.0% plus the one-month LIBOR quoted by U.S.
Bank from Reuters Screen LIBOR. The line of credit matures on June
15, 2017, and is secured by 80% of the eligible receivables and 50%
of the eligible inventory (such inventory amount not to exceed 50%
of the borrowing base) of FitLife Brands, Inc. The Company pays
interest only on this line of credit.
|
$1,950,000
|
$1,490,305
|
|
Term loan of
$2,600,000 from US Bank, dated September 4, 2013, at a fixed
interest rate of 3.6%. The term loan amortizes evenly on a monthly
basis and matures August 15, 2018.
|
914,002
|
1,439,727
|
|
Notes payable for
warehouse equipment
|
12,700
|
54,036
|
|
Total of notes
payable and advances
|
2,876,703
|
2,984,068
|
|
Less current
portion
|
(2,507,526)
|
(2,069,930)
|
|
|
|
|
|
Long-term
portion
|
$369,177
|
$914,138
|
As of
December 31, 2016, the Company was not in compliance with certain
financial covenants with a four-quarter look-back period in its
existing term loan and revolving line of credit with U.S. Bank (the
“Bank”),
principally due to decreased revenue received during the third
quarter of fiscal 2016. The Company received a waiver for all
covenant defaults on both the existing five-year term loan and
revolving line of credit with the Bank for the quarter ended
December 31, 2016. No consideration was paid or payable in
connection with such waiver. Receipt of the waiver for the current
period notwithstanding, no assurances can be given with respect to
either the Company’s ability to secure and maintain
compliance with the covenants in future periods, or, in the event
the Company is not compliant, that the Bank with provide a waiver
of compliance for such covenants in future periods. In the event
the Company is not in compliance with the covenants in future
periods and the Bank fails to provide a waiver, declares the term
loan or revolving line of credit to be in default, and terminates
the term loan or the revolving line of credit, any amounts due the
Bank at such time would become immediately due and payable. In such
event, our financial condition will be negatively affected, and
such affect could be material.
NOTE
10. EQUITY
Common and Preferred Stock
The
Company is authorized to issue 150,000,000 shares of common stock,
$0.01 par value, of which 10,449,520 common shares were issued and
outstanding as of December 31, 2016. Subject to a limit of
10,000,000 preferred shares in the aggregate, the Company is
authorized to issue 10,000,000 shares of Series A Convertible
Preferred Stock, $0.01 par value, 1,000 shares of its 10%
Cumulative Perpetual Series B Preferred Stock, $0.01 par value, and
500 shares of its Series C Convertible Preferred Stock, par value
$0.01, none of which were issued and outstanding as of December 31,
2016.
As of
December 31, 2016, 33,869 shares of common stock were subscribed
and 41,920 shares were held in treasury, reserved for
cancellation.
Options
As of
December 31, 2016, 1,059,988 options to purchase common stock of
the Company were issued and outstanding. During the fiscal year
ended December 31, 2016, the Company issued 219,000 options to key
employees and members of the Board of Directors, which are expensed
monthly basis over a three year period. Additional information
about the outstanding options is included in the following
table:
|
|
|
Issuance
Date
|
Expiration
Date
|
Vesting
|
|
34,640
|
$0.06
|
04/03/15
|
04/03/25
|
No
|
|
55,424
|
$0.06
|
09/29/15
|
09/29/25
|
No
|
|
70,000
|
$0.90
|
04/13/12
|
04/13/17
|
No
|
|
50,000
|
$0.90
|
01/16/13
|
01/16/18
|
No
|
|
10,000
|
$1.00
|
03/04/13
|
03/04/18
|
No
|
|
218,163
|
$1.39
|
05/09/16
|
05/09/21
|
Yes
|
|
4,330
|
$1.44
|
09/29/15
|
09/29/25
|
No
|
|
40,000
|
$2.20
|
04/11/14
|
04/11/19
|
No
|
|
370,000
|
$2.30
|
02/23/15
|
02/23/20
|
No
|
|
93,503
|
$3.31
|
02/16/12
|
02/16/22
|
No
|
|
19,424
|
$4.62
|
05/13/15
|
05/13/25
|
Yes
|
|
4,330
|
$5.49
|
04/08/15
|
04/08/25
|
No
|
|
1,732
|
$5.81
|
03/05/15
|
03/05/25
|
No
|
|
33,774
|
$5.89
|
03/23/15
|
03/23/25
|
Yes
|
|
8,660
|
$12.13
|
09/17/13
|
09/17/23
|
Yes
|
|
21,650
|
$12.99
|
09/06/12
|
09/05/17
|
No
|
|
7,038
|
$12.99
|
11/14/12
|
09/27/22
|
No
|
|
17,320
|
$14.43
|
01/16/13
|
11/30/22
|
No
|
|
1,059,988
|
|
|
|
|
Warrants
The
Company values all warrants using the Black-Scholes option-pricing
model. Critical assumptions for the Black-Scholes
option-pricing model include the market value of the stock price at
the time of issuance, the risk-free interest rate corresponding to
the term of the warrant, the volatility of the Company’s
stock price, dividend yield on the common stock, as well as the
exercise price and term of the warrant. The Black
Scholes option-pricing model was the best determinable value of the
warrants that the Company “knew up front“ when issuing
the warrants in accordance with Topic 505. Other than as expressly
noted below, the warrants are not subject to any form of vesting
schedule and, therefore, are exercisable by the holders anytime at
their discretion during the life of the warrant. No
discounts were applied to the valuation determined by the
Black-Scholes option-pricing model; provided, however, that in determining
volatility the Company utilized the lesser of the 90-day volatility
as reported by Bloomberg or other such nationally recognized
provider of financial markets data and
40.0%.
As of
December 31, 2016, 60,620 warrants to purchase common stock of the
Company were issued and outstanding, all of which were assumed by
the Company in connection with the acquisition of iSatori.
Additional information about the outstanding warrants is included
in the following table:
|
|
|
Issuance
Date
|
Expiration
Date
|
Vesting
|
|
17,320
|
$12.99
|
10/01/13
|
01/01/18
|
No
|
|
43,300
|
$12.99
|
07/16/13
|
07/16/18
|
No
|
|
60,620
|
|
|
|
|
Private Placements, Other Issuances and Cancellations
The
Company periodically issues shares of its common stock and warrants
to purchase shares of common stock to investors in connection with
private placement transactions, as well as, to advisors and
consultants for the fair value of services rendered. Absent an
arm’s length transaction with an independent third-party, the
value of any such issued shares is based on the trading value of
the stock at the date on which such transactions or agreements are
consummated or such shares are issued. The Company expenses the
fair value of all such issuances in the period
incurred.
The
Company issued 82,853 shares of its common stock and 33,869 shares
of its common stock subscribed for services rendered during the
year ended December 31, 2016, for which it recorded an aggregate
expense of $153,002, as compared to an expense of $179,203 for the
year ended December 31, 2015. During the year ended December
31, 2016 the Company also cancelled 86,534 shares surrendered in
settlement of a tax obligation and issued 85,089 shares in
connection with the cashless exercise of an option held by a member
of the Board of Directors.
2016
During
the year ended December 31, 2016, the Company issued 82,853 shares
of its common stock and 33,869 shares of its common stock
subscribed, consisting of (i) 66,666 shares issued to employees for
the fair value of services rendered; (ii) 24,082 shares issued to
members of the Board of Directors for the fair value of services
rendered consistent with the Company’s Board compensation
plan, and (iii) 25,974 shares issued to members of the Board of
Directors for the fair value of services rendered in connection
with the Company’s acquisition of iSatori. In
addition to the above, during the year ended December 31, 2016 the
Company cancelled 86,534 shares surrendered by an employee in
settlement of a tax obligation from a previously issued grant that
vested during the year, issued 85,089 shares in connection with the
cashless exercise of an option grant assumed by the Company in
connection with the acquisition of iSatori, bought back 41,920
shares pursuant to the terms of its share Repurchase Program, all
of which remained subject to cancellation from treasuryas of
December 31, 2016. During the fiscal year ended December 31, 2016,
the Company issued 219,000 options to key employees, for which it
records a monthly expense equal to 1/36th of the total value
of the grant. The Company did not issue any shares of its common
stock to investors for cash during the year ended December 31,
2016.
During
the year ended December 31, 2016, the Company valued shares issued
for services rendered based on the trading value of the stock at
the time of grant. Options are valued using the Black-Scholes
option pricing model subject to maximum implied volatility of
40%.
2015
During
the year ended December 31, 2015, the Company issued 2,408,937
shares of its common stock, consisting of (i) 2,315,644 shares
issued to iSatori shareholders in connection with the Merger; (ii)
66,667 shares issued to employees for the fair value of services
rendered; and (iii) 16,938 shares issued to members of the Board of
Directors for the fair value of services rendered consistent with
the Company’s Board compensation plan. As of
December 31, 2015, there were an additional 9,688 shares of common
stock issuable to members of the Board of Directors for the fair
value of services rendered consistent with the Company’s
Board compensation plan. In addition to the above, during the year
ended December 31, 2015 the Company cancelled 37,000 shares
previously issued for services and bought back and subsequently
cancelled 206,187 shares pursuant to the terms of its share
Repurchase Program. During the fiscal year ended December 31, 2015,
the Company issued 370,000 options to management, key employees and
members of the Board of Directors, for which it recorded an expense
of $315,741. In connection with the acquisition of iSatori, the
Company issued 312,205 options to former option holders of iSatori
for which $191,121 was included as an element of the purchase
price. The Company did not issue any shares of its common stock to
investors for cash during the year ended December 31,
2015.
During
the year ended December 31, 2015, the Company valued shares issued
for services rendered based on the trading value of the stock at
the time of grant.
NOTE
11. INCOME TAXES
The
provision (benefit) for income taxes from continued operations for
the years ended December 31, 2016 and 2015 consist of the
following:
|
Current:
|
|
|
|
Federal
AMT
|
$-
|
$-
|
|
State
|
2,417
|
-
|
|
|
2,417
|
-
|
|
Deferred:
|
|
|
|
Federal
|
(139,279)
|
5,074
|
|
State
|
(15,475)
|
5,510
|
|
|
(154,754)
|
10,584
|
|
Change
in valuation allowance
|
154,754
|
(10,584)
|
|
|
|
|
|
Provision
(benefit) for income taxes, net
|
$2,417
|
$-
|
Deferred
income taxes result from temporary differences in the recognition
of income and expenses for the financial reporting purposes and for
tax purposes. The components of deferred tax assets consist
principally from the following:
|
|
|
|
|
Inventory
|
$54,000
|
$41,401
|
|
Allowance
for Doubtful Accounts
|
-
|
162,849
|
|
Foreign
tax credits
|
30,000
|
30,086
|
|
Share
Based Compensation
|
39,000
|
39,485
|
|
Other
|
8,000
|
24,100
|
|
Property
and equipment
|
-
|
16,712
|
|
Net
operating loss carryforwards
|
7,666,946
|
7,666,946
|
|
Valuation
allowance
|
(7,013,946)
|
(7,168,700)
|
|
|
|
|
|
Deferred
income tax asset
|
784,000
|
812,879
|
|
|
|
|
|
Deferred
expenses
|
(63,000)
|
(71,482)
|
|
Property
and equipment
|
(32,000)
|
(52,397)
|
|
|
|
|
|
Deferred
income tax liability
|
(95,000)
|
(123,879)
|
|
|
|
|
|
Net
deferred tax asset
|
$689,000
|
$689,000
|
The Company has net operating loss
carryforwards of approximately $22,400,000 for federal purposes
available to offset future taxable income through 2036 and
2.298,000 for State of Colorado purposes which expire in various
years through 2036, The Company has provided a valuation reserve
against the full amount of the net operating loss benefit, because
in the opinion of management the benefits from net operating losses
carried forward may be impaired or limited on certain
circumstances. Events which may cause limitations in the amount of
net operating losses that the Company may utilize in any one year
include, but are not limited to, limitations imposed
under Section 382 of the Internal Revenue Code, as
amended, from change of more than 50% over a three-year period. The
impact of any limitations that may be imposed for future issuances
of equity securities, including issuances with respect to
acquisitions have not been determined.
ASC 740
requires the consideration of a valuation allowance to reflect the
likelihood of realization of deferred tax assets. Significant
management judgment is required in determining any valuation
allowance recorded against deferred tax assets. In evaluating the
ability to recover deferred tax assets, the Company considered
available positive and negative evidence, giving greater weight to
itsrecent cumulative losses and its ability to carry-back losses
against prior taxable income and lesser weight to its projected
financial results due to the challenges of forecasting future
periods. The Company also considered, commensurate with its
objective verifiability, the forecast of future taxable income
including the reversal of temporary differences. At that time the
Company continued to have sufficient positive evidence, including
recent cumulative profits, a reduction in operating expenses, the
ability to carry-back losses against prior taxable income and an
expectation of improving operating results, showing a valuation
allowance was not required. At the end of the year ended December
31, 2012, expectations of taxable income necessitated a reduction
in the valuation allowance and a restoration of $689,000 of
deferred tax assets related to net operating losses expected to be
utilized in the next 12 months. At December 31, 2016,
the Company continues to maintain the deferred tax asset of
$689,000.
NOTE 12. FAIR VALUE MEASUREMENTS
The
Company immediately adopted FASB Accounting Standards Codification
No. 820 (SFAS 157), Fair
Value Measurements. ASC 820 relates to financial
assets and financial liabilities.
Determination of Fair Value
At
December 31, 2016, the Company calculated the fair value of its
assets and liabilities for disclosure purposes only.
Valuation Hierarchy
ASC 820
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:
Valuation Hierarchy
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Level 1
- Unadjusted quoted prices in active markets that are accessible at
the measurement date for identical, unrestricted assets or
liabilities.
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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.
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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.
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Non-Financial Assets Measured at Fair Value on a Non-Recurring
Basis
Non-financial assets, such as property, equipment and
leasehold improvements, goodwill, and intangible assets, are
required to be measured at fair value only when an impairment loss
is recognized. The Company did not record an impairment charge
related to these assets during the years ended December 31, 2016
and 2015.
NOTE
13. COMMITMENTS AND CONTINGENCIES
The
Company does not have a commitment and contingency liability
associated with any third party consulting agreements.
NOTE 14. RELATED PARTY TRANSACTIONS
The
Company did not have any related party transactions as of December
31, 2016.
NOTE 15. NET INCOME / (LOSS) PER SHARE
Basic
income per share is calculated by dividing net income attributable
to common stockholders by the weighted average number of shares of
common stock outstanding during the period. Diluted income per
share is calculated by dividing net income attributable to common
stockholders by the weighted average fully diluted number of shares
of common stock outstanding during the period. For the year ended
December 31, 2016, the following potential shares of common
stock were excluded in the number of shares of common stock
outstanding for the calculation of diluted income per share. For
the year ended December 31, 2015, the following potential shares of
common stock were included in the number of the shares of common
stock outstanding for the calculation of diluted income per
share.
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Warrants
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102,287
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98,742
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Options
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1,008,132
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614,607
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Total
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1,110,418
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713,349
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The
following table represents the computation of basic and diluted
losses per share at December 31, 2016 and 2015:
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Net income (losses)
available for common shareholders
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368,078
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(1,165,940)
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Basic weighted
average common shares outstanding
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10,429,452
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8,677,433
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Basic income (loss)
per share
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0.04
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(0.13)
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Diluted weighted
average common shares outstanding
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11,521,344
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8,677,433
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Diluted income
(loss) per share
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0.03
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(0.13
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Net
loss per share is based upon the weighted average shares of common
stock outstanding.
NOTE
16. SUBSEQUENT EVENTS
In April 2017, the
Company and GNC entered into an agreement pursuant to which the
Company agreed to provide GNC with margin support credits equal to
$700,000 (“GNC
Credits”), which GNC Credits will be recognized in
bi-weekly or monthly installments through September
2017. The GNC Credits will be recognized from amounts
remitted by GNC to the Company, and will have the effect of
decreasing net income in the periods affected. The Company believes
that the agreement with GNC aligns the interests of GNC and the
Company, and provides an incentive for both GNC and the Company to
support the sale of the Company’s products through
GNC’s centralized distribution
platform.
Management has
reviewed and evaluated subsequent events and transactions occurring
after the balance sheet date through the filing of this Annual
Report on Form 10-K on April 17, 2016 and determined that no
additional subsequent events occurred.