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What changed in FITLIFE BRANDS, INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FITLIFE BRANDS, INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+190 added−201 removedSource: 10-K (2024-03-29) vs 10-K (2023-03-24)

Top changes in FITLIFE BRANDS, INC.'s 2023 10-K

190 paragraphs added · 201 removed · 125 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+22 added−43 removed81 unchanged
Biggest changeIn addition, DSHEA provides that so-called “third-party literature”, for example 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.
Biggest changeIf 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 will be prevented from using the claim. -5- In addition, DSHEA provides that so-called “third-party literature”, for example 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.
Our Articles of Incorporation authorize the issuance of up to 10.0 million shares of preferred stock, par value $0.01 per share (" Preferred Stock ") in the aggregate.
Our Articles of Incorporation authorize the issuance of up to 10 million shares of preferred stock, par value $0.01 per share (" Preferred Stock "), in the aggregate.
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.
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. Nearly all our contract manufacturers are certified through a governing body such as the Natural Products Association or NSF International.
Product sold to GNC may be returned from store shelves or the distribution center in the event the product is damaged, short dated, expired or recalled. GNC maintains a customer satisfaction program that allows customers to return product to the store for credit or refund.
Product sold to GNC may be returned from corporate store shelves or the distribution center in the event the product is damaged, short dated, expired or recalled. GNC maintains a customer satisfaction program that allows customers to return product to the store for credit or refund.
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.
Our customers’ perception of the safety and quality of our products or 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.
The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Acquisition, and could harm our financial performance.
The integration process could take longer than anticipated and could result in the loss of key employees, the disruption of each company’s ongoing businesses, tax costs or inefficiencies, or inconsistencies in standards, controls, information technology systems, procedures and policies, any of which could adversely affect our ability to maintain relationships with customers, employees or other third parties, or our ability to achieve the anticipated benefits of the Acquisitions, and could harm our financial performance.
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 iSatori Products. In addition, we are focused on increasing our direct-to-consumer revenue through e-commerce platforms such as Amazon. We may not be able to successfully increase sales through these channels.
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 MusclePharm products. In addition, we are focused on increasing our direct-to-consumer revenue through e-commerce platforms such as Amazon. We may not be able to successfully increase sales through these channels.
Risk Factors Relating to our Business and Industry The Company was profitable during the years ended December 31, 2022 and 2021. However, we may not be able to achieve sustained profitability. Our failure to sustain profitability or effectively manage growth could result in net losses, and therefore negatively affect our financial condition.
Risk Factors Relating to our Business and Industry The Company was profitable during the years ended December 31, 2023 and 2022. However, we may not be able to achieve sustained profitability. Our failure to sustain profitability or effectively manage growth could result in net losses, and therefore negatively affect our financial condition.
Currently, we have the following classes of Preferred Stock authorized, and therefore could be issued without shareholder approval: (i) 1,000 shares of Series A Preferred Stock, par value $0.01 per share, are authorized (the “ Series A Preferred ”); and (ii) 2,000 shares of Series B Junior Participating Preferred Stock, par value $0.01.
Currently, we have the following classes of Preferred Stock authorized, which could be issued without shareholder approval: (i) 1,000 shares of Series A Preferred Stock, par value $0.01 per share, are authorized (the “ Series A Preferred ”); and (ii) 2,000 shares of Series B Junior Participating Preferred Stock, par value $0.01.
Our SEC filings (including any amendments) will be made available free of charge on www.fitlifebrands.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. -7- Table of Contents ITEM 1A - Risk Factors An investment in our securities involves a high degree of risk.
Our SEC filings (including any amendments) will be made available free of charge on www.fitlifebrands.com , as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. ITEM 1A - Risk Factors An investment in our securities involves a high degree of risk.
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 revenue.
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 revenue.
In addition to the Company’s online distribution channels for direct-to-consumer sales, major iSatori customers include CVS, Rite Aid, Vitamin Shoppe, Walgreens and Wal-Mart. iSatori’s core strategy is to build and strengthen brands among consumers seeking nutritional supplement products with a reputation for quality and innovation. iSatori utilizes social media campaigns, coupons, and online advertising, plus cooperative and other incentive programs, to build consumer awareness and generate trial and repeat purchases to drive sales revenue.
In addition to the Company’s online distribution channels for direct-to-consumer sales, major iSatori customers include CVS, Rite Aid, Vitamin Shoppe and Walgreens. iSatori’s core strategy is to build and strengthen brands among consumers seeking nutritional supplement products with a reputation for quality and innovation. iSatori utilizes social media campaigns, coupons, and online advertising, plus cooperative and other incentive programs, to build consumer awareness and generate trial and repeat purchases.
We are currently dependent on certain current key employees, who are 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 a reduced ability to operate our business.
We are currently dependent on certain current key employees who are vital to our ability to grow our business and maintain profitability. As with all employees, our officers can terminate their relationship with us at will. Our inability to retain these individuals may result in a reduced ability to operate our business.
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 both nationally and internationally.
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 both domestically and internationally.
Any of these events could have an adverse effect on our business, financial condition, results of operations and cash flows. -9- Table of Contents We are dependent on our third-party manufacturers to supply our products in the compositions we require, and we do not independently analyze each production lot of our products.
Any of these events could have an adverse effect on our business, financial condition, results of operations and cash flows. We are dependent on our third-party manufacturers to supply our products in the compositions we require, and we do not independently analyze each production lot of our products.
(the “ Company ”) is a national provider of innovative and proprietary nutritional supplements for health-conscious consumers marketed under the following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “ NDS Products ”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the " iSatori Products ").
(the “ Company ”) is a national provider of innovative and proprietary nutritional supplements and wellness products for health-conscious consumers marketed under the following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “ NDS Products ”); (ii) iSatori, BioGenetic Laboratories, and Energize (together, the " iSatori Products "); (iii) Dr.
Further, uncertain or unfavorable economic conditions, has and could continue to negatively impact the financial stability of our customers or suppliers, which could lead to increased uncollectible receivables or non-performance. Current global geopolitical tensions, including related to Ukraine, may exacerbate any economic downturn and inflation.
Further, uncertain or unfavorable economic conditions have and could continue to negatively impact the financial stability of our customers or suppliers, which could lead to increased uncollectible receivables or non-performance. Current global geopolitical tensions, including related to Ukraine and Israel, may exacerbate any economic downturn and inflation.
If we are unable to successfully or timely integrate the operations of MRC with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the Acquisition, and our business, results of operations and financial condition could be materially and adversely affected.
If we are unable to successfully or timely integrate the operations of MRC and/or MusclePharm with our business, we may incur unanticipated liabilities and be unable to realize the revenue growth, synergies and other anticipated benefits resulting from the Acquisitions, and our business, results of operations and financial condition could be materially and adversely affected.
We have incurred, and will continue to incur, significant costs in connection with the Acquisition. The substantial majority of these costs are non-recurring expenses related to the Acquisition.
We have incurred, and will continue to incur, significant costs in connection with the Acquisitions. The substantial majority of these costs are non-recurring expenses related to the Acquisitions.
In the event GNC ceases purchasing products from us, or otherwise reduces its purchases, our total revenue will be negatively impacted, and such impact could 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.
In the event GNC ceases purchasing products from us, or otherwise reduces its purchases, our total revenue will be negatively impacted, and such impact could be material. Moreover, the transition to GNC’s centralized distribution system had the effect of concentrating a significant portion of our accounts receivable with a single payor.
We face intense competition from numerous resellers, manufacturers and wholesalers of nutritional supplements similar to ours, including retail, online and mail-order providers. Many of our competitors have longer operating histories, more-established brands in the marketplace, revenue significantly greater than ours and better access to capital than we have.
We face intense competition from numerous resellers, manufacturers and wholesalers of nutritional supplements similar to ours, including retail, online and mail-order providers. Many of our competitors have longer operating histories, more-established brands in the marketplace, greater financial resources and better access to capital than we have.
As a result, we have had to increase purchases in certain raw materials and build finished goods inventory, especially in our best-selling products, to avoid, in addition to other consequences, stockouts.
As a result, we had to increase purchases of certain raw materials and build additional finished goods inventory, especially in our best-selling products, to avoid, in addition to other consequences, stockouts.
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. -12- Table of Contents We may issue Preferred Stock with rights senior to the Common Stock.
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. -11- We may issue Preferred Stock with rights senior to the Common Stock.
Sales to GNC’s centralized distribution platform, including indirect distribution of product to domestic and international franchisees, accounted for approximately 67% and 71% of our total sales for the years ended December 31, 2022 and 2021, respectively. GNC’s franchisees are not required to carry our products.
Sales to GNC’s centralized distribution platform, including indirect distribution of product to domestic and international franchisees, accounted for approximately 33% and 67% of our total sales for the years ended December 31, 2023 and 2022, respectively. GNC’s franchisees are not required to carry our products.
The Company currently markets more than 90 different NDS Products to more than 770 GNC franchise locations located in the United States, as well as to additional franchise locations in other countries, all of which are distributed through GNC’s distribution system.
The Company currently markets more than 100 different NDS Products to more than 700 GNC franchise locations located in the United States, as well as to additional franchise locations in other countries, all of which are distributed through GNC’s distribution system.
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. -10- Table of Contents Our products may not meet health and safety standards or could become contaminated.
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. -9- Our products may not meet health and safety standards or could become contaminated.
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.
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 efficiency of nutritional supplement products is supported by limited conclusive clinical studies, which could result in less market acceptance of these products and lower revenue or lower growth rates in revenue.
The efficacy of nutritional supplement products is supported by limited conclusive clinical studies, which could result in reduced market acceptance of these products and lower revenue or lower revenue growth rates.
Our sales and marketing efforts are designed to expand sales of NDS Products to additional GNC franchise locations both domestically and internationally. In addition, we relaunched our Core Active brand as a new online-exclusive brand. The GNC domestic franchise market remains the core of our operations.
Our sales and marketing efforts are designed to expand sales of NDS Products to additional GNC franchise locations both domestically and internationally. In addition, we relaunched our Core Active brand as an online-exclusive brand. The GNC domestic franchise market remains a strong business and a critical component of our operations.
The process of integrating operations and making such adjustments after the Acquisition could cause an interruption of, or loss of momentum in, the activities of one or more of the combined company’s businesses and the loss of key personnel. Employee uncertainty, lack of focus, or turnover during the integration process may also disrupt the businesses of the combined company.
The process of integrating operations and making such adjustments after the Acquisitions could cause an interruption of, or loss of momentum in, the activities of one or more of the combined companies’ businesses and the loss of key personnel. Employee uncertainty, lack of focus, or turnover during the integration process may also disrupt the businesses of the combined companies.
The coronavirus (COVID-19) pandemic has had a material impact on global supply chains, including for certain raw materials imported from China, among other countries, that have had an impact on our third-party suppliers and our wholesale partners.
The coronavirus (COVID-19) pandemic had a material impact on global supply chains, including for certain raw materials imported from China, among other countries, and this impacted our third-party suppliers and our wholesale partners.
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. Product returns can and do occur from time to time and can be material.
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, MRC Products and MusclePharm whereby customers can return product for credit or refund.
We experienced inflationary headwinds across our business during 2022, and we expect inflationary pressures to continue into 2023. This trend could have a materially adverse impact in the future if inflation rates were to significantly exceed our ability to achieve price increases or cost savings.
We experienced inflationary headwinds across our business during 2022 and 2023, and such inflationary pressures may not abate in 2024. This trend could have a materially adverse impact in the future if inflation rates were to significantly exceed our ability to achieve price increases or cost savings.
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.
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.
Cost of Compliance with Environmental Laws We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.
We consider our employee relations to be good. -6- Cost of Compliance with Environmental Laws We have not incurred any costs associated with compliance with environmental regulations, nor do we anticipate any future costs associated with environmental compliance; however, no assurances can be given that we will not incur such costs in the future.
The success of the Acquisition will depend in part on our ability to realize the anticipated business opportunities from combining the operations of MRC with our business in an efficient and effective manner.
The success of the acquisition of MRC and/or MusclePharm (the “ Acquisitions ”) will depend in part on our ability to realize the anticipated business opportunities from integrating the operations of MRC and MusclePharm with our business in an efficient and effective manner.
COVID-19 has impacted global supply chains and such impacts have impacted us and our third-party suppliers and could have a material adverse impact on us in the future.
COVID-19 impacted global supply chains and such impacts have impacted us and our third-party suppliers. Future outbreaks of COVID-19 or other illnesses could have a material adverse impact on us in the future.
However, any reported medical concerns with respect to ingredients commonly used in nutritional supplements could negatively impact the demand for our products. Additionally, low-carb products, 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.
However, any reported medical concerns with respect to ingredients commonly used in nutritional supplements could negatively impact the demand for our products. Additionally, low-carbohydrate products, liquid meal replacements and similar competing products addressing changing consumer tastes and preferences could affect the market for certain categories of supplements.
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.
A slower growth rate in the nutritional supplement industry could lead to reduced revenue or make it more difficult for us to sustain consistent revenue growth. The nutritional supplement industry has been growing at a strong pace over the past ten years.
Moreover, unilateral decisions could be taken by our distributors, customers, or third-party e-commerce platforms such as Amazon, to discontinue all or any of our products that they are carrying or selling at any time, which would cause our business to suffer. The inability to sell our products through e-commerce platforms, including Amazon, would materially impact our sales and operating results.
Moreover, unilateral decisions could be taken by our distributors, customers, or third-party e-commerce platforms such as Amazon, to discontinue all or any of our products that they are carrying or selling at any time, which would cause our business to suffer.
We introduced a total of 10 new products during the year ended December 31, 2022, which included 3 completely new products and 7 product reformulations and flavor extensions, and we introduced a total of 15 new products during the year ended December 31, 2021, which included 4 completely new products and 11 product reformulations and flavor extensions.
We introduced a total of 18 new products during the year ended December 31, 2023, which included 6 completely new products and 12 product reformulations and flavor extensions, and we introduced a total of 10 new products during the year ended December 31, 2022, which included 3 completely new products and 7 product reformulations and flavor extensions.
We are committed to meeting or exceeding the requirements of the DSNDCPA. -6- Table of Contents 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.
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.
Risk Factors Related to the Acquisition and the Arrangement Agreement We may experience difficulties in integrating the operations of MRC into our business and in realizing the expected benefits of the Acquisition.
Risk Factors Related to Recent Acquisitions We may experience difficulties in integrating the operations of MRC and/or MusclePharm into our business and in realizing the expected benefits of the acquisitions.
Events reported to the FDA would not be considered an admission from a company that its product caused or contributed to the reported event.
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.
All trademark registrations are protected for a period of ten years and then are renewable thereafter if still in use. Employees We had 27 and 25 full-time employees as of December 31, 2022 and 2021, respectively. In addition, the Company retains consultants for certain services on an as-needed basis. We consider our employee relations to be good.
All trademark registrations are protected for a period of ten years and then are renewable thereafter if still in use. Employees We had 37 and 27 full-time employees as of December 31, 2023 and 2022, respectively. In addition, the Company utilizes consultants and temporary or part-time employees for certain services on an as-needed basis.
In periods of adverse or uncertain economic conditions, including during periods of high inflation or recession concerns, or as a result of the COVID-19 pandemic, consumers may purchase less of our products, purchase more value or private label products or may forgo certain purchases altogether.
For instance, in 2022, the U.S. experienced significantly heightened inflationary pressures which continued into 2023. In periods of adverse or uncertain economic conditions, including during periods of high inflation or recession concerns, or as a result of the COVID-19 pandemic, consumers may purchase less of our products, purchase more value or private label products or may forgo certain purchases altogether.
Uncertain or unfavorable economic conditions, including during periods of high inflation, recessions or other economic disruption, or as a result of the COVID-19 pandemic, could limit consumer and customer demand for our products, increase our costs or otherwise adversely affect us.
Uncertain or unfavorable economic conditions, including during periods of high inflation, recessions or other economic disruption, or as a result of the COVID-19 pandemic, could limit consumer and customer demand for our products, increase our costs or otherwise adversely affect us. -8- The willingness of consumers to purchase our products depends in part on general or local economic conditions and consumers’ discretionary spending habits.
If we are not able to ensure timely product deliveries, potential distributors and customers may not order our products, and our revenue may decrease. We rely 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.
We rely 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.
("Amazon ") , as well as through the specialty, drug and mass-market distribution channels. iSatori products are currently sold in over 17,000 retail locations. -4- Table of Contents In some cases, iSatori utilizes independent brokers, who work in conjunction with iSatori’s sales employees and management to oversee the drug and mass-market channels. iSatori sells its products to mass-market merchandisers either directly or through distributors of nutritional supplement products.
In some cases, iSatori utilizes independent brokers, who work in conjunction with iSatori’s sales employees and management to oversee the drug and mass-market channels. iSatori sells its products to mass-market merchandisers either directly or through distributors of nutritional supplement products.
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, attempt to introduce new products and/or packaging solutions in direct response to meet that demand.
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. -3- Sales, Marketing and Distribution NDS Products NDS Products are sold through more than 700 GNC franchise locations located throughout the United States.
In addition, although we continued efforts to expand international distribution for our products in the years ended December 31, 2022 and 2021, we cannot assure that any further efforts to sell our products outside the United States will result in material increased revenue.
The inability to sell our products through e-commerce platforms, including Amazon, would materially impact our sales and operating results. -7- In addition, although we continued efforts to expand international distribution for our products in the years ended December 31, 2023 and 2022, we cannot assure that any further efforts to sell our products outside the United States will result in material increased revenue.
In addition, following the launch of Metis Nutrition, we distribute products through more than 1,575 corporate GNC stores in the United States. We sell iSatori Products through more than 17,000 specialty, mass, and online retail locations. A complete product list is available on our website at fitlifebrands.com .
In addition, following the launch of Metis Nutrition, we distribute products through more than 1,500 corporate GNC stores in the United States. We sell iSatori Products through more than 17,000 specialty, mass, and online retail locations. We sell the MRC Products primarily on Amazon.com (“ Amazon ”).
Our marketing team regularly reviews the media mix for its effectiveness in creating consumer demand and the highest return on investment dollars. Product Returns We currently have a 30-day product return policy for NDS Products, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites.
Product Returns We currently have a 30-day product return policy for NDS Products, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites.
Management is committed to continue to work collaboratively with GNC and its franchisees to build on our established track record of growth and innovation. iSatori Products iSatori Products are distributed directly to consumers through the Company's own websites and through other e-commerce platforms such as Amazon.com, Inc.
Management is committed to continue to work collaboratively with GNC and its franchisees to build on our established track record of innovation and operational performance. iSatori Products iSatori Products are distributed directly to consumers through the Company's own websites and through other e-commerce platforms such as Amazon , as well as through the specialty, drug and mass-market distribution channels. iSatori products are currently sold in over 17,000 retail locations.
Competition The nutrition industry is highly competitive, and the Company has many competitors that sell products similar to the Company’s products. 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.
Product returns can and do occur from time to time and can be material. Competition The nutrition industry is highly competitive, and the Company has many competitors that sell products similar to the Company’s products. Many of the Company’s competitors have significantly greater financial and human resources than our own.
We may incur additional costs in the integration of MRC’s business, and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the Acquisition. -13- Table of Contents The Acquisition will present challenges associated with integrating operations, personnel, and other aspects of the companies and assumption of liabilities that may exist at MRC and which may be known or unknown by the Company.
We may incur additional costs in the integration of MRC’s and/or MusclePharm’s business and may not achieve cost synergies and other benefits sufficient to offset the incremental costs of the Acquisitions. -12- The Acquisitions will present challenges associated with integrating operations, personnel, and other aspects of the companies.
Management believes that the following factors drive growth in the nutrition industry: ● The general public’s awareness and understanding of the connection between diet and health; ● The aging population in the Company’s markets who tend to use more nutritional supplements as they age; ● Increasing healthcare costs and the consequential trend toward preventative medicine and non-traditional medicines; and ● Product introductions in response to new scientific studies.
The nutrition industry is generally categorized into the following segments: ● Natural & Organic Foods (products such as cereals, milk, non-dairy beverages and frozen meals); ● Functional Foods (products with added ingredients or fortification specifically for health or performance purposes); ● Natural & Organic Personal Care and Household Products; and ● Supplements. -1- Management believes that the following factors drive growth in the nutrition industry: ● The general public’s awareness and understanding of the connection between diet and health; ● The aging population in the Company’s markets who tend to use more nutritional supplements as they age; ● Increasing healthcare costs and the consequential trend toward preventative medicine and non-traditional medicines; and ● Product introductions in response to new scientific studies.
Any inability of management to integrate the operations of the Company and MRC successfully could have a material adverse effect on the business and financial condition of the combined company. In addition, the Acquisition will subject the Company to contractual or other obligations and liabilities of MRC, some of which may be material and unknown.
Any inability of management to integrate the operations of the Company, MRC and/or MusclePharm successfully could have a material adverse effect on the business and financial condition of the combined company.
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 revenue. -8- Table of Contents 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.
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 revenue.
The integration may require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day operations of the businesses of the combined company.
In particular, the necessity of coordinating geographically dispersed organizations and addressing possible differences in corporate cultures and management philosophies may increase the difficulties of integration. The integration may require the dedication of significant management resources, which may temporarily distract management’s attention from the day-to-day operations of the businesses of the combined company.
The areas of our business that these and other authorities regulate include, among others: ● product claims and advertising; ● product labels; ● product ingredients; and ● how we manufacture, package, distribute, import, export, sell, and store our products. -5- Table of Contents 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.
The areas of our business that these and other authorities regulate include, among others: ● product claims and advertising; ● product labels; ● product ingredients; and ● how we manufacture, package, distribute, import, export, sell, and store our products.
The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“ GNC ”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than 17,000 retail locations, which include specialty, mass, and online.
Tobias, All Natural Advice, and Maritime Naturals (together, the “ MRC Products "); and (iv) MusclePharm. The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“ GNC ”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States.
Sales, Marketing and Distribution NDS Products NDS Products are sold through more than 770 GNC franchise locations located throughout the United States. The Company also distributes NDS Products to additional franchise locations in other countries. In 2014, the Company transitioned distribution of NDS Products to GNC’s centralized distribution platform.
The Company also distributes NDS Products to additional franchise locations in other countries. In 2014, the Company transitioned distribution of NDS Products to GNC’s centralized distribution platform. For the years ended December 31, 2023 and 2022, the majority of NDS Product sales were through GNC’s centralized distribution platform.
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 revenue can be subject to wide price swings.
The market price of the securities of a company such as ours with little name recognition in the financial community and without significant revenue can be subject to wide price swings. For example, the closing price of our Common Stock has ranged from a high of $22.45 to a low of $15.28 during the year ending December 31, 2023.
Regulatory Matters Our business is subject to varying degrees of regulation by a number of government authorities in the U.S., including the Federal Drug Administration (“ FDA ”), the Federal Trade Commission (“ FTC ”), the Consumer Product Safety Commission, the U.S. Department of Agriculture, and the Environmental Protection Agency.
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. -4- Regulatory Matters Our business is subject to varying degrees of regulation by a number of government authorities in the U.S., including the Federal Drug Administration (“ FDA ”), the Federal Trade Commission (“ FTC ”), the Consumer Product Safety Commission, the U.S.
The results of the combined company following the Acquisition will depend in part upon the Company’s ability to integrate MRC’s business with the Company’s business in an efficient and effective manner.
The Company’s ability to integrate MRC’s and MusclePharm’s business with the Company’s business in an efficient and effective manner will determine the success of the Acquisitions. The Company’s attempt to integrate MRC and MusclePharm may result in significant challenges, and the Company may be unable to accomplish the integrations smoothly or successfully.
Patent and trademark applications that protect brands, product names, and new technologies are 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.
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 protect brands, product names, and new technologies are pursued whenever possible.
Removed
ITEM 1. BUSINESS As used in this Annual Report, “ we ”, “ us ”, “ our ”, “ FitLife ”, “ FitLife Brands ”, the “ Company ” or “ our company ” refers to FitLife Brands, Inc. and all of its subsidiaries. Overview FitLife Brands, Inc.
Added
(the “ Company ”) is a national provider of innovative and proprietary nutritional supplements and wellness products for health-conscious consumers marketed under the following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, Core Active, Nutrology, and Metis Nutrition (together, “ NDS Products ”); (ii) iSatori, BioGenetic Laboratories, and Energize (together, the " iSatori Products "); (iii) Dr.
Removed
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com . The Company’s Common Stock, par value $0.01 per share (“ Common Stock ”), trades under the symbol “FTLF” on the OTC Pink market.
Added
Tobias, All Natural Advice, and Maritime Naturals (together, the “ MRC Products "); and (iv) MusclePharm. Overview FitLife Brands, Inc.
Removed
Recent Developments Entry into Arrangement Agreement On December 4, 2022, FitLife entered into an Arrangement Agreement (the “ Arrangement Agreement ”) with 1000374984 Ontario Inc. (“ Subsidiary ”, and collectively with FitLife, the “ Company ”), and Mimi’s Rock Corp.
Added
The iSatori Products are sold through more than 17,000 retail locations, which include specialty, mass, and online. The Company distributes the MRC Products primarily online. MusclePharm’s products are sold to wholesale customers as well as online directly to the end consumer. FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com.
Removed
(“ MRC ”), pursuant to which the Company agreed to acquire MRC for a total cash purchase price of approximately $17.0 million (CAD $23.2 million), of which approximately $10.4 million (CAD $14.2 million) would be used to retire all of MRC’s outstanding indebtedness, and approximately $6.6 million (CAD $9.0 million) would be used to purchase all issued and outstanding shares of MRC from its current shareholders (collectively, the “ Purchase Price ”) (the “ Acquisition ”).
Added
The Company’s common stock, par value $0.01 per share (“ Common Stock ”), trades under the symbol “FTLF” on the Nasdaq Capital Market. Recent Developments Acquisition of Mimi ’ s Rock Corp On December 4, 2022, the Company entered into an Arrangement Agreement with Mimi’s Rock Corp. (“ MRC ”), pursuant to which the Company agreed to acquire MRC.
Removed
The Arrangement Agreement was subject to the terms and conditions of the Plan of Arrangement, attached to the Arrangement Agreement as Schedule A (“ Plan ”), which Plan was made in accordance with Section 182 of the Ontario Business Corporations Act and required a court order approving the Plan.
Added
On February 28, 2023, the Company completed the acquisition of MRC. Total consideration for the acquisition of MRC was $17,099, of which $12,500 was funded using proceeds from a new term loan, and $4,599 from the Company’s available cash. See Note 8 to the financial statements for additional disclosure regarding the acquisition of MRC.
Removed
Further, to finance the acquisition of MRC, which amount was paid in all cash, the Company’s principal bank, First Citizens Bank (the “ Bank ”), agreed to provide up to $12.5 million in debt financing.
Added
Acquisition of MusclePharm Assets On October 10, 2023, the Company acquired substantially all of the assets of MusclePharm Corporation (“ MusclePharm ”) through an asset purchase transaction under Section 363 of the U.S. Bankruptcy Code.
Removed
The obligations of the Company and MRC to consummate the Acquisition were subject to certain closing conditions, including, but not limited to, (i) the taking of all steps set forth in the Interim Order (as defined in the Arrangement Agreement) and Final Order (as defined in the Arrangement Agreement); (ii) the approval of MRC’s shareholders, and (iii) receipt of any necessary regulatory approvals. -1- Table of Contents Subsequent to the end of the fiscal year, the Acquisition was consummated on February 28, 2023.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The Company, including its subsidiaries, leases its headquarters in Omaha, Nebraska. Management believes that the Company's site is adequate to support the business and suitable for present purposes, and the property and equipment have been well maintained. -14- Table of Contents
Biggest changeITEM 2. PROPERTIES The Company, including its subsidiaries, leases its headquarters in Omaha, Nebraska, as well as office space in Oakville, Ontario, Canada. Management believes that the Company's site is adequate to support the business and suitable for present purposes, and the property and equipment have been well maintained.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 4. MINE SAFETY DISCLOSURES None. PART II
Biggest changeITEM 4. MINE SAFETY DISCLOSURES None. -13- PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeITEM 4. Mine Safety Disclosures 15 PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 15 ITEM 6. Selected Financial Data 16 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 24 ITEM 8.
Biggest changeITEM 4. Mine Safety Disclosures 13 PART II ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 14 ITEM 6. Selected Financial Data 15 ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 16 ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 24 ITEM 8.
Consolidated Financial Statements and Supplementary Data 25 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 25 ITEM 9A. Controls and Procedures 25
Consolidated Financial Statements and Supplementary Data 24 ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 24 ITEM 9A. Controls and Procedures 24

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of December 31, 2022, there were 4,507,361 shares of Common Stock outstanding, and there were 24 shareholders of record of the Company’s Common Stock in addition to an undetermined number of holders whose shares are held in “street name.” The following table sets forth the high and low closing prices for our Common Stock for the periods indicated.
Biggest changeAs of December 31, 2023, there were 4,598,241 shares of Common Stock outstanding and 22 shareholders of record of the Company’s Common Stock, in addition to an undetermined number of holders whose shares are held in “street name.” The following table sets forth the high and low closing prices for our Common Stock for the periods indicated: High Low Fiscal Year 2023 First Quarter (January - March 2023) $ 19.19 $ 15.50 Second Quarter (April - June 2023) $ 17.25 $ 15.50 Third Quarter (July - September 2023) $ 19.32 $ 15.28 Fourth Quarter (October - December 2023) $ 22.45 $ 18.62 Fiscal Year 2022 First Quarter (January - March 2022) $ 16.70 $ 11.80 Second Quarter (April - June 2022) $ 11.10 $ 9.50 Third Quarter (July - September 2022) $ 16.80 $ 10.25 Fourth Quarter (October - December 2022) $ 17.00 $ 14.05 On March 28, 2024, the closing price of our Common Stock was $23.81 per share.
Common Stock repurchase activity under our publicly announced Share Repurchase Program during each quarter of 2022 and 2021 was as follows: Trade date Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced programs Dollar value of shares that may yet be purchased First quarter ended March 31, 2021 - $ - - $ 3,610,917 Second quarter ended June 30, 2021 36,092 $ 7.13 36,092 $ 3,169,917 Third quarter ended September 30, 2021 - $ - - $ 3,169,917 Fourth quarter ended December 31, 2021 - $ - - $ 3,169,917 Subtotal 36,092 $ 7.13 36,092 $ 3,169,917 First quarter ended March 31, 2022 - - - $ 3,169,917 Second quarter ended June 30, 2022 - - - $ 3,169,917 Third quarter ended September 30, 2022 - - - $ 3,169,917 Fourth quarter ended December 31, 2022 48,596 $ 15.86 48,596 $ 2,398,979 Subtotal 48,596 $ 15.86 48,596 $ 2,398,979 Transfer Agent Our transfer agent and registrar for the Common Stock is Colonial Stock Transfer located in Sandy, Utah.
As of December 31, 2023, the Company may purchase up to $5,000,000 of additional shares of Common Stock under the Share Repurchase Program. -14- Common Stock repurchase activity under our publicly announced Share Repurchase Program during each quarter of 2023 and 2022 was as follows: Trade date Total number of shares purchased Average price paid per share Total number of shares purchased as part of publicly announced programs Dollar value of shares that may yet be purchased First quarter ended March 31, 2022 - - - $ 3,169,917 Second quarter ended June 30, 2022 - - - $ 3,169,917 Third quarter ended September 30, 2022 - - - $ 3,169,917 Fourth quarter ended December 31, 2022 48,596 $ 15.86 48,596 $ 2,398,979 Subtotal 48,596 48,596 $ 2,398,979 First quarter ended March 31, 2023 - - - $ 5,000,000 Second quarter ended June 30, 2023 - - - $ 5,000,000 Third quarter ended September 30, 2023 - - - $ 5,000,000 Fourth quarter ended December 31, 2023 - - - $ 5,000,000 Subtotal - - - $ 5,000,000 Transfer Agent Our transfer agent and registrar for the Common Stock is Colonial Stock Transfer located in Sandy, Utah.
The Board approved an amendment to the Share Repurchase Program to increase the repurchase of up to $5,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share (" Series A Preferred "), warrants to purchase shares of the Company's Common Stock (" Warrants "), and other securities issued by the Company (" Securities "), over the next 24 months, at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred, Warrants, and Securities, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
Share Repurchase Program On August 16, 2019, the Company approved a share repurchase program, pursuant to which the Board authorized management to repurchase up to $500,000 of the Company's Common Stock over the subsequent 24 months (the " Share Repurchase Program "), as amended September 23, 2019 to increase the repurchase amount to $1,000,000, and include shares of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share (" Series A Preferred "), and warrants to purchase shares of the Company's Common Stock (" Warrants ") in the Share Repurchase Program, to be repurchased over the next 24 months, at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management; further amended on November 6, 2019 to increase the repurchase amount to $2,500,000 over the subsequent 24 months, and further amended on February 1, 2021 to increase the repurchase amount to up to $5,000,000 over the subsequent 24 months.
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 OTC Pink market under the symbol “FTLF”.
ITEM 5. MARKET FOR REGISTRANT ’ S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES Our Common Stock was approved for listing and has traded since September 18, 2023 on the Nasdaq Capital Market under the symbol “FTLF”. Prior to September 18, 2023, our Common Stock traded in the over-the-counter market.
During the year ended December 31, 2022, the Company repurchased 48,596 shares of the Company’s Common Stock under the Share Repurchase Program through multiple private transactions. As of December 31, 2022, the Company may purchase up to $2,399,000 of Securities under the Share Repurchase Program.
All other terms of the Share Repurchase Program remain unchanged. During the year ended December 31, 2023, the Company did not repurchase any shares of the Company’s Common Stock under the Share Repurchase Program.
Removed
The following stock prices reflect the Forward Split that became effective on December 2, 2021.
Added
Recent Sales of Unregistered Securities No unregistered securities were issued during the fiscal year.
Removed
High Low Fiscal Year 2022 First Quarter (January - March 2022) $ 16.70 $ 11.80 Second Quarter (April - June 2022) $ 11.10 $ 9.50 Third Quarter (July - September 2022) $ 16.80 $ 10.25 Fourth Quarter (October - December 2022) $ 17.00 $ 14.05 Fiscal Year 2021 First Quarter (January - March 2021) $ 8.13 $ 4.77 Second Quarter (April - June 2021) $ 10.43 $ 8.00 Third Quarter (July - September 2021) $ 13.75 $ 9.71 Fourth Quarter (October - December 2021) $ 16.00 $ 11.88 On March 21, 2023, the closing price of our Common Stock was $17.75 per share.
Added
On March 17, 2023, the Board approved an extension of the Share Repurchase Program.
Removed
Recent Sales of Unregistered Securities No unregistered securities were issued during the fiscal year. -15- Table of Contents Share Repurchase Program On February 1, 2021, the Board of the Company approved an amendment the Company’s share repurchase program as approved on August 16, 2019, and as amended on September 23, 2019, and further amended on November 6, 2019, pursuant to which the Board authorized management to repurchase of up to $2,500,000 of the Company's Common Stock over the next 24 months (the " Share Repurchase Program ").
Added
Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to $5,000,000 of the Company's Common Stock over the subsequent 24 months, at a purchase price equal to the fair market value of the Company's Common Stock on the date of purchase, with the exact date and amount of such purchases to be determined by management.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeResults of Operations December 31, 2022 December 31, 2021 Change % Revenue $ 28,803,000 $ 27,913,000 $ 890,000 3 % Cost of goods sold 16,769,000 15,409,000 1,360,000 9 % Gross profit 12,034,000 12,504,000 (470,000 ) (4 )% Gross margin percentage 41.8 % 44.8 % Operating expense: Selling, general and administrative expense 6,267,000 6,215,000 52,000 1 % Depreciation and amortization 66,000 59,000 7,000 1 % Total operating expense 6,333,000 6,274,000 59,000 2 % Income from operations 5,701,000 6,230,000 (529,000 ) (8 )% Other income 121,000 478,000 (357,000 ) (75 )% Provision for income tax (1,393,000 ) (1,298,000 ) 95,000 (7 )% Net income $ 4,429,000 $ 5,410,000 $ (981,000 ) (18 )% Fiscal Year Ended December 31, 2022 Compared to Fiscal Year Ended December 31, 2021 Net Sales.
Biggest changeResults of Operations Year ended December 31, 2023 Year ended December 31, 2022 $ Change % Change Revenue $ 52,700 $ 28,803 $ 23,897 83 % Cost of goods sold 31,268 16,769 14,499 86 % Gross profit 21,432 12,034 9,398 78 % Gross margin percentage 40.7 % 41.8 % Operating expense: Selling, general and administrative expense 12,161 6,010 6,151 102 % Merger and acquisition related expense 1,627 257 1,370 533 % Depreciation and amortization 94 66 28 42 % Total operating expense 13,882 6,333 7,549 119 % Income from operations 7,550 5,701 1,849 32 % Other expense (income) 547 (121 ) 668 n/m % Provision for income tax 1,707 1,393 314 23 % Net income $ 5,296 $ 4,429 $ 867 20 % Fiscal Year Ended December 31, 2023 Compared to Fiscal Year Ended December 31, 2022 Revenue.
Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payment for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
The Company currently anticipates that cash derived from operations and existing cash resources, along with available borrowings under the Line of Credit, will be sufficient to provide for the Company’s liquidity for the next twelve months. The Company is dependent on cash flow from operations and amounts available under the Line of Credit to satisfy its working capital requirements.
The Company currently anticipates that cash derived from operations and existing cash resources, along with available borrowings under the Line of Credit, will be sufficient to provide for the Company’s liquidity for the next twelve months. -22- The Company is dependent on cash flow from operations and amounts available under the Line of Credit to satisfy its working capital requirements.
Off-Balance Sheet Arrangements Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.
Off-Balance Sheet Arrangements Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity. -23-
The fair value of stock-based payments is estimated using the Black-Scholes option-pricing model or other appliable valuation model such as the Monte Carlo valuation pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends.
The fair value of stock-based payments is estimated using the Black-Scholes option-pricing model or other applicable valuation model such as the Monte Carlo valuation pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends.
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.
Product sold to certain wholesale customers 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.
The Company periodically issues restricted share units (“ RSUs ”), stock options and warrants to employees and non-employees in non-capital raising transactions for services rendered. Such issuances vest and expire according to the terms established at the issuance date.
Stock Compensation.Expense The Company periodically issues restricted share units (“ RSUs ”), stock options and warrants to employees and non-employees in non-capital raising transactions for services rendered. Such issuances vest and expire according to the terms established at the issuance date.
Stock-based payments to officers, directors, and employees, which are generally time vested, are measured at the grant date fair value and compensation cost is recognized on a straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
Stock-based payments to officers, directors, and employees that are time vested are measured at the grant date fair value and compensation cost is recognized on a straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.
Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms, which is also when control is transferred.
Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms.
The assumptions used could materially affect compensation expense recorded in future periods. -20- Table of Contents Recent Accounting Pronouncements See Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report for a description of recent accounting pronouncements believed by management to have a material impact on our present or future financial statements.
The assumptions used could materially affect compensation expense recorded in future periods. -19- Recent Accounting Pronouncements See Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report for a description of recent accounting pronouncements believed by management to have a material impact on our present or future financial statements.
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 overall risk and likelihood of returns in light of all information available. Total allowance for product returns, sales returns and incentive programs as of December 31, 2022 and 2021 amounted to $590,000 and $632,000, respectively.
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 overall risk and likelihood of returns in light of all information available. Total allowance for product returns, sales returns and incentive programs as of December 31, 2023 and 2022 amounted to $571 and $590, respectively.
The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying consolidated statements of operations. As of December 31, 2022, and 2021, the Company has not established a liability for uncertain tax positions.
The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying consolidated statements of income and comprehensive income. As of December 31, 2023, and 2022, the Company has not established a liability for uncertain tax positions.
Information for product returns is 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 are specific to each distribution channel. We monitor, among other things, remaining shelf life and sell-through data on a weekly basis.
Information for product returns is received on a regular basis and adjusted for accordingly. Adjustments for returns are based on factual information and historical trends for all Company Products and are specific to each distribution channel. We monitor, among other things, remaining shelf life and sell-through data on a weekly basis.
The Company determined that product returns are immaterial, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis. Stock-Based Compensation.
Upon evaluation of returns, the Company determined that product returns are immaterial, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
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. Product returns can and do occur from time to time and can be material.
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.
For the sale of goods with a right of return, the Company estimates variable consideration using the most likely amount method and recognizes revenue for the consideration it expects to be entitled to when control of the related product is transferred to the customers and records a product returns liability for the amount it expects to credit back its customers.
Product returns can and do occur from time to time and can be material. -17- For the sale of goods with a right of return, the Company estimates variable consideration using the most likely amount method and recognizes revenue for the consideration it expects to be entitled to when control of the related product is transferred to the customers and records a product returns liability for the amount it expects to credit back its customers.
Management also believes that its focus on developing its e-commerce capabilities will drive additional incremental sales in the short-term, while yielding substantial benefits in the longer-term. Cost of Goods Sold. Cost of goods sold for the year ended December 31, 2022 increased 9% to $16,769,000 as compared to $15,409,000 for the year ended December 31, 2021.
Management also believes that its focus on developing its e-commerce capabilities will drive additional incremental sales in the short-term, while yielding substantial benefits in the longer-term. Cost of Goods Sold. Cost of goods sold for the year ended December 31, 2023 increased 86% to $31,268 as compared to $16,769 for the year ended December 31, 2022.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products or services to a customer. All products sold by the Company are distinct individual products and consist of nutritional supplements and related supplies.
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer. -18- All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products.
Non-GAAP Measures The financial presentation below contains certain financial measures not in accordance with accounting principles generally accepted in the United States (“ GAAP ”), defined by the SEC as “non-GAAP financial measures”, including non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies.
Non-GAAP Measures The financial presentation below contains certain financial measures not in accordance with GAAP , defined by the SEC as “non-GAAP financial measures”, including EBITDA and adjusted EBITDA. These measures may be different from non-GAAP financial measures used by other companies.
Income Taxes The Company accounts for income taxes under FASB ASC Topic 740, Income Taxes (“ ASC 740 ”). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for product returns, sales returns and incentive programs, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, product returns, depreciable lives of property and equipment, allocation of purchase price from business combinations, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services.
The Company accounts for revenues in accordance with FASB Accounting Standards Codification (“ ASC ”) 606, Revenue from Contracts with Customers (“ ASC 606 ”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
The Company accounts for revenue in accordance with FASB ASC 606. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes.
Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
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.
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.
The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Quarterly Report in accordance with GAAP. As presented below, non-GAAP EBITDA excludes interest, income taxes, and depreciation and amortization.
The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Annual Report in accordance with GAAP.
We undertake no obligation to update these forward-looking statements. -16- Table of Contents 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 Annual Report.
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 Annual Report.
In the event the Company fails to achieve positive cash flow from operations, additional capital is unavailable under the terms of the Line of Credit, and management is otherwise unable to secure additional working capital through the issuance of equity or debt securities, the Company’s business would be materially and adversely harmed. -23- Table of Contents Cash Provided by Operating Activities Net cash provided by operating activities was $4,130,000 during the year ended December 31, 2022, compared to net cash provided by operating activities of $4,480,000 for the year ended December 31, 2021.
In the event the Company fails to achieve positive cash flow from operations, additional capital is unavailable under the terms of the Line of Credit, and management is otherwise unable to secure additional working capital through the issuance of equity or debt securities, the Company’s business would be materially and adversely harmed.
Adjusted non-GAAP EBITDA excludes, in addition to interest, taxes, depreciation and amortization, stock-based compensation, M&A/integration expense, Restatement-related costs and non-recurring gains or losses. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook.
The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook.
Cash Used in Investing Activities Cash used in investing activities for the fiscal year ended December 31, 2022 was $0 and $529,000 during the year ended December 31, 2022 and 2021, respectively. The Company used $529,000 during the year ended December 31, 2021 for the acquisition of Nutrology.
Cash Used in Investing Activities Cash used in investing activities for the fiscal year ended December 31, 2023 was $35,993 and $0 during the years ended December 31, 2023 and 2022, respectively. The Company used $17,099 for the acquisition of MRC and $18,788 for the acquisition of MusclePharm assets during the year ended December 31, 2023.
The increase of $1,360,000 is primarily due to increased product costs due to inflationary pressures, as well as higher distribution costs resulting from increased sales through online channels. -21- Table of Contents Gross Profit Margin. Gross profit for the year ended December 31, 2022 decreased to $12,034,000 as compared to $12,504,000 for the year ended December 31, 2021.
The increase of $14,499 is primarily due to an increase in revenue attributable to the acquisition of MRC as well as higher distribution costs resulting from increased sales through online channels. -20- Gross Profit. Gross profit for the year ended December 31, 2023 increased to $21,432 as compared to $12,034 for the year ended December 31, 2022.
For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related products to the customers, or (ii) the Company pays, or promises to pay, the consideration. -18- Table of Contents We currently have a 30-day product return policy for NDS Products, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites or e-commerce platforms.
We currently have a 30-day product return policy for direct-to-consumer sales, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites or e-commerce platforms.
Cash Used in Financing Activities Cash used in financing activities for the year ended December 31, 2022 was $750,000 as compared to cash used of $390,000 during the year ended December 31, 2021. The main reason for the increase in cash used for financing activities relates to increased share repurchases.
Cash Provided by (Used in) Financing Activities Cash provided by financing activities for the year ended December 31, 2023 was $20,296 as compared to cash used of $750 during the year ended December 31, 2022.
The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Control of products we sell transfers to customers upon shipment from our facilities or delivery to our customers, and the Company’s performance obligations are satisfied at that time.
The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. The Company’s products are also sold on e-commerce platforms including Amazon.
Year Ended December 31, 2022 2021 (Unaudited) (Unaudited) Net income $ 4,429,000 $ 5,410,000 Interest income, net (121,000 ) (25,000 ) Provision for income taxes 1,393,000 1,298,000 Depreciation and amortization 66,000 59,000 EBITDA 5,767,000 6,742,000 Non-cash and non-recurring adjustments Stock-based compensation expense 363,000 452,000 Acquisition related expense 257,000 253,000 Restatement-related costs 318,000 - Non-recurring gains - (453,000 ) Adjusted EBITDA $ 6,705,000 $ 6,994,000 -22- Table of Contents Liquidity and Capital Resources As of December 31, 2022, the Company had working capital of $18,932,000, compared to working capital of $13,626,000 at December 31, 2021.
Year ended December 31, 2023 2022 (Unaudited) (Unaudited) Net income $ 5,296 $ 4,429 Interest expense 1,025 - Interest income (289 ) (121 ) Foreign exchange (gain) loss (189 ) - Provision for income taxes 1,707 1,393 Depreciation and amortization 94 66 EBITDA 7,644 5,767 Non-cash and non-recurring adjustments Stock compensation expense 473 363 Merger and acquisition related expense 1,627 257 Amortization of inventory step-up 323 - Non-recurring loss on foreign currency forward contract 112 - Restatement-related costs - 318 Adjusted EBITDA $ 10,179 $ 6,705 -21- Liquidity and Capital Resources As of December 31, 2023, the Company had positive working capital of $4,356, compared to $18,933 at December 31, 2022.
The increase is primarily attributable to the amortization of intangibles acquired in the Nutrology business combination. Net Income. We generated a net income of $4,429,000 for the year ended December 31, 2022, as compared to a net income of $5,410,000 for the year ended December 31, 2021.
We generated a net income of $5,296 for the year ended December 31, 2023, an increase of 20% compared to net income of $4,429 for the year ended December 31, 2022.
Online revenue during the year ended December 31, 2022 was approximately 28% of total revenue, compared to roughly 24% of total revenue during the same twelve-month period in 2021. Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.
Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales and the acquisition of both MRC and MusclePharm, which were consummated in the first and fourth quarters of fiscal 2023, respectively.
Selling, general and administrative (“ SG&A ”) expense for the year ended December 31, 2022 increased by $52,000 to $6,267,000 as compared to $6,215,000 for the year ended December 31, 2021.
Selling, general and administrative (“ SG&A ”) expense for the year ended December 31, 2023 increased by $6,151 to $12,161 as compared to $6,010 for the year ended December 31, 2022. The increase was primarily due to the inclusion of SG&A expense in the Company’s consolidated financial statements attributable to MRC. Merger and Acquisition Related Expense.
The decrease in net income for the year ended December 31, 2022 compared to the same period in 2021 was primarily attributable to increased SG&A expense resulting from M&A activities and Restatement-related costs during the year ended December 31, 2022, as well as forgiveness of the PPP Loan (as defined in "Liquidity and Capital Resources" below), that occurred during the year ended December 31, 2021.
Merger and acquisition related expense increased to $1,627 for the year ended December 31, 2023 compared to $257 for the same period of 2022, driven primarily by acquisition costs related to MRC. Net Income.
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.
Inventory Inventory is stated at the lower of cost or net realizable value, with costs determined on a first-in, first-out (FIFO) basis. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and/or our ability to sell the product(s) concerned and production requirements.
Recent Developments Entry into Arrangement Agreement On December 4, 2022, FitLife entered into an Arrangement Agreement (the “ Arrangement Agreement ”) with 1000374984 Ontario Inc. (“ Subsidiary ”, and collectively with FitLife, the “ Company ”), and Mimi’s Rock Corp.
Unless otherwise stated, all dollar amounts are in thousands, except per share data. Recent Developments Acquisition of Mimi ’ s Rock Corp On December 4, 2022, the Company entered into an Arrangement Agreement with Mimi’s Rock Corp. (“ MRC ”), pursuant to which the Company agreed to acquire MRC.
Account balances are charged off against the allowance when it is probable the receivable will not be recovered. 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.
Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. As of December 31, 2023 and 2022, the Company had provided a reserve for doubtful accounts of $17 and $50, respectively. Income Taxes The Company accounts for income taxes under FASB ASC Topic 740, Income Taxes (“ ASC 740 ”).
Gross margin for the year ended December 31, 2022 decreased to 41.8% from 44.8% for the year ended December 31, 2021. The decrease in gross margin is primarily attributable to higher product costs associated with disruptions in the supply chain. Product costs have largely stabilized in recent months and, for certain ingredients, have begun to decline.
This 78% increase in gross profit is attributable to higher revenue driven primarily by the acquisition of MRC. Gross Margin . Gross margin for the year ended December 31, 2023 decreased to 40.7% from 41.8% for the year ended December 31, 2022.
The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021. The Company has historically financed its operations primarily through cash flow from operations and equity and debt financings.
The Company was in compliance with all covenants as of December 31, 2023. As of December 31, 2023 and 2022, no borrowings were outstanding on the Company’s $3,500 Line of Credit. The Company has historically financed its operations primarily through cash flow from operations and equity and debt financings.
Removed
Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof.
Added
On February 28, 2023, the Company completed the acquisition of MRC for $17,099. Of this amount, $12,500 was funded using proceeds from a term loan provided by First Citizens Bank, with the remainder funded from the Company’s available cash balances. See Note 8 to the financial statements for additional disclosure regarding the acquisition.
Removed
(“ MRC ”), pursuant to which the Company agreed to acquire MRC for a total cash purchase price of approximately CAD $23.2 million, of which approximately CAD $14.2 million would be used to retire all of MRC’s outstanding indebtedness, and approximately CAD $9.0 million, or CAD $0.17 per share, would be used to purchase all issued and outstanding shares of MRC from its current shareholders (collectively, the “ Purchase Price ”) (the “ Acquisition ”).
Added
Acquisition of MusclePharm Assets On October 10, 2023, the Company acquired substantially all of the assets of MusclePharm Corporation (“ MusclePharm ”) through an asset purchase transaction under Section 363 of the U.S. Bankruptcy Code.
Removed
The Arrangement Agreement was subject to the terms and conditions of the Plan of Arrangement, attached to the Arrangement Agreement as Schedule A (“ Plan ”), which Plan was made in accordance with Section 182 of the Ontario Business Corporations Act and required a court order approving the Plan.
Added
The Company acquired substantially all of the assets and assumed none of the liabilities of MusclePharm other than de minimus cure costs relating to certain assumed contracts. Total consideration for the acquisition was approximately $18,500.
Removed
Further, to finance the acquisition of MRC, which amount was paid in all cash, the Company’s principal bank, First Citizens Bank, agreed to provide up to $12.5 million in debt financing.
Added
Of this amount, $10,000 was funded using proceeds from a new term loan provided by First Citizens Bank, with the remainder funded from the Company’s available cash balances. See Note 9 to the financial statements for additional disclosure regarding the acquisition.
Removed
The obligations of the Company and MRC to consummate the Acquisition were subject to certain closing conditions, including, but not limited to, (i) the taking of all steps set forth in the Interim Order (as defined in the Arrangement Agreement) and Final Order (as defined in the Arrangement Agreement); (ii) the approval of MRC’s shareholders, and (iii) receipt of any necessary regulatory approvals.
Added
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. Foreign Currency Translation The functional currency of the Company is the U.S. dollar. The functional currency of the Company’s Canadian subsidiaries is the Canadian dollar. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end-of-period exchange rates.
Removed
Subsequent to the end of the fiscal year, the Acquisition was consummated on February 28, 2023.
Added
Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included as a component of stockholders’ equity in the accompanying consolidated balance sheets.
Removed
Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. -17- Table of Contents Accounts Receivable and Allowance for Doubtful Accounts The Company’s accounts receivable balance is related to trade receivables and are recorded at the invoiced amount and do not bear interest.
Added
Revenue and expense transactions use an average rate prevailing during the period of the related transaction.
Removed
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.
Added
Transaction gains and losses that arise from exchange rate fluctuations denominated in a currency other than the functional currency of each subsidiary are included in the results of operations as incurred. -16- Accounts Receivable and Allowance for Doubtful Accounts All of the Company’s accounts receivable balance is related to trade receivables.
Removed
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. Total allowance for doubtful accounts as of December 31, 2022 and 2021 amounted to $50,000 and $55,000, respectively.
Added
Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the number of days the balance is past due, and the estimated loss is recorded based upon management’s assessment of collectability.
Removed
Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries. The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product.
Added
The deferred tax liabilities of the Company relate primarily to intangible assets that are not deductible for tax purposes in the jurisdictions to which they relate.
Removed
In addition, the allowance includes the value of longer-dated finished good inventory that, based on projections, will remain unsold at the time of its expiration. Total allowance for expiring, excess and slow-moving inventory items as of December 31, 2022 and 2021 amounted to $107,000 and $56,000, respectively.
Added
For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related products to the customers, or (ii) the Company pays, or promises to pay, the consideration.
Removed
Goodwill In January 2017, the Financial Accounting Standards Board (“ FASB ”) issued Accounting Standards Update (“ ASU ”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ ASU 2017-04 ”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation.
Added
Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers.
Removed
A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.
Added
Additionally, our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. Total allowance for expiring, excess and slow-moving inventory items as of December 31, 2023 and 2022 amounted to $162 and $107, respectively.
Removed
ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test.
Added
Goodwill The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable.
Removed
The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively. -19- Table of Contents There were no impairment charges incurred during the year ended December 31, 2022. Revenue Recognition The Company’s revenue is comprised of sales of nutritional supplements, primarily to GNC.
Added
The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test.
Removed
Revenue for the year ended December 31, 2022 increased 3% to $28,803,000 as compared to $27,913,000 for the year ended December 31, 2021. Revenue for the year ended December 31, 2022 compared to the prior year reflects increased sales through our online channels largely offset by lower sales through wholesale channels.
Added
If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount.
Removed
We expect that the recent margin pressure will be temporary as production costs decline and as higher-margin online sales become a larger percentage of the Company’s total revenue. Selling, General and Administrative Expense.
Added
To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized. As the Company uses the market approach to determine fair value of the reporting unit, the price of its common stock is an important component of the fair value calculation.
Removed
The increase in SG&A expense was primarily due to higher consulting fees due to Restatement and Merger and Acquisition (“ M&A ”) related expense, partially offset by lower stock compensation expense and general SG&A expense. Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2022 increased to $66,000 from $59,000 during the year ended December 31, 2021.
Added
If the Company’s stock price experiences significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. There were no impairment charges incurred during the year ended December 31, 2023. Revenue Recognition The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
Removed
Our principal sources of liquidity at December 31, 2022 consisted of $13,277,000 of cash and $705,000 of accounts receivable. The increase in working capital is principally attributable to cash flows from operating activities during fiscal 2022, partially offset by cash used in financing activities as the Company spent $779,000 to repurchase shares of Common Stock of the Company.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

6 edited+1 added−0 removed1 unchanged
Biggest changeInterest Rates Our exposure to risk for changes in interest rates related primarily to any borrowings under our existing Line of Credit, and our investments in short-term financial instruments. As of December 31, 2022, the Company had a zero balance under its existing Line of Credit.
Biggest changeInterest Rates Our exposure to risk for changes in interest rates relates primarily to borrowings under the Amended Credit Agreement (which includes Term Loans A and B as well as our existing Line of Credit), and our investments in short-term financial instruments.
The company entered into a forward contract to purchase CAD $25.0 million, as the Company anticipates providing additional working capital funding beyond the CAD $23.2 million purchase price for MRC. As the geographical scope of our business broadens, we may engage in additional foreign currency hedging transactions in the future.
The Company entered into a forward contract to purchase CAD $25.0 million, as the Company anticipated providing additional working capital funding beyond the CAD $23.2 million purchase price for MRC. As the geographical scope of our business broadens, we may engage in additional foreign currency hedging transactions in the future.
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. -24- Table of Contents
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.
Investments of our existing cash balances in both fixed-rate and floating-rate interest-earning instruments carry some interest rate risk. The fair value of fixed-rate securities may fall due to a rise in interest rates, while floating-rate securities may produce less income than expected if interest rates fall.
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.
Foreign Currency Subsequent to the end of the fiscal year, the Company entered into a foreign currency hedging transaction to mitigate the risk of adverse changes in the USD/CAD exchange rate with respect to the pending acquisition of MRC.
As a result, our financial results may be materially affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. Foreign Currency In January 2023, the Company entered into a foreign currency hedging transaction to mitigate the risk of adverse changes in the USD/CAD exchange rate with respect to the pending acquisition of MRC.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Our business is conducted principally in the United States. However, due to the MRC acquisition in 2023, the Company now has more exposure to fluctuations in foreign currencies.
Added
As of December 31, 2023, the Company had $20,125 outstanding on the Term Loans and $0 under its existing Line of Credit. Investments of our existing cash balances in both fixed-rate and floating-rate interest-earning instruments carry some interest rate risk.

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