ACQUISITION

12 Months Ended

Dec. 31, 2015

Acquisition

ACQUISITION

iSatori, Inc. On September 30, 2015, the Company consummated the Merger contemplated by the Merger Agreement, among the Company, Merger Sub, and iSatori, pursuant to which iSatori merged with and into Merger Sub, with iSatori surviving as a wholly-owned subsidiary of the Company.  The Merger was approved by iSatori shareholders at a special meeting held on September 29, 2015 and became effective on October 1, 2015. 

In connection with the closing of the Merger, each share of iSatori common stock outstanding on the Closing Date became exchangeable for 0.1732 shares of the Company's common stock. In the event any iSatori shareholder would otherwise be entitled to a fractional share of the Company's common stock, the Company agreed to pay the value of those fractional interests in cash.

Pursuant to the terms and conditions of the Merger Agreement, the Company increased the size of the Board from five to seven members, appointed Stephen Adele, Chief Executive Officer of iSatori, to serve on the Board, and appointed two independent directors, Messrs. Seth Yakatan and Todd Ordal, each of whom were designated by iSatori, to the Board. Concurrently with these appointments, Dr. Fadi Aramouni resigned from the Board.

  In addition to the foregoing, the Company secured an option to purchase, on or before December 31, 2015, almost 600,000 shares of the Company’s common stock, otherwise issuable to the two largest shareholders of iSatori, and secured a right of first refusal to purchase approximately 460,000 shares of the Company’s common stock issuable to a certain iSatori shareholder in the connection with the Merger. After careful consideration of many factors, including available cash resources, the Company’s Board of Directors elected not to exercise the purchase option prior to its expiration. The right of first refusal, however, remains outstanding.

  On September 11, 2015, the Company loaned iSatori $750,000 pursuant to the Note, due and payable on demand after October 15, 2015 in the event the Merger was not consummated on or before such date.  The proceeds from the Note were to be used by iSatori for the payment, in the ordinary course of business, of payroll and accounts payable of iSatori pending consummation of the Merger.  The Note was deemed satisfied in full in connection with the Closing Date of the Merger and was included as an element of the total purchase price, which also included the assumption of outstanding debt of approximately $1.1 million and the issuance of approximately 2.3 million shares of Company common stock. In connection with the Merger, the Company also converted all issued and outstanding options and warrants of iSatori into options and warrants of FitLife in an amount equal to the number of iSatori options and warrants issued and outstanding multiplied by the Exchange Ratio, at an exercise equal to the original exercise price divided by the Exchange Ratio. The treasury stock net equivalent of all issued and outstanding options and warrants were factored into the calculation of the final Exchange Ratio, the vast majority of which were and remain significantly out of the money.

  At closing, in connection with adjustment provisions outlined in the Merger Agreement, iSatori established certain reserves and write-offs totaling approximately $1.8 million, which write-offs, together with the issuance of the Note and other variances of certain working capital accounts, resulted in a reduction of the Exchange Ratio under the terms of the Merger Agreement from 0.3000 to 0.1732 shares of common stock of the Company for each share of iSatori common stock issued and outstanding.  

The fair value of consideration transferred on the date of acquisition consisted of the following:

Pre-closing note issued by iSatori and forgiven by FitLife at closing: $750,000

Fair value of shares issued to iSatori shareholders: $3,566,092

Fair value of replacement options and warrants issued to iSatori employees $191,121

Capitalized S-4 costs $57,507

Cash paid to shareholders of iSatori in lieu of fractional shares $239

Total consideration $4,564,959

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

Cash $ 705,516

Other current assets $2,411,943

Property and equipment $237,498

Intangible Assets $2,022,507

Goodwill $4,139,940

Other non-current assets $57,314

Current liabilities $(3,959,760)

Line of credit $(1,050,000)

Total consideration $4,564,959

The assessment of fair value is based on information available to management at the time the condensed consolidated financial statements were prepared and reflect the as recorded book value as management does not expect any material adjustments. The goodwill reflects future economic benefits expected to arise from the expanded presence in the nutritional supplement industry and notable increase in our distribution footprint both in-store and on-line. We do not expect to deduct goodwill for income tax purposes. The amount of goodwill will be periodically assessed and tested for impairment. In the event fair value of the goodwill is exceeded by its carried value, the company will record an impairment expense. Intangible assets include intellectual property, trade names and customer relationships with an estimated fair value of $868,000, $504,000 and $593,000, respectively, along with $57,507 in capitalized costs related to the preparation of the registration statement on Form S-4 in connection with the acquisition. All such intangibles have an estimated useful life of 10 years after December 31, 2015.

The amortization expense for all intangible assets is grouped with the depreciation expense for the related reporting period, and reported in the Statements of Operations and the Statements of Cash Flows as “Depreciation and amortization” expense. The Company calculates the weighted average of the average amortization period, in total and by major define-lived intangible asset on a straight-line basis over the estimated useful lives.

The Company had total amortization expense of $270,311 and 219,748 for December 31, 2015 and December 31, 2014.

During the year ended December 31, 2015, the Company incurred transaction costs of $745,203 of which $57,507 were related the registration statement on Form S-4 and capitalized as an element of purchase price. The remaining $687,696 was recorded as an operating expense.

The Company’s consolidated results of operations for the year ended December 31, 2015 include $1.4 million of revenues and a net loss of $(0.7) million associated with the operating results of iSatori from October 1, 2015 to December 31, 2015. These iSatori operating results include certain accelerated stock-based compensation.

The following unaudited pro forma information presents a summary of the Company’s combined results of operations for the year ended December 31, 2015 and 2014 as if the iSatori acquisition had occurred on January 1, 2014. The following pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date, nor is it necessarily an indication of trends in future results for a number of reasons, including, but not limited to, differences between the assumptions used to prepare the pro forma information, basic shares outstanding and dilutive equivalents, cost savings from operating efficiencies, potential synergies, and the impact of the incremental costs incurred in integrating the businesses.

	Year Ended December 31,
(in thousands, except per share data)	2015	2014
Total revenue	$24,842	$29,235
Income from continuing operations	(4,813)	503
Basic earnings per share from continuing operations	$(0.44)	$0.05
Diluted earnings per share from continuing operations	$(0.44)	$0.04

Revenue for the year ended December 31, 2014 excludes approximately $0.4 million from revenue as previously reported in connection with the accounting policy change for vendor funded discounts.