UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT |
For the transition period from N/A to N/A
Commission File No.
| FITLIFE BRANDS, INC. |
| (Name of small business issuer as specified in its charter) |
| | | |
| (State or other jurisdiction of incorporation) | (IRS Employer Identification No.) |
(Address of principal executive offices)
(
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered under Section 12(b) of the Exchange Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☒ | Small reporting company | |
| Emerging growth company | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act). Yes
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of May 12, 2023, a total of
FITLIFE BRANDS, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED MARCH 31, 2023
TABLE OF CONTENTS
| PAGE |
||
| PART I - FINANCIAL INFORMATION |
1 | |
| Item 1. |
Condensed Consolidated Financial Statements (unaudited) |
1 |
| Condensed Consolidated Balance Sheets (unaudited) |
1 | |
| Condensed Consolidated Statements of Operations (unaudited) |
2 | |
| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) |
3 | |
| Condensed Consolidated Statements of Cash Flows (unaudited) |
4 | |
| Notes to Condensed Consolidated Financial Statements (unaudited) |
5 | |
| Item 2. |
Management’s Discussion & Analysis of Financial Condition and Results of Operations |
15 |
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
20 |
| Item 4. |
Controls and Procedures |
21 |
| PART II - OTHER INFORMATION |
23 | |
| Item 1. |
Legal Proceedings |
23 |
| Item 1A. |
Risk Factors |
23 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
23 |
| Item 3. |
Defaults Upon Senior Securities |
23 |
| Item 5. |
Other Information |
23 |
| Item 6. |
Exhibits |
23 |
Special Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Quarterly Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this Quarterly Report, includes forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.
In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “proposed”, “intended”, or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
| March 31, 2023 (Unaudited) | December 31, 2022 | |||||||
| ASSETS: | ||||||||
| CURRENT ASSETS | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable, net of allowance of doubtful accounts of $ and $, respectively | ||||||||
| Inventories, net of allowance for obsolescence of $ and $, respectively | ||||||||
| Prepaid expense and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right of use asset | ||||||||
| Intangibles, net of amortization of $ and $, respectively (provisional) | ||||||||
| Goodwill (provisional) | ||||||||
| Deferred tax asset | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY: | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expense and other liabilities | ||||||||
| Product returns | ||||||||
| Term loan – current portion | ||||||||
| Lease liability - current portion | ||||||||
| Total current liabilities | ||||||||
| Term loan, net of current portion | ||||||||
| Long-term lease liability, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| STOCKHOLDERS' EQUITY: | ||||||||
| Preferred stock, $ par value, shares authorized, outstanding as of March 31, 2023 and December 31, 2022 | ||||||||
| Common stock, $ par value, shares authorized; and issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Foreign currency translation adjustment | ||||||||
| TOTAL STOCKHOLDERS' EQUITY | ||||||||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(In thousands, except per share data)
(Unaudited)
| Three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| OPERATING EXPENSES: | ||||||||
| Selling, general and administrative | ||||||||
| Merger and acquisition related expense | ||||||||
| Depreciation and amortization | ||||||||
| Total operating expenses | ||||||||
| OPERATING INCOME | ||||||||
| OTHER EXPENSE (INCOME) | ||||||||
| Interest income | ( | ) | ( | ) | ||||
| Interest expense | ||||||||
| Foreign exchange (gain) loss | ||||||||
| Total other expense (income) | ( | ) | ||||||
| NET INCOME BEFORE INCOME TAX PROVISION | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET INCOME | $ | $ | ||||||
| NET INCOME PER SHARE | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
| Basic weighted average common shares | ||||||||
| Diluted weighted average common shares | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(In thousands)
(Unaudited)
| Common Stock |
Treasury |
Additional |
Accumulated |
Foreign |
||||||||||||||||||||||||
| Shares |
Amount |
Stock |
Capital |
Deficit |
adjustment |
Total |
||||||||||||||||||||||
| THREE MONTHS ENDED MARCH 31, 2023 |
||||||||||||||||||||||||||||
| JANUARY 1, 2023 |
$ | $ | $ | $ | ( |
) |
$ | $ | ||||||||||||||||||||
| Shares surrendered in legal settlement |
( |
) | ( |
) | ||||||||||||||||||||||||
| Stock-based compensation |
- | |||||||||||||||||||||||||||
| Comprehensive (loss) income |
- | |||||||||||||||||||||||||||
| Net income |
- | |||||||||||||||||||||||||||
| MARCH 31, 2023 | $ | ( |
) | $ | $ | $ | ( |
) | $ | $ | ||||||||||||||||||
| THREE MONTHS ENDED MARCH 31, 2022 |
||||||||||||||||||||||||||||
| JANUARY 1, 2022 |
$ | $ | ( |
) |
$ | $ | ( |
) |
$ | $ | ||||||||||||||||||
| Retirement of treasury shares |
- | ( |
) |
|||||||||||||||||||||||||
| Exercise of stock options |
||||||||||||||||||||||||||||
| Stock-based compensation |
- | |||||||||||||||||||||||||||
| Net income |
- | |||||||||||||||||||||||||||
| MARCH 31, 2022 |
$ | $ | $ | $ | ( |
) |
$ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(In thousands)
(Unaudited)
| Three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Depreciation and amortization |
||||||||
| Right of use asset |
||||||||
| Allowance for doubtful accounts |
( |
) |
( |
|||||
| Allowance for inventory obsolescence |
||||||||
| Stock compensation expense |
||||||||
| Changes in operating assets and liabilities: |
||||||||
| Accounts receivable - trade |
( |
) |
( |
|||||
| Inventories |
( |
|||||||
| Deferred tax asset |
||||||||
| Prepaid expense and other assets |
( |
) | ||||||
| Accounts payable |
( |
) |
||||||
| Lease liability |
( |
) |
( |
|||||
| Accrued liabilities and other liabilities |
||||||||
| Product returns |
( |
) |
||||||
| Net cash provided by operating activities |
||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
| Cash paid for acquisition |
( |
) |
||||||
| Net cash used in investing activities |
( |
) |
||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
| Proceeds from exercise of stock options |
||||||||
| Borrowings on term loan |
||||||||
| Net cash provided by financing activities |
||||||||
| Foreign currency impact on cash |
||||||||
| CHANGE IN CASH AND RESTRICTED CASH |
( |
) |
||||||
| CASH, BEGINNING OF PERIOD |
||||||||
| CASH AND RESTRICTED CASH, END OF PERIOD |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
FITLIFE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(In thousands, except per share data)
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
FitLife Brands, Inc. (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"); and (iii) Dr. Tobias, All Natural Advice, and Maritime Naturals (together, the “MRC Products"). The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“GNC”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $
Recent Developments
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. On February 28, 2023, the Company completed the acquisition of MRC. See Note 8 for additional disclosure.
Inflation
The Company has experienced inflationary pressure with regard to the procurement of many of its products. Thus far, the Company has been able to partially offset the impact of inflation through price increases to its customers. In the future, however, further inflationary pressure could adversely affect the Company’s operating performance if market conditions no longer permit the Company to pass through price increases to its customers.
NOTE 2 - BASIS OF PRESENTATION
The accompanying interim condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation are included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Although management of the Company believes the disclosures presented herein are adequate and not misleading, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2023.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). Significant accounting policies are as follows:
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. 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 condensed consolidated balance sheets. Revenue and expense transactions use an average rate prevailing during the period of the related transaction. 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.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, purchase price allocations for 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. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase Common Stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| Three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Net income available to common shareholders | $ | $ | ||||||
| Weighted average common shares - basic | ||||||||
| Dilutive effect of outstanding warrants and stock options | ||||||||
| Weighted average common shares - diluted | ||||||||
| Net income per common share: | ||||||||
| Basic | $ | $ | ||||||
| Diluted | $ | $ | ||||||
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. The Company has approximately $
Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of
Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
| ● | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ● | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data. |
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is the period needed to gather all information necessary to make the purchase price allocation, not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
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. 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. 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. 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. 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.
Management determined there were no indicators of impairment at March 31, 2023 or December 31, 2022.
Customer Concentration
Net sales to GNC during the three-month periods ended March 31, 2023 and 2022 represent
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
The Company accounts for revenues in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. 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 disaggregates revenue into geographical regions and distribution channels. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Online revenue during the quarter ended March 31, 2023 was approximately
Sales to customers in the United States were approximately
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. 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.
Income Taxes
Provision for income taxes consists of current and deferred tax expense. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted in the countries where the Company and its subsidiaries operate and generate taxable income. The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets may also result from unused losses and other deductions carried forward. An assessment of the probability that a deferred tax asset will be recovered is made prior to any deferred tax asset being recognized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized, or that future deductibility is uncertain.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates. The effective income tax rate was
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company has adopted this guidance beginning January 1, 2023. This guidance did not have a significant impact on the Company’s financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 4 – INVENTORIES
The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.
The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of March 31, 2023 and December 31, 2022 amounted to $
| March 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
||||||||
| Finished goods |
$ | $ | ||||||
| Components |
||||||||
| Allowance for obsolescence |
( |
) | ( |
) |
||||
| Total |
$ | $ | ||||||
NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of March 31, 2023 and December 31, 2022 as follows:
| March 31, |
December 31, |
|||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
||||||||
| Equipment |
$ | $ | ||||||
| Accumulated depreciation |
( |
) |
( |
) |
||||
| Total |
$ | $ | ||||||
Depreciation expense for the three months ended March 31, 2023 and 2022 was $
NOTE 6 – NOTES PAYABLE
Debt obligations consisted of the following:
| March 31, 2023 |
December 31, 2022 |
|||||||
| Term loan – current portion |
$ | $ | ||||||
| Term loan, net of current portion |
||||||||
| Total | $ | $ | ||||||
Amended and Restated Credit Agreement – First Citizens Bank
On February 23, 2023 (the “Loan Closing Date”), FitLife Brands, Inc. (the “Company”) entered into an Amended and Restated Credit Agreement with First Citizens Bank (the “Bank”) (the “Credit Agreement”), amending and restating that certain Credit Agreement, dated September 24, 2019, between the Company and the Bank. Pursuant to the Credit Agreement, the Bank provided the Company with a term loan for the principal amount of $
Pursuant to the Credit Agreement: (A) the Term Loan (i) accrues interest at a per annum rate equal to
The Agreement contains customary events of default (each an “Event of Default”), which upon the occurrence of an Event of Default, among other things, interest will accrue at the Applicable Rate plus
As of March 31, 2023, the borrowings outstanding on the Term Loan and the Line of Credit were $
Maturities of the Company's Term Loan are as follows:
| Year ending | ||||
| 2023 (remaining nine months) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total term loan outstanding as of March 31, 2023 | $ |
NOTE 7 - EQUITY
The Company is authorized to issue
| a. | Common Stock Issued for Services |
In February 2021, the Company granted Dayton Judd, Chief Executive Officer, an aggregate of
| b. | Share Repurchase Program |
On March 17, 2023, the Board approved the extension of the Share Repurchase Program. Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to an additional $
During the three months ended March 31, 2023, the Company did repurchase any Common Stock under the 2023 Share Repurchase Program. As of March 31, 2023, the Company may purchase $
Treasury Shares
In January 2022, the Company retired all treasury shares. As of March 31, 2023, there are
Other
During the quarter ended March 31, 2023, the Company settled a dispute with a former employee. As a result of the settlement, the former employee forfeited
Options
Information regarding options outstanding as of March 31, 2023 is as follows:
| Number of | Weighted Average Exercise | Weighted Average Remaining Life | ||||||||||
| Options | Price | (Years) | ||||||||||
| Outstanding, December 31, 2022 | $ | |||||||||||
| Issued | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Outstanding, March 31, 2023 | $ | |||||||||||
| Outstanding | Exercisable | ||||||||||||||||||||||
| Exercise Price Per share | Total Number of Options | Weighted Average Remaining Life (Years) | Weighted Average Exercise Price | Number of Vested Options | Weighted Average Exercise Price | ||||||||||||||||||
| $0.70 | $ | $ | |||||||||||||||||||||
| $11.55 | $ | $ | |||||||||||||||||||||
| $ | $ | ||||||||||||||||||||||
The closing stock price for the Company’s stock on March 31, 2023 was $
During the three-month periods ended March 31, 2023 and 2022, the Company recognized stock-based compensation expense of $
Warrants
Total outstanding warrants to purchase shares of Common Stock as of March 31, 2023 and December 31, 2022 amounted to
| Outstanding | Exercise Price | Issuance Date | Expiration Date | Vesting | ||||||
| 143 | $ | 11/13/18 | 11/13/23 | Yes | ||||||
NOTE 8 – 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 all of the equity interests of MRC. The acquisition closed on February 28, 2023. MRC is headquartered in Oakville, Ontario, Canada. The purchase price of $
During the first quarter of 2023, the Company incurred $
The Company accounted for the acquisition as a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations. At the date of the acquisition and of this Quarterly Report on Form 10-Q, management has not yet finalized its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets. The following table summarizes the provisional fair value of the assets acquired and liabilities assumed on the date of acquisition, and is as follows:
| Assets acquired: | ||||
| Accounts receivable | $ | |||
| Inventories | ||||
| Prepaid expenses and other assets | ||||
| Right of use asset | ||||
| Property and equipment | ||||
| Intangible assets (provisional) | ||||
| Goodwill (provisional) | ||||
| Total assets | ||||
| Liabilities assumed: | ||||
| Accounts payable and accrued expenses | ( | ) | ||
| Income tax payable | ( | ) | ||
| Product returns | ( | ) | ||
| Lease liabilities | ( | ) | ||
| Total liabilities | ( | ) | ||
| Purchase price | $ |
The purchase was intended to augment and diversify the Company’s product offerings and lineup. Key factors that contributed to the recorded intangible assets and goodwill were the opportunity to complement existing operations of the Company and the opportunity to generate future synergies within the nutritional supplement and wellness business
Pro Forma Condensed Combined Financial Information (Unaudited) (In thousands)
The following presents the Company’s unaudited pro forma financial information for the quarter ended March 31, 2023 and 2022, respectively, giving effect to the acquisition of MRC as if it had occurred at January 1, 2022. Included in the pro forma information is: adjustments to recognize transaction-related costs related to the acquisition of MRC and fair value adjustment to inventory acquired during the quarter ended March 31, 2022, adjustments to remove the interest costs from MRC’s debt prior to the closing of the acquisition, and to recognize interest expense based on the projected balance of the Term Loan for the respective periods presented for this pro forma.
| Three months ended | ||||||||
| March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | $ | $ | ||||||
| Net income | $ | $ | ||||||
| Net income per share | $ | $ | ||||||
The pro forma adjustments do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had the transaction actually occurred on the dates presented or to project the combined company’s results of operations or financial position for any future period.
MRC revenues and net loss for the period from February 28, 2023 to March 31, 2023 was $
NOTE 9 – COMMITMENTS AND CONTINGENCIES
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
NOTE 10 – RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current presentation. These reclassifications had no effect on the reported operating income or net income on the Condensed Consolidated Statement of Operations. Certain expenses previously classified as selling, general and administrative expenses have been reclassified to a contra-revenue account on the Condensed Consolidated Statement of Operations.
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated subsequent events for their potential impact on the condensed consolidated financial statements and disclosures through the date the condensed consolidated financial statements were issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the condensed consolidated financial statements presented herein.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q (this "Quarterly Report"). This discussion and analysis may contain forward-looking statements based on assumptions about our future business.
Overview
FitLife Brands, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements 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"); and (iii) Dr. Tobias, All Natural Advice, and Maritime Naturals (together, the “MRC 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. The Company distributes the MRC Products primarily on Amazon.com.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $0.01 per share (“Common Stock”), trades under the symbol “FTLF” on the over-the-counter market.
Recent Developments
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. On February 28, 2023, the Company completed the acquisition of MRC. See Note 8 for additional disclosure.
Share Repurchase Plan
On March 17, 2023, the Board approved the extension of the Company’s previously authorized share repurchase program, initially approved by the Board on August 16, 2019, as amended on September 23, 2019, November 6, 2019 and February 1, 2021 (“Share Repurchase Program”). Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to $5,000 of the Company's Common Stock over the next 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 (the “2023 Share Repurchase Program”).
During the three months ended March 31, 2023, the Company did not repurchase any Common Stock under the 2023 Share Repurchase Program. As of March 31, 2023, the Company may purchase $5,000 of Common Stock under the 2023 Share Repurchase Program.
Inflation
The Company has experienced inflationary pressure with regard to the procurement of many of its products. Thus far, the Company has been able to offset much of the impact of inflation through price increases to its customers. In the future, however, further inflationary pressure could adversely affect the Company's operating performance if market conditions no longer permit the Company to pass through price increases to its customers.
Results of Operations
Comparison of the three months ended March 31, 2023 to the three months ended March 31, 2022
| Three months ended |
||||||||||||||||
| March 31, |
March 31, |
Change |
% |
|||||||||||||
| (Unaudited) |
||||||||||||||||
| Revenue |
$ | 10,738 | $ | 7,294 | $ | 3,444 | 47 | % |
||||||||
| Cost of goods sold |
6,330 | 4,183 | 2,147 | 51 | % |
|||||||||||
| Gross profit |
4,408 | 3,111 | 1,297 | 42 | % |
|||||||||||
| Selling, general and administrative expenses |
2,344 | 1,495 | 849 | 57 | % |
|||||||||||
| Merger and acquisition-related costs |
1,372 | 6 | 1,366 | n/m |
||||||||||||
| Depreciation and amortization |
19 | 14 | 5 | 36 | % |
|||||||||||
| Total operating expenses |
3,735 | 1,515 | 2,220 | 147 | % |
|||||||||||
| Operating income |
673 | 1,596 | (923 | ) |
(58 | )% |
||||||||||
| Other expense (income), net |
96 | (7 | ) |
103 | n/m |
|
||||||||||
| Provision for income tax |
421 | 313 | 108 | 35 | % |
|||||||||||
| Net income |
$ | 156 | $ | 1,290 | $ | (1,134 | ) |
(88 | )% |
|||||||
Revenue. Revenue for the three months ended March 31, 2023 increased 47% to $10,738 as compared to $7,294 for the three months ended March 31, 2022. The increase in revenue for the three months ended March 31, 2023 compared to the prior period principally reflects revenue generated from the acquisition of MRC, which was consummated on February 28, 2023, which contributed $2,639 of the revenue increase. Legacy FitLife revenue for the first quarter of 2023 was $8.1 million, an increase of 11.1% compared to the same period last year, driven by a 6.0% increase in wholesale revenue and a 25.6% increase in online revenue.
Online revenue during the quarter ended March 31, 2023 was approximately 47% of net revenue, compared to 53% for wholesale channels for the same period. Online revenue during the quarter ended March 31, 2022 was 27% of net revenue compared to 73% for wholesale channels for the same period of 2022. 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. 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.
Sales to customers in the United States were approximately 97% and 99% during the quarters ended March 31, 2023 and 2022, respectively, with the balance of sales to customers primarily in Canada and Europe.
Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2023 increased to $6,330 as compared to $4,183 for the three months ended March 31, 2022. This 51% increase is primarily due to an increase in sales attributable to MRC and increased product costs due to inflationary pressures, as well as higher distribution costs resulting from increased sales through online channels.
Gross Profit. Gross profit for the three months ended March 31, 2023 increased to $4,408 as compared to $3,111 for the three months ended March 31, 2022. The increase in gross profit is principally attributable to higher revenue.
Gross margin for the three months ended March 31, 2023 decreased to 41.1% from 42.7% for the comparable period last year. The decrease in gross margin is primarily due to amortization of the fair value step-up to MRC inventory acquired. Excluding the $110 impact of the step-up amortization, gross margin would have been 42.1% during the quarter ended March 31, 2023.
Selling, General and Administrative Expense. Selling, general and administrative expense for the three months ended March 31, 2023 increased to $2,344 as compared to $1,495 for the three months ended March 31, 2022. The increase was primarily due to the inclusion of MRC SG&A expense in the Company’s consolidated financial statements.
Merger and Acquisition-Related Costs. Merger and acquisition related costs increased to $1,372 during the quarter ended March 31, 2023 compared to $6 for the same period of 2022 driven by the acquisition of MRC during the quarter ended March 31, 2023.
Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended March 31, 2023 increased to $19 as compared to $14 for the three months ended March 31, 2022. The increase is primarily attributable to depreciation of property and equipment acquired in the MRC business combination.
Net Income. We generated net income of $156 for the three-month period ended March 31, 2023 as compared to net income of $1,290 for the three months ended March 31, 2022. The decrease in net income for the three-month period ended March 31, 2023 compared to the same period in 2022 was primarily attributable to non-recurring expenses related to the acquisition of MRC including transaction-related expense of $1,374, amortization of the inventory step-up valuation of $110, and a loss on a currency hedge of $112.
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 non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Quarterly Report in accordance with GAAP.
As presented below, non-GAAP EBITDA excludes interest, income taxes, and depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to interest, taxes, depreciation and amortization, stock-based compensation, M&A/integration expenses, and non-recurring expenses. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation below allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance.
| For the three months ended March 31, |
||||||||
| 2023 |
2022 |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Net income |
$ | 156 | $ | 1,290 | ||||
| Interest expense |
98 | - | ||||||
| Interest income |
(84 | ) |
(7 | ) |
||||
| Provision for income taxes |
421 | 313 | ||||||
| Depreciation and amortization |
19 | 14 | ||||||
| EBITDA |
610 | 1,610 | ||||||
| Non-cash and non-recurring adjustments |
||||||||
| Stock compensation expense |
42 | 107 | ||||||
| Merger and acquisition related costs |
1,372 | 6 | ||||||
| Amortization of inventory step-up |
110 | - | ||||||
| Non-recurring loss on foreign currency forward |
112 | - | ||||||
| Adjusted EBITDA |
$ | 2,246 | $ | 1,723 | ||||
Liquidity and Capital Resources
At March 31, 2023, we had positive working capital of approximately $11,261, compared to $18,933 at December 31, 2022. Our principal sources of liquidity at March 31, 2023 consisted of $8,927 of cash and $3,240 of accounts receivable.
On September 24, 2019, the Company entered into the Line of Credit agreement with Mutual of Omaha Bank (the “Lender”), subsequently acquired by CIT Bank N.A., then acquired by First Citizens Bank & Trust Company, providing the Company with a $2.5 million revolving line of credit (the “Line of Credit”). The Line of Credit allows the Company to request advances thereunder and to use the proceeds of such advances for working capital purposes until the Maturity Date, or unless renewed at maturity upon approval by the Company’s Board and the Lender. The Line of Credit is secured by all assets of the Company.
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month SOFR rate plus 2.75%, and each advance will be payable on the Maturity Date with the interest on outstanding advances payable monthly. The Company may, at its option, prepay any borrowings under the Line of Credit, in whole or in part at any time prior to the Maturity Date, without premium or penalty. On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. On December 19, 2022, the Company and the Lender amended the Line of Credit Agreement to increase the Line of Credit to $3.5 million and extend the Maturity Date to December 23, 2023.
On February 23, 2023, the Company and the Lender amended the Line of Credit Agreement (“Amended and Restated Credit Agreement” or “Credit Agreement”) providing the Company with a Term Loan for the principal amount of $12.5 million (“Term Loan”) and increasing the Line of Credit to $3.5 million. All other terms of the Credit Agreement remain unchanged. All of the proceeds from the Term Loan were used for the acquisition of MRC.
The Term Loan accrues interest at an annual rate of the one-month SOFR rate plus 2.75%, and principal plus accrued interest will be payable quarterly beginning June 10, 2023 in amounts sufficient to fully amortize the Term Loan through February 28, 2028 (the “Term Loan Maturity Date”), with all principal and accrued interest on the Term Loan being due and payable in full on the Term Loan Maturity Date. The Company may prepay amounts borrowed under the Term Loan, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, by written notice to Bank at least one business day prior to the proposed prepayment.
The Credit Agreement also contains certain customary affirmative and negative covenants, including covenants to maintain: a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of not less than 1.25 to 1.00 as tested quarterly on a trailing twelve-month basis, a Funded Debt to EBITDA Ratio (as defined in the Credit Agreement) of not more than 2.50 to 1.00 as tested quarterly on a trailing twelve-month basis, and to the extent the Term Loan still has a balance as of June 30, 2024, and a Cash Flow Leverage threshold (as defined in the credit agreement) of 1.15 is not met, the Company will be required to make a prepayment on the Term Loan equal to 50% of the Excess Cash Flow (as defined in the Credit Agreement). The Company was in compliance with all covenants as of March 31, 2023.
As of March 31, 2023, the borrowings outstanding on the Term Loan and the Line of Credit were $12,500 and $0, respectively.
The Company has historically financed its operations primarily through cash flow from operations and equity and debt financings. The Company has also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees. The Company currently anticipates that cash derived from operations and existing cash resources, along with available borrowings under the Line of Credit, will be sufficient to provide for the Company’s liquidity for the next twelve months.
The Company is dependent on cash flow from operations and amounts available under the Line of Credit to satisfy its working capital requirements. No assurances can be given that cash flow from operations and/or the Line of Credit will be sufficient to provide for the Company’s liquidity for the next twelve months. Should the Company be unable to generate sufficient revenue in the future to achieve positive cash flow from operations, and/or should capital be unavailable under the terms of the Line of Credit, additional working capital will be required. Management currently has no intention to raise additional working capital through the sale of equity or debt securities and believes that the cash flow from operations and available borrowings under the Line of Credit will provide sufficient capital necessary to operate the business over the next twelve months. In the event the Company fails to achieve positive cash flow from operations, additional capital is unavailable under the terms of the Line of Credit, and management is otherwise unable to secure additional working capital through the issuance of equity or debt securities, the Company’s business would be materially and adversely harmed.
Cash Provided by Operations. Cash provided by operating activities for the three months ended March 31, 2023 was $232, as compared to cash provided by operations of $1,134 for the three months ended March 31, 2022. The decrease in cash provided by operating activities is attributable to lower net income, driven primarily by $1.4 million of transaction costs related to the acquisition of MRC during the first three months of 2023 when compared to the same period of 2022.
Cash Used in Investing Activities. Cash used in investing activities for the three-month periods ended March 31, 2023 was $17,099 for the acquisition of MRC, compared to $0 for the first three months of 2022.
Cash Provided by Financing Activities. Cash provided by financing activities for the three months ended March 31, 2023 was $12,500 as compared to cash provided by financing activities of $29 during the three months ended March 31, 2022. The increase in cash provided by financing activities is primarily attributable to the funding of the Term Loan during the first three months of 2023.
Critical Accounting Policies and Estimates
Our discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expense, and related disclosure of contingent assets and liabilities. We evaluate, on an on-going basis, our estimates and judgments, including those related to the useful life of the assets. We base our estimates on historical experience and assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The methods, estimates and judgments we use in applying our most critical accounting policies have a significant impact on the results that we report in our consolidated financial statements. The SEC considers an entity’s most critical accounting policies to be those policies that are both most important to the portrayal of a company’s financial condition and results of operations and those that require management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about matters that are inherently uncertain at the time of estimation. For a more detailed discussion of the accounting policies of the Company, see Note 3 of the Notes to the Condensed Consolidated Financial Statements included in this Quarterly Report, “Summary of Significant Accounting Policies”.
We believe the following critical accounting policies, among others, require significant judgments and estimates used in the preparation of our consolidated financial statements.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
These estimates and assumptions also affect the reported amounts of accounts receivable, inventories, goodwill, revenue, costs and expense and valuations of long-term assets, allowance for deferred tax assets and equity instruments issued for services during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Goodwill
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.
While we have concluded that a triggering event did not occur during the three months ended March 31, 2023, a worsening of the severity of the COVID-19 pandemic could result in future goodwill impairment charges. We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
The Company accounts for revenues 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. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. 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 disaggregates revenue into geographical regions and distribution channels. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Online revenue during the quarter ended March 31, 2023 was approximately 47% of net revenue, compared to 53% for wholesale channels for the same period. Online revenue during the quarter ended March 31, 2022 was 27% of net revenue compared to 73% for wholesale channels during the same period in 2022.
Sales to customers in the United States were approximately 97% and 99% during the quarters ended March 31, 2023 and 2022, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada and Europe.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon evaluation of returns, the Company determined that less than 5% of products are returned, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
Recent Accounting Pronouncements
See Note 3 of the Condensed Consolidated Financial Statements included in this Quarterly Report for a description of recent accounting pronouncements believed by management to have a material impact on our present or future financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our business is currently conducted principally in the United States. As a result of the acquisition of MRC, our financial results can be affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We engaged in hedging transactions to reduce our exposure to changes in currency exchange rates that impacted the cash required for the acquisition of MRC. As the geographical scope of our business broadens, we may engage in hedging transactions to reduce our exposure to changes in foreign currency rates.
Our exposure to risk for changes in interest rates relates primarily to any borrowings under our Credit Agreement, and our investments in short-term financial instruments. As of March 31, 2023, the Company had a Term Loan balance of $12.5 million and a zero balance under its Line of Credit.
Investments of our existing cash balances in both fixed rate and floating rate interest-earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income will vary due to changes in interest rates and we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash equivalents consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
In connection with the filing of this Form 10-Q for the period ended March 31, 2023, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below, which resulted in reporting errors requiring a restatement of our financial statements for the years ended December 31, 2020 and 2019 and our interim financial information for the quarterly periods ended June 30, 2021, March 31, 2021, September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019, June 30, 2019 and March 31, 2019.
Notwithstanding the material weaknesses described in Management's Report on Internal Control Over Financial Reporting, our management has concluded that our consolidated financial statements for the periods covered by and included in this Quarterly Report are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.
Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management’s establishing and maintaining adequate internal control over financial reporting is based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). A system of internal control over financial reporting should be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.
An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements.
A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this definition, our management, with the participation of our CEO and CFO, evaluated the effectiveness and design of our internal control over financial reporting against the COSO Framework and concluded that our internal control over financial reporting was not effective as of September 30, 2022 due to material weaknesses arising from flaws in our control environment, risk oversight measures, control activities, information processing and communication and our monitoring systems, each of which is described in more detail below. The material weaknesses resulted in reporting errors requiring a restatement of our financial statements for Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in our Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021, and June 30, 2021 (collectively, the "Restated Periods").
Control environment. We concluded that we did not maintain effective controls in the following areas: (i) managerial functions, procedures and oversight; (ii) organizational structure, delegation of authority and responsibilities; (iii) segregation of duties; (iv) adequacy of trained accounting and financial reporting personnel to ensure that internal control responsibilities were performed effectively and material accounting errors were detected; and (v) maintenance and enforcement of internal control responsibilities, including holding individuals accountable for their internal control responsibilities.
Risk oversight environment. We did not maintain adequate risk oversight measures related to the (i) identification and assessment of risks that could impact achieving our objectives and (ii) identification and analysis of the potential changes that could affect our internal controls environment.
Control activities. We concluded that we did not have effective control activities in the following areas: (i) selecting and developing control policies, procedures and activities to mitigate risks, including with respect to the methodologies used to calculate and report financial information and results; and (ii) selecting and implementing information technology and related systems supportive to our internal control over financial reporting.
Information processing and communication. We identified deficiencies associated with information processing and communication within our internal control framework. Specifically, we did not effectively communicate objectives and internal control responsibilities throughout the organization which contributed to inadequate documentation of processes and methodologies used to recognize revenue, costs of goods sold, inventory and accounts receivable, hindering clear communication with management, the Board of Directors and our independent auditor.
Monitoring systems. We concluded that we did not design and implement effective monitoring activities related to (i) selecting, developing, and performing separate evaluations of our internal control over financial reporting; and (ii) evaluating and communicating internal control deficiencies in a timely manner to parties responsible for taking corrective actions.
The issues described above resulted in the following errors in our financial statements previously filed with the SEC: improper recognition of revenue, cost of sales, accounts receivable, inventory and the provision for income taxes.
Our management, including our CFO, has worked with expert accounting consultants and our Audit Committee to design and implement both a short-term and a long-term remediation plan to correct the material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. The following activities highlight our commitment to remediating our identified material weaknesses.
Since March 2022 and through the filing date of this Form 10-Q, we have hired expert accounting consultants to assess our control environment and recommend improvements. In addition, we hired a new highly qualified CFO in August 2022 with extensive public-company experience.
In addition to the items noted above, as we continue to evaluate, remediate, and improve our internal control over financial reporting, our management expects to continue to implement additional measures to address control deficiencies and further refine and improve the remediation efforts described above. Specifically, we are developing a checklist of activities based on the criteria established in the COSO Framework against which we will assess the design of entity-level and activity-level controls, and the operational effectiveness of such controls. Deficiencies identified in this process will be addressed by management, including our CEO and CFO. This assessment, any deficiencies, and any remedial actions will be shared and discussed with our Audit Committee and our independent auditors on a quarterly basis.
(b) Changes in Internal Controls Over Financial Reporting
We are still in the process of implementing our remedial actions throughout 2023. Also, during August 2022, we hired a new CFO, a highly qualified individual with public company experience. Management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ directors or officers in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our comprehensive Annual Report on Form 10-K for our fiscal year ended December 31, 2022, filed with the SEC on March 24, 2023. Management is not aware of any material changes to the risk factors discussed in Part 1, Item 1A, of the Annual Report on Form 10-K for the year ended December 31, 2022. You should carefully consider these risk factors in conjunction with the other information contained in this Quarterly Report. Should any of these risks materialize, our business, financial condition and future prospects could be negatively impacted.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the three-month period ended March 31, 2023.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| 10.1 |
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| 10.2 |
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| 10.3 |
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| 10.4 |
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| 31.1 |
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
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| 31.2 |
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act. |
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| 32.1 |
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
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| 32.2 |
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act. |
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| 101.INS |
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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| 104 |
Cover Page Interactive Data File (embedded within the Inline XBRL Document and included in Exhibit 101) |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Registrant |
FitLife Brands, Inc. |
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| Date: May 15, 2023 |
By: |
/s/ Dayton Judd |
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| Dayton Judd |
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| Chief Executive Officer and Chair (Principal Executive Officer) |
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| Registrant |
FitLife Brands, Inc. |
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| Date: May 15, 2023 |
By: |
/s/ Jakob York |
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| Jakob York |
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| Chief Financial Officer (Principal Financial Officer) |
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Exhibit 31.1
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934
I, Dayton Judd, Chief Executive Officer of the Company, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of FitLife Brands, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations: and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Registrant |
FitLife Brands, Inc. |
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Date: May 15, 2023 |
By: /s/ Dayton Judd |
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Dayton Judd |
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Chief Executive Officer and Chair (Principal Executive Officer) |
Exhibit 31.2
Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and pursuant to Rule 13a-14(a) and Rule 15d-14 under the Securities Exchange Act of 1934
I, Jakob York, Chief Financial Officer of the Company, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of FitLife Brands, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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c. |
Evaluated the effectiveness of the registrant’s disclosure and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluations: and |
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d. |
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
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5. |
The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
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Registrant |
FitLife Brands, Inc. |
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Date: May 15, 2023 |
By: /s/ Jakob York |
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Jakob York |
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Chief Financial Officer (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FitLife Brands, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Dayton Judd, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
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(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
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Registrant |
FitLife Brands, Inc. |
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Date: May 15, 2023 |
By: /s/ Dayton Judd |
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Dayton Judd |
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Chief Executive Officer and Chair (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATIONS PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
(18 U.S.C. SECTION 1350)
In connection with the Quarterly Report of FitLife Brands, Inc. (the "Company") on Form 10-Q for the period ending March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Jakob York, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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Registrant |
FitLife Brands, Inc. |
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Date: May 15, 2023 |
By: /s/ Jakob York |
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Jakob York |
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Chief Financial Officer (Principal Financial Officer) |
Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Allowance of doubtful accounts | $ 36 | $ 50 |
| Allowance for obsolescence | 110 | 107 |
| Intangibles amortization | $ 82 | $ 72 |
| Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 10,000 | 10,000 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 60,000,000 | 60,000,000 |
| Common stock, shares issued (in shares) | 4,446,000 | 4,507,000 |
| Common stock, shares outstanding (in shares) | 4,446,000 | 4,507,000 |
Condensed Consolidated Statements of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Revenue | $ 10,738 | $ 7,294 |
| Cost of goods sold | 6,330 | 4,183 |
| Gross profit | 4,408 | 3,111 |
| OPERATING EXPENSES: | ||
| Selling, general and administrative | 2,344 | 1,495 |
| Merger and acquisition related expense | 1,372 | 6 |
| Depreciation and amortization | 19 | 14 |
| Total operating expenses | 3,735 | 1,515 |
| OPERATING INCOME | 673 | 1,596 |
| OTHER EXPENSE (INCOME) | ||
| Interest income | (84) | (7) |
| Interest expense | 98 | 0 |
| Foreign exchange (gain) loss | 82 | 0 |
| Total other expense (income) | 96 | (7) |
| NET INCOME BEFORE INCOME TAX PROVISION | 577 | 1,603 |
| PROVISION FOR INCOME TAXES | 421 | 313 |
| NET INCOME | $ 156 | $ 1,290 |
| NET INCOME PER SHARE | ||
| Basic (in dollars per share) | $ 0.03 | $ 0.28 |
| Diluted (in dollars per share) | $ 0.03 | $ 0.26 |
| Basic weighted average common shares (in shares) | 4,483 | 4,554 |
| Diluted weighted average common shares (in shares) | 4,935 | 4,980 |
Condensed Consolidated Statement of Stockholders' Equity (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
Common Stock Outstanding [Member] |
Common Stock [Member] |
Treasury Stock, Common [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
Accumulated Foreign Currency Adjustment Attributable to Noncontrolling Interest [Member] |
Total |
|---|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2021 | 4,552 | ||||||
| Balance at Dec. 31, 2021 | $ 46,000 | $ (2,087) | $ 32,529 | $ (13,142) | $ 0 | $ 17,346 | |
| Stock-based compensation | 0 | 0 | 107 | 0 | 0 | 107 | |
| Net income | 0 | 0 | 0 | 1,290 | 0 | 1,290 | |
| Retirement of treasury shares | 0 | 2,087 | (2,087) | 0 | 0 | 0 | |
| Exercise of stock options (in shares) | 4 | ||||||
| Exercise of stock options | 0 | 0 | 29 | 0 | 0 | 20 | |
| Balance (in shares) at Mar. 31, 2022 | 4,556 | ||||||
| Balance at Mar. 31, 2022 | 46,000 | 0 | 30,578 | (11,852) | 0 | 18,772 | |
| Balance (in shares) at Dec. 31, 2022 | 4,507 | ||||||
| Balance at Dec. 31, 2022 | 45 | 0 | 30,056 | (8,713) | 0 | $ 21,388 | |
| Shares surrendered in legal settlement (in shares) | (61) | (61,200) | |||||
| Shares surrendered in legal settlement | (1) | 0 | 1 | 0 | 0 | $ 0 | |
| Stock-based compensation | 0 | 0 | 42 | 0 | 0 | 42 | |
| Comprehensive (loss) income | 0 | 0 | 0 | 0 | 22 | 22 | |
| Net income | 0 | 0 | 0 | 156 | 0 | $ 156 | |
| Exercise of stock options (in shares) | (0) | ||||||
| Balance (in shares) at Mar. 31, 2023 | 4,446 | ||||||
| Balance at Mar. 31, 2023 | $ (44) | $ 0 | $ 30,099 | $ (8,557) | $ 22 | $ 21,608 |
Note 1 - Description of Business |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Nature of Operations [Text Block] |
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
FitLife Brands, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements 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"); and (iii) Dr. Tobias, All Natural Advice, and Maritime Naturals (together, the “MRC 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. The Company distributes the MRC Products primarily on Amazon.com.
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.
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. On February 28, 2023, the Company completed the acquisition of MRC. See Note 8 for additional disclosure.
Inflation
The Company has experienced inflationary pressure with regard to the procurement of many of its products. Thus far, the Company has been able to partially offset the impact of inflation through price increases to its customers. In the future, however, further inflationary pressure could adversely affect the Company’s operating performance if market conditions no longer permit the Company to pass through price increases to its customers. |
Note 2 - Basis of Presentation |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Basis of Accounting [Text Block] |
NOTE 2 - BASIS OF PRESENTATION
The accompanying interim condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation are included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Although management of the Company believes the disclosures presented herein are adequate and not misleading, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2023. |
Note 3 - Summary of Significant Accounting Policies |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes to Financial Statements | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Significant Accounting Policies [Text Block] |
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). Significant accounting policies are as follows:
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. 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 condensed consolidated balance sheets. Revenue and expense transactions use an average rate prevailing during the period of the related transaction. 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.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, purchase price allocations for 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. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase Common Stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. The Company has approximately $950 in short-term interest-earning accounts pledged as collateral for financing arrangements that are currently limited to business credit cards.
Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of 36 to 84 months. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is the period needed to gather all information necessary to make the purchase price allocation, not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
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. 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. 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. 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. 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.
Management determined there were no indicators of impairment at March 31, 2023 or December 31, 2022.
Customer Concentration
Net sales to GNC during the three-month periods ended March 31, 2023 and 2022 represent 49% and 70% of total net revenue, respectively. Gross accounts receivable attributable to GNC as of March 31, 2023 and 2022 represent 32% and 82% of the Company’s total accounts receivable balance, respectively.
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
The Company accounts for revenues in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. 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 disaggregates revenue into geographical regions and distribution channels. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Online revenue during the quarter ended March 31, 2023 was approximately 47% of net revenue, compared to 53% for wholesale channels for the same period. Online revenue during the quarter ended March 31, 2022 was 27% of net revenue compared to 73% for wholesale channels during the same period in 2022.
Sales to customers in the United States were approximately 97% and 99% during the quarters ended March 31, 2023 and 2022, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada and Europe.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. 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.
Income Taxes
Provision for income taxes consists of current and deferred tax expense. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted in the countries where the Company and its subsidiaries operate and generate taxable income. The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets may also result from unused losses and other deductions carried forward. An assessment of the probability that a deferred tax asset will be recovered is made prior to any deferred tax asset being recognized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized, or that future deductibility is uncertain.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates. The effective income tax rate was 73.0% and 19.5% for the three months ended March 31, 2023 and 2022, respectively.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company has adopted this guidance beginning January 1, 2023. This guidance did not have a significant impact on the Company’s financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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Note 4 - Inventories |
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NOTE 4 – INVENTORIES
The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.
The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of March 31, 2023 and December 31, 2022 amounted to $110 and $107, respectively. The Company’s inventories as of March 31, 2023 and December 31, 2022 were as follows:
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Note 5 - Property and Equipment |
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NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of March 31, 2023 and December 31, 2022 as follows:
Depreciation expense for the three months ended March 31, 2023 and 2022 was $19 and $14, respectively.
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Note 6 - Notes Payable |
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NOTE 6 – NOTES PAYABLE
Debt obligations consisted of the following:
Amended and Restated Credit Agreement – First Citizens Bank
On February 23, 2023 (the “Loan Closing Date”), FitLife Brands, Inc. (the “Company”) entered into an Amended and Restated Credit Agreement with First Citizens Bank (the “Bank”) (the “Credit Agreement”), amending and restating that certain Credit Agreement, dated September 24, 2019, between the Company and the Bank. Pursuant to the Credit Agreement, the Bank provided the Company with a term loan for the principal amount of $12.5 million (“Term Loan”), and a revolving line of credit of $3.5 million (the “Line of Credit”, and collectively with the Term Loan, the “Loan”). The Company used the proceeds from the Loan to fund the consummation of the Acquisition (as defined below), and for general working capital purposes, including those of MRC (as defined below).
Pursuant to the Credit Agreement: (A) the Term Loan (i) accrues interest at a per annum rate equal to 2.75% above the one-month forward-looking term rate (the “Applicable Rate”), based on the secured overnight financing rate published for such day by the Federal Reserve Bank of New York (“Term SOFR Rate”), as in effect two banking days, subject to certain limitations, prior to (a) the Loan Closing Date, in the case of the initial Term SOFR Rate, and, (b) thereafter, the applicable first day of each calendar month (“Rate Adjustment Date”), adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation; and (ii) and the Company shall make payments on March 10th, June 10th, September 10th, and December 10th of each calendar year, commencing on June 10, 2023, of principal plus accrued interest on the Term Loan in amounts sufficient to fully amortize the Term Loan through February 28, 2028 (the “Term Loan Maturity Date”), with all principal and accrued interest on the Term Loan being due and payable in full on the Term Loan Maturity Date; and (B) outstanding advances under the Line of Credit (“Advances”) will accrue interest at the Applicable Rate, and commencing on April 1, 2023, and continuing on the 1st day of each calendar month thereafter until December 23, 2023, or the date of the termination in whole of the Line of Credit as otherwise set forth in the Amended and Restated Agreement (the “LOC Termination Date”), the Company shall make payments of accrued interest on Advances, and all principal and accrued interest on outstanding Advances shall be due and payable in full on the LOC Termination Date. The Company may prepay amounts borrowed under the Loan, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, by written notice to Bank at least one business day prior to the proposed prepayment.
The Agreement contains customary events of default (each an “Event of Default”), which upon the occurrence of an Event of Default, among other things, interest will accrue at the Applicable Rate plus 2% per annum, and the Bank may declare all Obligations, with interest thereon, immediately due and payable. The Credit Agreement further contains: (X) customary representations and warranties of the Company; (Y) customary indemnification provisions whereby the Company will indemnify Bank for certain losses arising out of inaccuracies in, or breaches of, the representations, warranties and covenants of the Company, and certain other matters; and (Z) customary affirmative and negative covenants, including, without limitation, covenants: (i) to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of net less than 1.25 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending March 31, 2023; (ii) to maintain a Funded Debt to EBITDA Ratio (as defined in the Credit Agreement) of not more than 2.50 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending March 31, 2024; (iii) not to incur any indebtedness, except indebtedness already incurred on the date of the Credit Agreement, incurred for capital leases and purchase money obligations for fixed assets less than $100,000 without the Bank’s prior approval, and payable to trade creditors in the ordinary course of business; (iv) not to undertake certain fundamental or corporate changes; and (v) not to make certain Dispositions (as defined in the Credit Agreement). The Company was in compliance with all covenants as of March 31, 2023.
As of March 31, 2023, the borrowings outstanding on the Term Loan and the Line of Credit were $12,500 and $0, respectively.
Maturities of the Company's Term Loan are as follows:
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Note 7 - Equity |
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| Equity [Text Block] |
NOTE 7 - EQUITY
The Company is authorized to issue 60.0 million shares of Common Stock, $0.01 par value per share, of which 4,446 and 4,507 shares of Common Stock were issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
In February 2021, the Company granted Dayton Judd, Chief Executive Officer, an aggregate of 160 restricted share units (“RSUs”). The Company recorded $25 and $95 of stock compensation expense related to the RSUs during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $6 of unamortized compensation expense associated with RSUs.
On March 17, 2023, the Board approved the extension of the Share Repurchase Program. Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to an additional $5,000 of the Company's Common Stock over the next 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. All other terms of the Share Repurchase Program remain unchanged.
During the three months ended March 31, 2023, the Company did repurchase any Common Stock under the 2023 Share Repurchase Program. As of March 31, 2023, the Company may purchase $5,000 of Common Stock under the 2023 Share Repurchase Program.
Treasury Shares
In January 2022, the Company retired all treasury shares. As of March 31, 2023, there are no shares held in treasury.
Other
During the quarter ended March 31, 2023, the Company settled a dispute with a former employee. As a result of the settlement, the former employee forfeited 61,200 shares of Common Stock to the Company for no consideration, which shares were then immediately cancelled.
Options
Information regarding options outstanding as of March 31, 2023 is as follows:
The closing stock price for the Company’s stock on March 31, 2023 was $16.75, resulting in an intrinsic value of outstanding options of $5,231.
During the three-month periods ended March 31, 2023 and 2022, the Company recognized stock-based compensation expense of $17 and $12, respectively, related to stock options. As of March 31, 2023 there is $143 of unamortized compensation expense related to stock options.
Warrants
Total outstanding warrants to purchase shares of Common Stock as of March 31, 2023 and December 31, 2022 amounted to 143. Total intrinsic value as of March 31, 2023 amounted to $2,238. During the three months ended March 31, 2023 and year ended December 31, 2022, no warrants were granted and no warrants expired.
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Note 8 - Acquisition of Mimi's Rock Corp |
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| Business Combination Disclosure [Text Block] |
NOTE 8 – 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 all of the equity interests of MRC. The acquisition closed on February 28, 2023. MRC is headquartered in Oakville, Ontario, Canada. The purchase price of $17,099 was paid with proceeds from the Term Loan as well as cash on hand.
During the first quarter of 2023, the Company incurred $1,356 of transaction-related costs for the acquisition of MRC.
The Company accounted for the acquisition as a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations. At the date of the acquisition and of this Quarterly Report on Form 10-Q, management has not yet finalized its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets. The following table summarizes the provisional fair value of the assets acquired and liabilities assumed on the date of acquisition, and is as follows:
The purchase was intended to augment and diversify the Company’s product offerings and lineup. Key factors that contributed to the recorded intangible assets and goodwill were the opportunity to complement existing operations of the Company and the opportunity to generate future synergies within the nutritional supplement and wellness business
Pro Forma Condensed Combined Financial Information (Unaudited) (In thousands)
The following presents the Company’s unaudited pro forma financial information for the quarter ended March 31, 2023 and 2022, respectively, giving effect to the acquisition of MRC as if it had occurred at January 1, 2022. Included in the pro forma information is: adjustments to recognize transaction-related costs related to the acquisition of MRC and fair value adjustment to inventory acquired during the quarter ended March 31, 2022, adjustments to remove the interest costs from MRC’s debt prior to the closing of the acquisition, and to recognize interest expense based on the projected balance of the Term Loan for the respective periods presented for this pro forma.
The pro forma adjustments do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had the transaction actually occurred on the dates presented or to project the combined company’s results of operations or financial position for any future period.
MRC revenues and net loss for the period from February 28, 2023 to March 31, 2023 was $2,639 and ($747), respectively. |
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Note 9 - Commitments and Contingencies |
3 Months Ended |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Commitments and Contingencies Disclosure [Text Block] |
NOTE 9 – COMMITMENTS AND CONTINGENCIES
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect. |
Note 10 - Reclassifications |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Reclassifications [Text Block] |
NOTE 10 – RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current presentation. These reclassifications had no effect on the reported operating income or net income on the Condensed Consolidated Statement of Operations. Certain expenses previously classified as selling, general and administrative expenses have been reclassified to a contra-revenue account on the Condensed Consolidated Statement of Operations. |
Note 11 - Subsequent Events |
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Mar. 31, 2023 | |
| Notes to Financial Statements | |
| Subsequent Events [Text Block] |
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated subsequent events for their potential impact on the condensed consolidated financial statements and disclosures through the date the condensed consolidated financial statements were issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the condensed consolidated financial statements presented herein.
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Significant Accounting Policies (Policies) |
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| Consolidation, Policy [Policy Text Block] | Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
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| Foreign Currency Transactions and Translations Policy [Policy Text Block] | Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. 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 condensed consolidated balance sheets. Revenue and expense transactions use an average rate prevailing during the period of the related transaction. 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.
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| Use of Estimates, Policy [Policy Text Block] | Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, purchase price allocations for 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. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
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| Earnings Per Share, Policy [Policy Text Block] | Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase Common Stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
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| Cash and Cash Equivalents, Policy [Policy Text Block] | Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. The Company has approximately $950 in short-term interest-earning accounts pledged as collateral for financing arrangements that are currently limited to business credit cards.
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| Lessee, Leases [Policy Text Block] | Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of 36 to 84 months. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
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| Fair Value Measurement, Policy [Policy Text Block] | Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
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| Business Combinations Policy [Policy Text Block] | Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is the period needed to gather all information necessary to make the purchase price allocation, not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
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| Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block] | 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. 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. 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. 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. 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.
Management determined there were no indicators of impairment at March 31, 2023 or December 31, 2022.
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| Concentration Risk, Credit Risk, Policy [Policy Text Block] | Customer Concentration
Net sales to GNC during the three-month periods ended March 31, 2023 and 2022 represent 49% and 70% of total net revenue, respectively. Gross accounts receivable attributable to GNC as of March 31, 2023 and 2022 represent 32% and 82% of the Company’s total accounts receivable balance, respectively.
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| Revenue from Contract with Customer [Policy Text Block] | Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
The Company accounts for revenues in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. 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 disaggregates revenue into geographical regions and distribution channels. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Online revenue during the quarter ended March 31, 2023 was approximately 47% of net revenue, compared to 53% for wholesale channels for the same period. Online revenue during the quarter ended March 31, 2022 was 27% of net revenue compared to 73% for wholesale channels during the same period in 2022.
Sales to customers in the United States were approximately 97% and 99% during the quarters ended March 31, 2023 and 2022, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada and Europe.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. 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.
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| Income Tax, Policy [Policy Text Block] | Income Taxes
Provision for income taxes consists of current and deferred tax expense. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted in the countries where the Company and its subsidiaries operate and generate taxable income. The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets may also result from unused losses and other deductions carried forward. An assessment of the probability that a deferred tax asset will be recovered is made prior to any deferred tax asset being recognized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized, or that future deductibility is uncertain.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates. The effective income tax rate was 73.0% and 19.5% for the three months ended March 31, 2023 and 2022, respectively.
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| New Accounting Pronouncements, Policy [Policy Text Block] | Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company has adopted this guidance beginning January 1, 2023. This guidance did not have a significant impact on the Company’s financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
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Note 3 - Summary of Significant Accounting Policies (Tables) |
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| Schedule of Earnings Per Share, Basic and Diluted [Table Text Block] |
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Note 4 - Inventories (Tables) |
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| Schedule of Inventory, Current [Table Text Block] |
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Note 5 - Property and Equipment (Tables) |
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| Property, Plant and Equipment [Table Text Block] |
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Note 6 - Notes Payable (Tables) |
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| Schedule of Debt [Table Text Block] |
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| Schedule of Maturities of Long-Term Debt [Table Text Block] |
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Note 7 - Equity (Tables) |
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| Share-Based Payment Arrangement, Option, Activity [Table Text Block] |
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| Share-Based Payment Arrangement, Option, Exercise Price Range [Table Text Block] |
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| Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block] |
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Note 8 - Acquisition of Mimi's Rock Corp (Tables) |
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| Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block] |
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| Business Acquisition, Pro Forma Information [Table Text Block] |
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Note 1 - Description of Business (Details Textual) |
Mar. 31, 2023
$ / shares
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Dec. 31, 2022
$ / shares
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Sep. 23, 2019
$ / shares
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|---|---|---|---|
| Preferred Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.01 | $ 0.01 | |
| Series A Preferred Stock [Member] | |||
| Preferred Stock, Par or Stated Value Per Share (in dollars per share) | $ 0.01 | ||
| Minimum [Member] | iSatori Products [Member] | |||
| Number of Stores | 17,000 |
Note 3 - Summary of Significant Accounting Policies - Basic and Diluted Income (Loss) Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Net income | $ 156 | $ 1,290 |
| Weighted average common shares - basic (in shares) | 4,483 | 4,554 |
| Dilutive effect of outstanding warrants and stock options (in shares) | 452 | 426 |
| Weighted average common shares - diluted (in shares) | 4,935 | 4,980 |
| Basic (in dollars per share) | $ 0.03 | $ 0.28 |
| Diluted (in dollars per share) | $ 0.03 | $ 0.26 |
Note 4 - Inventories (Details Textual) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Inventory Valuation Reserves | $ 110 | $ 107 |
Note 4 - Inventories - Summary of Inventory (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Finished goods | $ 7,972 | $ 8,347 |
| Components | 929 | 865 |
| Allowance for obsolescence | (110) | (107) |
| Total | $ 8,791 | $ 9,105 |
Note 5 - Property and Equipment (Details Textual) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Depreciation | $ 19 | $ 14 |
Note 5 - Property and Equipment - Property and Equipment (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Equipment | $ 897 | $ 902 |
| Accumulated depreciation | (779) | (856) |
| Total | $ 118 | $ 46 |
Note 6 - Notes Payable (Details Textual) - USD ($) $ in Thousands |
Feb. 23, 2023 |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|---|
| Long-Term Debt | $ 12,500 | $ 0 | |
| Revolving Credit Facility [Member] | |||
| Line of Credit Facility, Maximum Borrowing Capacity | $ 3,500 | ||
| Long-Term Line of Credit | 0 | ||
| Revolving Credit Facility [Member] | Applicable Rate [Member] | |||
| Debt Instrument, Basis Spread on Variable Rate | 2.75% | ||
| Term Loan [Member] | |||
| Debt Instrument, Face Amount | $ 12,500 | ||
| Debt Instrument, Additional Interest Rate, Default | 2.00% | ||
| Fixed Charge Coverage Ratio | 1.25 | ||
| Funded Debt to EBITDA Ratio | 2.50 | ||
| Debt Instrument, Covenant, Maximum Purchase Fixed Assets and Leases | $ 100,000 | ||
| Long-Term Debt | $ 12,500 |
Note 6 - Notes Payable - Debt Obligations (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Term loan – current portion | $ 2,500 | $ 0 |
| Term loan, net of current portion | 10,000 | 0 |
| Total | $ 12,500 | $ 0 |
Note 6 - Notes Payable - Maturity (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| 2023 (remaining nine months) | $ 1,875 | |
| 2024 | 2,500 | |
| 2025 | 2,500 | |
| 2026 | 2,500 | |
| 2027 | 2,500 | |
| 2028 | 625 | |
| Total | $ 12,500 | $ 0 |
Note 7 - Equity - Stock Option Activity (Details) - $ / shares shares in Thousands |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Outstanding, number of options (in shares) | 379 | |
| Outstanding, weighted average exercise price (in dollars per share) | $ 3.09 | |
| Outstanding, weighted average remaining life (Year) | 5 years 1 month 6 days | 5 years 3 months 18 days |
| Issued, number of options (in shares) | 0 | |
| Issued, weighted average exercise price (in dollars per share) | $ 0 | |
| Exercised, number of options (in shares) | 0 | |
| Exercised, weighted average exercise price (in dollars per share) | $ 0 | |
| Forfeited, number of options (in shares) | 0 | |
| Forfeited, weighted average exercise price (in dollars per share) | $ 0 | |
| Outstanding, number of options (in shares) | 379 | 379 |
| Outstanding, weighted average exercise price (in dollars per share) | $ 3.09 | $ 3.09 |
Note 7 - Equity - Warrants (Details) - $ / shares shares in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Outstanding (in shares) | 143 | 143 |
| Exercise Price (in dollars per share) | $ 1.15 |
Note 8 - Acquisition of Mimi's Rock Corp (Details Textual) - Mimi’s Rock Corp [Member] - USD ($) $ in Thousands |
1 Months Ended | |
|---|---|---|
Dec. 04, 2022 |
Mar. 31, 2023 |
|
| Business Combination, Consideration Transferred | $ 17,099 | |
| Business Combination, Acquisition Related Costs | $ 1,356 | |
| Business Combination, Pro Forma Information, Revenue of Acquiree since Acquisition Date, Actual | $ 2,639 | |
| Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual | $ (747) |
Note 8 - Acquisition of Mimi's Rock Corp - Fair Value of Assets Assumed (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
Dec. 04, 2022 |
|---|---|---|---|
| Goodwill (provisional) | $ 10,787 | $ 358 | |
| Mimi’s Rock Corp [Member] | |||
| Accounts receivable | $ 1,521 | ||
| Inventories | 1,181 | ||
| Prepaid expenses and other assets | 161 | ||
| Right of use asset | 100 | ||
| Property and equipment | 77 | ||
| Intangible assets (provisional) | 7,602 | ||
| Goodwill (provisional) | 10,386 | ||
| Total assets | 21,028 | ||
| Accounts payable and accrued expenses | 2,911 | ||
| Income tax payable | 885 | ||
| Product returns | 23 | ||
| Lease liabilities | 110 | ||
| Total liabilities | (3,929) | ||
| Purchase price | $ 17,099 |
Note 8 - Acquisition of Mimi's Rock Corp - Pro Forma Information (Details) - Mimi’s Rock Corp [Member] - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenue | $ 15,793 | $ 14,833 |
| Net income | $ 1,293 | $ 1,372 |
| Net income per share (in dollars per share) | $ 0.26 | $ 0.28 |