FTLF 10-Q Quarterly Report Sept. 30, 2019 | Alphaminr
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FTLF 10-Q Quarter ended Sept. 30, 2019

Balance Sheet
Cash Flow
Income Statement
FITLIFE BRANDS, INC.
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10-Q 1 ftlf10q_sep302019.htm QUARTERLY REPORT Blueprint

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
☐
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. 000-52369
FITLIFE BRANDS, INC.
(Name of small business issuer as specified in its charter)
Nevada
20-3464383
(State or other jurisdiction of incorporation)
(IRS Employer Identification No.)
5214 S. 136th Street, Omaha, NE 68137
(Address of principal executive offices)
(402) 991-5618
(Issuer’s telephone number)
(Former name, former address and former fiscal year, if changed since last report)
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:  Yes ☒ No ☐
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).   Yes ☒ No ☐
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
☐
Non–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 ☐ No ☒

Securities registered under Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common Stock, par value $0.01 per share
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 7, 2019, a total of 933,305 shares of the Registrant’s Common Stock, par value $0.01 per share, were issued and outstanding.


FI T LIFE BRANDS, INC.
INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED SEPTEMBER 30, 2019
TABLE OF CONTENTS
PAGE
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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 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.
P ART I
FINANCIAL INFORMATION
Item 1.  Financial Statements
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

September 30,
December 31,
2019
2018
ASSETS:
CURRENT ASSETS
Cash
$ 557,000
$ 259,000
Accounts receivable, net of allowance of doubtful accounts, product returns,
sales returns and incentive programs of $290,000 and $455,000, respectively
3,170,000
1,433,000
Inventories, net of allowance for obsolescence of $143,000 and $107,000, respectively
2,482,000
3,523,000
Prepaid expenses and other current assets
63,000
223,000
Total current assets
6,272,000
5,438,000
Property and equipment, net
148,000
189,000
Right of use asset, net of amortization of $203,000
277,000
-
Goodwill
225,000
225,000
Security deposits
10,000
10,000
TOTAL ASSETS
$ 6,932,000
$ 5,862,000
LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
Accounts payable
$ 2,033,000
$ 2,628,000
Accrued expenses and other liabilities
957,000
420,000
Lease liability - current portion
58,000
-
Notes payable - related parties
-
500,000
Total current liabilities
3,048,000
3,548,000
LONG-TERM LEASE LIABILITY, net of current portion
219,000
-
TOTAL LIABILITIES
3,267,000
3,548,000
CONTINGENCIES AND COMMITMENTS
-
-
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 10,000,000 shares authorized; none outstanding
as of September 30, 2019 and December 31, 2018
Preferred stock Series A Preferred, $0.01 par value 1,000 shares authorized; 600
and 600 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively
-
-
Common stock, $.01 par value, 15,000,000 shares authorized; 933,305 and 1,111,943
issued and outstanding as of September 30, 2019 and December 31, 2018 respectively
11,000
11,000
Treasury stock, 181,454 shares
(1,385,000 )
-
Additional paid-in capital
32,218,000
32,107,000
Accumulated deficit
(27,179,000 )
(29,804,000 )
Total stockholders' equity
$ 3,665,000
$ 2,314,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$ 6,932,000
$ 5,862,000
The accompanying notes are an integral part of these condensed consolidated financial statements

FITL IFE BR A NDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
(Unaudited)
Three Months Ended
Nine Months Ended
September 30
September 30
2019
2018
2019
2018
Revenue
$ 5,316,000
$ 4,583,000
$ 15,812,000
$ 13,576,000
Cost of goods sold
3,063,000
2,831,000
9,163,000
8,102,000
Gross profit
2,253,000
1,752,000
6,649,000
5,474,000
OPERATING EXPENSES:
General and administrative
782,000
784,000
2,352,000
2,493,000
Selling and marketing
583,000
547,000
1,749,000
2,070,000
Depreciation and amortization
12,000
16,000
40,000
54,000
Total operating expenses
1,377,000
1,347,000
4,141,000
4,617,000
OPERATING INCOME
876,000
405,000
2,508,000
857,000
OTHER EXPENSES (INCOME)
Interest expense
14,000
39,000
47,000
104,000
Other income
-
1,000
-
-
Gain on settlement
(29,000 )
-
(171,000 )
-
Total other expense (income)
(15,000 )
40,000
(124,000 )
104,000
NET INCOME BEFORE INCOME TAXES
891,000
365,000
2,632,000
753,000
INCOME TAXES
-
-
7,000
-
NET INCOME
891,000
365,000
2,625,000
753,000
PREFERRED STOCK DIVIDEND
(19,000 )
-
(37,000 )
-
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
$ 872,000
$ 365,000
$ 2,588,000
$ 753,000
NET INCOME PER SHARE AVAILABLE TO COMMON SHAREHOLDERS:
Basic
$ 0.87
$ 0.33
$ 2.46
$ 0.69
Diluted
$ 0.72
$ 0.31
$ 2.08
$ 0.65
Basic weighted average common shares
1,001,715
1,100,786
1,053,292
1,089,659
Diluted weighted average common shares
1,207,024
1,173,642
1,241,875
1,166,602
The accompanying notes are an integral part of these condensed consolidated financial statements
FITLIFE B R ANDS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018 (Unaudited)
Additional
Series A Preferred
Common Stock
Treasury
Paid-in
Accumulated
Shares
Amount
Shares
Amount
Stock
Capital
Deficit
Total
THREE MONTHS ENDED SEPTEMBER 30, 2019
JUNE 30, 2019
600
$ -
1,015,120
$ 11,000
$ (566,000 )
$ 32,199,000
$ (28,070,000 )
$ 3,574,000
Fair value of common stock issued for services
401
4,000
4,000
Repurchase of common stock
-
-
(82,216 )
-
(819,000 )
-
(819,000 )
Dividends payments on preferred stock
-
(19,000 )
-
(19,000 )
Fair value of vested common shares and
options issued for services
34,000
34,000
Net income
-
891,000
891,000
SEPTEMBER 30, 2019
600
-
933,305
$ 11,000
$ (1,385,000 )
$ 32,218,000
$ (27,179,000 )
$ 3,665,000
THREE MONTHS ENDED SEPTEMBER 30, 2018
JUNE 30, 2018
-
$ -
1,099,796
$ 11,000
$ -
$ 31,227,000
$ (29,820,000 )
$ 1,418,000
Fair value of common stock issued for services
8,659
-
37,000
37,000
Fair value of vested common shares and
options issued for services
66,000
66,000
Net income
-
365,000
365,000
SEPTEMBER 30, 2018
-
-
1,108,455
$ 11,000
-
$ 31,330,000
$ (29,455,000 )
$ 1,886,000
NINE MONTHS ENDED SEPTEMBER 30, 2019
DECEMBER 31, 2018
600
$ -
1,111,943
$ 11,000
$ -
$ 32,107,000
$ (29,804,000 )
$ 2,314,000
Fair value of common stock issued for services
2,816
-
43,000
43,000
Repurchase of common stock
-
-
(181,454 )
-
(1,385,000 )
-
(1,385,000 )
Dividends payments on preferred stock
-
(37,000 )
(37,000 )
Fair value of vested common shares and
options issued for services
105,000
105,000
Net income
-
2,625,000
2,625,000
SEPTEMBER 30, 2019
600
-
933,305
$ 11,000
(1,385,000 )
$ 32,218,000
$ (27,179,000 )
$ 3,665,000
NINE MONTHS ENDED SEPTEMBER 30, 2018
DECEMBER 31, 2017
$ -
1,068,171
$ 11,000
$ -
$ 31,113,000
$ (30,208,000 )
$ 913,000
Fair value of common stock issued for services
40,284
-
132,000
135,000
Fair value of vested common shares and options
issued for services
85,000
85,000
Net income
-
753,000
753,000
SEPTEMBER 30, 2018
-
-
1,108,455
$ 11,000
-
$ 31,330,000
$ (29,455,000 )
$ 1,886,000

The accompanying notes are an integral part of these condensed consolidated financial statements.

FITLIFE BRA N DS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
2019
2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income
$ 2,625,000
$ 753,000
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
40,000
54,000
Decrease in allowance for sales returns and doubtful accounts
(166,000 )
(557,000 )
Increase (decrease) in allowance for inventory obsolescence
36,000
(42,000 )
Common stock issued for services
55,000
136,000
Fair value of options issued for services
94,000
85,000
Gain on disposal of assets
-
34,000
Right of use asset - amortization
66,000
-
Changes in operating assets and liabilities:
Accounts receivable - trade
(1,572,000 )
1,829,000
Accounts receivable - factored
-
(2,458,000 )
Inventories
1,005,000
(33,000 )
Prepaid expenses
160,000
(14,000 )
Customer note receivable
-
5,000
Security deposits
-
12,000
Accounts payable
(595,000 )
(103,000 )
Accrued liabilities and other liabilities
41,000
(19,000 )
Right of use asset - lease liability
(65,000 )
-
Net cash provided by (used in) operating activities
1,724,000
(318,000 )
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of assets
-
4,000
Net cash provided by investing activities
-
4,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable, related party
300,000
-
Dividend payments on preferred stock
(37,000 )
-
Secured payable to factor
-
1,950,000
Repurchases of common stock
(889,000 )
-
Repayment of line of credit
-
(1,950,000 )
Repayments of term loan
-
(415,000 )
Repayments of notes payable
(800,000 )
-
Net cash used in financing activities
(1,426,000 )
(415,000 )
INCREASE IN CASH
298,000
(729,000 )
CASH, BEGINNING OF PERIOD
259,000
1,262,000
CASH, END OF PERIOD
$ 557,000
$ 533,000
Supplemental disclosure operating activities
Cash paid for interest
$ 47,000
$ 104,000
Non-cash investing and financing activities
Recording of lease asset and liability upon adoption of ASU-2016-02
$ 343,000
$ -
Accrued liability for stock buyback
$ 496,000
$ -
The accompanying notes are an integral part of these condensed consolidated financial statements
F I T LIFE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
FitLife Brands, Inc. (the “ Company ”) is a national provider of innovative and proprietary nutritional supplements for health-conscious consumers marketed under the brand names NDS Nutrition, PMD, SirenLabs, CoreActive, and Metis Nutrition (together, “ NDS Products ”). In September 2015, the Company acquired iSatori, Inc. (“ iSatori ”) and as a result, the Company added three brands to its product portfolio, including iSatori, BioGenetic Laboratories, and Energize (together, “ iSatori Products ”). The NDS Products are distributed principally through franchised General Nutrition Centers, Inc. (“ GNC ”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than 25,000 retail locations, which include specialty, mass, and online.
The Company was incorporated in the State of Nevada on July 26, 2005. In October 2008, the Company acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets into its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida corporation (“ NDS ”). The Company’s NDS Products are sold through NDS and the iSatori Products are sold through iSatori, Inc., a Delaware corporation and a wholly owned subsidiary of the Company.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com . The Company’s common stock trades under the symbol “FTLF” on the OTC: PINK market.
Recent Developments
Line of Credit Agreement
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the " Line of Credit Agreement ") with Mutual of Omaha Bank (the " Lender ") 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 September 23, 2020 (the “ Maturity Date ”), unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit is secured by all assets of the Company.
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month LIBOR 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.
The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.
Repayment of Outstanding Notes
On September 24, 2019, the Company repaid all outstanding balances due on certain promissory notes issued to Sudbury Capital Fund, LP (" Sudbury ") and Dayton Judd, the Company’s Chairman and Chief Executive Officer (the “ Notes ”), in the aggregate principal amount, including accrued but unpaid interest thereon, of $615,000. Mr. Judd is the managing partner of Sudbury. As a result of the repayment of the Notes, the Company terminated its line of credit entered into between the Company and Sudbury on December 26, 2018 providing for maximum borrowings of up to $600,000.
Amendment of Share Repurchase Plan
On September 23, 2019, the Company's Board of Directors (the " Board ") approved an amendment the Company’s share repurchase program as approved on August 16, 2019, pursuant to which the Board authorized management to repurchase up to $500,000 of the Company's common stock, par value $0.01 per share (" Common Stock "), over the next 24 months (the " Share Repurchase Program "), which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. The Board approved an amendment to the Share Repurchase Program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share (" Series A Preferred "), and warrants to purchase shares of the Company's Common Stock (" Warrants "), over the next 24 months, at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
The Company intends to conduct its Share Repurchase Program in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases may be made at management's discretion from time to time in the open market or through privately negotiated transactions. The Company may suspend or discontinue the Share Repurchase Program at any time, and may thereafter reinstitute purchases, all without prior announcement.
During the quarter ended September 30, 2019, the Company repurchased 82,216 shares of Common Stock, or approximately 8% of the issued and outstanding shares of the Company, through both open market and private transactions, as follows:
Trade date
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced programs
Dollar value of shares that may yet be purchased
July 2019
-
-
-
-
August 2019
-
-
-
$ 500,000
September 2019
82,216
$ 9.96
82,216
$ 181,000
Subtotal
82,216
$ 9.96
82,216

NOTE 2 - BASIS OF PRESENTATION
The accompanying interim condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation are included. Operating results for the nine-month period ended September 30, 2019 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. 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, 2018, as filed with the Securities and Exchange Commission on March 22, 2019.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States (“ GAAP ”). Significant accounting policies are as follows:
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
Use of Estimates
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, realization of deferred tax assets and fair value of 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.
Basic and Diluted Income (loss) Per Share
Our computation of earnings per share (“ EPS ”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) 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 (loss) 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 (loss) per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase common stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the common stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.

Three Months Ended September 30,
Nine Months Ended September 30,
2019
2018
2019
2018
Net income available to common shareholders
$ 872,000
$ 365,000
$ 2,588,000
$ 753,000
Weighted average common shares - basic
1,001,715
1,100,786
1,053,292
1,089,659
Dilutive effect of outstanding warrants and stock options
205,309
72,856
188,583
76,943
Weighted average common shares - diluted
1,207,024
1,173,642
1,241,875
1,166,602
Net income per common share:
Basic
$ 0.87
$ 0.33
$ 2.46
$ 0.69
Diluted
$ 0.72
$ 0.31
$ 2.08
$ 0.65
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.
Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases .   Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of and, lease liabilities for operating leases of $480,000 and $480,000, respectively. There was no cumulative-effect adjustment to accumulated deficit. See Note 7 for further information regarding the adoption of ASC 842 on the Company’s condensed financial statements.
Goodwill
The Company had goodwill of $225,000 as of September 30, 2019 and December 31, 2018, respectively, as a result of the acquisition of NDS in October 2008. The Company adopted ASC Topic 350 – Goodwill and Other Intangible Assets . In accordance with ASC Topic 350, goodwill, which represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.
As of September 30, 2019 and December 31, 2018, there were no indicators of impairment for the recorded goodwill of $225,000, respectively.
Customer Concentration
Gross sales prior to reduction for vendor funded discounts and coupons to GNC during the nine-month periods ended September 30, 2019 and 2018 were $13,599,000 and $12,732,000, respectively, representing 77% and 79% of total gross revenue, respectively.
Gross accounts receivable attributable to GNC as of September 30, 2019 and September 30, 2018 were $2,992,000 and $3,359,000 , respectively, representing 88% and 88% of the Company’s total accounts receivable balance, respectively.
For the quarters ended September 30, 2019 and 2018, online sales accounted for 12% and 6% of the Company’s net revenue, respectively.
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements to consumers, primarily through GNC stores.
The Company accounts for revenues in accordance with Accounting Standards Codification (“ ASC ”) 606, Revenue from Contracts with Customers . 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 or services 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 or services to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and related supplies. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.
Control of products we sell transfers to customers upon shipment from our facilities, 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. Payment for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
We provide a 30-day right of return for our products. 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 substantially less than 5% of products are returned, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
Income Taxes
As of September 30, 2019, the Company had Federal net operating loss (“ NOL ”) carry forwards available to offset future taxable income of approximately $26.6 million, subject to Internal Revenue Service (“ IRS ”) statutory limitations.
As a result of the Company’s significant NOL, with projected $2.6 million utilized as of September 30, 2019, there was no provision for income tax recorded during the period ended September 30, 2019.
The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized before the Company is able to realize their benefits, or that future deductibility is uncertain. Authoritative guidance issued by the ASC Topic 740 – Income Taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As a result of the limitations related to Internal Revenue Code and the Company’s lack of a prolonged history of profitable operations, the Company recorded a 100% valuation allowance against its net deferred tax assets as of September 30, 2019 and December 31, 2018.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission 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 inventories as of September 30, 2019 and December 31, 2018 were as follows:
September 30,
2019
December 31,
(unaudited)
2018
Finished goods
$ 2,106,000
$ 3,168,000
Components
519,000
462,000
Allowance for obsolescence
(143,000 )
(107,000 )
Total
$ 2,482,000
$ 3,523,000
NOTE 5 - PROPERTY AND EQUIPMENT
The Company’s fixed assets as of September 30, 2019 and December 31, 2018 were as follows:
September 30,
2019
December 31,
(unaudited)
2018
Equipment
$ 902,000
$ 902,000
Accumulated depreciation
(754,000 )
(713,000 )
Total
$ 148,000
$ 189,000
Depreciation expense for the nine months ended September 30, 2019 and 2018 was $40,000 and $54,000, respectively.

NOTE 6 – NOTES PAYABLE
Notes Payable – Related Parties

On December 26, 2018, the Company issued a line of credit promissory note to Sudbury Capital Fund, LP, an entity controlled by Dayton Judd, the Company’s CEO, in the principal amount of $600,000, with an initial advance to the Company in the amount of $300,000 which was outstanding at December 31, 2018. During the nine months ended September 30, 2019, an additional $300,000 was advanced to the Company, resulting in aggregate borrowings of $600,000. In addition, on December 26, 2018, the Company also issued a promissory note to Mr. Judd in the principal amount of $200,000 (collectively, the “ Notes ”). On September 24, 2019, the Company repaid all outstanding balances due under the terms of the Notes in the aggregate principal amount, including accrued but unpaid interest thereon, of $615,000. As a result of the repayment of the Notes, the Company terminated its line of credit entered into between the Company and Sudbury on December 26, 2018 providing for maximum borrowings of up to $600,000.
As of September 30, 2019 and December 31, 2018, the aggregate balance of the Notes amounted to $0 and $501,000, respectively, including accrued interest of $0 and $1,000, respectively.
NOTE 7 - RIGHT OF USE ASSETS AND LIABILITIES
In prior years, the Company entered into several non-cancellable leases for its office facilities and equipment. The lease agreements range from 36 months to 84 months, and require monthly payments ranging between $200 and $7,000 through October 2024. On January 1, 2019, the Company adopted ASU 2016-02, Leases which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified the leases as operating leases and determined that the fair value of the lease assets and liability at the inception of the leases was $480,000 using a discount rate of 9%.
During the nine months ended September 30, 2019, the Company made payments of $71,000 towards the lease liability. As of September 30, 2019, lease liability amounted to $277,000. ASU 2016-02 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Rent expense, including real estate taxes, for the nine months ended September 30, 2019 was $71,000. The right-of-use asset at September 30, 2019 was $277,000, net of amortization of $203,000.
Nine Months Ended
Lease Cost
September 30, 2019
Operating lease cost (included in general and administrative in the Company's unaudited
condensed and consolidated statements of operations)
$ 66,000
Other Information:
Cash paid for amounts included in the measurement of lease liabilities for the third quarter 2019
$ -
Weighted average remaining lease term - operating leases (in years)
5.1
Average discount rate - operating leases
9 %
Operating Leases
At September 30, 2019
Long-term right-of-use assets
$ 277,000
Short-term operating lease liabilities
$ 58,000
Long-term operating lease liabilities
219,000
Total operating lease liabilities
$ 277,000
Maturities of the Company's lease liabilities are as follows:
Year Ending
Operating Leases
2019 (remaining 3 months)
$ 29,000
2020
67,000
2021
67,000
2022
67,000
2023
61,000
Less: Imputed interest/present value discount
(14,000 )
Present value of lease liabilities
$ 277,000
NOTE 8 - EQUITY

Preferred Stock

During the nine-month period ended September 30, 2019, the Company paid dividends to holders of shares of the Company's Series A Convertible Preferred Stock in cash, in the aggregate amount of $37,000.
Common Stock
a.
Common Stock Issued for Services
The Company is authorized to issue 15.0 million shares of Common Stock, par value $0.01 per share, of which 933,305 shares of Common Stock were issued and outstanding as of September 30, 2019.
During the nine-month period ended September 30, 2019, the Company issued 2,816 shares of Common Stock with a fair value of $43,000 to directors for services rendered. The shares were valued at their respective dates of issuance.
In July 2018, in connection with the appointment of Mr. Dayton Judd as Chief Executive Officer, the Company granted Mr. Judd an aggregate of 45,000 shares of restricted Common Stock, which include vesting conditions subject to the achievement of certain market prices of the Company’s Common Stock. Such shares are also subject to forfeiture in the event Mr. Judd resigns from his position or is terminated by the Company. As the vesting of the 45,000 shares of restricted Common Stock is subject to certain market conditions, pursuant to current accounting guidelines, the Company determined the fair value to be $105,000, computed using the Monte Carlo simulations on a binomial model with the assistance of a valuation specialist with a derived service period of nine years. During the nine months ended September 30, 2019, the Company recorded compensation expense of $36,000 to amortize the fair value of these shares of restricted Common Stock based upon the prorated derived service period.
During the nine-month period ended September 30, 2018, the Company issued 40,284 shares of Common Stock with a fair value of $128,000 to employees and directors for services rendered. The shares were valued at their respective dates of issuance.
b.
Repurchase of Common Stock
During the nine-month period ended September 30, 2019, including the effect of the Reverse/Forward split implemented in April 2019, the Company purchased 181,454 shares of Common Stock for the aggregate purchase price of $1,385,000, of which $889,000 was paid as of September 30, 2019 and the remaining $496,000 was unpaid and was recorded as part of accrued expenses and other liabilities in the accompanying balance sheet. The Company is accounting for these shares as treasury stock.
c.
Share Repurchase Program
On August 16, 2019, the Company’s Board of Directors approved the repurchase of up to $500,000 of the Company’s Common Stock over the next 24 months (the “ Share Repurchase Program ”). The Board approved an amendment to the Share Repurchase Program on September 23, 2019 to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share (" Series A Preferred "), and warrants to purchase shares of the Company's Common Stock (" Warrants "), over the next 24 months, at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
During the quarter ended September 30, 2019, the Company repurchased 82,216 shares of Common Stock, or approximately 8% of the issued and outstanding shares of the Company, through both open market and private transactions for the aggregate purchase price of $819,000 .
d.
Reverse/Forward Split
On April 11, 2019, the Company filed two Certificates of Change with the Secretary of State of the State of Nevada, the first to effect a reverse stock split of both the Company’s issued and outstanding and authorized common stock, par value $0.01 per share (“ Common Stock ”), at a ratio of 1-for-8,000 (the “ Reverse Split ”), and the second to effect a forward stock split of both the Company’s issued and outstanding and authorized Common Stock at a ratio of 800-for-1 (the “ Forward Split ”, and together with the Reverse Split, the “ Reverse/Forward Split ”). The Reverse/Forward Split became effective, and the Company’s Common Stock began trading on a post-split basis, on Tuesday, April 16, 2019.
The Company did not issue any fractional shares as a result of the Reverse/Forward Split. Holders of fewer than 8,000 shares of the Common Stock immediately prior to the Reverse/Forward Split received cash in lieu of fractional shares based on the 5-day volume weighted average price of the Company’s Common Stock immediately prior to the Reverse/Forward Split, which was $0.57 per pre-split share. As a result, such holders ceased to be stockholders of the Company. Holders of more than 8,000 shares of Common Stock immediately prior to the Reverse/Forward Split did not receive fractional shares; instead any fractional shares resulting from the Reverse/Forward Split were rounded up to the next whole share.
As a result of the Reverse/Forward Split, the number of shares of Company Common Stock authorized for issuance under the Company’s Articles of Incorporation, as amended, was decreased from 150,000,000 shares to 15,000,000 shares. The Reverse/Forward Split did not affect the Company’s preferred stock, nor did it affect the par value of the Company’s Common Stock.
The share and per share amounts included in these unaudited interim condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the 1-for-10 aspect of the Reverse/Forward Split as if it occurred as of the earliest period presented.

Options
I nformation regarding options outstanding as of September 30, 2019 is as follows:
Weighted
Weighted
Average
Average
Number of
Exercise
Remaining
Options
Price
Life (Years)
Outstanding, December 31, 2018
154,521
$ 13.10
5.69
Issued
8,000
6.85
4.26
Exercised
-
Forfeited
(13,236 )
26.26
Outstanding, September 30, 2019
149,285
$ 11.76
5.29
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
$
$ 2.80- 23.00
143,710
5.33
$ 8.72
83,372
$ 12.66
$
$ 23.10 - 144.34
5,575
4.02
$ 90.20
5,575
$ 90.20
149,285
$ 5.29
$ 11.76
$ 88,947
$ 17.52
During the nine-month periods ended September 30, 2019 and 2018, the Company recognized compensation expense of $94,000 and $33,000, respectively, to account for the fair value of stock options that vested during the period.
Total intrinsic value of outstanding stock options as of September 30, 2019 amounted to $651,000. Future unamortized compensation expense on the unvested outstanding options at September 30, 2019 amounted to $69,000, which will be recognized through October 2020.
Warrants
Total outstanding warrants to purchase shares of Company Common Stock as of September 30, 2019 and December 31, 2018 amounted to 39,130 shares. Total intrinsic value as of September 30, 2019 amounted to $219,000.
During the period ended September 30, 2019, no warrants were granted and no warrants expired unexercised.
Outstanding
Exercise Price
Issuance Date
Expiration Date
Vesting
39,130
$ 4.60
11/13/18
11/13/23
Yes
NOTE 9 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On December 31, 2014, various plaintiffs, individually and on behalf of a purported nationwide and sub-class of purchasers, filed a lawsuit in the U.S. District Court for the Northern District of California, captioned Ryan et al. v. Gencor Nutrients, Inc. et al. , Case No.: 4:14-CV-05682. The lawsuit includes claims made against the manufacturer and various producers and sellers of products containing a nutritional supplement known as Testofen, which is manufactured and sold by Gencor Nutrients, Inc. (“ Gencor ”). Specifically, the Ryan plaintiffs allege that various defendants have manufactured, marketed and/or sold Testofen, or nutritional supplements containing Testofen, and in doing so represented to the public that Testofen had been clinically proven to increase free testosterone levels. According to the plaintiffs, those claims are false and/or not statistically proven. Plaintiffs seek relief under violations of the Racketeering Influenced Corrupt Organizations Act, breach of express and implied warranties, and violations of unfair trade practices in violation of California, Pennsylvania, and Arizona law. NDS utilizes Testofen in a limited number of nutritional supplements it manufactures and sells pursuant to a license agreement with Gencor.
On February 19, 2015, this matter was transferred to the Central District of California to the Honorable Manuel Real. Judge Real had previously issued an order dismissing a similar lawsuit that had been filed by the same lawyer who represents the plaintiffs in the Ryan matter. The United States Court of Appeals reversed part of the dismissal issued by Judge Real and remanded the case back down to the district court for further proceedings. As a result, the parties in the Ryan matter issued a joint status report and that matter is again active. However, on June 14, 2019, the Central District of California issued an order staying the Ryan matter pending the second appeal of a previously filed related case captioned O’Toole, et al., v. Gencor Nutrients Inc. et al. , Case No.:2:12-cv-03754.
On September 27, 2019 the parties entered into a confidential settlement agreement whereby Plaintiffs agreed to dismiss their claims against NDS, with prejudice.  On October 4, 2019 this matter was dismissed, with prejudice.
During the nine months ended September 30, 2019, the aggregate impact of all legal settlements was a gain of $171,000.
NOTE 10 – SUBSEQUENT EVENTS

On November 6, 2019, the Company’s Board of Directors amended the previously approved Share Repurchase Program to increase the amount of authorized repurchases to $2.5 million.  All other terms of the Share Repurchase Program remain unchanged.

ITEM 2. MAN A GEMENT’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. This discussion and analysis may contain forward-looking statements based on assumptions about our future business.
Overview
FitLife Brands, Inc. (the “ Company ”) is a national provider of innovative and proprietary nutritional supplements for health-conscious consumers marketed under the brand names NDS Nutrition, PMD, SirenLabs, Core Active, and Metis Nutrition (together, “ NDS Products ”). In September 2015, the Company acquired iSatori, Inc. (“ iSatori ”) and as a result, the Company added three brands to its product portfolio, including iSatori, BioGenetic Laboratories, and Energize (together, “ iSatori Products ”). The NDS Products are distributed principally through franchised General Nutrition Centers, Inc. (“ GNC ”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than 25,000 retail locations, which include specialty, mass, and online.
The Company was incorporated in the State of Nevada on July 26, 2005. In October 2008, the Company acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets into its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida corporation (“ NDS ”). The Company’s NDS Products are sold through NDS and the iSatori Products are sold through iSatori, Inc., a Delaware corporation and a wholly owned subsidiary of the Company.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com . The Company’s common stock trades under the symbol “FTLF” on the OTC: PINK market.
Recent Developments
Line of Credit Agreement
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the " Line of Credit Agreement ") with Mutual of Omaha Bank (the " Lender ") 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 September 23, 2020 (the “ Maturity Date ”), unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit, which remains undrawn to date, 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 LIBOR 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.
The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.
Repayment of Outstanding Notes
On September 24, 2019, the Company repaid all outstanding balances due on certain promissory notes issued to Sudbury Capital Fund, LP (" Sudbury ") and Dayton Judd, the Company’s Chair and Chief Executive Officer (the “ Notes ”), in the aggregate principal amount, including accrued but unpaid interest thereon, of $615,000. Mr. Judd is the managing partner of Sudbury. As a result of the repayment of the Notes, the Company terminated its line of credit entered into between the Company and Sudbury on December 26, 2018 providing for maximum borrowings of up to $600,000.
Amendment of Share Repurchase Plan
On September 23, 2019, the Company's Board of Directors (the " Board ") approved an amendment the Company’s share repurchase program as approved on August 16, 2019, pursuant to which the Board authorized management to repurchase of up to $500,000 of the Company's common stock, par value $0.01 per share (" Common Stock "), over the next 24 months (the " Share Repurchase Program "), which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. The Board approved an amendment to the Share Repurchase Program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share (" Series A Preferred "), and warrants to purchase shares of the Company's Common Stock (" Warrants "), over the next 24 months, at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
The Company intends to conduct its Share Repurchase Program in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases may be made at management's discretion from time to time in the open market or through privately negotiated transactions. The Company may suspend or discontinue the Share Repurchase Program at any time, and may thereafter reinstitute purchases, all without prior announcement.
Results of Operations
Comparison of the three and nine months ended September 30, 2019 to the three and nine months ended September 30, 2018

Three Months Ended
Nine Months Ended
September 30,
2019
September 30,
2018
Change
September 30,
2019
September 30,
2018
Change
Revenue
$ 5,316,000
$ 4,583,000
$ 733,000
16 %
$ 15,812,000
$ 13,576,000
$ 2,236,000
16 %
Cost of goods sold
(3,063,000 )
(2,831,000 )
(232,000 )
8 %
(9,163,000 )
(8,102,000 )
(1,061,000 )
13 %
Gross profit
2,253,000
1,752,000
501,000
29 %
6,649,000
5,474,000
1,175,000
21 %
Operating expenses
(1,377,000 )
(1,347,000 )
(30,000 )
2 %
(4,141,000 )
(4,617,000 )
476,000
-10 %
Income (loss) from operations
876,000
405,000
471,000
116 %
2,508,000
857,000
1,651,000
193 %
Other expense (income)
(15,000 )
40,000
(55,000 )
(124,000 )
104,000
(228,000 )
Provision for income tax
-
-
-
7,000
-
7,000
Net income (loss)
$ 891,000
$ 365,000
$ 526,000
144 %
$ 2,625,000
$ 753,000
$ 1,872,000
249 %

Net Sales. Revenue for the three months ended September 30, 2019 increased 16 % to $5,316,000 as compared to $4,583,000 for the three months ended September 30, 2018. Revenue for the nine months ended September 30, 2019 increased 16 % to $15,812,000 as compared to $13,576,000 for the nine months ended September 30, 2018. Revenue for the three- and nine-month periods ended September 30, 2019 compared to the prior three- and nine-month periods, in part, reflects improvements in our wholesale business and growth in our online direct-to-consumer offering.
Online revenue during the three months ended September 30, 2019 was approximately 12% of total revenue, compared to roughly 6% of total revenue during the same three-month period in 2018. Online revenue during the nine months ended September 30, 2019 was approximately 12% of total revenue, compared to roughly 4% of total revenue in the same nine-month period during 2018. Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.
Cost of Goods Sold. Cost of goods sold for the three months ended September 30, 2019 increased to $3,063,000 as compared to $2,831,000 for the three months ended September 30, 2018. Cost of goods sold for the nine months ended September 30, 2019 increased to $9,163,000 as compared to $8,102,000 for the nine months ended September 30, 2018.  The increase during the three- and nine-month period is principally attributable to higher revenue.
Gross Profit. Gross profit for the three months ended September 30, 2019 increased to $2,253,000 as compared to $1,752,000 for the three months ended September 30, 2018. Gross profit for the nine months ended September 30, 2019 increased to $6,649,000 as compared to $5,474,000 for the nine months ended September 30, 2018. The increase during the three- and nine-month period is principally attributable to higher revenue.
Gross margin for the three months ended September 30, 2019 increased to 42.4% compared to 38.2% during the same period last year . The increase was primarily attributable to product mix and higher online sales volumes. Gross margin for the nine months ended September 30, 2019 was 42.1% compared to 40.3% for the same period last year. The increase was primarily attributable to the increase in higher margin online revenue relative to gross margins attributable to revenue derived from the Company’s wholesale distribution channels.
General and Administrative Expense. General and administrative expense for the three months ended September 30, 2019 decreased to $782,000 as compared to $ 784,000 for the three months ended September 30, 2018. For the nine-month period ended September 30, 2019, general and administrative expense declined to $2,352,000, from $2,493,000 during the same period in the prior year. The decreases in both the three- and nine- month periods ended September 30, 2019 reflect initiatives the Company put in place during 2018 to reduce operating expense.
Selling and Marketing Expense. Selling and marketing expense for the three months ended September 30, 2019 increased to $583,000 as compared to $547,000 for the three months ended September 30, 2018. Selling and marketing expense for the nine months ended September 30, 2019 decreased to $1,749,000 as compared to $2,070,000 for the nine months ended September 30, 2018. The changes in both the three- and nine-month periods ended September 30, 2019 reflect management's efforts to optimize our sales and marketing expense and reduce spending on activities that fail to generate an acceptable amount of incremental revenue.
Depreciation and Amortization Expense .  Depreciation and amortization expense for the three months ended September 30, 2019 decreased to $12,000 as compared to $16,000 for the three months ended September 30, 2018.  Depreciation and amortization expense for the nine months ended September 30, 2019 decreased to $40,000 as compared to $54,000 for the nine months ended September 30, 2018. The decrease in both periods was primarily attributable to a decrease in depreciation expense due to the write-off of certain fixed assets during the third quarter of 2018.
Net Income. We generated net income of $891,000 for the three-month period ended September 30, 2019 as compared to net income of $365,000 for the three months ended September 30, 2018. We generated a net income of $2,625,000 for the nine-month period ended September 30, 2019 as compared to a net income of $753,000 for the nine months ended September 30, 2018. The increase in net income for the three- and nine-month periods ended September 30, 2019 compared to the same periods in 2018 was primarily attributable to a combination of higher revenue, lower operating expense, reduced interest expense, and legal settlements.
Liquidity and Capital Resources
At September 30, 2019, we had positive working capital of approximately $3,224,000, compared to $1,890,000 at December 31, 2018. Our principal sources of liquidity at September 30, 2019 consisted of $557,000 of cash and $3,170,000 from accounts receivable.
On December 26, 2018, the Company issued a line of credit promissory note to Sudbury Capital Fund, LP, an entity controlled by Dayton Judd, the Company’s CEO, in the principal amount of $600,000, with an initial advance to the Company in the amount of $300,000. In addition, on December 26, 2018, the Company also issued a promissory note to Mr. Judd in the principal amount of $200,000 (collectively, the “ Notes ”). On September 24, 2019, the Company repaid all outstanding balances due on the Notes including accrued but unpaid interest thereon, of $615,000.
On September 24, 2019, the Company entered into entered into the Line of Credit Agreement with the Lender providing the Company with a $2.5 million revolving 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 of Directors and the Lender. The Line of Credit is secured by all assets of the Company.
Advances drawn under the Line of Credit bear interest at an annual rate of the one-month LIBOR 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.
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 new 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 (Used in) Operations. Our cash provided by (used in) operating activities for the nine months ended September 30, 2019 was $1,724,000, as compared to $(318,000) for the nine months ended September 30, 2018.
Cash Provided by Investing Activities. Cash provided by investing activities for the nine months ended September 30, 2019 was $0, as compared to $4,000 provided by investing activities for the nine months ended September 30, 2018.
Cash Used in Financing Activities. Cash used in financing activities for the nine months ended September 30, 2019 was $(1,426,000) as compared to cash used in financing activities of $(415,000) during the nine months ended September 30, 2018.
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 accounting principles generally accepted in the United States of America. 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 accounting principles generally accepted in the United States (“ GAAP ”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and 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
The Company had goodwill with a carrying value of $ 225,000 as of September 30, 2019 and December 31, 2018, respectively, as a result of the acquisition of NDS in October 2008. The Company adopted ASC Topic 350 – Goodwill and Other Intangible Assets . In accordance with ASC Topic 350, goodwill, which represents the excess of purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method, acquired in business combinations is assigned to reporting units that are expected to benefit from the synergies of the combination as of the acquisition date. Under this standard, goodwill and intangibles with indefinite useful lives are no longer amortized. The Company assesses goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter, or more frequently if events and circumstances indicate impairment may have occurred in accordance with ASC Topic 350. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, the Company records an impairment loss equal to the difference. ASC Topic 350 also requires that the fair value of indefinite-lived purchased intangible assets be estimated and compared to the carrying value. The Company recognizes an impairment loss when the estimated fair value of the indefinite-lived purchased intangible assets is less than the carrying value.
Identifiable intangible assets are stated at cost and accounted for based on whether the useful life of the asset is finite or indefinite. Identified intangible assets with finite useful lives are amortized using the straight-line methods over their estimated useful lives, which was originally ten years. Intangible assets with indefinite lives are not amortized to operations, but instead are reviewed for impairment at least annually, or more frequently if there is an indicator of impairment.
As of September 30, 2019 and December 31, 2018, there were no indicators of impairment for the recorded goodwill of $225,000.
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements to consumers, primarily through GNC stores.
The Company accounts for revenues in accordance with Accounting Standards Codification (“ ASC ”) 606, Revenue from Contracts with Customers. 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 or services 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 or services to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and related supplies. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. Other than promotional activities, which can vary from time to time but nevertheless are entirely within the Company’s control, contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time.
Control of products we sell transfers to customers upon shipment from our facilities, 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. Payment for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
We provide a 30-day right of return for our products. 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 substantially 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 Notes to 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.
WHERE YOU CAN FIND MORE INFORMATION
You are advised to read this Quarterly Report in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC’s Public Reference Room at 100 F. Street, N.E. Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website www.sec.gov .
ITEM 3. Q U A NTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our business is currently conducted principally in the United States. As a result, our financial results are not materially affected by factors such as changes in foreign currency exchange rates or economic conditions in foreign markets. We do not engage in hedging transactions to reduce our exposure to changes in currency exchange rates although, as the geographical scope of our business broadens, we may do so in the future.
Our exposure to risk for changes in interest rates relates primarily to any borrowings under our existing Line of Credit, and our investments in short-term financial instruments. The Company currently has a zero balance under its existing Line of Credit.
Investments of our existing cash balances in both fixed rate and floating rate interest earning instruments carry some interest rate risk. The fair value of fixed rate securities may fall due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Partly as a result of this, our future interest income will vary due to changes in interest rates and we may suffer losses in principal if we are forced to sell securities that have fallen in estimated fair value due to changes in interest rates. However, as substantially all of our cash equivalents consist of bank deposits and short-term money market instruments, we do not expect any material change with respect to our net income as a result of an interest rate change.
We do not hold any derivative instruments and do not engage in any hedging activities.
ITEM 4. CO N TROLS AND PROCEDURES
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures were designed to provide reasonable assurance that the controls and procedures would meet their objectives. As required by SEC Rule 13a-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Our Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining adequate internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria in Internal Control — Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (“ COSO ”). Our system of internal control over financial reporting is designed 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. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has used the framework set forth in the report entitled Internal Control-Integrated Framework published by the COSO to evaluate the effectiveness of our internal control over financial reporting. Based on this assessment, our Chief Executive Officer and Chief Financial Officer have concluded that our internal control over financial reporting was effective as of September 30, 2019. This Quarterly Report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by our independent registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Quarterly Report. There has been no change in our internal controls over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
(b) Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the quarter ended September 30, 2019. There have not been any significant changes in the Company’s critical accounting policies identified since the Company filed its Annual Report on Form 10-K for the year ended December 31, 2018.
P ART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 31, 2014, various plaintiffs, individually and on behalf of a purported nationwide and sub-class of purchasers, filed a lawsuit in the U.S. District Court for the Northern District of California, captioned Ryan et al. v. Gencor Nutrients, Inc. et al. , Case No.: 4:14-CV-05682. The lawsuit includes claims made against the manufacturer and various producers and sellers of products containing a nutritional supplement known as Testofen, which is manufactured and sold by Gencor Nutrients, Inc. (“ Gencor ”). Specifically, the Ryan plaintiffs allege that various defendants have manufactured, marketed and/or sold Testofen, or nutritional supplements containing Testofen, and in doing so represented to the public that Testofen had been clinically proven to increase free testosterone levels. According to the plaintiffs, those claims are false and/or not statistically proven. Plaintiffs seek relief under violations of the Racketeering Influenced Corrupt Organizations Act, breach of express and implied warranties, and violations of unfair trade practices in violation of California, Pennsylvania, and Arizona law. NDS utilizes Testofen in a limited number of nutritional supplements it manufactures and sells pursuant to a license agreement with Gencor.
On February 19, 2015 this matter was transferred to the Central District of California to the Honorable Manuel Real. Judge Real had previously issued an order dismissing a similar lawsuit that had been filed by the same lawyer who represents the plaintiffs in the Ryan matter. The United States Court of Appeals reversed part of the dismissal issued by Judge Real and remanded the case back down to the district court for further proceedings. As a result, the parties in the Ryan matter issued a joint status report and that matter is again active. However, on June 14, 2019, the Central District of California issued an order staying the Ryan matter pending the second appeal of a previously filed related case captioned O’Toole, et al., v. Gencor Nutrients Inc. et al. , Case No.:2:12-cv-03754.
On September 27, 2019 the parties entered into a confidential settlement agreement whereby Plaintiffs agreed to dismiss their claims against NDS, with prejudice.  On October 4, 2019 this matter was dismissed, with prejudice.
During the nine months ended September 30, 2019, the aggregate impact of all legal settlements was a gain of $171,000.
ITEM 1A. RISK FACTORS
Our results of operations and financial condition are subject to numerous risks and uncertainties described in our Annual Report on Form 10-K for our fiscal year ended December 31, 2018, filed on March 22, 2019. 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. As of November 7, 2019, we have identified the following risk factor in addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018:
Our Chair of the Board of Directors, Chief Executive Officer and significant shareholder may have certain personal interests that may affect the Company.
As a result of securities held by Sudbury Capital Fund, LP (" Sudbury ") and Dayton Judd, the Company’s Chair of the Board of Directors and Chief Executive Officer, Mr. Judd may be deemed the beneficial owner of, in the aggregate, approximately 47.7 % of the Company’s outstanding voting securities.  Consequently, Mr. Judd individually, and together with Sudbury, as stockholders acting together, can significantly influence all matters requiring approval by our stockholders, including the election of directors and significant corporate transactions, such as mergers or other business transactions requiring shareholder approval.  This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other shareholders or preventing transactions in which shareholders might otherwise recover a premium for their shares over current market prices.  In addition, as a result of Mr. Judd’s position as Chair of the Board and Chief Executive Officer Mr. Judd and/or Sudbury may have the ability to exert influence over both the actions of the Board of Directors, as well as the execution of management’s plans.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
During the quarter ended September 30, 2019, the Company repurchased 82,216 shares of Common Stock, or approximately 8% of the issued and outstanding shares of the Company, through both open market and private transactions, as follows:
Trade date
Total number of shares purchased
Average price paid per share
Total number of shares purchased as part of publicly announced programs
Dollar value of shares that may yet be purchased
July 2019
-
-
-
-
August 2019
-
$ -
-
$ 500,000
September 2019
82,216
$ 9.96
82,216
$ 181,000
Subtotal
82,216
$ 9.96
82,216
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
There were no defaults upon senior securities during the nine-month period ended September 30, 2019.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema
101.CAL
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
XBRL Taxonomy Extension Definition Linkbase
101.LAB
XBRL Taxonomy Extension Label Linkbase
101.PRE
XBRL Taxonomy Extension Presentation Linkbase
SIGN ATURES
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
Date: November 12, 2019
FitLife Brands, Inc.
By: /s/ Dayton Judd
Dayton Judd
Chief Executive Officer and Chair
(Principal Executive Officer)
Registrant
Date: November 12, 2019
FitLife Brands, Inc.
By: /s/ Susan Kinnaman
Susan Kinnaman
Chief Financial Officer
(Principal Financial Officer)
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