FitLife Brands(FTLF) - 2021 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (unaudited) The unaudited Q1 2021 financial statements show stable revenue, increased profitability, and a strengthened balance sheet Condensed Consolidated Balance Sheets Total assets increased to $18.35 million, liabilities decreased due to PPP loan forgiveness, and stockholders' equity grew Condensed Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $13,797 | $11,873 | | Total Assets | $18,349 | $16,774 | | Total Current Liabilities | $4,356 | $4,129 | | Total Liabilities | $4,500 | $4,740 | | Total Stockholders' Equity | $13,849 | $12,034 | - The decrease in total liabilities was significantly impacted by the forgiveness of the PPP loan, which was $453,000 as of December 31, 2020, and zero as of March 31, 2021[13] Condensed Consolidated Statements of Operations Revenue remained flat, while gross profit increased and net income rose 18% to $1.68 million, aided by PPP loan forgiveness Q1 2021 vs Q1 2020 Performance (in thousands, except per share data) | Metric | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Revenue | $6,158 | $6,151 | | Gross Profit | $3,077 | $2,737 | | Operating Income | $1,543 | $1,321 | | Pre-Tax Net Income | $2,002 | $1,387 | | Net Income | $1,684 | $1,428 | | Diluted EPS | $1.43 | $1.27 | - A significant contributor to net income in Q1 2021 was a $453,000 gain on debt forgiveness, which was absent in the prior year[15] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased to $13.85 million, primarily driven by net income of $1.68 million and stock-based compensation - The primary drivers for the increase in stockholders' equity during Q1 2021 were net income of $1,684,000 and stock-based compensation of $131,000[17] Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $289,000, increasing the cash balance to $6.63 million Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $289 | $1 | | Net Cash from Investing Activities | $0 | $0 | | Net Cash from Financing Activities | $0 | $2,400 | | Change in Cash | $289 | $2,401 | | Cash, End of Period | $6,625 | $2,666 | - The significant cash provided by financing activities in Q1 2020 was due to $2.5 million in proceeds from a line of credit, which was not repeated in Q1 2021[20] Notes to Condensed Consolidated Financial Statements Key notes highlight the Tax Benefits Preservation Plan, expanded share repurchase, customer concentration, PPP loan forgiveness, and post-quarter acquisitions - The company adopted a Tax Benefits Preservation Plan to protect its valuable Net Operating Losses (NOLs) from being limited by an "ownership change" as defined in Section 382 of the IRC[26] - On February 1, 2021, the Board increased the authorized amount for the Share Repurchase Program to $5.0 million[27] - Sales to GNC represented 66% of total net revenue in Q1 2021, a decrease from 76% in Q1 2020. Concurrently, online sales grew to 26% of net revenue in Q1 2021, up from 14% in the prior year period[43][44] - The full balance of the company's $449,700 Paycheck Protection Program (PPP) loan, including accrued interest, was forgiven on January 15, 2021[31][64] - Subsequent to the quarter end, on April 7, 2021, the company acquired the assets of Nutrology, a nutritional supplement company focused on all-natural and plant-based products[24][81] Item 2. Management's Discussion & Analysis of Financial Condition and Results of Operations Management reports flat revenue but significantly improved profitability in Q1 2021, driven by expanded gross margins and PPP loan forgiveness, with strong liquidity Results of Operations Revenue remained flat, while gross profit increased 12% and net income rose 18% to $1.68 million, driven by improved margins and PPP loan forgiveness Q1 2021 vs Q1 2020 Operational Results (in thousands) | Metric | Q1 2021 | Q1 2020 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $6,158 | $6,151 | $7 | 0% | | Gross Profit | $3,077 | $2,737 | $340 | 12% | | Income from Operations | $1,543 | $1,321 | $222 | 17% | | Net Income | $1,684 | $1,428 | $256 | 18% | - The increase in gross margin to 50.0% from 44.5% in the prior year is principally attributed to a greater mix of online sales[100][101] - Adjusted EBITDA, a non-GAAP measure, increased to $1.68 million in Q1 2021 from $1.36 million in Q1 2020[108] Liquidity and Capital Resources Liquidity strengthened with working capital at $9.4 million, supported by $6.6 million cash and an undrawn $2.5 million line of credit, with the PPP loan forgiven - As of March 31, 2021, the company had positive working capital of approximately $9,441,000 and cash of $6,625,000[109] - The company maintains a $2.5 million revolving line of credit with CIT Bank N.A., which was undrawn as of the quarter's end[110] - Cash provided by operating activities for Q1 2021 was $289,000, compared to just $1,000 in Q1 2020[117] Critical Accounting Policies and Estimates Key accounting policies requiring significant judgment include estimates for receivables, inventories, deferred tax assets, goodwill impairment, and revenue recognition - Critical accounting policies requiring significant management estimates include those related to accounts receivable, inventories, goodwill, revenue, costs, and the valuation of long-term assets and deferred tax assets[123] - The company recognizes revenue under ASC 606, with control of products transferring to customers upon shipment from its facilities, at which point performance obligations are satisfied[127][129] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's market risk is not material, with no significant foreign currency or interest rate risk, and no use of derivative instruments - The company's financial results are not materially affected by changes in foreign currency exchange rates as its business is conducted principally in the United States[133] - Interest rate risk is primarily related to borrowings under the Line of Credit, which had a zero balance as of March 31, 2021[135] - The company does not hold any derivative instruments or engage in hedging activities[137] Item 4. Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective, with no material changes reported during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period[138] - Based on an assessment using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of March 31, 2021[139] - There were no changes in internal controls over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[140] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not involved in any material litigation expected to adversely affect its financial condition or operations - The company is not involved in any material litigation[142] Item 1A. Risk Factors This section refers to risk factors in the 2020 Form 10-K, with no material changes or additions reported - The company's risks and uncertainties are described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2020[143] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[144] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the three-month period - There were no defaults upon senior securities during the quarter[145] Item 5. Other Information The company reported no other information for this item - None[146] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including certifications and XBRL data files - Exhibits filed include the Tax Benefit Preservation Plan, Certifications pursuant to Sarbanes-Oxley Act Sections 302 and 906, and XBRL Instance Documents[147]