FitLife Brands(FTLF) - 2023 Q3 - Quarterly Report

Financial Performance - Revenue for Q3 2023 reached $13,902,000, a 67.5% increase from $8,314,000 in Q3 2022[14] - Gross profit for Q3 2023 was $5,696,000, up 75.7% from $3,244,000 in Q3 2022[14] - Operating income for the nine months ended September 30, 2023, was $5,728,000, compared to $4,963,000 for the same period in 2022, reflecting a 15.4% increase[14] - Net income for Q3 2023 was $1,696,000, a 39.1% increase from $1,220,000 in Q3 2022[14] - Net income for the nine months ended September 30, 2023, was $3,816 million, a decrease of 3.5% compared to $3,956 million in the same period of 2022[17] - Pro forma revenue for the three months ended September 30, 2023 was $44,455, with net income of $5,419, compared to $46,669 and $3,976 for the same period in 2022[81] - MRC's revenue for the three months ended September 30, 2023 was $7,202, with a net income of $1,162[82] - Net income for the three months ended September 30, 2023 was $1,696, a 39% increase from $1,220 in the same period last year, primarily attributable to MRC's results[107] Assets and Liabilities - Total assets as of September 30, 2023, were $43,972,000, significantly up from $25,707,000 as of December 31, 2022[12] - Current liabilities increased to $7,388,000 as of September 30, 2023, compared to $4,270,000 at the end of 2022[12] - Stockholders' equity rose to $25,249,000 as of September 30, 2023, from $21,388,000 at the end of 2022[12] - Cash and cash equivalents decreased to $7,343,000 as of September 30, 2023, from $13,277,000 at the end of 2022[12] - The Company had a total debt obligation of $11.25 million as of September 30, 2023, consisting of a term loan[59] - As of September 30, 2023, cash and restricted cash totaled $8,312 million, down from $14,929 million at the end of the previous year[17] - The outstanding borrowings on the Term Loan as of September 30, 2023, were $11,250 million, with no borrowings under the Line of Credit[126] Cash Flow - Cash provided by operating activities for the nine months ended September 30, 2023, was $2,772 million, down 44.0% from $5,003 million in the prior year[17] - Cash used in investing activities for the nine months ended September 30, 2023, was $18,984 million, including $17,099 million for the acquisition of MRC and a $1,825 million deposit towards the acquisition of MusclePharm assets[133] - Cash provided by financing activities for the nine months ended September 30, 2023, was $11,250 million, significantly higher than $29 million in the same period of 2022, mainly due to the funding of the Term Loan[134] Acquisitions - The company completed the acquisition of Mimi's Rock Corp. on February 28, 2023, for $17,099 million[17][20] - The Company acquired Mimi's Rock Corp. for a purchase price of $17,099, funded by a Term Loan and cash on hand, with transaction-related costs of $32 and $1,519 for the three and nine months ended September 30, 2023, respectively[77][78] - On October 10, 2023, the Company acquired substantially all of the assets of MusclePharm for approximately $18.5 million in cash, with $10.0 million funded by a new term loan[84] - The Company entered into a Second Amended and Restated Credit Agreement on October 10, 2023, providing a Term Loan B for $10.0 million[86] Revenue Sources - Net sales to GNC accounted for 34% of total net revenue for the nine months ended September 30, 2023, down from 69% in the same period of 2022[37] - Online revenue accounted for approximately 68% of net revenue for the three months ended September 30, 2023, compared to 32% for the wholesale channel[44] - Sales to customers in the United States were approximately 92% during the three months ended September 30, 2023, down from 99% in the same period of 2022[45] Expenses - The company incurred merger and acquisition-related expenses of $1,519,000 for the nine months ended September 30, 2023[14] - Selling, general and administrative expenses for the three months ended September 30, 2023 increased to $3,172, up 89% from $1,680 in the same period last year, due to the inclusion of MRC's expenses[105] - Depreciation expense for the three months ended September 30, 2023, was $11 million, compared to $7 million for the same period in 2022[58] Inventory and Returns - The total allowance for obsolescence for inventory items increased to $142 million as of September 30, 2023, from $107 million as of December 31, 2022[57] - The Company's inventories totaled $7.724 million as of September 30, 2023, down from $9.105 million as of December 31, 2022[57] - Product returns are considered immaterial, suggesting that the Company expects minimal revenue reversals in the future[151] - The Company allows for returns within 30 days for direct-to-consumer sales, with wholesale customers having specific return conditions[47] Compliance and Management - The company anticipates that cash derived from operations and existing cash resources, along with available borrowings under the Line of Credit, will be sufficient for liquidity over the next twelve months[126] - The company was in compliance with all covenants as of September 30, 2023, including maintaining a Fixed Charge Coverage Ratio of not less than 1.25 to 1.00[125] - Management has implemented a Remediation Plan to address previously identified material weaknesses in internal controls, which are now deemed effective[157] Market and Economic Factors - The company experienced inflationary pressure but has partially offset it through price increases to customers[21] - The geographical scope of the Company's business is expanding, which may lead to increased hedging activities in the future[153] - The Company engaged in hedging transactions to mitigate exposure to foreign currency exchange rate fluctuations following the acquisition of MRC[153]