FITLIFE BRANDS INC

Previous wording

The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“GNC”) stores located both domestically and internationally and, with the launch of Metis Nutrition, through corporate GNC stores in the U.S. The iSatori Products are sold through approximately 16,000 retail locations, which include specialty, mass, and online. The Company distributes the MRC Products primarily online. MusclePharm’s products are sold to wholesale customers as well as online directly to the end consumer.

Current wording

The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“GNC”) stores located both domestically and internationally and, with the launch of Metis Nutrition, through corporate GNC stores in the U.S. The iSatori Products are sold through retail locations, which include specialty, mass, and online. The Company distributes the MRC Products primarily online. MusclePharm’s products are sold to wholesale customers as well as online directly to the end consumer.

Previous wording

On October 10, 2023, the Company acquired substantially all of the assets of MusclePharm Corporation (“MusclePharm”) through an asset purchase transaction under Section 363 of the U.S. Bankruptcy Code. The Company acquired substantially all of the assets and assumed none of the liabilities of MusclePharm other thande minimus cure costs relating to certain assumed contracts. Total consideration for the acquisition was approximately $18,500. Of this amount, $10,000 was funded using proceeds from a new term loan provided by First Citizens Bank, with the remainder funded from the Company’s available cash balances. See Note 9 for additional disclosure regarding the acquisition of MusclePharm.

Current wording

On October 10, 2023, the Company acquired substantially all of the assets of MusclePharm Corporation (“MusclePharm”) through an asset purchase transaction under Section 363 of the U.S. Bankruptcy Code. The Company acquired substantially all of the assets and assumed none of the liabilities of MusclePharm other thande minimus cure costs relating to certain assumed contracts. Total consideration for the acquisition was approximately $18,500. Of this amount, $10,000 was funded using proceeds from a new term loan provided by First Citizens Bank, with the remainder funded from the Company’s available cash balances. See Note 9 for additional disclosure regarding the acquisition of the MusclePharm assets.

Previous wording

Revenue. Revenue for the three months ended June 30, 2024 increased 15% to $16,930 as compared to $14,760 for the three months ended June 30, 2023. The increase in revenue for the three months ended June 30, 2024 compared to the prior period is primarily due to the acquisition of the MusclePharm assets, which were acquired on October 10, 2023, partially offset by a decline in legacy FitLife revenue.

Current wording

Revenue. Revenue for the three months ended September 30, 2024 increased 15% to $15,977 as compared to $13,902 for the three months ended September 30, 2023. The increase in revenue for the three months ended September 30, 2024 compared to the prior period is primarily due to the acquisition of the MusclePharm assets, which were acquired on October 10, 2023, partially offset by a decline in Legacy FitLife revenue.

Previous wording

Legacy FitLife revenue for the three months ended June 30, 2024 was $6,802, a 5% decrease compared to the previous year, driven by a 10% decline in wholesale revenue partially offset by a 7% increase in online revenue.

Current wording

Legacy FitLife revenue for the three months ended September 30, 2024 was $6,302, a 6% decrease compared to the previous year, driven by a 12% decline in wholesale revenue partially offset by a 4% increase in online revenue.

Previous wording

During the three months ended June 30, 2024, MusclePharm generated revenue of $2,667, of which approximately half was generated from wholesale customers and half from online sales.

Current wording

During the three months ended September 30, 2024, MusclePharm generated revenue of $2,465, of which approximately half was generated from wholesale customers and half from online sales.

Previous wording

Online revenue and wholesale revenue for the quarter ended June 30, 2024 were approximately 66% and 34% of total net revenue, respectively. Online revenue and wholesale revenue for the quarter ended June 30, 2023 were approximately 67% and 33% of net revenue, respectively. 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 and the acquisition of the MusclePharm assets, which was consummated in the fourth quarter of fiscal 2023.

Current wording

Online revenue and wholesale revenue for the quarter ended September 30, 2024 were approximately 68% and 32% of total net revenue, respectively, consistent with the online and wholesale revenue percentages for the same period of 2023.

Previous wording

Sales to customers in the U.S. were approximately 96% and 93% during the quarters ended June 30, 2024 and 2023, respectively, with the balance of sales to customers primarily in Canada.

Current wording

Sales to customers in the U.S. were approximately 95% and 93% during the quarters ended September 30, 2024 and 2023, respectively, with the balance of sales to customers primarily in Canada.

Previous wording

Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2024 increased to $9,350 as compared to $8,795 for the three months ended June 30, 2023. This 6% increase is primarily due to an increase in revenue attributable to the acquisition of the MusclePharm assets, partially offset by lower legacy FitLife sales.

Current wording

Cost of Goods Sold. Cost of goods sold for the three months ended September 30, 2024 increased to $8,976 as compared to $8,206 for the three months ended September 30, 2023. This 9% increase is primarily due to an increase in revenue attributable to the acquisition of the MusclePharm assets, partially offset by lower Legacy FitLife sales.

Previous wording

Gross Profit. Gross profit for the six months ended June 30, 2024 increased to $14,867 as compared to $10,373 for the six months ended June 30, 2023. The increase in gross profit is principally attributable to higher MRC gross profit as well as incremental gross profit from MusclePharm.

Current wording

Gross Profit. Gross profit for the three months ended September 30, 2024 increased to $7,001 as compared to $5,696 for the three months ended September 30, 2023. The increase in gross profit is attributable to higher gross profit from both MRC and Legacy FitLife as well as incremental gross profit from MusclePharm.

Previous wording

Gross Margin. Gross margin for the three months ended June 30, 2024 increased to 44.8% from 40.4% for the comparable prior period. The increase in gross margin is primarily attributable to higher margins from MRC as well as the amortization of the fair value step-up to MRC inventory acquired in the first quarter of 2023. Excluding the $213 impact of the step-up amortization, gross margin would have been 41.9% during the quarter ended June 30, 2023.

Current wording

Gross Margin. Gross margin for the three months ended September 30, 2024 increased to 43.8% from 41.0% for the comparable prior period. The increase in gross margin is primarily attributable to higher margins from both MRC and Legacy FitLife.

Previous wording

*Advertising andm arketing.*Advertising and marketing expense for the three months ended June 30, 2024 decreased to $1,326 as compared to $1,457 for the same period of the prior year. The 9% decrease is the result of targeted efforts to rationalize the Company’s advertising spend on less effective advertising campaigns.

Current wording

*Advertising andMarketing.*Advertising and marketing expense for the three months ended September 30, 2024 decreased to $1,093 as compared to $1,275 for the same period of the prior year. The 14% decrease is the result of targeted efforts to rationalize the Company’s advertising spend on less effective advertising campaigns.

Previous wording

Net Income. We generated net income of $2,628 for the three months ended June 30, 2024 as compared to net income of $1,964 for the three months ended June 30, 2023. The increase in net income for the three months ended June 30, 2024 compared to the same period in 2023 was primarily attributable to incremental revenue and gross profit from MusclePharm, higher gross profit from MRC, as well as reduction in advertising and marketing and acquisition-related expense.

Current wording

Net Income. We generated net income of $2,126 for the three months ended September 30, 2024 as compared to net income of $1,696 for the three months ended September 30, 2023. The increase in net income for the three months ended September 30, 2024 compared to the same period in 2023 was primarily attributable to incremental revenue and gross profit from MusclePharm, higher gross profit from MRC and Legacy FitLife, as well as reduced advertising and marketing expense.

Previous wording

Comparison of the six months ended June 30, 2024 to the six months ended June 30, 2023

Current wording

Comparison of the nine months ended September 30, 2024 to the nine months ended September 30, 2023

Previous wording

Revenue. Revenue for the six months ended June 30, 2024 increased 31% to $33,479 as compared to $25,498 for the six months ended June 30, 2023. The increase in revenue for the six months ended June 30, 2024 compared to the prior period is due to the acquisition of MRC and the MusclePharm assets, partially offset by a decline in legacy FitLife revenue. MRC was acquired February 28, 2023, and as such only four months of MRC revenue were included in the Company’s financial statements for the six months ended June 30, 2023. MusclePharm was acquired on October 10, 2023.

Current wording

Revenue. Revenue for the nine months ended September 30, 2024 increased 26% to $49,456 as compared to $39,401 for the nine months ended September 30, 2023. The increase in revenue for the nine months ended September 30, 2024 compared to the prior period is due to the acquisition of MRC and the MusclePharm assets, partially offset by a decline in Legacy FitLife revenue. MRC was acquired February 28, 2023, and as such only seven months of MRC revenue were included in the Company’s financial statements for the nine months ended September 30, 2023. MusclePharm was acquired on October 10, 2023.

Previous wording

Legacy FitLife revenue for the six months ended June 30, 2024 was $13,763, a 10% decrease compared to the previous year, driven by a 16% decline in wholesale revenue partially offset by a 4% increase in online revenue.

Current wording

Legacy FitLife revenue for the nine months ended September 30, 2024 was $20,065, a 9% decrease compared to the previous year, driven by a 15% decline in wholesale revenue partially offset by a 5% increase in online revenue.

Previous wording

MRC revenue for the six months ended June 30, 2024 was $14,954. MRC revenue for the period from February 28, 2023 to June 30, 2023 was $10,266.

Current wording

MRC revenue for the nine months ended September 30, 2024 was $22,164. MRC revenue for the period from February 28, 2023 to September 30, 2023 was $17,468.

Previous wording

During the six months ended June 30, 2024, MusclePharm generated revenue of $4,762, of which approximately half was generated from wholesale customers and half from online sales.

Current wording

During the nine months ended September 30, 2024, MusclePharm generated revenue of $7,227, of which approximately half was generated from wholesale customers and half from online sales.

Previous wording

Cost of Goods Sold. Cost of goods sold for the six months ended June 30, 2024 increased to $18,612 as compared to $15,125 for the six months ended June 30, 2023. This 23% increase is due to an increase in revenue attributable to the acquisitions of MRC and the MusclePharm assets.

Current wording

Cost of Goods Sold. Cost of goods sold for the nine months ended September 30, 2024 increased to $27,588 as compared to $23,332 for the nine months ended September 30, 2023. This 18% increase is due to an increase in revenue attributable to the acquisitions of MRC and the MusclePharm assets.

Previous wording

Gross Profit. Gross profit for the three months ended June 30, 2024 increased to $7,580 as compared to $5,965 for the three months ended June 30, 2023. The increase in gross profit is principally attributable to higher MRC gross profit as well as incremental gross profit from MusclePharm.

Current wording

Gross Profit. Gross profit for the nine months ended September 30, 2024 increased to $21,868 as compared to $16,069 for the nine months ended September 30, 2023. The increase in gross profit is principally attributable to higher MRC gross profit as well as incremental gross profit from MusclePharm.

Previous wording

Gross Margin. Gross margin for the six months ended June 30, 2024 increased to 44.4% from 40.7% for the comparable prior period. The increase in gross margin is primarily attributable to higher margins from MRC as well as the amortization of the fair value step-up to MRC inventory acquired in the first quarter of 2023. Excluding the $323 impact of the step-up amortization, gross margin would have been 41.9% during the six months ended June 30, 2023.

Current wording

Gross Margin. Gross margin for the nine months ended September 30, 2024 increased to 44.2% from 40.8% for the comparable prior period. The increase in gross margin is primarily attributable to higher margins from MRC and Legacy FitLife as well as the amortization of the fair value step-up to MRC inventory acquired in the first quarter of 2023. Excluding the $323 impact of the step-up amortization, gross margin would have been 41.6% during the nine months ended September 30, 2023.

Previous wording

*Advertising andm arketing.*Advertising and marketing expense for the six months ended June 30, 2024 increased to $2,554 as compared to $2,084 for the same period of the prior year. The 23% increase is primarily due to the full-period impact of MRC advertising and marketing as well as incremental advertising and marketing expense attributable to the acquisition of the MusclePharm assets.

Current wording

*Advertising andMarketing.*Advertising and marketing expense for the nine months ended September 30, 2024 increased to $3,647 as compared to $3,359 for the same period of the prior year. The 9% increase is primarily due to the full-period impact of MRC advertising and marketing as well as incremental advertising and marketing expense following the acquisition of the MusclePharm assets.

Previous wording

SG&A. SG&A expense for the six months ended June 30, 2024 increased to $5,036 as compared to $3,502 for the six months ended June 30, 2023. The increase was due to the full-period impact of MRC SG&A as well as incremental SG&A attributable to the acquisition of MusclePharm assets, increased product testing costs required by Amazon and increased professional fees.

Current wording

SG&A. SG&A expense for the nine months ended September 30, 2024 increased to $7,681 as compared to $5,399 for the nine months ended September 30, 2023. The increase was primarily due to the full-period impact of MRC SG&A as well as higher personnel costs (including salaries, benefits and stock compensation) and higher professional fees. In addition, the Company incurred non-recurring severance costs of $184.

Previous wording

*Merger anda cquisitionr elated.*Merger and acquisition related expense decreased to $158 during the six months ended June 30, 2024 compared to $1,487 for the same period of 2023, driven primarily by transaction costs related to the MRC acquisition in the second quarter of 2023.

Current wording

*Merger andAcquisitionRelated.*Merger and acquisition related expense decreased to $217 during the nine months ended September 30, 2024 compared to $1,519 for the same period of 2023, driven primarily by transaction costs related to the MRC acquisition in 2023.

Previous wording

Net Income. We generated net income of $4,788 for the six months ended June 30, 2024 as compared to net income of $2,120 for the six months ended June 30, 2023. The increase in net income for the six months ended June 30, 2024 compared to the same period in 2023 was primarily attributable to higher revenue and gross profit for MRC and a reduction in acquisition-related expense due to the MRC acquisition that closed during the first three months of 2023, partially offset by incremental SG&A expense.

Current wording

Net Income. We generated net income of $6,914 for the nine months ended September 30, 2024 as compared to net income of $3,816 for the nine months ended September 30, 2023. The increase in net income for the nine months ended September 30, 2024 compared to the same period in 2023 was primarily attributable to higher revenue and gross profit for MRC, incremental revenue and gross profit from MusclePharm, as well as a reduction in acquisition-related expense due to the MRC acquisition that closed during 2023, partially offset by incremental SG&A expense.

Previous wording

For the second quarter of 2024, legacy FitLife revenue declined 5% compared to the same period last year, driven by a 10% decline in wholesale revenue partially offset by 7% increase in online revenue.

Current wording

For the third quarter of 2024, Legacy FitLife revenue declined 6% compared to the same period last year, driven by a 12% decline in wholesale revenue partially offset by a 4% increase in online revenue.

Previous wording

Despite the revenue decline, gross profit for legacy FitLife increased slightly and contribution decreased slightly. Gross margin increased from 42.0% during the second quarter of 2023 to 44.2% during the second quarter of 2024. Contribution as a percentage of revenue increased from 41.2% to 42.8% over the same time period.

Current wording

Despite the revenue decline, gross profit and contribution for Legacy FitLife increased. Gross margin increased from 37.2% during the third quarter of 2023 to 42.6% during the third quarter of 2024. Contribution as a percentage of revenue increased from 36.0% to 41.5% over the same time period.

Previous wording

For the second quarter of 2024, MRC revenue declined 2% compared to the same period in 2023. Over the same time period, gross profit increased 21% and contribution increased 61%.

Current wording

For the third quarter of 2024, MRC revenue was consistent with the same period in 2023. Over the same time period, gross profit increased 7% and contribution increased 25%.

Previous wording

Revenue for the largest MRC brand—Dr. Tobias—increased 4% while revenue for the skin care brands—Maritime Naturals and All Natural Advice—declined 37% in the second quarter of 2024.

Current wording

Revenue for the largest MRC brand, Dr. Tobias, increased 6% in the third quarter of 2024 while revenue for the skin care brands, Maritime Naturals and All Natural Advice, declined 33% in the same period compared to the third quarter of 2023.

Previous wording

At the time of the MRC acquisition in 2023, the skin care brands were sold in a number of countries. Analysis subsequent to the acquisition determined that—in almost all countries other than Canada and the US—the products were being sold at levels resulting in negative contribution. Even worse, in many of those countries, the products were being sold at negative gross margins.

Current wording

At the time of the MRC acquisition in 2023, the skin care brands were sold in a number of countries. Analysis subsequent to the acquisition determined that, in almost all countries other than Canada and the U.S., the products were being sold at levels resulting in negative contribution. Even worse, in many of those countries, the products were being sold at negative gross margins.

Previous wording

In an effort to drive revenue growth, the Company is making targeted investments in advertising and promotion in both the wholesale and online channels. As a result of these investments, gross margin and contribution margin declined as a percent of revenue, although total gross profit and contribution in dollar terms increased sequentially.

Current wording

In an effort to drive revenue growth, the Company is making targeted investments in advertising and promotion in both the wholesale and online channels. As a result of these investments, gross margin and contribution margin as a percent of revenue may fluctuate from quarter to quarter.

Previous wording

For the Company overall, revenue increased 15%, gross profit increased 27%, and contribution increased 39% compared to the second quarter of 2023.

Current wording

For the Company overall, revenue increased 15%, gross profit increased 23%, and contribution increased 34% compared to the third quarter of 2023.

Previous wording

Contribution as a percentage of revenue increased to 36.9% compared to 30.5% during the second quarter of last year, or 32.0% excluding the impact of the inventory step-up resulting from the acquisition of MRC.

Current wording

Contribution as a percentage of revenue increased to 37.0% compared to 31.8% during the third quarter of last year.

Previous wording

As of June 30, 2024, the Company had positive working capital of $4,711, compared to $4,356 at December 31, 2023. Our principal sources of liquidity at June 30, 2024 consisted of $3,735 of cash and $2,498 of accounts receivable. The slight increase in working capital is principally attributable to positive operating cash flows during the six months ended June 30, 2024, partially offset by a voluntary paydown of $2,500 on the Term Loans as well as the two scheduled amortization payments totaling $2,250.

Current wording

As of September 30, 2024, the Company had positive working capital of $6,044, compared to $4,356 at December 31, 2023. Our principal sources of liquidity at September 30, 2024 consisted of $4,720 of cash and $2,008 of accounts receivable. The increase in working capital is principally attributable to positive operating cash flows during the nine months ended September 30, 2024, partially offset by a voluntary paydown of $2,500 on the Term Loans as well as the three scheduled amortization payments totaling $3,375.

Previous wording

As of June 30, 2024, the borrowings outstanding on the Term Loans and the Line of Credit were $15,375 and $0, respectively.

Current wording

As of September 30, 2024, the borrowings outstanding on the Term Loans and the Line of Credit were $14,250 and $0, respectively.

Previous wording

Cash Provided by Operating Activities. Cash provided by operating activities for the six months ended June 30, 2024 was $6,606, as compared to cash provided by operations of $1,794 for the six months ended June 30, 2023. The increase in cash provided by operating activities was driven primarily by the higher net income achieved in the first six months of 2024 driven by the acquisitions of MRC and the MusclePharm assets, as well as the payment of the transaction-related costs and other payables and expenses that were accrued at MRC at the time of the acquisition during the same period of 2023.

Current wording

Cash Provided by Operating Activities. Cash provided by operating activities for the nine months ended September 30, 2024 was $8,653, as compared to cash provided by operations of $2,772 for the nine months ended September 30, 2023. The increase in cash provided by operating activities was primarily due to the higher net income achieved in the first nine months of 2024 which was driven by the acquisitions of MRC and the MusclePharm assets, as well as the payment of the transaction-related costs and other payables and expenses that were accrued at MRC at the time the Company acquired MRC in 2023.

Previous wording

Cash Used in Investing Activities. Cash used in investing activities for the six months ended June 30, 2024 and 2023 was $10 and $17,153, respectively. The Company used $10 and $54 for purchases of property and equipment in the six months ended June 30, 2024 and 2023, respectively. During the six-month period ended June 30, 2023, the Company paid $17,099 to acquire MRC.

Current wording

Cash Used in Investing Activities. Cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $10 and $18,984, respectively. The Company used $10 and $60 for purchases of property and equipment in the nine months ended September 30, 2024 and 2023, respectively. During the nine-month period ended September 30, 2023, the Company paid $17,099 to acquire MRC and had paid a deposit towards the acquisition of the MusclePharm assets.

Previous wording

Cash Provided by (Used in) Financing Activities. Cash used in financing activities for the six months ended June 30, 2024 was $4,750 compared to cash provided by financing activities of $11,875 during the three months ended June 30, 2023.

Current wording

Cash Provided by (Used in) Financing Activities. Cash used in financing activities for the nine months ended September 30, 2024 was $5,875 compared to cash provided by financing activities of $11,250 during the three months ended September 30, 2023.

Previous wording

The Company’s products are also sold on e-commerce platforms including Amazon. For these transactions, the Company evaluated principal versus agent considerations to determine appropriateness of recording platform fees paid to Amazon as an expense or as a reduction of revenue. The Company records platform fees paid to Amazon for distribution of Company products to cost of goods sold in the condensed consolidated statements of income and comprehensive income. Platform fees are not recorded as a reduction of revenue because the Company (1) owns the goods before they are transferred to the customer, (2) can direct Amazon, similar to other third-party logistics providers (“Logistic Providers”), to return the Company’s inventory to any location specified by the Company, (3) has the responsibility to make customers whole following any returns made by customers directly to Logistic Providers and the Company retains the back-end inventory risk, (4) is subject to credit risk (i.e., credit card chargebacks), (5) establishes prices of its products, (6) can determine who fulfills the goods to the customer (Amazon or the Company) and (7) can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement. Advertising fees for Amazon are recorded in selling, general and administrative expenses in the condensed consolidated statements of income and comprehensive income.

Current wording

The Company’s products are also sold on e-commerce platforms including Amazon. For these transactions, the Company evaluated principal versus agent considerations to determine appropriateness of recording distribution and platform fees paid to third-party e-commerce companies as an expense or as a reduction of revenue. The Company records distribution and platform fees to cost of goods sold in the condensed consolidated statements of income and comprehensive income. Distribution and platform fees are not recorded as a reduction of revenue because the Company (1) owns the goods before they are transferred to the customer, (2) can direct Amazon, similar to other third-party logistics providers (“Logistic Providers”), to return the Company’s inventory to any location specified by the Company, (3) has the responsibility to make customers whole following any returns made by customers directly to Logistic Providers and the Company retains the back-end inventory risk, (4) is subject to credit risk (i.e., credit card chargebacks), (5) establishes prices of its products, (6) can determine who fulfills the goods to the customer (Amazon or the Company) and (7) can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement. Advertising fees for Amazon are recorded in advertising and marketing expense in the condensed consolidated statements of income and comprehensive income.

Previous wording

Online revenue during the six months ended June 30, 2024 was approximately 66% of net revenue, compared to 34% for wholesale channels for the same period. Online revenue during the six months ended June 30, 2023 was 59% of net revenue compared to 41% for wholesale channels during the same period in 2023.

Current wording

Online revenue during the nine months ended September 30, 2024 and 2023 was approximately 66% and 62% of net revenue, compared to 34% and 38% for the wholesale channel for the same period.

Previous wording

Sales to customers in the U.S. were approximately 96% and 93% during the three months ended June 30, 2024 and 2023, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada.

Current wording

Sales to customers in the U.S. were approximately 95% and 93% during the three months ended September 30, 2024 and 2023, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada.