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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION

The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes”, “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue”, and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Annual Report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements.

The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Annual Report.

Restatement of Previously Issued Unaudited Interim Condensed Consolidated Financial Statements

We have restated our previously issued unaudited interim condensed consolidated Financial Statements as of and for the three months ended March 31, 2021, and as of and for the three and six months ended June 30, 2021. Refer to the section entitled “Explanatory Note” preceding Item 1 hereof for background on the restatement, the fiscal periods impacted, control considerations, and other information.

Within this MD&A, we have restated our previously issued unaudited interim condensed consolidated statements of operations for the three months ended March 31, 2021 and for the three and six months ended June 30, 2021; and unaudited interim condensed consolidated statements of cash flows for the three months ended March 31, 2021 and for the six months ended June 30, 2021 (the “Prior Quarterly Financial Statements”), to reflect the restatement more fully described in Note 11 to the notes of the audited consolidated financial statements in this Annual Report.

See Note 11, Quarterly Financial Data (Unaudited), in Item 8, Consolidated Financial Statements and Supplementary Data, for such restated information, and see Supplemental Unaudited Quarterly Financial Information, in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional interim financial information.

In connection with the Restatement, the Company restated the financial information as of and for the fiscal year December 31, 2020 and December 31, 2019, as well as the relevant unaudited interim financial information for the quarterly periods ended September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019, June 30, 2019, and March 31, 2019 in a separate filing in the 2020 Annual Report, as amended, on Form 10-K/A.

Critical Accounting Policies

Use of Estimates and Assumptions

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.

Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for product returns, sales returns and incentive programs, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

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Accounts Receivable and Allowance for Doubtful Accounts

The Company’s accounts receivable balance is related to trade receivables and are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped in categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable the receivable will not be recovered.

The determination of collectability of the Company’s accounts receivable requires management to make frequent judgments and estimates in order to determine the appropriate amount of allowance needed for doubtful accounts. The Company’s allowance for doubtful accounts is estimated to cover the risk of loss related to accounts receivable. This allowance is maintained at a level we consider appropriate based on historical and other factors that affect collectability. These factors include historical trends of write-offs, recoveries and credit losses; the careful monitoring of customer credit quality; and projected economic and market conditions. Different assumptions or changes in economic circumstances could result in changes to the allowance.

Total allowance for doubtful accounts as of December 31, 2021 and 2020 amounted to $55,000 and $51,000, respectively.

Product Returns, Sales Incentives and Other Forms of Variable Consideration

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration. Such elements of variable consideration include, but are not limited to, product returns and sales incentives, such as markdowns and margin adjustments. For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related products to the customers, or (ii) the Company pays, or promises to pay, the consideration.

GNC maintains a customer satisfaction program which allows customers to return product to the store for credit or refund. Subject to certain terms and restrictions, GNC may require reimbursement from vendors for unsaleable returned product through either direct payment or credit against a future invoice. We also support a product return policy for iSatori Products, whereby customers can return product for credit or refund. Product returns can and do occur from time to time and can be material.

For the sale of goods with a right of return, the Company estimates variable consideration using the most likely amount method and recognizes revenue for the consideration it expects to be entitled to when control of the related product is transferred to the customers and records a product returns liability for the amount it expects to credit back its customers. Under this method, certain forms of variable consideration are based on expected sell-through results, which requires subjective estimates. These estimates are supported by historical results as well as specific facts and circumstances related to the current period. In addition, the Company recognizes an asset included in Inventories, net and a corresponding adjustment to Cost of Goods Sold for the right to recover goods from customers associated with the estimated returns. The product returns liability and corresponding asset include estimates that directly impact reported revenue. These estimates are calculated based on a history of actual returns, estimated future returns and information provided by customers regarding their inventory levels. Consideration of these factors results in an estimate for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. In addition, as necessary, product returns liability and the related assets may be established for significant future known or anticipated events. The types of known or anticipated events that are considered, and will continue to be considered, include, but are not limited to, changes in the retail environment and the Company's decision to continue to support new and existing products.

Information for product returns is received on regular basis and adjusted for accordingly. Adjustments for returns are based on factual information and historical trends for both NDS products and iSatori products and are specific to each distribution channel. We monitor, among other things, remaining shelf life and sell-through data on a weekly basis. If we determine there are any risks or issues with any specific products, we accrue sales return allowances based on management’s assessment of the overall risk and likelihood of returns in light of all information available.

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Total allowance for product returns, sales returns and incentive programs as of December 31, 2021 and 2020 amounted to $632,000 and $345,000, respectively.

Inventory

The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.

The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory that expires within six months of the date of assessment is included in the allowance, even if the Company anticipates selling some or all of the inventory. In addition, the allowance includes the value of longer-dated finished good inventory that, based on projections, will remain unsold at the time of its expiration.

Total allowance for expiring, excess and slow-moving inventory items as of December 31, 2021 and 2020 amounted to $56,000 and $56,000, respectively.

Goodwill

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which required a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This update also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1, 2020 and applied the requirements prospectively.

There were no impairment charges incurred during the year ended December 31, 2021.

Revenue Recognition

The Company’s revenue is comprised of sales of nutritional supplements, primarily to GNC.

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 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.

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Control of products we sell transfers to customers upon shipment from our facilities or delivery to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. 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.

For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.

A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon evaluation of returns, the Company determined that less than 5% of products are returned, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Stock-Based Compensation.

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services rendered. The Company accounts for stock option and warrant grants issued and vesting to employees based on the authoritative guidance provided by the Financial Accounting Standards Board (“FASB”) where the value of the award is measured on the date of grant and recognized as compensation on the straight-line basis over the vesting period.

From prior periods until December 31, 2018, the Company accounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity-Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of ASU 2018-07 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions are measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the year ended December 31, 2019 or the previously reported financial statements.

The fair value of the Company’s stock option and warrant grants are estimated using the Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or warrants, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model and based on actual experience. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.

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Recent Accounting Pronouncements

See Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report for a description of recent accounting pronouncements believed by management to have a material impact on our present or future financial statements.

Results of Operations

As Restated

Fiscal Year Ended December 31, 2021 Compared to Fiscal Year Ended December 31, 2020

Net Sales. Revenue for the year ended December 31, 2021 increased 26% to $27,913,000 as compared to $22,111,000 for the year ended December 31, 2020. Revenue for the year ended December 31, 2021 compared to the prior year reflects continued growth in our wholesale business and in our online direct-to-consumer offering.

Online revenue during the year ended December 31, 2021 was approximately 24% of total revenue, compared to roughly 20% of total revenue during the same twelve-month period in 2020. Due to the ongoing shift to online purchasing by consumers, including additional growth arising from the effects of the COVID-19 pandemic as a result of the shutdown of various retail outlets, e-commerce sales have accounted for a growing percentage of our domestic revenue. 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.

The Company continually reformulates and introduces new products, as well as seeks to increase both the number of stores and number of approved products that can be sold within the GNC franchise system that comprise its domestic and international distribution footprint. Management also believes that its focus on developing its e-commerce capabilities will drive additional incremental sales in the short-term, while yielding substantial benefits in the longer-term.

Cost of Goods Sold. Cost of goods sold for the year ended December 31, 2021 increased 23% to $15,409,000 as compared to $12,574,000 for the year ended December 31, 2020. This increase is principally attributable to higher revenue.

Gross Profit Margin. Gross profit for the year ended December 31, 2021 increased to $12,504,000 as compared to $9,537,000 for the year ended December 31, 2020. Gross margin for the year ended December 31, 2021 increased to 44.8% from 43.1% for the comparable period last year. The increase in gross profit during the year ended December 31, 2021 is principally attributable to higher revenue and a larger percentage of higher-margin direct-to-consumer sales.

General and Administrative Expense. General and administrative expense for the year ended December 31, 2021 increased by $604,000 to $3,651,000 as compared to $3,047,000 for the year ended December 31, 2020. The increase in general and administrative expense was primarily due to an increase of $374,000 in stock compensation expense as well as $253,000 of expenses related to M&A activity.

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Selling and Marketing Expense. Selling and marketing expense for the year ended December 31, 2021 increased to $2,564,000 as compared to $2,106,000 for the year ended December 31, 2020. This increase is primarily attributable to higher co-operative marketing expenses paid to one of our wholesale partners. The Company anticipates that this higher level of marketing expense which was fully funded by wholesale price increases will continue for the foreseeable future.

Depreciation and Amortization. Depreciation and amortization for the year ended December 31, 2021 increased to $59,000 from $38,000 during the same period in 2020. The increase is primarily attributable to the amortization of intangibles acquired in the Nutrology business combination.

Net Income. We generated a net income of $5,410,000 for the year ended December 31, 2021, as compared to a net income of $8,825,000 for the year ended December 31, 2020. The decrease in net income for the year ended December 31, 2021 compared to the same period in 2020 was primarily attributable to an income tax benefit of $4,415,000 during 2020 resulting from removing a substantial portion of the reserve against our deferred tax assets.

Non-GAAP Measures

The financial presentation below contains certain financial measures defined as “non-GAAP financial measures” by the SEC, including non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Annual Report in accordance with GAAP.

As presented below, non-GAAP EBITDA excludes interest, income taxes, and depreciation and amortization. Adjusted non-GAAP EBITDA excludes—in addition to interest, taxes, depreciation and amortization—stock-based compensation, acquisition related expenses, and gains or losses of a non-recurring nature. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation below allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance.

Year Ended December 31,

(Unaudited) (Unaudited)

Interest expense (income), net (25,000 ) 6,000

Non-cash and non-recurring adjustments

Acquisition related expenses 253,000 -

Liquidity and Capital Resources

As of December 31, 2021, the Company had working capital of $13,626,000, compared to working capital of $7,615,000 at December 31, 2020. Our principal sources of liquidity at December 31, 2021 consisted of $9,897,000 of cash and $945,000 of accounts receivable. The increase in working capital is principally attributable to cash flows from operating activities during fiscal 2021, partially offset by the acquisition of Nutrology and share repurchases.

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”), subsequently acquired by CIT Bank N.A., providing the Company with a $2.5 million revolving line of credit (the “Line of Credit”). The Line of Credit allows the Company to request advances thereunder and to use the proceeds of such advances for working capital purposes until the Maturity Date, or unless renewed at maturity upon approval by the Company’s Board and the Lender. The Line of Credit is secured by all assets of the Company.

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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.

On March 20, 2020, the Lender advanced the Company $2.5 million under the Line of Credit, which amount was repaid on April 29, 2020. The advance was intended to provide the Company with additional liquidity given the uncertainty regarding the timing of collection of certain accounts receivable and in anticipation of an expected negative impact on sales to GNC and our other wholesale customers resulting from the COVID-19 outbreak.

On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. All other terms of the Line of Credit Agreement remain unchanged.

On April 27, 2020, the Company received proceeds from a loan in the amount of $449,700 from the PPP Lender, pursuant to approval by the SBA for the Lender to fund the Company’s request for the PPP Loan created as part of the recently enacted CARES Act administered by the SBA. In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company did not provide any collateral or guarantees for the PPP Loan, nor did the Company pay any fees to obtain the PPP Loan. The Company was informed by the PPP Lender and the SBA that the full amount balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021. See Note 1 to the Consolidated Financial Statements contained within this Annual Report.

The Company has historically financed its operations primarily through cash flow from operations and equity and debt financings. The Company has also provided for its cash needs by issuing Common Stock, options and warrants for certain operating costs, including consulting and professional fees. The Company currently anticipates that cash derived from operations and existing cash resources, along with available borrowings under the Line of Credit, will be sufficient to provide for the Company’s liquidity for the next twelve months.

The Company is dependent on cash flow from operations and amounts available under the Line of Credit to satisfy its working capital requirements. No assurances can be given that cash flow from operations and/or the Line of Credit will be sufficient to provide for the Company’s liquidity for the next twelve months. Should the Company be unable to generate sufficient revenue in the future to achieve positive cash flow from operations, and/or should capital be unavailable under the terms of the Line of Credit, additional working capital will be required. Management currently has no intention to raise additional working capital through the sale of equity or debt securities and believes that the cash flow from operations and available borrowings under the Line of Credit will provide sufficient capital necessary to operate the business over the next twelve months. In the event the Company fails to achieve positive cash flow from operations, additional capital is unavailable under the terms of the Line of Credit, and management is otherwise unable to secure additional working capital through the issuance of equity or debt securities, the Company’s business would be materially and adversely harmed.

Cash Provided by Operating Activities

Net cash provided by operating activities was $4,480,000 during the fiscal year ended December 31, 2021, compared to net cash provided by operating activities of $5,721,000 for the year ended December 31, 2020. The decrease in cash provided by operating activities is primarily attributable to increased investments in working capital, particularly inventory.

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Cash Used in Investing Activities

Cash used in investing activities for the fiscal year ended December 31, 2021 was $529,000 related to the Nutrology acquisition, as compared to $0 used in investing activities during the year ended December 31, 2020.

Cash Provided by (Used in) Financing Activities

Cash used in financing activities for the year ended December 31, 2021 was $390,000 as compared to cash provided by financing of $350,000 during the year ended December 31, 2020. Receipt of funds from the PPP loan during 2020 and increased share repurchases during 2021 account for the primary difference.

Supplemental Unaudited Quarterly Financial Information

The following unaudited quarterly financial information is presented to illustrate the effects of the corrections of misstatements to previously reported quarterly unaudited financial information as a result of the restatement. Such corrections of misstatements are described in more detail in Note 11, Restatement of Previously Issued Consolidated Financial Statements, in Item 8, Financial Statements and Supplementary Data. This unaudited quarterly financial information should be read in conjunction with the other sections of this Comprehensive Annual Report, including the consolidated financial statements and related notes contained in Item 8, Financial Statements and Supplementary Data.

Management's Discussion and Analysis of the Unaudited Financial Condition and Results of Operations - June 30, 2021

Restated

Comparison of the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020

Three months ended Six months ended

As Restated As Restated As Restated As Restated

Net Sales. Revenue for the three months ended June 30, 2021 increased to $8,406,000 as compared to $2,990,000 for the three months ended June 30, 2020. Revenue for the six months ended June 30, 2021 increased 47% to $14,005,000 as compared to $9,532,000 for the six months ended June 30, 2020. The increase in revenue for the three- and six-month periods ended June 30, 2021 compared to the prior three- and six-month period is principally due to the closure of some of our retail partners’ store locations and the stay-at-home orders during 2020 caused by the COVID-19 pandemic and continued organic growth in our online and wholesale businesses.

Online revenue during the three and six months ended June 30, 2021 was approximately 21% and 24% of total revenue, respectively, compared to approximately 38% and 21% of total revenue during the three and six months ended June 30, 2020.

Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2021 increased to $4,725,000 as compared to $1,554,000 for the three months ended June 30, 2020. Cost of goods sold for the six months ended June 30, 2021 increased to $7,529,000 as compared to $5,186,000 for the six months ended June 30, 2020. The increase during the three- and six-month period is principally attributable to higher revenue.

Gross Profit. Gross profit for the three months ended June 30, 2021 increased to $3,681,000 as compared to $1,436,000 for the three months ended June 30, 2020. Gross profit for the six months ended June 30, 2021 increased to $6,476,000 as compared to $4,346,000 for the six months ended June 30, 2020. The increase during the three- and six- month period is principally attributable to higher revenue.

Gross margin for the three months ended June 30, 2021 decreased to 43.8% compared to 48.0% during the same period last year. The decrease during the three-month period is principally attributable to a lower percentage of online sales during 2021 compared to the same period in 2020. Gross margin for the six months ended June 30, 2021 increased to 46.2% compared to 45.6% for the same period last year. The increase was primarily attributable to a greater proportion of higher margin online revenue during 2021 compared to the same period in 2020.

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General and Administrative Expense. General and administrative expense for the three months ended June 30, 2021 decreased to $917,000 as compared to $1,001,000 for the three months ended June 30, 2020. The decrease in the three-month period ended June 30, 2021 primarily reflects a decrease in bad debt expense, partially offset by higher stock compensation expense and higher consulting expense. For the six-month period ended June 30, 2021, general and administrative expense increased to $1,774,000 from $1,734,000 during the same period in the prior year.

Selling and Marketing Expense. Selling and marketing expense for the three months ended June 30, 2021 increased to $716,000 as compared to $435,000 for the three months ended June 30, 2020. Selling and marketing expense for the six months ended June 30, 2021 increased to $1,385,000 as compared to $1,106,000 for the six months ended June 30, 2020. The increases in both the three- and six-month periods ended June 30, 2021 reflect higher co-operative marketing expense paid to one of our wholesale partners. The Company anticipates that this higher level of marketing expense, which is fully funded by wholesale price increases, will continue for the foreseeable future.

Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended June 30, 2021 increased to $15,000 as compared to $10,000 for the three months ended June 30, 2020. The increase was due to amortization of intangibles acquired in the Nutrology business combination. Depreciation and amortization expense for the six months ended June 30, 2021 was flat at $23,000 as compared to $23,000 for the six months ended June 30, 2020, with the increase in amortization associated with the Nutrology intangibles being offset by other assets becoming fully depreciated.

Net Income. We generated net income of $1,632,000 for the three-month period ended June 30, 2021 as compared to net income of $25,000 for the three months ended June 30, 2020. We generated a net income of $3,037,000 for the six-month period ended June 30, 2021 as compared to a net income of $1,626,000 for the six months ended June 30, 2020. The increase in net income for the three- and six-month periods ended June 30, 2021 was primarily due to higher revenues resulting from the increase in wholesale and online sales as compared to the impact of COVID-19 on sales during the same periods in 2020.

Non-GAAP Measures

As presented below, non-GAAP EBITDA excludes interest, income taxes, and depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to interest, taxes, depreciation and amortization, equity-based compensation and non-recurring gains or losses. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation below allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance.

For the three months ended June 30, For the six months ended June 30,

Non-cash and non-recurring adjustments

Off-Balance Sheet Arrangements

Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.

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Management's Discussion and Analysis of the Unaudited Financial Condition and Results of Operations – March 31, 2021

Restated

Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020

Three months ended

As Restated As Restated

(unaudited)

Net Sales. Revenue for the three months ended March 31, 2021 decreased 14% to $5,599,000 as compared to $6,542,000 for the three months ended March 31, 2020. Revenue for the three months ended March 31, 2021 compared to the prior period reflects fluctuations in the timing of orders from our wholesale customers.

Online revenue during the three months ended March 31, 2021 and 2020 was approximately 29% of total revenue for the three months ended March 31, 2021 as compared to 13% for the same period of 2020. Due to the ongoing shift to online purchasing by consumers, including additional growth arising from the effects of the COVID-19 pandemic as a result of the shutdown of various retail outlets, e-commerce sales have accounted for a growing percentage of our domestic revenue. 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 March 31, 2021 decreased to $2,804,000 as compared to $3,632,000 for the three months ended March 31, 2020. This 23% decrease is principally attributable to lower revenue.

Gross Profit. Gross profit for the three months ended March 31, 2021 decreased to $2,795,000 as compared to $2,910,000 for the three months ended March 31, 2020. Gross margin for the three months ended March 31, 2021 increased to 49.9% from 44.5% for the comparable period in 2020. The decrease in gross profit is principally attributable to lower revenue. The increase in gross margin was primarily attributable to a greater proportion of higher margin online revenue during 2021 compared to the same period in 2020.

General and Administrative Expense. General and administrative expense for the three months ended March 31, 2021 increased to $857,000 as compared to $733,000 for the three months ended March 31, 2020. The increase in the three-month period ended March 31, 2021 primarily reflects stock compensation expense of $131,000 related to options and RSUs issued during the quarter.

Selling and Marketing Expense. Selling and marketing expense for the three months ended March 31, 2020 was roughly flat at $669,000 as compared to $671,000 for the three months ended March 31, 2020.

Depreciation and Amortization Expense. Depreciation and amortization expense for the three months ended March 31, 2021 decreased to $8,000 as compared to $12,000 for the three months ended March 31, 2020. The decrease in the three-month period was primarily attributable to a reduction in depreciation expense due to certain assets becoming fully depreciated.

Net Income. We generated net income of $1,405,000 for the three-month period ended March 31, 2021 as compared to net income of $1,601,000 for the three months ended March 31, 2020. The decrease in net income for the three-month period ended March 31, 2021 compared to the same period in 2020 was primarily attributable to lower revenue and increased compensation cost related to options and RSUs.

Non-GAAP Measures

The financial presentation below contains certain financial measures not in accordance with accounting principles generally accepted in the United States (“GAAP”), defined by the SEC as “non-GAAP financial measures”, including non-GAAP EBITDA and adjusted non-GAAP EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Quarterly Report in accordance with GAAP.

For the three months ended March 31,

(Unaudited) (Unaudited)

Non-cash and non-recurring adjustments

Acquisition related expenses 24,000 -

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Liquidity and Capital Resources

At March 31, 2021, we had positive working capital of approximately $9,030,000, compared to $7,615,000 at December 31, 2020. Our principal sources of liquidity at March 31, 2021 consisted of $6,625,000 of cash and $1,580,000 of accounts receivable.

On April 27, 2020, the Company received proceeds from a loan in the amount of $449,700 from its lender, CIT Bank, N.A. (the “PPP Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the PPP Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) administered by the SBA (the “Loan Agreement”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021.

Cash Provided by Operations. Cash provided by operating activities for the three months ended March 31, 2021 was $289,000, as compared to cash provided by operations of $1,000 for the three months ended March 31, 2020. The increase in cash provided by operating activities is primarily attributable to increased focus on managing working capital.

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Cash Provided by (Used in) Investing Activities. There was no cash provided by or used in investing activities for the three-month periods ended March 31, 2021 or 2020.

Cash Provided by (Used in) Financing Activities. Cash provided by financing activities for the three months ended March 31, 2021 was $0 as compared to cash provided by financing activities of $2,400,000 during the three months ended March 31, 2020.

ITEM 7A. QUANTITATIVE 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 related primarily to any borrowings under our existing Line of Credit, and our investments in short-term financial instruments. As of December 31, 2021, the Company had 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 8. FINANCIAL STATEMENTS

The information required hereunder in this Annual Report is set forth in the financial statements and the notes thereto beginning on Page F-1.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures.

In connection with the filing of this Comprehensive Form 10-K for the period ended December 31, 2021, our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), evaluated the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As a result of this evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective due to the material weaknesses described below, which resulted in reporting errors requiring a restatement of our financial statements for the years ended December 31, 2020 and 2019 and our interim financial information for the quarterly periods ended June 30, 2021, March 31, 2021, September 30, 2020, June 30, 2020, March 31, 2020, September 30, 2019, June 30, 2019 and March 31, 2019.

Notwithstanding the material weaknesses described in Management's Report on Internal Control Over Financial Reporting, our management has concluded that our consolidated financial statements for the periods covered by and included in this Annual Report are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and fairly present, in all material respects, our financial position, results of operations and cash flows for each of the periods presented herein.

(b) Management’s Annual Report on Internal Control over Financial Reporting.

Our management, including our CEO and CFO, is responsible for establishing and maintaining adequate internal control over our financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Management’s establishing and maintaining adequate internal control over financial reporting is based upon the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). A system of internal control over financial reporting should be designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP.

An effective internal control system, no matter how well designed, has inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud, and therefore can provide only reasonable assurance with respect to reliable financial reporting. Because of its inherent limitations, our internal control over financial reporting may not prevent or detect all misstatements.

A material weakness is defined as a deficiency, or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Based on this definition, our management, with the participation of our CEO and CFO, evaluated the effectiveness and design of our internal control over financial reporting against the COSO Framework and concluded that our internal control over financial reporting was not effective as of December 31, 2019, 2020, and 2021 due to material weaknesses arising from flaws in our control environment, risk oversight measures, control activities, information processing and communication and our monitoring systems, each of which is described in more detail below. The material weaknesses resulted in reporting errors requiring a restatement of our financial statements for Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in our Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021, and June 30, 2021 (collectively, the "Restated Periods").

Control environment. We concluded that we did not maintain effective controls in the following areas: (i) managerial functions, procedures and oversight; (ii) organizational structure, delegation of authority and responsibilities; (iii) segregation of duties; (iv) adequacy of trained accounting and financial reporting personnel to ensure that internal control responsibilities were performed effectively and material accounting errors were detected; and (v) maintenance and enforcement of internal control responsibilities, including holding individuals accountable for their internal control responsibilities.

Risk oversight environment. We did not maintain adequate risk oversight measures related to the (i) identification and assessment of risks that could impact achieving our objectives and (ii) identification and analysis of the potential changes that could affect our internal controls environment.

Control activities. We concluded that we did not have effective control activities in the following areas: (i) selecting and developing control policies, procedures and activities to mitigate risks, including with respect to the methodologies used to calculate and report financial information and results; and (ii) selecting and implementing information technology and related systems supportive to our internal control over financial reporting.

Information processing and communication. We identified deficiencies associated with information processing and communication within our internal control framework. Specifically, we did not effectively communicate objectives and internal control responsibilities throughout the organization which contributed to inadequate documentation of processes and methodologies used to recognize revenue, costs of goods sold, inventory and accounts receivable, hindering clear communication with management, the Board of Directors and our independent auditor.

Monitoring activities. We concluded that we did not design and implement effective monitoring activities related to (i) selecting, developing, and performing separate evaluations of our internal control over financial reporting; and (ii) evaluating and communicating internal control deficiencies in a timely manner to parties responsible for taking corrective actions.

The issues described above resulted in the following errors in our financial statements previously filed with the SEC: improper recognition of revenue, cost of sales, accounts receivable, inventory and the provision for income taxes.

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Remediation Efforts to Address Material Weaknesses

Our management, including our CFO, has worked with expert accounting consultants and our Audit Committee to design and implement both a short-term and a long-term remediation plan to correct the material weaknesses in our disclosure controls and procedures and our internal control over financial reporting. The following activities highlight our commitment to remediating our identified material weaknesses.

Since March 2022 and through the filing date of this Comprehensive Form 10-K, we have hired expert accounting consultants to assess our control environment and recommend improvements. In addition, we hired a new highly qualified CFO in August 2022 with extensive public-company experience.

In addition to the items noted above, as we continue to evaluate, remediate, and improve our internal control over financial reporting, our management expects to continue to implement additional measures to address control deficiencies and further refine and improve the remediation efforts described above. Specifically, we are developing a checklist of activities based on the criteria established in the COSO Framework against which we will assess the design of entity-level and activity-level controls, and the operational effectiveness of such controls. Deficiencies identified in this process will be addressed by management, including our CEO and CFO. This assessment, any deficiencies, and any remedial actions will be shared and discussed with our Audit Committee and our independent auditors on a quarterly basis.

(c)Changes in Internal Controls over Financial Reporting.

We are still in the process of implementing our remedial actions throughout 2022. Also, during August 2022, we hired a new CFO, a highly qualified individual with public company experience. Management will continue to evaluate and monitor our internal controls as each of the affected areas evolves.

All of the changes above were implemented during 2022 outside the period covered by this report.

ITEM 9B. OTHER INFORMATION

None.

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PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS

Directors and Executive Officers

Set forth below is information regarding each of the Company’s current directors and executive officers. There are no family relationships between any of our directors or executive officers. Stockholders elect the directors annually. The executive officers serve at the by appointment of the Board of Directors (the “Board”).

Name Age Title

Dayton Judd 50 Chief Executive Officer and Chairman

Lewis Jaffe 65 Director

Grant Dawson 53 Director

Seth Yakatan 51 Director

Todd Ordal 65 Director

Jakob York 45 Chief Financial Officer

Patrick Ryan 43 Chief Retail officer

Each of the Company’s executive officers and directors will hold office until their successors are duly elected and qualified. The background and principal occupations of each officer and director are as follows:

Dayton Judd has served as a director of the Company since June 2017, is currently the Chairman of the Company’s Board of Directors and began serving as the Company’s Chief Executive Officer on February 18, 2018. Mr. Judd is the founder and Managing Partner of Sudbury Capital Management (“Sudbury”). Prior to founding Sudbury, Mr. Judd worked from 2007 through 2011 as a Portfolio Manager at Q Investments, a multi-billion dollar hedge fund in Fort Worth, Texas. Prior to Q Investments, he worked with McKinsey & Company from 1996 through 1998, and again from 2000 through 2007. He graduated from Brigham Young University in 1995 with a Bachelor’s Degree, summa cum laude, and a Master’s Degree, both in accounting. He also earned an M.B.A. with high distinction from Harvard Business School in 2000, where he was a Baker Scholar. Mr. Judd is a Certified Public Accountant.

The Company’s Nominating and Corporate Governance Committee believes that Mr. Judd’s significant experience in investing in microcap companies, together with his substantial ownership position in the Company’s Common Stock, assists the Board of Directors in the management of the Company and setting goals and objectives to build stockholder value.

Lewis Jaffe has served as a director of the Company since 2010 and served as the Chairman of the Company’s Board of Directors from July 2011 to October 2017. Mr. Jaffe became a partner at CEO Coaching International as of January 2021 and continues his role as a Clinical Professor in the school of Entrepreneurship at Loyola Marymount University, a position he has held since the fall of 2014, where he was awarded Professor of the Year in 2016. He was Chief Executive Officer of Movio, a high speed, mobile movie and content downloading service and application, prior to its sale. Prior to Movio, Mr. Jaffe was a principal at Jaffe & Associates (“J&A”), a consulting and advisory firm that provides strategic and tactical planning to mid-market companies and CEO coaching to their executives. Prior to 2009, Mr. Jaffe was Interim Chief Executive Officer and President of Oxford Media, Inc., where he served from 2006 to 2008. Mr. Jaffe has also served in executive management positions with Verso Technologies, Inc., Wireone Technologies, Inc., Picturetel Corporation, and was also previously a Managing Director of Arthur Andersen. Mr. Jaffe is a graduate of the Stanford Business School Executive Program and holds a Bachelor of Science from LaSalle University. Mr. Jaffe also served on the Board of Directors of Benihana, Inc. as its lead independent director from 2004 to 2012. He is currently on the Board of Directors of Reed’s Inc. (NYSE: REED) and Yorktel, a privately held telecommunications company.

The Company’s Nominating and Corporate Governance Committee believes that Mr. Jaffe’s experience as a CEO of both public and private companies, and consultant providing strategic and tactical planning to public companies, as well as his corporate governance expertise, provide management and the Board of Directors with a depth of experience, knowledge, systems and best practices to guide corporate strategy and business operations.

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Grant Dawson has served as a director of the Company since November 2013 and is currently a Portfolio Manager of Fixed Income Investments for Polar Asset Management Partners (“Polar”), where he has worked since 2014. Mr. Dawson brings more than 20 years of experience in finance and has significant board-level experience in corporate governance for public companies. Prior to Polar, he was Managing Director of Fixed Income Investments for Manulife Asset Management, a subsidiary of Manulife Financial Corporation and Vice President and Lead Analyst responsible for corporate debt ratings with Dominion Bond Rating Agency. Prior to such time, Mr. Dawson held various senior management positions in credit management and corporate finance with Nortel and in equity research with Dain Rauscher Ltd. Mr. Dawson earned an M.B.A. from the SMU Cox School of Business, a B.Comm in Finance from the University of Windsor, and holds the Chartered Financial Analyst designation. Additionally, Mr. Dawson is a member of the Institute of Corporate Directors and holds the ICD.D designation.

The Company’s Nominating and Corporate Governance Committee believes that Mr. Dawson’s extensive expertise and knowledge regarding corporate finance and investment banking matters, as well as corporate governance, provides the Company with valuable insight and will assist the Company as it builds a long-term, sustainable capital structure.

Seth Yakatan has served a director of the Company since September 2015, as Vice President of Business Development for Invion, Ltd. (ASX: IVX) since August 2012, and as a Partner of Katan Associates, Inc., a corporate strategy and finance advisory group, since April 2001. Prior to joining the Company’s Board of Directors, Mr. Yakatan served as a director for iSatori, Inc. from September 2014 until the completion of the Company’s acquisition of iSatori. Prior to founding Katan Associates, Inc. in 2001, Mr. Yakatan worked in merchant banking at the Union Bank of California, N.A. in the Specialized Lending Media and Telecommunications Group, and as a venture capital analyst with Ventana Growth Funds and Sureste Venture Management. Mr. Yakatan holds an M.B.A. in Finance from the University of California, Irvine, and a Bachelor of Arts in History and Public Affairs from the University of Denver.

The Company’s Nominating and Corporate Governance Committee believes that Mr. Yakatan’s 25 years of experience as a life sciences business development and corporate finance professional, including actively supporting small cap and major companies in achieving corporate, financing, and asset monetization objectives, provides the Board of Directors with valuable guidance and expertise based on his extensive knowledge and understanding of banking matters.

Todd Ordal has served a director of the Company since September 2015, and is the President and founder of Applied Strategy, LLC, a private consulting company founded in 2003 that provides consulting and coaching services to chief executive officers and other executives around the word. Prior to joining the Company’s Board of Directors, Mr. Ordal served as a director for iSatori, Inc. from April 2012 until the completion of the Company’s acquisition of iSatori. Before founding Applied Strategy, LLC, Mr. Ordal served as Chief Executive Officer of Dore Achievement Centers from December 2002 until November 2004, and President and Chief Executive Officer of Classic Sports Companies from January 2001 until December 2002. Prior to Classic Sport Companies, Mr. Ordal served as a Division President for Kinko’s Service Corporation, where he had accountability for $500 million in revenue, 300 stores and 7,000 people, and as a member of the Board of Directors for Kinko’s from July 1992 until July 1997. He has also served on several non-profit boards and boards of advisors. Mr. Ordal received his Bachelor’s Degree in psychology from Morehead State University and his M.B.A. from Regis University.

The Company’s Nominating and Corporate Governance Committee believes that Mr. Ordal’s considerable experience with growing successful businesses, as well as his extensive knowledge and understanding of marketing and finance matters, provides the Board of Directors with valuable guidance and insight.

There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any of the Company’s executive officers or directors during the past ten years.

Jakob York has served as the Company’s Chief Financial Officer since he joined the Company in August 2022. Prior to joining FitLife, he served as Controller for Greenidge Generation Holdings (NASDAQ: GREE). Prior to Greenidge, Mr. York worked in various controller and financial reporting capacities, primarily at Allied Motion Technologies (NASDAQ:AMOT). Prior to joining Allied Motion, he worked at Pricewaterhouse Coopers as an auditor from 2002 to 2007. He graduated from Brigham Young University in 2002 with a Bachelor’s Degree and a Master’s degrees in Accounting. Mr. York is a Certified Public Accountant.

Patrick Ryan has served as the Company’s Chief Retail Officer since his appointment in June 2016. He brings over 23 years of experience in the retail and wholesale business both domestically and internationally. Since February 2009, Mr. Ryan served as the Company’s Vice President of Sales during which time he oversaw multiple retail and wholesale branches and worked collaboratively with key members of management to drive strategic initiatives in sales, employee training and the overall growth of the Company. Prior to that, he served in various sales positions of increasing responsibility since joining the Company in 2004. Mr. Ryan received his Bachelor of Science Degree in Public Relations from Kansas State University.

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CORPORATE GOVERNANCE, BOARD COMPOSITION AND BOARD COMMITTEES

Term of Office

Pursuant to our Bylaws, each member of the Board serves from the date they are duly elected and qualified, until the Company’s following annual meeting of stockholders or until their death, resignation or removal from office.

Board Member Independence

The Board believes that a majority of its members are independent directors. The Board has determined that, with the exception of Mr. Judd who also serves as the Company’s Chief Executive Officer, all directors are independent as defined by the rules and regulations of the NASDAQ Capital Market.

Board Structure

The Board does not have a policy regarding the separation of the roles of the Chief Executive Officer and Chair of the Board, as the Board believes it is in the best interest of the Company and its stockholders to make that determination based on the position and direction of the Company and the membership of the Board, from time to time. Currently, Mr. Judd serves as both the Chief Executive Officer and as Chair of the Board. At this time, the Board believes that these combined roles are beneficial to both the daily operations of the Company and the strategic perspective of the Board.

Board Risk Oversight

Our Board administers its oversight function through both regular and special meetings and by frequent telephonic updates with our senior management. A key element of these reviews is gathering and assessing information relating to risks of our business. All businesses are exposed to risks, including unanticipated or undesired events or outcomes that could impact an enterprise’s strategic objectives, organizational performance and stockholder value. A fundamental part of risk management is not only understanding such risks that are specific to our business, but also understanding what steps management is taking to manage those risks and what level of risk is appropriate. In setting our business strategy, our Board assesses the various risks being mitigated by management and determines what constitutes an appropriate level of risk.

Although our Board has the ultimate oversight responsibility for our risk management process, various committees of our Board also have responsibility for risk management. In particular, the Audit Committee focuses on financial risk, including internal controls, and the assessments of risks reflected in audit reports. Legal and regulatory compliance risks are also reviewed by our Audit Committee. Risks related to our compensation programs are reviewed by the Compensation Committee. Our Board is advised by the committees of significant risks and management’s response via periodic updates.

Board Meetings

The Board held 5 meetings during the year ended December 31, 2021, supplemented by numerous additional discussions by and among a majority of the Board, and numerous actions effectuated by unanimous written consent in lieu of a formal motion and vote during an official meeting. In 2021, incumbent directors attended 100% of the aggregate number of meetings of the Board. The Board also holds independent executive sessions without members of management on an as-needed basis.

Board Committees and Charters

The Board has three standing committees which consists of the Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The Board appoints the members and committee chair of each committee (based upon the recommendation of the Nominating and Corporate Governance Committee). Each independent director also serves as a member of the standing committees of the Board. Copies of each committee charter are available upon request to the Company’s Corporate Secretary at 5214 S. 136th Street, Omaha, Nebraska 68137.

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Audit Committee

Members: Grant Dawson (Chair)

Lewis Jaffe

Todd Ordal Seth Yakatan

Number of Meetings Held: The Audit Committee held 4 meetings during 2021.

Compensation Committee

Members: Grant Dawson (Chair)

Lewis Jaffe Todd Ordal

Seth Yakatan

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Nominating and Corporate Governance Committee

Members: Lewis Jaffe (Chair)

Grant Dawson Todd Ordal

Seth Yakatan

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended (“Exchange Act”), requires the Company’s directors and executive officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, to file reports of beneficial ownership and changes in beneficial ownership of the Company’s securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of the Company’s Common Stock are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms that they file.

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2021, management believes that all necessary reports were filed in a timely manner and all filings are current as of the date of this filing.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics that applies to all of our executive officers, directors and employees, which sets forth the business and ethical principles that govern all aspects of our business. This document will be made available in print, free of charge, to any stockholder requesting a copy in writing from the Company. A form of the Code of Conduct and ethics was filed as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2008.

Indemnification of Officers and Directors

As permitted by Nevada law, the Company will indemnify its directors and officers against expense and liabilities they incur to defend, settle, or satisfy any civil or criminal action brought against them on account of their being or having been Company directors or officers unless, in any such action, they are adjudged to have acted with gross negligence or willful misconduct.

Exclusion of Liability

The Nevada Business Corporation Act excludes personal liability for directors for monetary damages based upon any violation of their fiduciary duties as directors, except as to liability for any breach of the duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, acts in violation of the Nevada Business Corporation Act, or any transaction from which a director receives an improper personal benefit. This exclusion of liability does not limit any right that a director may have to be indemnified and does not affect any director's liability under federal or applicable state securities laws.

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ITEM 11.EXECUTIVE COMPENSATION

Summary Compensation Table

The following table sets forth information concerning the compensation paid to the Company’s Chief Executive Officer, and the Company’s two most highly compensated executive officers other than its Chief Executive Officer, who were serving as executive officers as of December 31, 2021 and whose annual compensation exceeded $100,000 during such year (collectively the “Named Executive Officers”).

(2) Amounts reflect commissions paid to the Named Executive Officer.

Employment Agreements

Dayton Judd. Dayton Judd currently serves as the Company’s Chief Executive Officer. Effective February 1, 2021, the Board approved an increase of Mr. Judd’s annual base salary from $300,000 to $330,000. On the same day, the Board also approved the issuance of (i) options to purchase 72,000 shares of the Company’s Common Stock, which have a term of five years, an exercise price of $5.24, and which vest 1⁄4 immediately, and 1⁄4 on the second, third, and fourth anniversaries of the grant; (ii) options to purchase 56,000 shares of the Company’s Common Stock, which have a term of ten years, and exercise price of $4.76, and which vest 1⁄4 immediately, and 1⁄4 on the second, third, and fourth anniversaries of the grant; and (iii) restricted stock units (RSUs) which convert into one share of the Company’s Common Stock upon vesting, and will vest (a) 40,000 shares at such date that the 30 day volume weighted average price ("VWAP") for shares of the Company’s Common Stock meets or exceeds $7.50, (b) 40,000 shares at such date that the 30 day VWAP for shares of the Company’s Common Stock meets or exceeds $9.00, (c) 40,000 shares at such date that the 30 day VWAP for shares of the Company’s Common Stock meets or exceeds $10.50, and (d) 40,000 shares at such date that the 30 day VWAP for shares of the Company’s common stock meets or exceeds $12.00.

Patrick Ryan. Under the terms of an Employment Agreement dated June 13, 2019, Mr. Ryan serves in the capacity of Chief Retail Officer until the termination of the Agreement on June 7, 2022. Pursuant to the terms and conditions of the Employment Agreement, Mr. Ryan is entitled to receive the following compensation as consideration for his services to the Company: (i) an annual base salary of $125,000 per year, which increased to $130,000 per year effective on the first anniversary of the Employment Agreement, and to $135,000 per year effective on the second anniversary of the Employment Agreement; (ii) commissions on a monthly basis in arrears in an amount equal to 2.5% of the adjusted gross profit from the sale of franchise exclusive products, less certain expenses and costs, related to the sale of franchise exclusive products to both domestic and international locations, as determined in good faith by Company; (iii) an annual cash bonus, in an amount to be determined by the compensation committee of the Company’s Board, in its sole discretion, on an annual basis; and (iv) reimbursement for any out-of-pocket expenses reasonably incurred by Mr. Ryan in connection with the performance of his duties. Mr. Ryan is also entitled to participate in such life insurance, disability, medical, dental, stock plans, retirement plans and other programs as may be made generally available from time to time by the Company for the benefit of similarly situated employees or its employees generally. In addition, pursuant to the terms and conditions of the Employment Agreement, Mr. Ryan shall be subject to certain non-competition and non-solicitation provisions for a period of one year following his termination for any reason.

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding unexercised options and stock that had not vested and equity incentive awards held by each of the Named Executive Officers outstanding as of December 31, 2021:

Description of Equity Compensation Plan

The 2019 Omnibus Incentive Plan (the “2019 Plan”) was adopted by the Board on July 3, 2019, as approved by a majority of the Company’s stockholders at the annual meeting of stockholders on August 16, 2019. The 2019 Plan reserves for issuance 400,000 shares of the Company’s Common Stock for issuance as one of four types of equity incentive awards: (i) stock options, (ii) stock appreciation rights, (iii) restricted stock, and (iv) stock units. The 2019 Plan permits the qualification of awards under the plan as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code. Upon becoming effective, the Plan replaced, and no further awards were made under the Company’s 2010 Incentive Plan.

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Securities Authorized for Issuance Under Equity Compensation Plans

The following table provides information as of December 31, 2021, with respect to the shares of Common Stock that may be issued upon the exercise of options and other rights under our existing equity compensation plans and arrangements. The information includes the number of shares covered by and the weighted average exercise price of outstanding options and other rights and the number of shares remaining available for future grants, excluding the shares to be issued upon exercise of outstanding options and other rights.

Equity compensation plans approved by security holders: 380,300 $ 3.44 262,000

Compensation Committee Interlocks and Insider Participation

No executive officers of the Company serve on the Compensation Committee (or in a like capacity) for the Company or any other entity.

Director Compensation

We currently have five directors, four of whom are considered independent. Non-independent directors who are also employees of the Company do not receive compensation for their services as a director on the Board. For the year ended December 31, 2021, each of our non-employee directors were entitled to receive $40,000 per annum for their services on the Board pursuant to the Company’s current director compensation plan, which compensation may be paid in cash, shares of Company Common Stock or a combination thereof, at the option of each individual director.

The table below summarizes the compensation paid to our non-employee directors for the fiscal year ended December 31, 2021:

Fees earned or paid in cash Stock awards Option awards Total

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ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following tables set forth information regarding shares of our Common Stock beneficially owned as of October 12, 2022, by:

(i) each of our officers and directors;

(ii) all officers and directors as a group; and

Beneficial Ownership of our Common Stock

Dayton Judd, Chair and Chief Executive Officer (2) Common Stock 2,881,529 57.7 %

Jakob York, Chief Financial Officer Common Stock 4,984 * %

Patrick Ryan, Chief Retail Officer Common Stock 20,420 * %

Grant Dawson Common Stock 76,428 1.7 %

Lewis Jaffe Common Stock - - %

Todd Ordal Common Stock 30,944 * %

Seth Yakatan Common Stock - - %

* Less than 1%

Changes in Control

The Company is not aware of any arrangements that may result in a change in control of the Company.

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

There were no transaction between the Company and any of its directors, executive officers or any other related persons during the year ended December 31, 2021.

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ITEM14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

Our independent registered public accounting firm for the years ended December 31, 2021 and 2020 was Weaver and Tidwell, L.L.P. (“Weaver") Set forth below are the aggregate fees we were billed by Weaver for professional services rendered for the years ended December 31, 2021 and 2020.

The following table sets forth the aggregate fees billed by Weaver with respect to audit and non-audit services for the Company during the fiscal years ended December 31, 2021 and 2020:

Year Ended December 31,

Audit-related fees - -

All other fees - 4,900

As defined by the SEC, (i) “audit fees” are fees for professional services rendered by our principal accountant for the audit of our annual financial statements and review of financial statements included in our Form 10-K, or for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years; (ii) “audit-related fees” are fees for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “audit fees”; (iii) “tax fees” are fees for professional services rendered by our principal accountant for tax compliance, tax advice, and tax planning; and (iv) “all other fees” are fees for products and services provided by our principal accountant, other than the services reported under “audit fees”, “audit-related fees”, and “tax fees”.

Audit Fees

During the fiscal year ended December 31, 2021 and 2020, the fees for Weaver were approximately $91,000 and $84,000, respectively.

Tax Fees

During the fiscal year ended December 31, 2021 and 2020, the fees paid to Weaver for tax compliance, tax advice and tax planning were $30,000 and $33,000, respectively.

All Other Fees

During the fiscal years ended December 31, 2021 and 2020, the fees paid to Weaver for other services were $0 and $4,900, respectively.

Audit Committee Pre-Approval Policies and Procedures

Under the SEC’s rules, the Audit Committee is required to pre-approve the audit and non-audit services performed by the independent registered public accounting firm in order to ensure that they do not impair the auditors’ independence. The Commission’s rules specify the types of non-audit services that an independent auditor may not provide to its audit client and establish the Audit Committee’s responsibility for administration of the engagement of the independent registered public accounting firm.

Consistent with the SEC’s rules, the Audit Committee Charter requires that the Audit Committee review and pre-approve all audit services and permitted non-audit services provided by the independent registered public accounting firm to us or any of our subsidiaries. The Audit Committee may delegate pre-approval authority to a member of the Audit Committee and if it does, the decisions of that member must be presented to the full Audit Committee at its next scheduled meeting. Accordingly, 100% of audit services and non-audit services described in this Item 14 were pre-approved by the Audit Committee.

There were no hours expended on the principal accountant’s engagement to audit the registrant’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees.

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PART IV

ITEM 15. EXHIBITS AND REPORTS

Exhibits

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21 List of Subsidiaries

ITEM 16. FORM 10-K SUMMARY

None.

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SIGNATURES

In accordance with 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, there unto duly authorized.

Registrant FitLife Brands, Inc.

Date: October 13, 2022 By: /s/ Dayton Judd

Dayton Judd

Chief Executive Officer (Principal Executive Officer)

Date: October 13, 2022 By: /s/ Jakob York

Jakob York

Chief Financial Officer (Principal Financial Officer)

In accordance with the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

Date: October 13, 2022 By: /s/ Dayton Judd

Dayton Judd

Chief Executive Officer and Chair of the Board

Date: October 13, 2022 By: /s/ Grant Dawson

Grant Dawson

Director

Date: October 13, 2022 By: /s/ Lewis Jaffe

Lewis Jaffe

Director

Date: October 13, 2022 By: /s/ Todd Ordal

Todd Ordal

Director

Date: October 13, 2022 By: /s/ Seth Yakatan

Seth Yakatan

Director

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ITEM 8.FINANCIAL STATEMENTS

FITLIFE BRANDS, INC.

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Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 410)

CONSOLIDATED FINANCIAL STATEMENTS:

Consolidated Balance Sheets at December 31, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

FitLife Brands, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of FitLife Brands, Inc. and Subsidiaries (the Company) as of December 31, 2021 and 2020, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Restatement to Correct Previously Issued Consolidated Financial Statements

As discussed in Note 11 to the financial statements, the 2020 financial statements have been restated to correct misstatements discovered during the current year.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Product Returns – Management’s Estimate of Product Returns including Discontinued or Expired Product. Refer to Note 2 to the Financial Statements

Critical Accounting Matter Description

In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account related elements of variable consideration, including, but not limited to, product returns. The allowance for product returns is based on specific terms and conditions included in the customer agreements, historical experience and management’s expectation of future returns.

We identified management’s estimate of product returns, including discontinued or expired product as a critical audit matter because of the judgments necessary for management to estimate and monitor, among other things, remaining shelf life, sell-through data, history of actual and estimated future returns, and information provided by customers regarding their inventory levels. The types of arrangements and complexity of information required a high degree of auditor judgment and an increased extent of effort when performing audit procedures to audit management’s estimates and evaluating the results of those procedures.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s estimate of product returns included the following:

Income taxes - Realizability of Deferred Tax Assets – Refer to Note 9 to the Financial Statements

Critical Accounting Matter Description

For the years ended December 31, 2021 and 2020, the Company recorded a provision (benefit) for income taxes of $1,298,000 and ($4,415,000), respectively, driven primarily by an income tax benefit of ($3,045,000) and ($4,339,000), respectively resulting from the elimination of the valuation reserve against the Company’s net operating losses and other deferred tax assets in 2020. The carrying amount of deferred tax assets are reviewed at each reporting date and reduced to the extent that it is no longer probable that all or part of the deferred tax assets will be utilized, based on positive and negative evidence, including that sufficient future taxable income will be available.

Management’s analysis of the realizability of its deferred tax assets, including the recognition, measurement, and disclosure of deferred tax assets was significant to our audit because the amounts are material to the consolidated financial statements. Auditing management’s assessment is complex and involves significant judgment as the Company’s ability to generate taxable income sufficient to utilize the assets may be impacted by various economic and industry conditions.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s realizability of deferred tax assets included the following:

WEAVER AND TIDWELL, L.L.P.

We have served as the Company’s auditor since 2019.

Fort Worth, Texas

October 13, 2022

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FITLIFE BRANDS, INC.

CONSOLIDATED BALANCE SHEETS

December 31, December 31,

As Restated

ASSETS:

CURRENT ASSETS

Income tax receivable - 40,000

Prepaid expenses and other current assets 322,000 52,000

Intangibles, net of amortization of $30,000 and $0, respectively 192,000 -

LIABILITIES AND STOCKHOLDERS’ EQUITY:

CURRENT LIABILITIES:

Long-term lease liability, net of current portion 103,000 158,000

STOCKHOLDERS’ EQUITY:

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

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FITLIFE BRANDS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

Years ended

December 31,

As Restated

OPERATING EXPENSES:

OTHER EXPENSES (INCOME)

Gain on settlement - (70,000 )

PPP loan forgiveness, including accrued interest (453,000 ) -

NET INCOME PER SHARE:

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

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FITLIFE BRANDS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

Common Stock Treasury Additional Paid-in Accumulated

Shares Amount Stock Capital Deficit Total

YEAR ENDED DECEMBER 31, 2020 (AS RESTATED)

Fair value of common stock issued for services 1,202 - - 15,000 - 15,000

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

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FITLIFE BRANDS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years ended December 31,

As Restated

CASH FLOWS FROM OPERATING ACTIVITIES:

Adjustments to reconcile net income to net cash used in operating activities:

Right of use asset amortization and lease liability 50,000 -

Allowance for inventory obsolescence - (74,000 )

Fair value of stock and options issued for services 452,000 78,000

Forgiveness of PPP loan, including accrued interest (453,000 ) -

Changes in operating assets and liabilities:

Lease liability (50,000 ) -

Accrued liabilities and other liabilities (6,000 ) 72,000

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisition (529,000 ) -

Net cash used in investing activities (529,000 ) -

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from exercise of stock options 54,000 71,000

Proceeds from Paycheck Protection Program - 450,000

Repurchases of common stock and options (444,000 ) (171,000 )

Net cash provided by (used in) financing activities (390,000 ) 350,000

Supplemental disclosure operating activities

Cash paid for interest $ - $ 12,000

Cash paid (refunded) for income taxes $ (42,000 ) $ -

Supplemental noncash financing activities

Forgiveness of PPP loan, including accrued interest $ 453,000 -

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

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FITLIFE BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDEDDECEMBER 31, 2021 AND 2020

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 following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"). The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“GNC”) stores located both domestically and internationally, and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than 17,000 retail locations, which include specialty, mass, and online.

FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $0.01 per share (“Common Stock”), trades under the symbol “FTLF” on the OTC Pink market.

Recent Developments

Forward Stock Split

The Board of Directors of the Company (the “Board”) approved a forward stock split of the Company’s authorized, issued and outstanding shares of common stock, par value $0.01 per share (the “Common Stock”), at a ratio of 4-for-1 (the “Forward Split”). The Forward Split was effective as of December 2, 2021 and began trading on such basis on December 8, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock. The Forward Split did have any effect on the stated par value of the Common Stock and did not affect the Company’s authorized preferred stock.

All references in this Annual Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Forward Split on a retroactive basis as of the earliest period presented, unless otherwise noted.

Nutrology Asset Purchase

On April 7, 2021, the Company purchased substantially all of the assets of Triple Impact Corporation, a New Jersey corporation doing business as Nutrology, a nutritional supplement company catering to consumers who prioritize all-natural and plant-based nutritional supplements. See Note 3 for additional detail regarding the acquisition.

Tax Benefits Preservation Plan

On February 26, 2021, the Board declared a dividend distribution of one right (a “Right”) for each outstanding share of Common Stock to stockholders of record at the close of business on February 26, 2021 (the “Record Date”). Each Right entitles its holder, under the circumstances described below, to purchase from the Company one one-thousandth of a share of Series B Junior Participating Preferred Stock of the Company, par value $0.01 per share (the “Series B Preferred”), at an exercise price of $100.00 per Right, subject to adjustment. The description and terms of the Rights are set forth in the tax benefits preservation plan (the “Tax Benefits Preservation Plan”), dated as of February 26, 2021, between the Company and Colonial Stock, as rights agent (and any successor rights agent, the “Rights Agent”).

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The Company adopted the Tax Benefits Preservation Plan in order to protect shareholder value against a possible limitation on the Company’s ability to use its Net Operating Losses (“NOLs”) and certain other tax benefits to reduce potential future U.S. federal income tax obligations. The NOLs are a valuable asset to the Company, which may inure to the benefit of the Company and its stockholders. However, if the Company experiences an “ownership change,” as defined in Section 382 of the Internal Revenue Code (“IRC”), its ability to fully utilize the NOLs and certain other tax benefits will be substantially limited and the timing of the usage of the NOLs and such other benefits could be substantially delayed, which could significantly impair the value of those assets. Generally, an “ownership change” occurs if the percentage of the Company’s stock owned by one or more of its “five-percent shareholders” (as such term is defined in Section 382 of the IRC) increases by more than 50 percentage points over the lowest percentage of stock owned by such stockholder or stockholders at any time over a three-year period. The Tax Benefits Preservation Plan is intended to prevent against such an “ownership change” by deterring any person or group from acquiring beneficial ownership of 4.99% or more of the Company’s securities. Subsequent to the end of the fiscal year, the Tax Benefits Preservation Plan expired by its terms on March 1, 2022, and is no longer in effect.

Share Repurchase Plan

On February 1, 2021, the Board approved an additional amendment to the previously authorized share repurchase program initially approved by the Board on August 16, 2019, as amended on September 23, 2019 and November 6, 2019 (“Share Repurchase Program”). Under the terms of the amendment, the Company is authorized to repurchase up to $5.0 million of the Company's Common Stock, warrants to purchase shares of the Company's Common Stock ("Warrants"), and other securities issued by the Company ("Securities") 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 Warrants and Securities, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.

During the year ended December 31, 2021, the Company repurchased 36,092 shares of Common Stock under the Share Repurchase Program. The Company also purchased 50,840 dilutive in-the-money options from employees at a discount to their intrinsic value for total consideration of $184,000.

COVID-19 Pandemic

The COVID-19 pandemic has had an effect on the Company’s employees, business and operations and those of its customers, vendors and business partners. In this respect, the temporary or permanent closure of some of our retail partners’ store locations and the stay-at-home orders that occurred early in the pandemic negatively affected our results from operations, although much of the impact has been offset by an increase in revenue attributable to online sales, and increased sales during the more recent quarters. Our future financial position and operating results could be materially and adversely affected in the event that a resurgence of COVID-19 cases leads to new stay-at-home orders and/or further disruptions in both our supply chain and manufacturing lead-times, which could lower demand for the Company’s products and/or prevent the Company from producing and delivering its products in a timely manner, although the extent of these effects cannot be determined at this time. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business and operations accordingly.

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CARES Act

The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020in the United States. On April 27, 2020, the Company received proceeds from a loan in the amount of $449,700 from its lender, CIT Bank, N.A. (the “PPP Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the PPP Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES ACT administered by the SBA (the “Loan Agreement”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021.

The CARES Act permits employers to defer payment of the employer portion of payroll taxes owed on wages paid through December 31, 2020for a period of up to two years. Through December 31, 2021, the Company deferred payment of $45,000, which amount has been expensed and is included in accrued liabilities.

NOTE 2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America. Significant accounting policies are as follows:

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and NDS Nutrition Products, Inc. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.

Use of Estimates and Assumptions

Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.

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 to our customers based on written sales terms, which is also when control is transferred. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.

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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.

For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers such as GNC, may return products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.

Customer Concentration

Total net sales to GNC during 2021 and 2020 were $19,772,000, and $15,833,000, respectively, representing 71% of total revenue for both years. Accounts receivable attributable to GNC before adjusting for product return reserves as of December 31, 2021 and 2020 were $850,000 and $1,892,000, respectively, representing 74% and 89% of the Company’s total accounts receivable balance, respectively. The loss of this customer would have a material adverse effect on the Company’s business, financial condition, and results of operation.

Accounts Receivable and Allowance for Doubtful Accounts

All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the amount of days the balance is past due, and the estimated loss is calculated as a percentage of the total category based upon past history. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. We maintain an insurance policy for iSatori Products for international shipments, which protects the Company in the event the international distributor does not or cannot remit payment.

As of December 31, 2021 and 2020, the Company had provided a reserve for doubtful accounts of $55,000 and $51,000, respectively.

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Product Returns, Sales Incentives and Other Forms of Variable Consideration

We currently have a 30-day product return policy for NDS Products, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites. Product sold to GNC may be returned from store shelves or the distribution center in the event product is damaged, short dated, expired or recalled. Information for product returns is received on regular basis and adjusted for accordingly. Adjustments for returns are based on factual information and historical trends for both NDS products and iSatori products and are specific to each distribution channel. We monitor, among other things, remaining shelf life and sell through data on a weekly basis. If we determine there are any risks or issues with any specific products, we accrue sales return allowances based on management’s assessment of the overall risk and likelihood of returns in light of all information available.

GNC maintains a customer satisfaction program that allows customers to return product to the store for credit or refund. Subject to certain terms and restrictions, GNC may require reimbursement from vendors for unsaleable returned product through either direct payment or credit against a future invoice. We also support a product return policy for iSatori Products, whereby customers can return product for credit or refund. Product returns can and do occur from time to time and can be material.

Total allowance for product returns, sales returns and incentive programs as of December 31, 2021 and 2020 amounted to $632,000 and $345,000, respectively.

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Cost of Goods Sold

Cost of goods sold is comprised of the costs of products, in-bound freight charges, shipping and handling costs, purchase and receiving costs, and commissions paid to Amazon and other online selling platforms. Other expenses not related to the production and distribution of our products is classified as operating expense.

Cash and Cash Equivalents

The Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation up to $250,000 at December 31, 2021. The Company may be exposed to risk for the amounts of funds held in bank accounts more than the insurance limit. In assessing the risk, the Company’s policy is to maintain cash balances with high-quality financial institutions. The Company had cash balances more than the guarantee during the years ended December 31, 2021 and 2020.

Inventory

Inventory is stated at the lower of cost to purchase and/or manufacture the inventory or the current estimated market value of the inventory. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and/or our ability to sell the product(s) concerned and production requirements. Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory.

As of December 31, 2021 and 2020, the aggregate allowance for expiring, slow moving and excess inventory amounted to $56,000 and $56,000, respectively.

Property and Equipment

Property and equipment is recorded at cost and depreciated over the estimated useful lives of the assets using the straight-line method. The Company amortizes leasehold improvements over the estimated life of these assets or the term of the lease, whichever is shorter. When items are retired or otherwise disposed of, income is charged or credited for the difference between net book value and proceeds realized. Ordinary maintenance and repairs are charged to expense as incurred, and replacements and betterments are capitalized.

The range of estimated useful lives used to calculate depreciation for principal items of property and equipment are as follows:

Asset Category Depreciation / Amortization Period (in years)

Furniture and fixtures 3

Office equipment 3

Leasehold improvements 5

Management regularly reviews property, equipment and other long-lived assets for possible impairment. This review occurs annually or more frequently if events or changes in circumstances indicate the carrying amount of the asset may not be recoverable. Based upon management’s annual assessment, there were no indicators of impairment of the Company’s property and equipment and other long-lived assets as of December 31, 2021 and 2020.

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Goodwill and Intangible Assets

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. 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. In relation to the Nutrology acquisition in 2021, the company has an indefinite lived intangible asset, which will be reviewed for impairment annually.

There were no impairment charges incurred during the years ended December 31, 2021 and 2020.

Income Taxes

The Company accounts for income taxes under Financial Accounting Standards Board’s (“FASB”) ASC 740 “Income Taxes”. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes.

As discussed in more detail in Note 9, during the fourth quarter of fiscal 2020, management determined that it is more likely than not that the Company will be able to utilize the majority of its net operating loss carryforwards. The release of a substantial portion of the reserve against the Company’s deferred tax assets resulted in an income tax benefit of $4,339,000 for 2020, and a corresponding increase in net income of the same amount.

The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying consolidated statements of operations. As of December 31, 2021, and 2020, the Company has not established a liability for uncertain tax positions.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per share is computed by dividing the net income available to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive. The dilutive effect of potentially dilutive securities is reflected in diluted net income per share if the exercise prices were lower than the average fair market value of common shares during the reporting period.

The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

December 31,

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Fair Value Measurements

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. ASC 820 establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit, notes payable and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.

Stock Compensation Expense

For prior periods until December 31, 2018 the Company accounted for share-based compensation issued to non-employees and consultants in accordance with the provisions of FASB ASC 505-50, Equity-Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received or (b) the equity instruments issued. The final fair value of the share-based payment transaction is determined at the performance completion date.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of ASU 2018-07 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a result, nonemployee share-based transactions will be measured by estimating the fair value of the equity instruments at the grant date, taking into consideration the probability of satisfying performance conditions. We adopted ASU 2018-07 on January 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the year ended December 31, 2019 or the previously reported financial statements.

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Segments

The Company operates in one segment for the distribution of our products. In accordance with the “Segment Reporting” Topic of ASC 280, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying consolidated financial statements.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02,Leases. This update requires the recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting periods beginning after December 15, 2019.

Other 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 did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Recently Issued Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (CECL) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity (HTM) debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.

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NOTE 3. BUSINESS COMBINATION

On April 7, 2021, the Company closed on the purchase of substantially all of the assets of Triple Impact Nutrition (the “Acquisition”), a New Jersey corporation doing business as Nutrology, a nutritional supplement company catering to consumers who prioritize all-natural and plant-based nutritional supplements. Under the terms of the Asset Purchase Agreement (the “APA”), the Company agreed to pay cash consideration of $500,000, subject to certain working capital adjustments set forth in the APA. Total consideration paid, including the effects of the working capital adjustment, was $529,000.

FTLF US Equity

FTLF · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS

ITEM 11.EXECUTIVE COMPENSATION

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND REPORTS

ITEM 16. FORM 10-K SUMMARY

FTLF US Equity☆

FTLF · 10-K · period ended 2021-12-31

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

ITEM 9A. CONTROLS AND PROCEDURES

ITEM 9B. OTHER INFORMATION

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS

ITEM 11.EXECUTIVE COMPENSATION

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM14.PRINCIPAL ACCOUNTANT FEES AND SERVICES

ITEM 15. EXHIBITS AND REPORTS

ITEM 16. FORM 10-K SUMMARY

FTLF US Equity