The accompanying notes are an integral part of these condensed consolidated financial statements.
The accompanying notes are an integral part of these condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(In thousands, except per share data)
(Unaudited)
NOTE 1 - DESCRIPTION OF BUSINESS
Summary
FitLife Brands, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements and wellness products for health-conscious consumers marketed under the following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"); and (iii) Dr. Tobias, All Natural Advice, and Maritime Naturals (together, the “MRC 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. The Company distributes the MRC Products primarily on Amazon.com.
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
Acquisition of Mimi’s Rock Corp
On December 4, 2022, the Company entered into an Arrangement Agreement with Mimi’s Rock Corp. (“MRC”), pursuant to which the Company agreed to acquire MRC. On February 28, 2023, the Company completed the acquisition of MRC. See Note 8 for additional disclosure.
Inflation
The Company has experienced inflationary pressure with regard to the procurement of many of its products. Thus far, the Company has been able to partially offset the impact of inflation through price increases to its customers. In the future, however, further inflationary pressure could adversely affect the Company’s operating performance if market conditions no longer permit the Company to pass through price increases to its customers.
NOTE 2 - BASIS OF PRESENTATION
The accompanying interim condensed unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation are included. Operating results for the three-month period ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. Although management of the Company believes the disclosures presented herein are adequate and not misleading, these interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the footnotes thereto included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 2023.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States (“GAAP”). Significant accounting policies are as follows:
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated condensed financial statements.
Foreign Currency Translation
The functional currency of the Company is the U.S. dollar. The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using end of period exchange rates. Changes in reported amounts of assets and liabilities of foreign subsidiaries that occur as a result of changes in exchange rates between foreign subsidiaries’ functional currencies and the U.S. dollar are included in foreign currency translation adjustment. Foreign currency translation adjustment is included as a component of stockholders’ equity in the accompanying condensed consolidated balance sheets. Revenue and expense transactions use an average rate prevailing during the period of the related transaction. Transaction gains and losses that arise from exchange rate fluctuations denominated in a currency other than the functional currency of each subsidiary are included in the results of operations as incurred.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, purchase price allocations for business combinations, 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.
Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase Common Stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| | Three months ended March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Net income available to common shareholders | | $ | 156 | | | $ | 1,290 | |
Weighted average common shares - basic | | | 4,483 | | | | 4,554 | |
Dilutive effect of outstanding warrants and stock options | | | 452 | | | | 426 | |
Weighted average common shares - diluted | | | 4,935 | | | | 4,980 | |
| | | | | | | | |
Net income per common share: | | | | | | | | |
Basic | | $ | 0.03 | | | $ | 0.28 | |
Diluted | | $ | 0.03 | | | $ | 0.26 | |
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity from the date of purchase of three months or less to be cash equivalents. The Company has approximately $950 in short-term interest-earning accounts pledged as collateral for financing arrangements that are currently limited to business credit cards.
Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of 36 to 84 months. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
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. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, 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:
| ● | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ● | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data. |
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 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.
Acquisitions and Business Combinations
The Company allocates the fair value of purchase consideration to the tangible assets acquired, liabilities assumed, and separately identified intangible assets acquired based on their estimated fair values. The excess of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill. Such valuations require management to make significant estimates and assumptions, especially with respect to intangible assets. Significant estimates in valuing certain intangible assets include, but are not limited to, future expected cash flows from acquired trademarks and trade names, useful lives, and discount rates. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. During the measurement period, which is the period needed to gather all information necessary to make the purchase price allocation, not to exceed one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed, with the corresponding offset to goodwill. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.
Goodwill
The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized.
As the Company uses the market approach to determine fair value of the reporting unit, the price of its common stock is an important component of the fair value calculation. If the Company’s stock price experiences significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods.
Management determined there were no indicators of impairment at March 31, 2023 or December 31, 2022.
Customer Concentration
Net sales to GNC during the three-month periods ended March 31, 2023 and 2022 represent 49% and 70% of total net revenue, respectively. Gross accounts receivable attributable to GNC as of March 31, 2023 and 2022 represent 32% and 82% of the Company’s total accounts receivable balance, respectively.
Revenue Recognition
The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers.
The Company accounts for revenues in accordance with FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). 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. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. 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.
The Company disaggregates revenue into geographical regions and distribution channels. The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.
Online revenue during the quarter ended March 31, 2023 was approximately 47% of net revenue, compared to 53% for wholesale channels for the same period. Online revenue during the quarter ended March 31, 2022 was 27% of net revenue compared to 73% for wholesale channels during the same period in 2022.
Sales to customers in the United States were approximately 97% and 99% during the quarters ended March 31, 2023 and 2022, respectively, with the balance of sales for the same respective periods being to customers primarily in Canada and Europe.
Control of products we sell transfers to customers upon shipment or delivery from our facilities 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. Payments 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. The Company determined that product returns are immaterial, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.
Income Taxes
Provision for income taxes consists of current and deferred tax expense. Current tax expense is the expected tax payable on the taxable income for the year, using tax rates enacted in the countries where the Company and its subsidiaries operate and generate taxable income. The Company accounts for income taxes using the asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets may also result from unused losses and other deductions carried forward. An assessment of the probability that a deferred tax asset will be recovered is made prior to any deferred tax asset being recognized. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized, or that future deductibility is uncertain.
The income tax provision for interim periods is determined using an estimate of the annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. Each quarter, the estimate of the annual effective tax rate is updated, and if the estimated effective tax rate changes, a cumulative adjustment is made. There is potential for volatility of the effective tax rate due to several factors, including changes in the mix of the pre-tax income and the jurisdictions to which it relates. The effective income tax rate was 73.0% and 19.5% for the three months ended March 31, 2023 and 2022, respectively.
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 (“ASU 2016-13”). 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 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, ASU 2016-13 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 has adopted this guidance beginning January 1, 2023. This guidance did not have a significant impact on the Company’s financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 4 – INVENTORIES
The Company’s 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 projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of March 31, 2023 and December 31, 2022 amounted to $110 and $107, respectively. The Company’s inventories as of March 31, 2023 and December 31, 2022 were as follows:
|
|
March 31, |
|
|
December 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(Unaudited) |
|
|
|
|
|
Finished goods |
|
$ |
7,972 |
|
|
$ |
8,347 |
|
Components |
|
|
929 |
|
|
|
865 |
|
Allowance for obsolescence |
|
|
(110 |
) |
|
|
(107 |
) |
Total |
|
$ |
8,791 |
|
|
$ |
9,105 |
|
NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of March 31, 2023 and December 31, 2022 as follows:
|
|
March 31, |
|
|
December 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(Unaudited) |
|
|
|
|
|
Equipment |
|
$ |
897 |
|
|
$ |
902 |
|
Accumulated depreciation |
|
|
(779 |
) |
|
|
(856 |
) |
Total |
|
$ |
118 |
|
|
$ |
46 |
|
Depreciation expense for the three months ended March 31, 2023 and 2022 was $19 and $14, respectively.
NOTE 6 – NOTES PAYABLE
Debt obligations consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
Term loan – current portion |
|
$ |
2,500 |
|
|
$ |
- |
|
Term loan, net of current portion |
|
|
10,000 |
|
|
|
- |
|
Total |
|
$ |
12,500 |
|
|
$ |
- |
|
Amended and Restated Credit Agreement – First Citizens Bank
On February 23, 2023 (the “Loan Closing Date”), FitLife Brands, Inc. (the “Company”) entered into an Amended and Restated Credit Agreement with First Citizens Bank (the “Bank”) (the “Credit Agreement”), amending and restating that certain Credit Agreement, dated September 24, 2019, between the Company and the Bank. Pursuant to the Credit Agreement, the Bank provided the Company with a term loan for the principal amount of $12.5 million (“Term Loan”), and a revolving line of credit of $3.5 million (the “Line of Credit”, and collectively with the Term Loan, the “Loan”). The Company used the proceeds from the Loan to fund the consummation of the Acquisition (as defined below), and for general working capital purposes, including those of MRC (as defined below).
Pursuant to the Credit Agreement: (A) the Term Loan (i) accrues interest at a per annum rate equal to 2.75% above the one-month forward-looking term rate (the “Applicable Rate”), based on the secured overnight financing rate published for such day by the Federal Reserve Bank of New York (“Term SOFR Rate”), as in effect two banking days, subject to certain limitations, prior to (a) the Loan Closing Date, in the case of the initial Term SOFR Rate, and, (b) thereafter, the applicable first day of each calendar month (“Rate Adjustment Date”), adjusted for any reserve requirement and any subsequent costs arising from a change in government regulation; and (ii) and the Company shall make payments on March 10th, June 10th, September 10th, and December 10th of each calendar year, commencing on June 10, 2023, of principal plus accrued interest on the Term Loan in amounts sufficient to fully amortize the Term Loan through February 28, 2028 (the “Term Loan Maturity Date”), with all principal and accrued interest on the Term Loan being due and payable in full on the Term Loan Maturity Date; and (B) outstanding advances under the Line of Credit (“Advances”) will accrue interest at the Applicable Rate, and commencing on April 1, 2023, and continuing on the 1st day of each calendar month thereafter until December 23, 2023, or the date of the termination in whole of the Line of Credit as otherwise set forth in the Amended and Restated Agreement (the “LOC Termination Date”), the Company shall make payments of accrued interest on Advances, and all principal and accrued interest on outstanding Advances shall be due and payable in full on the LOC Termination Date. The Company may prepay amounts borrowed under the Loan, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, by written notice to Bank at least one business day prior to the proposed prepayment.
The Agreement contains customary events of default (each an “Event of Default”), which upon the occurrence of an Event of Default, among other things, interest will accrue at the Applicable Rate plus 2% per annum, and the Bank may declare all Obligations, with interest thereon, immediately due and payable. The Credit Agreement further contains: (X) customary representations and warranties of the Company; (Y) customary indemnification provisions whereby the Company will indemnify Bank for certain losses arising out of inaccuracies in, or breaches of, the representations, warranties and covenants of the Company, and certain other matters; and (Z) customary affirmative and negative covenants, including, without limitation, covenants: (i) to maintain a Fixed Charge Coverage Ratio (as defined in the Credit Agreement) of net less than 1.25 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending March 31, 2023; (ii) to maintain a Funded Debt to EBITDA Ratio (as defined in the Credit Agreement) of not more than 2.50 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending March 31, 2024; (iii) not to incur any indebtedness, except indebtedness already incurred on the date of the Credit Agreement, incurred for capital leases and purchase money obligations for fixed assets less than $100,000 without the Bank’s prior approval, and payable to trade creditors in the ordinary course of business; (iv) not to undertake certain fundamental or corporate changes; and (v) not to make certain Dispositions (as defined in the Credit Agreement). The Company was in compliance with all covenants as of March 31, 2023.
As of March 31, 2023, the borrowings outstanding on the Term Loan and the Line of Credit were $12,500 and $0, respectively.
Maturities of the Company's Term Loan are as follows:
Year ending | | | | |
2023 (remaining nine months) | | $ | 1,875 | |
2024 | | | 2,500 | |
2025 | | | 2,500 | |
2026 | | | 2,500 | |
2027 | | | 2,500 | |
2028 | | | 625 | |
Total term loan outstanding as of March 31, 2023 | | $ | 12,500 | |
NOTE 7 - EQUITY
The Company is authorized to issue 60.0 million shares of Common Stock, $0.01 par value per share, of which 4,446 and 4,507 shares of Common Stock were issued and outstanding as of March 31, 2023 and December 31, 2022, respectively.
a. | Common Stock Issued for Services |
In February 2021, the Company granted Dayton Judd, Chief Executive Officer, an aggregate of 160 restricted share units (“RSUs”). The Company recorded $25 and $95 of stock compensation expense related to the RSUs during the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $6 of unamortized compensation expense associated with RSUs.
b. | Share Repurchase Program |
On March 17, 2023, the Board approved the extension of the Share Repurchase Program. Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to an additional $5,000 of the Company's Common Stock over the next 24 months, at a purchase price equal to the fair market value of the Company's Common Stock on the date of purchase, with the exact date and amount of such purchases to be determined by management. All other terms of the Share Repurchase Program remain unchanged.
During the three months ended March 31, 2023, the Company did not repurchase any Common Stock under the 2023 Share Repurchase Program. As of March 31, 2023, the Company may purchase $5,000 of Common Stock under the 2023 Share Repurchase Program.
Treasury Shares
In January 2022, the Company retired all treasury shares. As of March 31, 2023, there are no shares held in treasury.
Other
During the quarter ended March 31, 2023, the Company settled a dispute with a former employee. As a result of the settlement, the former employee forfeited 61,200 shares of Common Stock to the Company for no consideration, which shares were then immediately cancelled.
Options
Information regarding options outstanding as of March 31, 2023 is as follows:
| | Number of | | | Weighted Average Exercise | | | Weighted Average Remaining Life | |
| | Options | | | Price | | | (Years) | |
Outstanding, December 31, 2022 | | | 379 | | | $ | 3.09 | | | | 5.3 | |
Issued | | | - | | | | - | | | | | |
Exercised | | | - | | | | - | | | | | |
Forfeited | | | - | | | | - | | | | | |
Outstanding, March 31, 2023 | | | 379 | | | $ | 3.09 | | | | 5.1 | |
Outstanding | | | Exercisable | |
Exercise Price Per share | | | Total Number of Options | | | Weighted Average Remaining Life (Years) | | | Weighted Average Exercise Price | | | Number of Vested Options | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | | | | | | | | |
$0.70 | - | 5.24 | | | | 358 | | | | 5.2 | | | $ | 2.25 | | | | 326 | | | $ | 1.98 | |
$11.55 | - | 30.31 | | | | 21 | | | | 2.9 | | | $ | 17.09 | | | | 14 | | | $ | 17.87 | |
| | | | | | 379 | | | | 5.1 | | | $ | 3.09 | | | | 340 | | | $ | 2.63 | |
The closing stock price for the Company’s stock on March 31, 2023 was $16.75, resulting in an intrinsic value of outstanding options of $5,231.
During the three-month periods ended March 31, 2023 and 2022, the Company recognized stock-based compensation expense of $17 and $12, respectively, related to stock options. As of March 31, 2023 there is $143 of unamortized compensation expense related to stock options.
Warrants
Total outstanding warrants to purchase shares of Common Stock as of March 31, 2023 and December 31, 2022 amounted to 143. Total intrinsic value as of March 31, 2023 amounted to $2,238. During the three months ended March 31, 2023 and year ended December 31, 2022, no warrants were granted and no warrants expired.
Outstanding | | | Exercise Price | | Issuance Date | | Expiration Date | | Vesting |
143 | | | $ | 1.15 | | 11/13/18 | | 11/13/23 | | Yes |
NOTE 8 – Acquisition of Mimi’s Rock Corp
On December 4, 2022, the Company entered into an Arrangement Agreement with Mimi’s Rock Corp. (“MRC”), pursuant to which the Company agreed to acquire all of the equity interests of MRC. The acquisition closed on February 28, 2023. MRC is headquartered in Oakville, Ontario, Canada. The purchase price of $17,099 was paid with proceeds from the Term Loan as well as cash on hand.
During the first quarter of 2023, the Company incurred $1,356 of transaction-related costs for the acquisition of MRC.
The Company accounted for the acquisition as a business combination under Accounting Standards Codification (“ASC”) 805, Business Combinations. At the date of the acquisition and of this Quarterly Report on Form 10-Q, management has not yet finalized its valuation analysis. The fair values of the assets acquired, as set forth below, are considered provisional and subject to adjustment as additional information is obtained through the purchase price measurement period (a period of up to one year from the closing date). Any prospective adjustments would change the fair value allocation as of the acquisition date. The Company is still in the process of reviewing underlying models, assumptions and discount rates used in the valuation of provisional goodwill and intangible assets. The following table summarizes the provisional fair value of the assets acquired and liabilities assumed on the date of acquisition, and is as follows:
Assets acquired: | | | | |
Accounts receivable | | $ | 1,521 | |
Inventories | | | 1,181 | |
Prepaid expenses and other assets | | | 161 | |
Right of use asset | | | 100 | |
Property and equipment | | | 77 | |
Intangible assets (provisional) | | | 7,602 | |
Goodwill (provisional) | | | 10,386 | |
Total assets | | | 21,028 | |
Liabilities assumed: | | | | |
Accounts payable and accrued expenses | | | (2,911 | ) |
Income tax payable | | | (885 | ) |
Product returns | | | (23 | ) |
Lease liabilities | | | (110 | ) |
Total liabilities | | | (3,929 | ) |
Purchase price | | $ | 17,099 | |
The purchase was intended to augment and diversify the Company’s product offerings and lineup. Key factors that contributed to the recorded intangible assets and goodwill were the opportunity to complement existing operations of the Company and the opportunity to generate future synergies within the nutritional supplement and wellness business
Pro Forma Condensed Combined Financial Information (Unaudited) (In thousands)
The following presents the Company’s unaudited pro forma financial information for the quarter ended March 31, 2023 and 2022, respectively, giving effect to the acquisition of MRC as if it had occurred at January 1, 2022. Included in the pro forma information is: adjustments to recognize transaction-related costs related to the acquisition of MRC and fair value adjustment to inventory acquired during the quarter ended March 31, 2022, adjustments to remove the interest costs from MRC’s debt prior to the closing of the acquisition, and to recognize interest expense based on the projected balance of the Term Loan for the respective periods presented for this pro forma.
| | Three months ended | |
| | March 31, | |
| | 2023 | | | 2022 | |
| | | | | | | | |
Revenue | | $ | 15,793 | | | $ | 14,833 | |
| | | | | | | | |
Net income | | $ | 1,293 | | | $ | 1,372 | |
| | | | | | | | |
Net income per share | | $ | 0.26 | | | $ | 0.28 | |
The pro forma adjustments do not reflect adjustments for anticipated operating efficiencies that the Company expects to achieve as a result of this acquisition. The pro forma financial information is for informational purposes only and does not purport to present what the Company’s results would actually have been had the transaction actually occurred on the dates presented or to project the combined company’s results of operations or financial position for any future period.
MRC revenues and net loss for the period from February 28, 2023 to March 31, 2023 was $2,639 and ($747), respectively.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of its subsidiaries, threatened against or affecting the Company, our Common Stock, any of our subsidiaries or of the Company’s or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
NOTE 10 – RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to current presentation. These reclassifications had no effect on the reported operating income or net income on the Condensed Consolidated Statement of Operations. Certain expenses previously classified as selling, general and administrative expenses have been reclassified to a contra-revenue account on the Condensed Consolidated Statement of Operations.
NOTE 11 – SUBSEQUENT EVENTS
The Company evaluated subsequent events for their potential impact on the condensed consolidated financial statements and disclosures through the date the condensed consolidated financial statements were issued and determined that, except as set forth below, no subsequent events occurred that were reasonably expected to impact the condensed consolidated financial statements presented herein.
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