FitLife Brands Announces Second Quarter 2020 Results

About this update from Fitlife Brands, Inc.

Omaha , Aug. 13, 2020 (GLOBE NEWSWIRE) -- OMAHA, NE – August 13, 2020 -- FitLife Brands, Inc. (“FitLife” or the “Company”) (OTC Pink: FTLF), an international provider of innovative and proprietary nutritional supplements for health-conscious consumers marketed under the brand names NDS Nutrition™, PMD®, SirenLabs®, CoreActive®, Metis Nutrition™, iSatori™, Energize, and BioGenetic Laboratories , today announced results for the three and six months ended June 30, 2020 . Highlights for the second quarter ended June 30, 2020 include: Total revenue decreased 40.7% to $2.7 million driven by the impact of COVID-19 on foot traffic in our wholesale partners’ retail locations and reduced shipments to GNC in anticipation of its bankruptcy filing. Direct-to-consumer online sales increased to 41% of total revenue, compared to 13% in the same quarter last year. Gross profit declined 28.9% to $1.3 million . Gross margin increased to 48.1% compared to 40.1% in the same quarter last year. During the second quarter, the Company wrote off $354,000 of receivables related to the GNC bankruptcy. The Company generated a net loss of ($0.1) million compared to net income of $0.5 million during the same quarter last year. Adjusted net income, excluding the write-off of the GNC receivables, was $0.3 million . For the second quarter ended June 30, 2020 , total revenue was $2.7 million compared to $4.6 million in the same quarter last year, a decrease of 40.7%. The decrease was primarily attributable to the impact of the COVID-19 pandemic as well as a reduction in shipments to GNC in anticipation of its bankruptcy filing, partially offset by continued growth in our online direct-to-consumer business. For the second quarter of 2020, online sales accounted for approximately 41% of the Company’s revenue, compared to 13% during the second quarter of 2019. Gross profit declined to $1.3 million , a decrease of 28.9% from the second quarter of 2019. Gross margin improved from 40.1% to 48.1% over the same time period. The improvement in gross margin was driven by a greater proportion of higher-margin online revenue relative to wholesale revenue. During the quarter, total operating expenses increased 1.5%. Excluding the $354,000 of receivables written off through bad debt expense related to the GNC bankruptcy, total operating expense declined 23.1% during the quarter. Net income for the second quarter of 2020 was ($0.1) million compared to net income of $0.5 million during the same quarter in 2019. The Company delivered a basic and fully diluted loss per share of ( $0.09 ) for the second quarter of 2020, compared to $0.51 of basic earnings per share and $0.43 of diluted earnings per share in the same quarter last year. Despite the revenue decline during the quarter, adjusted net income excluding the effect of the write-off of the GNC receivables was $0.3 million . Revenue trends during the quarter Retail sales of the Company’s products through GNC franchise locations experienced a year-over-year decline of 50-55% during late March and early April, before beginning a steady recovery. By late May, retail sales of the Company’s products had returned to experiencing low single-digit percentage growth on a year-over-year basis, which growth continued through the end of the quarter. The Company’s wholesale revenue increased sequentially each month throughout the quarter as well. GNC Bankruptcy The Company’s largest customer, GNC, filed for Chapter 11 bankruptcy protection on June 23, 2020 . At the time of the filing, GNC owed the Company approximately $1.2 million . Under US bankruptcy law, payment for product received by a customer in the 20 days preceding a bankruptcy filing is eligible for a priority administrative claim under Section 503(b)(9) of the US Bankruptcy Code. Generally, as long as the debtor company successfully emerges from Chapter 11, those claims are paid in full at the time the debtor emerges from bankruptcy. Claims associated with product received more than 20 days pre-petition are typically considered general unsecured claims and are subject to impairment through the bankruptcy process. The majority of the Company’s receivables from GNC as of the petition date relate to product that was delivered in the 20 days leading up to the bankruptcy filing. As a result, the Company expects to be paid in full for those claims upon GNC’s emergence from bankruptcy, which is currently estimated to occur within the next two months. However, approximately $354,000 of the Company’s receivables relate to product delivered to GNC more than 20 days pre-petition and is therefore subject to impairment. While a partial recovery on such receivables is possible, the Company elected to write off the full amount of those receivables during the quarter ended June 30, 2020 . Subsequent to the GNC bankruptcy filing, the Company made the decision to continue to sell product to GNC on terms more favorable to the Company. Payment for all post-petition orders is paid in the ordinary course of business and is not subject to the bankruptcy process. Almost all of the Company’s revenue from GNC relates to product sold in GNC franchise locations. As part of the bankruptcy process, GNC has announced plans to close a significant number of its corporate stores. While a small number of franchisees have also elected to close their stores as part of the bankruptcy process, the Company believes that the closure of a significant number of corporate locations may drive increased traffic to the remaining franchise locations, benefitting our franchise-exclusive brands. Preliminary Report on Third Quarter Given the rapidly changing retail environment, the Company understands the importance of transparency to its shareholders and other stakeholders. Therefore, as it has done in the past, the Company provides the following information, not subject to any procedures by our Independent Registered Public Accounting Firm, regarding its performance and position as of August 12, 2020 . Revenue for the month of July 2020 was among the strongest of any months in the Company’s history and was roughly equivalent to the total revenue generated by the Company in all of the second quarter ended June 30, 2020 . For the quarter to date, the Company has generated revenue of $3.7 million , an increase of 64% over the same period in the third quarter of 2019. A significant part of this growth relates to a restocking of our products with GNC subsequent to its bankruptcy filing, and the Company anticipates that this pace of revenue growth will not continue through the remainder of this quarter We continue to see increasing demand for our products from end consumers both in-store and online. Retail sales of the Company’s products in GNC franchise locations for the quarter to date continue to experience low single-digit percentage growth on a year-over-year basis. The Company’s online direct-to-consumer business continues to experience roughly 100% growth on a year-over-year basis. Total cash on hand is $2.7 million . Total accounts receivable outstanding is $3.1 million , of which $2.2 million is expected to be collected before the end of August. The Company’s $2.5 million line of credit, which was amended on August 4, 2020 to extend the maturity date until September 23, 2021 , remains undrawn. The Company’s only outstanding debt is its PPP loan, and the Company intends to apply for forgiveness of the loan as soon as permissible. Dayton Judd , the Company’s Chairman and CEO, commented “The second quarter was particularly challenging for the Company, given the effects of the COVID-19 pandemic and the bankruptcy filing of GNC, our largest customer. However, going forward, a restructured GNC will be a better customer for the Company for a number of reasons. While we continue to navigate the effects of both COVID-19 and the GNC bankruptcy, I am very pleased with the performance of our team, our brands, and our Company, and I am optimistic about the Company’s direction and performance going forward.” About FitLife Brands FitLife Brands is a developer and marketer of innovative and proprietary nutritional supplements for health-conscious consumers. FitLife markets over 80 different dietary supplements to promote sports nutrition, improved performance, weight loss and general health primarily through domestic and international GNC® franchise locations as well as through more than 25,000 additional domestic retail locations and, increasingly, online. FitLife is headquartered in Omaha, Nebraska . For more information please visit our new website at www.fitlifebrands.com . Forward-Looking Statements Statements in this release that are forward looking involve known and unknown risks and uncertainties, which may cause the Company's actual results in future periods to be materially different from any future performance that may be suggested in this news release. Such factors may include, but are not limited to, the ability to of the Company to continue to grow revenue, and the Company's ability to continue to achieve positive cash flow given the Company's existing and anticipated operating and other costs. Many of these risks and uncertainties are beyond the Company's control. Reference is made to the discussion of risk factors detailed in the Company's filings with the Securities and Exchange Commission including its reports on Form 10-K and 10-Q. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the dates on which they are made. FITLIFE BRANDS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS: June 30 , December 31 , 2020 2019 (Unaudited) CURRENT ASSETS Cash $ 2,218,000 $ 265,000 Accounts receivable, net of allowance of doubtful accounts, $387,000 and $27,000 respectively 1,362,000 2,366,000 Inventories, net of allowance for obsolescence of $75,000 and $130,000 , respectively 3,467,000 2,998,000 Income tax receivable 40,000 - Prepaid expenses and other current assets 59,000 72,000 Total current assets 7,146,000 5,701,000 Property and equipment, net 113,000 136,000 Right of use asset, net of amortization, $251,000 and $226,000 respectively 229,000 254,000 Goodwill 225,000 225,000 Security deposits - 10,000 TOTAL ASSETS $ 7,713,000 $ 6,326,000 LIABILITIES AND STOCKHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts payable $ 1,635,000 $ 2,010,000 Accrued expense and other liabilities 495,000 464,000 Product returns 276,000 256,000 Lease liability - current portion 46,000 46,000 Total current liabilities 2,452,000 2,776,000 Long-term lease liability, net of current portion 183,000 208,000 PPP loan 450,000 - TOTAL LIABILITIES 3,085,000 2,984,000 STOCKHOLDERS' EQUITY: Preferred stock, $0.01 par value, 10,000,000 shares authorized, none outstanding as of June 30, 2020 and December 31, 2019 Common stock, $.01 par value, 15,000,000 shares authorized; 1,060,033 and 1,054,516 issued and outstanding as of June 30, 2020 and December 31, 2019 respectively 12,000 12,000 Treasury stock, 210,631 and 198,731 shares, respectively (1,790,000 ) (1,619,000 ) Additional paid-in capital 32,176,000 32,055,000 Accumulated deficit (25,770,000 ) (27,106,000 ) Total stockholders' equity $ 4,628,000 $ 3,342,000 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,713,000 $ 6,326,000 The accompanying notes are an integral part of these condensed consolidated financial statements FITLIFE BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019 Three months ended Six months ended June 30 June 30 2020 2019 2020 2019 (Unaudited) (Unaudited) Revenue $ 2,740,000 $ 4,618,000 $ 8,891,000 $ 10,496,000 Cost of goods sold 1,421,000 2,764,000 4,835,000 6,101,000 Gross profit 1,319,000 1,854,000 4,056,000 4,395,000 OPERATING EXPENSES: General and administrative 1,001,000 796,000 1,734,000 1,570,000 Selling and marketing 435,000 616,000 1,106,000 1,166,000 Depreciation and amortization 10,000 13,000 23,000 28,000 Total operating expenses 1,446,000 1,425,000 2,863,000 2,764,000 OPERATING INCOME (LOSS) (127,000 ) 429,000 1,193,000 1,631,000 OTHER EXPENSES (INCOME) Interest expense 8,000 18,000 12,000 33,000 Interest income (3,000 ) (4,000 ) Gain on settlement - (142,000 ) (70,000 ) (142,000 ) Total other expenses (income) 5,000 (124,000 ) (62,000 ) (109,000 ) PRE-TAX INCOME (LOSS) (132,000 ) 553,000 1,255,000 1,740,000 PROVISION FOR INCOME TAXES (40,000 ) 6,000 (81,000 ) 6,000 NET INCOME (LOSS) (92,000 ) 547,000 1,336,000 1,734,000 PREFERRED STOCK DIVIDEND - (18,000 ) - (18,000 ) NET INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS $ (92,000 ) $ 529,000 $ 1,336,000 $ 1,716,000 NET INCOME (LOSS) PER SHARE AVAILABLE TO COMMON SHAREHOLDERS: Basic $ (0.09 ) $ 0.51 $ 1.27 $ 1.59 Diluted $ (0.09 ) $ 0.43 $ 1.19 $ 1.36 Basic weighted average common shares 1,060,033 1,047,447 1,055,893 1,079,517 Diluted weighted average common shares 1,060,033 1,239,875 1,126,631 1,258,520 The accompanying notes are an integral part of these condensed consolidated financial statements FITLIFE BRANDS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019 Six months ended June 30 2020 2019 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,336,000 $ 1,734,000 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 23,000 28,000 Allowance for doubtful accounts 360,000 (161,000 ) Allowance for inventory obsolescence (55,000 ) 24,000 Common stock issued for services 26,000 39,000 Fair value of options issued for services 24,000 71,000 Right of use asset net of amortization and lease liability - 4,000 Changes in operating assets and liabilities: Accounts receivable - trade 643,000 (1,626,000 ) Inventories (414,000 ) 787,000 Prepaid expense 13,000 127,000 Income tax receivable (40,000 ) - Security deposit 10,000 - Accounts payable (375,000 ) (3,000 ) Accrued interest 1,000 33,000 Accrued liabilities and other liabilities 31,000 (69,000 ) Product returns 20,000 - Net cash provided by operating activities 1,603,000 988,000 CASH FLOWS FROM INVESTING ACTIVITIES: Net cash provided by investing activities - - CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of notes payable - 300,000 Proceeds from exercise of stock options 71,000 - Proceeds from PPP loan 450,000 - Dividend payments on preferred stock - (18,000 ) Repurchases of common stock (171,000 ) (472,000 ) Repayments of note payable - (140,000 ) Net cash provided by (used in) financing activities 350,000 (330,000 ) CHANGE IN CASH 1,953,000 658,000 CASH, BEGINNING OF PERIOD 265,000 259,000 CASH, END OF PERIOD $ 2,218,000 $ 917,000 Supplemental disclosure operating activities Cash paid for interest $ 7,000 $ 33,000 Non-cash investing and financing activities Recording of lease asset and liability upon adoption of ASU-2016-02 $ - $ 343,000 Accrued liability for stock buyback $ - $ 94,000 The accompanying notes are an integral part of these condensed consolidated financial statements Dayton Judd [email protected] Source: FitLife Brands, Inc.

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