Company Quick10K Filing
Fitlife Brands
Price0.56 EPS2
Shares1 P/E0
MCap1 P/FCF0
Net Debt-1 EBIT3
TEV0 TEV/EBIT0
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-13
10-Q 2020-03-31 Filed 2020-05-15
10-K 2019-12-31 Filed 2020-03-30
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-22
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-04-17
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-21
10-Q 2017-03-31 Filed 2017-05-22
10-K 2016-12-31 Filed 2017-04-17
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-15
10-Q 2016-03-31 Filed 2016-05-16
10-K 2015-12-31 Filed 2016-04-14
10-Q 2015-09-30 Filed 2015-11-12
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-03-31
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-07
10-Q 2014-03-31 Filed 2014-05-15
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-15
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-14
10-K 2012-12-31 Filed 2013-04-01
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-21
10-K 2011-12-31 Filed 2012-04-13
8-K 2020-08-13 Earnings, Regulation FD, Exhibits
8-K 2020-05-15
8-K 2020-04-27
8-K 2020-04-03
8-K 2020-03-20
8-K 2019-12-20
8-K 2019-09-23
8-K 2019-09-11
8-K 2019-08-16
8-K 2019-06-13
8-K 2019-05-15
8-K 2019-04-11
8-K 2019-02-15
8-K 2018-12-26
8-K 2018-12-04
8-K 2018-09-07
8-K 2018-07-31
8-K 2018-02-18
8-K 2018-01-22

FTLF 10Q Quarterly Report

Item 1.  Financial Statements
Note 1 - Description of Business
Note 2 - Basis of Presentation
Note 3 - Summary of Significant Accounting Policies
Note 4 – Inventories
Note 5 - Property and Equipment
Note 6 – Notes Payable
Note 7 - Right of Use Assets and Liabilities
Note 8 - Equity
Note 9 – Commitments and Contingencies
Note 10 – Subsequent Events
Item 2.  Management’S Discussion And Analysis of Financial Condition and Results of Operations
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Item 1.  Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities
Item 5. Other Information
Item 6.  Exhibits
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

Fitlife Brands Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
2016128402012201420172020
Assets, Equity
10.06.02.0-2.0-6.0-10.02012201420172020
Rev, G Profit, Net Income
2.61.50.4-0.6-1.7-2.82012201420172020
Ops, Inv, Fin

10-Q 1 ftlf10q_june302020.htm 10-Q ftlf10q_june302020
 

  
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2020
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
 
For the transition period from N/A to N/A
Commission File No. 000-52369
 
FITLIFE BRANDS, INC.
(Name of small business issuer as specified in its charter)
 
Nevada
 
20-3464383
(State or other jurisdiction of incorporation)
 
(IRS Employer Identification No.)
                                                                                                         
  5214 S. 136th Street, Omaha, NE 68137
(Address of principal executive offices)
 
 (402) 991-5618
(Issuer’s telephone number)
 
(Former name, former address and former fiscal year, if changed since last report)
 
Securities registered under Section 12(b) of the Exchange Act: None
 
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $0.01 per share
 
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days:  Yes    No 
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes     No 
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large accelerated filer
Accelerated filer
Non–Accelerated filer 
Small reporting company
 
 
Emerging growth company 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b–2 of the Exchange Act).  Yes     No 
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
As of August 12, 2020, a total of 1,060,389 shares of the Registrant’s Common Stock, par value $0.01 per share, were issued and outstanding.
 
 

 
 
 
FITLIFE BRANDS, INC.
 INDEX TO FORM 10-Q FILING
FOR THE QUARTER ENDED JUNE 30, 2020
 
TABLE OF CONTENTS
 
 
 
 
PAGE

 
 

 

 
 

 
 

 

 

 

 

 
 

 

 
 

 

 
 

 

 

 

 
 

 

 
 

 

 
 

 

 
 

 

 
 

 

 
 

 

  
 
 
-i-
 
 
Special Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q (“Quarterly Report”), including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2 of Part I of this report, includes forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by forward-looking statements.
 
In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, “proposed”, “intended”, or “continue” or the negative of these terms or other comparable terminology. You should read statements that contain these words carefully, because they discuss our expectations about our future operating results or our future financial condition or state other “forward-looking” information. There may be events in the future that we are not able to accurately predict or control. Before you invest in our securities, you should be aware that the occurrence of any of the events described in this Quarterly Report could substantially harm our business, results of operations and financial condition, and that upon the occurrence of any of these events, the trading price of our securities could decline and you could lose all or part of your investment. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, growth rates, levels of activity, performance or achievements. We are under no duty to update any of the forward-looking statements after the date of this Quarterly Report to conform these statements to actual results.
 
 
 

 
 
PART I
FINANCIAL INFORMATION
 
Item 1.  Financial Statements
  
 
  FITLIFE BRANDS, INC.  
 
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 

 
 
 
 
 
 

 
June 30,
 
 
December 31,
 
ASSETS:
 
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 
 
 
-1-
 
 
 
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.

 
 
-2-
 
 
FITLIFE BRANDS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
 
 
 
Series A Preferred
 
 
Common Stock
 
 
Treasury
 
 
Additional
Paid-in
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Stock
 
 
Capital
 
 
Deficit
 
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
THREE MONTHS ENDED JUNE 30, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
MARCH 31, 2020
  - 
 $- 
  1,060,033 
 $12,000 
  (1,790,000)
 $32,154,000 
 $(25,678,000)
 $4,698,000 
Fair value of common stock issued for services
  - 
  - 
  - 
  - 
  - 
  10,000 
  - 
  10,000 
Fair value of vested common shares and options issued for services
  - 
  - 
  - 
  - 
  - 
  12,000 
  - 
  12,000 
Net income
  - 
  - 
  - 
   - 
   - 
  - 
  (92,000)
  (92,000)
 
    
    
    
    
    
    
    
    
JUNE 30, 2020
  - 
 $- 
  1,060,033 
 $12,000 
  (1,790,000)
 $32,176,000 
 $(25,770,000)
 $4,628,000 
 
    
    
    
    
    
    
    
    
THREE MONTHS ENDED JUNE 30, 2019
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
MARCH 31, 2019
  600 
 $- 
  1,113,952 
 $11,000 
  - 
 $32,156,000 
 $(28,617,000)
 $3,550,000 
Fair value of common stock issued for services
  - 
  - 
  406 
  - 
  - 
  16,000 
  - 
  16,000 
Repurchase of common stock
  - 
  - 
  (99,238)
  - 
  (566,000)
  - 
  - 
  (566,000)
Dividend payments on preferred stock
  - 
  - 
  - 
  - 
  - 
  (18,000)
  - 
  (18,000)
Fair value of vested common shares and options issued for services
  - 
  - 
  - 
  - 
  - 
  45,000 
  - 
  45,000 
Net income
  - 
  - 
  - 
  - 
  - 
  - 
  547,000 
  547,000 
 
    
    
    
    
    
    
    
    
JUNE 30, 2019
  600 
 $- 
  1,015,120 
 $11,000 
  (566,000)
 $32,199,000 
 $(28,070,000)
 $3,574,000 
 
    
    
    
    
    
    
    
    
SIX MONTHS ENDED JUNE 30, 2020
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
DECEMBER 31, 2019
  - 
 $- 
  1,054,516 
 $12,000 
  (1,619,000)
 $32,055,000 
 $(27,106,000)
 $3,342,000 
Fair value of common stock issued for services
  - 
  - 
  417 
  - 
  - 
  26,000 
  - 
  26,000 
Repurchase of common stock
  - 
  - 
  (11,900)
  - 
  (171,000)
  - 
  - 
  (171,000)
Exercise of stock options
  - 
  - 
  17,000 
  - 
  - 
  71,000 
  - 
  71,000 
Fair value of vested common shares and options issued for services
  - 
  - 
  - 
  - 
  - 
  24,000 
  - 
  24,000 
Net income
  - 
  - 
  - 
  - 
  - 
  - 
  1,336,000 
  1,336,000 
 
    
    
    
    
    
    
    
    
JUNE 30, 2020
  - 
 $- 
  1,060,033 
 $12,000 
  (1,790,000)
 $32,176,000 
 $(25,770,000)
 $4,628,000 
 
    
    
    
    
    
    
    
    
SIX MONTHS ENDED JUNE 30, 2019
    
    
    
    
    
    
    
    
 
    
    
    
    
    
    
    
    
DECEMBER 31, 2018
  600 
 $- 
  1,111,943 
 $11,000 
  - 
 $32,107,000 
 $(29,804,000)
 $2,314,000 
Fair value of common stock issued for services
  - 
  - 
  2,415 
  - 
  - 
  39,000 
  - 
  39,000 
Repurchase of common stock
  - 
  - 
  (99,238)
  - 
  (566,000)
  - 
  - 
  (566,000)
Dividend payments on preferred stock
  - 
  - 
  - 
  - 
  - 
  (18,000)
  - 
  (18,000)
Fair value of vested common shares and options issued for services
  - 
  - 
  - 
  - 
  - 
  71,000 
  - 
  71,000 
Net income
  - 
  - 
  - 
  - 
  - 
  - 
  1,734,000 
  1,734,000 
 
    
    
    
    
    
    
    
    
JUNE 30, 2019
  600 
 $- 
  1,015,120 
 $11,000 
  (566,000)
 $32,199,000 
 $(28,070,000)
 $3,574,000 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
 
-3-
 
 
 
 
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.


 
-4-
 
 
FITLIFE BRANDS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Unaudited)
 
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 brand names NDS Nutrition, PMD Sports, SirenLabs, CoreActive, and Metis Nutrition (together, “NDS Products”). In September 2015, the Company acquired iSatori, Inc. (“iSatori”) and as a result, the Company added three brands to its product portfolio, including iSatori, BioGenetic Laboratories, and Energize (together, “iSatori Products”). The NDS Products are distributed 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 25,000 retail locations, which include specialty, mass, and online.
 
The Company was incorporated in the State of Nevada on July 26, 2005. In October 2008, the Company acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets into its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida corporation (“NDS”). The Company’s NDS Products are sold through NDS and the iSatori Products are sold through iSatori, Inc., a Delaware corporation and a wholly owned subsidiary of the Company.
   
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
 
Line of Credit Agreement
 
 On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the "Line of Credit Agreement") with Mutual of Omaha Bank, subsequently acquired by CIT Bank (the "Lender"), 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 September 23, 2020 (the “Maturity Date”), unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit is secured by all assets of the Company.
 
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.
 
The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.
 
On March 20, 2020, the Company drew on the Line of Credit in an amount equal to $2.5 million (the "Advance"), which Advance was repaid on April 29, 2020. The Company elected to borrow such amounts to ensure it maintained ample financial flexibility in light of the spread of the novel coronavirus ("COVID-19"). 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.
 
Subsequent to the end of the quarter, on August 4, 2020, the Company and CIT Bank amended the Line of Credit Agreement to extend the Maturity Date to September 23, 2021. The amendment also added a LIBOR floor of 75 bps to the Line of Credit Agreement. All other terms of the Line of Credit remain unchanged.
 
 
 
-5-
 
 
Repayment of Outstanding Notes
 
 On December 26, 2018, the Company issued a line of credit promissory note to Sudbury Capital Fund, LP ("Sudbury") in the principal amount of $600,000 (the “Sudbury Note”), with an initial advance to the Company in the amount of $300,000. In addition, on December 26, 2018, the Company also issued a promissory note to Dayton Judd, the Company’s Chair of the Board and Chief Executive Officer, in the principal amount of $200,000 (the “Judd Note”) (together with the Sudbury Note, the “Notes”).
   
The Notes matured on the earlier to occur of a Change in Control of the Company, as defined in the Notes, or December 31, 2019, and required monthly principal and interest payments beginning April 1, 2019, with a final payment of unpaid principal and interest due December 31, 2019. Proceeds from the sale of the Notes, along with existing cash balances, were used to retire all outstanding indebtedness under the terms of a previous credit agreement totaling approximately $590,000 at December 26, 2018.
 
On September 24, 2019, the Company repaid all outstanding balances due on the Notes in the aggregate principal amount, including accrued but unpaid interest thereon, of $615,000. Mr. Judd is the managing partner of Sudbury. As a result of the repayment of the Notes, the Company terminated its line of credit entered into between the Company and Sudbury on December 26, 2018.
 
 Amendment of Share Repurchase Plan
 
On August 16, 2019, the Company's Board of Directors (the "Board") authorized management to repurchase up to $500,000 of the Company's Common Stock over the next 24 months (the "Share Repurchase Program"), which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. On September 23, 2019, the Board approved an amendment to the Company’s share repurchase program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred"), and warrants to purchase shares of the Company's Common Stock ("Warrants"), 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 Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
 
On November 6, 2019, the Company’s Board of Directors amended the previously approved Share Repurchase Program to increase the amount of authorized repurchases to $2.5 million.  All other terms of the Share Repurchase Program remain unchanged.
 
The Company intends to conduct its Share Repurchase Program in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases may be made at management's discretion from time to time in the open market or through privately negotiated transactions. The Company may suspend or discontinue the Share Repurchase Program at any time, and may thereafter reinstitute purchases, all without prior announcement.
 
During the three months ended June 30, 2020, the Company did not repurchase any shares of Common Stock. During the six months ended June 30, 2020, the Company repurchased 11,900 shares of Common Stock, or approximately 1% of the issued and outstanding shares of the Company, through private transactions, as follows:
 
 
 
 
Total number of shares purchased
 
 
 
Average price paid per share
 
 
 
Total number of shares purchased as part of publicly announced programs
 
 
 
Dollar value of shares that may yet be purchased
 
First quarter ended March 31, 2020
  11,900 
 $14.35 
  11,900 
 $1,110,917 
Second quarter ended June 30, 2020
  - 
  - 
  - 
  1,110,917 
Subtotal
  11,900 
 $14.35 
  11,900 
 $1,110,917 
 
 
 
-6-
 
 
Conversion of Series A Preferred Stock
 
On December 23, 2019, Sudbury voluntarily converted its 550 shares of Series A Preferred into Common Stock in accordance with the terms of the Series A Preferred Stock Certificate of Designations. In conjunction with the conversion, the Company issued to Sudbury a total of 123,222 shares of Common Stock and paid accrued dividends of $7,454. Following such conversion, no shares of Series A Preferred remain outstanding, and the Company has no further obligations under the Certificate of Designations, including the obligation to pay preferred dividends.
 
COVID-19 Pandemic
 
The current coronavirus ("COVID-19") pandemic has had an effect on the Company’s employees, business and operations during the six months ended June 30, 2020, and those of its customers, vendors and business partners. In this regard, the Company’s financial results and business operations during six months ended June 30, 2020 have been materially and adversely affected due to the closure of some of our retail partners’ store locations and the ongoing stay-at-home orders, and our future financial position and operating results may be materially and adversely affected as well, although the extent of such 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.
 
CARES Act
 
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in 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 “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted 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 intends to use 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 is scheduled to mature on April 27, 2022, has a 1.0% interest rate, and is 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 CARES Act permits employers to defer payment of the employer portion of payroll taxes owed on wages paid through December 31, 2020 for a period of up to two years. Through June 30, 2020, the Company has deferred payment of $24,000, which amount has been expensed and is included in accrued liabilities.
 
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 six-month period ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. 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, 2019, as filed with the Securities and Exchange Commission on March 30, 2020.
  
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.
  
 
 
-7-
 
 
Use of Estimates
 
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. Adjustments made with respect to the use of estimates often relate to improved information not previously available. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of financial statements; accordingly, actual results could differ from these estimates.
  
These estimates and assumptions also affect the reported amounts of accounts receivable, inventories, goodwill, revenue, costs and expense and valuations of long-term assets, realization of deferred tax assets and fair value of equity instruments issued for services during the reporting period. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
 
Basic and Diluted Income (loss) Per Share
 
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income (loss) available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income (loss) 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 (loss) 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 (loss) 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.
  
Basic and Diluted Income (Loss) Per Share
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Three months ended June 30,
 
 
Six months ended June 30,
 
 
 
2020
 
 
2019
 
 
2020
 
 
2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss) available to common shareholders
 $(92,000)
 $529,000 
 $1,336,000 
 $1,716,000 
 
    
    
    
    
Weighted average common shares - basic
  1,060,033 
  1,047,447 
  1,055,893 
  1,079,517 
 
    
    
    
    
Dilutive effect of outstanding warrants and stock options
  - 
  192,428 
  70,738 
  179,003 
 
    
    
    
    
Weighted average common shares - diluted
  1,060,033 
  1,239,875 
  1,126,631 
  1,258,520 
 
Net income (loss) per common share:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
   Basic
 $(0.09)
 $0.51 
 $1.27 
 $1.59 
   Diluted
 $(0.09)
 $0.43 
 $1.19 
 $1.36 
 
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.
 
 
 
-8-
 
 
Prior to January 1, 2019, the Company accounted for leases under ASC 840, Accounting for Leases.   Effective January 1, 2019, the Company adopted the guidance of ASC 842, Leases, which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on January 1, 2019 resulted in the recognition of operating lease right-of-use assets of and, lease liabilities for operating leases of $480,000 and $480,000, respectively. There was no cumulative-effect adjustment to accumulated deficit. See Note 7 for further information regarding the adoption of ASC 842 on the Company’s condensed consolidated financial statements.
 
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. While we have concluded that a triggering event did not occur during the quarter ended June 30, 2020, the prolonged duration and severity of the COVID-19 pandemic could result in future goodwill impairment charges.  We will continue to monitor the effects of the COVID-19 pandemic’s impact on our business, and review for impairment indicators as necessary in the upcoming months.
 
Customer Concentration
 
Net sales to GNC during the three-month periods ended June 30, 2020 and 2019 were $1,213,000 and $3,486,000, respectively, representing 44% and 75% of total net revenue, respectively. Net sales to GNC during the six-month periods ended June 30, 2020 and 2019 were $5,910,000 and $8,350,000, respectively, representing 67% and 79% of total net revenue, respectively.
 
Gross accounts receivable attributable to GNC as of June 30, 2020 and 2019 were $1,305,000 and $3,228,000, respectively, representing 79% and 93% of the Company’s total accounts receivable balance, respectively. At June 30, 2020 and December 31, 2019, the allowance for doubtful accounts related to GNC was $354,000 and $0, respectively.
 
For the three months ended June 30, 2020 and 2019, online sales accounted for 41% and 13% of the Company’s net revenue, respectively. For the six months ended June 30, 2020 and 2019, online sales accounted for 22% and 11% of the Company’s net revenue, respectively.
 
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 or services 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.
 
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.
 
 
 
-9-
 
 
Control of products we sell transfers to customers upon shipment from our facilities, 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.
 
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.
  
Income Taxes
 
As of December 31, 2019, the Company had federal net operating loss (“NOL”) carryforwards available to offset future taxable income of approximately $26.6 million, subject to Internal Revenue Service (“IRS”) statutory limitations. To the extent the Company reports federal taxable income for 2020, such income will be eliminated by net operating losses.  This reduction in deferred tax assets would be offset by a corresponding reduction in the deferred tax asset valuation allowance resulting in no federal income tax expense.
 
During the quarter ended March 31, 2020, the Company received a tax refund of $41,000 relating to a portion of the Company’s alternative minimum tax carryforward, which became refundable as a result of the 2017 Tax Cuts and Jobs Act.
 
During the quarter ended June 30, 2020, the Company recorded an income tax benefit and an income tax receivable of $40,000 related to the Company's 2019 federal tax return. This amount represents the remainder of the Company's alternative minimum tax carryforward.
 
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 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 before the Company is able to realize their benefits, or that future deductibility is uncertain. Authoritative guidance issued by the ASC Topic 740 – Income Taxes requires that a valuation allowance be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As a result of the limitations related to Internal Revenue Code and the Company’s lack of a prolonged history of profitable operations, the Company recorded a 100% valuation allowance against its net deferred tax assets as of June 30, 2020 and December 31, 2019.
 
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.
 
 
 
-10-
 
 
Recent Accounting Pronouncements
 
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 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 inventories as of June 30, 2020 and December 31, 2019 were as follows:
 
 
June 30,
2020
 
 
December 31,
 
 
 
(unaudited)
 
 
2019
 
Finished goods
 $3,200,000 
 $2,688,000 
Components
  342,000 
  440,000 
Allowance for obsolescence
  (75,000)
  (130,000)
Total
 $3,467,000 
 $2,998,000 
 
NOTE 5 - PROPERTY AND EQUIPMENT
 
The Company’s fixed assets as of June 30, 2020 and December 31, 2019 were as follows: 
 
 
June 30,
2020
 
 
December 31,
 
 
 
(unaudited)
 
 
2019
 
Equipment
 $902,000 
 $902,000 
Accumulated depreciation
  (789,000)
  (766,000)
Total
 $113,000 
 $136,000 
 
Depreciation expense for the three months ended June 30, 2020 and 2019 was $10,000 and $13,000, respectively. Depreciation expense for the six months ended June 30, 2020 and 2019 was $23,000 and $28,000, respectively.
 
NOTE 6 – NOTES PAYABLE
 
Notes Payable – Related Parties
 
On December 26, 2018, the Company issued a line of credit promissory note to Sudbury Capital Fund, LP, an entity controlled by Dayton Judd, the Company’s Chief Executive Officer and Chair of the Board, in the principal amount of $600,000, with an initial advance to the Company in the amount of $300,000 which was outstanding at December 31, 2018. During the three months ended March 31, 2019, an additional $300,000 was advanced to the Company, resulting in aggregate borrowings of $600,000. In addition, on December 26, 2018, the Company also issued a promissory note to Mr. Judd in the principal amount of $200,000. On September 24, 2019, the Company repaid all outstanding balances due under the terms of the Notes in the aggregate principal amount, including accrued but unpaid interest thereon, of $615,000. As a result of the repayment of the Notes, the Company terminated its line of credit entered into between the Company and Sudbury on December 26, 2018.
 
Line of Credit – Mutual of Omaha Bank
 
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the "Line of Credit Agreement") with Mutual of Omaha Bank, subsequently acquired by CIT Bank (the "Lender"), 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 September 23, 2020 (the “Maturity Date”), unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit is secured by all assets of the Company.
 
 
 
-11-
 
 
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.
 
Subsequent to the end of the quarter, on August 4, 2020, the Company and CIT Bank amended the Line of Credit Agreement to extend the Maturity Date to September 23, 2021. The amendment also added a LIBOR floor of 75 bps to the Line of Credit Agreement. All other terms of the Line of Credit remain unchanged.
 
Paycheck Protection Program Loan
 
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 “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted 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 intends to use 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 is scheduled to mature on April 27, 2022, has a 1.0% interest rate, and is 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.
 
NOTE 7 - RIGHT OF USE ASSETS AND LIABILITIES
 
In prior years, the Company entered into several non-cancellable leases for its office facilities and equipment. The lease agreements range from 36 months to 84 months, and require monthly payments ranging between $200 and $7,000 through October 2024. On January 1, 2019, the Company adopted Topic 842, Leases which requires a lessee to record a right-of-use asset and a corresponding lease liability at the inception of the lease initially measured at the present value of the lease payments. The Company classified the leases as operating leases and determined that the fair value of the lease assets and liability at the inception of the leases was $480,000 using a discount rate of 9%.
  
During the six months ended June 30, 2020, the Company made payments of $41,000 towards the lease liability. As of June 30, 2020, lease liability amounted to $229,000.  Topic 842 requires recognition in the statement of operations of a single lease cost, calculated so that the cost of the lease is allocated over the lease term, generally on a straight-line basis. Rent expense, including real estate taxes, for the six months ended June 30, 2020 was $19,000.  The right-of-use asset at June 30, 2020 was $229,000, net of amortization of $251,000.
 
 
 
Six months ended
 
Lease Cost
 
June 30, 2020
 
 
 
(unaudited)
 
Operating lease cost (included in general and administrative in the Company's unaudited
 
 
 
and condensed consolidated statement of operations)
 $41,000 
 
    
Other information
    
Cash paid for amounts included in the measurement of lease liabilities for the six months ended June 30, 2020
 $  
Weighted average remaining lease term - operating leases (in years)
  4.33 
Average discount rate - operating leases
  9%
 
 
 
-12-
 
 
 
Operating leases
 
At
June 30,
2020
(unaudited)
 
Long-term right-of-use assets
 $229,000 
Short-term operating lease liabilities
 $46,000 
Long-term operating lease liabilities
  183,000 
Total operating lease liabilities
 $229,000 
 
Year ending
 
Operating leases
 
2020 (remaining 6 months)
 32,000 
2021
  67,000 
2022
  67,000 
2023
  61,000 
2024
  51,000 
   Less: Imputed interest/present value discount
  (49,000)
      Present value of lease liabilities
 $229,000 
 
NOTE 8 - EQUITY
 
Common Stock
 
a.
Common Stock Issued for Services
 
The Company is authorized to issue 15.0 million shares of Common Stock of which 1,060,033 shares of Common Stock were issued and outstanding as of June 30, 2020.
 
In July 2018, in connection with the appointment of Mr. Dayton Judd as Chief Executive Officer, the Company granted Mr. Judd an aggregate of 45,000 shares of restricted Common Stock, which include vesting conditions subject to the achievement of certain market prices of the Company’s Common Stock. Such shares are also subject to forfeiture in the event Mr. Judd resigns from his position or is terminated by the Company. As the vesting of the 45,000 shares of restricted Common Stock is subject to certain market conditions, pursuant to current accounting guidelines, the Company determined the fair value to be $105,000, computed using Monte Carlo simulations on a binomial model with the assistance of a valuation specialist using a derived service period of nine years. During the six months ended June 30, 2020, the Company recorded compensation expense of $10,000 to amortize the fair value of these shares of restricted Common Stock based upon the prorated derived service period.
 
During the six-month period ended June 30, 2019, the Company issued 2,415 shares of Common Stock with a fair value of $15,000 to directors for services rendered. The shares were valued at their respective dates of issuance.
 
During the six-month period ended June 30, 2020, the Company issued 417 shares of Common Stock with a fair value of $4,000 to directors for services rendered. The shares were valued at their respective date of issuance.
 
b.
Share Repurchase Program
 
On August 16, 2019, the Company's Board authorized management to repurchase up to $500,000 of the Company's Common Stock over the next 24 months, which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. On September 23, 2019, the Board approved an amendment to the Company’s share repurchase program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Preferred, and Warrants, 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 Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management. On November 6, 2019, the Company’s Board of Directors amended the previously approved Share Repurchase Program to increase the amount of authorized repurchases to $2.5 million.  All other terms of the Share Repurchase Program remain unchanged.
 
 
 
-13-
 
 
During the six-month period ended June 30, 2020, the Company repurchased 11,900 shares of Common Stock, or approximately 1% of the issued and outstanding shares of the Company, through private transactions for the aggregate purchase price of $171,000The Company is accounting for these shares as treasury stock.
 
c.
Reverse/Forward Split
 
On April 11, 2019, the Company filed two Certificates of Change with the Secretary of State of the State of Nevada, the first to effect a reverse stock split of both the Company’s issued and outstanding and authorized Common Stock, at a ratio of 1-for-8,000, and the second to effect a forward stock split of both the Company’s issued and outstanding and authorized Common Stock at a ratio of 800-for-1. The Reverse/Forward Split became effective, and the Company’s Common Stock began trading on a post-split basis, on Tuesday, April 16, 2019.
 
The Company did not issue any fractional shares as a result of the Reverse/Forward Split. Holders of fewer than 8,000 shares of the Common Stock immediately prior to the Reverse/Forward Split received cash in lieu of fractional shares based on the 5-day volume weighted average price of the Company’s Common Stock immediately prior to the Reverse/Forward Split, which was $0.57 per pre-split share. As a result, such holders ceased to be stockholders of the Company. Holders of more than 8,000 shares of Common Stock immediately prior to the Reverse/Forward Split did not receive fractional shares; instead any fractional shares resulting from the Reverse/Forward Split were rounded up to the next whole share.
 
As a result of the Reverse/Forward Split, the number of shares of Company Common Stock authorized for issuance under the Company’s Articles of Incorporation, as amended, was decreased from 150,000,000 shares to 15,000,000 shares. The Reverse/Forward Split did not affect the Company’s preferred stock, nor did it affect the par value of the Company’s Common Stock.
 
The share and per share amounts included in these unaudited interim condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the 1-for-10 aspect of the Reverse/Forward Split as if it occurred as of the earliest period presented.
    
Options
  
Information regarding options outstanding as of June 30, 2020 is as follows:
 
 
 
Number
of
 
 
Weighted Average
Exercise
 
 
Weighted Average Remaining
Life
 
 
 
Options
 
 
Price
 
 
 (Years)
 
Outstanding, December 31, 2018
  154,521 
 $13.10 
  5.7 
Issued
  8,000 
  6.85 
    
Exercised
  - 
    
    
Forfeited
  (13,236)
  24.45 
    
Outstanding, December 31, 2019
  149,285 
 $11.76 
  5.0 
Issued
  - 
    
    
Exercised
  (17,000)
  4.20 
    
Forfeited
  (36,500)
  19.46 
    
Outstanding, June 30, 2020
  95,785 
 $10.17 
  6.3 
 
 
 
-14-
 
 
 
 
 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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 $2.80 - 23.00 
  90,210 
  6.5 
 $5.23 
  66,710 
 $6.08 
 $23.10 - $144.34 
  5,575 
  3.3 
 $90.20 
  5,575 
 $90.20 
 
  95,785 
  6.3 
 $10.17 
  72,285 
 $12.57 
 
During the six-month periods ended June 30, 2020 and 2019, the Company recognized compensation expense of $24,000 and $71,000, respectively, to account for the fair value of stock options that vested during the period.
 
Total intrinsic value of outstanding stock options as of June 30, 2020 amounted to $532,000. Future unamortized compensation expense on the unvested outstanding options at June 30, 2020 amounted to $11,750, which will be recognized through October 2020.
 
Warrants
 
Total outstanding warrants to purchase shares of Company Common Stock as of June 30, 2020 and December 31, 2019 amounted to 35,870 shares. Total intrinsic value as of June 30, 2020 amounted to $206,000.
 
During the period ended June 30, 2020, no warrants were granted and no warrants expired unexercised.
 
Outstanding
 
Exercise Price
 
Issuance Date
 
Expiration Date
 
Vesting
35,870
 
 $ 4.60
 
11/13/18
 
11/13/23
 
Yes
 
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 – SUBSEQUENT EVENTS
 
Subsequent to the end of the quarter, on August 4, 2020, the Company and CIT Bank amended the Line of Credit Agreement to extend the Maturity Date to September 23, 2021. The amendment also added a LIBOR floor of 75 bps to the Line of Credit Agreement. All other terms of the Line of Credit remain unchanged.
 
In accordance with the Subsequent Events Topic of the FASB ASC 855, we have evaluated subsequent events through the filing date and noted no further subsequent events that are reasonably likely to impact the Company’s financial statements.
 


 
-15-
 
 
ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes appearing elsewhere in this Quarterly Report. This discussion and analysis may contain forward-looking statements based on assumptions about our future business.
 
Overview
 
FitLife Brands, Inc. (the “Company”) is a national provider of innovative and proprietary nutritional supplements for health-conscious consumers marketed under the brand names NDS Nutrition, PMD Sports, SirenLabs, CoreActive, and Metis Nutrition (together, “NDS Products”). In September 2015, the Company acquired iSatori, Inc. (“iSatori”) and as a result, the Company added three brands to its product portfolio, including iSatori, BioGenetic Laboratories, and Energize (together, “iSatori Products”). The NDS Products are distributed 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 25,000 retail locations, which include specialty, mass, and online.
 
The Company was incorporated in the State of Nevada on July 26, 2005. In October 2008, the Company acquired the assets of NDS Nutritional Products, Inc., a Nebraska corporation, and moved those assets into its wholly owned subsidiary NDS Nutrition Products, Inc., a Florida corporation (“NDS”). The Company’s NDS Products are sold through NDS and the iSatori Products are sold through iSatori, Inc., a Delaware corporation and a wholly owned subsidiary of the Company.
   
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
 
Line of Credit Agreement
 
 On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the "Line of Credit Agreement") with Mutual of Omaha Bank, subsequently acquired by CIT Bank (the "Lender"), 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 September 23, 2020 (the “Maturity Date”), unless renewed at maturity upon approval by the Company’s Board of Directors and the Lender. The Line of Credit is secured by all assets of the Company. 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. The Line of Credit Agreement includes customary events of default. If any such event of default occurs, the Lender may declare all outstanding loans under the Line of Credit to be due and payable immediately.
 
On March 20, 2020, the Company drew on the Line of Credit in an amount equal to $2.5 million (the "Advance"), which Advance was repaid on April 29, 2020. The Company elected to borrow such amounts to ensure it maintains ample financial flexibility in light of the spread of the novel coronavirus ("COVID-19"). 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.
 
Subsequent to the end of the quarter, on August 4, 2020, the Company and CIT Bank amended the Line of Credit Agreement to extend the Maturity Date to September 23, 2021. The amendment also added a LIBOR floor of 75 bps to the Line of Credit Agreement. All other terms of the Line of Credit remain unchanged.
 
 
-16-
 
 
Share Repurchase Plan
 
On August 16, 2019, the Company's Board of Directors (the "Board") authorized management to repurchase up to $500,000 of the Company's Common Stock over the next 24 months (the "Share Repurchase Program"), which Share Repurchase Program was previously reported on the Company's Current Report on Form 8-K filed August 20, 2019. On September 23, 2019, the Board approved an amendment to the Company’s share repurchase program to increase the repurchase of up to $1,000,000 of the Company's Common Stock, its Series A Convertible Preferred Stock, par value $0.01 per share ("Series A Preferred"), and warrants to purchase shares of the Company's Common Stock ("Warrants"), 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 Series A Preferred and Warrants, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management. On November 6, 2019, the Company’s Board of Directors amended the previously approved Share Repurchase Program to increase the amount of authorized repurchases to $2.5 million.  All other terms of the Share Repurchase Program remain unchanged.
 
The Company intends to conduct its Share Repurchase Program in accordance with all applicable securities laws and regulations, including Rule 10b-18 of the Securities Exchange Act of 1934, as amended. Repurchases may be made at management's discretion from time to time in the open market or through privately negotiated transactions. The Company may suspend or discontinue the Share Repurchase Program at any time, and may thereafter reinstitute purchases, all without prior announcement.
   
During the six months ended June 30, 2020, the Company repurchased 11,900 shares of Common Stock, or approximately 1% of the issued and outstanding shares of the Company, through private transactions, as follows:
 
 
 
 
Total number of shares purchased
 
 
 
Average price paid per share
 
 
 
Total number of shares purchased as part of publicly announced programs
 
 
 
Dollar value of shares that may yet be purchased
 
First quarter ended March 31, 2020
  11,900 
 $14.35 
  11,900 
 $1,110,917 
Second quarter ended June 30, 2020
  - 
  - 
  - 
  1,110,917 
Subtotal
  11,900 
 $14.35 
  11,900 
 $1,110,917 
 
COVID-19 Pandemic
 
The current coronavirus ("COVID-19") pandemic has had an effect on the Company’s employees, business and operations during the six months ended June 30, 2020, and those of its customers, vendors and business partners. In this regard, the Company’s financial results and business operations during six months ended June 30, 2020 have been materially and adversely affected due to the closure of some of our retail partners’ store locations and the ongoing stay-at-home orders, and our future financial position and operating results may be materially and adversely affected as well, although the extent of such 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.
 
CARES Act 
 
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was enacted on March 27, 2020 in 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 “Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the recently enacted 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 intends to use 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 is scheduled to mature on April 27, 2022, has a 1.0% interest rate, and is 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 CARES Act permits employers to defer payment of the employer portion of payroll taxes owed on wages paid through December 31, 2020 for a period of up to two years. Through June 30, 2020, the Company has deferred payment of $24,000, which amount has been expensed and is included in accrued liabilities.
 
 
 
-17-
 
 
Results of Operations
 
Comparison of the three and six months ended June 30, 2020 to the three and six months ended June 30, 2019
 
 
 
Three months ended
 
 
Six months ended
 
 
 
June 30, 2020
 
 
June 30, 2019
 
 
Change
 
 
June 30, 2020
 
 
June 30, 2019
 
 
Change
 
Revenue
 $2,740,000 
 $4,618,000 
 $(1,878,000)
  (41)%
 $8,891,000 
 $10,496,000 
 $(1,605,000)
  (15)%
Cost of goods sold
  (1,421,000)
  (2,764,000)
  1,343,000 
  (49)%
  (4,835,000)
  (6,101,000)
  1,266,000 
  (21)%
Gross profit
  1,319,000 
  1,854,000 
  (535,000)
  (29)%
  4,056,000 
  4,395,000 
  (339,000)
  (8)%
Operating expenses
  (1,446,000)
  (1,425,000)
  (21,000)
  1%
  (2,863,000)
  (2,764,000)
  (99,000)
  4%
Income (loss) from operations
  (127,000)
  429,000 
  (556,000)
  n/a
  1,193,000 
  1,631,000 
  (438,000)
  (27)%
Other income (expense)
  (5,000)
  124,000 
  (129,000)
  n/a 
  62,000 
  109,000 
  (47,000)
  (43)%
Provision for income tax
  40,000 
  (6,000)
  46,000 
  n/a 
  81,000 
  (6,000)
  87,000 
  n/a 
Net income (loss)
 $(92,000)
 $547,000 
 $(639,000)
  n/a
 $1,336,000 
 $1,734,000 
 $(398,000)
  (23)%
 
Net Sales.  Revenue for the three months ended June 30, 2020 decreased 41% to $2,740,000 as compared to $4,618,000 for the three months ended June 30, 2019. Revenue for the six months ended June 30, 2020 decreased 15% to $8,891,000 as compared to $10,496,000 for the six months ended June 30, 2019. The decrease in revenue for the three- and six-month periods ended June 30, 2020 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 caused by the COVID-19 pandemic. While these conditions are anticipated to persist as long as many of the states continue with stay-at-home orders, and non-essential businesses remain closed due to COVID-19, although no assurances can be given, management believes that the negative material impact on our sales experienced during the prior three- and six-month period will abate during the quarter ended September 30, 2020, resulting in a return to growth in subsequent periods.
 
The decrease in revenue attributable to our retail partners was partially offset by increased revenue from online channels. Online revenue during the three and six months ended June 30, 2020 was approximately 41% and 22% of total revenue, respectively, compared to approximately 13% and 11% of total revenue during the three and six months ended June 30, 2019.
 
The recent COVID-19 outbreak has created significant economic uncertainty and volatility, which has materially and negatively impacted our business and operations, including those of our third-party suppliers and our wholesale partners. In this regard, the duration and continued impact of the outbreak on our operating results and financial condition cannot be determined at this time, although management currently anticipates that stay-at-home restrictions and the impact of those restrictions on our retail and wholesale partners, including effects on their liquidity and ability to maintain current store counts, will continue to affect our results from operations, although management currently does not anticipate that the negative material impact on our sales experienced during the prior three- and six-month period will continue in at least the current quarter ended September 30, 2020.
 
Cost of Goods Sold.  Cost of goods sold for the three months ended June 30, 2020 decreased to $1,421,000 as compared to $2,764,000 for the three months ended June 30, 2019. Cost of goods sold for the six months ended June 30, 2020 decreased to $4,835,000 as compared to $6,101,000 for the six months ended June 30, 2019.  The decrease during the three- and six-month period is principally attributable to lower revenue reported during the quarter ended June 30, 2020.
 
Gross Profit.  Gross profit for the three months ended June 30, 2020 decreased to $1,319,000 as compared to $1,854,000 for the three months ended June 30, 2019. Gross profit for the six months ended June 30, 2020 decreased to $4,056,000 as compared to $4,395,000 for the six months ended June 30, 2019. The decrease during the three- and six- month period is principally attributable to lower revenue. 
 
 
 
-18-
 
 
Gross margin for the three months ended June 30, 2020 increased to 48.1% compared to 40.1% during the same period last year. Gross margin for the six months ended June 30, 2020 was 45.6% compared to 41.9% for the same period last year. The increase was primarily attributable to a greater proportion of higher margin online revenue relative to wholesale revenue.
 
General and Administrative Expense. General and administrative expense for the three months ended June 30, 2020 increased to $1,001,000 as compared to $796,000 for the three months ended June 30, 2019. For the six-month period ended June 30, 2020, general and administrative expense increased to $ 1,734,000 from $1,570,000 during the same period in the prior year. The increases in both the three- and six- month periods ended June 30, 2020 reflect a write-off of approximately $354,000 for bad debt expense related to the GNC bankruptcy, as more particularly discussed below.
 
Selling and Marketing Expense.  Selling and marketing expense for the three months ended June 30, 2020 decreased to $435,000 as compared to $616,000 for the three months ended June 30, 2019. Selling and marketing expense for the six months ended June 30, 2020 decreased to $1,106,000 as compared to $1,166,000 for the six months ended June 30, 2019. The decreases in both the three- and six-month periods ended June 30, 2019 reflect efforts to optimize our sales and marketing expense.
 
Depreciation and Amortization Expense.  Depreciation and amortization expense for the three months ended June 30, 2020 decreased to $10,000 as compared to $13,000 for the three months ended June 30, 2019. Depreciation and amortization for the six months ended June 30, 2020 decreased to $23,000 as compared to $28,000 for the six months ended June 30, 2019. The decrease in both periods was primarily attributable to a reduction in depreciation expense due to certain assets becoming fully depreciated.
 
 Net Income (Loss).  We generated a net loss of $(92,000) for the three-month period ended June 30, 2020 as compared to net income of $547,000 for the three months ended June 30, 2019. We generated a net income of $1,336,000 for the six-month period ended June 30, 2020 as compared to a net income of $1,734,000 for the six months ended June 30, 2019. The decrease in net income for the three- and six-month periods ended June 30, 2020 as compared to the same periods in 2019 was primarily due to lower revenue resulting from the impact of COVID-19.
 
Liquidity and Capital Resources  
 
At June 30, 2020, we had positive working capital of approximately $4,694,000, compared to $2,925,000 at December 31, 2019. Our principal sources of liquidity at June 30, 2020 consisted of $2,218,000 of cash and $1,362,000 of accounts receivable.
 
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 $1,158,000.
 
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 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 at such time as GNC emerges from bankruptcy, which is currently estimated to occur within the next two months.
 
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.
 
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.
 
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. 
 
 
 
 
-19-
 
 
On December 26, 2018, the Company issued a line of credit promissory note to Sudbury Capital Fund, LP, an entity controlled by Dayton Judd, the Company’s Chair of the Board and Chief Executive Officer, in the principal amount of $600,000, with an initial advance to the Company in the amount of $300,000. In addition, on December 26, 2018, the Company also issued a promissory note to Mr. Judd in the principal amount of $200,000. On September 24, 2019, the Company repaid all outstanding balances due on the Notes including accrued but unpaid interest thereon, of $615,000.
   
On September 24, 2019, the Company entered into a Revolving Line of Credit Agreement (the "Line of Credit Agreement") with Mutual of Omaha Bank, subsequently acquired by CIT Bank