FITLIFE BRANDS, INC. 10-K

ITEM 5. MARKET FOR REGISTRANT ’ S COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES Our Common Stock was approved for listing and has traded since September 18, 2023 on the Nasdaq Capital Market under the symbol “FTLF”. Prior to September 18, 2023, our Common Stock traded in the over-the-counter market. As of December 31, 2024, there were 9,210,216 shares of Common Stock outstanding and 20 shareholders of record of the Company’s Common Stock, in addition to an undetermined number of holders whose shares are held in “street name.” - 20 - The following table sets forth the high and low closing prices for our Common Stock for the periods indicated: High Low Fiscal Year 2024 First Quarter (January - March 2024) $ 12.00 $ 9.60 Second Quarter (April - June 2024) $ 17.50 $ 12.25 Third Quarter (July - September 2024) $ 16.89 $ 14.59 Fourth Quarter (October - December 2024) $ 17.44 $ 15.13 Fiscal Year 2023 First Quarter (January - March 2023) $ 9.60 $ 7.75 Second Quarter (April - June 2023) $ 8.63 $ 7.75 Third Quarter (July - September 2023) $ 9.66 $ 7.64 Fourth Quarter (October - December 2023) $ 11.22 $ 9.31 Share Repurchase Program On August 16, 2019, the Company approved a share repurchase program, pursuant to which the Board authorized management to repurchase up to $500,000 of the Company's Common Stock over the subsequent 24 months (the " Share Repurchase Program "). The Share Repurchase Program was amended September 23, 2019 to increase the repurchase amount to $1,000,000, and include shares 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 ") in the Share Repurchase Program, to be repurchased 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; further amended on November 6, 2019 to increase the repurchase amount to $2,500,000 over the subsequent 24 months; and further amended on February 1, 2021 to increase the repurchase amount to up to $5,000,000 over the subsequent 24 months. On March 17, 2023, the Board approved an extension of the Share Repurchase Program. Under the extended and amended Share Repurchase Program, the Board authorized management to repurchase up to $5,000,000 of the Company's Common Stock over the subsequent 24 months, at a purchase price equal to the fair market value of the Company's Common Stock on the date of purchase, with the exact date and amount of such purchases to be determined by management. All other terms of the Share Repurchase Program remain unchanged. During the year ended December 31, 2024, the Company did not repurchase any shares of the Company’s Common Stock under the Share Repurchase Program. As of December 31, 2024, the Company may purchase up to $5,000,000 of additional shares of Common Stock under the Share Repurchase Program. Recent Sales of Unregistered Securities No unregistered securities were issued during the fiscal year. Transfer Agent Our transfer agent and registrar for the Common Stock is Colonial Stock Transfer located in Sandy, Utah. Securities Authorized for Issuance under Equity Compensation Plans For a discussion of our equity compensation plans, please see Item 11 of this Annual Report. - 21 - ITEM 6. SELECTED FINANCIAL DATA Not a required disclosure for Smaller Reporting Companies. ITEM 7. MANAGEMENT ’ S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OR PLAN OF OPERATION The following is management’s discussion and analysis of certain significant factors that have affected our financial position and operating results during the periods included in the accompanying consolidated financial statements, as well as information relating to the plans of our current management. This report includes forward-looking statements. Generally, the words “believes”, “anticipates”, “may”, “will”, “should”, “expect”, “intend”, “estimate”, “continue”, and similar expressions or the negative thereof or comparable terminology are intended to identify forward-looking statements. Such statements are subject to certain risks and uncertainties, including the matters set forth in this Annual Report or other reports or documents we file with the Securities and Exchange Commission from time to time, which could cause actual results or outcomes to differ materially from those projected. Undue reliance should not be placed on these forward-looking statements, which speak only as of the date hereof. We undertake no obligation to update these forward-looking statements. The following discussion and analysis should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information contained elsewhere in this Annual Report. Unless otherwise stated, all dollar amounts are in thousands, except per share data. Products and Recent Acquisitions FitLife Brands, Inc. (the “ Company ”) is a provider of innovative and proprietary nutritional supplements and wellness products for health-conscious consumers marketed under the following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, Core Active, Nutrology, and Metis Nutrition (together, “ NDS Products ”); (ii) iSatori, BioGenetic Laboratories, and Energize (together, the " iSatori Products "); (iii) Dr. Tobias, All Natural Advice, and Maritime Naturals, each acquired as a result of the acquisition of Mimi’s Rock Corp. ( “ MRC ”) on February 28, 2023 (together, the “ MRC Products "); and (iv) MusclePharm, which was acquired on October 10, 2023 as a result of the acquisition of substantially all of the assets of MusclePharm Corporation (“ MusclePharm ”). Critical Accounting Policies Use of Estimates and Assumptions The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“ GAAP ”) requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, product returns, depreciable lives of property and equipment, allocation of purchase price from business combinations, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates. - 22 - Accounts Receivable and Allowance for Doubtful Accounts All of the Company’s accounts receivable balance is related to trade receivables. Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in its existing accounts receivable. The Company will maintain allowances for doubtful accounts, estimating losses resulting from the inability of its customers to make required payments for products. Accounts with known financial issues are first reviewed and specific estimates are recorded. The remaining accounts receivable balances are then grouped into categories by the number of days the balance is past due, and the estimated loss is recorded based upon management’s assessment of collectability. Account balances are charged off against the allowance when it is probable that the receivable will not be recovered. As of December 31, 2024 and 2023, the Company had provided a reserve for doubtful accounts of $41 and $17, respectively. Income Taxes The Company accounts for income taxes under FASB Accounting Standards Codification (“ ASC ”) Topic 740, Income Taxes (“ ASC 740 ”). Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The deferred tax assets of the Company relate primarily to operating loss carryforwards for federal income tax purposes. The deferred tax liabilities of the Company relate primarily to intangible assets that are not deductible for tax purposes in the jurisdictions to which they relate. The Company periodically evaluates its tax positions to determine whether it is more likely than not that such positions would be sustained upon examination by a tax authority for all open tax years, as defined by the statute of limitations, based on their technical merits. The Company accrues interest and penalties, if incurred, on unrecognized tax benefits as components of the income tax provision in the accompanying consolidated statements of income and comprehensive income. As of December 31, 2024 and 2023, the Company has not established a liability for uncertain tax positions. Product Returns, Sales Incentives and Other Forms of Variable Consideration In measuring revenue and determining the consideration the Company is entitled to as part of a contract with a customer, the Company takes into account the related elements of variable consideration. Such elements of variable consideration include, but are not limited to, product returns and sales incentives, such as markdowns and margin adjustments. For these types of arrangements, the adjustments to revenue are recorded at the later of when (i) the Company recognizes revenue for the transfer of the related products to the customers, or (ii) the Company pays, or promises to pay, the consideration. We currently have a 30-day product return policy for direct-to-consumer sales, which allows for a 100% sales price refund for the return of unopened and undamaged products purchased from us online through one of our websites or e-commerce platforms. Product sold to certain wholesale customers may be returned from store shelves or the distribution center in the event product is damaged, short dated, expired or recalled. GNC maintains a customer satisfaction program which allows customers to return product to the store for credit or refund. Subject to certain terms and restrictions, GNC may require reimbursement from vendors for unsaleable returned product through either direct payment or credit against a future invoice. We also support a product return policy for iSatori Products, whereby customers can return product for credit or refund. Product returns can and do occur from time to time and can be material. For the sale of goods with a right of return, the Company estimates variable consideration using the most likely amount method and recognizes revenue for the consideration it expects to be entitled to when control of the related product is transferred to the customers and records a product returns liability for the amount it expects to credit back its customers. Under this method, certain forms of variable consideration are based on expected sell-through results, which requires subjective estimates. These estimates are supported by historical results as well as specific facts and circumstances related to the current period. The product returns liability includes estimates that directly impact reported revenue. These estimates are calculated based on a history of actual returns, estimated future returns and information provided by customers regarding their inventory levels. Consideration of these factors results in an estimate for anticipated sales returns that reflects increases or decreases related to seasonal fluctuations. In addition, as necessary, product returns liability may be established for significant future known or anticipated events. The types of known or anticipated events that are considered, and will continue to be considered, include, but are not limited to, changes in the retail environment and the Company's decision to continue to support new and existing products. - 23 - Information for product returns is received on a regular basis and adjusted for accordingly. Adjustments for returns are based on factual information and historical trends for all Company Products and are specific to each distribution channel. We monitor, among other things, remaining shelf life and sell-through data on a weekly basis. If we determine there are any risks or issues with any specific products, we accrue sales return allowances based on management’s assessment of the overall risk and likelihood of returns in light of all information available. Total allowance for product returns, sales returns and incentive programs as of December 31, 2024 and 2023 amounted to $564 and $571, respectively. Inventory Inventory is stated at the lower of cost or net realizable value, with costs determined on a first-in, first-out (FIFO) basis. We regularly review our inventory quantities on hand and record a provision for excess and obsolete inventory based primarily on our estimated forecast of product demand and/or our ability to sell the product(s) concerned and production requirements. Demand for our products can fluctuate significantly. Factors that could affect demand for our products include unanticipated changes in consumer preferences, general market conditions or other factors, which may result in cancellations of advance orders or a reduction in the rate of reorders placed by customers. Additionally, our management’s estimates of future product demand may be inaccurate, which could result in an understated or overstated provision required for excess and obsolete inventory. Total allowance for expiring, excess and slow-moving inventory items as of December 31, 2024 and 2023 amounted to $100 and $162, respectively. Goodwill The Company has determined that it has a single reporting unit for purposes of performing its goodwill impairment test. The Company reviews goodwill for impairment on an annual basis or whenever events or changes in circumstances indicate the carrying value may not be recoverable. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of the reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform an impairment test. If the qualitative assessment warrants further analysis, the Company compares the fair value of the reporting unit to its carrying value. The fair value of the reporting unit is determined using the market approach. The Company determines the amount of a potential goodwill impairment by comparing the fair value of the reporting unit with its carrying amount. To the extent the carrying value of a reporting unit exceeds its fair value, a goodwill impairment charge is recognized. As the Company uses the market approach to determine fair value of the reporting unit, the price of its Common Stock is an important component of the fair value calculation. If the Company’s stock price experiences significant price and volume fluctuations, this will impact the fair value of the reporting unit, which can lead to potential impairment in future periods. There were no impairment charges incurred during the year ended December 31, 2024. Revenue Recognition The Company’s revenue is comprised of sales of nutritional supplements and wellness products to consumers. The Company accounts for revenue in accordance with FASB ASC 606. The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer. - 24 - All products sold by the Company are distinct individual products and consist of nutritional supplements and wellness products. The products are offered for sale solely as finished goods, and there are no performance obligations required post-shipment for customers to derive the expected value from them. The Company’s products are also sold on e-commerce platforms including Amazon. For these transactions, the Company evaluated principal versus agent considerations to determine appropriateness of recording distribution and platform fees paid to third-party e-commerce companies as an expense or as a reduction of revenue. The Company records distribution and platform fees to cost of goods sold in the consolidated statements of income and comprehensive income. Distribution and platform fees are not recorded as a reduction of revenue because the Company: (1) owns the goods before they are transferred to the customer, (2) can direct Amazon, similar to other third-party logistics providers (“ Logistic Providers ”), to return the Company’s inventory to any location specified by the Company, (3) has the responsibility to make customers whole following any returns made by customers directly to Logistic Providers and the Company retains the back-end inventory risk, (4) is subject to credit risk (i.e., credit card chargebacks), (5) establishes prices of its products, (6) can determine who fulfills the goods to the customer (Amazon or the Company) and (7) can limit quantities or stop selling the goods at any time. Based on these considerations, the Company is the principal in this arrangement. Advertising fees paid to Amazon are recorded in advertising and marketing expense in the consolidated statements of income and comprehensive income. The Company disaggregates revenue into distribution channels, geographical regions, and collections of brands (Legacy FitLife and recently acquired brands). The Company determines that disaggregating revenue into these categories achieves the disclosure objective to depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors. Online revenue, which consists of revenue generated from sales on the Company’s own websites as well as third-party e-commerce platforms such as Amazon, for the year ended December 31, 2024 was approximately 67% of total revenue, compared to roughly 63% of total revenue during the same twelve-month period in 2023. Sales to customers in the U.S. were approximately 95% and 93% for the year ended December 31, 2024 and 2023, respectively, with the balance of sales to customers primarily in Canada. Control of products we sell transfers to customers upon shipment from our facilities or delivery to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers. For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration. A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. Upon evaluation of returns, the Company determined that product returns are immaterial, and therefore believes it is probable that such returns will not cause a significant reversal of revenue in the future. We assess our contracts and the reasonableness of our conclusions on a quarterly basis. Stock-Based Compensation The Company periodically issues restricted share units (“ RSUs ”), stock options and warrants to employees and non-employees in non-capital raising transactions for services rendered. Such issuances vest and expire according to the terms established at the issuance date. - 25 - Stock-based payments to officers, directors, employees and consultants for acquiring goods and services from non-employees, which include grants of employee stock options, are recognized in the financial statements based on their grant date fair values in accordance with ASC 718, Compensation-Stock Compensation . Stock-based payments to officers, directors, and employees that are time vested are measured at the grant date fair value and compensation cost is recognized on a straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The fair value of stock-based payments is estimated using the Black-Scholes option-pricing model or other applicable valuation model such as the Monte Carlo valuation pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life, and future dividends. The assumptions used could materially affect compensation expense recorded in future periods. Recent Accounting Pronouncements See Note 2 of the Notes to the Consolidated Financial Statements included in this Annual Report for a description of recent accounting pronouncements believed by management to have a material impact on our present or future financial statements. Results of Operations Year ended December 31, 2024 Year ended December 31, 2023 $ Change % Change Revenue $ 64,469 $ 52,700 $ 11,769 22 % Cost of goods sold 36,389 31,268 5,121 16 % Gross profit 28,080 21,432 6,648 31 % Gross margin percentage 43.6 % 40.7 % n/m 2.9 % Operating expense: Advertising and marketing 4,626 4,276 350 8 % Selling, general and administrative (“ SG&A ”) 9,972 7,885 2,087 26 % Merger and acquisition related expense 255 1,627 (1,372 ) (84 )% Depreciation and amortization 108 94 14 15 % Total operating expense 14,961 13,882 1,079 8 % Income from operations 13,119 7,550 5,569 74 % Other expense (income) 1,248 547 701 128 % Provision for income tax 2,887 1,707 1,180 69 % Net income $ 8,984 $ 5,296 $ 3,688 70 % Fiscal Year Ended December 31, 2024 Compared to Fiscal Year Ended December 31, 2023 Revenue. Revenue for the year ended December 31, 2024 increased 22% to $64,469 as compared to $52,700 for the year ended December 31, 2023. The increased revenue for the year ended December 31, 2024 compared to the prior year is primarily due to the acquisition of MRC and the MusclePharm assets, partially offset by a decline in Legacy FitLife revenue. MRC was acquired February 28, 2023, and as such, only ten months of MRC revenue were included in the Company’s financial statements for the year ended December 31, 2023. The MusclePharm assets were acquired on October 10, 2023. Legacy FitLife revenue for the year ended December 31, 2024 was $25,387, a 10% decrease compared to the previous year, driven by a 16% decline in wholesale revenue, partially offset by a 3% increase in online revenue. The Company’s wholesale revenue continues to be challenged by declining customer counts in the brick-and-mortar stores of our wholesale partners. - 26 - MRC revenue for the year ended December 31, 2024 was $29,036. MRC revenue for the period from February 28, 2023 to December 31, 2023 was $24,370. During the year ended December 31, 2024, MusclePharm generated revenue of $10,046, of which approximately half was generated from wholesale customers and half from online sales. Online revenue during the year ended December 31, 2024 was approximately 67% of total revenue, compared to roughly 63% of total revenue during the same twelve-month period in 2023. Sales to customers in the U.S. were approximately 95% and 93% for the year ended December 31, 2024 and 2023, respectively, with the balance of sales primarily to customers in Canada. The Company continually reformulates and introduces new products across its various brands, while also seeking to increase both the number of stores and number of approved products that can be sold within the GNC franchise system that comprises a significant portion its domestic and international distribution footprint. Management also believes that its focus on developing its e-commerce capabilities will drive additional incremental sales in the short-term, while yielding substantial benefits in the longer-term. Cost of Goods Sold. Cost of goods sold for the year ended December 31, 2024 increased 16% to $36,389 as compared to $31,268 for the year ended December 31, 2023. The increase of $5,121 is primarily due to an increase in revenue attributable to the acquisitions of MRC and the MusclePharm assets. Gross Profit. Gross profit for the year ended December 31, 2024 increased to $28,080 as compared to $21,432 for the year ended December 31, 2023. This 31% increase in gross profit is principally attributable to higher MRC gross profit as well as incremental gross profit from MusclePharm. Gross Margin . Gross margin for the year ended December 31, 2024 increased to 43.6% from 40.7% for the year ended December 31, 2023. The increase in gross margin is primarily attributable to higher margins from MRC and Legacy FitLife as well as the amortization of the fair value step-up to MRC inventory acquired in the first quarter of 2023. Excluding the $323 impact of the step-up amortization, gross margin would have been 41.3% during the year ended December 31, 2023. Advertising and Marketing. Advertising and marketing expense for the year ended December 31, 2024 increased to $4,626 as compared to $4,276 for the same period of the prior year. The 8% increase is primarily due to the full-period impact of MRC advertising and marketing as well as incremental advertising and marketing expense following the acquisition of the MusclePharm assets. SG&A. SG&A expense for the year ended December 31, 2024 increased by $2,087 to $9,972 as compared to $7,885 for the year ended December 31, 2023. The increase was primarily due to the full-period impact of MRC SG&A as well as higher personnel costs (including salaries and benefits) and higher professional fees. In addition, the Company incurred non-recurring severance costs of $184 during the year ended December 31, 2024. Merger and Acquisition Related Expense. Merger and acquisition related expense decreased to $255 for the year ended December 31, 2024 compared to $1,627 for the same period of 2023, driven primarily by transaction costs related to the acquisition of MRC and the MusclePharm assets in 2023. Net Income. We generated a net income of $8,984 for the year ended December 31, 2024, an increase of 70% compared to net income of $5,296 for the year ended December 31, 2023. The increase in net income for the year ended December 31, 2024 compared to the same period in 2023 was primarily attributable to higher revenue and gross profit from MRC, incremental revenue and gross profit from MusclePharm, as well as a reduction in acquisition-related expense due to the acquisitions of MRC and the MusclePharm assets that closed during 2023, partially offset by incremental SG&A expense and higher interest expense due to the debt borrowed in conjunction with the acquisition of the MusclePharm assets. Supplemental Discussion of Performance of Acquired Brands Management frequently receives questions from investors regarding the performance of brands subsequent to their acquisition by the Company. In an effort to be responsive to these questions, the Company is providing additional disclosure herein. Management intends to provide this level of disclosure for no more than two years following a transaction, after which the performance of acquired brands will be reported as part of Legacy FitLife results. - 27 - One of the primary metrics used by management to evaluate the performance of the Company’s brands is contribution, a non-GAAP financial measure which management defines as gross profit less advertising and marketing expenditures. Other companies may also report contribution as a performance metric, but their definition or calculation of contribution may differ from the Company’s. Management believes that contribution, as defined by the Company, is a particularly relevant performance metric since it incorporates the gross profit associated with a specific brand or collection of brands as well as the advertising and marketing expenditures associated with the same brand or brands. With limited exceptions, other operating expenses incurred by the Company are generally not allocable to a specific brand or collection of brands. Other than for MusclePharm, the numbers in the contribution tables presented below represent the performance of a collection of brands. Legacy FitLife consists of nine brands and MRC consists of three brands. These collections of brands do not meet the definition of operating segments and are not managed as such. Legacy FitLife (Unaudited) 2023 2024 Q4 Q1 Q2 Q3 Q4 Wholesale revenue $ 4,011 $ 4,506 $ 4,224 $ 3,859 $ 3,210 Online revenue 2,134 2,455 2,578 2,443 2,112 Total revenue 6,145 6,961 6,802 6,302 5,322 Gross profit 2,480 2,928 3,006 2,684 2,115 Gross margin 40.4 % 42.1 % 44.2 % 42.6 % 39.7 % Advertising and marketing 71 80 94 70 59 Contribution $ 2,409 $ 2,848 $ 2,912 $ 2,614 $ 2,056 Contribution as a % of revenue 39.2 % 40.9 % 42.8 % 41.5 % 38.6 % For the fourth quarter of 2024, Legacy FitLife revenue declined 13% compared to the same period last year, primarily driven by a 20% decline in wholesale revenue. During the fourth quarter, a commercial dispute with GNC, the Company’s largest customer, resulted in the Company rejecting all purchase orders from GNC beginning on December 1, 2024. However, any product that was ordered by GNC prior to December 1, 2024 continued to be shipped and was all received by GNC prior to the end of December 2024. Subsequent to the end of the fourth quarter, in early January 2025, the Company began selling and shipping product directly to its GNC franchisee customers. On January 23, 2025, the Company and GNC settled their commercial dispute and the Company immediately began accepting purchase orders from GNC, with shipments to the GNC distribution centers beginning approximately two weeks later. The Company continued shipping directly to GNC franchisees until the GNC distribution centers were restocked. Subsequent to the distribution centers being restocked during February 2024, in the event GNC distribution centers do not have adequate inventory to fulfill franchisee orders of the Company’s products, the Company may make shipments directly to GNC franchisees in order to ensure continued availability of the Company’s products on store shelves. Gross margin decreased from 40.4% during the fourth quarter of 2023 to 39.7% during the fourth quarter of 2024. Contribution as a percentage of revenue decreased from 39.2% to 38.6% over the same time period. The Company’s wholesale revenue continues to be challenged by declining customer counts in the brick-and-mortar stores of our wholesale partners. However, at least some of the customers choosing to no longer shop in brick-and-mortar locations continue to purchase Legacy FitLife products online, and when a customer buys online the Company earns substantially higher gross profit and contribution. Mimi's Rock (MRC) (Unaudited) 2023 2024 Q4 Q1 Q2 Q3 Q4 Wholesale revenue $ 91 $ 94 $ 90 $ 71 $ 40 Online revenue 6,811 7,399 7,371 7,139 6,832 Total revenue 6,902 7,493 7,461 7,210 6,872 Gross profit 2,790 3,520 3,597 3,441 3,350 Gross margin 40.4 % 47.0 % 48.2 % 47.7 % 48.7 % Advertising and marketing 846 1,062 1,071 929 803 Contribution $ 1,944 $ 2,458 $ 2,526 $ 2,512 $ 2,547 Contribution as a % of revenue 28.2 % 32.8 % 33.9 % 34.8 % 37.1 % - 28 - For the fourth quarter of 2024, MRC revenue was down slightly compared to the same period in 2023. Over the same time period, gross profit increased 20% and contribution increased 31%. For the fourth quarter of 2024, gross margin increased to 48.7% from 40.4% during the same period last year. Revenue for the largest MRC brand, Dr. Tobias, increased 6% in the fourth quarter of 2024 while revenue for the skin care brands, Maritime Naturals and All Natural Advice, declined 38% in the same period compared to the fourth quarter of 2023. At the time of the MRC acquisition in 2023, the skin care brands were sold in a number of countries. Analysis subsequent to the acquisition determined that, in almost all countries other than Canada and the U.S., the products were being sold at levels resulting in negative contribution. Even worse, in many of those countries, the products were being sold at negative gross margins. To optimize performance of the skin care brands, management exited a number of countries and raised prices in other countries. As a result of these changes, a substantial amount of unprofitable revenue was eliminated. The substantial year-over-year increase in gross profit for the MRC brands is primarily the result of this optimization of the skin care brands as well as beneficial product mix within the Dr. Tobias brand. The substantial year-over-year increase in contribution for the MRC brands is a function of the optimization of the skin care brands, beneficial product mix within the Dr. Tobias brand, as well as the optimization of advertising spend across all MRC brands. MusclePharm (Unaudited) 2023 2024 Q4 Q1 Q2 Q3 Q4 Wholesale revenue $ 180 $ 1,117 $ 1,388 $ 1,231 $ 1,689 Online revenue 73 978 1,279 1,234 1,130 Total revenue 253 2,095 2,667 2,465 2,819 Gross profit 93 839 977 876 747 Gross margin 36.8 % 40.0 % 36.6 % 35.5 % 26.5 % Advertising and marketing - 86 161 94 117 Contribution $ 93 $ 753 $ 816 $ 782 $ 630 Contribution as a % of revenue 36.8 % 35.9 % 30.6 % 31.7 % 22.3 % MusclePharm revenue increased 14% sequentially from the third quarter of 2024 to the fourth quarter of 2024, with wholesale revenue increasing 37% and online revenue decreasing 8%. This slower movement in the online channel is due primarily to normal seasonality of retail sales. As previously disclosed, in an effort to drive revenue growth, the Company is making targeted investments in advertising and promotion in both the wholesale and online channels. During the fourth quarter of 2024, the Company offered additional promotional incentives to certain wholesale partners in an effort to drive incremental growth for the MusclePharm brand. In most cases, these investments are accounted for as a reduction in net revenue rather than as advertising and marketing spend. Despite the increased promotions and the accompanying deductions from gross revenue, the Company generated record net revenue from wholesale customers during the quarter. The Company anticipates that the increased promotional efforts will continue for the foreseeable future. As a result of these investments, gross margin and contribution margin as a percent of revenue may fluctuate materially from quarter to quarter. As previously announced, subsequent to the end of the quarter, the Company launched the new MusclePharm Pro Series, a collection of premium sports nutrition products, in a two-month pilot in high-volume Vitamin Shoppe stores (consisting of approximately 60% of Vitamin Shoppe’s nationwide store base) in mid-March 2025. If the pilot effort is successful, the Pro Series is anticipated to be added to the assortment in all Vitamin Shoppe stores and will be exclusive to Vitamin Shoppe for a period of 12 months. In addition, the Company is exploring additional new product launches and continues to have productive discussions with a number of potential new wholesale partners. - 29 - FitLife Consolidated (Unaudited) 2023 2024 Q4 Q1 Q2 Q3 Q4 Wholesale revenue $ 4,282 $ 5,717 $ 5,702 $ 5,161 $ 4,939 Online revenue 9,018 10,832 11,228 10,816 10,074 Total revenue 13,300 16,549 16,930 15,977 15,013 Gross profit 5,363 7,287 7,580 7,001 6,212 Gross margin 40.3 % 44.0 % 44.8 % 43.8 % 41.4 % Advertising and marketing 917 1,228 1,326 1,093 979 Contribution $ 4,446 $ 6,059 $ 6,254 $ 5,908 $ 5,233 Contribution as a % of revenue 33.4 % 36.6 % 36.9 % 37.0 % 34.9 % For the fourth quarter of 2024 for the Company overall, revenue increased 13%, gross profit increased 16%, and contribution increased 18% compared to the fourth quarter of 2023. Gross margin increased to 41.4% during the fourth quarter of 2024 compared to 40.3% during the fourth quarter of last year. Contribution as a percentage of revenue increased to 34.9% compared to 33.4% during the fourth quarter of last year. Non-GAAP Measures The financial presentation below contains certain financial measures not in accordance with GAAP, defined by the SEC as “non-GAAP financial measures”, including EBITDA and adjusted EBITDA. These measures may be different from non-GAAP financial measures used by other companies. The presentation of this financial information, which is not prepared under any comprehensive set of accounting rules or principles, is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in this Annual Report in accordance with GAAP. As presented below, EBITDA excludes interest, foreign exchange gains and losses, income taxes, and depreciation and amortization. Adjusted EBITDA excludes—in addition to interest, foreign exchange gains and losses, taxes, depreciation and amortization—stock-based compensation, merger and acquisition related expense and other non-recurring costs. The Company believes the non-GAAP measures provide useful information to both management and investors by excluding certain expense and other items that may not be indicative of its core operating results and business outlook. The Company believes that the inclusion of non-GAAP measures in the financial presentation below allows investors to compare the Company’s financial results with the Company’s historical financial results and is an important measure of the Company’s comparative financial performance. Year ended December 31, 2024 2023 (Unaudited) (Unaudited) Net income $ 8,984 $ 5,296 Interest expense 1,367 1,025 Interest income (69 ) (289 ) Foreign exchange (gain) loss (50 ) (189 ) Provision for income taxes 2,887 1,707 Depreciation and amortization 108 94 EBITDA 13,227 7,644 Non-cash and non-recurring adjustments Stock-based compensation 459 473 Merger and acquisition related 255 1,627 Restructuring costs 184 Amortization of inventory step-up - 323 Non-recurring loss on foreign currency forward contract - 112 Adjusted EBITDA $ 14,125 $ 10,179 - 30 - Liquidity and Capital Resources As of December 31, 2024, the Company had positive working capital of $6,832 compared to $4,356 at December 31, 2023. Our principal sources of liquidity at December 31, 2024 consisted of $4,468 of cash and $1,626 of accounts receivable. The increase in working capital is principally attributable to positive operating cash flows during the year ended December 31, 2024, partially offset by a voluntary paydown of $2,500 on the Term Loans as well as the three scheduled amortization payments totaling $4,500. On September 24, 2019, the Company entered into a line of credit agreement with Mutual of Omaha Bank (the “ Lender ”), subsequently acquired by CIT Bank N.A., then acquired by First Citizens Bank & Trust Company, providing the Company with a $2.5 million revolving line of credit (the “ Line of Credit ”). The Line of Credit allows the Company to request advances thereunder and to use the proceeds of such advances for working capital purposes until the maturity date, or unless renewed at maturity upon approval by the Company’s Board and the Lender. The Line of Credit is secured by all assets of the Company. On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the maturity date to December 23, 2022. On December 19, 2022, the Company and the Lender amended the Line of Credit agreement to increase the Line of Credit to $3.5 million and extend the maturity date to December 23, 2023. On February 23, 2023, the Company and the Lender amended the Line of Credit Agreement (the “ Prior Credit Agreement ”) providing the Company with a term loan for the principal amount of $12.5 million (“ Term Loan A ”). All other terms of the Credit Agreement remain unchanged. All of the proceeds from Term Loan A were used for the acquisition of MRC. On October 10, 2023, the Company entered into a Second Amended and Restated Credit Agreement (the “ Credit Agreement ”) with the Lender, amending and restating the Credit Agreement between the Company and the Lender. Pursuant to the Credit Agreement, the Lender provided the Company with an additional term loan (“ Term Loan B ”, and together with Term Loan A, the “ Term Loans ”) for the principal amount of $10,000 and extended the Line of Credit of $3.5 million to December 23, 2024. The Company used the proceeds from Term Loan B to fund the acquisition of the MusclePharm assets. On December 19, 2024, the Company entered into the First Amendment to the Amended Credit Agreement (the “ Amended Credit Agreement ”) to extend the $3.5 million Line of Credit to April 30, 2026. Pursuant to the Amended Credit Agreement, the Line of Credit accrues interest at an annual rate equal to the greater of 3.50% or the one-month secured overnight financing rate (“ SOFR ”) 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. Also pursuant to the Amended Credit Agreement, the Term Loans accrue interest at an annual rate equal to the greater of 3.50% or the one-month SOFR rate plus 2.75%, and principal plus accrued interest will be payable quarterly in June, September, December, and March, in amounts sufficient to fully amortize the Term Loans through February 28, 2028 in the case of Term Loan A and through October 10, 2028 in the case of Term Loan B. The Company may prepay amounts borrowed under the Term Loans, in whole or in part with accrued interest to the date of such prepayment on the amount prepaid, by written notice to the Lender at least one business day prior to the proposed prepayment. The Amended Credit Agreement contains customary events of default (each an “ Event of Default ”), which upon the occurrence of an Event of Default, as defined in the Amended Credit Agreement, among other things, interest will accrue at the applicable rate plus 2% per annum, and the Lender may declare all obligations, with interest thereon, immediately due and payable. The Amended Credit Agreement further contains customary representations and warranties of the Company; customary indemnification provisions whereby the Company will indemnify Lender for certain losses arising out of inaccuracies in, or breaches of, the representations, warranties and covenants of the Company, and certain other matters; and customary affirmative and negative covenants, including covenants to maintain a Fixed Charge Coverage Ratio (as defined in the Amended Credit Agreement) of not less than 1.25 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending December 31, 2023, a Funded Debt to EBITDA Ratio (as defined in the Amended Credit Agreement) of not more than 2.50 to 1.00 as tested quarterly on a trailing twelve-month basis, starting with the fiscal quarter ending March 31, 2024, and to the extent the Term Loans still have a balance as of June 30, 2025 and a Cash Flow Leverage threshold (as defined in the Amended Credit Agreement) of at least 1.15 is not met, the Company will be required to make a prepayment on the Term Loans equal to 50% of the Excess Cash Flow (as defined in the Amended Credit Agreement). The Company was in compliance with all covenants as of December 31, 2024. - 31 - As of December 31, 2024, the borrowings outstanding on the Term Loans and the Line of Credit were $13,125 and $0, respectively. The Company has historically financed its operations primarily through cash flow from operations and equity and debt financings. The Company currently anticipates that cash derived from operations and existing cash reserves, along with available borrowings under the Line of Credit, will be sufficient to provide for the Company’s liquidity for the next twelve months. The Company is dependent on cash flow from operations and amounts available under the Line of Credit to satisfy its working capital requirements. No assurances can be given that cash flow from operations and/or the Line of Credit will be sufficient to provide for the Company’s liquidity for the next twelve months. Should the Company be unable to generate sufficient revenue in the future to achieve positive cash flow from operations, and/or should capital be unavailable under the terms of the Line of Credit, additional working capital will be required. Management currently has no intention to raise additional working capital through the sale of equity or debt securities and believes that the cash flow from operations and available borrowings under the Line of Credit will provide sufficient capital necessary to operate the business over the next twelve months. In the event the Company fails to achieve positive cash flow from operations, additional capital is unavailable under the terms of the Line of Credit, and management is otherwise unable to secure additional working capital through the issuance of equity or debt securities, the Company’s business would be materially and adversely harmed. Cash Provided by Operating Activities Net cash provided by operating activities was $9,610 during the year ended December 31, 2024, compared to net cash provided by operating activities of $4,220 for the year ended December 31, 2023. The increase in cash provided by operating activities was primarily due to the higher net income driven by the acquisitions of MRC and the MusclePharm assets, as well as the payment of the transaction-related costs and other payables and expenses that were accrued at MRC at the time the Company acquired MRC in 2023. Cash Used in Investing Activities Cash used in investing activities was $10 and $35,993 during the years ended December 31, 2024 and 2023, respectively. The Company used $10 and $106 for purchases of property and equipment in the years ended December 31, 2024 and 2023, respectively. During the year ended December 31, 2023, the Company paid $17,099 for the acquisition of MRC and $18,788 for the acquisition of MusclePharm assets. Cash Provided by (Used in) Financing Activities Cash used in financing activities for the year ended December 31, 2024 was $6,983 as compared to cash provided by financing activities of $20,296 during the year ended December 31, 2023. Off-Balance Sheet Arrangements Other than contractual obligations incurred in the normal course of business, we do not have any off-balance sheet financing arrangements or liabilities, retained or contingent interests in transferred assets or any obligation arising out of a material variable interest in an unconsolidated entity.