The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
The accompanying notes are an integral part of these condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021
(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 following brand names: (i) NDS Nutrition, PMD Sports, SirenLabs, CoreActive, Nutrology, and Metis Nutrition (together, “NDS Products”); and (ii) iSatori, BioGenetic Laboratories, and Energize (together, the "iSatori Products"). The Company distributes the NDS Products principally through franchised General Nutrition Centers, Inc. (“GNC”) stores located both domestically and internationally and, with the launch of Metis Nutrition, through corporate GNC stores in the United States. The iSatori Products are sold through more than 17,000 retail locations, which include specialty, mass, and online.
FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to www.fitlifebrands.com. The Company’s Common Stock, par value $0.01 per share (“Common Stock”), trades under the symbol “FTLF” on the over-the-counter market.
Recent Developments
Filing of Form 15
On July 18, 2022, the Company filed a Form 15-12G (the “Form 15”) with the Securities and Exchange Commission (the “SEC”) whereby, under Rule 12g-4(a)(1), the Company certified the deregistration of its Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and terminated its duty to file reports under Sections 13 and 15(d) of the Exchange Act. On October 14, 2022, the Company withdrew the Form 15 and has returned to current filer status.
Restatement of Financial Statements
On August 24, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) of the Company was advised by Weaver and Tidwell, L.L.P. (“Weaver”), its registered independent public accounting firm as of that date, that the Company’s previously issued financial statements included in its Annual Reports on Form 10-K for the years ended December 31, 2019 and 2020, and each of the interim financial statements for the quarterly periods in 2019, 2020 and 2021 included in its Quarterly Reports on Form 10-Q for the periods ending March 31, 2019, June 30, 2019, September 30, 2019, March 31, 2020, June 30, 2020, September 30, 2020, March 31, 2021 and June 30, 2021 (collectively, the “Restated Periods”) should be restated to correct historical errors related to the recognition of revenue, and should therefore no longer be relied upon (the “Restatement”).
The Restatement followed the determination that the revenue associated for all customers with standard FOB destination terms, as reported in the Company’s prior period consolidated financial statements, was incorrectly recognized at the time of shipment instead of when the performance obligation was satisfied upon delivery. In addition, the accounting treatment related to the recognition of corresponding accounts receivables, inventory and expensing of cost of goods sold was also restated. The Company’s errors in the misapplication of revenue recognition resulted in certain errors recorded in various account balances in the Company’s consolidated balance sheets, statements of operations, statements of stockholders’ equity, statement of cash flows, and the related notes to the consolidated financial statements (collectively referred to as the consolidated financial statements) for the Restated Periods.
The Company restated the financial statements for the Restated Periods in its comprehensive Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 (the “2020 Form 10K/A”), and a comprehensive Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the "2021 Form 10-K"), which reports were filed with the SEC on October 13, 2022.
Forward Stock Split
The Board of Directors of the Company (the “Board”) approved a forward stock split of the Company’s authorized, issued and outstanding shares of Common Stock, at a ratio of 4-for-1 (the “Forward Split”). The Forward Split was effective as of December 2, 2021 and began trading on such basis on December 8, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock. The Forward Split did not have any effect on the stated par value of the Common Stock and did not affect the Company’s authorized preferred stock.
All references in this Quarterly Report to number of common shares, price per share and weighted average number of shares outstanding have been adjusted to reflect the Forward Split on a retroactive basis as of the earliest period presented, unless otherwise noted.
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Share Repurchase Plan
On February 1, 2021, the Board approved an additional amendment to the previously authorized share repurchase program initially approved by the Board on August 16, 2019, as amended on September 23, 2019 and November 6, 2019 (“Share Repurchase Program”). Under the terms of the amendment, the Company is authorized to repurchase up to $5.0 million of the Company's Common Stock, warrants to purchase shares of the Company's Common Stock (“Warrants”), and other securities issued by the Company (“Securities”) over the 24 months following the Board approval date of February 1, 2021 at a purchase price, in the case of Common Stock, equal to the fair market value of the Company's Common Stock on the date of purchase, and in the case of Warrants and Securities, at a purchase price determined by management, with the exact date and amount of such purchases to be determined by management.
During the nine months ended September 30, 2022, the Company did not repurchase any Securities under the Share Repurchase Program.
COVID-19 Pandemic
The COVID-19 pandemic has had an effect on the Company’s employees, business and operations and those of its customers, vendors and business partners. In this respect, the temporary or permanent closure of some of our retail partners’ store locations and the stay-at-home orders that occurred early in the pandemic negatively affected our results from operations, although much of the impact has been offset by an increase in revenue attributable to online sales, and increased sales during the more recent quarters. Our future financial position and operating results could be materially and adversely affected in the event that a resurgence of COVID-19 cases leads to new stay-at-home orders and/or further disruptions in both our supply chain and manufacturing lead-times, which could lower demand for the Company’s products and/or prevent the Company from producing and delivering its products in a timely manner, although the extent of these effects cannot be determined at this time. The Company expects to continue to assess the evolving impact of the COVID-19 pandemic and intends to make adjustments to its business and operations accordingly.
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 nine-month period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. 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 2021 Form 10-K.
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.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities, (ii) the disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and (iii) the reported amount of net sales and expense recognized during the periods presented.
Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, allowance for inventory obsolescence, depreciable lives of property and equipment, analysis of impairment of goodwill, realization of deferred tax assets, accruals for potential liabilities and assumptions made in valuing stock instruments issued for services. Management evaluates these estimates and assumptions on a regular basis. Actual results could differ from those estimates.
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Basic and Diluted Income Per Share
Our computation of earnings per share (“EPS”) includes basic and diluted EPS. Basic EPS is measured as the income available to common stockholders divided by the weighted average common shares outstanding for the period. Diluted income per share reflects the potential dilution, using the treasury stock method, that could occur if securities or other contracts to issue Common Stock were exercised or converted into Common Stock or resulted in the issuance of Common Stock that then shared in the income of the Company as if they had been converted at the beginning of the periods presented, or issuance date, if later. In computing diluted income per share, the treasury stock method assumes that outstanding options and warrants are exercised and the proceeds are used to purchase Common Stock at the average market price during the period. Options and warrants may have a dilutive effect under the treasury stock method only when the average market price of the Common Stock during the period exceeds the exercise price of the options and warrants. Potential common shares that have an antidilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS.
| | Three months ended September 30, | | | Nine months ended September 30, | |
| | 2022 | | | 2021 | | | 2022 | | | 2021 | |
| | | | | | | | | | | | | | | |
Net income | | $ | 1,220,000 | | | $ | 1,125,000 | | | $ | 3,956,000 | | | $ | 4,162,000 | |
Weighted average common shares - basic | | | 4,555,957 | | | | 4,422,760 | | | | 4,555,347 | | | | 4,374,212 | |
Dilutive effect of outstanding warrants and stock options | | | 432,314 | | | | 395,336 | | | | 423,481 | | | | 434,496 | |
Weighted average common shares - diluted | | | 4,988,271 | | | | 4,818,096 | | | | 4,978,828 | | | | 4,808,708 | |
| | | | | | | | | | | | | | | | |
Net income per common share: | | | | | | | | | | | | | | | | |
Basic | | $ | 0.27 | | | $ | 0.25 | | | $ | 0.87 | | | $ | 0.95 | |
Diluted | | $ | 0.24 | | | $ | 0.23 | | | $ | 0.79 | | | $ | 0.87 | |
Lease
We lease certain corporate office space and office equipment under lease agreements with monthly payments over a period of 36 to 84 months. We determine if an arrangement is a lease at inception. Lease assets are presented as operating lease right-of-use assets and the related liabilities are presented as lease liabilities in our consolidated balance sheets.
Fair Value Measurements
The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820, Fair Value Measurement, establishes a three-level valuation hierarchy for the use of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date:
| ● | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
| ● | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| ● | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company’s own data. |
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable and accounts payable, approximate their fair values because of the short maturity of these instruments. The carrying values of the line of credit and long-term financing obligations approximate their fair values due to the fact that the interest rates on these obligations are based on prevailing market interest rates.
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Goodwill
In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment (“ASU 2017-04”). 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. ASU 2017-04 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 nine months ended September 30, 2022, a worsening of the 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 September 30, 2022 and 2021 represent 69% and 68% of total net revenue, respectively. Net sales to GNC during the nine-month periods ended September 30, 2022 and 2021 represent 69% and 69% of total net revenue, respectively.
Gross accounts receivable attributable to GNC as of September 30, 2022 and September 30, 2021 represent 71% and 77% of the Company’s total accounts receivable balance, respectively.
For the three months ended September 30, 2022 and 2021, online sales accounted for 26% and 25% of the Company’s net revenue, respectively. For the nine months ended September 30, 2022 and 2021, online sales accounted for 26% and 24% 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 FASB ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (1) identifying the contract(s) or agreement(s) with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied. Under ASC 606, revenue is recognized when performance obligations under the terms of a contract are satisfied, which occurs for the Company upon shipment or delivery of products to our customers based on written sales terms. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring the products to a customer.
All products sold by the Company are distinct individual products and consist of nutritional supplements and 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.
Control of products we sell transfers to customers upon shipment or delivery from our facilities to our customers, and the Company’s performance obligations are satisfied at that time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than promised goods to the customer. Payments for sales are generally made by check, credit card, or wire transfer. Historically the Company has not experienced any significant payment delays from customers.
For direct-to-consumer sales, the Company allows for returns within 30 days of purchase. Our wholesale customers, such as GNC, may return purchased products to the Company under certain circumstances, which include expired or soon-to-be-expired products located in GNC corporate stores or at any of its distribution centers, and products that are subject to a recall or that contain an ingredient or ingredients that are subject to a recall by the U.S. Food and Drug Administration.
A right of return does not represent a separate performance obligation, but because customers are allowed to return products, the consideration to which the Company expects to be entitled is variable. 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.
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Income Taxes
The Company recorded federal income tax expense of $360,000 and $311,000 during the three months ended September 30, 2022 and 2021, respectively. The federal income tax expense is non-cash due to the Company’s utilization of federal net operating loss (“NOL”) carryforwards. The Company recorded state income tax expense of $4,000 and $2,000 for the three months ended September 30, 2022 and 2021, respectively.
As of September 30, 2022, the Company had federal NOL carryforwards available to offset future taxable income of approximately $10.3 million. These NOL carryforwards, along with other book-tax basis differences, resulted in a gross deferred tax asset of approximately $2.5 million. A valuation allowance of $537,000 has been recorded to reflect the portion of the deferred tax asset that is not expected to be realized under IRS statutory limitations, resulting in a net deferred tax asset of approximately $2.0 million.
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, or that future deductibility is uncertain.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The amendments included in ASU 2016-13 require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Although the new standard, known as the current expected credit loss (“CECL”) model, has a greater impact on financial institutions, most other organizations with financial instruments or other assets (trade receivables, contract assets, lease receivables, financial guarantees, loans and loan commitments, and held-to-maturity debt securities) are subject to the CECL model and will need to use forward-looking information to better evaluate their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, ASU 2016-13 amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 was originally effective for public companies for fiscal years beginning after December 15, 2019. In November of 2019, the FASB issued ASU 2019-10, which delayed the implementation of ASU 2016-13 to fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company is currently evaluating the impact that the adoption of this guidance will have on its consolidated financial statements.
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements.
NOTE 4 – INVENTORIES
The Company’s inventory is carried at the lower of cost or net realizable value using the first-in, first-out (“FIFO”) method. The Company evaluates the need to record adjustments for inventory on a regular basis. Company policy is to evaluate all inventories including components and finished goods for all of its product offerings across all of the Company’s operating subsidiaries.
The Company recognizes an allowance for obsolescence for expiring, excess, and slow-moving inventory. To calculate the allowance, the Company analyzes sales projections for each SKU relative to the remaining shelf life of the product. The value of any finished goods inventory projected to expire prior to sale is included in the allowance.
The total allowance for expiring, excess and slow-moving inventory items as of September 30, 2022 and December 31, 2021 amounted to $203,000 and $56,000 respectively. The Company’s inventories as of September 30, 2022 and December 31, 2021 were as follows:
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | (Unaudited) | | | | | |
Finished goods | | $ | 6,867,000 | | | $ | 5,908,000 | |
Components | | | 914,000 | | | | 668,000 | |
Allowance for obsolescence | | | (203,000 | ) | | | (56,000 | ) |
Total | | $ | 7,578,000 | | | $ | 6,520,000 | |
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NOTE 5 - PROPERTY AND EQUIPMENT
The Company had property and equipment as of September 30, 2022 and December 31, 2021 as follows:
| | September 30, | | | December 31, | |
| | 2022 | | | 2021 | |
| | (Unaudited) | | | | | |
Equipment | | $ | 902,000 | | | $ | 902,000 | |
Accumulated depreciation | | | (849,000 | ) | | | (832,000 | ) |
Total | | $ | 53,000 | | | $ | 70,000 | |
Depreciation expense for the three months ended September 30, 2022 and 2021 was $7,000 and $7,000, respectively. Depreciation expense for the nine months ended September 30, 2022 and 2021 was $17,000 and $20,000, respectively.
NOTE 6 – NOTES PAYABLE
Line of Credit – CIT 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, (the “Lender”), subsequently acquired by CIT Bank N.A., providing the Company with a $2.5 million 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, 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 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. There were no advances on this line outstanding as of September 30, 2022 or December 31, 2022
On September 20, 2022, the Company and the Lender amended the Line of Credit Agreement to extend the Maturity Date to December 23, 2022. All other terms of the Line of Credit Agreement remain unchanged.
Paycheck Protection Program Loan
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 “PPP Lender”), pursuant to approval by the U.S. Small Business Administration (the “SBA”) for the PPP Lender to fund the Company’s request for a loan under the SBA’s Paycheck Protection Program (“PPP Loan”) created as part of the CARES ACT administered by the SBA (the “Loan Agreement”). In accordance with the requirements of the CARES Act, the Company used the proceeds from the PPP Loan primarily for payroll costs, covered rent payments, and covered utilities during the eight-week period commencing on the date of loan approval. The PPP Loan was scheduled to mature on April 27, 2022, had a 1.0% interest rate, and was subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The Company was informed by the PPP Lender and the SBA that the full balance of the PPP Loan, including accrued interest, was forgiven on January 15, 2021.
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.
During the nine months ended September 30, 2022, the Company made payments resulting in a $41,000 reduction in the lease liability. As of September 30, 2022, lease liability amounted to $117,000. ASC 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 nine months ended September 30, 2022 was $39,000. The right-of-use asset at September 30, 2022 was $117,000, net of amortization of $363,000.
| | Nine months ended | |
| | September 30, 2022 | |
Lease Cost | | | | |
Operating lease cost (included in general and administrative in the Company's unaudited and consolidated statement of operations) | | $ | 39,000 | |
| | | | |
Other information | | | | |
Weighted average remaining lease term - operating leases (in years) | | | 1.9 | |
Average discount rate - operating leases | | | 9 | % |
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The supplemental balance sheet information related to leases for the period is as follows:
Operating leases | | At September 30, 2022 | |
Long-term right-of-use assets | | $ | 117,000 | |
Current operating lease liabilities | | $ | 54,000 | |
Noncurrent operating lease liabilities | | | 63,000 | |
Total operating lease liabilities | | $ | 117,000 | |
Maturities of the Company's lease liabilities are as follows:
Year ending | | Operating leases | |
2022 (remaining three months) | | | 14,000 | |
2023 | | | 61,000 | |
2024 | | | 51,000 | |
Less: Imputed interest/present value discount | | | (9,000 | ) |
Present value of lease liabilities | | $ | 117,000 | |
NOTE 8 - EQUITY
The Board approved a forward stock split of the Company’s Common Stock at a ratio of 4-for-1 (the “Forward Split”), effective as of December 2, 2021. Prior to the Forward Split, the Company was authorized to issue 15.0 million shares of Common Stock. As a result of the Forward Split, the Company is now authorized to issue 60.0 million shares of Common Stock, $0.01 par value per share, of which 4,555,957 and 4,552,485 shares of Common Stock were issued and outstanding as of September 30, 2022 and December 31, 2021, respectively. The Forward Split did not have any effect on the stated par value of the Common Stock and did not affect the Company’s authorized preferred stock.
Common Stock Issued for Services
In February 2021, the Company granted Mr. Dayton Judd, Chief Executive Officer, an aggregate of 160,000 restricted share units (“RSUs”). Each RSU converted into one share of the Company’s Common Stock upon vesting. The RSUs vested as follows: (1) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $7.50, (ii) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $9.00, (iii) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $10.50, and (iv) 40,000 shares at such date that the 30-day volume-weighted average price of Common Stock meets or exceeds $12.00. The RSUs were subject to forfeiture in the event Mr. Judd resigned from his position or was terminated by the Company. As the vesting of the RSUs was subject to certain market conditions, pursuant to current accounting guidelines, the Company determined the fair value to be $666,000, computed using Monte Carlo simulations on a binomial model with the assistance of a valuation specialist.
The Company recorded $54,000 and $95,000 of stock compensation expense related to RSUs during the three months ended September 30, 2022 and 2021, respectively. The Company recorded $234,000 and $256,000 of stock compensation expense related to RSUs during the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, there was $82,000 of unamortized compensation expense associated with the grant of the RSUs.
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 following 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 24 months following the Board approval date of February 1, 2021 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, and on February 1, 2021, the Company’s Board of Directors amended previously approved Share Repurchase Program to increase the amount of authorized repurchases to $5.0 million. All other terms of the Share Repurchase Program remain unchanged.
During the nine months ended September 30, 2022, the Company did not repurchase any shares of Common Stock under the Share Repurchase Program.
Treasury Shares
In January 2022, the Company retired all treasury shares. As of September 30, 2022, there are no shares held in treasury.
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Options
Information regarding options outstanding as of September 30, 2022 is as follows:
| | Number of | | | Weighted Average Exercise | | | Weighted Average Remaining Life | |
| | Options | | | Price | | | (Years) | |
Outstanding, December 31, 2020 | | | 371,140 | | | $ | 2.51 | | | | 5.9 | |
Issued | | | 128,000 | | | | 5.03 | | | | | |
Exercised | | | (68,000 | ) | | | 3.48 | | | | | |
Forfeited | | | - | | | | - | | | | | |
Repurchased | | | (50,840 | ) | | | 3.48 | | | | | |
Outstanding, December 31, 2021 | | | 380,300 | | | $ | 3.44 | | | | 6.2 | |
Issued | | | 10,000 | | | | 15.65 | | | | | |
Exercised | | | (3,472 | ) | | | 8.27 | | | | | |
Forfeited | | | (408 | ) | | | 32.48 | | | | | |
Repurchased | | | - | | | | - | | | | | |
Outstanding, September 30, 2022 | | | 386,420 | | | $ | 3.68 | | | | 5.5 | |
Outstanding | | | Exercisable | |
Exercise Price Per share | | | Total Number of Options | | | Weighted Average Remaining Life (Years) | | | Weighted Average Exercise Price | | | Number of Vested Options | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | | | | | | | | | |
$ | 0.70 | - | 5.24 | | | | 358,000 | | | | 5.7 | | | $ | 2.25 | | | | 294,000 | | | $ | 1.64 | |
$ | 5.25 | - | 36.09 | | | | 28,420 | | | | 2.6 | | | $ | 21.72 | | | | 20,920 | | | $ | 23.90 | |
| | | | | | | 386,420 | | | | 5.5 | | | $ | 3.68 | | | | 314,920 | | | $ | 3.12 | |
The closing stock price for the Company’s stock on September 30, 2022 was $16.00, resulting in an intrinsic value of outstanding options of $4,949,000.
On August 15, 2022, the Company granted Mr. Jakob York, Chief Financial Officer, options to purchase 10,000 shares of Common Stock with an exercise price of $15.65, which vested (i) one fourth immediately on the date of the grant, and (ii) in three equal annual installments thereafter, and which expire on August 16, 2027.
The Company recorded $37,000 and $12,000 of stock compensation expense related to stock options during the three months ended September 30, 2022 and 2021, respectively. During the nine-month periods ended September 30, 2022 and 2021, the Company recognized stock compensation expense of $61,000 and $89,000, respectively, related to stock options.
Warrants
Total outstanding warrants to purchase shares of Common Stock as of September 30, 2022 and December 31, 2021 amounted to 143,480. Total intrinsic value as of September 30, 2022 amounted to $2,131,000. During the three months ended September 30, 2022 and year ended December 31, 2021, no warrants were granted and no warrants expired.
Outstanding | | | Exercise Price | | Issuance Date | | Expiration Date | | Vesting |
143,480 | | | $ | 1.15 | | 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 EVENT
Subsequent to the end of the quarter, the Company repurchased 12,000 shares at a price of $15.50 per share in a private transaction.