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FITLIFE BRANDS, INC. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

August 7, 2014

Forward-Looking Statements

Management's Discussion and Analysis contains various "forward looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events or the future financial performance of the Company that involve risks and uncertainties. Certain statements included in this Form 10-Q, including, without limitation, statements related to anticipated cash flow sources and uses, and words including but not limited to "anticipates", "believes", "plans", "expects", "future" and similar statements or expressions, identify forward looking statements. Any forward-looking statements herein are subject to certain risks and uncertainties in the Company's business, including but not limited to, reliance on key customers and competition in its markets, market demand, product performance, technological developments, maintenance of relationships with key suppliers, difficulties of hiring or retaining key personnel and any changes in current accounting rules, all of which may be beyond the control of the Company. The Company adopted at management's discretion, the most conservative recognition of revenue based on the most astringent guidelines of the SEC. Management will elect additional changes to revenue recognition to comply with the most conservative SEC recognition on a forward going accrual basis as the model is replicated with other similar markets. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth therein.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results and achievements and cause them to materially differ from those contained in the forward-looking statements include those identified in the section titled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2013, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may affect generally our business, results of operations and financial position. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.

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Overview

FitLife Brands, Inc., formerly Bond Laboratories, Inc. (the "Company"), is a national provider of innovative and proprietary nutritional supplements for health conscious consumers marketed under the brand names NDS Nutrition Products™ ("NDS") (www.ndsnutrition.com), PMD™ (www.pmdsports.com), SirenLabs™ (www.sirenlabs.com) and CoreActive™ (www.coreactivenutrition.com). The Company manufactures and distributes a full line of nutritional supplements to support athletic performance, weight loss and general health predominantly through franchised General Nutrition Centers, Inc. ("GNC") stores located both domestically and internationally.

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").

FitLife Brands is headquartered in Omaha, Nebraska. For more information on the Company, please go to http://www.fitlifebrands.com. The Company's common stock currently trades under the symbol FTLF on the OTCBB market.

Results of Operations

Net Sales. Revenue for the three months ended June 30, 2014 increased 18.4% to $5,986,686 as compared to $5,055,035 for the three months ended June 30, 2013. Revenue for the six months ended June 30, 2014 increased 10.8% to $12,319,763 as compared to $11,116,176 for the six months ended June 30, 2013. The increase in total revenue for the three month period and six month period ended June 30, 2014 was driven by continued strong demand for our products domestically and internationally and, to a lesser extent, by increased sales to certain customers in advance of the planned transition to GNC's centralized distribution platform, which went into effect May 1, 2014. While not anticipated to impact our results from operations beyond the short-term, the transition to GNC's centralized distribution platform will likely have an affect on revenue and cost of goods sold in subsequent periods. In this regard, a substantial portion of our distribution expense, which was previously recorded in cost of goods sold, will be eliminated, and instead recorded as an offset to gross revenue through distributor-level pricing adjustments. As a result, period over period revenue and cost comparisons will be affected, although our gross profit will likely not be impacted beyond the short-term.

We currently market more than 50 products to over 1,100 GNC franchise locations both domestic and international. The Company continually seeks to increase both the number of stores and number of approved products that comprise its domestic and international distribution footprint and, while no assurances can be given, we anticipate that such efforts will continue to drive future revenue growth. While currently not a material component of revenue, management anticipates that continued international expansion will be a major driver of future growth. While management remains optimistic about the current state and long-term growth potential of the business, it is still evaluating the potential impact that the new distribution platform may have on both the business in general and financial results for the third quarter.

Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2014 increased to $3,738,337 as compared to $3,189,188 for the three months ended June 30, 2013, and increased to $7,714,736 during the six months ended June 30, 2014 as compared to $6,980,421 for the six months ended June 30, 2013. The increase during the three and six month periods was primarily attributable to increased sales volume during the respective periods. As noted above, the transition to GNC's centralized distribution platform is expected to reduce cost of goods sold in future periods as a substantial portion of our distribution expense will no longer be recorded as a cost of goods sold.

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General and Administrative Expense. General and administrative expense for the three months ended June 30, 2014 increased to $786,799 as compared to $668,234 for the three months ended June 30, 2013. The increase in general and administrative expense for the period was primarily attributable to higher personnel costs and the payment of certain amounts related to the settlement of previously disclosed legal matters. General and administrative expense for the six months ended June 30, 2013 decreased to $1,592,026 as compared to $1,665,977 for the six months ended June 30, 2013. The decrease in the six month period in general and administrative expense is principally attributable to lower non-cash equity issuance expense in the comparative first quarters partially offset by slightly higher personnel costs in the comparative second quarter.

Selling and Marketing Expense. Selling and marketing expense for the three months ended June 30, 2014 decreased to $588,512, as compared to $624,762 for the three months ended June 30, 2013, and decreased to $1,156,878 during the six months ended June 30, 2014 as compared to $1,234,851 for the six months ended June 30, 2013. The decrease in selling and marketing expense for the three-month and six-month period ended June 30, 2014 is principally attributable to lower costs related to sample packs. As net sales increase, selling and marketing expense is anticipated to simultaneously increase, although management anticipates that selling and marketing expense will increase at a lower rate.

Depreciation and Amortization. Depreciation and amortization for the three months ended June 30, 2014 decreased to $56,448 as compared to $57,791 for the three months ended June 30, 2013. Depreciation and amortization for the six months ended June 30, 2013 decreased to $112,897 as compared to $116,762 for the six months ended June 30, 2013.

Net Income/(Loss). We generated a profit of $725,215 for the three months ended June 30, 2014 as compared to a profit of $470,211 for the three months ended June 30, 2013. The increase was principally attributable to increased gross profit driven by higher net sales. We generated a profit of $1,618,561 for the six months ended June 30, 2014 as compared to a profit of $1,057,625 for the six months ended June 30, 2013.

Liquidity and Capital Resources

The Company has historically financed its operations primarily through equity and debt financings, and more recently, cash flow from operations. 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 did not engage in any financing activities during the quarter ended June 30, 2014. The anticipated cash derived from operations and existing cash resources are expected to provide for the Company's liquidity for the next 12 months.

Cash Provided by/(Used in) Operations. Our cash provided by operating activities for the six months ended June 30, 2014 was $­­­­811,692, as compared to cash provided by operating activities of $1,527,334 for the six months ended June 30, 2013. The decrease is attributable to fluctuations in working capital accounts consistent with standard business practices and non-cash expenses related to the issuance of common stock and options. Notwithstanding the foregoing, net working capital increased to $7,180,881 as of the quarter ended June 30, 2014 from $5,659,176 as of June 30, 2013.

Cash Provided by/(Used in) Investing Activities. Cash provided by investing activities for the six months ended June 30, 2014 was $50,000 as compared to $100,000 used in investing activities for the six months ended June 30, 2013.

Cash Provided by/(Used in) Financing Activities. Our cash used in financing activities for the six months ended June 30, 2014 was $242,397, as compared to $0 cash used in financing activities during the six months ended June 30, 2013. The difference related to the principal reduction payment for the term loan pursuant to a five year level amortization schedule. While no assurances can be given and excepting the September 2013 activity related to the recapitalization of the balance sheet, we remain cash flow positive and have not needed to seek or secure additional working capital to operate and grow the business since the fourth quarter of 2010.

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WHERE YOU CAN FIND MORE INFORMATION



You are advised to read this Quarterly Report on Form 10-Q in conjunction with other reports and documents that we file from time to time with the SEC. In particular, please read our Quarterly Reports on Form 10-Q, Annual Report on Form 10-K, and Current Reports on Form 8-K that we file from time to time. You may obtain copies of these reports directly from us or from the SEC at the SEC'sPublic Reference Room at 100 F. Street, N.E.Washington, D.C. 20549, and you may obtain information about obtaining access to the Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains information for electronic filers at its website http://www.sec.gov.


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Source: Edgar Glimpses


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