FITLIFE BRANDS, INC. MANAGEMENT REPORT AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OR OPERATING PLAN (Form 10-K)

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 accompanying notes and other financial information contained elsewhere in this annual report.

Restatement of previously issued unaudited condensed interim consolidated financial statements



We have restated our previously issued unaudited interim condensed consolidated
Financial Statements as of and for the three months ended March 31, 2021, and as
of and for the three and six months ended June 30, 2021. Refer to the section
entitled "Explanatory Note" preceding Item 1 hereof for background on the
restatement, the fiscal periods impacted, control considerations, and other
information.



Within this MD&A, we have restated our previously issued unaudited interim
condensed consolidated statements of operations for the three months ended March
31, 2021 and for the three and six months ended June 30, 2021; and unaudited
interim condensed consolidated statements of cash flows for the three months
ended March 31, 2021 and for the six months ended June 30, 2021 (the "Prior
Quarterly Financial Statements"), to reflect the restatement more fully
described in Note 11 to the notes of the audited consolidated financial
statements in this Annual Report.



See Note 11, Quarterly financial information (unaudited), in item 8, Consolidated financial statements and supplementary data, for this restated information, and see Supplementary unaudited quarterly financial information, in item 7, Management’s discussion and analysis of Financial Condition and Results of Operations, for additional interim financial information.



In connection with the Restatement, the Company restated the financial
information as of and for the fiscal year December 31, 2020 and December 31,
2019, as well as the relevant unaudited interim financial information for the
quarterly periods ended September 30, 2020, June 30, 2020, March 31, 2020,
September 30, 2019, June 30, 2019, and March 31, 2019 in a separate filing in
the 2020 Annual Report, as amended, on Form 10-K/A.



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 product returns, sales returns and incentive
programs, 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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Accounts receivable and allowance for doubtful accounts



The Company's accounts receivable balance is related to trade receivables and
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 in categories by the
amount of days the balance is past due, and the estimated loss is calculated as
a percentage of the total category based upon past history. Account balances are
charged off against the allowance when it is probable the receivable will not be
recovered.



The determination of collectability of the Company's accounts receivable
requires management to make frequent judgments and estimates in order to
determine the appropriate amount of allowance needed for doubtful accounts. The
Company's allowance for doubtful accounts is estimated to cover the risk of loss
related to accounts receivable. This allowance is maintained at a level we
consider appropriate based on historical and other factors that affect
collectability. These factors include historical trends of write-offs,
recoveries and credit losses; the careful monitoring of customer credit quality;
and projected economic and market conditions. Different assumptions or changes
in economic circumstances could result in changes to the allowance.



Total allowance for bad debts as of December 31, 2021 and 2020 amounted to $55,000 and $51,000respectively.

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 NDS Products, 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 GNC 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. In addition, the Company recognizes an asset included in Inventories,
net and a corresponding adjustment to Cost of Goods Sold for the right to
recover goods from customers associated with the estimated returns. The product
returns liability and corresponding asset include 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 and the related assets 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.



Information for product returns is received on regular basis and adjusted for
accordingly. Adjustments for returns are based on factual information and
historical trends for both NDS products and iSatori 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.



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Total allowance for product returns, sales returns and customer incentive programs
December 31, 2021 and 2020 amounted to $632,000 and $345,000respectively.


Inventory



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 that expires within six months of the
date of assessment is included in the allowance, even if the Company anticipates
selling some or all of the inventory. In addition, the allowance includes the
value of longer-dated finished good inventory that, based on projections, will
remain unsold at the time of its expiration.



Total allowance for stale, excess, and slow-moving inventory items at
December 31, 2021 and 2020 amounted to $56,000 and $56,000respectively.


Goodwill



In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other
(Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04
removes Step 2 of the goodwill impairment test, which required a hypothetical
purchase price allocation. A goodwill impairment will now be the amount by which
a reporting unit's carrying value exceeds its fair value, not to exceed the
carrying amount of goodwill. This update also eliminated the requirements for
any reporting unit with a zero or negative carrying amount to perform a
qualitative assessment and, if it fails that qualitative test, to perform Step 2
of the goodwill impairment test. The Company adopted ASU 2017-04 on January 1,
2020 and applied the requirements prospectively.



No impairment charge was incurred during the year ended December 31, 2021.



Revenue Recognition



The Company’s revenues consist of sales of nutritional supplements, primarily to GNC.



The Company accounts for revenues in accordance with Accounting Standards
Codification ("ASC") 606, Revenue from Contracts with Customers. The underlying
principle of ASC 606 is to recognize revenue to depict the transfer of goods or
services to customers at the amount expected to be collected. ASC 606 creates a
five-step model that requires entities to exercise judgment when considering the
terms of contract(s), which includes (1) identifying the contract(s) or
agreement(s) with a customer, (2) identifying our performance obligations in the
contract or agreement, (3) determining the transaction price, (4) allocating the
transaction price to the separate performance obligations, and (5) recognizing
revenue as each performance obligation is satisfied. Under ASC 606, revenue is
recognized when performance obligations under the terms of a contract are
satisfied, which occurs for the Company upon shipment or delivery of products to
our customers based on written sales terms, which is also when control is
transferred. Revenue is measured as the amount of consideration we expect to
receive in exchange for transferring the products or services to a customer.



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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 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.
Payment for sales are generally made by check, credit card, or wire transfer.
Historically the Company has not experienced any significant payment delays from
customers.



For direct-to-consumer sales, the Company allows for returns within 30 days of
purchase. Our wholesale customers, such as GNC, may return purchased products to
the Company under certain circumstances, which include expired or
soon-to-be-expired products located in GNC corporate stores or at any of its
distribution centers, and products that are subject to a recall or that contain
an ingredient or ingredients that are subject to a recall by the U.S. Food and
Drug Administration.



A right of return does not represent a separate performance obligation, but
because customers are allowed to return products, the consideration to which the
Company expects to be entitled is variable. Upon evaluation of returns, the
Company determined that less than 5% of products are returned, and therefore
believes it is probable that such returns will not cause a significant reversal
of revenue in the future. We assess our contracts and the reasonableness of our
conclusions on a quarterly basis.



Stock-Based Compensation.



The Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services rendered. The
Company accounts for stock option and warrant grants issued and vesting to
employees based on the authoritative guidance provided by the Financial
Accounting Standards Board ("FASB") where the value of the award is measured on
the date of grant and recognized as compensation on the straight-line basis over
the vesting period.



From prior periods until December 31, 2018, the Company accounted for
share-based compensation issued to non-employees and consultants in accordance
with the provisions of FASB ASC 505-50, Equity-Based Payments to
Non-Employees. Measurement of share-based payment transactions with
non-employees is based on the fair value of whichever is more reliably
measurable: (a) the goods or services received or (b) the equity instruments
issued. The final fair value of the share-based payment transaction is
determined at the performance completion date.



In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation
(Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU
2018-07"). The guidance was issued to simplify the accounting for share-based
transactions by expanding the scope of ASU 2018-07 from only being applicable to
share-based payments to employees to also include share-based payment
transactions for acquiring goods and services from nonemployees. As a result,
nonemployee share-based transactions are measured by estimating the fair value
of the equity instruments at the grant date, taking into consideration the
probability of satisfying performance conditions. We adopted ASU 2018-07 on
January 1, 2019. The adoption of the standard did not have a material impact on
our financial statements for the year ended December 31, 2019 or the previously
reported financial statements.



The fair value of the Company's stock option and warrant grants are estimated
using the Black-Scholes option pricing model, which uses certain assumptions
related to risk-free interest rates, expected volatility, expected life of the
stock options or warrants, and future dividends. Compensation expense is
recorded based upon the value derived from the Black-Scholes option pricing
model and based on actual experience. The assumptions used in the Black-Scholes
option pricing model could materially affect compensation expense recorded in
future periods.



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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



                                                              As Restated
                                             December          December
                                             31, 2021          31, 2020           Change            %
Revenue                                    $  27,913,000     $  22,111,000     $  5,802,000            26 %
Cost of goods sold                           (15,409,000 )     (12,574,000 )     (2,835,000 )          23 %
Gross profit                                  12,504,000         9,537,000        2,967,000            31 %
General and administrative expense            (3,651,000 )      (3,047,000 )       (604,000 )          20 %
Selling and marketing expense                 (2,564,000 )      (2,106,000 )       (458,000 )          22 %
Depreciation and amortization                    (59,000 )         (38,000 )        (21,000 )          55 %
Total operating expenses                      (6,274,000 )      (5,191,000 )     (1,083,000 )          21 %
Income from operations                         6,230,000         4,346,000        1,884,000            43 %
Other income (expense)                           478,000            64,000          414,000           n/a
(Provision) benefit for income tax            (1,298,000 )       4,415,000       (5,713,000 )         n/a
Net income                                 $   5,410,000     $   8,825,000     $ (3,415,000 )         (39 )%



Year ended December 31, 2021 Compared to the year ended December 31, 2020

Net sales. Turnover for the year ended December 31, 2021 increased by 26% for
$27,913,000 compared to $22,111,000 for the year ended December 31, 2020. Turnover for the year ended December 31, 2021 year-over-year reflects the continued growth of our wholesale business and our direct-to-consumer online offering.



Online revenue during the year ended December 31, 2021 was approximately 24% of
total revenue, compared to roughly 20% of total revenue during the same
twelve-month period in 2020. Due to the ongoing shift to online purchasing by
consumers, including additional growth arising from the effects of the COVID-19
pandemic as a result of the shutdown of various retail outlets, e-commerce sales
have accounted for a growing percentage of our domestic revenue. Although no
assurances can be given, management believes that online revenue will continue
to increase in subsequent periods relative to prior comparable periods given
management's focus on higher margin online sales.



The Company continually reformulates and introduces new products, as well as
seeks to increase both the number of stores and number of approved products that
can be sold within the GNC franchise system that comprise 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, 2021
increased by 23% for $15,409,000 compared to $12,574,000 for the year ended
December 31, 2020. This increase is mainly attributable to the increase in revenues.



Gross Profit Margin. Gross profit for the year ended December 31, 2021 increased
to $12,504,000 as compared to $9,537,000 for the year ended December 31, 2020.
Gross margin for the year ended December 31, 2021 increased to 44.8% from 43.1%
for the comparable period last year. The increase in gross profit during the
year ended December 31, 2021 is principally attributable to higher revenue and a
larger percentage of higher-margin direct-to-consumer sales.



General and Administrative Expense. General and administrative expense for the
year ended December 31, 2021 increased by $604,000 to $3,651,000 as compared to
$3,047,000 for the year ended December 31, 2020. The increase in general and
administrative expense was primarily due to an increase of $374,000 in stock
compensation expense as well as $253,000 of expenses related to M&A activity.



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Selling and Marketing Expense. Selling and marketing expense for the year ended
December 31, 2021 increased to $2,564,000 as compared to $2,106,000 for the year
ended December 31, 2020. This increase is primarily attributable to higher
co-operative marketing expenses paid to one of our wholesale partners. The
Company anticipates that this higher level of marketing expense which was
fully funded by wholesale price increases will continue for the foreseeable
future.



Depreciation and Amortization. Depreciation and amortization for the year ended
December 31, 2021 increased to $59,000 from $38,000 during the same period in
2020. The increase is primarily attributable to the amortization of intangibles
acquired in the Nutrology business combination.



Net Income. We generated a net income of $5,410,000 for the year ended December
31, 2021, as compared to a net income of $8,825,000 for the year ended December
31, 2020. The decrease in net income for the year ended December 31, 2021
compared to the same period in 2020 was primarily attributable to an income tax
benefit of $4,415,000 during 2020 resulting from removing a substantial portion
of the reserve against our deferred tax assets.



Non-GAAP Measures



The financial presentation below contains certain financial measures defined as
"non-GAAP financial measures" by the SEC, including non-GAAP EBITDA and adjusted
non-GAAP 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, non-GAAP EBITDA excludes interest, income taxes, and
depreciation and amortization. Adjusted non-GAAP EBITDA excludes-in addition to
interest, taxes, depreciation and amortization-stock-based compensation,
acquisition related expenses, and gains or losses of a non-recurring nature. 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,

                                             2021             2020
                                         (Unaudited)      (Unaudited)
Net income                               $  5,410,000     $  8,825,000
Interest expense (income), net                (25,000 )          6,000

Provision (profit) for income taxes 1,298,000 (4,415,000 ) Amortization and depreciation

                  59,000           38,000
EBITDA                                      6,742,000        4,454,000
Non-cash and non-recurring adjustments
Stock-based compensation expense              452,000           78,000
Acquisition related expenses                  253,000                -
Non-recurring gains                          (453,000 )        (70,000 )
Adjusted EBITDA                          $  6,994,000     $  4,462,000



Cash and capital resources



As of December 31, 2021, the Company had working capital of $13,626,000,
compared to working capital of $7,615,000 at December 31, 2020. Our principal
sources of liquidity at December 31, 2021 consisted of $9,897,000 of cash and
$945,000 of accounts receivable. The increase in working capital is principally
attributable to cash flows from operating activities during fiscal 2021,
partially offset by the acquisition of Nutrology and share repurchases.



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 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.



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Advances drawn under the Line of Credit bear interest at an annual rate of the
one-month LIBOR rate plus 2.75%, and each advance will be payable on the
Maturity Date with the interest on outstanding advances payable monthly. The
Company may, at its option, prepay any borrowings under the Line of Credit, in
whole or in part at any time prior to the Maturity Date, without premium or
penalty.



On March 20, 2020, the Lender advanced the Company $2.5 million under the Line
of Credit, which amount was repaid on April 29, 2020. The advance was intended
to provide the Company with additional liquidity given the uncertainty regarding
the timing of collection of certain accounts receivable and in anticipation of
an expected negative impact on sales to GNC and our other wholesale customers
resulting from the COVID-19 outbreak.



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.



On April 27, 2020, the Company received proceeds from a loan in the amount of
$449,700 from the PPP Lender, pursuant to approval by the SBA for the Lender to
fund the Company's request for the PPP Loan created as part of the recently
enacted CARES Act administered by the SBA. 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 did not provide any collateral or guarantees for the PPP Loan, nor did
the Company pay any fees to obtain the PPP Loan. The Company was informed by the
PPP Lender and the SBA that the full amount balance of the PPP Loan, including
accrued interest, was forgiven on January 15, 2021.  See Note 1 to the
Consolidated Financial Statements contained within this Annual Report.



The Company has historically financed its operations primarily through cash flow
from operations and equity and debt financings. The Company has also provided
for its cash needs by issuing Common Stock, options and warrants for certain
operating costs, including consulting and professional fees. The Company
currently anticipates that cash derived from operations and existing cash
resources, along with available borrowings under the Line of Credit, will be
sufficient to provide for the Company's liquidity for the next twelve months.



The Company is dependent on cash flow from operations and amounts available
under the Line of Credit to satisfy its working capital requirements. No
assurances can be given that cash flow from operations and/or the Line of Credit
will be sufficient to provide for the Company's liquidity for the next twelve
months. Should the Company be unable to generate sufficient revenue in the
future to achieve positive cash flow from operations, and/or should capital be
unavailable under the terms of the Line of Credit, additional working capital
will be required. Management currently has no intention to raise additional
working capital through the sale of equity or debt securities and believes that
the cash flow from operations and available borrowings under the Line of Credit
will provide sufficient capital necessary to operate the business over the next
twelve months. In the event the Company fails to achieve positive cash flow from
operations, additional capital is unavailable under the terms of the Line of
Credit, and management is otherwise unable to secure additional working capital
through the issuance of equity or debt securities, the Company's business would
be materially and adversely harmed.



Cash flow from operating activities



Net cash provided by operating activities was $4,480,000 during the fiscal year
ended December 31, 2021, compared to net cash provided by operating activities
of $5,721,000 for the year ended December 31, 2020. The decrease in cash
provided by operating activities is primarily attributable to increased
investments in working capital, particularly inventory.



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Cash used in investing activities



Cash used in investing activities for the fiscal year ended December 31, 2021
was $529,000 related to the Nutrology acquisition, as compared to $0 used in
investing activities during the year ended December 31, 2020.



Cash provided by (used in) fundraising activities

Cash used in financing activities for the year ended December 31, 2021 has been
$390,000 compared to the liquidity provided by the financing of $350,000 during the year ended December 31, 2020. The receipt of funds from the PPP loan in 2020 and the increase in share buybacks in 2021 explain the main difference.

Additional unaudited quarterly financial information



The following unaudited quarterly financial information is presented to
illustrate the effects of the corrections of misstatements to previously
reported quarterly unaudited financial information as a result of the
restatement. Such corrections of misstatements are described in more detail in
Note 11, Restatement of Previously Issued Consolidated Financial Statements, in
Item 8, Financial Statements and Supplementary Data. This unaudited quarterly
financial information should be read in conjunction with the other sections of
this Comprehensive Annual Report, including the consolidated financial
statements and related notes contained in Item 8, Financial Statements and
Supplementary Data.



 Management's Discussion and Analysis of the Unaudited Financial Condition and
                     Results of Operations - June 30, 2021

                                    Restated



Comparison of the three and six months ended June 30, 2021 to the three and six
months ended June 30, 2020



                                               Three months ended                                                      Six months ended
                         As Restated         As Restated                                        As Restated         As Restated
                        June 30, 2021       June 30, 2020                Change                June 30, 2021       June 30, 2020                Change
Revenue                $     8,406,000     $     2,990,000     $  5,416,000           181 %   $    14,005,000     $     9,532,000     $  4,473,000            47 %
Cost of goods sold          (4,725,000 )        (1,554,000 )     (3,171,000 )         204 %        (7,529,000 )        (5,186,000 )     (2,343,000 )          45 %
Gross profit                 3,681,000           1,436,000        2,245,000           156 %         6,476,000           4,346,000        2,130,000            49 %
Operating expenses          (1,648,000 )        (1,446,000 )       (202,000 )          14 %        (3,182,000 )        (2,862,000 )       (320,000 )          11 %
Income (loss) from
operations                   2,033,000             (10,000 )      2,043,000           n/a           3,294,000           1,484,000        1,810,000           122 %
Other income
(expense)                        5,000              (5,000 )         10,000           n/a             464,000              61,000          403,000           n/a
(Provision) Benefit
for income tax                (406,000 )            40,000         (446,000 )         n/a            (721,000 )            81,000         (802,000 )         n/a
Net income (loss)      $     1,632,000     $        25,000     $  1,607,000           n/a     $     3,037,000     $     1,626,000     $  1,411,000            87 %




Net Sales. Revenue for the three months ended June 30, 2021 increased to
$8,406,000 as compared to $2,990,000 for the three months ended June 30, 2020.
Revenue for the six months ended June 30, 2021 increased 47% to $14,005,000 as
compared to $9,532,000 for the six months ended June 30, 2020. The increase in
revenue for the three- and six-month periods ended June 30, 2021 compared to the
prior three- and six-month period is principally due to the closure of some of
our retail partners' store locations and the stay-at-home orders during 2020
caused by the COVID-19 pandemic and continued organic growth in our online and
wholesale businesses.


Online revenue during the three and six months ended June 30, 2021 was approximately 21% and 24% of total revenue, respectively, compared to approximately 38% and 21% of total revenue in the three and six months ended
June 30, 2020.



Cost of Goods Sold. Cost of goods sold for the three months ended June 30, 2021
increased to $4,725,000 as compared to $1,554,000 for the three months ended
June 30, 2020. Cost of goods sold for the six months ended June 30, 2021
increased to $7,529,000 as compared to $5,186,000 for the six months ended June
30, 2020. The increase during the three- and six-month period is principally
attributable to higher revenue.



Gross Profit. Gross profit for the three months ended June 30, 2021 increased to
$3,681,000 as compared to $1,436,000 for the three months ended June 30, 2020.
Gross profit for the six months ended June 30, 2021 increased to $6,476,000 as
compared to $4,346,000 for the six months ended June 30, 2020. The increase
during the three- and six- month period is principally attributable to higher
revenue.



Gross margin for the three months ended June 30, 2021 decreased to 43.8%
compared to 48.0% during the same period last year. The decrease during the
three-month period is principally attributable to a lower percentage of online
sales during 2021 compared to the same period in 2020.  Gross margin for the six
months ended June 30, 2021 increased to 46.2% compared to 45.6% for the same
period last year. The increase was primarily attributable to a greater
proportion of higher margin online revenue during 2021 compared to the same
period in 2020.



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Contents



General and Administrative Expense. General and administrative expense for the
three months ended June 30, 2021 decreased to $917,000 as compared to $1,001,000
for the three months ended June 30, 2020. The decrease in the three-month period
ended June 30, 2021 primarily reflects a decrease in bad debt expense, partially
offset by higher stock compensation expense and higher consulting expense. For
the six-month period ended June 30, 2021, general and administrative expense
increased to $1,774,000 from $1,734,000 during the same period in the prior
year.



Selling and Marketing Expense. Selling and marketing expense for the three
months ended June 30, 2021 increased to $716,000 as compared to $435,000 for the
three months ended June 30, 2020. Selling and marketing expense for the six
months ended June 30, 2021 increased to $1,385,000 as compared to $1,106,000 for
the six months ended June 30, 2020. The increases in both the three- and
six-month periods ended June 30, 2021 reflect higher co-operative marketing
expense paid to one of our wholesale partners. The Company anticipates that this
higher level of marketing expense, which is fully funded by wholesale price
increases, will continue for the foreseeable future.



Depreciation and Amortization Expense. Depreciation and amortization expense for
the three months ended June 30, 2021 increased to $15,000 as compared to $10,000
for the three months ended June 30, 2020. The increase was due to amortization
of intangibles acquired in the Nutrology business combination.  Depreciation and
amortization expense for the six months ended June 30, 2021 was flat at $23,000
as compared to $23,000 for the six months ended June 30, 2020, with the increase
in amortization associated with the Nutrology intangibles being offset by other
assets becoming fully depreciated.



Net Income. We generated net income of $1,632,000 for the three-month period
ended June 30, 2021 as compared to net income of $25,000 for the three months
ended June 30, 2020. We generated a net income of $3,037,000 for the six-month
period ended June 30, 2021 as compared to a net income of $1,626,000 for the six
months ended June 30, 2020. The increase in net income for the three- and
six-month periods ended June 30, 2021 was primarily due to higher revenues
resulting from the increase in wholesale and online sales as compared to the
impact of COVID-19 on sales during the same periods in 2020.



Non-GAAP Measures



The financial presentation below contains certain financial measures defined as
"non-GAAP financial measures" by the SEC, including non-GAAP EBITDA and adjusted
non-GAAP 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 Quarterly Report in accordance with GAAP.



As presented below, non-GAAP EBITDA excludes interest, income taxes, and
depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to
interest, taxes, depreciation and amortization, equity-based compensation and
non-recurring gains or losses. 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.



                                           For the three months ended June 30,         For the six months ended June 30,
                                               2021                 2020                 2021                    2020
                                           (unaudited)          (unaudited)           (unaudited)             (unaudited)
Net income                                 $  1,632,000       $         

25,000 $3,037,000 $1,626,000
Interest (income) expense, net

                   (5,000 )                5,000               (11,000 )                 9,000
Provision for income taxes                      406,000                (40,000 )             721,000                 (81,000 )
Depreciation and amortization                    15,000                 10,000                23,000                  22,000
EBITDA                                        2,048,000                      -             3,770,000               1,576,000
Non-cash and non-recurring adjustments
Stock compensation expense                      107,000                 26,000               238,000                  54,000
Acquisition related expenses                     71,000                      -                95,000                       -
Non-recurring gains                                   -                      -              (453,000 )               (70,000 )
Adjusted EBITDA                            $  2,226,000       $         26,000     $       3,650,000       $       1,560,000



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.



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  Table of Contents





 Management's Discussion and Analysis of the Unaudited Financial Condition and
                     Results of Operations - March 31, 2021

                                    Restated



Comparison of the three months ended March 31, 2021 to the three months ended
March 31, 2020



                                          Three months ended
                                     As Restated      As Restated
                                      March 31,        March 31,
                                         2021             2020                Change
                                              (unaudited)
Revenue                              $  5,599,000     $  6,542,000     $ (943,000 )     (14 )%
Cost of goods sold                     (2,804,000 )     (3,632,000 )      828,000       (23 )%
Gross profit                            2,795,000        2,910,000       (115,000 )      (4 )%
Operating expenses                     (1,534,000 )     (1,416,000 )     (118,000 )       8 %
Income from operations                  1,261,000        1,494,000       (233,000 )     (16 )%
Other income (expense)                    459,000           66,000        393,000       n/a
(Provision) Benefit for income tax       (315,000 )         41,000       (356,000 )     n/a
Net income                           $  1,405,000     $  1,601,000     $ (196,000 )     (12 )%




Net Sales. Revenue for the three months ended March 31, 2021 decreased 14% to
$5,599,000 as compared to $6,542,000 for the three months ended March 31, 2020.
Revenue for the three months ended March 31, 2021 compared to the prior period
reflects fluctuations in the timing of orders from our wholesale  customers.



Online revenue during the three months ended March 31, 2021 and 2020 was
approximately 29% of total revenue for the three months ended March 31, 2021 as
compared to 13% for the same period of 2020. Due to the ongoing shift to online
purchasing by consumers, including additional growth arising from the effects of
the COVID-19 pandemic as a result of the shutdown of various retail outlets,
e-commerce sales have accounted for a growing percentage of our domestic
revenue. Although no assurances can be given, management believes that online
revenue will continue to increase in subsequent periods relative to prior
comparable periods given management's focus on higher margin online sales.



Cost of Goods Sold. Cost of goods sold for the three months ended March 31, 2021
decreased to $2,804,000 as compared to $3,632,000 for the three months ended
March 31, 2020. This 23% decrease is principally attributable to lower revenue.



Gross Profit.  Gross profit for the three months ended March 31, 2021 decreased
to $2,795,000 as compared to $2,910,000 for the three months ended March 31,
2020. Gross margin for the three months ended March 31, 2021 increased to 49.9%
from 44.5% for the comparable period in 2020. The decrease in gross profit is
principally attributable to lower revenue. The increase in gross margin was
primarily attributable to a greater proportion of higher margin online revenue
during 2021 compared to the same period in 2020.



General and Administrative Expense. General and administrative expense for the
three months ended March 31, 2021 increased to $857,000 as compared to $733,000
for the three months ended March 31, 2020. The increase in the three-month
period ended March 31, 2021 primarily reflects stock compensation expense of
$131,000 related to options and RSUs issued during the quarter.



Sales and Marketing Expenses. Sales and marketing expenses for the three months ended March 31, 2020 was roughly flat $669,000 compared to $671,000
for the three months ended March 31, 2020.



Depreciation and Amortization Expense. Depreciation and amortization expense for
the three months ended March 31, 2021 decreased to $8,000 as compared to $12,000
for the three months ended March 31, 2020. The decrease in the three-month
period was primarily attributable to a reduction in depreciation expense due to
certain assets becoming fully depreciated.



Net Income. We generated net income of $1,405,000 for the three-month period
ended March 31, 2021 as compared to net income of $1,601,000 for the three
months ended March 31, 2020. The decrease in net income for the three-month
period ended March 31, 2021 compared to the same period in 2020 was primarily
attributable to lower revenue and increased compensation cost related to options
and RSUs.



Non-GAAP Measures



The financial presentation below contains certain financial measures not in
accordance with accounting principles generally accepted in the United States
("GAAP"), defined by the SEC as "non-GAAP financial measures", including
non-GAAP EBITDA and adjusted non-GAAP 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
Quarterly Report in accordance with GAAP.



As presented below, non-GAAP EBITDA excludes interest, income taxes, and
depreciation and amortization. Adjusted non-GAAP EBITDA excludes, in addition to
interest, taxes, depreciation and amortization, equity-based compensation and
non-recurring gains or losses. 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.



                                            For the three months ended
                                                    March 31,
                                              2021               2020
                                          (Unaudited)        (Unaudited)
Net income                               $    1,405,000      $  1,601,000
Interest expense (income)                        (6,000 )           4,000
Provision for income taxes                      315,000           (41,000 )
Depreciation and amortization                     8,000            12,000
EBITDA                                        1,722,000         1,576,000
Non-cash and non-recurring adjustments
Stock compensation expense                      131,000            28,000
Acquisition related expenses                     24,000                 -
Non-recurring losses (gains)                   (453,000 )         (70,000 )
Adjusted EBITDA                          $    1,424,000      $  1,534,000




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Cash and capital resources



At March 31, 2021, we had positive working capital of approximately $9,030,000,
compared to $7,615,000 at December 31, 2020. Our principal sources of liquidity
at March 31, 2021 consisted of $6,625,000 of cash and $1,580,000 of accounts
receivable.



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 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.



Advances drawn under the Line of Credit bear interest at an annual rate of the
one-month LIBOR rate plus 2.75%, and each advance will be payable on the
Maturity Date with the interest on outstanding advances payable monthly. The
Company may, at its option, prepay any borrowings under the Line of Credit, in
whole or in part at any time prior to the Maturity Date, without premium or
penalty.



On March 20, 2020, the Lender advanced the Company $2.5 million under the Line
of Credit, which amount was repaid on April 29, 2020. The advance was intended
to provide the Company with additional liquidity given the uncertainty regarding
the timing of collection of certain accounts receivable and in anticipation of
an expected negative impact on sales to GNC and our other wholesale customers
resulting from the COVID-19 outbreak.



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.



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 Coronavirus Aid, Relief,
and Economic Security Act ("CARES Act") administered by the SBA (the "Loan
Agreement"). In accordance with the requirements of the CARES Act, the Company
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.



The Company has historically financed its operations primarily through cash flow
from operations and equity and debt financings. The Company has also provided
for its cash needs by issuing Common Stock, options and warrants for certain
operating costs, including consulting and professional fees. The Company
currently anticipates that cash derived from operations and existing cash
resources, along with available borrowings under the Line of Credit, will be
sufficient to provide for the Company's liquidity for the next twelve months.



The Company is dependent on cash flow from operations and amounts available
under the Line of Credit to satisfy its working capital requirements. No
assurances can be given that cash flow from operations and/or the Line of Credit
will be sufficient to provide for the Company's liquidity for the next twelve
months. Should the Company be unable to generate sufficient revenue in the
future to achieve positive cash flow from operations, and/or should capital be
unavailable under the terms of the Line of Credit, additional working capital
will be required. Management currently has no intention to raise additional
working capital through the sale of equity or debt securities and believes that
the cash flow from operations and available borrowings under the Line of Credit
will provide sufficient capital necessary to operate the business over the next
twelve months. In the event the Company fails to achieve positive cash flow from
operations, additional capital is unavailable under the terms of the Line of
Credit, and management is otherwise unable to secure additional working capital
through the issuance of equity or debt securities, the Company's business would
be materially and adversely harmed.



Cash Provided by Operations.  Cash provided by operating activities for the
three months ended March 31, 2021 was $289,000, as compared to cash provided by
operations of $1,000 for the three months ended March 31, 2020. The increase in
cash provided by operating activities is primarily attributable to increased
focus on managing working capital.



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Cash Provided by (Used in) Investing Activities. There was no cash provided by
or used in investing activities for the three-month periods ended March 31, 2021
or 2020.



Cash Provided by (Used in) Financing Activities. Cash provided by financing
activities for the three months ended March 31, 2021 was $0 as compared to cash
provided by financing activities of $2,400,000 during the three months ended
March 31, 2020.

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