| Summary of Significant Accounting Policies | Note
1 - Summary of Significant Accounting Policies Organization and Nature of Business, and Basis
of Presentation iSatori, Inc. (the Company)
is a Delaware incorporated Company who trades under the symbol of IFIT on the OCTQB exchange. The Company is engaged in researching,
designing, developing, contracting for the manufacture, marketing, selling and distributing of various branded nutritional and
dietary supplement products for the general nutrition market. The general nutrition market may include such activities
as body-building, physique enhancement (increase of lean body mass and decrease in fat mass) and enhanced athletic performance
through increased strength and/or endurance and proper nutrition. The Company does engage from
time to time in funding of clinical studies with the objective of discovering and/or validating claims of new, efficacious products
for the Companys relevant market as well as providing necessary and appropriate substantiation for any claims which the
Company may use in its marketing and advertising. The Company markets products which are under its control and which are in some
way proprietary to the Company. Some of the Companys products are the subject of trademarks, patented or patent-pending,
owned or licensed the Company. Plan of Merger Announced On May 18, 2015, iSatori, Inc.,
(the Company) entered into an Agreement and Plan of Merger (the Merger Agreement), among the Company,
FitLife Brands, Inc., a Nevada corporation (FitLife) and ISFL Merger Sub, Inc., a Delaware corporation and a wholly-owned
subsidiary of FifLife (Merger Sub). The Merger Agreement provides that, upon the terms and subject to the conditions
set forth in the Merger Agreement, Merger Sub will merge with and into the Company, with the Company surviving as a wholly-owned
subsidiary of FitLife (the Merger). The Merger Agreement and the Merger have been approved by the boards of directors
of iSatori and FitLife. Subject to the terms and conditions
of the Merger Agreement, at the effective time of the Merger, each outstanding share of common stock of the Company (iSatori
Common Stock), other than iSatori Common Stock with respect to which dissent rights have been properly exercised and not
withdrawn (the Dissenting Shares), will be exchanged for 0.30000 of a share (the Share Exchange Ratio)
of FitLife common stock (the FitLife Common Stock) subject to adjustment for iSatoris Net Debt Amount and
Non-Cash Working Capital (each as defined in the Merger Agreement). Each outstanding stock option to purchase iSatori Common Stock,
warrant to purchase iSatori Common Stock, restricted stock unit measured in relation to, or settleable in, iSatori Common Stock
and each award of restricted stock relating to iSatori Common Stock, whether vested or unvested, will be assumed by FitLife and
converted automatically at the effective time of the Merger into an option, warrant, restricted stock unit or restricted stock
award, as the case may be, denominated in shares of FitLife Common Stock based on the Share Exchange Ratio and subject to terms
and conditions substantially identical to those in effect at the effective time of the Merger. The closing of the Merger is
subject to satisfaction of certain customary closing conditions. The Company and FitLife have
made customary representations, warranties and covenants in the Merger Agreement, including, among other things, covenants (i)
with respect to the conduct of their respective businesses during the interim period between the execution of the Merger Agreement
and consummation of the Merger and (ii) prohibiting each of the Company and FitLife from soliciting alternative acquisition proposals
and providing information to or engaging in discussions with third-parties, except in the limited circumstances as provided in
the Merger Agreement. The Agreement contains certain
termination rights for both the Company and FitLife including, but not limited to, in the event that (i) the Merger has not been
consummated on or prior to September 30, 2015 (subject to certain extensions); (ii) the other party materially breaches its representations
or covenants and such breach is not, or is not capable of being, cured within 30 days of notice; (iii) the Companys shareholders
fail to approve the Merger; or (iv) the other partys board of directors makes Change of Recommendation (as defined in the
Merger Agreement), or fails to reaffirm its recommendation following receipt of an Acquisition Proposal (as defined in the Merger
Agreement). In addition, prior to obtaining shareholder approval of the Merger and subject to the payment of a termination fee,
the Company and FitLife each may terminate the Agreement in order to enter into an agreement for a Superior Proposal (as defined
in the Merger Agreement). Upon termination of the Agreement, under specified circumstances (including in connection with an Adverse
Recommendation Change or a Superior Proposal), either the Company or FitLife will be obligated to pay to the other party a termination
fee of $200,000. FitLife agreed to take all necessary
corporate action to appoint Stephen Adele, the Chief Innovation Officer and a director of FitLife as of the effective time of
the Merger. Each of Stephen Adele Enterprises,
Inc., RENN Universal Growth Investment Trust PLC and RENN Global Entrepreneurs Fund Inc. has agreed to vote their shares of iSatori
Common Stock in favor of the Merger. The newly combined company will
be called "Fit Life Brands." Unaudited Interim Financial
Information The
accompanying interim condensed financial statements have been prepared in accordance with our accounting practices described in
our audited financial statements for the year ended December 31, 2014, and are unaudited. The unaudited interim condensed financial
statements should be read in conjunction with the audited financial statements and accompanying notes for the year ended December
31, 2014. The accompanying interim condensed financial statements are presented in accordance with the rules and regulations of
the Securities and Exchange Commission and, accordingly, do not include all the disclosures required by generally accepted accounting
principles in the United States (U.S. GAAP) with respect to annual financial statements. In the opinion of management,
all adjustments, consisting of normal recurring accruals that are considered necessary for a fair presentation of the interim
financial information, have been included. However, operating results for the periods presented are not necessarily indicative
of the results that may be expected for a full year. Financial Instruments The
Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.
Accordingly, cash and cash equivalents consist of petty cash, checking accounts and money market funds. Fair Value Measurements ASC 820-10 establishes a framework
for measuring the fair value of assets and liabilities and requires additional disclosure about fair value measurements. ASC 820-10
defines fair value as the price that would be received to sell an asset or paid to transfer a liability in the principal (or most
advantageous market) for the asset or liability in an orderly transaction between market participants at the measurement date. At
June 30, 2015 and December 31, 2014, the financial instruments of the Company consisted principally of cash and cash equivalents,
receivables, accounts payable, certain accrued liabilities and long-term debt. The carrying amount of cash and cash equivalents,
receivables, accounts payable and accrued liabilities approximates their fair value because of the short maturity of these instruments.
The actual and estimated fair values, respectively, of the Companys financial instruments are as follows:
June
30, 2015 December
31, 2014
Carrying Amount Fair
Value Carrying Amount Fair
Value
Cash and cash equivalents $ 390,112 $ 390,112 $ 738,725 $ 738,725
Receivables $ 1,349,065 $ 1,349,065 $ 925,506 $ 925,506
Accounts Payable $ 1,905,258 $ 1,905,258 $ 819,918 $ 819,918
Derivative Liability $ 0 $ 0 $ 152,849 $ 152,849 Trade Receivables and Credit Policy Trade receivables are uncollateralized
customer obligations due under normal trade terms requiring payment generally within 10-60 days from the invoice date. Accounts
are considered delinquent when outstanding for more than 7 days past due date. The Company does not have a policy of accruing
interest on past due accounts. Payments on trade receivables are applied as instructed per the customer, or to the earliest unpaid
invoices. The allowance for doubtful accounts represents an estimate of amounts considered uncollectible and is determined based
on managements historical collection experience, adverse situations that may affect the customers ability to repay,
and prevailing economic conditions. Specific accounts deemed uncollectible are written off periodically with subsequent receipts
on previously written off accounts credited to bad debt expense. The allowance for doubtful accounts is $0 for each of the periods
ended June 30, 2015 and December 31, 2014. Receivables at each of the below respective periods consisted of the following:
June
30, 2015 December
31, 2014
Trade Receivables $ 1,307,881 $ 951,396
Other $ 41,184 $ (25,890)
Allowance for doubtful accounts $ (0) $ (0)
Totals $ 1,349,065 $ 925,506 In addition, the Company has
recorded an allowance for customer returns in the amount of approximately $85,000 at June 30, 2015 and December 31, 2014 in accrued
expenses. Inventory Valuation Inventories of nutritional and
dietary supplements are stated at lower of cost or market on a first-in, first-out (FIFO) basis as noted below:
June
30, 2015 December
31, 2014
Labels and packaging $ 186,305 $ 170,435
Raw materials $ 249,847 $ 308,333
Finished goods $ 1,722,701 $ 2,004,834
Totals $ 2,158,853 $ 2,483,602 Note Receivable The predecessor company disposed
of a dormant product line of vitamins in December 2010. As part of the consideration in this divestiture, the Company received
from the purchaser of this product line an unsecured note in the amount of $170,000. The original note was due to be repaid on
or before March 2014, where interest accrued principally at an annual rate of 5%, based upon the initial $170,000 principal and
was payable monthly. As of March 31, 2013, the note was novated and a new promissory note was issued to reflect a modification
in the payment terms, which includes no interest. The total note receivable balance at June 30, 2015 was $76,288, and is due to
be repaid on or before May 1, 2017. Revenue Recognition The Company operates predominantly
as a distributor of its dietary supplement products through traditional large retailers and electronic intermediaries. Revenue
from product sales is recognized upon transfer of title to the Companys product to its customers. Net sales represent product
sales less actual returns, allowances, discounts, and promotions. Sales to direct customers have an unconditional money back guarantee
for thirty to sixty days after the date of purchase. Sales to several of the retail customers carry a Sale or Return
Purchase agreement per contract, where if minimum sales thresholds are not met within required timeframe, the inventory will be
returned to the Company for full credit. Other retail customers receive a percentage discount from invoice to cover any customer
returns or damages they may incur. Returns, allowances and discounts, and promotions were $689,960 and $849,356 for the three
month period ended June 30, 2015 and 2014, respectively. Returns, allowances and discounts, and promotions were $1,224,856 and
$1,360,091 for the six month period ended June 30, 2015 and 2014, respectively. In addition, the Company provides
allowances for sales returns based upon estimated and known returns. Product returns are recorded as a reduction of net revenues
and as a reduction of the accounts receivable balance. The Company receives other revenues
which include but are not limited to shipping and handling charges billed to customers. Cost of Sales The Company purchases its products
directly from third party manufacturers. The Companys cost of sales include product costs, cost of warehousing and distribution.
Included in the cost of sales are shipping and handling costs that are incurred by the Company. Income Taxes The Company utilizes the asset
and liability method of accounting for income taxes. Under this asset and liability method, deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. See Note
4, Income Taxes. Since 2012 was the Companys
initial tax year, there are no prior federal or state tax returns subject to examination. Accordingly, the only taxable periods
subject to examination by federal and state taxing authorities are the periods ended December 31, 2014 and 2013. Federal and state
tax returns for the Company prior to the short form merger are open for the period ended December 31, 2011. Leases The Company leases its headquarters
facility, comprising approximately 10,044 square feet, in Golden (metropolitan Denver), Colorado. The total rent expense for each
of the three month periods ended June 30, 2015 and 2014, was $20,716. The total rent expense for each of the six month periods
ended June 30, 2015 and 2014, was $41,394. The lease term expires January 31, 2017 and requires equal monthly payments over the
remaining term. Future payments under the lease total $131,200. The Company leases its warehouse
facility, of approximately 17,026 square feet in Denver. The total rent expense for the warehouse lease for the three month period
ended June 30, 2015 was $21,782. The total rent expense for the warehouse lease for the six month period ended June 30, 2015 was
$43,565. The lease term expires on December 31, 2018 and calls for inflation-adjusted increasing payments over the remaining term.
Future payments under the warehouse lease are $331,094. The Company also leases miscellaneous
office and warehouse equipment. In most cases, management expects that in the normal course of business these leases will be renewed
or replaced by other leases as applicable. Marketing The Company expenses all production
costs related to advertising costs as they are incurred, including print and television when the advertisement has been broadcast
or otherwise distributed. Other marketing expenses include digital and social media, product sampling, sponsorships and endorsements
with athletes, promotional events, and consumer education efforts. For the three month period ended June 30, 2015 and 2014, marketing
expenses totaled $279,208 and $314,696, respectively. For the six month period ended June 30, 2015 and 2014, marketing expenses
totaled $619,759 and $942,119, respectively. Research and Development Costs Research and development costs
are expensed when incurred. Research and development costs of $5,315 and $4,481 for the three month period ended June 30, 2015
and 2014, respectively, are included in selling and marketing expense. Research and development costs of $24,025 and $10,905 for
the six month period ended June 30, 2015 and 2014. Distribution, Shipping and
Handling Costs Shipping costs on purchases and
shipping and handling fees related to sales charged to customers are both included in cost of sales. As mentioned in Revenue Recognition,
shipping and handling revenue billed customers are reflected in other revenues. Concentration of Credit Risk Financial instruments that potentially
subject the Company to concentration of credit risk consist principally of temporary cash investments and trade accounts receivables.
Concentrations of credit with respect to trade receivables are limited due to the large number of customers comprising the Companys
customer bases and their dispersion across different geographic locations. The Company maintains cash balances
at one financial institution located in Colorado and one in California. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $250,000 per account. At times during the year, the Companys bank balances have
exceeded the FDIC limit. Management believes the risk of loss at such institutions to be minimal. During the six month period ended
June 30, 2015, sales to three customers made up 52% of total product revenue, with each customer representing greater than 10%
of product revenue on an individual basis. These customers combined accounts receivable balances were 45% of total accounts
receivable at June 30, 2015. During the six month period ended June 30, 2014, sales to three customers made up 66% of total product
revenue, with each customer representing greater than 10% of product revenue on an individual basis. These customers combined
accounts receivable balances were 80% of total accounts receivable as of June 30, 2014. During the six month period ended
June 30, 2015, purchases from four vendors made up 84% of total inventory purchases. These vendors combined accounts payable
balances were 61% of total accounts payable as of June 30, 2015. During the six month period ended June 30, 2014, purchases from
three vendors made up 63% of total inventory purchases. These vendors combined accounts payable balances were 48% of total
accounts payable as of June 30, 2014. Use of Estimates The preparation of the financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to
make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates include but are not limited to the fair value determination of derivative instruments, the valuation allowance
with respect to estimated utilization of net operating losses, estimated allowances for sales returns and collectability of notes
receivable. Earnings (Loss) Per Share Net earnings (loss) per share
is computed by dividing net income (loss) less preferred dividends for the period by the weighted average number of common stock
outstanding during each period. Diluted earnings (loss) per share is computed by dividing net income (loss) less preferred dividends
for the period by the weighted average number of common stock, common stock equivalents and potentially dilutive securities outstanding
during each period. The Company has the following
common stock equivalents as of June 30, 2015 and 2014:
Three
Months Ended Six
Months Ended
2015 2014 2015 2014
Basic weighted average Common Shares 13,371,791 12,886,401 13,089,814 12,883,026
Stock options (exercise price $0.573-$2.50/share) 110,514 382,258 168,203 413,280
Warrants (exercise price $0.001-$2.25/share) 0 418,095 0 418,491
Total common stock equivalents 13,482,305 13,686,754 13,258,017 13,714,797 |
