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IFIT > SEC Filings for IFIT > Form 10-Q on 9-May-2014All Recent SEC Filings

Show all filings for ISATORI, INC.

Form 10-Q for ISATORI, INC.


9-May-2014

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis of the financial results and condition of iSatori, Inc. (collectively, "we," "us," "our," "iSatori" or the "Company") for the three-month period ended March 31, 2014 should be read in conjunction with our 2013 Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth elsewhere in this report. See Cautionary Note Regarding Forward-Looking Statements.

Overview

iSatori is a consumer products firm which develops and sells proprietary nutritional products in the sports performance, weight loss and energy markets through on-line marketing, distributors and thousands of retail stores domestically and around the world. iSatori was formed in 2001 as a Colorado limited liability company and converted to a Colorado corporation in 2011. On June 29, 2012, the Company merged with and into Integrated Security System, Inc. and simultaneously changed its name to iSatori, Inc. iSatori is headquartered in Golden, Colorado.

iSatori has distributed its products to thousands of retail stores, including outlets such as GNC, Vitamin Shoppe, Vitamin World, Wal-Mart, Walgreens, and other Fortune 500 companies, augmented by internet sales through its various website properties. The Company's core competencies include the development of new, innovative and proprietary products, supported by creative, yet effective sales and marketing programs, all designed to expand its distribution and revenues in the rapidly growing $31 billion nutritional products industry.

Led by industry veteran Stephen Adelé, who turned $50,000 into a multi-million dollar Company, along with a highly experienced management team (most of whom came from their prior employer together, EAS, Inc), iSatori now employs 22 full-time, two part-time and two contract employees. iSatori leverages a unique product development process to bring to market some of the industry's leading and most technologically advanced dietary supplement products. Many of the Company's products are the subject of trademarks, trade dress, or patents, owned by the Company or licensed from its inventors and distributed throughout the world. Further separating itself from competitors, iSatori funds independent clinical studies to discover new, efficacious products for the Company's markets and satisfy consumer's need for increased performance, energy and or weight loss.

Recent Developments

Since December 31, 2013, iSatori launched several new promotional, limited-time configurations, a larger sized unflavored powder (180 grams) and a pill (200 capsules) version of its break-through, category defining product Bio-Gro to further accelerate sales and increase its retail store footprint.

At the end of January, the Company retained Cody Caywood as their new National Key Accounts Manager, who will be managing over 14,000 independent and corporate retail stores, serviced through Europa Sports wholesale distribution, America's largest distributor of specialty dietary supplements. Caywood provides iSatori with beneficial national key accounts knowledge from his previous positions held at Nutrex Research, followed by BPI Sports.

In February, the Company brought on Craig Stevenson as a management consultant for IFIT brands and was titled the new VP of Marketing. Stevenson brings over two decades of hands-on and strategic experience in the health and fitness industry, including over 15 years in the consumer packaged goods industry. He has proven success at all corporate levels, particularly in his previous roles at Iovate Health Sciences, Wellnx Life Sciences, and more recently, Valeant Pharmaceuticals, where he was responsible for repositioning the industry-leading brand COLD-FX®. As part of the leadership team at Wellnx Life Sciences, Stevenson was instrumental in driving the unprecedented growth of SlimQuick® -- the fastest growing female-specific weight-loss product in North America.


Results of Operations

Comparison of the Three Months ended March 31, 2014 and 2013

Revenues

Our consolidated product revenues (net of returns and discounts) increased $1.015 million or 46% to $3.219 million for the three months ended March 31, 2014 compared to $2.204 million for the same period in 2013. Gross product revenues increased 28% to $3.730 million compared to $2.919 million for the same period in 2013. The increase in revenues can be attributed to increasing demand for the newer products such as Garcinia Trim, Meratrim Platinum, and Bio-Gro, all of which were not available for sale during the three month period ended March 31, 2013. Adjustments from revenues (for retailer advertising discounts, returns, promotional credits and coupons) decreased $204 thousand or 29% to $511 thousand for the three months ended March 31, 2014 compared to $715 thousand for the same period in 2013. During 2013, a "register rebate" coupon program associated with the Company's entrance in into the mass market retailer, Walgreens, for its Energize product, which resulted in approximately $382 thousand in one-time expense. No similar coupon programs were run during the three month period in 2014, however other retail promotional programs, which were used to help drive newly launched products into retailers, exceeded the previous year's expense by $197 thousand.

Cost of Sales

Respective to an increase in product revenues, cost of sales, which includes product contract manufacturing costs, costs of warehousing and distribution, and freight costs increased 19% to $1.244 million for the three month period ended March 31, 2014 compared to $1.045 million for the same period in 2013. However, cost of sales as a percentage of gross product revenue decreased 2%, to 33.4% for the three month period ended March 31, 2014 compared to 35.8% for the same period in 2013. This decrease can be attributed to the shift in the concentration of revenues to higher margin products.

Operating Expenses

Selling and Marketing

Selling and marketing expenses increased by $467 thousand or 148% to $783 thousand for the three months ended March 31, 2014, compared to $316 thousand for the same period in 2013. The additional spending in 2014 are in categories such as television advertising to support the Company's mass market retail entrance (which was not available in the same period for 2013), tradeshow and consumer exhibition expenses, merchandising and advertising to support new products launches, book marketing expenses for the Diets Suck! book launch, as well as increased commissions and broker fees related to improved product revenues.

Salaries and Labor Related Expenses

Salaries and labor related expenses increased $113 thousand or 21% to $647 thousand for the three month period ended March 31, 2014 compared to $534 thousand for the same period in 2013. The additions of executive personnel, creative agency services, and standard salary increases are the key contributors to the increase over periods.

Administration

Administrative expenses decreased approximately $202 thousand or -49% to $214 thousand for the three months ended March 31, 2014 compared to $416 thousand for the same period in 2013. The decrease in expenses can be attributed to the reduction in expense related to professional fees over the two periods.

Depreciation and Amortization

Depreciation and amortization expense decreased $6 thousand or -24% to $19 thousand for the three months ended March 31, 2014 compared to $25 thousand for the same period in 2013. This reduction between periods is due to end of the depreciable life of a piece of software, offset by the depreciation expense of new assets acquired during the year.


Other Income/(expense)

Other income was $30 thousand for the three months ended March 31, 2014 compared to expense of $124 thousand for the same period in 2013. The 2014 balance consists of income of $29 thousand related to the change in value of assets held for sale and $1 thousand for the change in the value of derivative instruments. The 2013 balance includes income of $54 thousand related to the change in value of assets held for sale offset by $179 thousand in expense for the change in the value of derivative instruments.

Financing Expenses

Financing expenses decreased approximately $25 thousand or 54% to $21 thousand for the three months ended March 31, 2014 compared to $47 thousand for the same period in 2013. The 2013 expense is related to high credit card fees associated with various internet trial offers running during that timeframe. There are no similar offers running during 2014.

Interest Expense

Net interest expense of $11 thousand was recognized for the three months ended March 31, 2014 compared to $1 thousand for the same period in 2013. Interest expense for 2014 was only $2 thousand more than the same period in 2013, however there was an additional $8 thousand in interest income realized in 2013 when the Company cashed in a short term investment.

Income/(loss) before income taxes

As a result of the foregoing, income before income taxes was $352 thousand for the three months ended March 31, 2014, compared to a loss of $253 thousand for the same period in 2013.

Income Tax Expense

Income tax expense of $16 thousand was realized for the three months ended March 31, 2014 compared to expense of $10 thousand for the same period in 2013.

Net Income/(loss)

As a result of the foregoing, net income was $336 thousand for the three months ended March 31, 2014 compared to a net loss of $263 thousand for the same period in 2013.

Liquidity and Capital Resources

Cash Position

iSatori's cash and cash equivalents, consisting primarily of deposits with financial institutions, was $1.220 million at March 31, 2014, compared with $823 thousand at December 31, 2013.

iSatori requires significant amounts of working capital to operate its business and to pay expenses relating to the development, testing and marketing of its products. iSatori's traditional use of cash includes primarily making significant expenditures to market new and existing products, as well as the financing of clinical studies for discovering new, efficacious products and providing necessary substantiation for claims iSatori makes concerning its current products and paying third parties to manufacture and distribute iSatori products.

iSatori generally expects to fund expenditures for operations, administrative expenses, marketing expenses, research and development expenses and debt service obligations with internally generated funds from operations, and to satisfy working capital needs from time to time with borrowings under its credit facility pursuant to the New Credit Agreement. iSatori believes that it will be able to meet its debt service obligations and fund its short-term and long-term operating requirements in the future with cash flow from operations and borrowings under its credit facility. If iSatori is unable to achieve projected operating results and/or obtain additional financing if and when needed, it will be required to curtail growth plans and significantly scale back its activities.
Currently, iSatori continues to focus on working capital management by monitoring key metrics associated with accounts receivable, payroll expenses, marketing expenses and research and development expenses.


Credit Arrangements as of March 31, 2014

As of March 31, 2014, iSatori had outstanding credit indebtedness of $1.240 million, which consisted of $1.221 million outstanding balance under the $1.500 million revolving line of credit and $19 thousand for a loan on a piece of motorized warehouse equipment.

Prepaid Expenses

As of March 31, 2014, iSatori carried a balance of $167 thousand in prepaid expenses on its balance sheet, compare to $222 thousand at December 31, 2013.
The decrease can be attributed mostly to expensing prepaid TV advertising buys for the Company's Energize commercial and merchandising costs which were in the 2013 balance.

Off Balance Sheet Arrangements

iSatori has no off-balance sheet arrangements as defined by the Securities Act.

Contractual Obligations

As of March 31, 2014, the Company has the following operational lease commitment:

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