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EX-31 - EXHIBIT 31.1 - iSatori, Inc.exhibit311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended:  March 31, 2014

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from __________ to __________


Commission File Number: 1-11900


ISATORI, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

75-2422983

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification Number)

 

 

 

15000 W 6th Avenue, Suite 202

Golden, Colorado

 

80401

(Address of principal executive offices)

 

(Zip Code)

 

 

 

(303) 215-9174

(Registrant’s telephone number, including area code)

 

 

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes T  No o


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes T  No o


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company x


Indicate by check mark whether the registrant is a shell company filer (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No T


T12,887,151 shares of common stock, $0.01 par value per share, were outstanding as of May 9, 2014.








ISATORI, INC.

INDEX


 

Page

PART I - FINANCIAL INFORMATION

 

 

 

Item 1 – Financial Statements

4

Condensed Consolidated Balance Sheets (unaudited):

March 31, 2014 and December 31, 2013

5

Condensed Consolidated Statements of Operations (unaudited):

For the three months ended March 31, 2014 and 2013

6

Condensed Consolidated Statements of Cash Flows (unaudited):

For the three months ended March 31, 2014 and 2013

7

Notes to Condensed Consolidated Financial Statements

8

Item 2 – Management's Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3 – Quantitative and Qualitative Disclosures About Market Risk

18

Item 4 – Controls and Procedures

18

 

 

PART II – OTHER INFORMATION

 

 

 

Item 1 – Legal Proceedings

19

Item 1A – Risk Factors

19

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

19

Item 3 – Defaults Upon Senior Securities

19

Item 4 – Mine Safety Disclosures

19

Item 5 – Other Information

19

Item 6 – Exhibits

20

Signature Page

21





The terms “iSatori,” “Company,” “we,” “our,” and “us” refer to iSatori, Inc. and its consolidated entities unless the context suggests otherwise.





2





CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS



This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “anticipate,” “intend,” “believe,” “estimate,” “project,” “expect,” “plan,” “should” or similar expressions are intended to identify such statements. Forward-looking statements included in this report relate to, among other things, expected future production, expenses and cash flows in 2014 and beyond, the nature, timing and results of capital expenditure projects, amounts of future capital expenditures, our plans with respect to potential future acquisitions and our future debt levels and liquidity. Although we believe that the expectations reflected in such forward-looking statements are reasonable, those expectations may prove to be incorrect. Disclosure of important factors that could cause actual results to differ materially from our expectations, or cautionary statements, are included under the heading “Risk Factors” in this report. All forward-looking statements speak only as of the date made. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. Except as required by law, we undertake no obligation to update any forward-looking statement. Factors that could cause actual results to differ materially from our expectations include, among others, those factors referenced in the “Risk Factors” section of this report and such things as:


·

increased competition in our industry, resulting in reductions in prices that would adversely affect our revenue, income, cash flow from operations and liquidity;


·

unfavorable publicity or consumer perception of our products, including actual or threatened litigation, the ingredients they contain and any similar products distributed by other companies;


·

failure to comply with FDA, FTC, and other relevant regulations and existing consent decrees imposed on us which could result in substantial monetary penalties;


·

the incurrence of  material product liability claims, which could increase our costs and adversely affect our reputation, revenues, and operating income;


·

product recalls, which could reduce our sales and margin and adversely affect our results of operations;


·

increases in the price or shortage of supply of key raw materials used to manufacture our products;


·

the availability or the inability of management to effectively implement our strategies and business plans;


·

the occurrence of natural disasters, unforeseen weather conditions, or other events or circumstances that could impact our operations or the operations of companies or contractors we depend upon in our operations; and


·

changes in U.S. GAAP or in the legal, regulatory and legislative environments in the markets in which we operate.


You should not place undue reliance on any forward-looking statement, each of which applies only as of the date of this report. Except as required by law, we undertake no obligation to update or revise publicly any of the forward-looking statements after the date of this report to conform our statements to actual results or changed expectations.




3






PART 1


ITEM 1.    FINANCIAL STATEMENTS



Condensed Financial Statements and Related Footnotes

March 31, 2014 and 2013

iSatori, Inc.







4






iSatori, Inc.

Condensed Balance Sheets

(Unaudited)


 

March 31,

 

December 31,

 

2014

 

2013

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

1,219,678 

 

$

822,876 

Accounts receivable

 

 

 

 

 

Trade, net of allowance for doubtful accounts

 

1,931,026 

 

 

2,398,178 

Income tax receivable

 

 

 

102,452 

Note receivables - current portion

 

10,325 

 

 

11,013 

Inventories

 

2,287,203 

 

 

1,985,764 

Assets held for sale

 

21,824 

 

 

108,228 

Deferred tax asset, net

 

95,176 

 

 

53,081 

Prepaid expenses

 

167,008 

 

 

222,466 

Total current assets

 

5,732,240 

 

 

5,704,058 

 

 

 

 

 

 

Property and equipment, net of accumulated depreciation

 

171,070 

 

 

173,636 

 

 

 

 

 

 

Note receivable – net of current portion

 

81,714 

 

 

81,714 

 

 

 

 

 

 

Other assets:

 

 

 

 

 

Deferred tax asset, net

 

152,970 

 

 

147,941 

Deposits and other assets

 

41,997 

 

 

61,167 

Total other assets

 

194,967 

 

 

209,108 

 

 

 

 

 

 

Total assets

$

6,179,991 

 

$

6,168,516 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Trade accounts payable

$

976,943 

 

$

1,248,490 

Accrued expenses

 

182,768 

 

 

187,608 

Deferred revenues

 

239,624 

 

 

292,215 

Line of credit, less debt discount

 

1,220,655 

 

 

1,220,655 

Notes payable

 

19,297 

 

 

20,464 

Total current liabilities

 

2,639,287 

 

 

2,969,432 

 

 

 

 

 

 

Long-term liabilites

 

 

 

 

 

Derivative liability

 

470,292 

 

 

471,015 

 

 

 

 

 

 

Commitments and contingencies (Notes 1,2,5, and 6)

 

 

 

 

 

 

 

 

 

 

 

Stockholders' Equity:

 

 

 

 

 

Convertible preferred stock, $0.01 par value, 750,000 shares authorized; 22,500 shares issued and outstanding ($450,000 of liquidation value)

 

225 

 

 

225 

Common stock, $0.01 par value, 56,250,000 shares authorized; 12,879,651 shares issued and outstanding

 

128,797 

 

 

128,797 

Additional paid-in capital

 

4,737,640 

 

 

4,731,535 

Accumulated deficit

 

(1,796,250)

 

 

(2,132,488)

Total stockholders’ equity

 

3,070,412 

 

 

2,728,069 

 

 

 

 

 

 

Total liabilities and stockholders' equity

$

6,179,991 

 

$

6,168,516 


The accompanying notes are an integral part of these condensed financial statements




5






iSatori, Inc.

Condensed Statement of Operations

(Unaudited)


 

March 31,

 

March 31,

 

2014

 

2013

Revenues:

 

 

 

 

 

Product revenue (Net of returns and discounts)

$

3,219,244 

 

$

2,203,856 

Royalty revenue

 

32,627 

 

 

32,710 

Other revenue

 

9,396 

 

 

19,800 

Total revenue

 

3,261,267 

 

 

2,256,366 

 

 

 

 

 

 

Cost of sales

 

1,243,797 

 

 

1,045,113 

Gross profit

 

2,017,470 

 

 

1,211,253 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Selling and marketing

 

782,687 

 

 

316,175 

Salaries and labor related expenses

 

647,413 

 

 

534,328 

Administration

 

213,978 

 

 

416,447 

Depreciation and amortization

 

19,129 

 

 

25,016 

Total operating expenses

 

1,663,207 

 

 

1,291,966 

 

 

 

 

 

 

Income/(loss) from operations

 

354,263 

 

 

(80,713)

 

 

 

 

 

 

Other income (expense)

 

30,199 

 

 

(124,359)

Financing expense

 

(21,353)

 

 

(46,761)

Interest expense

 

(11,048)

 

 

(1,152)

 

 

 

 

 

 

Income/(loss) before income taxes

 

352,061 

 

 

(252,985)

 

 

 

 

 

 

Income tax expense

 

(15,823)

 

 

(10,134)

 

 

 

 

 

 

Net income/(loss)

$

336,238 

 

$

(263,119)

 

 

 

 

 

 

Net income/(loss) per common share  

 

 

 

 

 

Basic

$

0.03 

 

$

(0.02)

Diluted

$

0.02 

 

$

(0.02)

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

12,879,651 

 

 

12,622,756 

Diluted

 

14,546,736 

 

 

12,622,756 


The accompanying notes are an integral part of these condensed financial statements




6






iSatori, Inc.

Condensed Statements of Cash Flow

(Unaudited)


 

March 31,

 

March 31,

 

2014

 

2013

Cash flows from operating activities:

 

 

 

 

 

Net income/(loss)

$

336,238 

 

$

(263,119)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Depreciation and amortization

 

19,129 

 

 

25,016 

Amortization of debt discount

 

 

 

1,875 

Share based compensation expense

 

6,105 

 

 

50,777 

Change in value of assets held for sale

 

(1,439)

 

 

Change in fair value of derivative liability

 

(723)

 

 

178,844 

Provision for (benefit from) deferred income taxes

 

9,880 

 

 

Change in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

467,152 

 

 

63,098 

Income tax receivable

 

45,448 

 

 

 

Notes receivable

 

688 

 

 

Inventory

 

(301,439)

 

 

(68,624)

Prepaid expenses

 

55,458 

 

 

36,810 

Deposits and other assets

 

15,966 

 

 

1,041 

Trade accounts payable

 

(271,547)

 

 

237,372 

Accrued expenses

 

(4,840)

 

 

(133,533)

Deferred revenues

 

(52,591)

 

 

Net cash provided by operating activities

 

323,485 

 

 

129,557 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of property and equipment

 

(13,359)

 

 

(64,462)

Proceeds from the sale of assets held for sale

 

87,843 

 

 

(54,485)

Sale of investments

 

 

 

965,886 

Net cash provided by investing activities

 

74,484 

 

 

846,939 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from notes payable

 

 

 

23,888 

Payment of notes payable

 

(1,167)

 

 

Net cash (used in) provided by financing activities

 

(1,167)

 

 

23,888 

 

 

 

 

 

 

Net increase in cash

 

396,802 

 

 

1,000,384 

 

 

 

 

 

 

Cash and cash equivalents, beginning of year

 

822,876 

 

 

1,655,453 

Cash and cash equivalents, end of year

$

1,219,678 

 

$

2,655,837 

 

 

 

 

 

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

Cash paid for interest

 

13,638 

 

 

11,929 

Cash paid for taxes

 

2,640 

 

 


The accompanying notes are an integral part of these condensed financial statements





7




Note 1 - Summary of Significant Accounting Policies


Organization and Nature of Business, and Basis of Presentation


iSatori, Inc (the “Company”) was incorporated under the laws of the state of Delaware on June 29, 2012 as the renamed and surviving entity of a “short form” merger under §253 of the Delaware General Corporation Law. Prior, non-public operating companies date back to their initial founding in the state of Colorado in 2004. Effective for periods following consummation of the “short form” merger, the Company’s financial statements reflect the accounts of the surviving entity only, and as such are no longer “consolidated” for purposes of presentation in this Form 10-Q. The trading symbol of the Company on OTCBB is “IFIT”.


The Company is engaged in researching, designing, developing, contracting for the manufacture, marketing, selling and distributing of various 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 Company’s 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 Company’s products are the subject of trademarks owned by the Company.


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, 2013, 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, 2013. 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.


At March 31, 2014 and December 31, 2013, 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 Company’s financial instruments are as follows:


 

March 31, 2014

 

December 31, 2013

 

Carrying

Amount

 

Fair Value

 

Carrying

Amount

 

Fair Value

Cash and cash equivalents

$

1,219,678

 

$

1,219,678

 

$

822,876

 

$

822,876

Receivables

$

1,931,026

 

$

1,931,026

 

$

2,398,178

 

$

2,398,178

Accounts Payable

$

976,943

 

$

976,943

 

$

1,248,490

 

$

1,248,490

Derivative Liability

$

470,292

 

$

470,292

 

$

471,015

 

$

471,015




8


 




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 management’s historical collection experience, adverse situations that may affect the customer’s 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 March 31, 2014 and December 31, 2013. Receivables at each of the below respective periods consisted of the following:


 

March 31,

2014

 

December 31,

2013

Trade Receivables

$

1,891,269 

 

$

2,323,522 

Other

$

39,757 

 

$

74,656 

Allowance for doubtful accounts

$

(0)

 

$

(0)

Totals

$

1,931,026 

 

$

2,398,178 


In addition, the Company has recorded an allowance for customer returns in the amount of approximately $70,000 at March 31, 2014 and December 31, 2013 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:


 

March 31,

2014

 

December 31,

2013

Labels and packaging

$

166,196

 

$

120,057

Raw materials

$

110,612

 

$

207,320

Finished goods

$

2,010,395

 

$

1,658,387

Totals

$

2,287,203

 

$

1,985,764


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 March 31, 2014 was $92,040, 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 Company’s 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 $510,734 and $715,030 for the three month period ended March 31, 2014 and 2013, 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.




9





The Company receives other revenues which include but are not limited to shipping and handling charges billed to customers.


The Company has recorded $239,624 as of March 31, 2014 in deferred revenue as a liability pertaining to inventory sold under consignment terms, but has been paid for by the customer.


Cost of Sales


The Company purchases its products directly from third party manufacturers. The Company’s 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 Company’s 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, 2013 and 2012. 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 March 31, 2014 and 2013, was $20,716. The lease term expires January 31, 2017 and requires equal monthly payments over the remaining term. Future payments under the lease total $234,779. 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.


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 measure date.


The Company has a number of financial instruments, including cash, receivables, inventory, payables and debt obligations.  The Company has issued warrants which are measured at fair value on a recurring basis. The Company estimates that the fair value of these financial instruments does not materially differ from the respective reported balance sheet amounts.


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.  The Company records website costs related to its direct-to-consumer advertisements in accordance with FASB ASC 340-20 “Capitalized Advertising Costs”.  In accordance with FASB ASC 340-20, direct response advertising costs incurred should be reported as assets and should be amortized over the estimated period of the benefits, based on the proportion of current period revenue from the advertisements to probable future revenue. As of March 31, 2014 and December 31, 2013, the Company had deferred $3,060 and $7,651 respectively, related to such advertising costs. This amount is included in Deposits and other assets and is being amortized over a one year period, the estimated time frame to which the existing commercial will be used. For the three month period ended March 31, 2014 and 2013, marketing expenses totaled $627,423 and $145,733, respectively.





10





Research and Development Costs


Research and development costs are expensed when incurred. Research and development costs of $6,424 and $59,810 for the three month period ended March 31, 2014 and 2013, respectively, are included in selling and marketing expense.


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 Company’s 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 Company’s bank balances have exceeded the FDIC limit. Management believes the risk of loss at such institutions to be minimal.


During the three month period ended March 31, 2014, sales to three customers made up 67% 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 77% of total accounts receivable at March 31, 2014. During the three month period ended March 31, 2013, sales to four customers made up 70% 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 73% of total accounts receivable as of March 31, 2013. During the three month period ended March 31, 2014, purchases from three vendors made up 69% of total inventory purchases.  These vendors’ combined accounts payable balances were 71% of total accounts payable as of March 31, 2014. During the three month period ended March 31, 2013, purchases from two vendors made up 83% of total inventory purchases.  These vendors’ combined accounts payable balances were 38% of total accounts payable as of March 31, 2013.


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.


Since the Company reflected a net loss for the three month period ended March 31 2013, the effect of considering any common stock equivalents, if exercisable, would have been anti-dilutive.


The Company has the following common stock equivalents as of March 31, 2014 and 2013:


 

 

2014

 

2013

Stock options (exercise price – $0.573-$2.50/share)

 

713,479

 

754,696

Warrants (exercise price – $0.001-$2.25/share)

 

1,544,204

 

602,513

Total common stock equivalents

 

14,546,736

 

13,735,804





11





Note 2 - Contingencies


In accordance with the standards on contingencies, the Company accrues a loss contingency if it is probable and can reasonably be estimated or a liability has been incurred at the date of the financial statements. If both of these conditions are not met, or if an exposure to loss exists in excess of the amount accrued, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred. The Company is exposed to legal claims encountered in the normal course of business. See Note 3, “Litigation”. Management believes that the ultimate resolution of these matters will not have a material adverse effect on the operating results or the financial position of the Company.


Note 3 - Litigation


The Company is engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, product liabilities and intellectual property matters resulting from the Company’s business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The following summaries highlight the current status of certain material commercial litigation in which the Company is involved.


On May 17, 2013 and on January 31, 2014 the Company received demand letters from the Environmental Research Corporation, “ERC” requesting substantiation of compliance with the State of California’s Proposition 65 regulations for ten of its products.  In October, while the Company was awaiting the results of the compliance testing, ERC contacted the Company again requesting settlement to their initial demand letter. And in February 2014, before compliance testing or any other demand letter validation was completed, ERC contacted the Company again requesting settlement to their second demand letter.  The Company is in communication with ERC and expects prompt resolution to this issue.  The Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome.  However, the range of any possible loss cannot be reasonably estimated as of the date of the financial statements.


On March 24, 2014 the Company received a summons in a civil action filed by Wise Sports Nutrition, LLC claiming alleged trademark infringement for iSatori’s Garcinia Trim product. Company counsel has made contact with the plaintiff’s attorney and is currently developing a response to this claim and expects prompt resolution to this issue.  The Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome.  However the range of any possible loss cannot be reasonably estimated as of the date of the financial statements.


Note 4 - Income Taxes


For the three months ended March 31, 2014 and 2013, the Company recognized income tax expense of $15,823 and expense of $10,134, respectively.


The difference between the three months ended March 31, 2014 effective rate of 4.5% and the Federal statutory rate of 35.0% is primarily due to state income taxes (net of federal benefit), change in the valuation allowance, and an adjustment to the income tax receivable.


At March 31, 2014 management believes there are no uncertain tax liabilities.


Note 5- Stockholders’ Equity


At March 31, 2014, there were 12,879,651 shares of common stock, par value $.01 per share, outstanding for the Company.


On July 15, 2011 the Company also issued warrants to purchase 3% of fully diluted shares of the common stock of the Company to Breakwater Structured Growth Opportunity Fund, L.P., with an imputed exercise price equal to approximately one-hundredth of a dollar in connection with a $1.025 million subordinated mezzanine loan arrangement.  These warrants are fully vested and expire on June 15, 2016. In accordance with the terms of the merger, the total number of warrants to purchase such shares was increased from 328,411 shares to 420,549 and the per share exercise price remained the same.





12





Included in the aforementioned Breakwater warrant, was an obligation by the Company to, among other things, honor an irrevocable put right through which the Company agreed to purchase up to the 3% of fully diluted shares of its common stock underlying the warrant, which expires on July 15, 2016. Upon completion of the merger, the irrevocable put right was removed.


The Company used a lattice model in developing a fair value for the Breakwater warrant obligation at March 31, 2014, using a quoted stock value of $1.13 per share, which represents a discount of 50% from the closing stock price.  This reduction was based on the application of a discount for lack of liquidity. Other assumptions used in the above valuations include (a) risk-free interest rate of .44% based on duration, (b) weighted average expected term years of 2.29 (c) weighted average expected stock volatility of 37.08% (e) expected dividends of 0%, (f) stock price movements ranging from 1.05276571 to 0.94987896 and (g) risk neutral probabilities ranging from 0.48797016 to 0.51202984.


This valuation resulted in net income of $723 in the Statement of Operations for the three month period ended March 31, 2014.


2012 Performance Incentive Plan


On September 27, 2012, the Company’s Board of Directors approved the 2012 Performance Incentive Plan (the Plan”). The Plan allows the Company to promote the success of the Corporation and to increase stockholder value by providing an additional means through the grant of awards to attract, motivate, retain and reward selected employees and other eligible persons. Any stock option granted in the form of an incentive stock option will be intended to comply with the requirements of Section 422 of the Code. Only stock options granted to employees qualify for incentive stock option treatment. A stock option may be exercised in whole or in installments, which may be cumulative. Shares of common stock purchased upon the exercise of a stock option must be paid for in full at the time of the exercise in cash or such other consideration determined by the compensation committee. Payment may include tendering shares of common stock or surrendering of a stock award, or a combination of methods.


The Plan is administered by the Plan Administrator, being the Board or one or more committees appointed by the Board or another committee (within its delegated authority) to administer all or certain aspects of this Plan. The Administrator has full and exclusive power within the limitations set forth in the Plan to make all decisions and determinations regarding the selection of participants and the granting of awards; establishing the terms and conditions relating to each award; adopting rules, regulations and guidelines; and interpreting the Plan.


On January 2, 2014, the Company issued options to purchase 10,000 shares of the Company’s common stock to an employee with an exercise price of $2.50 per share and which contain three year vesting schedules of 1/3 each year through October 2016. These options are due to expire on October 15, 2023.


On February 10, 2014, the Company issued options to purchase 6,000 shares of the Company’s common stock to an employee with an exercise price of $2.22 per share and which contain three year vesting schedules of 1/3 each year through February 2017. These options are due to expire on February 10, 2024.


The Company, in developing a fair value for the employee options used a current stock price of $1.11-1.25, which represents a discount of 50% from the quoted stock price for lack of marketability.  Other assumptions used in the above valuations include (a) risk-free interest rate of 2.13-2.41% based on duration, (b) weighted average expected terms ranging from 6.08 to 6.33 years; (c) weighted average expected stock volatility of 35.22 % and (e) expected dividends of 0%.


These valuations resulted in an net expense of $368 in the Statement of Operations for the three month period ended March 31, 2014. Total stock compensation expense for the aforementioned period was $6,105.


Note 6- Revolving Line of Credit and Related Interest


The Company entered into a Credit Agreement with Colorado Business Bank West of Denver, Colorado on July 16, 2012, which was renewed effective October 16, 2013. Borrowings under this agreement are used to provide ongoing working capital and for other general corporate purposes of the Company.





13





The agreement provides a revolving commitment to the Company of $1,500,000. Amounts outstanding under the agreement are reflected in a promissory note with a principal balance of $1,500,000 and maturity date of November 16, 2014 (the “Promissory Note”).  The principal balance on the Promissory Note will bear interest at the one month USD LIBOR rate measured not more often than once per month (the “Index”).  Interest on any unpaid balance under the promissory note will bear interest at the Index plus 3.750% with a minimum interest rate of 4.000% per annum.


The outstanding balance on the revolving line of credit as of March 31, 2014 and December 31, 2013 was $1,220,655.


Note 7 - Fair Value Measurements and Disclosures


The Company follows ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for using fair value to measure assets and liabilities, and expands disclosures about fair value measurements.  The statement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances.  The hierarchy is broken down into three levels based on the reliability of the inputs as follows:


Level 1:  Quoted prices are available in active markets for identical assets or liabilities.


Level 2:  Quoted prices in active markets for similar assets and liabilities that are observable for the asset or liability; or


Level 3:  Unobservable pricing inputs that are generally less observable from objective sources, such as discounted cash flow models or valuations.


ASC 820 requires financial assets and liabilities to be classified based on the lowest level of input that is significant to the fair value measurement.  The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.


For the purposes of marketable securities where there is a an active market, the Company uses the quoted prices available for the identical asset or liability.  As of March 31, 2014, the Company had $21,824 assets held for sale valued using the Level 1 mark-to-market approach. As of December 31, 2013, the Company had $108,228 assets held for sale valued using the Level 1 mark-to-market approach.


The inputs used in the fair value measurements categorized within Level 3 include the stock price at the valuation date, the exercise price of the warrant, the expected period of time the warrant will be outstanding, the annual volatility of the underlying stock price, the annual yield rate of quarterly dividends, and the risk free rate of interest relevant to the expected time period the warrant will be outstanding.


The following table represents the Company’s warrant derivative liabilities that were accounted for at fair value on a recurring basis by level within the fair value hierarchy:


 

March 31, 2014

 

December 31, 2013

 

Level 1

 

Level 2

 

Level 3

 

Level 1

 

Level 2

 

Level 3

 

 

 

 

 

 

 

 

 

 

 

 

Warrant Derivative Liability

$

0

 

$

0

 

$

470,292 

 

$

0

 

$

0

 

$

471,015 

Beginning of Period

 

-

 

 

-

 

 

471,015 

 

 

-

 

 

-

 

 

701,852 

Deletions

 

-

 

 

-

 

 

 

 

-

 

 

-

 

 

(87,755)

Revisions

 

-

 

 

-

 

 

(723)

 

 

-

 

 

-

 

 

(143,082)

End of Period

$

0

 

$

0

 

$

470,292 

 

$

0

 

$

0

 

$

471,015 





14






ITEM 2.

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.





15





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.





16





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.





17





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:


 

 

 

 

Payments due by period

Contractual Obligations

 

Total

 

Less

than 1

year

 

2-3 years

 

3-5 years

 

More

than 5

years

Operating lease obligations

 

234,778

 

62,147

 

165,726

 

6,905

 

-


ITEM 3.

QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


As a smaller reporting company we are not required to provide the information required by this Item.


ITEM 4.

CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness, as of March 31, 2014, of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. The purpose of this evaluation was to determine whether as of the evaluation date our disclosure controls and procedures were effective to provide reasonable assurance that the information we are required to disclose in our filings with the SEC under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.


Management’s Report on Internal Control over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. We have designed our internal controls to provide reasonable assurance that our financial statements are prepared in accordance with GAAP and include those policies and procedures that:


pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and disposition of our assets;


provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorization of our management and directors; and




18





provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.


Our management conducted an evaluation of the effectiveness of our internal controls based on the criteria set forth in the Internal Control — Integrated Framework developed by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, as of March 31, 2014. Based on this evaluation, our management, including our Chief Executive Officer and Chief Financial Officer has concluded that our internal control over financial reporting was effective as of March 31, 2014.


There have been no changes in our internal control over financial reporting during the period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


PART II


ITEM 1.

LEGAL PROCEEDINGS


The Company is engaged in various legal actions, claims and proceedings arising in the normal course of business, including claims related to breach of contracts, product liabilities and intellectual property matters resulting from the Company’s business activities. As with most actions such as these, an estimation of any possible and/or ultimate liability cannot always be determined. The following summaries highlight the current status of certain material commercial litigation in which the Company is involved.


On May 17, 2013 and on January 31, 2014 the Company received demand letters from the Environmental Research Corporation, “ERC” requesting substantiation of compliance with the State of California’s Proposition 65 regulations for ten of its products.  In October, while the Company was awaiting the results of the compliance testing, ERC contacted the Company again requesting settlement to their initial demand letter. And in February 2014, before compliance testing or any other demand letter validation was completed, ERC contacted the Company again requesting settlement to their second demand letter.  The Company is in communication with ERC and expects prompt resolution to this issue.  The Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome.  However, the range of any possible loss cannot be reasonably estimated as of the date of the financial statements.


On March 24, 2014 the company received a summons in a civil action filed by Wise Sports Nutrition, LLC claiming alleged trademark infringement for iSatori’s Garcinia Trim product. Company counsel has made contact with the plaintiff’s attorney and is currently developing a response to this claim and expects prompt resolution to this issue.  The Company believes that there is a reasonable possibility, as defined by FASB ASC 450-20, of an unfavorable outcome.  However the range of any possible loss cannot be reasonably estimated as of the date of the financial statements.


ITEM 1A.

RISK FACTORS


As a smaller reporting company we are not required to provide the information required by this Item.


ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.


ITEM 3.

DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4.

MINE SAFETY DISCLOSURES


None.


ITEM 5.

OTHER INFORMATION


None.





19






ITEM 6.

EXHIBITS


The following exhibits are filed with this report on Form 10-Q or are incorporated by reference:


Exhibit No.

Description of Exhibit

 

 

31.1

Rule 13a-14(a)/15d-14(a) Certification of Principal Chief Executive Officer*

31.2

Rule 13a-14(a)/15d-14(a) Certification of Principal Chief Financial Officer*

32.1

Chief Executive Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

32.2

Chief Financial Officer Certification Pursuant to 18 USC, Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

101.ins

XBRL Instance Document**

101.sch

XBRL Taxonomy Schema Document**

101.cal

XBRL Taxonomy Calculation Document**

101.def

XBRL Taxonomy Linkbase Document**

101.lab

XBRL Taxonomy Label Linkbase Document**

101.pre

XBRL Taxonomy Presentation Linkbase Document**


* Filed herein


** In accordance with Rule 406T of Regulation S-T, the XBRL related information in Exhibit 101 to this Amendment to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.





20






SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


ISATORI, INC.



By:

/s/ Stephen Adelé

 

 

Stephen Adelé

 

 

Chief Executive Officer

 

 

 

 

 

 

 

By:

/s/ Michael Wilemon

 

 

Michael Wilemon

 

 

Chief Financial Officer

 



May 9, 2014





21