FITLIFE BRANDS, INC. Revenue Disclosure

Revenue is derived from product sales. The Company recognizes revenue from product sales in accordance with Accounting Standards Codification (“ASC“) Topic 605 “Revenue Recognition in Financial Statements“ which assesses revenue upon: (i) the time customers are invoiced at shipping point provided title and risk of loss has passed to the customer, (ii) evidence of an arrangement exists, (iii) fees are contractually fixed or determinable, (iv) collection is reasonably assured through historical collection results and regular credit evaluations, and (v) there are no uncertainties regarding customer acceptance.

The Company offers discounts on sales to GNC franchises on many of its products.  Discounts are updated monthly and made available to all franchisees.  Revenue is recorded net of all discounts taken at the time of sale for all direct sales.  Indirect sales involve sales through GNC’s centralized distribution platform.  Fulfillment to franchisees from GNC’s distribution centers often spans several months and accounting periods after the initial indirect sale.  Given that the discount programs change monthly, it is impossible to predict with any certainty what discounts will be taken on which products and at what time.  As a result, prior to 2015, the Company had historically booked gross revenue through the indirect channel upon shipment to GNC.  Discounts taken by franchisees upon fulfillment from GNC’s distribution center are billed back to the Company as a credit to a future invoice.  The Company accounted for these deductions  (“Vendor Funded Discounts“) as a selling and marketing expense in the period that the deduction was taken by GNC.  Management believes this approach was the best way to match the expense to the timing of actual product fulfillment at the store level when the discounts are actually taken.  In an effort to ensure consistent accounting policies across all operating divisions after the acquisition of iSatori, the Company elected to modify its accounting policy for Vendor Funded Discounts for the fiscal year ended December 31, 2015 and therafter. As a result, for all indirect distribution, the Company estimates anticipated discounts at the time product is shipped to GNC’s distribution center(s) and recognizes that estimate as a deduction from gross revenue at the time of shipment to GNC.  Actual discounts are compared to the estimate each accounting period and adjusted as necessary. Total revenue and selling and marketing expense is reduced by the amount of the estimate, and the new policy has no effect on operating or net income.  Results of operations for the years ended December 31, 2015 and 2016 were both reported using the net revenue approach. The change had no impact on operating income or net income.