NOTE 1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Twinlab Consolidated Holdings, Inc. (the “Company”, “Twinlab,” “we,” “our” and “us”) was incorporated on October 24, 2013 under the laws of the State of Nevada as Mirror Me, Inc. On August 7, 2014, we amended our articles of incorporation and changed our name to Twinlab Consolidated Holdings, Inc.

Nature of Operations

We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty stores retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

Our products include vitamins, minerals, specialty supplements and sports nutrition products sold under the Twinlab® brand name (including the REAAL®, and Twinlab® Fuel brand of sports nutrition products); a market leader in the healthy aging and beauty from within categories sold under the Reserveage™ Nutrition and ResVitale® brand names; diet and energy products sold under the Metabolife® brand name; the Re-Body® brand name; and a full line of herbal teas sold under the Alvita® brand name. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays and powders. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.

We also perform contract manufacturing services for private label products.  Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished product under the customer’s own brand name.  We do not market these private label products as our business is to manufacture and sell the products to the customer, who then markets and sells the products to retailers or end consumers.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

Basis of Presentation and Unaudited Information

The condensed consolidated interim financial statements included herein have been prepared by the Company in accordance with United States generally accepted accounting principles, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained herein.therein. Financial results for any interim period are not necessarily indicative of financial results that may be expected for the fiscal year. The unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20162017 filed with the SEC on March 31, 2017.April 3, 2018.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGenerally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill and the estimated value of warrants and derivative liabilities.

Revenue Recognition

Revenue from product sales, net of estimated returns and allowances, is recognized when evidence of an arrangement is in place, related prices are fixed, and determinable, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point. We sell predominately in the North American and European markets, with international sales transacted in U.S. dollars.

Fair Value of Financial Instruments

We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 – inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.

Level 2 – inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.

Level 3 – inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.

The following table summarizes our financial instruments that are measured at fair value on a recurring basis as of September 30, 20172018 and December 31, 2016:2017:

Accounts Receivable and Allowances

We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items;items, customer discounts;discounts, shipping shortages; damages;shortages, damages, and doubtful accounts based upon historical bad debt and claims experience. As of September 30, 2017,2018, total allowances amounted to $2,777,$2,712, of which $314$490 was related to doubtful accounts receivable. As of December 31, 2016,2017, total allowances amounted to $2,365,$2,534, of which $481$329 was related to doubtful accounts receivable.

Inventories

Inventories are stated at the lower of cost or net realizable value and are reduced by an estimated reserve for obsolete inventory.

Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation, including amounts amortized under capital leases, is calculated on the straight-line method over the estimated useful lives of the related assets, which are 7 to 10 years for machinery and equipment, 8 years for furniture and fixtures and 3 years for computers. Leasehold improvements are amortized over the shorter of the useful life of the asset or the term of the lease.

Normal repairs and maintenance are expensed as incurred. When assets are retired or otherwise disposed of, the related cost and accumulated depreciation or amortization is removed from the accounts and any gain or loss is included in the results of operations.

Intangible Assets

Intangible assets consist primarily of trademarks and customer relationships, which are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 30 years. The valuation and classification of these assets and the assignment of amortizable lives involve significant judgment and the use of estimates.

We believe that our long-term growth strategy supports our fair value conclusions. For intangible assets, the recoverability of these amounts is dependent upon achievement of our projections and the execution of key initiatives related to revenue growth and improved profitability.

Goodwill

Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets relating to the asset acquisition of Organic Holdings,, LLC (“Organic Holdings”), a market leader in the healthy aging and beauty from within categories, and owner of the award-winning Reserveage™Reserveage Nutrition brand,brands, are determined to have an indefinite useful economic life and as such are not amortized. Indefinite-lived intangible assets are tested for impairment annually which consists of a comparison of the fair value of the asset with its carrying value. The total indefinite-lived intangible assets as of September 30, 20172018 and December 31, 20162017 was $5,900.$4,346.

Value of Warrants Issued with Debt

We estimate the grant date value of certain warrants issued with debt, using an outside professional valuation firm, which uses the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

Derivative Liabilities

We have recorded certain warrants as derivative liabilities at estimated fair value, as determined based on our use of an outside professional valuation firm, due to the variable terms of the warrant agreements. The value of the derivative liabilities is generally estimated using the Monte Carlo option lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

Deferred gain on sale of assets

We entered into a sale-leaseback arrangement relating to our office facilities in 2013. Under the terms of the arrangement, we sold an office building and surrounding land and then leased the property back under a 15-year operating lease. We recorded a deferred gain for the amount of the gain on the sale of the asset, to be recognized as a reduction of rent expense over the life of the lease. Accordingly, we recorded amortization of deferred gain as a reduction of rental expense of $40 and $41 for the three months ended September 30, 20172018 and 2016, respectively.2017. For the nine months ended September 30, 20172018 and 2016,2017, we recorded amortization of $121 and $122,$121, respectively. As of September 30, 20172018, and December 31, 2016,2017, unamortized deferred gain on sale of assets was $1,606$1,444 and $1,727,$1,565, respectively.

Net LossIncome (Loss) per Common Share

Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.

The common shares used in the computation of our basic and diluted net loss per share are reconciled as follows:

Correction of 2016 Diluted Net Loss Per Share

The diluted net loss per share for the period ended September 30, 2016 has been corrected. In accordance with U.S. generally accepted accounting principles, whenWhen calculating diluted earnings or loss per share, if the effects are dilutive, companies are required to add back to net income or loss the effects of the change in derivative liabilities related to warrants. Additionally, if the effects of the change in derivative liabilities are added back to net income or loss, companies are required to include the warrants outstanding related to the derivative liability in the calculation of the weighted average dilutive shares.

For the period ended September 30, 2016, as originally reported, we did not add back the effects of the As there was no gain on change in the derivative liability in computing dilutive income or loss per share. The dilutive loss per shareliabilities for the three and nine months ended September 30, 2016 in2018, there was no dilutive effect on net loss and the table above has been revised to correct this error.

calculation of the weighted average dilutive shares. The table below reflectsnumerator and the denominator of the calculation of basic and diluted net loss per share as originally reported and net loss per share as correctedwere identical for the three and nine months ended September 30, 2016.2018 and 2017.

The errors were corrected as of December 31, 2016, but since the adjustments were not material to any of the quarters previously reported, the Form 10-Qs for those periods were not amended. Management has determined the effects to be neither quantitatively or qualitatively material to the financial statements included in any of the Form 10-Qs filed during 2016.

Significant Concentration of Credit Risk

Sales to our top three customers aggregatedaggregated to approximately 33%30% and 25%33% of total sales for the three months ended September 30, 20172018 and 2016,2017, respectively, and 27%25% and 26%27% of total sales for the nine months ended September 30, 20172018 and 2016, respectively.2017. Sales to one of those customers were approximately 13%15% and 11%13% of total sales for the three months ended September 30, 20172018 and 2016,2017, respectively, and 12%14% and 11%12% of total sales for the nine months ended September 30, 20172018 and 2016,2017, respectively. Accounts receivable from thesethe top three customers were approximately 55%23% and 29%39% of total accounts receivable as of September 30, 20172018 and December 31, 2016,2017, respectively.

Recent Accounting Pronouncements

In May 2017, FASB amended its guidance regarding the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. For public entities, the amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. The amendments in this update should be applied prospectively to an award modified on or after the adoption date. We do not expect the new guidance to have a significant impact on our condensed consolidated financial statements or related disclosures.

InJanuary 2017, FASBthe Financial Accounting Standards Board (“FASB”) issued ASUAccounting Standards Update (“ASU”) No. 2017-04, “Simplifying the Test for Goodwill Impairment (Topic 350)” which removes Step 2 of the goodwill impairment test that requires a hypothetical purchase price allocation.  A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill.  The amendments in this ASU are effective for fiscal years beginning after December 15, 2019.  Early adoption is permitted after January 1, 2017.  We do not expect the new guidance to have a significant impact on our condensed consolidated financial statements or related disclosures.

In February 2016, FASB issued ASU No.No. 2016-02, “Leases (Topic 842)”. The amendments in this ASU revise the accounting related to lessee accounting. Under the new guidance, lessees will be required, which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a lease liabilitydistinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a right-of-use asset for all leases with terms greater than 12 months affecting the patternconsolidated statement of expense recognition in the income statement. Leases previously defined as operating leases will be defined as financing leases and capitalized if the termcash flows is greater than one year.largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. The Company is currently evaluating the impact that the adoption of this ASU will have on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments- Credit losses (Topic 326): Measurement of Credit losses on Financial Instruments". ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and arereasonable and supportable forecasts. Our status as an emerging growth company allows us to defer adoption until the annual period, including interim periods within the annual period, beginning January 1, 2021. Management is currently evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company's financial position or results from operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry-specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be applied through a modified retrospective transition approachrecognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for leases existing at, or entered intoreporting periods beginning after December 15, 2016; however, in July 2015, the beginningFASB agreed to delay the effective date by one year. The proposed deferral may permit early adoption but would not allow adoption any earlier than the original effective date of the earliest comparative period presented in the financial statements. Early adoption is permitted. We are performing an assessment of our leases and have begun preparations for implementation and retrospective applicationstandard. Entities can transition to the earliest reporting period. Asstandard either retrospectively or as a result, financing leases will be recordedcumulative-effect adjustment as of the date of adoption.  Our status as an asset and a corresponding liability atemerging growth company allows us to defer the present value ofadoption until the total lease payments. The asset will be decremented over the life of the lease on a pro-rata basis resulting in lease expense while the liability will be decremented using the interest method (ie. principal and interest). As such, we expect the new guidance will materially impact the asset and liability balances ofyear (and interim periods therein) beginning January 1, 2019. We have chosen to delay our consolidated financial statements and related disclosures at the time of adoption.adoption until January 1, 2019.

Although there are several other new accounting pronouncements issued or proposed by the FASB, which we have adopted or will adopt, as applicable, we do not believe any of these accounting pronouncements has had or will have a material impact on our condensed consolidated financial position or results of operations.

NOTE 2 – GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. In most periods since our formation, we have generated losses from operations. AtAs of September 30, 2017,2018, we had an accumulated deficit of $237,326.$273,373. Historical losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with our debt refinancing. Losses have been funded primarily through issuance of common stock and third-party or related party debt.

Because of our history of operating losses, significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $8,531 at$83,081 as of September 30, 2017.2018.  We also have $17,091$73,173 of debt, net of discount, due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.

Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturingoperating costs that include significant workforce and operating costssalary expense reduction, and continuing to negotiate lower prices from major suppliers.  We believe that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.

NOTE 3 – INVENTORIES

Inventories consisted of the following at:as of:

NOTE 4 – PROPERTY AND EQUIPMENT

Property and equipment consisted of the following at:as of:

Assets held under capital leases are included in machinery and equipment and amounted to $1,082$613 and $1,142$777 as of September 30, 20172018 and December 31, 2016,2017, respectively.

Depreciation and amortization expense totaledtotaled $201 and $222 and $221 for the three months ended September 30, 20172018 and 2016,2017, respectively, and totaled $669$625 and $567$669 for the nine months ended September 30, 2018 and 2017, and 2016, respectively.

NOTE 6 – DEBT

Debt consisted of the following at:as of:

Related-Party Debt

July 2014 Note Payable to Little Harbor, LLC

Pursuant to a July 2014 Debt Repayment Agreement with Little Harbor, LLC (“Little Harbor”), an entity owned by certain stockholders of the Company, we arewere obligated to pay such party $4,900 per year in structured monthly payments for 3 years provided that such payment obligations willwould terminate at such earlier time as the trailing ninety day volume weighted average closing sales price of the Company’sCompany’s common stock on all domestic securities exchanges on which such stock is listed equals or exceeds $5.06 per share. This note is unsecured and matured on July 25, 2017 however thiswith an outstanding balance of $3,267. On February 6, 2018, we entered into an agreement with Little Harbor to convert the obligations into an unsecured promissory note. The note remains outstanding and principal payment has been deferred to 2018. This note was non-interest bearing, accordingly, usingmatures on July 25, 2020, bears interest at an imputed interestannual rate of 16.2%8.5%, we recorded a note discount in July 2014, which has been amortized into interest expense based onwith the effective interest rate method over the term of the note.principal payable at maturity.

July 2016 Note Payable to Little Harbor, LLC

On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Note in favor of Little Harbor, pursuant to which Little Harbor may, in its sole discretion and pursuant to draw requests made by the Company, loan us up to the maximum principal amount of $4,770. This note is unsecured and matures on January 28, 2019. This note bears interest at an annual rate of 8.5%, with the principal payable at maturity. If Little Harbor, in its discretion, accepts a draw request made by the Company under this note, Little Harbor shall not transfer cash to the Company, but rather Little Harbor shall irrevocably agree to accept the principal amount of any monthly delayed draw under this note in lieu and in complete satisfaction of the obligation to make an equivalent dollar amount of periodic cash payments otherwise due to Little Harbor under the July 2014 note payable. During the year ended December 31, 2016, we requested and Little Harbor LLC approved, draws totaling $4,770. There were no draws during the year ended December 31, 2017 and the quarter ended September 30, 2018. We issued a warrant into escrow in connection with this loan (see Little Harbor Escrow WarrantsWarrant in Note 7).

Little Harbor also delivered a deferment letter to which Little Harbor agreed to defer all payments due under the notes specified in the Little Harbor Deferment Letter through September 30, 2018 until January 1, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.

January 2016 Note Payable to Great Harbor Capital, LLC

Pursuant to a January 28, 2016 Unsecured Promissory Note with Great Harbor Capital, LLC (“GH”), an affiliate of a member of our Board of Directors, GH lent us $2,500. The note matures on January 28, 2019, bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which was to commencecommencing on February 28, 2017 but has been deferred to January 28, 2018.2017. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

March 2016 Note Payable to Great Harbor Capital, LLC

Pursuant to a March 21, 2016 Unsecured Promissory Note, GH lent us $7,000. The note matures on March 21, 2019, bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which was to commencecommencing on April 21, 2017 but has been deferred to January 21, 2018.2017. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

December 2016 Note Payable to Great Harbor Capital, LLC

Pursuant to a December 31, 2016 Unsecured Promissory Note, GH lent us $2,500. The note matures on December 30,30, 2019, bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

August 2017 Note Payable to Great Harbor Capital, LLC

Pursuant to an August 30, 2017 Secured Promissory Note, GH lent us $3,000. The note matures on August 29, 2020, bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7).

February 2018 Note Payable to Great Harbor Capital, LLC

Pursuant to a February 6, 2018 Secured Promissory Note, GH lent us $2,000 (Great Harbor Note 1”). The note matures on February 6, 2021, bears interest at an annual rate of 8.5%, with the principal payable at maturity. This note is secured by collateral and is subordinate to the indebtedness owed to Midcap Funding X Trust (“MidCap”), as successor-by-assignment from MidCap Financial Trust.

Also, on February 6, 2018, the Company issued an Amended and Restated Secured Promissory Note to GH (“Great Harbor Note 2”) replacing the prior Secured Promissory Note issued on August 30, 2017. The amendment added a requirement that when the Company consummates any Special Asset Disposition (as defined in the Great Harbor Note 2), provided that the Company has a minimum liquidity of $1,000, the Company will use the net cash proceeds from the Special Asset Disposition to pay any accrued and unpaid interest under the Great Harbor Note 2 and any other note subject to the Intercreditor Agreement (defined below). The maturity date, interest rate and payment terms remain unchanged from the original secured promissory note issued to GH on August 30, 2017.

July 2018 Note Payable to Great Harbor Capital, LLC

Pursuant to a July 27, 2018 Secured Promissory Note, GH loaned the Company $5,000 ("Great Harbor Note 3"). The Great Harbor Note 3 matures on January 27, 2020 and bears interest at an annual rate of 8.5%, with the principal payable at maturity. The principal of the Great Harbor Note is payable at maturity on January 27, 2020. The Great Harbor Note is secured by collateral.  We issued a warrant in connection with this loan (see GH Warrants in Note 7).

The Great Harbor Note 3 is subordinate to the indebtedness owed to MidCap. The Great Harbor Note 3 is senior to the indebtedness owed to Little Harbor, LLC and Golisano Holdings LLC.

GH also delivered a deferment letter to which GH agreed to defer all payments due under the notes specified in the Great Harbor Deferment Letter through September 30, 2018 until January 1, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.

November 2014 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)

On November 13, 2014, we raised proceeds of $8,000, less certain fees and expenses, from the issuance of a secured note to Penta Mezzanine SBIC Fund I, L.P. (“Penta”). The Managing Director of Penta, an institutional investor, is also a directormember of the Board of Directors of our Company. We granted Penta a security interest in our assets and pledged the shares of our subsidiaries as security for the note.  On March 8, 2017, Golisano Holdings LLC (“Golisano LLC”) acquired this note payable from Penta. Interest on the outstanding principal accrued at a rate of 12% per year from date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. TheThis note matures on November 13, 2019. On August 30, 2017, we entered into an amendment2019 with Golisano LLC which extended paymentpayments of principal to maturity.due on a quarterly basis commencing on November 13, 2017 in installments of (i) $360 per quarter for the first four quarters, (ii) $440 per quarter for the next four quarters and (iii) $520 per quarter for each quarter thereafter.  This note bears interest of 12% per annum, payable monthly.  We issued a warrant to Penta to purchase 4,960,740 shares of the Company’s common stock in connection with this loan (see Penta Warrants in Note 7).  The estimated fair value of the warrant at the date of issuance was $3,770, which was recorded as a note discount and is being amortized into interest expense over the term of this loan.  Additionally, we had incurred loan fees of $273, which is also being amortized into interest expense over the term of this loan.  On March 8, 2017, Golisano Holdings LLC (“Golisano LLC”) acquired this note payable from Penta. The terms of this note payable remain the same with the only changes being the holder of the promissory note and reduction of the interest rate to 8%.

January 2015 Note Payable to Golisano Holdings LLC (formerly payable to JL-Mezz Utah, LLC-f/LLC-f/k/a JL-BBNC Mezz Utah, LLC)

On January 22, 2015, we raised proceeds of $5,000, less certain fees and expenses, from the sale of a note to JL-Mezz Utah, LLC (f/k/a JL-BBNC Mezz Utah, LLC) (“JL-US”JL”). The proceeds were restricted to pay a portion of the Nutricap Labs, LLC (“Nutricap”) asset acquisition. We granted JL a security interest in the Company’s assets, including real estate and pledged the shares of our subsidiaries as security for the note. On March 8, 2017, Golisano LLC acquired this note payable from JL.

Interest on the outstanding principal accrued at a rate of 12% per year from date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on NovemberFebruary 13, 2019. On August 30, 2017, we entered into an amendment2020 with Golisano LLC which extended paymentpayments of principal due on a quarterly basis commencing March 1, 2017 in installments starting at $250 per quarter and increasing to maturity.$350 per quarter. This note bears interest of 8% per annum, payable monthly. We issued a warrant to JL to purchase 2,329,400 shares of the Company’s common stock on January 22, 2015 and 434,809 shares of the Company’s common stock on February 4, 2015 (see JL Warrants in Note 7). The estimated fair value of these warrants at the date of issuances was $4,389, which was recorded as a note discount and is being amortized into interest expense over the term of these loans. Additionally, we had incurred loan fees of $152 relating to this loan, which is also being amortized into interest expense over the term of these loans. On March 8, 2017, Golisano LLC acquired this note payable from JL. The terms of this note payable remain the same with the only change being the holder of the promissory note.

February 2015 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)

On February 6, 2015, we raised proceeds of $2,000, less certain fees and expenses, from the issuance of a secured note payable to Penta. The proceeds were restricted to pay a portion of the acquisition of the customer relationshipsrelationships of Nutricap. On March 8, 2017, Golisano LLC acquired this note payable from Penta. Interest on the outstanding principal accrued at a rate of 12% per year from date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. TheThis note matures on November 13, 2019. On August 30, 2017, we entered into an amendment2019 with Golisano LLC which extended paymentpayments of principal to maturity.due on a quarterly basis commencing November 13, 2017 in installments of (i) $90 per quarter for the first four quarters, (ii) $110 per quarter for the next four quarters and (iii) $130 per quarter for each quarter thereafter. This note bears interest of 8% per annum, payable monthly. We issued a warrant to Penta to purchase 869,618 shares of the Company’s common stock in connection with this loan (see Golisano LLC Warrants (formerly Penta WarrantsWarrants) in Note 7). The estimated fair value of these warrants at the date of issuances totaled $250, which was recorded as a note discount and is being amortized into interest expense over the term of this loan. Additionally, we had incurred loan fees of $90, which is also being amortized into interest expense over the term of these loans. On March 8, 2017, Golisano LLC acquired this note payable from Penta. The terms of this note payable remain the same with the only change being the holder of the promissory note.

January 2016 Note Payable to Golisano Holdings LLC

Pursuant to a January 28, 2016 Unsecured Promissory Note with Golisano LLC, an affiliate of a member of our Board of Directors, Golisano LLC lent us $2,500. The note matures on January 28, 2019, bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which was to commencecommencing on February 28, 2017 but has been deferred to January 28, 2018.2017. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).

March 2016 Note Payable to Golisano Holdings LLC

Pursuant to a March 21, 2016 Unsecured Promissory Note, Golisano LLC lent us $7,000. The note matures on March 21, 2019, bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which was to commencecommencing on April 21, 2017 but has been deferred to January 21, 2018.2017. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).

July 2016 Note Payable to Golisano Holdings LLC

On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Note in favor of Golisano LLC pursuant to which Golisano LLC may, in its sole discretion and pursuant to draw requests made by the Company, loan the Company up to the maximum principal amount of $4,770 (the “Golisano LLC July 2016 Note”). The Golisano LLC July 2016 Note matures on January 28, 2019. Interest on the outstanding principal accrues at a rate of 8.5% per year. The principal of the Golisano LLC July 2016 Note is payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7). During the year ended December 31, 2016, we requested and Golisano LLC approved, draws totaling $4,770.

December 2016 Note Payable to Golisano Holdings LLC

Pursuant to a December 31, 2016 Unsecured Promissory Note, Golisano LLC lent us $2,500. The note matures on December 30, 2019, bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).

March 2017 Note Payable to Golisano Holdings LLC

Pursuant to a March 14, 2017 Unsecured Promissory Note, Golisano LLC lent us $3,267. The note matures on December 30, 2019, bears interest at an annual rate of 8.5%, with the principal payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).

February 2018 Note Payable to Golisano Holdings LLC

Pursuant to a February 6, 2018 Secured Promissory Note, Golisano LLC lent us $2,000 (“Golisano LLC Note”). The note matures on February 6, 2021, bears interest at an annual rate of 8.5%, with the principal payable at maturity. This note is secured by collateral and is subordinate to the indebtedness owed to MidCap.

Golisano LLC also delivered a deferment letter pursuant to which Golisano LLC agreed to defer all payments due under the notes specified in the Golisano Deferment Letter through September 30, 2018 until January 1, 2019 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.

On February 6, 2018, GH and Golisano LLC entered into an intercreditor agreement where they agreed that each of the Great Harbor Note 1, the Great Harbor Note 2 and the Golisano LLC Note are pari passu as to repayment, security and otherwise and are equally and ratably secured (the “Intercreditor Agreement”).

On July 27, 2018, the Company and Golisano LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. to the original Note and Warrant Purchase Agreement, dated as of November 13, 2014, as amended from time to time, entered into the Thirteenth Amendment to the Note (“Thirteenth Amendment”). Pursuant to the Thirteenth Amendment, Golisano LLC consented to the secured loan in the amount of $4,000 from GH to the Company. 

On July 27, 2018, the Company and Golisano LLC, as successor by assignment to JL-Mezz Utah, LLC (f/k/a JL-BBNC  Mezz Utah, LLC) to the original Note and Warrant Purchase Agreement, dated as of November 13, 2014, as amended from time to time, entered into the Twelfth Amendment to the Note (“Twelfth Amendment”). Pursuant to the Twelfth Amendment, Golisano LLC consented to the secured loan in the amount of $4,000 from GH to the Company. 

On July 27, 2018, GH and Golisano LLC entered into an intercreditor agreement (the “Intercreditor Agreement 2”) where they agreed that the Great Harbor Note 3 is subordinate to the indebtedness owed to MidCap. The Great Harbor Note 3 is senior to the indebtedness owed to Little Harbor, LLC and Golisano Holdings LLC.

Senior Credit Facility

On January 22, 2015, we entered into a three-year $15,000 revolving credit facility (the “Senior Credit Facility”) based on our accounts receivable and inventory, increasable to up to $20,000, with MidCap Financial Trust, which subsequently assigned the agreement to an affiliate, Midcap Funding X Trust (“MidCap”). On September 2, 2016, we entered into an amendment with Midcap to increase the Senior Credit Facility to $17,000 and extend our facility an additional 12 months. WeIn conjunction with this Senior Credit Facility, we issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock that expired on January 21, 2018 (see MidCap Warrant 1 in Note 7). In addition, we granted MidCap a first priority security interest in certain of our assets and pledged the shares of our subsidiaries as security for amounts owed under the credit facility. We are required to pay Midcap an unused line fee of 0.50% per annum, a collateral management fee of 1.20% per month and interest of LIBOR plus 5% per annum, which calculated interest rate was 6.24%7.77% per annum as of September 30, 2017. We issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock (see Midcap Warrant in Note 7).2018. The estimated fair value of these warrants at the date of issuance was $130, which was recorded as a note discount and is being amortized into interest expense over the term of the Senior Credit Facility. Additionally, we have incurred loan fees totaling $540 relating to the Senior Credit Facility and any subsequent amendments, which is also being amortized into interest expense over the term of the Senior Credit Facility.

Other Debt 

April 2016 Note Payable to JL-Utah Sub, LLC

Pursuant to an April 5,, 2016 Unsecured Promissory Note, JL-Utah Sub, LLC lent us $500. The note matures on March 21, 2019, bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $21 commencing on April 21, 2017.

Capital Lease Obligations

Our capital lease obligations pertain to various leasing agreements with Essex Capital Corporation (“Essex”), a related party to the Company as Essex’sEssex’s principal owner iswas a directormember of the Company.Board of Directors of the Company through January 22, 2018.

2014 Huntington Holdings,, LLC

On August 6, 2016, the 18-month anniversary of the closing of a share purchase agreement, we were required to pay the purchaser of the common stock the difference between $2.29 per share and either a defined market price or a price per share determined by a valuation firm acceptable to both parties. Based on an outside professional valuation performed on the Company’s common stock, the Company estimated the stock price guarantee payment to be $3,210. Accordingly, the Company recorded a loss on the stock purchase price guarantee of $3,210 and a corresponding liability for the same amount in 2016, which was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2016. On June 2, 2017, the two parties came toCompany issued an agreement in which we were required to issue an Unsecured Promissory Note (“Huntingtonunsecured promissory note (the “Huntington Note”) in favor of 2014 Huntington Holdings LLC (“Huntington”).Huntington.” The Huntington Note matures on June 2, 2019 with the principal amount of $3,200 payable at maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year from August 6, 2016 to August 15, 2017 and increases to 10% per year thereafter. We paid $50 to Huntington related to accrued interest from August 6, 2016 through the date of issuance of the Huntington Note. Huntington was required to return 778,385 shares of the Company’s common stock which were issued into escrow. We were required to provide certain piggyback registration rights to Huntington in regardsregard to the remaining 749,999 shares of the Company’s common stock held by Huntington. If the Huntington Note was paid off prior to August 14, 2017, the 778,385 shares held in escrow were to be released from escrow and transferred to the Company for no additional consideration. If the note remained outstanding on August 15, 2017, we had the right, but not the obligation, to pay $140 to Huntington to purchase 764,192 of the subject shares held in escrow (the “Subject Shares”).escrow. Upon the exercise of this purchase option, the Subject Sharessubject shares were to be released from escrow and transferred to the Company. If the note remained outstanding on August 15, 2017 and we did not exercise the option to purchase the shares, the shares were to be returned from escrow to Huntington and we would no longer have repurchase rights. On August 15, 2017, the note was outstanding, and we did not exceriseexercise the repurchase right. The 778,385 shares were returned from escrow to Huntington.

Financial Covenants

Certain of the foregoing debt agreements,, as amended, require us to meet certain affirmative and negative covenants, including maintenance of specified ratios. We amended our debt agreements with MidCap, Penta and JL, effective July 29, 2016, to, among other things, reset the financial covenants of each debt agreement. As of September 30, 2017, management believes2018, we arewere not in compliance with ourthese financial covenants for eachof the debt agreement.agreements; however, the lenders provided the Company with a waiver of the covenant violations through September 30, 2018.

NOTE 7 – WARRANTS AND REGISTRATION RIGHTS AGREEMENTS

The following table presents a summary of the status of our issued warrants as of September 30, 2017,2018, and changes during the nine months then ended:

Warrants Issued

Midcap Warrant

In connection with the line of credit agreement with MidCap described in Note 6, we issued MidCap a warrant, exercisable through January 22, 2018, for an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.76 per share (the “MidCap Warrant”Warrant 1”). We entered into a Registration Rights Agreementregistration rights agreement with Midcap, dated as of January 22, 2015, granting MidCap certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the MidCap Warrant 1. The MidCap warrant 1 was not exercised and expired on January 22, 2018.

On January 22, 2015, the Company entered into a revolving credit facility with MidCap Financial Trust, which subsequently assigned the agreement to an affiliate, Midcap Funding X Trust.

The agreement is amended from time to time and wherein it was necessary under the terms of the agreement to obtain MidCap's consent to the transactions contemplated by the above mentioned Great Harbor Note and Golisano LLC Note; on February 6, 2018, MidCap agreed to consent to the transactions contemplated in exchange for a warrant to MidCap exercisable for up to 500,000 shares of the Company’s common stock at an exercise price of $.76 per share (MidCap Warrant 2). The Company has reserved 500,000 shares of the Company’s common stock for issuance under MidCap Warrant. The warrant expires on February 6, 2019.

Penta Warrants

Pursuant to a stock purchase agreement dated June 30, 2015, a warrant was issued to Penta to purchase an aggregate 807,018 shares of our common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020. We granted Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant.

JL Warrants

Pursuant to a June 30, 2015 stock purchase agreement, a warrant was issued to JL to purchase an aggregate 403,509 shares of the Company’sCompany’s common stock at a price of $0.01 per share at any time prior to the close of business on June 30, 2020, subject to certain adjustments. We granted JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrant. The warrant was subsequently assigned by JL to two individuals.

Essex Warrants

In connection with the guarantee of a note payable issued in the Nutricap asset acquisition and equipment financingcapital lease obligations by Essex discussed in Note 6, Essex was issued a warrant exercisable for an aggregate 1,428,571 shares of the Company’s common stock at a purchase price of $0.77 per share, at any time prior to the close of business on June 30, 2020. The number of shares issuable upon the exercise of the warrant is subject to adjustment on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property. Essex subsequently assigned warrants for 350,649 shares to another company.

JL Properties, Inc. Warrants

In April 2015, we entered into an office lease agreement which requires a $1,000 security deposit, subject to reduction if we achieve certain market capitalization metrics at certain dates. On April 30, 2015, we entered into a reimbursement agreement with JL Properties, Inc. (“JL Properties”) pursuant to which JL Properties agreed to arrange for and provide an unconditional, irrevocable, transferable, and negotiable commercial letter of credit to serve as the security deposit. As partial consideration for the entry by JL Properties into the reimbursement agreement and the provision of the letter of credit, we issued JL Properties two warrants to purchase shares of the Company’sCompany’s common stock.

The first warrant is exercisable for an aggregate of 465,880 shares of common stock, subject to certain adjustments, at an aggregate purchase price of $0.01, at any time prior to April 30, 2020. In addition to adjustments on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property, the number of shares of common stock issuable pursuant to the warrant will be increased in the event our consolidated audited adjusted EBITDA (as defined in the warrant agreement) for the fiscal year ending December 31, 2018 does not equal or exceed $19,250. JL Properties subsequently assigned the warrant to two individuals.

The second warrant is exercisable for an aggregate of 86,962 shares of common stock, at a per share purchase price of $1.00, at any time prior to April 30, 2020. The number of shares issuable upon exercise of the second warrant is subject to adjustment on terms and conditions customary for a transaction of this nature in the event of (i) reorganization, recapitalization, stock split-up, combination of shares, mergers, consolidations and (ii) sale of all or substantially all of our assets or property.

We have granted JL Properties certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the two warrants.

Golisano LLC Warrants (formerly Penta Warrants)

In connection with the November 13, 2014 note for $8,000 (see Note 6), Penta was issued a warrant to acquire 4,960,740 shares of the Company’s common stock at an aggregate exercise price of $0.01, through November 13, 2019. In connection with Penta’s consent to the terms of additional debt obtained by us, we also granted Penta a warrant to acquire an additional 869,618 shares of common stock at a purchase price of $1.00 per share, through November 13, 2019. Both warrant agreements grant Penta certain registration rights, commencing October 1, 2015, for the shares of common stock issuable on exercise of the warrants. Penta has the right, under certain circumstances, to require us to purchase all or any portion of the equity interest in the Company issued or represented by the warrant to acquire 4,960,740 shares at a price based on the greater of (i) the product of (x) ten times our adjusted EBITDA with respect to the twelve months preceding the exercise of the put right multiplied bytimes (y) the investor’s percentage ownership in the Company assuming full exercise of the warrant; or (ii) the fair market value of the investor’s equity interest underlying the warrant. In the event (i) we do not have the funds available to repurchase the equity interest under the warrant or (ii) such repurchase is not lawful, adjustments to the principal of the note purchased by Penta will be made or, under certain circumstances, interest will be charged on the amount otherwise due for such repurchase. We have the right, under certain circumstances, to require Penta to sell to us all or any portion of the equity interest issued or represented by the warrant to acquire 4,960,740 shares. The price for such repurchase will be the greater of (i) the product of (x) eleven times our adjusted EBITDA with respect to the twelve months preceding the exercise of the call right multiplied bytimes (y) the investor’s percentage ownership in the company assuming full exercise of the warrant; or (ii) the fair market value of the equity interests underlying the warrant; or (iii) $3,750. In connection with Golisano LLC’s acquisition of the note payable from Penta on March 8, 2017 (see Note 6 above for additional information), these warrants were assigned to Golisano LLC.

Golisano LLC Warrants (formerly JL Warrants)

In connection with the January 22, 2015 note payable to JL, we issued JL warrants to purchase an aggregate of 2,329,400 shares of the Company’s common stock, at an aggregate exercise price of $0.01, through February 13, 2020. On February 4, 2015, we also granted to JL a warrant to acquire a total of 434,809 shares of common stock at a purchase price of $1.00 per share, through February 13, 2020. Both warrant agreements grant JL certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrants. These warrants were subsequently assigned to two individuals. During the year ended December 31, 2016, these individuals exercised warrants for a total of 1,187,995 shares of the Company’s common stock for total proceeds to the Company of less than $1. In connection with Golisano LLC’s acquisition of the note payable from JL on March 8, 2017 (see Note 6 above for additional information), the remaining portions of these warrants were assigned to Golisano LLC.

Golisano LLC Warrants

Pursuant to an October 2015 Securities Purchase Agreement with Golisano LLC, we issued Golisano LLC a warrant (the “Golisano Warrant”),which Golisano Warrant is intended to maintain, following each future issuance of shares of common stock pursuant to the conversion, exercise or exchange of certain currently outstanding warrants to purchase shares of common stock held by third-parties (the “Outstanding Warrants”), Golisano LLC’s proportional ownership of our issued and outstanding common stock so that it is the same thereafter as on October 5, 2015. We have reserved 12,697,977 shares of common stock for issuance under the Golisano Warrant. The purchase price for any shares of common stock issuable upon exercise of the Golisano Warrant is $.001 per share. The Golisano Warrant is exercisable immediately and up to and including the date which is sixty days after the later to occur of the termination, expiration, conversion, exercise or exchange of all of the Outstanding Warrants and our delivery of notice thereof to Golisano LLC. The Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. In addition, if any payments are made to a holder of an Outstanding Warrant in consideration for the termination of or agreement not to exercise such Outstanding Warrant, Golisano LLC will be entitled to equal treatment. We have entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015, granting Golisano LLC certain registration rights for the shares of common stock issuable on exercise of the Golisano Warrant. On February 6, 2016, Golisano LLC exercised the Golisano Warrant in part for 509,141 shares of the Company’s common stock for an aggregate purchase price of $1. During the year ended December 31, 2016, the Golisano Warrant was cancelled in part for 6,857,143 shares pursuant to the cancellation of a portion of the Outstanding Warrants. As of September 30, 2017,2018, we have reserved 4,756,505 shares of itsour common stock for issuance under the Golisano Warrant.

GH Warrant

In connection with the GH July 2018 Secured Promissory Note, we issued GH a warrant to purchase an aggregate of 2,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the "July 2018 GH Warrant"). The July 2018 Great Harbor Warrant is exercisable on any business day prior to the expiration date.   The Company has reserved 2,500,000 shares of the Company’s common stock for issuance under the July 2018 GH Warrant. The July 2018 GH Warrant expires on July 27, 2024. The July 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split, combination of shares, merger or consolidation. The Company estimated the value of the warrant using the Black-Scholes option pricing model and recorded a debt discount of $1,481 which will be amortized over the term of the GH July 2018 Secured Promissory Note. Amortized expense was $178 for the nine months ended September 30, 2018.

Warrants Issued into Escrow

Golisano Escrow Warrants

In connection with a January 28, 2016 Unsecured Promissory Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock at an exercise price of $0.01 per share (the “January 2016 Golisano Warrant”). The January 2016 Golisano Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of January 28, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the related note agreement). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the January 2016 Golisano Warrant. The January 2016 Golisano Warrant, if exercisable, expires on February 28, 2022. The January 2016 Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with a March 21, 2016 Unsecured Promissory Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 Golisano Warrant”). The March 2016 Golisano Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of March 21, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the related note agreement). We have reserved 3,181,816 shares of the Company’s common stock for issuance under the March 2016 Golisano Warrant. The March 2016 Golisano Warrant if exercisable, expires on March 21, 2022. The March 2016 Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with thethe Golisano LLC July 2016 Note,Notes we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 2,168,178 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano July 2016 Warrant”). The Golisano July 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano July 2016 Note and any accrued and unpaid interest thereon as of January 28, 2019 or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC July 2016 Note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Golisano July 2016 Warrant. The Golisano July 2016 Warrant if exercisable, expires on July 21, 2022. The Golisano July 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with thethe Golisano LLC December 2016 Note,Notes we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano December 2016 Warrant”). The Golisano December 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano December 2016 Note and any accrued and unpaid interest thereon as of December 30, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the Golisano LLC December 2016 Note)note). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the Golisano December 2016 Warrant. The Golisano December 2016 Warrant if exercisable, expires on December 30, 2022. The Golisano December 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with thethe Golisano LLC March 2017 Note,Notes we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,484,847 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “Golisano March 2017 Warrant”). The Golisano March 2017 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the Golisano March 2017 Note and any accrued and unpaid interest thereon as of December 30, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the Golisano LLC March 2017 Note)note). We have reserved 1,484,847 shares of the Company’s common stock for issuance under the Golisano March 2017 Warrant. The Golisano March 2017 Warrant if exercisable, expires on March 14, 2023. The Golisano March 2017 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

We previously entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015 (the “Registration Rights Agreement”), granting Golisano LLC certain registration rights for certain shares of the Company’s common stock. The shares of common stock issuable pursuant to the above warrants are also entitled to the benefits of the Registration Rights Agreement.

In connection with the Golisano LLC, February 2018 note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "Golisano 2018 Warrant"). The Golisano 2018 Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay Golisano LLC the entire unamortized principal amount of the note and any accrued and unpaid interest thereon as of February 6, 2021, or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the Golisano 2018 Warrant. The Golisano 2018 Warrant expires on February 6, 2024.

GH Escrow Warrants

In connection with a January 28, 2016 Unsecured Promissory Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock at an exercise price of $0.01 per share (the “January 2016 GH Warrant”). The January 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of January 28, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the related note agreement). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the January 2016 GH warrant. The January 2016 GH Warrant if exercisable, expires on February 28, 2022. The January 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with a March 21, 2016 Unsecured Promissory Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 GH Warrant”). The March 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of March 21, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the related note agreement). We have reserved 3,181,816 shares of the Company’s common stock for issuance under the March 2016 GH Warrant. The March 2016 GH Warrant if exercisable, expires on March 21, 2022. The March 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with thethe GH December 2016 Unsecured Promissory Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,136,363 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “December 2016 GH Warrant”). The December 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the December 2016 GH Warrantnote and any accrued and unpaid interest thereon as of December 30, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the December 2016 GH Warrant). We have reserved 1,136,363 shares of common stock for issuance under the December 2016 GH Warrant. The December 2016 GH Warrant if exercisable, expires on December 30, 2022. The December 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with thethe GH August 2017 Secured Promissory Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,363,636 shares of the Company’s common stock, at an exercise price of $0.01 per share (the “August 2017 GH Warrant”). The August 2017 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the August 2017 GH Warrantnote and any accrued and unpaid interest thereon as of August 29, 2020 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the August 2017 GH Warrant). We have reserved 1,363,636 shares of common stock for issuance under the August 2017 GH Warrant. The August 2017 GH Warrant if exercisable, expires on August 30, 2023. The August 2017 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

In connection with the GH February 2018 Secured Promissory Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "February 2018 GH Warrant"). The February 2018 GH Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay GH the entire unamortized principal amount of the note and any accrued and unpaid interest thereon as of February 6, 2021, or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the February 2018 GH Warrant. The February 2018 GH Warrant expires on February 6, 2024.

JL-US Escrow Warrant

In connection with an April 5, 2016 Unsecured Promissory Note, we issued into escrow in the name of JL-USJL-Utah Sub (“JL-US”) a warrant to purchase an aggregate of 227,273 shares of the Company’sCompany’s common stock at an exercise price of $0.01 per share (the “JL-US Warrant”). The JL-US Warrant will not be released from escrow or be exercisable unless and until we fail to pay JL-US the entire unamortized principal amount of the JL-US Notenote and any accrued and unpaid interest thereon as of March 21, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the JL-US Note)note). We have reserved 227,273 shares of the Company’s common stock for issuance under the JL-US Warrant. The JL-US Warrant, if exercisable, expires on March 21, 2022. The JL-US Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.

Little Harbor Escrow Warrant

The Little Harbor July 2016 Noteunsecured delayed draw promissory note provides that we issue into escrow in the name of Little Harbor a warrant to purchase an aggregate of 2,168,178 shares of common stock at an exercise price of $0.01 per share (the “Little Harbor July 2016 Warrant”). The Little Harbor July 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Little Harbor the entire unamortized principal amount of the Little Harbor July 2016 Notenote and any accrued and unpaid interest thereon as of January 28, 2019 or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the Little Harbor July 2016 Note)note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Little Harbor July 2016 Warrant. The Little Harbor July 2016 Warrant, if exercisable, expires on July 21, 2022. The Little Harbor July 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. The Little Harbor July 2016 Warrant grants Little Harbor certain registration rights for the shares of the Company’s common stock issuable upon exercise of the Little Harbor July 2016 Warrant.

NOTE 8 – DERIVATIVE LIABILITIES

The number of shares of common stock issuable pursuant to certain warrants issued in 2015 will be increased if our adjusted EBITDA or the market price of the Company’s common stock doesdo not meet certain defined amounts. We have recorded the estimated fair value of the warrants as of the date of issuance. Due to the variable terms of the warrant agreements, the warrants are recorded as derivative liabilities with a corresponding charge to our consolidated statements of comprehensive lossincome (loss) for changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date. As of September 30, 2017,2018, we have estimated the total fair value of the derivative liabilities to be $8,143$8,672 as compared to $6,455$6,791 as of December 31, 2016.2017. We had the following activity in our derivative liabilities account since December 31, 2016:for the nine months ended September 30, 2018:

The value of the derivative liabilities is generally estimated using an options lattice model with multiple inputs and assumptions, including the market price of the Company’sCompany’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

NOTE 9 – STOCKHOLDERS’ EQUITY (DEFICIT)

Preferred Stock

The Company has authorized 500,000,000 shares of preferred stock with a par value of $0.001 per share. No shares of the preferred stock have been issued.

Twinlab Consolidation Corporation 2013 Stock Incentive Plan

The only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees who will aid in the success of the Company. From January through December 2015, the Company granted restricted stock units to certain employees of the Company pursuant to the TCC Plan. Each restricted stock unit relates to one share of the Company’s common stock. The restricted stock unit awards vest 25% each annually on various dates through 2019. The Company estimated the grant date fair market value per share of the restricted stock units and is amortizing the total estimated grant date value over the vesting periods.  During the nine months ended September 30, 2017,2018, there were not any shares of common stock issued to employees pursuant to the vesting of restricted stock units. As of September 30, 2017, 6,060,9432018, 6,607,285 shares remain available for use in the TCC Plan.

Common Stock Repurchase

On January 5, 2017, pursuant to a repurchase agreement 642,366 shares of the Company’sCompany’s common stock were repurchasedwas purchased by the Company for an aggregate repurchase price of less than $1.

Stock Subscription Receivable and Loss on Stock Price Guarantee

At As of September 30, 2017,2018, the stock subscription receivable dated August 1, 2014 for the purchase of 1,528,384 shares of the Company’s common stock had a principal balance of $30 and bears interest at an annual rate of 5%.

On AugustJune 6, 2016,2018, the 18-month anniversaryCompany issued 4,166,667 shares of common stock to Platinum Advisory Services, LLC in accordance with the terms of the closing of a share purchase agreement, we were required to payEquity in Exchange for Services Agreement that the purchaser of the common stock the difference between $2.29 per share and either a defined market price or a price per share determined by a valuation firm acceptable to both parties. Basedparties entered into on an outside professional valuation performed on the Company’s common stock,December 27, 2017, wherein the Company estimatedreceived advertising services in exchange for the stock price guarantee payment to be $3,210. Accordingly,shares.

NOTE 10 – SUBSEQUENT EVENTS

Financing

Great Harbor Capital

On November 5, 2018, the Company recordedissued a loss on the stock purchase price guarantee of $3,210 and a corresponding liability for the same amount in 2016, which was included in accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2016. On June 2, 2017, the two parties came to an agreement in which we were required to issue the HuntingtonSecured Promissory Note in favor of Huntington. The Huntington Note matures on June 2, 2019 withGH, pursuant to which GH has loaned the Company the principal amount of $3,200 payable at maturity.$4,000, ("Great Harbor Note 4"). The Great Harbor Note 4 matures on November 5, 2021. Interest on the outstanding principal accrues at a rate of 8.5% per year from August 6, 2016 to August 15, 2017, and increases to 10% per year thereafter. We paid $50 to Huntington related to accrued interest from August 6, 2016 throughis payable monthly on the datefirst day of issuanceeach month, beginning December 1, 2018. The principal of the Huntington Note. Huntington was requiredGreat Harbor Note 4 is payable at maturity. The Great Harbor Note 4 is secured by collateral. The Great Harbor Note 4 is subordinate to return 778,385the indebtedness owed to MidCap. The Great Harbor Note 4 is senior to the indebtedness owed to Little Harbor, LLC and Golisano Holdings LLC.

The Company also issued to GH a warrant to purchase an aggregate of 2,000,000 shares of the Company’sCompany common stock which were issued into escrow. We were requiredat an exercise price of $.01 per share (the "November 2018 Great Harbor Warrant"). The November 2018 Great Harbor Warrant is exercisable on any business day prior to providethe expiration date.  The Company has reserved 2,000,000 shares of Company common stock for issuance under the November 2018 Great Harbor Warrant. The November 2018 Great Harbor Warrant expires on November 5, 2024.

The November 2018 Great Harbor Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split up, combination of shares, merger or consolidation. The November 2018 Great Harbor Warrant grants GH certain piggyback registration rights to Huntington in regardsfor the shares of Company common stock issuable upon exercise of the November 2018 Great Harbor Warrant.

Golisano Holdings LLC

The Company entered into the Thirteenth Amendment to the remaining 749,999 sharesNote and Warrant Purchase Agreement, dated as of November 5, 2018, by and among the Company’s common stock heldCompany and Golisano LLC, as successor by Huntington. If the Huntington Note was paid off priorassignment to August 14, 2017, the 778,385 shares held in escrow were to be released from escrow and transferredJL-Mezz Utah, LLC f/k/a JL-BBNC Mezz Utah, LLC to the Company for no additional consideration. If the note remained outstanding on August 15, 2017, we had the right, but not the obligation,original Note and Warrant Purchase Agreement, dated as of January 22, 2015, as amended from time to pay $140 to Huntington to purchase 764,192 of the Subject Shares held in escrow. Upon the exercise of this purchase option, the Subject Shares were to be released from escrow and transferred to the Company. If the note remained outstanding on August 15, 2017 and we did not exercise the option to purchase the shares, the shares were to be returned from escrow to Huntington and we would no longer have repurchase rights. On August 15, 2017, the note was outstanding and we did not excerise the repurchase right. The 778,385 shares were returned from escrow to Huntington.time (the “Thirteenth Amendment”). Pursuant to the agreement, we wereThirteenth Amendment, Golisano LLC consented to the secured loan in the amount of $4,000 from GH.

The Company also requiredentered into the Fourteenth Amendment to enter intoNote and Warrant Purchase Agreement and Limited Consent, dated as of November 5, 2018, by and among the Company and Golisano LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. to the original Note and Warrant Purchase Agreement, dated as of November 13, 2014, as amended from time to time (the “Fourteenth Amendment”). Pursuant to the Fourteenth Amendment, Golisano LLC consented to the secured loan in the amount of $4,000 from GH.

Midcap Funding X Trust

On November 5, 2018, MidCap consented to the Great Harbor Note 3 and the repayment of the Great Harbor Note 3 in the future. The Company, its subsidiaries and Midcap, as successor-by-assignment from MidCap Financial Trust, are parties to a four-year lease agreement with the purchaser relatedcertain Senior Credit Facility dated as of January 22, 2015, as amended from time to our premises occupied by Nutricap.time (the "Credit Agreement").

Overview

This Quarterly Report on Form 10-Q contains forward-looking statements. AnyThe following Management’s Discussion and Analysis of Financial Condition and Results of Operations and other materials we file with the Securities and Exchange Commission (the "SEC") (as well as information included in oral statements contained herein that are notor other written statements of historical fact may be deemedmade or to be forward-looking statementsmade by us) contain certain "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). TheAny statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words “believes,” “anticipates,” “plans,” “expects,” “intends”such as anticipates, believes, estimates, expects, intends, predicts, hopes, should, plans, will and similar expressions to identify some of the forward-looking statements. Forward-lookingThese statements are not guarantees of performance or futurebased on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results and involve risks, uncertainties and assumptions. The factors discussed elsewhere in this Form 10-Q and in subsequent Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, could also cause actual results to differmay vary materially from those indicated bythe expectations contained herein due to various important factors, including (but not limited to): consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; pricing and gross sales margins; the associated fees or estimated cost savings from contract renegotiations; and our forward-looking statements. We undertake no obligationability to publicly update or revise any forward-looking statements.establish and maintain acceptable commercial terms with contract manufacturers.

Our Operations

We are an integrated manufacturer, marketer, distributor and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass marketmarket retailers, specialty storesstore retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.

Our products include vitamins, minerals, specialty supplements and sports nutrition products primarily under the Twinlab® (including the REAAL®, and Twinlab® Fuel brand of sports nutrition products), Reserveage™ and ResVitale® brands. We also manufacture and sell diet and energy products under the Metabolife® and Re-Body® brands and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders and whole herbs. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.

We also perform contract manufacturing services for private label products.  Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished products under the customer’s own brand name.  We do not market these private label products as our business is to manufacture and sell the products to the customer, who then markets and sells the products to retailers or end consumers.

We manufacture and/or distribute one of the broadest branded product lines in the industry with approximately 260 stock keeping units, or SKUs. We believe that as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and among their customers.

We have fully integrated our two 2015 acquisitions.  The first was the acquisition of the customer relationships of Nutricap, a provider of dietary supplement contract manufacturing services, into our subsidiary, NutraScience, in February 2015, and the second was the acquisition of 100% of the equity interests of Organic Holdings, a market leader in the healthy aging and beauty from within categories and owner of the award-winning Reserveage™ Nutrition brand, in October 2015. Progress has been made in consolidating manufacturing operations and weWe continue to believe that these acquisitions significantly strengthened our product offerings, contract manufacturing services and our sales and marketing capabilities, providing us with opportunities to improve our market position in addition to adding to supply chain efficiencies.

Recent Developments

Chief Executive Officer and Board Member Changes

On July 17, 2018, the Board of Directors appointed Anthony Zolezzi as the Company’s Chief Executive Officer and President.

On July 17, 2018, the Company and Mr. Zolezzi entered into an employment agreement (the “Zolezzi Employment Agreement”), outlining the terms of Mr. Zolezzi’s employment with the Company. Under the terms of the Zolezzi Employment Agreement, Mr. Zolezzi will also be granted an initial equity award of restricted stock. The initial equity award is for up to 8,000,000 shares of common stock ("Initial Equity Award") with an exercise price equal to the fair market value of the Company's common stock and is subject to the Company's 2013 Stock Incentive Plan and further issuance of shares as necessary.  

On August 16, 2018, Alan S. Gever, Chief Financial Officer and Chief Operations Officer of the Company tendered his resignation that was accepted on August 21, 2018, by the Board of Directors of the Company.  The Board of Directors appointed Carla Goffstein as interim Chief Financial Officer, effective August 21, 2018. These events were disclosed in their entirety in the Company’s Form 8-K filed with the SEC on August 21, 2018. 

On September 28, 2018, the Company filed its definitive proxy statement on Schedule 14A and its definitive additional materials announcing that its Annual Meeting and Proxy Vote would take place on November 9, 2018 at the Company’s headquarters in Boca Raton, Florida.

Plant Transition

On January 25, 2018, the Company announced that as part of a plan improving operational efficiencies, the Company will transition the manufacturing of the balance of its products to strategic manufacturing partners (the “Transition”). The announcement came the same day the Board of Directors made the decision to undertake the Transition. The Board of Directors believe that restructuring the supply chain similar to that of our NutraScience division, and leveraging access to exclusive technologies, and processes, should result in greater flexibility, more efficient capital allocation and an improved cost structure, all of which are believed to be in the best interest of the Company and its stockholders.

The Company has and expects to continue to incur certain foreseeable and unforeseeable costs to make the Transition, which have included but are not limited to increasing inventory to maintain products and services throughout the Transition, as well as providing severance to the affected Utah based employees. An accrual of $1.5 million was made at the end of March 31, 2018 for severance pay for Utah based employees scheduled to be terminated at various times this year. According to the plan, production at the underutilized American Fork, Utah facility ceased on or about April 30, 2018, has been shut down since April 30, 2018, but the clean-out of the facility is on-going and is expected to be completed on or about January 31, 2019. All manufacturing has been moved to our portfolio of qualified contract manufacturing partners across the country. We have also selected a third party logistics provider (“3PL”) to handle all of our warehouse and distribution needs.

Our contract manufacturing partners include softgel manufacturers, liquid manufacturers, capsule and tablet manufacturers, bulk powder operations and other specialty manufacturers when needed. These contract manufacturers do business with us under both short and long-term contracts depending on our needs. We do not manufacture any of the basic materials used in packaging (bottles, boxes, shipping cartons, caps, tamper resistant films, etc.). We believe that our portfolio of contract manufacturing partners provides us with flexibility and nimbleness in our supply chain giving us a competitive advantage.  In addition, we have redundancy across contract manufacturers giving us further flexibility.

We employ a supply chain staff that works with marketing, product development, formulations and quality control personnel as we carefully manage our contract manufacturing partners. Raw materials are sourced by our contract manufacturing partners through a variety of domestically and internationally approved suppliers principally from the United States, Europe and China. We have long-term relationships with many of our contract manufacturing partners and we are constantly evaluating our partners and looking for new relationships that can add value to our supply chain operations.

Going Concern Uncertainty

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. In most periods since our formation, we have generated losses from operations. AtAs of September 30, 2017,2018, we had an accumulated deficit of $237,326.$273,373. Historical losses are primarily attributable to lower than planned sales resulting from low fill rates on demand due to limitations of our working capital, delayed product introductions and postponed marketing activities, merger-related and other restructuring costs, and interest and refinancing charges associated with our debt refinancing. Losses have been funded primarily through issuance of common stock and third-party or related party debt.

Because of this history of operating losses, significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $8,531 at$83,081 as of September 30, 2017.2018.  We also have $17,091$73,173 of debt, net of discount, due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.

Management has taken steps to addressaddressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. During the nine months ended September 30, 2017,2018, we obtained debt funding totaling $6,267$9,000 to execute the new supply chain initiatives and increase inventory levels.levels to support the closure of Utah facility initiatives. This funding will assist the company to pay for severance cost, unpaid vacation, and other facility closure expenses. Additionally, the funding will also enable the Company to procure inventory and launch new product initiatives. It is possible that we may need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all. To meet capital requirements, the Company may consider selling certain assets.

Critical Accounting Policies and Estimates

This discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which we have prepared in accordance with the U.S. generally accepted accounting principles. The preparation of our financial statements required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates include values and lives assigned to acquired intangible assets, reserves for customer returns and allowances, uncollectible accounts receivable, valuation adjustments for slow moving, obsolete and/or damaged inventory and valuation, recoverability of long-lived assets, intangibles and goodwill, estimated values of stock options and warrants, share-based compensation, and the identification and valuation of derivatives. Actual results may differ from these estimates.

Our critical accounting policies and estimates include the following:

Revenue Recognition

Revenue from product sales, net of estimated returns and allowances, is recognized when evidence of an arrangement is in place, related prices are fixed, and determinable, contractual obligations have been satisfied, title and risk of loss have been transferred to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point. We sell predominately in the North American and European markets, with international sales transacted in U.S. Dollars.

Accounts Receivable and Allowances

We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims, related to promotional items; customer discounts; shipping shortages and damages; and doubtful accounts based upon historical bad debt and claims experience.

Inventories

Inventories are stated at the lower of cost or net realizable value and are reduced by an estimated reserve for obsolete inventory.

Intangible Assets

Intangible assets consist primarily of trademarks and customer relationships, which are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 30 years. The valuation and classification of these assets and the assignment of amortizable lives involve significant judgment and the use of estimates.

We believe that our long-term growth strategy supports our fair value conclusions. For intangible assets, the recoverability of these amounts is dependent upon achievement of our projections and the execution of key initiatives related to revenue growth and improved profitability.

Goodwill

Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge would be recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.

Indefinite-Lived Intangible Assets

Indefinite-lived intangible assets relating to the asset acquisition of Organic Holdings are determined to have an indefinite useful economic life and as such are not amortized. Indefinite-lived intangible assets are tested for impairment annually which consists of a comparison of the fair value of the asset with its carrying value.

Value of Warrants Issued with Debt

We estimate the grant date value of certain warrants issued with debt, using an outside professional valuation firm, which uses the Monte Carlo option lattice model. We record the amounts as interest expense or debt discount, depending on the terms of the agreement. These estimates involve multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project earnings before interest, taxes, depreciation and amortization (“EBITDA”) and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

Derivative Liabilities

We have recorded certain warrants as derivative liabilities at estimated fair value, as determined based on the Company’sCompany’s use of an outside professional valuation firm, due to the variable terms of the warrant agreements. The value of the derivative liabilities is generally estimated using Monte Carlo option lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.

Share-Based Compensation

We record share-based compensation, including grants of restricted stock units, based on their grant date fair values and record compensation expense over the vesting period of the restricted stock awards.

Income Taxes

We account for income taxes using an asset and liability approach. Deferred income taxes are determined by applying currently enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. Valuation allowances against deferred tax assets are recorded when we are unable to conclude that it is more likely than not that such deferred tax assets will be realized.

Results of Operations

Net Sales

Our net sales decreased $2,434,$5,679, or 11%28%, to $14,933 for the three months ended September 30, 2018 from $20,612 for the three months ended September 30, 2017 from $23,046 for the three months ended September 30, 2016. 2017. On a year-to-date basis, our net sales increased $245,decreased $9,871, or 0%15%, to $56,259 for the nine months ended September 30, 2018 from $66,130 for the nine months ended September 30, 2017 from $65,885 for the nine months ended September 30, 2016. The decrease2017. These decreases in our net sales for the three months ended September 30, 2017 reflects the decisionare primarily related to exit certain lower margin contract manufacturing business ata continued declining trend in Twinlab and lower TwinlabOrganic Holdings branded sales due to lost distribution from out-of-stock conditions caused by order fulfillment shortfalls during 2016. Our netfulfilment shortfalls.  Additionally, sales for the nine months ended September 30,volume from a major customer in 2017 increased due to organic growthwas not repeated in Nutrascience’s contract manufacturing business.2018.