United States
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.WASHINGTON, DC 20549
Form
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2017 30, 2023
OR
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________from ____ to ______________
Commission file number 000-55181File Number: 000-55181
Twinlab Consolidated Holdings, Inc.
TWINLAB CONSOLIDATED HOLDINGS, INC.
(Exact name of registrantregistrant as specified in its charter)
Nevada | 46-3951742 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
4800 T-Rex Avenue, Suite
|
| |
Boca Raton, Florida | 33431 | |
(Address of principal executive offices) | (Zip Code) |
(561) 443-4301
(561) 443-5301
(Registrant’sRegistrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,filer, a non-acceleratednon-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”company,” and “emerging growth company” in Rule 12b-2 of the ExchangeExchange Act.:
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
|
| |||||
Emerging growth company | ☐ | |||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No☒
Yes ☐ No ☒
The number of shares of common stock, $0.001 par value $0.001, outstanding on November 14, 20179, 2023 was 252,924,027 259,092,833shares.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our strategy, future operations, future financial position, future revenue, projected costs, prospects, plans, objectives of management and expected market growth, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.
The words “anticipate,” “believe,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “predict,” “project,” “target,” “potential,” “contemplate,” “goals,” “will,” “would,” “could,” “should,” “continue,” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements include, among other things, statements about our plans and ability to raise additional capital, including through equity offerings, debt financing, collaborations, strategic alliances, sales of assets, other merger and acquisition activities, or licensing arrangements; the impact of the ongoing COVID-19 pandemic; wide spread health concerns; supply chain disruptions; the impact of inflation; consumer preferences; spending and debt levels; and the general economic and credit environment.
These forward-looking statements are only predictions and we may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. You should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our business, financial condition and operating results. We have included important factors in the cautionary statements included and in “Part I, Item 1A - Risk Factors” included in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023 that could cause actual future results or events to differ materially from the forward-looking statements that we make.
You should read this Quarterly Report on Form 10-Q and the documents that we have filed as exhibits to this Quarterly Report on Form 10-Q with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements whether as a result of new information, future events or otherwise, except as required by applicable law.
Twinlab Consolidated Holdings, Inc.
Form 10-Q
Page No. | |||
Item 1. |
| ||
| Condensed Consolidated Balance Sheets (Unaudited) | 1 | ||
| Condensed Consolidated Statements of Operations (Unaudited) | 2 | ||
| Condensed Consolidated Statements of | 3 | ||
| Condensed Consolidated Statements of Cash Flows (Unaudited) | |||
| Notes to Condensed Consolidated Financial Statements (Unaudited) | 5 | ||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item |
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| 28 | |||
Item 1. |
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Item | Unregistered Sales of Equity Securities and Use of Proceeds |
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| Item 3. | Defaults Upon Senior Securities |
| |
| |||
| Item 4. | Mine Safety Disclosures | 28 | |
| Item 5. | Other Information | 28 | |
| Item 6. | Exhibits | 29 | |
| Signatures | 30 | ||
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 2,233 | $ | 5,097 | ||||
Accounts receivable, net of allowance of $2,777 and $2,365, respectively | 8,737 | 7,768 | ||||||
Inventories, net | 18,368 | 17,601 | ||||||
Prepaid expenses and other current assets | 2,238 | 2,870 | ||||||
Total current assets | 31,576 | 33,336 | ||||||
Property and equipment, net | 3,240 | 3,528 | ||||||
Intangible assets, net | 28,450 | 30,197 | ||||||
Goodwill | 24,098 | 24,098 | ||||||
Other assets | 1,768 | 1,667 | ||||||
Total assets | $ | 89,132 | $ | 92,826 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,607 | $ | 7,866 | ||||
Accrued expenses and other current liabilities | 10,266 | 11,434 | ||||||
Derivative liabilities | 8,143 | 6,455 | ||||||
Notes payable and current portion of long-term debt, net of discount of $1,871 and $2,297, respectively | 17,091 | 11,631 | ||||||
Total current liabilities | 40,107 | 37,386 | ||||||
Long-term liabilities: | ||||||||
Deferred gain on sale of assets | 1,606 | 1,727 | ||||||
Deferred tax liability | 959 | 959 | ||||||
Notes payable and long-term debt, net of current portion and discount of $2,102 and $3,451, respectively | 57,162 | 50,988 | ||||||
Total long-term liabilities | 59,727 | 53,674 | ||||||
Total liabilities | 99,834 | 91,060 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity (deficit): | ||||||||
Preferred stock, $0.001 par value, 500,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.001 par value, 5,000,000,000 shares authorized, 387,730,078 shares issued | 388 | 388 | ||||||
Additional paid-in capital | 226,766 | 226,380 | ||||||
Stock subscriptions receivable | (30 | ) | (30 | ) | ||||
Treasury stock, 134,806,051 and 134,163,685 shares at cost, respectively | (500 | ) | (500 | ) | ||||
Accumulated deficit | (237,326 | ) | (224,472 | ) | ||||
Total stockholders’ equity (deficit) | (10,702 | ) | 1,766 | |||||
Total liabilities and stockholders' equity (deficit) | $ | 89,132 | $ | 92,826 | ||||
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share data)
September 30, 2023 | December 31, 2022 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | 50 | $ | 866 | ||||
Accounts receivable, net | 1,005 | 1,217 | ||||||
Inventories, net | 4,400 | 6,864 | ||||||
Prepaid expenses and other current assets | 257 | 319 | ||||||
| Current assets of discontinued operations | - | 5,872 | ||||||
Total current assets | 5,712 | 15,138 | ||||||
Property and equipment, net | 15 | 19 | ||||||
Right-of-use assets | 2,345 | 2,945 | ||||||
Intangible assets, net | 120 | 120 | ||||||
Other assets | 1,274 | 1,255 | ||||||
| Non-current assets of discontinued operations | - | 1,435 | ||||||
Total assets | $ | 9,466 | $ | 20,912 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 5,533 | $ | 2,487 | ||||
Lease liabilities | 1,087 | 844 | ||||||
Accrued expenses and other current liabilities | 3,996 | 1,628 | ||||||
Accrued interest | 38,219 | 33,316 | ||||||
Notes payable and current portion of long-term debt | 95,349 | 97,381 | ||||||
| Current liabilities of discontinued operations | - | 6,530 | ||||||
Total current liabilities | 144,184 | 142,186 | ||||||
Long-term liabilities: | ||||||||
Lease liabilities | 2,758 | 3,090 | ||||||
| Long-term liabilities of discontinued operations | - | 947 | ||||||
Total long-term liabilities | 2,758 | 4,037 | ||||||
Total liabilities | 146,942 | 146,223 | ||||||
Stockholders’ deficit: | ||||||||
Preferred stock, $0.001 par value, 500,000,000 shares authorized, no shares issued and outstanding | - | - | ||||||
Common stock, $0.001 par value, 5,000,000,000 shares authorized, 393,898,884 and 393,898,884 shares issued, respectively | 394 | 394 | ||||||
Additional paid-in capital | 231,249 | 231,249 | ||||||
Stock subscriptions receivable | (30 | ) | (30 | ) | ||||
Treasury stock, 134,806,051 shares at cost | (500 | ) | (500 | ) | ||||
Accumulated deficit | (368,589 | ) | (356,424 | ) | ||||
Total stockholders’ deficit | (137,476 | ) | (125,311 | ) | ||||
Total liabilities and stockholders' deficit | $ | 9,466 | $ | 20,912 | ||||
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
statements.
| 1 |
Twinlab Consolidated Holdings, Inc.
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Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 20,612 | $ | 23,046 | $ | 66,130 | $ | 65,885 | ||||||||
Cost of sales | 17,103 | 15,963 | 50,368 | 49,405 | ||||||||||||
Gross profit | 3,509 | 7,083 | 15,762 | 16,480 | ||||||||||||
Selling, general and administrative expenses | 6,646 | 7,760 | 20,574 | 26,249 | ||||||||||||
Loss from operations | (3,137 | ) | (677 | ) | (4,812 | ) | (9,769 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | (1,876 | ) | (2,423 | ) | (6,318 | ) | (6,530 | ) | ||||||||
Loss on stock purchase guarantee | - | - | - | (3,210 | ) | |||||||||||
Gain (loss) on change in derivative liabilities | (393 | ) | 14,065 | (1,688 | ) | 28,128 | ||||||||||
Other income (expense), net | (12 | ) | 3 | (36 | ) | (18 | ) | |||||||||
Total other income (expense) | (2,281 | ) | 11,645 | (8,042 | ) | 18,370 | ||||||||||
Income (loss) before income taxes | (5,418 | ) | 10,968 | (12,854 | ) | 8,601 | ||||||||||
Provision for income taxes | - | - | - | (17 | ) | |||||||||||
Total comprehensive income (loss) | $ | (5,418 | ) | $ | 10,968 | $ | (12,854 | ) | $ | 8,584 | ||||||
Weighted average number of common shares outstanding – basic | 252,924,027 | 250,806,152 | 252,935,792 | 264,740,245 | ||||||||||||
Net income (loss) per common share – basic | $ | (0.02 | ) | $ | 0.04 | $ | (0.05 | ) | $ | 0.03 | ||||||
Weighted average number of common shares outstanding – diluted (2016 corrected - see Note 1) | 252,924,027 | 264,224,781 | 252,935,792 | 277,221,732 | ||||||||||||
Net loss per common share – diluted (2016 corrected - see Note 1) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.07 | ) | ||||
(amounts in thousands, except share and per share data)
Three Months Ended | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
Net sales | $ | 3,676 | $ | 4,597 | $ | 10,473 | $ | 14,271 | ||||||||
Cost of sales | 2,345 | 2,711 | 6,475 | 7,868 | ||||||||||||
Gross profit | 1,331 | 1,886 | 3,998 | 6,403 | ||||||||||||
Operating costs and expenses: | ||||||||||||||||
Selling expenses | 342 | 784 | 933 | 2,262 | ||||||||||||
General and administrative expenses | 1,191 | 2,019 | 3,769 | 4,889 | ||||||||||||
Loss from operations | (202 | ) | (917 | ) | (704 | ) | (748 | ) | ||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net | (2,107 | ) | (2,064 | ) | (6,429 | ) | (5,876 | ) | ||||||||
Other income (expense) | (16 | ) | - | 14 | 1,676 | |||||||||||
Total other expense | (2,123 | ) | (2,064 | ) | (6,415 | ) | (4,200 | ) | ||||||||
Loss before income taxes | (2,325 | ) | (2,981 | ) | (7,119 | ) | (4,948 | ) | ||||||||
Provision for income taxes | (25 | ) | - | (32 | ) | - | ||||||||||
| Net loss from continuing operations | (2,350 | ) | (2,981 | ) | (7,151 | ) | (4,948 | ) | ||||||||
| Net income (loss) from discontinued operations, net of income taxes | (3,014 | ) | 55 | (5,015 | ) | 79 | ||||||||||
Total net loss | $ | (5,364 | ) | $ | (2,926 | ) | $ | (12,166 | ) | $ | (4,869 | ) | ||||
| Net loss from continuing operation per share of common stock | ||||||||||||||||
| Basic earning per share | (0.01 | ) | (0.01 | ) | (0.03 | ) | (0.02 | ) | ||||||||
| Diluted earning per share | (0.01 | ) | (0.01 | ) | (0.03 | ) | (0.02 | ) | ||||||||
| Net loss from discontinuing operation per share of common stock | ||||||||||||||||
| Basic earning per share | (0.01 | ) | - | (0.01 | ) | - | ||||||||||
| Diluted earning per share | (0.01 | ) | - | (0.01 | ) | - | ||||||||||
Weighted average number of common shares outstanding - basic | 259,092,833 | 259,092,833 | 259,092,833 | 259,092,833 | ||||||||||||
Net loss per common share - basic | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.02 | ) | ||||
Weighted average number of common shares outstanding - diluted | 259,092,833 | 259,092,833 | 259,092,833 | 259,092,833 | ||||||||||||
Net loss per common share - diluted | ||||||||||||||||
(See Note 2 - Summary of Significant Accounting Policies) | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.02 | ) | ||||
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
| 2 |
Twinlab Consolidated Holdings, Inc.
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Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (12,854 | ) | $ | 8,584 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Depreciation and amortization | 2,416 | 2,212 | ||||||
Amortization of debt discount | 1,774 | 2,717 | ||||||
Stock-based compensation | 386 | 540 | ||||||
Provision for obsolete inventory | 466 | 1,194 | ||||||
Provision for losses on accounts receivable | 167 | 267 | ||||||
Loss on stock purchase price guarantee | - | 3,210 | ||||||
(Gain) loss on change in derivative liabilities | 1,688 | (28,128 | ) | |||||
Other non-cash items | (121 | ) | (124 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | (1,136 | ) | (2,293 | ) | ||||
Inventories | (1,233 | ) | (4,044 | ) | ||||
Prepaid expenses and other current assets | 632 | (1,113 | ) | |||||
Other assets | (101 | ) | 63 | |||||
Accounts payable | (3,259 | ) | (5,241 | ) | ||||
Accrued expenses and other current liabilities | 2,032 | 1,621 | ||||||
Net cash used in operating activities | (9,143 | ) | (20,535 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchase of property and equipment | (51 | ) | (119 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from the exercise of warrants | - | 1 | ||||||
Proceeds from the issuance of debt | 6,267 | 22,089 | ||||||
Repayment of debt | (1,583 | ) | (2,973 | ) | ||||
Net borrowings from revolving credit facility | 1,646 | 3,342 | ||||||
Net cash provided by financing activities | 6,330 | 22,459 | ||||||
Net increase (decrease) in cash | (2,864 | ) | 1,805 | |||||
Cash at the beginning of the period | 5,097 | 1,240 | ||||||
Cash at the end of the period | $ | 2,233 | $ | 3,045 | ||||
(amounts in thousands, except share and per share data)
|
| Common Stock |
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| Additional Paid-in |
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| Stock Subscriptions |
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| Treasury Stock |
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| Accumulated |
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| Shares |
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| Amount |
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| Capital |
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| Receivable |
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| Shares |
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| Amount |
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| Deficit |
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| Total |
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Balance, December 31, 2021 |
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| 393,898,884 |
|
| $ | 394 |
|
| $ | 231,249 |
|
| $ | (30 | ) |
|
| 134,806,051 |
|
| $ | (500 | ) |
| $ | (348,202 | ) |
| $ | (117,089 | ) |
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 276 |
|
|
| 276 |
|
Balance, March 31, 2022 |
|
| 393,898,884 |
|
| 394 |
|
| 231,249 |
|
| (30 | ) |
|
| 134,806,051 |
|
| (500 | ) |
| (347,926 | ) |
| (116,813 | ) | ||||||
| Net loss | - | - | - | - | - | - | (2,219 | ) | (2,219 | ) | ||||||||||||||||||||||
| Balance, June 30, 2022 | 393,898,884 | 394 | 231,249 | (30 | ) | 134,806,051 | (500 | ) | (350,145 | ) | (119,032 | ) | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (2,926 | ) | (2,926 | ) | ||||||||||||||||||||||
| Balance, September 30, 2022 | 393,898,884 | $ | 394 | $ | 231,249 | $ | (30 | ) | 134,806,051 | $ | (500 | ) | $ | (353,071 | ) | $ | (121,958 | ) | ||||||||||||||
Balance, December 31, 2022 |
|
| 393,898,884 |
|
| $ | 394 |
|
| $ | 231,249 |
|
| $ | (30 | ) |
|
| 134,806,051 |
|
| $ | (500 | ) |
| $ | (356,424 | ) |
| $ | (125,311 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (2,810 | ) |
|
| (2,810 | ) |
| Balance, March 31, 2023 | 393,898,884 | 394 | 231,249 | (30 | ) | 134,806,051 | (500 | ) | (359,234 | ) | (128,121 | ) | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (3,991 | ) | (3,991 | ) | ||||||||||||||||||||||
| Balance, June 30, 2023 | 393,898,884 | 394 | 231,249 | (30 | ) | 134,806,051 | (500 | ) | (363,225 | ) | (132,112 | ) | ||||||||||||||||||||
| Net loss | - | - | - | - | - | - | (5,364 | ) | (5,364 | ) | ||||||||||||||||||||||
| Balance, September 30, 2023 | 393,898,884 | $ | 394 | $ | 231,249 | $ | (30 | ) | 134,806,051 | $ | (500 | ) | $ | (368,589 | ) | $ | (137,476 | ) | ||||||||||||||
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
| 3 |
Twinlab Consolidated Holdings, Inc.
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Nine Months Ended | ||||||||
September 30, | ||||||||
2017 | 2016 | |||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid for interest | $ | 982 | $ | 3,818 | ||||
Cash paid for income taxes | - | 27 | ||||||
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS: | ||||||||
Decrease in derivative liabilities and increase in common stock and additional paid-in capital on exercise of warrants | $ | - | $ | 1,975 | ||||
Issuance of other liability for purchase of treasury shares | - | 500 | ||||||
Relief of stock subscription accrual through long-term debt | (3,200 | ) | - | |||||
Issuance of new long-term debt as payment of existing stock subscription accrual | 3,200 | - | ||||||
Property and equipment acquired through the issuance of capital leases | 330 | - | ||||||
Repayment of short-term debt | - | (2,589 | ) | |||||
Issuance of long-term debt | - | 2,589 | ||||||
(amounts in thousands)
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| Nine Months Ended |
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| 2023 |
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| 2022 |
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Cash flows from operating activities: |
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Net loss |
| $ | (12,166 | ) |
| $ | (4,869 | ) |
Net income (loss) from discontinued operations | (5,015 | ) | 79 | |||||
Net loss from continuing operations | (7,151 | ) | (4,948 | ) | ||||
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities |
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|
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| ||
Depreciation and amortization |
|
| 33 |
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| 125 |
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Amortization of right-to-use assets |
|
| 1,820 |
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| 715 |
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Provision for (recovery of) obsolete inventories |
|
| 485 |
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| (547 | ) | |
Provision for (recovery of) losses on accounts receivable |
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| 1,499 |
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| (391 | ) | |
Forgiveness of PPP loan |
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| - |
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| (1,674 | ) | |
Other non-cash items | 140 | 373 | ||||||
Changes in operating assets and liabilities: |
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|
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Accounts receivable |
|
| 1,601 |
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| (152 | ) | |
Inventories |
|
| 4,523 |
|
| (4,192 | ) | |
Prepaid expenses and other current assets |
|
| 502 |
|
| 783 | ||
| Other assets | 28 | - | ||||||
Accounts payable |
|
| (1,088 | ) |
|
| (797 | ) |
Lease liabilities |
|
| (1,352 | ) |
|
| (767 | ) |
Accrued expenses and other current liabilities |
|
| 5,191 |
|
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| 3,844 |
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Net cash provided by (used in) continuing operation | 1,216 | (7,549 | ) | |||||
Net cash provided by discontinued operation | 1 | - | ||||||
| Net cash provided by (used in) operating activities |
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| 1,217 |
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| (7,549 | ) | |
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Cash flows from investing activities: |
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Purchases of property and equipment |
|
| - |
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| (99 | ) | |
Net cash used in continuing operation |
|
| - |
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| (99 | ) |
Net cash used in discontinued operation | - | - | ||||||
| Net cash used in investing operation | - | (99 | ) | |||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Net (repayment on) borrowings from revolving credit facility |
|
| (2,033 | ) |
|
| 4,303 | |
Net cash provided by continuing operation | (2,033 | ) | 4,303 | |||||
Net cash used in discontinued operation |
|
| - |
|
|
| - |
|
| Net cash provided by (used in) financing activities | (2,033 | ) | 4,303 | |||||
Net decrease in cash |
|
| (816 | ) |
|
| (3,345 | ) |
Cash at the beginning of the period |
|
| 866 |
|
|
| 3,631 |
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period | $ | 50 |
| $ | 286 |
| ||
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | 1,068 |
|
| $ | 1,033 |
|
The accompanying notes are an integral part of the these condensed consolidated financial statements.
| 4 |
Twinlab Consolidated Holdings, Inc.
(amounts in thousands, except share and per share amounts)
TWINLAB CONSOLIDATED HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Note 1– Nature of Business
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Nature of Business
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 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 sold under the Twinlab®Twinlab® brand name, (including the Twinlab® Fuel brand of sports nutrition products); a market leader in the healthy aging and beauty from within categories sold under the Reserveage™Reserveage Nutrition and ResVitale® brand names; diet and energy products sold under the Metabolife® brand name; the Re-Body®Metabolife® brand name; and a full line of herbal teas sold under the Alvita®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 manufacturingperformed services forbetween private label products. Ourdistributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitated the production of new supplements to market and reformulated existing products to include scientifically-backed ingredients. We provided our customers with numerous production services, including manufacturing, business involvestesting, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitated the contract manufacture of customa variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the specificationsproduction of a customer who requiresthese products was to help our customers manufacture or reformulate dietary supplements for sale and distribution. We did this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplified the production process by providing quality control checks, storing inventory on site, labeling and designing finished product under the customer’s own brand name.products, and drop shipping finished products ready for sale to our end customers. We dodid not market these private label products, as our business is to manufacture and sellbut rather sold the products to the customer, who was then marketsresponsible for the marketing, distribution, and sells the productssale to retailers or to their end consumers.customers. The services performed under NSL ceased with the abandonment of operations that began in July 2023.
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. As of September 30, 2023, we had an accumulated deficit of $368,589. 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 as well as the abandonment of operations of NSL, and interest and refinancing charges associated with our debt refinancing. Losses have been funded primarily through debt.
Because of our history of operating losses and significant interest expense on our debt, we have a working capital deficiency of $138,472 as of September 30, 2023. We also have $95,349 of debt, presented in current liabilities. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.
Management is addressing operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; and continuing to negotiate lower prices from major suppliers. We will need to raise additional capital through debt, equity or the sale of assets during the current year. There can be no assurance that sources of funding will be available when needed on acceptable terms or at all. If we cannot obtain additional funding when required, the Company may sell certain assets, enter into collaborations, strategic alliances, merger and acquisition activities, and licensing agreements, negotiate with its principal lenders, wind-up operations of other subsidiaries, or file for bankruptcy protection.
Note 2 – Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Except as described herein, there have been no changes in the Company’s significant accounting policies as described in Note 2, Summary of Significant Accounting Policies, within the “Notes to Consolidated Financial Statements” accompanying the Company’s Annual Report on Form 10-K for the year ended December 31, 2022.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and as required by Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023. These interim condensed consolidated financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position and results of operations for the periods presented. All amounts and disclosures set forth in this Quarterly Report on Form 10-Q reflect adoption of these changes.
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. 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, 2016 filed with the SEC on March 31, 2017.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principlesGAAP 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 receivable, allowance for credit losses, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwillgoodwill.
Contract Liabilities
Our contract liabilities consist of customer deposits and the estimated value of warrantscontractual guaranteed returns. Net contract liabilities are recorded in accrued expenses and derivative liabilities.
Revenue Recognition
Revenue from product sales, net of estimated returnsother current liabilities 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 collectionconsisted of the resulting receivablefollowing:
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Contract Liabilities - Customer Deposits |
| $ | 2,098 |
|
| $ | 1,856 |
| ||
Contract Liabilities - Guaranteed Returns |
|
| 41 |
|
|
| 45 |
| ||
|
| $ | 2,139 |
|
| $ | 1,901 |
| ||
Disaggregation of Revenue
Revenue is reasonably assured. Shipping termsdisaggregated from contracts with customers by goods or services as we believe it best depicts how the nature, amount, timing and uncertainty of our revenue and cash flows are generally freight on board shipping point. We sell predominatelyaffected by economic factors. See details in the North American and European markets, with international sales transacted in U.S. dollars.tables below.
|
| Three Months Ended September 30, 2023 |
|
| Three Months Ended September 30, 2022 |
| ||||
Product Sales |
| $ | 3,676 |
|
| $ | 4,597 |
| ||
Fulfillment Services |
|
| - |
|
|
| - |
| ||
|
| $ | 3,676 |
|
| $ | 4,597 |
| ||
|
| Nine Months Ended September 30, 2023 |
|
| Nine Months Ended September 30, 2022 |
| ||||
Product Sales |
| $ | 10,473 |
|
| $ | 14,271 |
| ||
Fulfillment Services |
|
| - |
|
|
| - |
| ||
|
| $ | 10,473 |
|
| $ | 14,271 |
| ||
| 6 |
Fair ValueValue of Financial InstrumentsFinancial 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 ourCompany did not have any financial instruments that are measured at fair value on a recurring basis as of September 30, 20172023 and December 31, 2016:2022.
September 30, 2017 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative liabilities | $ | 8,143 | $ | - | $ | - | $ | 8,143 | ||||||||
December 31, 2016 | Total | Level 1 | Level 2 | Level 3 | ||||||||||||
Derivative liabilities | $ | 6,455 | $ | - | $ | - | $ | 6,455 | ||||||||
Accounts Receivable and Allowances
Our allowance for trade receivables consists of two components: an allowance for customer claims and an allowance for credit losses.
We estimate expected credit losses on our trade receivables in accordance with Accounting Standards Codification ("ASC") 326 -Financial Instruments - Credit Losses. We adopted this accounting standard prospectively on the first day of our 2023 fiscal year.
We measure the allowance for credit losses on trade receivables on a collective (pool) basis when similar risk characteristics exist. We pool our trade receivables by type, wholesalers and retailers. Our historical credit loss experience provides the basis for our estimation of expected credit losses. We use a two-year average of annual loss rates as a starting point for our estimation and make adjustments to the historical loss rates to account for differences in current conditions impacting the collectability of our receivable pools. We generally monitor macroeconomic indicators to assess whether adjustments are necessary to reflect current conditions.
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, 2023, total allowances amounted to $2,777,$3,045, of which $314$2,294 was related to doubtful accounts receivable.receivable and $32 was related to expected credit losses. As of December 31, 2016, 2022, total allowances amounted to $2,365,$1,546, of which $481$534 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™ Nutrition brand, 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, 2017 and December 31, 2016 was $5,900.
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, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, we recorded amortization of $121 and $122, respectively. As of September 30, 2017 and December 31, 2016, unamortized deferred gain on sale of assets was $1,606 and $1,727, respectively.
Net LossIncome (Loss) per Common Share
Basic net income or loss(loss) per common share (Basic EPS)(“Basic EPS”) is computed by dividing net income or loss (loss) by the weighted average number of common shares outstanding. Diluted net income or loss (loss) per common share (Diluted EPS)(“Diluted EPS”) is computed by dividing net income or loss (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:
Three Months Ended | Nine Months Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||||
(as corrected) | (as corrected) | ||||||||||||||||
Numerator: | |||||||||||||||||
Net income (loss) | $ | (5,418 | ) | $ | 10,968 | $ | (12,854 | ) | $ | 8,584 | |||||||
Effect of dilutive securities on net income (loss): | |||||||||||||||||
Common stock warrants | - | (14,065 | ) | - | (28,128 | ) | |||||||||||
Total net loss for purpose of calculating diluted net loss per common share | $ | (5,418 | ) | $ | (3,097 | ) | $ | (12,854 | ) | $ | (19,544 | ) | |||||
Number of shares used in per common share calculations: | |||||||||||||||||
Total shares for purposes of calculating basic net loss per common share | 252,924,027 | 250,806,152 | 252,935,792 | 264,740,245 | |||||||||||||
Weighted-average effect of dilutive securities: | |||||||||||||||||
Common stock warrants | - | 13,418,629 | - | 12,481,487 | |||||||||||||
Total shares for purpose of calculating diluted net loss per common share | 252,924,027 | 264,224,781 | 252,935,792 | 277,221,732 | |||||||||||||
Net income (loss) per common share: | |||||||||||||||||
Basic | $ | (0.02 | ) | $ | 0.04 | $ | (0.05 | ) | $ | 0.03 | |||||||
Diluted | $ | (0.02 | ) | $ | (0.01 | ) | $ | (0.05 | ) | $ | (0.07 | ) | |||||
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 lossincome (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 changeThe common shares used in the derivative liability in computing dilutivecomputation of our basic and diluted net income or loss per share. The dilutive loss (loss) per share for the three and nine months ended September 30, 2016 in the table above has been revised to correct this error.are as follows:
| Three Months Ended September 30, |
| Nine Months Ended September 30, | |||||||||||||
| 2023 | 2022 |
| 2023 | 2022 | |||||||||||
Numerator: |
| |||||||||||||||
Net income (loss) from continuing operation | $ | (2,350 | ) | $ | (2,981 | ) | $ | (7,151 | ) | $ | (4,948 | ) | ||||
Net income (loss) from discontinued operation, net of income taxes | $ | (3,014 | ) | $ | 55 | $ | (5,015 | ) | $ | 79 | ||||||
Net (loss) | $ | (5,364 | ) | $ | (2,926 | ) |
| $ | (12,166 | ) | $ | (4,869 | ) | |||
Denominator: |
| |||||||||||||||
Weighted-average number of common shares - Basic | 259,092,833 | 259,092,833 |
| 259,092,833 | 259,092,833 | |||||||||||
| Weighted-average number of common shares - Diluted | 259,092,833 | 259,092,833 | 259,092,833 | 259,092,833 | ||||||||||||
Net (loss) per common share: |
| |||||||||||||||
Basic EPS | $ | (0.02 | ) | $ | (0.01 | ) |
| $ | (0.05 | ) | $ | (0.02 | ) | |||
Diluted EPS | $ | (0.02 | ) | $ | (0.01 | ) |
| $ | (0.05 | ) | $ | (0.02 | ) | |||
The table below reflects the diluted net loss per share as originally reported and net loss per share as corrected for the three and nine months ended September 30, 2016.
As originally reported | As corrected | |||||||
Diluted net income (loss) per common share (three months) | $ | 0.04 | $ | (0.01 | ) | |||
Diluted net income (loss) per common share (nine months) | $ | 0.03 | $ | (0.07 | ) | |||
Weighted average shares oustanding - diluted (three months) | 258,565,687 | 264,224,781 | ||||||
Weighted average shares oustanding - diluted (nine months) | 275,633,914 | 277,221,732 | ||||||
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%43% and 25%22% of total sales for the three months ended September 30, 20172023 and 2016, 2022,respectively and 27%29% and 26%23% of total sales for the nine months ended September 30, 20172023 and 2016, respectively.2022, respectively. Sales to one of those customers were approximately 13%21% and 11%9% of total sales for the three months ended September 30, 20172023 and 2016,2022, respectively, and 12% and 11%9% of total sales for the nine months ended September 30, 20172023 and 2016,2022, respectively. Accounts receivable from these threecustomers were approximately 55%18% and 29% 28% of total accounts receivable as of September 30, 20172023 and December 31, 2016,2022, respectively.
Recent Accounting PronouncementsA single customer represents 3% and 2% of total accounts receivable as of September 30, 2023 and December 31, 2022, respectively. This customer is a related party through a director who sits on both the Company’s board of directors and that of the customer.
In May 2017, FASB amended its guidance regarding
Revenue Recognition
The Company recognizes revenue based on a five-step model in accordance with ASC 606. For our customer contracts: (i) we identify the scope of modification accounting for share-based compensation arrangements. The amendments provide guidance about which changescontract with a customer; (ii) we identify the performance obligations in the contract; (iii) we determine the transaction price; (iv) we allocate the transaction price to the termsperformance obligation; and (v) we recognize revenue when we satisfy the performance obligation. Our revenues are recorded at a point in time when the performance is fulfilled, which is when the product is shipped to or conditionsreceived by the customer.
Product sales are recorded net of variable considerations, such as provisions for returns, discounts, and allowances.
We account for shipping and handling costs as costs to fulfill a share-based payment award require an entitycontract and not as performance obligations to apply modification accountingour customers. Shipping and handling costs are recorded in Topic 718. For public entities,cost of sales.
| 8 |
Leases
The Company accounts for leases in accordance with ASC 842. The Company reviews all contracts and determines if the amendmentsarrangement is or contains a lease, at inception. Operating leases are included 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 modifiedright-of-use (“ROU”) assets, current lease liabilities and long-term lease liabilities 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.balance sheets. The Company does not have any finance leases.
In January 2017, FASB issued ASU No. 2017-04, “SimplifyingOperating lease ROU assets represent 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, notCompany’s right 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. 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 to recognize a lease liability and a right-of-useuse an underlying asset for all leases with terms greater than 12 months affecting the patternlease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of expense recognitionlease payments over the lease term. The Company uses its estimated incremental borrowing rate based on the information available at the commencement date in the income statement. Leases previously defined as operating leases will be defined as financing leases and capitalized if the term is greater than one year. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning 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 application to the earliest reporting period. As a result, financing leases will be recorded as an asset and a corresponding liability atdetermining the present value of the total leasefuture payments. The operating lease ROU asset also includes any upfront lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will be decrementedexercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lifelease term. Leases with a term of 12 months or less are not recorded on the balance sheet. The Company’s lease onagreements do not contain any residual value guarantees.
Discontinued operations
We report financial results for discontinued operations separately from continuing operations to distinguish the financial impact of disposal transactions from ongoing operations. Discontinued operations reporting occurs only when the disposal meets the criteria for classification as a pro-rata basis resultingdiscontinued operation in lease expense whileaccordance with ASC Subtopic 205-20, Discontinued Operations (“ASC 205-20”). In our consolidated statements of cash flows, the liability will be decremented usingcash flow from discontinued operations are separately classified/reported. Unless indicated otherwise, the interest method (ie. principal and interest). As such, we expectinformation in the new guidance will materially impactNotes to the asset and liability balances of our consolidated financial statements and related disclosuresrelate to continuing operations (See Note 9, Discontinued Operations)
Accounting Pronouncements - Adopted
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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 timereporting date based on historical experience, current conditions, and reasonable and supportable forecasts. We adopted this standard prospectively on the first day of adoption.
Although there are several other new accounting pronouncements issued or proposed by FASB, which we have adopted or will adopt, as applicable, we doour 2023 fiscal year. The adoption of this standard did not believe any of these accounting pronouncements has had or will have a material impact on our condensed consolidated financial positionstatements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional guidance to companies to ease the potential burden associated with transitioning away from reference rates that are expected to be discontinued. The new guidance provides optional expedients and exceptions to apply GAAP to contract modifications and hedging relationships, subject to certain criteria, that reference London Interbank Offered Rate ("LIBOR") or resultsanother reference rate expected to be discontinued. We adopted this standard prospectively on December 14, 2022, on one of operations.
NOTE 2 – GOING CONCERN
our term loan notes and agreements which was amended on this date to transition from LIBOR to the secured overnight financing rate (“SOFR”). The accompanying condensedadoption of this standard did not have a material impact on our 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. At September 30, 2017, we had an accumulated deficit of $237,326. 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.statements.
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 September 30, 2017. We also have $17,091 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.
Note 3– Inventories, net
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 manufacturing and operating costs 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, net consisted of the following at:from continuing operations:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Raw materials | $ | 6,348 | $ | 4,912 | ||||
Work in process | 2,013 | 1,189 | ||||||
Finished goods | 12,411 | 13,438 | ||||||
| 20,772 | 19,539 | |||||||
Reserve for obsolete inventory | (2,404 | ) | (1,938 | ) | ||||
| $ | 18,368 | $ | 17,601 | |||||
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Raw materials |
| $ | 383 |
|
| $ | 377 |
| ||
Finished goods |
|
| 4,725 |
|
|
| 6,710 |
| ||
|
|
| 5,108 |
|
|
| 7,087 |
| ||
Reserve for obsolete inventory |
|
| (708 | ) |
|
| (223 | ) | ||
|
|
|
|
|
|
|
|
| ||
Inventories, net |
| $ | 4,400 |
|
| $ | 6,864 |
| ||
| 9 |
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipmentInventories, net consisted of the following at:from discontinued operations:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Machinery and equipment | $ | 12,156 | $ | 10,885 | ||||
Computers and other | 9,500 | 9,119 | ||||||
Aquifer | 482 | 482 | ||||||
Leasehold improvements | 1,518 | 1,518 | ||||||
| 23,656 | 22,004 | |||||||
Accumulated depreciation and amortization | (20,416 | ) | (18,476 | ) | ||||
| $ | 3,240 | $ | 3,528 | |||||
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Raw materials |
| $ | - |
|
| $ | 529 |
| ||
Finished goods |
|
| - |
|
|
| 2,014 |
| ||
|
|
| - |
|
|
| 2,543 |
| ||
Reserve for obsolete inventory |
|
| - |
|
| - | ||||
|
|
|
|
|
|
|
|
| ||
Inventories, net |
| $ | - |
|
| $ | 2,543 |
| ||
Note 4 – Property and Equipment, Net
Assets held under capital leases are included in machineryProperty and equipment, net consisted of the following from continuing operations:
| September 30, 2023 |
| December 31, 2022 | ||||||
Machinery and equipment | $ | - |
| $ | - | ||||
Leasehold improvements |
| - |
|
| - | ||||
| Computers and other | 58 | 34 | |||||||
|
| 58 |
|
| 34 | ||||
Accumulated depreciation and amortization |
| (43 | ) |
| (15 | ) | |||
|
|
|
|
|
| ||||
Property and equipment, net | $ | 15 |
| $ | 19 | ||||
Property and amounted to $1,082 and $1,142 asequipment, net consisted of September 30, 2017 and December 31, 2016, respectively.the following from discontinued operations:
| September 30, 2023 |
| December 31, 2022 | ||||||
Machinery and equipment | $ | - |
| $ | 124 | ||||
Leasehold improvements |
| - |
|
| 118 | ||||
| Computers and other | - | 34 | |||||||
|
| - |
|
| 276 | ||||
Accumulated depreciation and amortization |
| - |
| (107 | ) | ||||
|
|
|
|
|
| ||||
Property and equipment, net | $ | - |
| $ | 169 | ||||
Note 5– Intangible Assets
NOTE 5 – INTANGIBLE ASSETS
Intangible assets consisted of the following at:following:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Trademarks | $ | 12,166 | $ | 12,166 | ||||
Indefinite-lived intangible assets | 5,900 | 5,900 | ||||||
Customer relationships | 19,110 | 19,110 | ||||||
Other | 753 | 753 | ||||||
| 37,929 | 37,929 | |||||||
Accumulated amortization | (9,479 | ) | (7,732 | ) | ||||
| $ | 28,450 | $ | 30,197 | |||||
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||
Trademarks |
| $ | 4,739 |
|
| $ | 4,739 |
| ||
Indefinite-lived intangible assets |
|
| 120 |
|
|
| 120 |
| ||
Customer relationships |
|
| 6,023 |
|
|
| 6,023 |
| ||
|
|
| 10,882 |
|
|
| 10,882 |
| ||
Accumulated amortization |
|
| (10,762 | ) |
|
| (10,762 | ) | ||
|
|
|
|
|
|
|
|
| ||
Intangible assets, net |
| $ | 120 |
|
| $ | 120 |
| ||
Trademarks are amortized over periodsperiods ranging from 3 to 30 years and customer relationships are amortized over periods ranging from 15 to 16 years, and other years. During the fourth quarter of fiscal 2022 we recorded an aggregate impairment loss of the remaining definitive-lived intangible assets are amortized over 3 years. Amortizationrelated to NSL customer relationships. Therefore, there was no amortization expense was $582 and $557 for the three months ended September 30, 2017 and 2016, respectively, and2023. Amortization expense was $1,747 and $1,645$29 for the three months ended September 30, 2022. There was no amortization expense for thenine months ended September 30, 2017 and 2016, respectively.2023. Amortization expense was $87for thenine months ended September 30, 2022.
| 10 |
Note 6 – Debt
NOTE 6 – DEBT
Debt consisted of the following at:following:
September 30, | December 31, | |||||||
2017 | 2016 | |||||||
Related-Party Debt: | ||||||||
July 2014 note payable to Little Harbor, LLC, net of unamortized discount of $0 and $206 as of September 30, 2017 and December 31, 2016, respectively | $ | 3,267 | $ | 3,061 | ||||
July 2016 note payable to Little Harbor, LLC | 4,770 | 4,770 | ||||||
January 2016 note payable to Great Harbor Capital, LLC | 2,500 | 2,500 | ||||||
March 2016 note payable to Great Harbor Capital, LLC | 7,000 | 7,000 | ||||||
December 2016 note payable to Great Harbor Capital, LLC | 2,500 | 2,500 | ||||||
August 2017 note payable to Great Harbor Capital, LLC | 3,000 | - | ||||||
January 2016 note payable to Golisano Holdings LLC | 2,500 | 2,500 | ||||||
March 2016 note payable to Golisano Holdings LLC | 7,000 | 7,000 | ||||||
July 2016 note payable to Golisano Holdings LLC | 4,770 | 4,770 | ||||||
December 2016 note payable to Golisano Holdings LLC | 2,500 | 2,500 | ||||||
March 2017 note payable to Golisano Holdings LLC | 3,267 | - | ||||||
November 2014 note payable to Golisano Holdings LLC (formerly payble to Penta | ||||||||
Mezzanine SBIC Fund I, L.P.), net of discount and unamortized loan fees in the aggregate of $1,694 and $2,304 as of September 30, 2017 and December 31, 2016, respectively | 6,306 | 5,696 | ||||||
January 2015 note payable to Golisano Holdings LLC (formerly payable to JL-BBNC | ||||||||
Mezz Utah, LLC), net of discount and unamortized loan fees in the aggregate of $2,058 as of September 30, 2017 | 2,942 | - | ||||||
February 2015 note payable to Golisano Holdings LLC (formerly payable to Penta | ||||||||
Mezzanine SBIC Fund I, L.P.), net of discount and unamortized loan fees in the aggregate of $148 and $201 as of September 30, 2017 and December 31, 2016, respectively | 1,852 | 1,799 | ||||||
Total related-party debt | 54,174 | 44,096 | ||||||
Senior Credit Facility with Midcap, net of unamortized loan fees of $73 and $293 as of September 30, 2017 and December 31, 2016, respectively | 14,901 | 13,035 | ||||||
Other Debt: | ||||||||
January 2015 note payable to JL-BBNC Mezz Utah, LLC, net of discount and unamortized loan fees in the aggregate of $2,744 as of December 31, 2016 | - | 2,256 | ||||||
April 2016 note payable to JL-Utah Sub, LLC | 396 | 500 | ||||||
Capital lease obligations | 1,582 | 2,732 | ||||||
Huntington Holdings | 3,200 | - | ||||||
Total other debt | 5,178 | 5,488 | ||||||
Total debt | 74,253 | 62,619 | ||||||
Less current portion | (17,091 | ) | (11,631 | ) | ||||
Long-term debt | $ | 57,162 | $ | 50,988 | ||||
|
| September 30, |
|
| December 31, |
| ||||
|
| 2023 |
|
| 2022 |
| ||||
Related Party Debt: |
|
|
|
|
|
|
|
| ||
July 2014 note payable to Little Harbor, LLC |
| $ | 3,267 |
|
| $ | 3,267 |
| ||
July 2016 note payable to Little Harbor, LLC |
|
| 4,770 |
|
|
| 4,770 |
| ||
January 2016 note payable to Great Harbor Capital, LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
March 2016 note payable to Great Harbor Capital, LLC |
|
| 7,000 |
|
|
| 7,000 |
| ||
December 2016 note payable to Great Harbor Capital, LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
August 2017 note payable to Great Harbor Capital, LLC |
|
| 3,000 |
|
|
| 3,000 |
| ||
February 2018 note payable to Great Harbor Capital, LLC |
|
| 2,000 |
|
|
| 2,000 |
| ||
July 2018 note payable to Great Harbor Capital, LLC |
|
| 5,000 |
|
|
| 5,000 |
| ||
November 2018 note payable to Great Harbor Capital, LLC |
|
| 4,000 |
|
|
| 4,000 |
| ||
February 2020 note payable to Great Harbor Capital, LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
January 2016 note payable to Golisano Holdings LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
March 2016 note payable to Golisano Holdings LLC |
|
| 7,000 |
|
|
| 7,000 |
| ||
July 2016 note payable to Golisano Holdings LLC |
|
| 4,770 |
|
|
| 4,770 |
| ||
December 2016 note payable to Golisano Holdings LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
March 2017 note payable to Golisano Holdings LLC |
|
| 3,267 |
|
|
| 3,267 |
| ||
February 2018 note payable to Golisano Holdings LLC |
|
| 2,000 |
|
|
| 2,000 |
| ||
February 2020 note payable to Golisano Holdings LLC |
|
| 2,500 |
|
|
| 2,500 |
| ||
November 2014 note payable to Golisano Holdings LLC formerly payable to Penta Mezzanine SBIC Fund I, L.P. |
|
| 8,000 |
|
|
| 8,000 |
| ||
January 2015 note payable to Golisano Holdings LLC formerly payable to JL-BBNC Mezz Utah, LLC |
|
| 5,000 |
|
|
| 5,000 |
| ||
February 2015 note payable to Golisano Holdings LLC formerly payable to Penta Mezzanine SBIC Fund I, L.P. |
|
| 1,999 |
|
|
| 1,999 |
| ||
Macatawa Bank |
|
| 15,000 |
|
|
| 15,000 |
| ||
Total related party debt |
|
| 91,073 |
|
|
| 91,073 |
| ||
|
|
|
|
|
|
|
|
| ||
Senior Credit Facility with Midcap |
|
| 4,276 |
|
|
| 6,308 |
| ||
|
|
|
|
|
|
|
|
| ||
Total debt |
|
| 95,349 |
|
|
| 97,381 |
| ||
Less current portion |
|
| 95,349 |
|
|
| 97,381 |
| ||
|
|
|
|
|
|
|
|
| ||
Long-term debt |
| $ | - |
|
| $ | - |
| ||
Related-Party DebtLittle Harbor LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Little Harbor LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Little Harbor LLC.
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, on February 6, 2018 we are obligatedentered into an agreement with Little Harbor to pay such party $4,900 per year in structured monthly payments for 3 years provided that such payment obligations will terminateconvert a debt repayment obligation of $3,267 into an unsecured promissory note (the “Little Harbor Debt Repayment Note”). The note bears interest at such earlier time asan annual rate of 8.5%, with the trailing ninety day volume weighted average closing sales price of the Company’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 maturedprincipal payable at maturity. The Little Harbor Debt Repayment Note was scheduled to mature on July 25, 2017 however this note remains outstanding and principal payment has been deferred2020; the maturity was subsequently extended to 2018. This note was non-interest bearing, accordingly, using an imputed interest rate of 16.2%, we recorded a note discount in July 2014, which has been amortized into interest expense based on the effective interest rate method over the term of the note.October 22, 2021.
| 11 |
July 2016 Note Payable to Little Harbor, LLC
On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Noteunsecured delayed draw promissory note in favor of Little Harbor (“Little Harbor Delayed Draw Note”), pursuant to which Little Harbor may, in its sole discretion and pursuant to draw requests made byloaned us the Company, loan us up to the maximum principalfull approved amount of $4,770. This note is unsecured and matures on January 28, 2019.$4,770 during the year ended December 31, 2016. 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. We issued a warrant into escrow in connection with this loan (see Little Harbor Escrow WarrantsWarrant in Note 7)7). This unsecured note was scheduled to mature on January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
Little Harbor delivered a deferment letter pursuant to which Little Harbor agreed to defer all payments due under the aforementioned notes held by Little Harbor through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to Little Harbor have not been executed and these notes to Little Harbor are currently in default. We anticipate extending the maturity dates and related payment deferrals with Little Harbor, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Little Harbor has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Great Harbor Capital LLC
Mr. David L. Van Andel, the Chairman of the Company’s Board of Directors, is the owner and principal of Great Harbor Capital LLC. Mr. Mark Bugge, at the time the notes were entered into, was a member of the Company’s Board of Directors and the Secretary of Great Harbor Capital LLC.
January 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a January 28, 2016 Unsecured Promissory Noteunsecured promissory note (the “January 2016 GH Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a former member of our Board of Directors, GH lent us $2,500.$2,500. The note matures on January 28, 2019,2016 GH Note bears interest at an annual rate of 8.5%8.5%, with the principal payable in 24 monthly installments of $104 $104which payment was to commence on February 28, 2017 but has beenwas deferred to January 28, 2018. August 31, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7)7). The original maturity date of the January 2016 GH Note was January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
March 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a March 21, 2016 Unsecured Promissory Note,unsecured promissory note (the “March 2016 GH Note”), GH lent us $7,000. The note matures on$7,000. This March 21, 2019,2016 GH Note bears interest at an annual rate of 8.5%8.5%, with the principal payable in 24 monthly installments of $292 $292which payment was to commence on April 21, 2017 but has beenwas deferred to January 21, 2018. August 30, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7)7). The note was scheduled to mature on March 21, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021.
December 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a December 31, 2016 Unsecured Promissory Note,unsecured promissory note (the “December 2016 GH Note”), GH lent us $2,500.$2,500. The note matures on December 30, 2019,2016 GH Note 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)7). The note was scheduled to mature on December 31, 2019; the maturity was subsequently extended to October 22, 2021.
August 2017 Note Payable to Great Harbor Capital, LLC
Pursuant to an August 30, 2017 Secured Promissory Note,secured promissory note, GH lent us $3,000.$3,000 (the “August 2017 GH Note”). The note matures on August 29, 2020,2017 GH Note 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)7). The note was scheduled to mature on August 29, 2020; the maturity was subsequently extended to October 22, 2021.
February 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 6, 2018 secured promissory note, GH lent us $2,000 (the “February 2018 GH Note”). The note 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 as successor-by-assignment from MidCap Financial Trust (“MidCap”). The note was scheduled to mature on February 6, 2021; the maturity was subsequently extended to October 22, 2021.
| 12 |
As previously reported, on February 6, 2018, the Company issued an amended and restated secured promissory note to GH (the “A&R August 2017 GH Note”) replacing the prior secured promissory note issued on August 30, 2017. The amendment and restatement added a requirement that when the Company consummates any Special Asset Disposition (as defined in the February 2018 GH Note), 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 A&R August 2017 GH Note and any other note subject to the Intercreditor Agreement (defined below). The interest rate and payment terms remain unchanged from the original secured promissory note issued to GH on August 30, 2017; however, the maturity date was extended to October 22, 2021.
Furthermore, as a result of notes issued on February 6, 2018, by GH and Golisano Holdings LLC (“Golisano LLC”), GH and Golisano LLC entered into an “Intercreditor Agreement” where they agreed that each of the February 2018 GH Note, A&R August 2017 GH Note, and the Golisano LLC February 2018 Note (as defined below) are pari passu as to repayment, security and otherwise and are equally and ratably secured.
July 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a July 27, 2018 secured promissory note, GH loaned the Company $5,000 (the “July 2018 GH Note”). The July 2018 GH Note bears interest at an annual rate of 8.5%, with the principal payable on maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year and is payable monthly on the first day of each month, beginning September 1, 2018. The principal of the July 2018 GH Note was payable at maturity on January 27, 2020. The July 2018 GH Note is secured by collateral. We issued a warrant to GH in connection with this loan (see GH Warrants in Note 7). In July 2019, the Company and GH amended this note to extend the maturity date to October 22, 2021.
The July 2018 GH Note is subordinate to the indebtedness owed to MidCap. The July 2018 GH Note is senior to the indebtedness owed to Little Harbor and Golisano LLC.
November 2018 Note Payable to Great Harbor Capital, LLC
Pursuant to a November 5, 2018 secured promissory note, GH loaned the Company $4,000 (the “November 2018 GH Note”). The November 2018 GH Note bears interest at an annual rate of 8.5%, with the principal payable on maturity. Interest on the outstanding principal accrues at a rate of 8.5% per year and is payable monthly on the first day of each month, beginning December 1, 2018. The principal of the November 2018 GH Note was payable at maturity on November 5, 2020. The November 2018 GH Note is secured by collateral. We issued a warrant to GH in connection with this loan (see GH Warrants in Note 7). In July 2019, the Company and GH amended this note to extend the maturity to October 22, 2021.
February 2020 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 2020 unsecured promissory note (the “February 2020 GH Note”), an affiliate of a former member of our Board of Directors, GH lent us $2,500. The February 2020 GH Note bears interest at an annual rate of 8%, with the principal payable at the maturity of October 22, 2021. GH delivered a deferment letter pursuant to which GH agreed to defer all payments due under the aforementioned notes held by GH, through October 22, 2021and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to GH have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with GH, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, GH has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Golisano Holdings LLC
Mr. B. Thomas Golisano, a former member of the Company’s Board of Directors, is a principal of Golisano LLC.
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,$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 Directormanaging director of Penta, an institutional investor, iswas also a former director 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.Penta (the “First Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12%12% per year from the date of issuance to March 8, 2017, and decreased to 8%8% per year thereafter, payable monthly. The note matures on November 13, 2019. On August 30, 2017, we entered into an amendment withCompany and Golisano LLC which extended payment of principalamended this note to maturity.extend the maturity from November 5, 2020 to October 22, 2021. 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.
| 13 |
January 2015 Note Payable to Golisano Holdings LLC (formerly payable to JL-Mezz Utah, LLC-f/k/a JL-BBNC Mezz Utah, LLC)
On January 22, 2015, we raised proceeds of $5,000,$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”). The proceeds were restricted to pay a portion of the Nutricap Labs, LLC (“Nutricap”) asset acquisition. We granted JLJL-US 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.
JL-US. Interest on the outstanding principal accrued at a rate of 12%12% per year from the date of issuance to March 8, 2017, and decreased to 8%8% per year thereafter, payable monthly. The note matures on November 13, 2019.monthly (the “Golisano JL-US Note”). On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. We issued a warrant to JLJL-US 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 these434,809 warrants at the date of issuances was $4,389, which was recorded as aexpired unexercised on February 13, 2020.The 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.matured on October 22, 2021.
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,$1,999, 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.Penta (the “Second Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12%12% per year from the date of issuance to March 8, 2017, and decreased to 8%8% per year thereafter, payable monthly. The note matures on November 13, 2019. On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. We issued a warrant to Penta to purchase 869,618 shares of the Company’s common stock in connection with this loan (see Penta Warrants in Note 7).loan. 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.matured on October 22, 2021.
January 2016 Note Payable to Golisano Holdings LLC
Pursuant to a January 28, 2016 Unsecured Promissory Noteunsecured promissory note with Golisano LLC (the “Golisano LLC January 2016 Note”), an affiliate of a former member of our Board of Directors, Golisano LLC lent us $2,500.$2,500. The note matureswas scheduled to mature on January 28, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021. This note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which was to commence on February 28, 2017 but has been deferred to January 28, 2018.. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7)7).
March 2016 Note Payable to Golisano Holdings LLC
Pursuant to a March 21, 2016 Unsecured Promissory Note,unsecured promissory note, Golisano LLC lent us $7,000.$7,000 (the “Golisano LLC March 2016 Note”). The note matureswas scheduled to mature on March 21, 2019; the maturity was subsequently extended to June 30, 2019 and October 22, 2021. This note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which was to commence on April 21, 2017 but has been deferred to January 21, 2018.. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7)7).
July 2016 Note Payable to Golisano Holdings LLC
On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Noteunsecured 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$4,770 (the “Golisano LLC July 2016 Note”). During the year ended December 31, 2016, we requested and Golisano LLC approved, draws totaling $4,770. The Golisano LLC July 2016 Note matureswas scheduled to mature on January 28, 2019.2019; the maturity was subsequently extended to October 22, 2021. Interest on the outstanding principal accrues at a rate of 8.5%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)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,unsecured promissory note, as amended and restated, Golisano LLC lent us $2,500.$2,500 (the “Golisano LLC December 2016 Note”). 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)7). The note was scheduled to mature on December 30, 2019; the maturity was subsequently extended to October 22, 2021.
March 2017 2017 Note Payable to Golisano Holdings LLC
Pursuant to a March 14, 2017 Unsecured Promissory Note,unsecured promissory note, as amended and restated, Golisano LLC lent us $3,267.$3,267 (the “Golisano LLC March 2017 Note”). 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)7). The note was scheduled to mature on December 30, 2019; the maturity was subsequently extended to October 22, 2021.
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February 2018 Note Payable to Golisano Holdings LLC
Pursuant to a February 6, 2018 secured promissory note, Golisano LLC lent us $2,000 (the “Golisano LLC February 2018 Note”). The note 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. The note was scheduled to mature on February 6, 2021; the maturity was subsequently extended to October 22, 2021.
February 2020 Note Payable to Golisano Holdings LLC
Pursuant to a February 2020 unsecured promissory note (the “Golisano LLC February 2020 Note”), an affiliate of a former member of our Board of Directors, Golisano LLC lent us $2,500. The Golisano LLC February 2020 Note bears interest at an annual rate of 8%, with the principal payable at the maturity date of October 22, 2021.
Golisano LLC delivered a deferment letter pursuant to which Golisano LLC agreed to defer all payments due under the aforementioned notes held by Golisano LLC through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Amendments to extend the maturity date and related payment deferrals of the aforementioned notes to Golisano LLC have not been executed and these notes are currently in default. We anticipate extending the maturity dates and related payment deferrals with the Golisano LLC, but we cannot guarantee that such extensions and payment deferrals will be successfully obtained on a timely basis or at all. To date, Golisano LLC has not exercised any of its remedies available upon a default for any of the aforementioned notes.
Macatawa Bank
Mr. Mark Bugge is a former member of the board of directors of Macatawa Bank (“Macatawa”) and was a member of the Company’s board of directors; he was an active member of both boards at the time of the Term Loan (as defined below). A former member of the Company’s Board of Directors, Mr. B. Thomas Golisano, and a member of the Company's Board of Directors, Mr. David L. Van Andel, are the owners and principals of the guarantor, 463IP Partners, LLC (“463IP”). Furthermore, Mr. Van Andel, through his interest in a trust, holds an indirect limited partnership interest in White Bay Capital, LLLP, which has an ownership interest of greater than 10% in Macatawa.
On December 4, 2018, the Company entered into a Term Loan Note and Agreement (the “Term Loan”) in favor of Macatawa. Pursuant to the Term Loan, Macatawa loaned the Company $15,000. The Term Loan was scheduled to mature on November 30, 2020; and was subsequently extended to November 30, 2022. The Term Loan was amended on December 14, 2022 to extend the maturity date to November 30, 2024 and to transition from LIBOR to SOFR. The Term Loan accrues interest at the SOFR rate plus 1.05% per annum with a floor of 2.50%; the rate was -% as of September 30, 2023. After the maturity date or upon the occurrence or continuation of an event of default, the unpaid principal balance shall bear interest at the interest rate of the note plus 3.00%. The note is secured by the Limited Guaranty, defined below, and is subordinate to the indebtedness owed to MidCap.
In connection with the Term Loan, 463IP has entered into a limited guaranty, dated as of December 4, 2018, in favor of Macatawa (the “Limited Guaranty”) pursuant to which it has agreed to guarantee payment under the Term Loan and any and all renewals of the Term Loan and all interest accrued on such indebtedness limited to $15,000 plus any accrued interest. On October 28, 2019, the Term Loan was amended and GH and Golisano LLC replaced 463IP as “Entity Guarantor” as defined in the Term Loan, and provided their guaranties for payment of the Company’s indebtedness and obligations under the Term Loan.
Senior Credit Facility with Midcap
On January 22, 2015, we entered into a three-year $15,000 $15,000 revolving credit facility (the “Senior Credit Facility”) pursuant to a credit and security agreement, based on our accounts receivable and inventory, increasablewhich could be increased to up to $20,000,$20,000 upon satisfaction of certain conditions, with MidCap. MidCap Financial Trust, which subsequently assigned the agreement to an affiliate, Midcap Funding X Trust (“MidCap”). Trust.
On September 2, 2016, we entered into an amendment with Midcap to increase the Senior Credit Facility to $17,000$17,000 and extend our facility an additional 12 months. 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.Senior Credit Facility. We are requiredagreed to pay Midcap an unused line fee of 0.50%0.50% per annum, a collateral management fee of 1.20% per month, and interest of LIBOR plus 5%5% per annum, which was 6.24% per annum as of September 30, 2017.annum. We issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock (see Midcap Warrant in Note 7)7).
On January 22, 2019, we entered into Amendment Sixteen to the Credit and Security Agreement (the “MidCap Sixteenth Amendment”). The estimated fair valueMidCap Sixteenth Amendment reduced the revolving credit facility amount from a total of these warrants at$17,000 to a total of $5,000 and extended the expiration date from January 22, 2019 to April 22, 2019.
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On February 13, 2019, MidCap informed the Company that MidCap had re-assigned all of issuance was $130,its rights, powers, privileges and duties as “Agent” under the Credit and Security Agreement, as well as all of its right, title and interest in and to the revolving loans made under the facility from Midcap Funding X Trust to MidCap IV Funding.
On April 22, 2019, we entered into Amendment Seventeen to the Credit and Security Agreement (the “MidCap Seventeenth Amendment”), which was recorded as a note discounteffectively increased the revolving credit facility amount to $12,000 and is being amortized into interest expense over the term ofrenewed the Senior Credit Facility. Additionally, Facility for an additional two years expiring on April 22, 2021.
On April 22, 2021, we entered into Amendment Eighteen to the Credit and Security Agreement (the “MidCap Eighteenth Amendment”), which effectively updated the unused line fee to 0.375% per annum, updated the interest rates to 3.75% per annum, and renewed the Senior Credit Facility for an additional three years expiring on April 22, 2024.
We have incurred loan fees totaling $540$540 relating to the Senior Credit Facility and anythe subsequent amendments, which is also being amortized into interest expense over the term of the Senior Credit Facility. The balance owed on the Senior Credit Facility was $4,276 as of September 30, 2023.
Other Debt
April 2016May 2020 Note Payable to JL-Utah Sub, LLCFifth Third Bank N.A.
Pursuant to an April
On May 7, 2020, Twinlab Consolidated Corporation (“TCC”), the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association (“Fifth Third Bank”) in the amount of $1,674 obtained under the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted March 27, 2020 (the “PPP Loan”). The PPP Loan, evidenced by a promissory note dated May 5, 2020 (the “PPP Note”), 2016 Unsecured Promissory Note, JL-Utah Sub, LLC lent us $500. The note matures on March 21, 2019, bearshad a two-year term and bore interest at an annuala rate of 8.5%,1.0% per annum, with expected monthly principal and interest payments that were due to begin December 1, 2020. TCC used the principal payable in 24 monthly installmentsproceeds 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 tothe PPP Loan for payroll, office rent, and utilities, which allowed the Company as Essex’s principal owner is a directorto seek forgiveness for this loan.
The Company submitted its application for 100% forgiveness for this loan in November 2021. In January 2022, the full amount of the Company.
Huntington Holdings, LLC
On August 6, 2016,PPP Loan was forgiven by the 18-month anniversary of the closing ofSmall Business Administration (“SBA”). As 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,result, the Company recorded a lossgain on the stock purchase price guaranteeforgiveness of $3,210 and a corresponding liability for the same amount in 2016, which was included in accrued expenses and other current liabilitiesloan 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 an Unsecured Promissory Note (“Huntington Note”) in favor of Huntington Holdings, LLC (“Huntington”). The Huntington Note matures on June 2, 2019 with the principal amount of $3,200 payable at maturity. Interest on$1,674.
February 2021 Note Payable to Fifth Third Bank N.A.
On February 9, 2021, TCC received the outstanding principal accruesproceeds of a second loan from Fifth Third Bank in the amount of $1,344 (the “Second PPP Loan”) obtained under the Paycheck Protection Program. The Second PPP Loan, evidenced by a promissory note dated February 5, 2021 (the "Second PPP Note”), had a two-year term and bore interest at a rate of 8.5%1.0% per year from August 6, 2016annum, with expected monthly principal and interest payments that were due to August 15, 2017, and increases to 10% per year thereafter. We paid $50 to Huntington related to accrued interest from August 6, 2016 throughbegin September 1, 2021. TCC used the date of issuanceproceeds of the Huntington Note. Huntington was requiredSecond PPP Loan for payroll, which allowed the Company to return 778,385 sharesseek forgiveness for this loan.
The company submitted its application for 100% forgiveness for this loan in November 2021. In December 2021, the full amount of the Company’s common stock which were issued into escrow. We were required to provide certain piggyback registration rights to Huntington in regards toSecond PPP Loan was forgiven by the remaining 749,999 sharesSBA. As a result, the Company recorded a gain on the forgiveness of the Company’s common stock held by Huntington. Ifloan in 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 764,192amount of the shares held in escrow (the “Subject Shares”)$1,344. 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.
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 believes2023, we arewere in default for lack of compliance with ourthe EBITDA-related financial covenantscovenant of the debt agreement with MidCap. The amount due to MidCap for each debt agreement.this revolving credit line is $4,276 as of September 30, 2023.
Note 7 – Warrants and Registration Rights Agreements
NOTE 7 –WARRANTS AND REGISTRATION RIGHTS AGREEMENTS
The following table presents a summary of the status of our issued warrants as of September 30, 2017,2023, and changes during the nine months then ended:
Weighted Average | ||||||||
Shares | Exercise Price | |||||||
Outstanding, December 31, 2016 | 15,855,017 | 0.18 | ||||||
Granted | - | - | ||||||
Canceled / Expired | - | - | ||||||
Exercised | - | - | ||||||
Outstanding, September 30, 2017 | 15,855,017 | 0.18 | ||||||
|
| Shares Underlying |
|
| Weighted Average |
| ||||
|
|
| Warrants |
|
| Exercise Price |
| |||
Outstanding, December 31, 2022 |
|
| 4,500,000 |
|
| $ | 0.01 |
| ||
Granted |
|
| - |
|
|
| - |
| ||
Canceled / Expired |
|
| - |
|
| - |
| |||
Exercised |
|
| - |
|
| - |
| |||
Outstanding, September 30, 2023 |
|
| 4,500,000 |
|
| $ | 0.01 |
| ||
GH Warrants
Warrants Issued
Midcap Warrant
In connection with the line of credit agreement with MidCap described inJuly 2018 GH Note, 6, we issued MidCapGH a warrant exercisable through January 22, 2018, forto purchase an aggregate of 500,0002,500,000 shares of the Company’s common stock at an exercise price of $0.76$0.01 per share (the “MidCap Warrant”“July 2018 GH Warrant”). We entered into a Registration 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.
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 theThe Company’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 financing 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’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 by (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 by (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 1,187,995reserved 2,500,000 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 GolisanoJuly 2018 GH Warrant. The purchase price for any shares of common stock issuable upon exercise of the GolisanoJuly 2018 GH Warrant is $.001 per share.expires on July 27, 2024. 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 GolisanoJuly 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization, or reclassification, consolidation,stock split, combination of shares, merger or transferconsolidation. The Company estimated the value of all or substantially allthe warrant using the Black-Scholes option pricing model and recorded a debt discount of our assets. $1,479, which was amortized over the original term of the July 2018 GH Note.
In addition, if any payments are madeconnection with the November 2018 GH Note, we issued GH a warrant to a holderpurchase an aggregate 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 the2,000,000 shares of the Company’s common stock issuable onat an exercise price of the Golisano Warrant. On February 6, 2016, Golisano LLC exercised the Golisano$0.01 per share (the “November 2018 GH Warrant in part for 509,141”). The Company has reserved 2,000,000 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, we have reserved 4,756,505 shares of its common stock for issuance under the GolisanoNovember 2018 GH Warrant. The November 2018 GH Warrant expires on November 5, 2024. The November 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 $1,214 which was amortized over the original term of the November 2018 GH Note.
Warrants Issued into Escrow
At September 30, 2023, there were 3,636,364 outstanding warrants held in escrow (“Escrow Warrants”). These Escrow Warrants are held in escrow and are not exercisable unless the Company defaults on the related debt. While the related debt is currently in default (see Note 6), warrants are not expected to be exercised as the related debt is expected to be amended which will remedy the current default. These Escrow Warrants are as follows:
Golisano Escrow Warrants
In connection with athe Golisano LLC 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$0.01 per share (the “January 2016 Golisano Warrant”). The January 2016 Golisano Warrant willwas not to 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 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration 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, expiresexpired unexercised 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 athe Golisano LLC 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$0.01 per share (the “March 2016 Golisano Warrant”). The March 2016 Golisano Warrant willwas not to 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 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration 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, expiresexpired unexercised 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.
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In connection with thethe Golisano LLC July 2016 Note, 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$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 LLC July 2016 Note and any accrued and unpaid interest thereon as of January 28,July 21, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) 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, expiresexpired unexercised 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, 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$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 LLC December 2016 Note and any accrued and unpaid interest thereon as of December 30,31, 2019, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC December 2016 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 expired unexercised 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, 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$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 LLC March 2017 Note and any accrued and unpaid interest thereon as of December 30,31, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC March 2017 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, expiresexpired unexercised on March 14, 2023.
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 March 20172018 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 Golisano LLC February 2018 Note and any accrued and unpaid interest thereon as of February 6, 2021, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is also subjectrequired pursuant to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transferan acceleration notice. The Company has reserved 1,818,182 shares of all or substantially all of our assets.the Company’s common stock for issuance under the Golisano 2018 Warrant. The Golisano 2018 Warrant expires on February 6, 2024.
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 Golisano LLC warrants are also entitled to the benefits of the Registration Rights Agreement.
GH Escrow Warrants
In connection with a January 28, 2016 Unsecured PromissoryGH 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$0.01 per share (the “January 2016 GH Warrant”). The January 2016 GH Warrant willwas not to be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the related promissory noteJanuary 2016 GH Note and any accrued and unpaid interest thereon as of January 28, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration 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.Note). The January 2016 GH Warrant if exercisable, expiresexpired unexercised 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 PromissoryGH 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$0.01 per share (the “March 2016 GH Warrant”). The March 2016 GH Warrant willwas not to be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the related promissory noteMarch 2016 GH Note and any accrued and unpaid interest thereon as of March 21, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration 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.Note). The March 2016 GH Warrant if exercisable, expiresexpired unexercised 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.
| 18 |
In connection with the GHthe December 2016 GH 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$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 30,31, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the December 2016 GH Warrant)Note). 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 expired unexercisedon 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 the GHthe August 2017 GH 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$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 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the August 2017 GH Warrant)Note). 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.
JL-US Escrow Warrant
In connection with an April 5, 2016 Unsecured Promissorythe February 2018 GH Note, we issued into escrow in the name of JL-USGH a warrant to purchase an aggregate of 227,2731,818,182 shares of the Company’sCompany’s common stock at an exercise price of $0.01$0.01 per share (the “JL-US Warrant”“February 2018 GH Warrant”). The JL-USFebruary 2018 GH Warrant will not be released from escrow or be exercisable unless and until we failthe Company fails to pay JL-USGH the entire unamortized principal amount of the JL-US Notenote and any accrued and unpaid interest thereon as of March 21, 2019February 6, 2021, (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the JL-US Note). We haveacceleration notice. The Company has reserved 227,2731,818,182 shares of the Company’s common stock for issuance under the JL-USFebruary 2018 GH Warrant. The JL-USFebruary 2018 GH 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.February 6, 2024.
Little Harbor Escrow Warrant
The Little Harbor July 2016Delayed Draw Note providesrequired 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$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 2016Delayed Draw Note and any accrued and unpaid interest thereon as of January 28, 2019 (which was extended to October 22, 2021 - See Note 6 for further information) or such earlier date as is required pursuant to an Acceleration Noticeacceleration notice (as defined in the Little Harbor July 2016Delayed Draw 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, expiresexpired unexercised on July 21, 2022.
Note 8– Leases
The Little Harbor July 2016 Warrant is alsoCompany leases office space under non-cancelable operating leases with lease terms ranging from 1 to 7 years. These leases require monthly lease payments that may be subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transferannual increases throughout the lease term. Certain of all or substantially all of our assets. The Little Harbor July 2016 Warrant grants Little Harbor certain registration rights forthese leases also include renewal options at the shareselection of the Company’s common stock issuable upon exerciseCompany to renew or extend the lease for an additional 2 to 5 years. These optional periods have not been considered in the determination of the Little Harbor July 2016 Warrant.right-of-use assets or lease liabilities associated with these leases as the Company did not consider it reasonably certain it would exercise the options. The Company performed evaluations of its contracts and determined each of its identified leases are operating leases.
NOTE 8 – DERIVATIVE LIABILITIES
The number of shares of common stock issuable pursuantsublease agreement to certain warrants issued in 2015 will be increased if our adjusted EBITDA or the market pricesublease half of the Company’s common stock does not meet certain defined amounts. We have31,000 square feet of office in St. Petersburg, Florida that commenced on February 1, 2017, expired on June 30, 2022. The lease was re-measured at that time and as a result, the Company recorded the estimated fair valuean impairment loss 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 loss for changes$373 in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date.general and administrative expenses. As of September 30, 2017, we have estimated2023, a subtenant still has not been found and as a result, the total fair valuecompany incurred an impairment loss of $177 in general and administrative expenses. Currently the Company is still seeking new sub tenant opportunities to fill the space.
For the threemonths andnine months ended September 30, 2023, the Company incurred $171 and $595, respectively, of lease expense on the condensed consolidated statements of operations in relation to these operating leases, of which $49 and $148 was variable rent expense associated with capitalized operating leases and not included within the measurement of the derivative liabilities to be $8,143 as compared to $6,455 as of December 31, 2016. We had the following activity in our derivative liabilities account since December 31, 2016:
Nine Months Ended | ||||
September 30, | ||||
2017 | ||||
Derivative liabilities at December 31, 2016 | $ | 6,455 | ||
Loss on change in fair value of derivative liabilities | 1,688 | |||
Derivative liabilities at September 30, 2017 | $ | 8,143 | ||
Company's operating right-of-use assets and lease liabilities. The valuevariable rent expense consists primarily of the derivative liabilitiesCompany's proportionate share of operating expenses, property taxes and insurance, and it is generally estimated usingclassified as lease expense due to the Company's election to not separate lease and non-lease components.
In September 2023, the Company amended one of its lease agreements to extend the lease for 1,533 square feet of office space in Boca Raton, Florida for an options lattice model with multiple inputsadditional 12 calendar months, commencing on November 1, 2023 and assumptions, includingexpiring on October 31, 2024.
The lease agreement for 18,700 square feet of office space in Farmingdale, New York used by NutraScience Labs as its corporate office commenced on June 2, 2017 and was surrendered to the market pricelandlord, as part of the Company’s common stock, stock price volatilityabandonment of operations, on May 12, 2023. A loss of $20 was recorded in general and administrative expenses.
The lease agreement for 13,500 square feet of office space in Hauppauge, New York used by NutraScience Labs as its secondary office space and warehouse commenced on May 1, 2021 and was forfeited to the landlord, as part of the abandonment of operations, on September 30, 2023. A loss of $454 was recorded in general and administrative expenses.
2023 (excluding the nine months ended September 30, 2023) |
| $ | 335 |
| |
2024 |
|
| 1,353 |
| |
2025 |
|
| 1,333 |
| |
2026 |
|
| 1,052 |
| |
| 2027 | 306 | ||||
Thereafter |
|
| - |
| |
Total lease payments |
|
| 4,379 |
| |
Less: imputed interest |
|
| (534 | ) | |
Present value of lease liabilities |
| $ | 3,845 |
|
| Three Months Ended September 30, 2023 |
| Nine Months Ended September 30, 2023 |
| |||||
Sublease income | $ | (163 | ) |
| $ | (488 | ) | ||
Cash paid for operating leases | $ | 318 |
| $ | 1064 |
| |||
Weighted average remaining lease term (years) - operating leases | 3.5 |
|
| 3.5 |
| ||||
Weighted average discount rate – operating leases | 8.25 | % |
|
| 8.25 | % | |||
Note 9 – Discontinued Operations
Throughout Q3 FY23, the Company took steps to project EBITDAcease the operations of its fully owned subsidiary, NSL. By September 30, 2023 the aggregation of these efforts resulted in the abandonment of the remaining assets associated with the subsidiary. The Company no longer retains access to the facilities and other reset events. These inputswarehousing locations previously associated with NSL operations. The loss recognized related to the disposal was ($1,220) .
| December 31, 2022 | ||||
| Carrying amounts of assets associated with NutraScience Labs included as part of discontinued operations: | ||||
| Cash and cash equivalents | $ | 2 | ||
| Accounts receivable, net | 2,887 | |||
| Inventories, net | 2,544 | |||
Prepaid expenses | 439 | |||
| Current assets of discontinued operations | $ | 5,872 | ||
| Property and equipment, net | $ | 168 | ||
| Intangible assets, net | - | |||
| Goodwill | - | |||
| Right of use assets, net | 1,220 | |||
| Deposits and other assets | 47 | |||
| Non-current assets of discontinued operations | $ | 1,435 | ||
| Carrying amounts of liabilities associated with NutraScience Labs included as part of discontinued operations: | ||||
| Accounts payable | $ | 4,134 | ||
| Accrued expenses | 2,081 | |||
| Short-term operating lease liabilities | 315 | |||
| Deferred revenues | - | |||
| Current liabilities of discontinued operations | $ | 6,530 | ||
| Long-term operating lease liabilities | 947 | |||
| Non-current liabilities of discontinued operations | $ | 947 |
| 21 |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net sales | $ | 1 | $ | 10,926 | $ | 7,106 | $ | 28,976 | ||||||||
| Cost of sales | (9 | ) | (9,527 | ) | (6,796 | ) | (23,903 | ) | ||||||||
| Operating costs and expense | (3,006 | ) | (1,344 | ) | (5,325 | ) | (4,994 | ) | ||||||||
Income (loss) from discontinued operations before Provision for income taxes | (3,014 | ) | 55 | (5,015 | ) | 79 | ||||||||||
| Provision expense (benefit) for income taxes | - | - | - | - | ||||||||||||
| Income (loss) from discontinued operations, net of tax | $ | (3,014 | ) | $ | 55 | $ | (5,015 | ) | $ | 79 | ||||||
Note 10– Stockholders’ Deficit
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$0.001 per share. No shares of the preferred stock have been issued.
Twinlab Consolidation Corporation 2013Stock Incentive Plan
The 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 with 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.employees. The Company estimated the grant date fair market value per share of the restricted stock units and is amortizingamortized the total estimated grant date value over the vesting periods. During the nine months endedThe restricted stock unit awards vested 25% each annually on various dates through 2019. There were no outstanding or unvested restricted stock units at December 31, 2022 or September 30, 2017, there were not any shares of common stock issued to employees pursuant to the vesting of restricted stock units.2023. As of September 30, 2017, 6,060,9432023, - 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’s common stock were repurchased for an aggregate repurchase price of less than $1.
Stock Subscription Receivable and Loss on Stock Price Guarantee
At
As of September 30, 2017,2023, 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$30 and bears interest at an annual rate of 5%5%.
On August 6, 2016, the 18-month anniversary
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with 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 accompanyingunaudited condensed consolidated balance sheet as of December 31, 2016. On June 2, 2017, the two parties came to an agreementfinancial statements and related notes included elsewhere in which we were required to issue the Huntington Note in favor of 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 regards 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. 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. Pursuant to the agreement, we were also required to enter into a four-year lease agreement with the purchaser related to our premises occupied by Nutricap.
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Overview
This Quarterly Report on Form 10-Q containsand our audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (the “SEC”) on March 31, 2023. This discussion and analysis and other parts of this Quarterly Report contain forward-looking statements.statements based upon current beliefs, plans and expectations that involve risks, uncertainties and assumptions. Any statements contained herein that are not statements of historical fact, may be deemed to be forward-lookingincluding statements within the meaningregarding guidance, industry prospects or future results of Section 21E of the Securities Exchange Act of 1934,operations or financial position made in this report are forward-looking. We often use words such as amended (the “Exchange Act”). The words “believes,“anticipates” “anticipates,, “believes” “plans,, “estimates” “expects,, “expects” “intends”, “intends”, “predicts”, “hopes”, “should”, “plans”, “will” and similar expressions to identify someforward-looking statements. These statements are based on management’s current expectations and accordingly are subject to uncertainty and changes in circumstances. Actual results may vary materially from the expectations contained herein due to various important factors, including (but not limited to): the impact of the forward-looking statements. Forward-looking statements are not guaranteesongoing COVID-19 pandemic;wide spread health concerns; supply chain disruptions; the impact of performanceinflation; consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; the loss of a significant customer or future resultsmaterial reduction of business with a significant customer; pricing and involve risks, uncertaintiesgross sales margins; the associated fees or estimated cost savings from contract renegotiations; and assumptions. The factors discussed elsewhere in this Form 10-Qour ability to establish and in subsequent Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K, could also cause actual results to differ materially from those indicated by our forward-looking statements.maintain acceptable commercial terms with contract manufacturers. We undertake no obligation to publicly update or revise any forward-looking statements.statements except as required by law.
Our OperationsOverview
We are an integrated manufacturer,formulator, 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 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 primarily under the Twinlab® (including the Twinlab® Fuel brand of sports nutrition products), Reserveage™Reserveage and ResVitale® brands. We also manufactureformulate, market and sell diet and energy products under the Metabolife® and Re-Body® brandsbrand, 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 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 26070 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. In most periods since our formation, we have generated losses from operations.
We have fully integratedalso performed services between private label distributors and contract manufacturers under the NutraScience Labs (“NSL”) brand name. NSL facilitated the production of new supplements to market and reformulated existing products to include scientifically-backed ingredients. We provided our two 2015 acquisitions. The firstcustomers with numerous production services, including manufacturing, testing, label and packaging design, order fulfillment, and regulatory compliance.
NSL facilitated the contract manufacture of a variety of high-quality vitamin and supplement products, including but not limited to, immune support supplements, cognitive support products, prebiotics and probiotics, supplements for weight management, and sports nutrition supplements. Our role in the production of these products was to help our customers manufacture or reformulate dietary supplements for sale and distribution. We did this by working with contract manufacturers to build scientifically backed formulas for resale to our end customers. We also simplified the acquisition ofproduction process by providing quality control checks, storing inventory on site, labeling and designing finished products, and drop shipping finished products ready for sale to our end customers. We did not market these private label products, but rather sold the products to the customer, relationshipswho was then responsible for the marketing, distribution, and sale to retailers or to their end customers. The services performed under NSL ceased with the abandonment of Nutricap, a provider of dietary supplement contract manufacturing services, into our subsidiary, NutraScience,operations that began 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 we 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.July 2023.
| 23 |
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. At September 30, 2017,2023, we had an accumulated deficit of $237,326.$368.6 million. 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.refinancing, and impairment of goodwill and intangible assets. Losses have been funded primarily through issuance of common stock and third-party or related party debt.
Because of thisour history of operating losses and significant interest expense on our debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $8,531$138.5 million at September 30, 2017.2023. We also have $17,091$95.3 million of debt, net of discount, due within the next 12 months.presented in current liabilities. 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, we obtained debt funding totaling $6,267We will need to execute the new supply chain initiatives and increase inventory levels. It is possible that we may needraise additional capital to execute our business plan. If additional funding is required, therethrough debt, equity or the sale of assets during the current year. There can be no assurance that sources of funding will be available when needed on acceptable terms or at all. If we cannot obtain additional funding when required, the Company may sell certain assets, enter into collaborations, strategic alliances, merger and acquisition activities, and licensing agreements, negotiate with its principal lenders, wind-up operations of other subsidiaries, or file for bankruptcy protection.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on ourThe condensed consolidated financial statements which we have prepareddo not include any adjustments that might result from the outcome of these uncertainties.
Results of Operations
Comparison of the Three and Nine Month Periods Ended September 30, 2023 and 2022
The following table summarizes our financial results for the three and nine month periods ended September 30, 2023 and 2022:
| Three Months Ended September 30, | Increase | % |
| Nine Months Ended September 30, |
|
| Increase |
|
| % |
| ||||||||||||||||||||
| 2023 | 2022 | (Decrease) | Change |
| 2023 |
|
| 2022 |
|
| (Decrease) |
|
| Change |
| ||||||||||||||||
Net sales | $ | 3,676 | $ | 4,597 | $ | (921 | ) | (20 | ) |
| $ | 10,473 |
|
| $ | 14,271 |
|
| $ | (3,798 | ) |
|
| (27 | ) | |||||||
Cost of sales | 2,345 | 2,711 | (366 | ) | (14 | ) |
|
| 6,475 |
|
|
| 7,868 |
|
|
| (1,393 | ) |
|
| (18 | ) | ||||||||||
Gross profit | 1,331 | 1,886 | (555 | ) | (29 | ) |
|
| 3,998 |
|
|
| 6,403 |
|
|
| (2,405 | ) |
|
| (38 | ) | ||||||||||
Operating costs and expenses: |
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| ||||||||||||||||
Selling expenses | 342 | 784 | (442 | ) | (56 | ) |
|
| 933 |
|
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| 2,262 |
|
|
| (1,329 | ) |
|
| (59 | ) | ||||||||||
General and administrative expenses | 1,191 | 2,019 | (828) | (41) |
|
| 3,769 |
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|
| 4,889 |
|
|
| (1,120 | ) |
|
| (23 | ) | ||||||||||||
Loss from operations | (202 | ) | (917 | ) | 715 | (78) |
|
| (704 | ) |
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| (748 | ) |
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| 44 |
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| (6) | ||||||||||||
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Other income (expense): |
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Interest expense, net | (2,107 | ) | (2,064 | ) | 43 | 2 |
|
| (6,429 | ) |
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| (5,876 | ) |
|
| 553 |
|
| 9 | ||||||||||||
Other income (expense) | (16 | ) | - | 16 | - |
|
| 14 |
|
| 1,676 |
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| (1,662 | ) |
|
| (99 | ) | |||||||||||||
Total other expense, net | (2,123 | ) | (2,064 | ) | 59 | 3 |
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| (6,415 | ) |
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| (4,200 | ) |
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| 2,215 |
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| 53 | ||||||||||||
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Loss before income taxes | (2,325 | ) | (2,981 | ) | 656 | 22 |
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| (7,119 | ) |
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| (4,948 | ) |
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| (2,171) |
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| 44 | ||||||||||||
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Provision for income taxes | (25 | ) | - | (25) | - |
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| (32 | ) |
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| - |
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| (32 | ) |
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| - |
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| Net loss from continuing operation | (2,350 | ) | (2,981 | ) | 631 | 21 | (7,151 | ) | (4,948 | ) | (2,203 | ) | 45 | |||||||||||||||||||
| Net income (loss) from discontinued operation, net of income taxes | (3,014 | ) | 55 | (3,069 | ) | - | (5,015 | ) | 79 | (5,094 | ) | - | ||||||||||||||||||||
Total net loss | $ | (5,364 | ) | $ | (2,926 | ) | $ | (2,438 | ) | (83 | ) |
| $ | (12,166 | ) |
| $ | (4,869 | ) |
| $ | (7,297 | ) |
|
| 150 | ||||||
| 24 |
Net Sales
The decrease in accordance withour net sales of 20% and 27% for the U.S. generally accepted accounting principles. The preparationthree and nine month periods ended September 30, 2023, respectively, compared to the same periods in 2022 was primarily due to reduced demand from some of our financial statements required usmajor customers and a market shift away from higher priced brands due to make estimatescurrent economic conditions.
Gross Profit
Our overall gross profit decrease of 29% and assumptions that affected38% for the reported amounts of assetsthree 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 transferrednine month periods ended September 30, 2023 compared to the customer and collection of the resulting receivable is reasonably assured. Shipping terms are generally freight on board shipping point. We sell predominatelysame periods in the North American and European markets, with international sales transacted in U.S. Dollars.
Accounts Receivable and Allowances
We grant credit2022 was primarily due to customers and generally do not require collateral or other security. We perform credit evaluationsreduced demand from some of our major customers, increased promotional costs to drive demand, and provideincreases to input costs.
Selling Expenses
Our selling expenses decreased by 56% and 59% for expected claims, related to promotional items; customer discounts; shipping shortagesthe three 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 tonine month periods ended September 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 recorded2023 compared 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. Changessame periods 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’s use of an outside professional valuation firm, 2022, primarily due to the variable termsdecrease of certain advertising costs as well as decreased fees paid to marketing consultants.
General and Administrative Expenses
For the three and nine month periods ended September 30, 2023, our general and administrative expenses decreased by 41% and 23% compared to the same periods in 2022 primarily due to a reduction in overhead expenses including staffing expenses, professional service fees, and insurance expenses.
Interest Expense, Net
Our interest expense, net increasedby 2% and 9% for thethree and nine month periods endedSeptember 30, 2023compared to the same periods in2022 primarily due to increased lending costs and the associated interest.
Other Income (Expense)
The decrease in other income (expense) of $16for the three months ended September 30, 2023 compared to the same period in 2022 was due to the remeasurement impairment 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, or 11%, to $20,612 forSt. Petersburg lease during the three months ended September 30, 2017 from $23,046 for the three months ended September 30, 2016. On a year-to-date basis, our net sales increased $245, or 0%, to $66,1302022. The decrease in other income (expense) of $1,662 for the nine months ended September 30, 20172023 compared to the same period in 2022 was due to the forgiveness of the PPP Loan in early 2022.
Liquidity and Capital Resources
At September 30, 2023, we had an accumulated deficit of $368.6 million primarily because of our history of operating losses. We had a working capital deficiency of $138.5 million at September 30, 2023. Losses have been funded primarily through the issuance of common stock and warrants, borrowings from $65,885our stockholders, and third-party debt. As of September 30, 2023, we had cash of $0.1 million. Cash provided by operating activities was $1.2 million for the nine months ended September 30, 2016. The decrease in our net sales for2023. During the threenine months ended September 30, 2017 reflects the decision2023, we had repayments to exit certain lower margin contract manufacturing business our revolving credit facility of $2.0 million.
Our total liabilities increased by $0.7 million to $146.9 millionat Twinlab and lower Twinlab branded salesSeptember 30, 2023 from $146.2 million at December 31, 2022 primarily due to lost distributionthe decrease of $3.0million in accounts payable and $2.0 million in notes payable and current portion of long-term debt; partially offset by an increaseof $4.9million inaccrued interest.
Cash Flows from out-of-stock conditions causedOperating, Investing and Financing Activities
Net cash provided by order fulfillment shortfalls during 2016. Our net salesoperating activities was $1.2 million for the nine months ended September 30, 2017 increased due to organic growth in Nutrascience’s contract manufacturing business.
Gross Profit
Our gross profit decreased $3,574, or 50%, to $3,509 for the three months ended September 30, 2017 from $7,083 for the three months ended September 30, 2016. On a year-to-date basis, our gross profit decreased $718, or 4%, to $15,762 for the nine months ended September 30, 2017 from $16,480 for the nine months ended September 30, 2016. The decrease in our gross profit for the three months ended September 30, 2017 is derived from lower net sales as well as one-time inventory write-offs. The decrease in our gross profit for the nine months ended September 30, 2017 is derived from one-time inventory write-offs.
Selling, General and Administrative Expenses
Our selling, general and administrative expenses decreased $1,114, or 14%, to $6,646 for the three months ended September 30, 2017 from $7,760 for the three months ended September 30, 2016. On a year-to-date basis, our selling, general and administrative expenses decreased $5,675, or approximately 22%, to $20,574 for the nine months ended September 30, 2017 from $26,249 for the nine months ended September 30, 2016. The decreases in our selling, general and administrative expenses are primarily due to our reduction in force to right-size the number of employees which began in 2016.
Loss on Stock Purchase Price Guarantee
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 to an agreement in which we were required to issue an Unsecured Promissory Note (“Huntington Note”) in favor of Huntington Holdings, LLC (“Huntington”). The Huntington Note matures on June 2, 2019 with the principal amount of $3,200 payable at maturity. Interest on the outstanding principal accrued at a rate of 8.5% per year from August 6, 2016 to August 15, 2017, and increased 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 regards 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. Upon the exercise of this purchase option, the Subject Shares were to be released from escrow and transferred to the Company. If the Huntington 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.
Interest Expense, Net
Our interest expense decreased $547, or 23%, to $1,876 for the three months ended September 30, 2017 from $2,423 for the three months ended September 30, 2016. On a year-to-date basis, our interest expense decreased $212, or 3%, to $6,318 for the nine months ended September 30, 2017 from $6,530 for the nine months ended September 30, 2016. The decrease in our interest expense is primarily due to a decrease in our note discounts which are amortized into interest expense.
Gain (Loss) on Change in Derivative Liabilities
The number of shares of common stock issuable pursuant to certain warrants issued in 2015 will be increased if our audited adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) or the market price of the Company’s common stock do not meet certain defined amounts. We have recorded the estimated fair value of the warrants as of the date of issuance and each subsequent balance sheet reporting date. Due to the variable terms of the warrant agreements, changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date are recorded as gain (loss) on change in derivative liabilities in our consolidated statements of comprehensive loss. During the three months and nine months ended September 30, 2017, we reported a loss on change in derivative liabilities of $393 and $1,688, respectively. During the three and nine months ended September 30, 2016, we reported a gain on change in derivative liabilities of $14,065 and $28,128, respectively.
Liquidity and Capital Resources
At September 30, 2017, we had an accumulated deficit of $237,326, primarily because of our history of operating losses and our recording of derivative liabilities and loss on a stock purchase price guarantee. We have a working capital deficiency of $8,531 at September 30, 2017. Losses have been funded primarily through issuance of common stock, borrowings from our stockholders and third-party or related party debt and proceeds from the exercise of warrants. As of September 30, 2017, we had cash of $2,233. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as inventory stocking levels. We used net cash in operating activities of $9,143 for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, we incurred new debt of $6,267, had a net increase in borrowings on our senior credit facility of $1,646 to fund our operations and debt repayment of $1,583.
Our total liabilities increased by $8,774 to $99,834 at September 30, 2017 from $91,060 at December 31, 2016. This increase in our total liabilities was primarily due to an increase in our non-cash derivative liabilities of $1,688, a non-cash increase in our debt of $3,530, a decrease in our liabilities related to operations of $4,548 and a net increase of $8,104 in debt. For discussion of our debt financings completed to date during 2017, see Notes 6 and 7 in the Notes to Condensed Consolidated Financial Statements included in this report.
Cash Flows from Operating, Investing and Financing Activities
Net cash used in operating activities was $9,143 for the nine months ended September 30, 20172023 as a result of our net loss of $12,854, a non-cash loss on change in derivative liabilities of $1,688, as well as non-cash expenses totaling $5,088 $12.2 million, and an increase in net operating assets and liabilities of $3,065.$9.4 million. By comparison, for the nine months ended September 30, 2016,2022, net cash used in operating activities was $20,535$7.5 million as a result of our net incomeloss of $8,584, $4.9 million, a non-cash gain on change in derivative liabilities of $28,128 as well as other non-cash expenses totaling $10,016 and a increasedecrease in net operating assets and liabilities of $11,007. See Condensed Consolidated Statements$1.3million, forgiveness of Cash Flows included in this report for additional information.our PPP Loan of $1.7 million, and other non-cash expenses totaling $0.4 million net.
Net cash used in investingfinancing activities was $2.0 million for the nine months ended September 30, 2017 and 2016 was $51 and $119, respectively,2023, consisting of the purchasenet repayments of property and equipment.
$2.0 million to our revolving credit facility. Net cash provided by financing activities was $6,330$4.3 million for the nine months ended September 30, 2017, primarily2022, consisting of proceeds from the issuance of debt of $6,267, net borrowings of $1,646$4.3 million under our revolving credit facilities, partially offset by repayment offacility.
Ongoing Funding Requirements
As set forth above, we obtained additional debt of $1,583. Net cash provided by financing activities was $22,459 forin the year ended December 31, 2022 and thenine months ended September 30, 2016, consisting of proceeds2023 to support operations. We will need additional funding from the issuance of debt of $22,089, net borrowings of $3,342 under our revolving credit facilities, partially offset by repayment of debt of $2,973.facility to continue supporting our operations during the next twelve months. However, we cannot predict whether future borrowings will be available to us under our credit facility and future developments associated with the current economic environment will materially affect our long-term liquidity position.
Ongoing Funding Requirements
As set forth above, In response to COVID-19 and to protect our liquidity and cash position, we have taken a number of steps. In August of 2020, we obtained additional debt financingdeferment letters from each of Great Harbor Capital, LLC, Little Harbor, LLC, and Golisano Holdings LLC, pursuant to which each lender agreed to defer all payments due under outstanding notes held by each lender through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the outstanding notes. Amendments to extend the maturity date and related payment deferrals of the aforementioned notes have not been executed and these notes are currently in 2017 to support operations. It is possibledefault. We anticipate extending the maturity dates and related payment deferrals with the lenders, but we cannot guarantee that we may need additional funding to enable us to fund our operating expensessuch extensions and capital expenditure requirements.payment deferrals will be successfully obtained on a timely basis or at all.
Until such time, if ever, as we can generate substantial product revenues, we intend to finance our cash needs through a combination of equity offerings, debt financings,financing, collaborations, strategic alliances, sales of assets, other merger and acquisition activities, and licensing arrangements. There can be no assurance that any of those sources of funding will be available when needed on acceptable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, strategic alliances, sales of assets, other merger and acquisition activities, or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or we may have to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financingsfinancing or relationships with third parties when needed or on acceptable terms, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts; abandon our business strategy of growth through acquisitions; or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Recent Accounting PronouncementsOff-Balance Sheet Arrangements
In May 2017, FASB amended its guidance regardingWe did not have during 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.
In January 2017, FASB issued 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. 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 to recognize a lease liabilitypresented, and a right-of-use asset for all leases with terms greater than 12 months affecting the pattern of expense recognition in the income statement. Leases previously defined as operating leases will be defined as financing leases and capitalized if the term is greater than one year. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018 and are to be applied through a modified retrospective transition approach for leases existing at, or entered into after, the beginning 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 application to the earliest reporting period. As a result, financing leases will be recorded as an asset and a corresponding liability at the present value of 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 of our consolidated financial statements and related disclosures at the time of adoption.
Although there are several other new accounting pronouncements issued or proposed by FASB, which we have adopted or will adopt, as applicable, we do not believecurrently have, any of these accounting pronouncements has had or will have a material impact on our condensed consolidated financial position or results of operations.off-balance sheet arrangements, as defined under applicable SEC rules.
Material Contractual Obligations
On December 15, 2016, we entered into an operating lease agreement for approximately 13,000 square feet of office space in Boca Raton, Florida. The agreement expires 103 months after the commencement, which occured in August 2017, and has a monthly base rent of $17.
As of September 30, 2017, we have total debt of $74,253, of which $54,174 is considered to be related-party debt. For discussion of our debt financings, see Notes 6 and 7 in the Notes to Condensed Consolidated Financial Statements included in this report.
Effective February 6, 2013, we entered into an operating lease agreement for approximately 170,000 square feet of manufacturing, research and development, warehousing and shipping space, which includes roughly 30,000 square feet of office space, in American Fork, Utah. The agreement expires in February 2028 and has a monthly base rent of $60, provided that commencing on the five-year anniversary date thereafter, the base rent shall be increased by 10% over the base rent for the preceding five-year period.
Effective April 7, 2015, we entered into an operating lease agreement for approximately 31,000 square feet of office space in St. Petersburg, Florida. The agreement expires in April 2027 and has a monthly base rent of $59 for year 1 to $76 for year 12.
Off-Balance Sheet Arrangements
None.
This item is not applicable as we are currently considered a smaller reporting company.
| 26 |
Evaluation of Disclosure Controls and Procedures
Our management,, with the participation of our interim chief executive officer and our chief financial officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2017,2023 pursuant to Rule 13a-15(b)13a-15(e) and 15d-15(e) under the Securities Exchange Act.Act of 1934 (the “Exchange Act”), as amended. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’sSEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.
Based on On the evaluationbasis of our disclosure controls and procedures as of September 30, 2017,this review, our management, including our interim chief executive officer and chief financial officer, has concluded that as a result of material weaknesses in our internal control over financial reporting discussed below,the end of the period covered by this report, our disclosure controls and procedures were not effective asto give reasonable assurance that the information required to be disclosed in our reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of September 30, 2017. the SEC, and to ensure that the information required to be disclosed in the reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, in a manner that allows timely decisions regarding required disclosure.
Management’s Remediation Initiatives
Management plansThe Company has a lack of appropriate staffing in our accounting and has initiated actionsinformation technology departments to implement a number of initiatives that address the ineffective designCompany’s ability to continue to close the books both timely and accurately and to meet internal control processes. The Company’s ability to address this material weakness is limited due to the lack of financing.
Although the Company is working to remediate this material weakness, it currently has not been resolved. Any failure to maintain or implement required new or improved controls, or any difficulties that may be encountered in their implementation, could result in additional material weaknesses, cause us to fail to meet our periodic or annual reporting obligations or result in material misstatements in our financial statements. Any such failure could also adversely affect the results of periodic management evaluations regarding the effectiveness of our internal control over financial reporting required under Section 404 of the Sarbanes Oxley Act of 2002 and the rules promulgated thereunder. The existence of material weaknesses could result in errors in our financial statements that could result in a restatement of those financial statements.
Limitations on Effectiveness of Controls and Procedures
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and plansevaluating the controls and procedures, and the inability to initiate further actions to implement a number of initiatives, including but not limited to the following:
Work throughout the year with our independent Sarbanes-Oxley Act consultant to help improve the overall testing of oureliminate misconduct completely. Accordingly, any system of internal control over financial reporting, so we promptly identifyincluding ours, no matter how well designed and refine prioroperated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to year-end.
Continue to evaluate control procedures on an ongoing basis, and, where possible modify those control procedures to improve management oversight.
Implement and improve systems to automate certain financial reporting processes and to improve information accuracy.
We made various staff changes during 2017 in our finance and accounting department and we believe these changes have enabled us to broaden the scope and quality of our controls relatingfuture periods are subject to the oversight and review of financial statements and to properly apply all relevant accounting. Furthermore, we plan to implement and improve systems to automate certain financial reporting processes and to improve information accuracy.
Management will continue the process of reviewing existing controls, procedures and responsibilities to more closely identify financial reporting risks and the required controls to address them. Key control and compensating control procedures have been developed to ensure that weaknesses are properly addressed and related financial reporting risks are mitigated. Periodic control validation and testing has been implemented to ensurerisk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to operate consistentlymonitor and upgrade our internal controls as designed. The remediation stepsnecessary or appropriate for our business, but we have taken, are taking and expectcannot assure you that such improvements will be sufficient to take may not effectively remediate the material weaknesses, in which case ourprovide us with effective internal control over financial reporting would continuereporting.
Remediation in Internal Control over Financial Reporting
To address the material weakness related to appropriate staffing, the Company made efforts to hire, train and retain appropriate staff in the accounting, finance and information technology departments including technical accountants to support and alleviate the workload on the current team. The additional staff should help to proactively identify and account for transactions of a complex or non-routine nature, identify and reduce inefficiencies, and better identify weaknesses in internal controls. Furthermore, the additional staffing should be ineffective. Even if we areresponsible for managing the day-to-day responsibilities of Sarbanes Oxley compliance, including enhanced documentation of process and general controls. However, the Company has not yet been able to complete these actions successfully, these measuresall of the training and additional staffing may not adequately address our material weaknesses and may take additional time to complete. In addition, it is possible that we will discover additional material weaknesses in our internal control over financial reporting or that our existing material weaknesses will result in additional errors in or restatements of our financial statements. still be required.
Changes in Internal Control over Financial Reporting
Other than the itemsExcept as discussed above, there were no changes in our internal controlcontrols over financial reporting during our most recent fiscalthe quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal controlcontrols over financial reporting.
Limitations on Effectiveness of Controls and Procedures
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
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| Legal Proceedings |
Item 1. Legal Proceedings
In re: Herbal Supplements MarketingFrom time to time, we may become involved in various lawsuits and Sales Practicelegal proceedings, which arise in the ordinary course of business. Litigation MDL No. 2619, Case No. 1:15-cv-5070, U.S. District Court for the Northern District of Illinois, filed on June 9, 2015. We are not a partyis subject to this matter, which joinedinherent uncertainties, and an adverse result in a multidistrict litigation a number of purported class actions arisingthese or other matters may arise from allegations raised by a state attorney general claimingtime to time that DNA barcoding testing conducted on behalfmay harm our business. As of the attorney general indicated that certain herbal supplement products did not contain the herbal ingredients stated on the label. We do, however, pursuant to contractual obligations, provide indemnity and defense with respect to certain of the claims in this litigation. The defendants in this litigation intend to take all necessary steps to vigorously defend this matter.
Amy Mathews v. Wal-Mart Stores, Inc. and Wal-Mart Stores Arkansas LLC, Case No. CV-2015-0294, in the Circuit Court of Independence County, Arkansas, Civil Division. This purported class action alleges a violation of the Arkansas Deceptive Trade Practices Act based on the same allegations of the state attorney general that serve as the basis for the claims in the Herbal Supplements multidistrict litigation referenced above, and seeks certification of a class of Arkansas residents purportedly impacted by the allegations. We are not a party to this litigation but provide indemnity and defense with respect to certain of the claims in this litigation.
Corr-Jensen Inc. v. Mark Walsh and Twinlab Corporation, Case No. 1:17-cv-01473-CBS, in the U.S. District Court for the District of Colorado, filed on June 16, 2017. The plaintiff, Corr-Jensen Inc., alleges Twinlab Corporation intentionally and improperly interfered with Mr. Walsh’s employment agreement and release with the plaintiff by allegedly engaging Mr. Walsh or continuing to engage him. On September 21, 2017, we entered into a confidential settlementdate of this matter withQuarterly Report on Form 10-Q, the plaintiff, which didCompany is not aware of any legal proceedings that could have a material adverse effectimpact on ourthe Company’s financial condition/condition, results of operations, or cash flows.
| Risk Factors |
Winn-Dixie Stores, Inc., BI-LO, LLC and Sampson Merger Sub, LLC v. Twinlab Corporation, Case No.: 16-2017-CA-004367, in the Circuit Court of the Fourth Judicial District in and for Duval County, Florida, filed on July 11, 2017. The plaintiffs in this matter allege Twinlab Corporation is in breach of a contract agreement related to unpaid invoices. On September 25, 2017, we entered into a confidential settlement of this matter with the plaintiffs, which did not have a material adverse effect on our financial condition/results of operations or cash flows.
Item 1A.Risk Factors.
Risks and uncertainties that, if they were to occur, could materially adversely affect our business or cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements were set forth in the “Item 1A Risk Factors” section of our Annual Report on Form 10-K filed with the SEC on March 31, 2017.2023.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial conditions and/or operating cash flow.results.
Item 6.Exhibits.
| Unregistered Sales of Equity Securities and Use of Proceeds. | |
|
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| |
| None. |
| Defaults Upon Senior Securities. |
As of September 30, 2023, we were in default for lack of compliance with the EBITDA-related financial covenant of the debt agreement with MidCap. The amount due to MidCap for this revolving credit line is $4,276 as of September 30, 2023.
To date, we are in default of the promissory notes payable to Little Harbor, GH and Golisano LLC which matured on October 22, 2021 (see Note 6 for further information). As of September 30, 2023, we had $8,037, $28,500 and $39,536 of indebtedness outstanding to Little Harbor, GH and Golisano LLC, respectively.
| Mine Safety Disclosures. | |
| Not applicable. |
| Other Information. | |
| None. |
| 28 |
Exhibits. |
The exhibits filed or furnished as part of this Quarterly Report on Form 10-Q are set forth below.
Exhibit Number | Exhibit Description | ||
31.1* | |||
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32.1** | |||
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| |||
101.INS | Inline XBRL | ||
| |||
101.SCH | Inline XBRL Taxonomy Extension Schema. | ||
| |||
101.CA | Inline XBRL Taxonomy Extension Calculation. | ||
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101.DEF | Inline XBRL Taxonomy Extension Definition. | ||
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101.LAB | Inline XBRL Taxonomy Extension Label. | ||
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101.PRE | Inline XBRL Taxonomy Extension Presentation. | ||
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | ||
* Filed herewith. | |||
| ** Furnished herewith. | |||
| 29 |
SIGNATURES
Pursuant to the requirements of the SecuritiesSecurities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TWINLAB CONSOLIDATED HOLDINGS, INC. | ||||
Date: November 14, |
| By: | /s/ | |
| Kyle Casey | |||
Interim Chief Executive Officer | ||||
|
|
| ||
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and Chief Financial Officer (Interim Principal Executive Officer and | ||||
| 30 |
31