UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-QUNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

For the quarterly period ended: June 30, 20202021 or

For the transition period from _________to _______________ to _____

Commission file number: 000-53166

MusclePharm Corporation

(Exact name of registrant as specified in its charter)

(800) (800) 292-3909

(Registrant’s telephone number, including area code)

4500 Park Granada, Suite 202

Calabasas, CA91302

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

Securities registered pursuant to Section 12(b) of the Act:

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 [X] ☒ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). [  ]☐ Yes [X] ☒ No

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

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 [X] ☒ No

Number of shares of the registrant’s common stock outstanding at November 16, 2020: 33,130,039August 11, 2021: 33,479,886 (excludes 875,621 shares of common stock held in treasury).

MusclePharm Corporation

Form 10-Q

TABLE OF CONTENTS

About this Report

This Form 10-Q relates to the Company’s (as defined below) quarterly period ended June 30, 2020. As previously indicated by the Company, it has been delinquent in its filings with the Securities and Exchange Commission (the “SEC”) and is making this filing after its due date. Simultaneously with making this filing, the Company also is filing its Form 10-Q for the quarterly period ended March 31, 2020 and September 30, 2020. Because this Form 10-Q pertains to the quarterly period ended June 30, 2020, it does not include financial information for more recent periods. Accordingly, please refer to our filings for more recent periods for financial information relating to those periods.

Forward-Looking Statements

Except as otherwise indicated herein, the terms “MusclePharm,” “Company,” “we,” “our” and “us” refer to MusclePharm Corporation and its subsidiaries. This Quarterly Report on Form 10-Q contains forward-looking statements.statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (“the Exchange Act”), and Section 27A of the Securities Act of 1933, as amended. All statements contained in this Quarterly Report on Form 10-Q other than statements of historical fact, including statements regarding our future results of operations and financial position, including our future profits, financing sources and our ability to satisfy our liabilities, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words “believe,”In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “estimate,“should,” “continue,“expects,” “anticipate,“plans,” “intend,“anticipates,” “expect,“believes,” and similar expressions are intended to identify forward-looking statements.“estimates,” “projects,” “intends,” “predicts,” “potential,” or “continue” or other comparable terminology. 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 financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.

These forward-looking statements are not guarantees of future performance and involve risks, uncertainties, estimates and assumptions that are difficult to predict and are subject to a number of risks, uncertainties and assumptions, including those described in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019,2020, filed with the SEC on August 25, 2020.March 29, 2021. Moreover, we operate in a very competitive and rapidly changing environment. In particular, we have experienced a slowdown in sales from our retail customers due to the ongoing COVID-19 pandemic, and we cannot predict the ultimate impact of the COVID-19 pandemic on our business. New risks may emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements.

Note Regarding Trademarks

We have proprietary rights to a number of registered and unregistered trademarks worldwide that we believe are important to our business, including, but not limited to: “MusclePharm” and “FitMiss.”“FitMiss”. We have, in certain cases, omitted the ®, © and ™ designations for these and other trademarks used in this Form 10-Q. Nevertheless, all rights to such trademarks are reserved. These and other trademarks referenced in this Form 10-Q are the property of their respective owners.owners and they will assert, to the fullest extent under applicable law, their rights thereto.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

MusclePharm Corporation

Consolidated Balance Sheets

(In thousands, except share and per share data)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Consolidated Statements of Operations

(In thousands, except share and per share data)

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Consolidated Statements of Comprehensive LossChanges in Stockholders’ Deficit

(In thousands)thousands, except share data)

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Consolidated Statements of Changes in Stockholders’ Deficit

(In thousands, except share data)

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Consolidated Statements of ChangesCash Flows

(Unaudited, in Stockholders’ Deficitthousands)

(In thousands, except share data)

(Unaudited)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Consolidated Statements of Cash Flows

(Unaudited, in thousands)

The accompanying notes are an integral part of these Consolidated Financial Statements.

MusclePharm Corporation

Notes to Consolidated Financial Statements

(Unaudited)

Note 1. Description of Business

Description of Business

MusclePharm Corporation, was incorporated in Nevada in 2006. Except as otherwise indicated hereintogether with its subsidiaries (the “Company” or the context requires otherwise, the terms “MusclePharm,” the “Company,” “we,” “our” and “us” refer to MusclePharm Corporation and its subsidiaries. The Company“MusclePharm”) is a scientifically-driven, performance lifestyle company that develops, markets and distributes branded sports nutrition products and nutritional supplements that are manufactured by the Company’s co-manufacturers. Our portfolio of recognized brands, including MusclePharm^® and FitMiss,^®, is marketed and sold globally. The Company is headquartered in Calabasas, California and, as of June 30, 2020, had the following wholly-owned operating subsidiaries: MusclePharm Canada Enterprises Corp., MusclePharm Ireland Limited and MusclePharm Australia Pty Limited.

The Company has historically incurred significant losses and experienced negative cash flows since inception. As of June 30, 2020,2021, the Company had cash of $1.2 $1.0million, an increase of $0.4 million from March 31, 2021 and a decline of $0.3 $1.0 million from the December 31, 20192020 balance of $1.5 $2.0 million. As of June 30, 2020,2021, the Company had a working capital deficit of $28.0 $22.8 million, a stockholders’ deficit of $28.0$26.3 million and an accumulated deficit of $196.2 $194.8 million resulting from recurring losses from operations. As a result of our history of losses and financial condition, there is substantial doubt about our ability to continue as a going concern. For financial information concerning more recent periods, see our reports for such periods filed with the SEC.

The Company’s ability to continue as a going concern is dependent upon usit generating profits in the future and/or obtaining the necessary financing to meet ourits obligations and repay our liabilities arising from normal business operations when they come due. ManagementThe Company is evaluating different strategies to obtain financing to fund ourits operations to cover expenses and achievefocus on achieving a level of revenue adequate to support ourits current cost structure. Financing strategies may include, but are not limited to, private placements of capital stock, debt borrowings, partnerships and/or collaborations.

The Company has been focused on cost containment and improving gross margins by focusing on customers with higher margins, reducing product discounts and promotional activity, along with reducing the number of SKU’s and negotiate pricing for raw materials. In response to the Company’s continued net loss in 2019, management implemented the following measures to improve gross profit:

As a result of these measures, as well as a reduction in protein prices,addition, the Company realized increasedhas worked to negotiate lower production costs with its co-manufacturers. Although these steps improved gross profitmargins through the first quarter of 2021, with the recent increases in commodity prices, primarily protein, the company’s gross margins have been impacted and will continue to be impacted unless commodity prices return the same levels that were seen in 2020.

In 2021, the Company announced its entrance into the functional energy space with its partnership with a former Rockstar Energy executive. The Company plans to launch 3 new energy products in the fourth quartersummer of 2019, a trend which continued into2021. The Company believes with the third quarterlaunch of 2020. Beginning in April 2020, the Company experienced a slowdown, which has continued to date, in sales from its retail customers, including its largest customer. This decline has been partially offset by a growth in sales to our largest online customers, although there can be no assurances that such growth will continue, or that the Company will have the financial resources to produce the additional quantities required by these customers. In 2020, the Company also negotiated lower costs of goods sold with our co-manufacturers. Management believesnew energy products, reductions in operating costs and continued focus on gross profit and top line sales growth will allow usit to ultimately achieve sustained profitability. However, the Company can give no assurances that this will occur, especially with the cost to launch new energy products along with the recent increase in the cost of protein, which may have a material impact on the Company’s profitability. Additionally, the Company’s profitability however,may be materially impacted by the ability of our third-party manufacturers to meet our customers’ demands. Although, the Company believes entering the functional energy space will help to increase sales and gross margin, and reduce exposure to commodity prices, the Company can give no assurances that this will occur. To manage cash flow, the Company has entered into multiple financing arrangements. See additional information in “Note 7. Debt.”

OurThe Company’s results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence. There continues to be significant volatility and economic uncertainty in many markets and the ongoing COVID-19 pandemic has increasedcontributes to that level of volatility and uncertainty and has created economic disruption. We areThe Company is actively managing ourits business to respond to the impact. There were no adjustments recorded in the financial statements that might result from the outcome of these uncertainties.

The ultimate impact of the COVID-19 pandemic on the Company’s operations is unknown and will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the COVID-19 outbreak, new information which may emerge concerning the severity of the COVID-19 pandemic, and any additional preventative and protective actions that governments, or the Company, may direct, which may result in an extended period of continued business disruption, reduced customer traffic and reduced operations. Any resulting financial impact cannot be reasonably estimated at this time but may have a material impact on our business, financial condition and results of operations. Management continues to monitor the business environment for any significant changes that could impact the Company’s operations. The Company has taken proactive steps to manage costs and discretionary spending, such as remote working and reducing facility related expense.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X for interim financial information.S-X. Accordingly, these statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. The consolidated financial statements include the accounts of MusclePharm Corporationthe Company and its wholly-ownedwholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

The Company’s management believes the unaudited interim Consolidated Financial Statementsconsolidated financial statements include all adjustments of a normal recurring nature necessary for the fair presentation of the Company’s financial position as of June 30, 2020,2021, results of operations for the three and six months ended June 30, 20202021 and 2019,2020, and cash flows for the six months ended June 30, 20202021 and 2019.2020. The results of operations for the three and six months ended June 30, 20202021 are not necessarily indicative of the results to be expected for the year ended December 31, 2020. Certain prior period amounts have been conformed to the current period’s presentation.2021.

These unaudited interim Consolidated Financial Statementsconsolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019,2020, filed with the SEC on August 25, 2020.March 29, 2021.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported and disclosed in the consolidated financial statements and accompanying notes. Such estimates include, but are not limited to, allowance for doubtful accounts, revenue discounts and allowances, the valuation of inventory and deferred tax assets, the assessment of useful lives, recoverability and valuation of long-lived assets, likelihood and range of possible losses on contingencies, restructuring liabilities, valuations of equity securities and intangible assets, warrants and options, present value of lease liabilities, among others. Actual results could differ from those estimates.

Revenue RecognitionShipping and handling

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services.

The Company sells a variety of protein products through a broad distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, home stores, specialty stores and websites and other e-commerce channels, all of which sell our products to consumers.

For performance obligations related to the shipping and invoicing of products, control transfers at the point in time upon which finished goods are delivered to the Company’s customers or when finished goods are picked up by a customer or a customer’s carrier, depending on shipping terms. Once a product has been delivered or picked up by the customer, the customer is able to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The Company considers control to have transferred upon delivery or customer receipt because the Company has an enforceable right to payment at that time, the customer has legal title to the asset, the Company has transferred physical possession of the asset, and the customer has significant risk and rewards of ownership of the asset.

The Company conducts extensive promotional activities, primarily through the use of off-list discounts, slotting, coupons, cooperative advertising, periodic price reduction arrangements, and end-aisle and other in-store displays. The costs of such activities are netted against sales and are recorded when the related sale takes place. The reserves for sales returns and consumer and trade promotion liabilities are established based on the Company’s best estimate of the amounts necessary to settle future and existing obligations for products sold as of the balance sheet date. To determine the appropriate timing of recognition of consideration payable to a customer, all consideration payable to our customers is reflected in the transaction price at inception and reassessed routinely.

The Company expenses incremental direct costs of obtaining a contract (broker commissions) when the related sale takes place, since the amortization period of the commissions paid for the sale of products is less than a year. These costs are recorded in “Selling, general and administrative” expense in the accompanying consolidated statements of operations.

The Company accounts for shipping and handling costs as fulfillment activities, which are therefore recognized upon shipment of the goods.

For the three and six months ended June 30, 2020,2021 the Company incurred $0.4$0.5  million and $0.8 $1.0 million, respectively, of inbound shipping and handling costs. For the three and six months ended June 30, 2019,2020 the Company incurred $0.3 $0.4 million and $0.6 $0.8 million, respectively, of inbound shipping and handling costs. Shipping and handling costs related to inbound purchases of raw material and finished goods are included in cost of revenuesrevenue in our consolidated statements of operations.

For the three and six months ended June 30, 2020,2021, the Company incurred $0.6$0.9 million and $1.2$1.6 million, respectively, of shipping and handling costs related to shipments to our customers. For the three and six months ended June 30, 2019,2020, the Company incurred $1.0$0.6 million and $2.1$1.2 million, respectively, of shipping and handling costs related to shipments to our customers. Shipping and handling costs related to shipments to our customers is included in “Selling, general and administrative” expense in our consolidated statements of operations.

Sales discounts and returns

The Company excludes from its revenue any amounts collected from customers for sales (and similar) taxes. During the three months ended June 30, 20202021 and 2019,2020, the Company recorded discounts, and to a lesser degree, sales returns, totaling $3.6 $1.9 million and $7.9 $3.6 million, respectively, which accounted for 11% and 17% and 26% of gross revenue in each period, respectively. During the six months ended June 30, 20202021 and 2019,2020, the Company recorded discounts, and to a lesser degree, sales returns, totaling $7.6 $4.4 million and $15.5 $7.6 million, respectively, which accounted for 14% and 19% and 27% of gross revenue in each period, respectively.

Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company minimizes its credit risk associated with cash by periodically evaluating the credit quality of its primary financial institution. The Company maintains its cash balance at times, may exceed federallycredit-worthy financial institutions that are insured limits.by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. There was an aggregate uninsured cash balance of $0.8 million as of June 30, 2021. Management believes the financial risk associated with these balances is minimal and has not experienced any losses to date.

Significant customers are those that represent more than 10% of the Company’s revenue, net or accounts receivable for each period presented.

For each significantthe three months ended June 30, 2021, the Company had two customers who individually accounted for 55% and 13% of net revenue. For the six months ended June 30, 2021, the Company had three customers who individually accounted for 43%, 13% and 13% of net revenue. One customer percentage accounted for 59% of revenue, net and accounts receivable, arenet as follows:of June 30, 2021.

For the three months ended June 30, 2020, the Company had three customers who individually accounted for 30%, 24% and 21% of net revenue. For the six months ended June 30, 2020, the Company had three customers who individually accounted for 33%, 23% and 16% of net revenue. Three customers accounted for 31%, 18% and 16% of accounts receivable, net as of June 30, 2020.

* Represents less than 10% of revenue, net or net accounts receivable.

The Company uses a limited number of non-affiliated suppliers for contract manufacturing of its products. TheFor the three months ended June 30, 2021, the Company had the following concentration three suppliers who individually accounted for approximately 23%, 15% and 13% of its purchases with contract manufacturers:manufacturers and raw material providers. For the six months ended June 30, 2021, the Company had three suppliers who individually accounted for approximately 24%, 15% and 15% of its purchases with contract manufacturers and raw material providers. Four customers accounted for 33%, 17%, 12% and 11% of accounts payable as of June 30, 2021.

For the three months ended June 30, 2020, the Company had three suppliers who individually accounted for approximately 33%, 30% and 20% of its purchases with contract manufacturers and raw material providers. For the six months ended June 30, 2020, the Company had three suppliers who individually accounted for approximately 34%, 30% and 17% of its purchases with contract manufacturers and raw material providers. Three customers accounted for 19%, 12% and 12% of accounts payable as of June 30, 2020.

*Represents less than 10% of total purchases.

Share-Based Payments and Stock-Based Compensation

Share-based compensation awards, including stock options and restricted stock awards, are recorded at estimated fair value on the applicable award’s grant date, based on the estimated number of awards that are expected to vest. The grant date fair value is amortized on a straight-line basis over the time in which the awards are expected to vest, or immediately if no vesting is required. Share-based compensation awards issued to non-employees for services are recorded at fair value on the grant date. The fair value of restricted stock awards is based on the fair value of the stock underlying the awards on the grant date as there is no exercise price.

The fair value of stock options is estimated using the Black-Scholes option-pricing model. The determination of the fair value of each stock award using this option-pricing model is affected by the Company’s assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the expected stock price volatility over the term of the awards and the expected term of the awards based on an analysis of the actual and projected employee stock option exercise behaviors and the contractual term of the awards. Due to the Company’s limited experience with the expected term of options, the simplified method was utilized in determining the expected option term as prescribed in Staff Accounting Bulletin No. 110. The Company recognizes stock-based compensation expense over the requisite service period, which is generally consistent with the vesting of the awards, based on the estimated fair value of all stock-based payments issued to employees and directors that are expected to vest.

Recent Accounting Pronouncements

In July 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which among other things, these amendments requirerequires the measurement of all expected credit losses of financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. ASU 2016-13 is effective for periods beginning after December 15, 2022, and interim periods within those fiscal years. The Company will evaluate the impact of the pronouncement closer to the effective date.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, expected to reduce cost and complexity related to the accounting for income taxes. The ASU removes specific exceptions to the general principles in Topic 740 in GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also improves financial statement preparers’ application of income tax-related guidance and simplifies GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020 with early adoption permitted. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. The Company iscurrently evaluating the impact of the pronouncement.this ASU may have on its consolidated financial statements.

On

In August 5, 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU eliminates the beneficial conversion and cash conversion accounting models for convertible instruments. It also amends the accounting for certain contracts in an entity’s own equity that are currently accounted for as derivatives because of specific settlement provisions. In addition, the new guidance modifies how particular convertible instruments and certain contracts that may be settled in cash or shares impact the diluted EPS computation. This guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but nonot earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The FASB also specified that an entity should adopt the guidance as of the beginning of its annual fiscal year and is not permitted to adopt the guidance in an interim period. The Company will evaluateis currently evaluating the impact this ASU may have on its consolidated financial statements.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the pronouncement closerimpact this ASU may have on its consolidated financial statements.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which was expected to reduce cost and complexity related to the accounting for income taxes. The ASU removes specific exceptions to the general principles in Topic 740 in U.S. GAAP. It eliminates the need for an organization to analyze whether the following apply in a given period: exception to the incremental approach for intra-period tax allocation; exceptions to accounting for basis differences when there are ownership changes in foreign investments; and exception in interim period income tax accounting for year-to-date losses that exceed anticipated losses. The ASU also simplifies U.S. GAAP for: franchise taxes that are partially based on income; transactions with a government that result in a step up in the tax basis of goodwill; separate financial statements of legal entities that are not subject to tax; and enacted changes in tax laws in interim periods. The Company adopted this ASU effective date.January 1, 2021, with certain provisions applied retrospectively and other provisions applied prospectively. Adoption of this ASU did not have a material impact to the Company’s condensed consolidated balance sheet, statements of operations, or cash flows.

Reclassifications.

Certain prior period amounts have been reclassified to conform to the current period financial statement presentations, including classification of certain labilities. These changes in presentation did not have a material impact on the Company's financial condition or results of operations.

Note 3. Fair ValueInventory

Inventory consisted solely of Financial Instrumentsfinished goods and raw materials used to manufacture our products by one of our co-manufacturers (in thousands):

Schedule of Inventory

Note 4. Accrued and Other Liabilities

As of June 30, 2020,2021 and December 31, 2019,2020, the Company held no assets orCompany’s accrued and other liabilities that required re-measurement at fair value on a recurring basis. Cash balances as of June 30, 2020 and December 31, 2019 were $1.2 million and $1.5 million, respectively. The carrying amounts of the cash balances reported in the consolidated balance sheets approximate the fair value.

Note 4. Balance Sheet Components

Inventory

Inventory consisted of raw materials and finished goods, which were located either at one of our co-manufacturers or our warehouse as of June 30, 2020 and December 31, 2019.

The Company records charges for obsolete and slow-moving inventory based on the age of the product as determined by the expiration date or otherwise determined to be obsolete. Products within one year of their expiration dates are considered for write-off purposes. Historically, the Company has had minimal returns with established customers. The Company incurred insignificant inventory write-offs during each of the six months ended June 30, 2020 and 2019.

Inventory write-downs, once established, are not reversed as they establish a new cost basis for the inventory.

Property and Equipment

Property and equipment consisted of the following as of June 30, 2020 and December 31, 2019 (in thousands):

Depreciation and amortization expense related to property and equipment was $42,000 and $77,000 for the three months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expense was $0.1 million and $0.2 million for the six months ended June 30, 2020 and 2019, respectively. Depreciation and amortization expense is included in “Selling, general and administrative” expense in the accompanying consolidated statements of operations.

Intangible Assets

Intangible assets consisted of the following (in thousands):

Intangible assets amortization expense was $0.1 million for eachSchedule of the three months ended June 30, 2020Accrued and 2019, respectively. Intangible assets amortization expense was $0.2 million for each of the six months ended June 30, 2020 and 2019, respectively. Intangible assets amortization expense is included in “Selling, general and administrative” expense in the accompanying consolidated statements of operations. As of June 30, 2020, the estimated future amortization expense of intangible assets is as follows (in thousands):Other Liabilities

Note 5. Interest and other expense, net

For the three and six months ended June 30, 20202021 and 2019,2020, “Interest and other expense, net” consisted of the following (in thousands):

Schedule of Interest and Other Expense, Net

“Other” includes sublease income and gain on disposal of property and equipment.income.

Note 6. Leases

The Company elected not to apply ASC 842 to arrangements with lease terms of 12 month or less. The Company determines if a contract contains a lease when the contract conveys the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Upon identification and commencement of a lease, we establish a right-of-use (“ROU”) asset and a lease liability. ROU assets and lease liabilities are measured and recognized based on the present valueA summary of the future minimum lease payments over the lease term at the commencement date. At adoption, the Company reduced the ROU asset through a derecognition of the restructuring liability for its abandoned lease facilities. Subsequent to adoption, the Company no longer recognized lease expense on a straight-line basis, as the impact of the derecognition resulted in a front-loading of the lease expenses.

The Company has operating leases for warehouse facilities and office spaces across the U.S. The remaining lease terms for these leases range from 1 to 2 years. The Company also leased manufacturing and warehouse equipment under finance lease arrangements, which expired at various dates through July 2020. The Company does not intend to extend the lease terms expiring in 2020. The lease rental agreement, in which the Company leased a Tennessee warehouse, expired on June 30, 2020. Subsequent to the expiration of the lease, the Company utilized the warehouse and made payments to the landlord on a month-to-month basis between July and August 2020.

Supplemental balance sheet information related to leases was as follows (in thousands):

Fixed lease costs represent the explicitly quantified lease payments prescribed by the lease agreement and are included in the measurement of the ROU asset and corresponding lease liability. Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability. The Company’s lease agreements do not contain any material restrictive covenants.

The components of lease cost for operating and finance leases for the three and six months ended June 30, 2020 were as follows (in thousands):

The components of lease cost for operating and finance leases for the three and six months ended June 30, 2019 were as follows (in thousands):

The Company had no short-term leasesportfolio as of June 30, 2021 and December 31, 2020 and 2019. The Company’s leases do not provide an implicit rate; therefore,is presented in the Company uses its incremental borrowing rate based on the information available at the effective date in determining the present valuetable below (in thousands):

Schedule of future payments for those leases.Supplemental Balance Sheet Information

Supplemental cash flow information related to leases for the six months ended June 30, 2020 and 2019 was as follows:

Schedule of Supplemental Cash Flow Information