Item 1. Business.
(All amounts presented in this Form 10-K are in thousands, except share, per share amounts, the number of employees, and the square feet of office space)
General Development of Business
Twinlab Consolidated Holdings, Inc. (references to “we”, “our”, “us”, the “company”, or “TCH”) was incorporated on October 24, 2013 under the laws of the State of Nevada.
In September 2014, TCH became a holding company with the completion of a Plan of Merger (“Merger”) between Twinlab Consolidation Corporation (“TCC”) and a subsidiary of TCH with TCC surviving the Merger as a wholly owned subsidiary of TCH. Our operational focus redirected to TCC, which through its operating subsidiaries developed, manufactured and marketed high-quality, science-based nutritional supplements, as well as to our consolidation strategy of additional acquisitions and integration of acquired companies, as more fully described below under "Business Strategy." As part of such strategy, following the Merger, we focused significantly on successfully obtaining funding for and completing two acquisitions for which TCC had acquired options prior to the Merger, and which in combination with the TCC operating businesses acquired in the Merger form the foundation for our consolidation and growth strategy. The first was the acquisition of the customer relationships of Nutricap Labs, LLC ("Nutricap"), a provider of dietary supplement contract manufacturing services, into our subsidiary NutraScience Labs, Inc. ("NutraScience") on February 6, 2015, and the second was completed on October 5, 2015 with the acquisition of 100% of the equity interests 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. With this acquisition, we significantly expanded our brand portfolio through the addition of a market leader for resveratrol and collagen supplements in the expanding healthy aging and beauty from within categories. In 2018, the Company introduced and developed new brands to bring natural health to the forefront; specifically, REAAL™ a line of products based on a patented blend of essential amino acids that have been studied in over 25 clinical and medical settings to help maintain lean muscle. Also, in December 2018 Twinlab announced it would be launching another new brand, Phytocab™, a legal cannabidiol (“CBD”) based product. This brand integrates well accepted dietary ingredients into hemp-derived full spectrum phytocannabinoids, which provide for overall health and wellbeing. The addition of innovated new brands and concepts is what ties together the TCC family of brands.
TCC was incorporated on October 1, 2013 in the state of Delaware. TCC was formed to affect a consolidation strategy in the fragmented vitamin, mineral, herbal and other nutritional supplements sectors of the health and wellness industry (the "H&W Industry"). Since TCC's formation we have executed on this strategy to capitalize on the opportunity for consolidation that we believe exists in the H&W Industry.
In August 2014, TCC acquired Idea Sphere Inc., a Michigan corporation ("Idea Sphere"), and its subsidiaries. Also in August 2014, the name of Idea Sphere was changed to Twinlab Holdings, Inc. (“THI”), which is a holding company that owns and operates Twinlab Corporation, Inc., a marketer of high-quality, science-based nutritional supplements under a number of brand names.
THI was incorporated on April 10, 2001. In November 2005, THI completed the acquisition of Metabolife International, Inc. and its subsidiary Alpine Health Products, LLC. Through this acquisition, THI expanded its presence in the diet and energy category. In September 2006, THI acquired the assets of Cole Water Company, LLC ("Cole Water"), which owned an aquifer with a recharging spring of naturally calcium-enriched water. This transaction included the acquisition of real property at 51 Strawtown Pike, Peru, Indiana that holds the natural aquifer as well as a bottling facility. Cole Water has marketed calcium-enriched water under a number of brand names. In December 2013, THI discontinued operations of its water products line. The facility was later sold in March 2020.
In November 2013, THI acquired certain assets of PatentHealth LLC, primarily the Trigosamine® brand, out of receivership, expanding THI's brand footprint to include the fast-growing joint support category in the mass market and drugstore channels.
We maintain our principal executive offices at 4800 T-Rex Avenue, Suite 305, Boca Raton, Florida. TCC's wholly owned subsidiaries are THI, NutraScience, NutraScience Labs IP Corporation, and Organic Holdings. THI's wholly owned subsidiaries are Twinlab Corporation (sometimes referred to herein as "Twinlab"), which markets nutritional supplements under its own brands and for others, and ISI Brands, Inc. ("ISI"), which holds title to the intellectual property used in the manufacturing and marketing activities of Twinlab Corporation. Organic Holdings' wholly owned operating subsidiaries are CocoaWell, LLC, Fembody, LLC, InnoVitamin Organics, LLC, Joie Essance, LLC, Organics Management LLC, Re-Body, LLC, Reserve Life Organics, LLC, ResVitale, LLC, Reserve Life Nutrition, L.L.C., and Innovita Specialty Distribution LLC.
For convenience in this report, the terms "Company," "we" and "us" may be used to refer to Twinlab Consolidated Holdings, Inc. and/or its subsidiaries, except where indicated otherwise, and the term "TCC" may be used to refer to Twinlab Consolidation Corporation and/or its subsidiaries.
Business Overview
General
We are a marketer, distributor and direct to consumer retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty stores retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Through NutraScience Labs, we also provide contract manufacturing services for private label products. Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished products under the customer’s own brand name. We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers.
Business Strategy
We target consumers searching for high quality nutritional supplements and other natural products. We believe many of these consumers shop in sales channels that offer meaningful education, service and support to their customers.
The primary channel that offers this type of support to consumers in the United States has been the health and natural food channel ("HNF"). Our primary focus and strength has been and remains on this channel. This strategy has enabled us to benefit from the growth of the HNF channel. The HNF channel consists of approximately 35,500 retailers, including (i) independent health and natural food stores, (ii) health and natural food stores affiliated with local, regional and national health and natural food chains (including health and natural food store chains, such as Whole Foods Market, and vitamin store chains, such as The Vitamin Shoppe and Vitamin World) and (iii) GNC stores. The HNF channel principally caters to our primary target consumers: those who desire product education, service and high-quality nutritional supplements and other natural products.
We develop, market and distribute our branded products, particularly the Twinlab®, Alvita® and Metabolife® brands. We market our branded products through a combination of our own sales force and independent brokers dedicated to the HNF channel. We continue to seek out partners that have strong customer relationships, reach into our target channels and have acted to realign our independent broker network to gain market share. We believe the key to the strength of our brands and market position is innovation, as we seek to be a market leader in the development of new and innovative products. We believe that we benefit from greater customer and product diversification than many of our competitors due to our research and development, manufacturing and sales and marketing capabilities.
We also believe that consumers seeking high quality products are also purchasing them through other channels, such as health care practitioners and direct to consumer channels and we continue to seek opportunities to reach our target consumers through these and additional channels.
An integral part of our business strategy has been to acquire, integrate and operate businesses in the natural products industry that manufacture, market and distribute branded nutritional supplements. We believe that the consolidation and integration of these acquired businesses provides ongoing financial and operational synergies through increased scale and market penetration, as well as strengthened customer relationships. Our near-term focus is on harnessing the respective strengths of our existing businesses, while continuing to seek longer-term opportunities that will either strengthen our product offering, and/or expand our distribution and geographic reach.
Industry
We believe that the vitamin, minerals, and supplements market (the “VMS Market”) reached its present size due to a number of factors, including (i) interest in healthier lifestyles, living longer and living well, (ii) the publication of research findings supporting the positive health effects of certain nutritional supplements (iii) the growth of the wellness conscious millennial population, combined with the aging of the "Baby Boom" and Gen X generations making a mindful choice to purchase more nutritional supplements and natural foods.
Products
We formulate and market nutritional supplements. 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™ and ResVitale® brands. We also market and sell diet and energy products under the Metabolife® and Re-Body® brands and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, and powders.
We currently market our products through a multiple brand strategy to offer more customer choice and to encourage retailers to allocate additional shelf space to our brands. We have worked to enhance the strength of our brands by instituting business strategies that have included (i) consolidating our product assortment to focus on top selling, profitable products, (ii) engaging independent brokers to support sales across the United States, (iii) creating performance and growth-based incentives for sales representatives, (iv) conducting cost savings initiatives to identify opportunities for improved margin, (v) reviewing competitive product pricing to make recommendations for market pricing alignment and (vi) completing product certifications to increase our competitive position. We believe our current portfolio of products resonates well with target consumers and retailers and provides us with significant competitive differentiation.
Sales, Marketing and Promotion
Our marketing and sales efforts are directed to promote demand for our products by educating retailers, who in turn educate their customers, on the quality and attributes of our natural nutritional supplements and other products. Our branded products are sold globally, and our primary market is the United States where our key sales channel is HNF. We believe that our products are attractive to HNF retailers due to factors such as the strength of our brand names, the breadth of our product offerings, the quality and efficacy of our products and the availability of service, sales support and educational materials. We have developed numerous Internet sites (including www.alvita.com, www.metabolife.com, www.reserveage.com, www.resvitale.com, and www.twinlab.com) that provide information about our branded lines and the various products within each brand. We have included our Internet sites here and elsewhere only as an inactive textual reference. The information contained on our Internet sites are not incorporated by reference into this Report.
Sales
We employ a sales force dedicated to each of the individual channels in which we sell our products. The dynamics and buying patterns of the various channels require strategic initiatives and tactics. Our sales strategy includes several models that are applied to best serve the respective channels where our products are sold:
(i)
Direct sales representatives regularly visit each assigned customer in their respective areas to assist in the procurement of orders for products, provide related product sales assistance and introduce new products to buyers.
(ii)
In addition to our field representatives, we dedicate a skilled sales force that maintains communication with customers based on their purchasing history.
(iii)
We also engage an independent broker network, where we leverage their particular expertise and relationships with customers.
(iv)
Additionally, our products are sold through the sales force of distributors who carry select product lines.
Marketing and Promotion
TCC markets to consumers shopping through numerous retail channels and online e-tailers. Each channel demands a different approach that meets its distinctive needs. The following is a brief overview of the channels in which we market our varied brands:
Marketing Efforts by Brand
Reserveage™ Nutrition
Reserveage™ Nutrition uses consistent messaging to emphasize our use of premium and traceable ingredients that are backed by published clinical studies. The brand takes a 360-degree marketing approach to drive sales to our retail partners. The focus is to grow brand awareness and increase sales directed at both the retail community and our end consumers.
Marketing strategies for Reserveage™ Nutrition include two main initiatives: 1) introduce new users to our core categories - anti-aging and beauty from within - through innovation, product trial, advertising and promotional programs and 2) increase in-store education through dedicated brand ambassadors in strategic markets.
Marketing and promotional efforts for Reserveage™ Nutrition focus on both trade and consumer tactics:
Public Relations/Bloggers - Outreach to media and blogger influencers has resulted in features and reviews in online and print media channels. This channel is especially important in our beauty from within line of products, where online influencers can both positively or negatively affect the success of a product.
Sampling - Many products are immediately experiential either because of their taste or effect. We use samples and retail demo programs to allow for trial and education of our products. These are generally conducted in-store using our own brand ambassadors or third-party representatives.
Retail Activation - Utilizing on-shelf promotional tactics, including coupons and associate engagement tools, to generate awareness and differentiate our brand.
Consumer and Trade Print Ads - Print advertising is coordinated with product introductions.
Digital/Social Activation - Target and retarget prospective consumers through search engine optimization, search engine marketing, and social media campaigns.
Re-Body®
Re-Body® products are science-backed dietary supplements and foods that help consumers achieve their weight-loss goals and maintain a healthy weight. The Re-Body® brand is primarily sold through the direct to consumer channel.
ResVitale®
The ResVitale® brand of dietary supplements is marketed and sold exclusively to GNC. Marketing strategies for the ResVitale® brand include two main initiatives: 1) introduce new users to our core categories - anti-aging and beauty from within - through awareness campaigns and product trial and 2) increase in-store education through brand ambassadors in strategic markets.
Twinlab® Brand Vitamins
Twinlab® is a heritage brand of vitamins that has been in the market for nearly 50 years and carries a great deal of brand awareness amongst health and natural food consumers. Since Twinlab® is a distributed brand (shipping to certain major retailers, but also to nationwide distributors who resell to smaller retailers), we deliver training to distributor sales teams and participate in distributor and retailer shows designed to reach retailers and store managers.
Marketing strategies for Twinlab® include two main initiatives: 1) awareness and trial of key existing products and 2) awareness, trial and education for new products.
Marketing and promotional efforts for Twinlab® focus on both trade and consumer tactics:
Public Relations and Bloggers - Outreach to media and blogger influencers has resulted in features and reviews in online and print media channels.
Retailer Promotions - In-store promotional programs can drive consumer awareness when they are making purchase decisions. Manufacturer charge-backs, which deduct the cost of these programs from retailer product purchases, are created for retailers to support product features and promotions throughout the year. These programs are designed to incentivize the retailer to display products in secondary placement (multiple store locations) and often provide a discount to create excitement and deliver incremental savings in order to drive consumer purchases.
Coupons - Coupons are incorporated into different communication vehicles when appropriate to drive product trial use and create excitement.
Consumer and Trade Print Ads - Print advertising is coordinated with product introductions.
Trade Shows - Retailer relations and new product launches are the main areas of focus during trade shows. Display and promotion of products at several industry trade shows annually is a key component of support for Twinlab®.
Twinlab® Fuel and REAAL
Marketing and promotional efforts for Twinlab® Fuel and REAAL focus on consumer tactics:
Promotions - Promotional activity, including branded gear, helps keep consumers interested in the brand dynamic.
International Marketing - Internationally, we partner with our top distributors who follow a similar strategy at a local level, helping to create awareness, interest and drive sales.
Social Media - Instagram and Facebook are mainstays for our digital strategy, with exploration into “Live” video options offered by each platform, allowing us to deepen our connection with our consumers.
Alvita® Teas
Started in 1922, Alvita® Teas is an herbal therapeutic tea line with a rich history and loyal customer base. The herb alfalfa, long known for its beneficial nutrients, was packaged in tea bags and sold to an emerging health food market. This product became known as Alvita®. Over 90 years later, Alvita® has become the oldest herbal tea brand. Today, Alvita® has more than 40 single ingredient high potency teas, each with distinct health benefits. Each tea is committed to third party certifications and offers the purity standards of Organic, Gluten-free, non-GMO, caffeine free and Kosher certifications.
Marketing tactics for Alvita® include retailer promotions, coupons and trade show participation.
NutraScience Labs, Inc.
NutraScience Labs helps dietary supplement companies bring high-quality formulations to the market by delivering best-in-class, turnkey manufacturing, packaging design, and fulfillment services “under one roof”. Marketing activities for NutraScience Labs focuses on promoting the services it offers with a focus on acquiring new customers through digital marketing and trade media and not advertising of products.
Research and Development; Quality Control
We have a commitment to research and development (“R&D”) and to introducing innovative products to correspond with consumer trends and scientific research. We believe that product quality and innovation are fundamental to our long-term growth and success. Through our R&D efforts, we seek to (i) test the safety, purity and potency of products, (ii) develop testing methods for ensuring and verifying the consistency of the dosage of ingredients included in our products, (iii) develop new, more effective product delivery forms and (iv) develop new products either by combining existing ingredients used in nutritional supplements or identifying new ingredients that can be used in nutritional supplements. Our efforts are designed to lead not only to the development of new and improved products, but also to ensure effective manufacturing quality control measures.
We conduct R&D in-house and also work with outside firms to perform testing and other aspects of R&D. We currently employ various professionals in R&D and quality control with expertise in, among other things, chemistry, microbiology and engineering. In addition, we retain the services of outside laboratories to validate our product standards and manufacturing protocols.
Our quality control and safety programs seek to ensure the safety and superior quality of our products and that they are manufactured in accordance with current Good Manufacturing Practices (“cGMPs”). We have always had a focus on safety, quality, efficacy and compliance with law. Our processing methods are monitored closely to ensure that only quality ingredients are used and to ensure product purity.
Significant Customers
Sales to our top three customers aggregated to approximately 32% and 26% of total consolidated sales in 2019 and 2018, respectively. Sales to one of those customers were approximately 11% and 12% of total sales in 2019 and 2018, respectively. Accounts receivable from these customers were approximately 33% and 22% of total accounts receivable as of December 31, 2019 and 2018, respectively. An additional single customer represented 38% and 14% of total accounts receivable as of December 31, 2019 and 2018, respectively.
Manufacturing
Our products are manufactured by highly qualified third-party providers located primarily in the U.S. These contract manufacturers do business with us under both short- and long-term contracts depending on our needs. We do not manufacture any of the basic materials used in packaging (bottles, boxes, shipping cartons, caps, tamper resistant films, etc.). We believe that increasing manufacturing capabilities through our contract manufacturer partners, provides us with competitive advantages.
In 2018, we transitioned out of manufacturing in the Company’s Utah manufacturing facility and leveraged the supply chain of the Company’s successful subsidiary, NutraScience Labs., and third-party logistics providers. This allows us to utilize exclusive technologies and processes that contribute to product innovation, while still providing the high-quality products our customers know us for.
Materials and Suppliers
We employ a supply chain staff that works with marketing, product development, formulations and quality control personnel to oversee contract manufacturers and source raw materials for products as well as other items purchased by us. Raw materials are sourced by a variety of domestically and internationally approved suppliers principally from the United States, Europe and China. We believe our relationships with our principal suppliers, are good. Our top two suppliers accounted for 28% of our purchases for the year ended December 31, 2019. Whenever possible we have adopted dual sourcing for raw materials to mitigate the impact of raw materials shortages that happen from time to time.
Government Regulation
The formulation, manufacturing, packaging, labeling, advertising, distribution and sale of our products are subject to regulation by a number of federal agencies, including the Food and Drug Administration ("FDA"), the Federal Trade Commission ("FTC"), the Consumer Product Safety Commission ("CPSC"), the United States Department of Agriculture (“USDA”), Department of Labor Occupational Safety and Health Agency (“OSHA”), Department of Homeland Security Customs and Boarder Protection (“CBP”), Department of Transportation (“DOT”), and the Environmental Protection Agency (“EPA”), by various governmental agencies for the states and localities in which our products are sold, and by governmental agencies in countries outside the United States in which our products are sold.
The FDA regulates the formulation, manufacturing, packaging, labeling, distribution and sale of food, including dietary supplements, cosmetics, and over-the-counter ("OTC") drugs. The FTC regulates the advertising of these products. Federal agencies, primarily the FDA and the FTC, have a variety of procedures and enforcement remedies available to them, including initiating investigations, issuing warning letters and cease-and-desist orders, requiring corrective labeling or advertising, requiring consumer redress, seeking injunctive relief or product seizures, imposing civil penalties or commencing criminal prosecution. In addition, certain state agencies have similar authority.
The Dietary Supplement Health and Education Act (“DSHEA”) was enacted in 1994, amending the Federal Food, Drug, and Cosmetic Act (“FDCA”). Dietary ingredients marketed in the United States before October 15, 1994 may be marketed without the submission of a "new dietary ingredient" premarket notification to the FDA. New dietary ingredients, with exception, not marketed in the United States before October 15, 1994, are required to be submitted to the FDA at least seventy-five days before marketing. Among other things, DSHEA prevents the FDA from regulating dietary ingredients in dietary supplements as "food additives" and allows the use of statements of structure function claims on product labels and in labeling, so long as those statements do not constitute disease claims and are truthful and sufficiently substantiated. Some of our products are also regulated as conventional foods under the Nutrition Labeling and Education Act of 1990 (“NLEA”).
The FDA issued a Final Rule on GMPs (Good Manufacturing Practices) for dietary supplements in June 2007. The GMPs cover manufacturers, packagers, labelers, distributors, and holders of finished dietary supplement products, including dietary supplement products manufactured outside the United States that are imported for sale into the United States. Among other things, these GMPs require identity testing on all incoming dietary ingredients, call for a "scientifically valid system" for ensuring finished products meet all specifications, include requirements related to process controls such as statistical sampling of finished batches for testing and requirements for written procedures and require extensive recordkeeping.
The Dietary Supplement and Nonprescription Drug Consumer Protection Act went into effect in December 2007. The law requires, among other things, that companies that manufacture or distribute nonprescription drugs or dietary supplements report serious adverse events allegedly associated with their products to the FDA and institute recordkeeping requirements for all adverse events (serious and non-serious).
The Consumer Product Safety Improvement Act of 2008 ("CPSIA") primarily addresses children's product safety but also improves the administrative process of the CPSC. Among other things, the CPSC/CPSIA impact on dietary supplements is principally in requirements for use of child resistant closures, performance validation of such closures, and requirements for packaging and labeling of iron-containing products. The CPSIA also requires testing and certification of certain products and enhances the CPSC's authority to order recalls.
The FDA Food Safety Modernization Act ("FSMA"), enacted in January 2011, amended the FDCA to significantly enhance the FDA's authority over various aspects of food regulation. The FSMA granted the FDA mandatory recall authority when the FDA determines there is a reasonable probability that a food is adulterated or misbranded and that the use of, or exposure to, the food will cause serious adverse health consequences or death to humans or animals. Other changes include, but are not limited to, the FDA's expanded access to records; the authority to suspend food facility registrations and require high risk imported food to be accompanied by a certification; stronger authority to administratively detain food; the authority to refuse admission of an imported food if it is from a foreign establishment to which a U.S. inspector is refused entry for an inspection; and the requirement that importers verify that the foods they import meet domestic standards.
Although dietary supplement facilities are exempt from preventive controls requirements, dietary ingredient facilities might not qualify for the exemption. FDA's proposed preventative controls regulations would require that facilities develop and implement preventive controls to assure that identified hazards are significantly minimized or prevented, monitor the effectiveness of the preventive controls, and maintain numerous records related to those controls.
California Proposition 65 (“Prop 65”) is particularly impactful and imposing among state regulations. Its impact on product formulations, testing, and labeling are extensive and significant. Because of national brand distribution, the impact of Prop 65 is far reaching. TCC has several Prop 65 consent agreements that afford compliance protections.
The sale of our products in countries outside the United States is regulated by the governments of those countries. Our plans to commence or expand sales in those countries may be prevented or delayed or even suspended by such regulations or regulators in those countries. In countries in which we have distributors, compliance with such regulations is generally undertaken by our distributors, but even in these cases we often cooperate by providing information to distributors. In the case of Canada, TCC complies with Health Canada’s Natural Health Products Directorate (“NHPD”) with “site licensing” of the TCC manufacturing plant and registration of products.
Competition
Health and Natural Foods
The Natural Products Market and the VMS Market are highly competitive. Our principal competitors in the VMS Market that sell to the health and natural foods channel include a number of large, nationally-known brands (such as Bluebonnet, Country Life, Enzymatic Therapy, Garden of Life, Jarrow Formulas, Natural Factors, Nature's Plus, Nature's Way, Nordic Naturals, Now Foods, New Chapter and Solgar) and many smaller brands, manufacturers and distributors of nutritional supplements. Because both the health and natural foods market and the VMS Market generally have low barriers to entry, additional competitors enter the market regularly.
Private label products of our customers also provide competition to our products. Whole Foods Market, The Vitamin Shoppe, Sprouts Farmers Market, Natural Grocers and many health and natural food stores also sell a portion of their offerings under their own private labels. Private label products are often sold at a discount to branded products.
We believe that stores in the HNF channel are increasingly likely to align themselves with those companies that offer a wide variety of high-quality products, have a loyal consumer base, support their brands with strong marketing and education programs and provide consistently high levels of customer service. We believe that we compete favorably with other nutritional supplement companies because of our comprehensive line of products and brands, premium brand names, commitment to quality, ability to rapidly introduce innovative products, competitive pricing, strong and effective sales force, distribution strategy and sophisticated marketing and promotional support. The wide variety and diversity of the forms, potencies and categories of our products are important points of differentiation between us and many of our competitors.
Mass Market
Metabolife® is our primary focus in the mass market retail channel. It is possible that as an increasing number of companies (or brands) sell nutritional supplement products and other natural products in the mass market channels, such as Pharmavite (Nature Made), KKR & Co. L.P. (Nature's Bounty), Reckitt Benckiser Group (Schiff), Hain Celestial and Church & Dwight, our mass market brands will be negatively impacted. In addition, several major pharmaceutical companies continue to offer nutritional supplement lines in the mass market channel, including Pfizer (Centrum) and Bayer (One-A-Day).
Performance
The performance channel is primarily made up of independent retailers that focus their product mix on performance products, as well as gyms, health clubs and other health and fitness locations that house small stores to cater to the needs of their clients. There is also a small vibrant market serviced by bicycle shops and other specialty sports equipment retailers, and even larger sporting goods stores, like Dick’s Sporting Goods, which are testing sports nutrition products in their stores. The retail performance channel is supplied by a specialty distributor that focuses exclusively on this channel. In recent years the performance channel has become dominated by several online retailers (www.allstarhealth.com, www.bodybuilding.com, www.dpsnutrition.com, www.muscleandstrength.com, www.netrition.com, and www.supplementwarehouse.com) that have the advantage of broad selection and aggressive pricing.
Competition in this channel is intense. The character of the target customer makes the barriers to entry in sports nutrition extremely low as consumers look for the next great product that will help them optimize their workout. As a result, competition for Twinlab includes the somewhat large stable core brands (BSN, CytoSport, Five Star, Met-Rx, MHP, MRI, MusclePharm, Optimum Nutrition, VPX, etc.) as well as a secondary level of innovative, small companies with niche products focused on this specific targeted customer.
Intellectual Property
We own numerous trademarks that have been registered with the United States Patent and Trademark Office and have filed applications to register additional trademarks. In addition, we claim domestic trademark and service mark rights in numerous additional marks that we use. We own a number of trademark registrations in countries outside the United States. Federally registered trademarks in the United States have a perpetual life, as long as they are maintained and renewed on a timely basis and used properly as trademarks, subject to the rights of third parties to seek cancellation of the trademarks if they claim priority or confusion of usage. Most foreign trademark offices use similar trademark renewal processes. Additionally, we hold several patents that have been registered with the United States Patent and Trademark Office and may file additional applications. We regard our trademarks, patents and other proprietary rights as valuable assets and believe they make a significant positive contribution to the marketing of our products.
We protect our legal rights concerning our intellectual property by appropriate legal action. We rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide us with the same level of protection as afforded by a United States federal registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. We have registered and intend to register certain trademarks in certain limited jurisdictions outside the United States where our products are sold, but we may not register all or even some of our trademarks in every country in which we conduct business or intend to conduct business.
We sell many products that include patented ingredients. We purchase these ingredients from parties that we believe are licensed by the patent owner to sell and manufacture goods with the patent ingredients. However, there are a large number of patents that have been granted or applied for in the dietary supplement industry, and there may be an increased possibility that third parties will seek to compel us and our competitors to purchase their patented ingredients directly from them under threat that patent ingredient we properly obtain, infringes on their patent rights. We generally obtain indemnification from the patent owner through separate end user licensing agreements to increase our protection from these third parties or “non-practicing entities,” should they try to enforce such claim through litigation. The cost of these patented ingredients is typically higher than the cost of non-patented ingredients.
Employees
As of May 29, 2020, we had 51 full-time employees and 4 part-time employees. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our relationship with our employees to be good.
Item 1A.
Item 1A. Risk Factors
Our business, financial condition, results of operations, cash flows, prospects, and the prevailing market price and performance of our common stock may be adversely affected by a number of factors, including the matters discussed below. Certain statements and information set forth in this Annual Report on Form 10-K, including without limitation statements regarding our strategic initiatives and expectations for the future performance of our business, as well as other written or oral statements made from time to time by us, constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact, including statements that describe our objectives, plans, or goals, are, or may be deemed to be, forward-looking statements. Known and unknown risks, uncertainties, and other factors may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by these statements. The risks, uncertainties, and other factors that our stockholders and prospective investors should consider include the following:
Market and Channel Risks
Adverse economic conditions may harm our business.
Inflation or other changes in economic conditions, including the economic impact of COVID-19 and restrictions/limitations on the types of businesses that may operate and the adoption of “shelter-in-place” rules, that affect demand for nutritional supplements could adversely affect our revenue. Uncertainty about current global economic conditions poses a risk as consumers and businesses may postpone spending in response to tighter credit markets, negative financial news and/or declines in income or asset values, each of which could have a material negative effect on the demand for our products. Other factors that could influence demand include conditions in the residential real estate and mortgage markets, labor and healthcare costs, access to credit, consumer confidence and other macroeconomic factors affecting consumer spending behavior. These and other economic factors could have a material adverse effect on demand for our products and on our financial condition and results of operations.
Currently, one of the most significant risks and uncertainties is the potential adverse effect of the current pandemic of the novel coronavirus, or COVID-19. Many experts predict that the outbreak will trigger, or even has already triggered, a period of global economic slowdown or a global recession.
The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the near term due to, but not limited to, the following:
●
reduced economic activity severely impacts our customers' businesses, financial condition and liquidity and may cause customers to be unable to fully meet their obligations to us or to otherwise seek modifications of such obligations, resulting in increases in uncollectible receivables and reductions in income;
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the negative financial impact of the pandemic could impact our future compliance with financial covenants of our credit facility and other debt agreements;
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weaker economic conditions could cause us to recognize impairment in the value of our tangible or intangible assets.
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reduced demand for our products as a result of decreased sales; and
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delays or an inability to fill orders due to disruptions in the supply chain or impacting the distribution or shipment of products.
The extent to which the COVID-19 pandemic impacts our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others.
The current pandemic of the novel coronavirus, or COVID-19, and the future outbreak of other highly infectious or contagious diseases, could materially and adversely impact or disrupt our financial condition, results of operations, cash flows and performance.
Since being reported in December 2019, COVID-19 has spread globally, including to every state in the United States. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic, and on March 13, 2020, the United States declared a national emergency with respect to COVID-19.
The COVID-19 pandemic has had, and another pandemic in the future could have, repercussions across regional and global economies and financial markets. The outbreak of COVID-19 in many countries, including the United States, has significantly adversely impacted global economic activity and has contributed to significant volatility and negative pressure in financial markets. The global impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in additional countries, many countries, including the United States, have reacted by instituting quarantines, mandating business and school closures and restricting travel.
Certain states and cities, including where our principal place of business is located, have also reacted by instituting quarantines, restrictions on travel, “shelter in place” rules, and/or restrictions on types of business that may continue to operate. The Company cannot predict if additional states and cities will implement similar restrictions or when restrictions currently in place will expire or be reinstated. As a result, the COVID-19 pandemic is negatively impacting almost every industry directly or indirectly, including industries in which the Company and our customers and business partners operate. In addition, in response to an executive order issued by the Governor of Florida, the majority of our employees based at our headquarters are currently working remotely. The effects of the executive order, including an extended period of remote work arrangements, could strain our business continuity plans, introduce operational risk, including but not limited to cybersecurity risks, and impair our ability to manage our business. The COVID-19 pandemic, or a future pandemic, could also have material and adverse effects on our ability to successfully operate and on our financial condition, results of operations and cash flows due to, among other factors:
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the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could result in a deterioration in our ability to ensure business continuity during this disruption;
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a complete or partial closure of, or other operational issues at our third-party logistics provider (“3PL”) resulting from government action;
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the reduced economic activity severely impacts our customers' businesses, financial condition and liquidity and may cause one or more of our customers to be unable to meet their obligations to us in full, or at all, or to otherwise seek modifications of such obligations;
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the reduced economic activity could result in a prolonged recession, which could negatively impact consumer discretionary spending and lead to reduced demand for our products and a decrease in sales;
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difficulty accessing debt and equity capital on attractive terms, or at all, impacts to our credit ratings, and a severe disruption and instability in the global financial markets or deteriorations in credit and financing conditions may affect our access to capital necessary to fund business operations or address maturing liabilities on a timely basis and our customers' ability to fund their business operations and meet their obligations to us;
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the financial impact of the COVID-19 pandemic could negatively impact our future compliance with financial covenants of our credit facility and other debt agreements and result in a default and potentially an acceleration of indebtedness, which non-compliance could negatively impact our ability to make additional borrowings under our revolving credit facility;
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while we intend to pursue the forgiveness of the PPP loans received in accordance with the requirements and limitations under the CARES Act, no assurance can be provided that forgiveness of any portion of the PPP loans will be obtained;
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any impairment in value of our tangible or intangible assets that could be recorded as a result of a weaker economic conditions; and
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a deterioration in our or our customers' ability to operate in affected areas or delays in the supply of products or services to us or our customers from vendors that are needed for our or our customers’ efficient operations could adversely affect our operations and those of our customers.
The extent to which the COVID-19 pandemic impacts our operations and those of our customers will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. Additional closures by our customers of their stores could reduce our cash flows.
The rapid development and fluidity of this situation precludes any prediction as to the full adverse impact of the COVID-19 pandemic. Nevertheless, the COVID-19 pandemic presents material uncertainty and risk with respect to our financial condition, results of operations, cash flows and performance.
Our success is linked to the size and growth rate of the vitamin, mineral and supplement market and an adverse change in the size or growth rate of that market could have a material adverse effect on us.
An adverse change in size or growth rate of the vitamin, mineral and supplement market could have a material adverse effect on us. Underlying market conditions are subject to change based on economic conditions, consumer preferences, the impact of COVID-19 and other factors that are beyond our control, including media attention and scientific research, which may be positive or negative.
Because a substantial portion of our sales are to or through health food stores, we are dependent to a large degree upon the success of this channel as well as the success of specific retailers in the channel.
We sell primarily in the United States and, in this market, a significant portion of our sales are through health food stores. Because of this, we are dependent to a large degree upon the success of that channel as well as the success of specific retailers in the channel. There are some large chains of health food stores, such as Whole Foods Market and The Vitamin Shoppe, but many health food stores are individual stores or very small chains. We rely on these health food stores to purchase, market, and sell our products. A fair portion of our success is dependent, to a large degree, on the growth and success of the health and natural foods channel, which is outside our control. There can be no assurance that the health and natural foods channel will be able to grow or prosper as it faces price and service pressure from other channels, including the mass market. There can be no assurance that retailers in the health and natural foods channel, in the aggregate, will respond or continue to respond to our stated loyalty to this channel.
We are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies in our industry, and adverse publicity and negative public perception regarding particular ingredients or products or our industry in general could limit our ability to increase revenue and grow our business.
Decisions about purchasing made by consumers of our products may be affected by adverse publicity or negative public perception regarding particular ingredients or products or our industry in general. This negative public perception may include publicity regarding the legality or quality of particular ingredients or products in general or of other companies or our products or ingredients specifically. Negative public perception may also arise from regulatory investigations, regardless of whether those investigations involve us. We are highly dependent upon consumers' perception of the safety and quality of our products as well as similar products distributed by other companies. Thus, the mere publication of reports asserting that such products may be harmful could have a material adverse effect on us, regardless of whether these reports are scientifically supported. Publicity related to nutritional supplements may also result in increased regulatory scrutiny of our industry and/or the healthy foods industry. Adverse publicity may have a material adverse effect on our business, financial condition and results of operations. There can be no assurance of future favorable scientific results and media attention or of the absence of unfavorable or inconsistent findings.
We face intense competition from competitors that are larger, more established and that possess greater resources than we do, and if we are unable to compete effectively, we may be unable to maintain sufficient market share to sustain profitability.
Numerous manufacturers and retailers compete actively for consumers. There can be no assurance that we will be able to compete in this intensely competitive environment. In addition, nutritional supplements can be purchased in a wide variety of channels of distribution. These channels include mass market retail stores and the Internet. Because these markets generally have low barriers to entry, additional competitors could enter the market at any time. Private label products of our customers also provide competition to our products. Additional national or international companies may seek in the future to enter or to increase their presence in the healthy foods industry or the vitamin, mineral and supplement market. Increased competition in either or both could have a material adverse effect on us.
The nutritional supplement industry increasingly relies on intellectual property rights and although we seek to ensure that we do not infringe the intellectual property rights of others, there can be no assurance that third parties will not assert intellectual property infringement claims against us, which claims may result in substantial costs and diversion of management and other resources and could have a material adverse effect on our business, financial condition and operating results. Our inability to acquire, protect or maintain our intellectual property could harm our ability to compete or grow.
Recently it has become more and more common for suppliers and competitors to apply for patents or develop proprietary technologies and processes. We seek to ensure that we do not infringe the intellectual property rights of others, but there can be no assurance that third parties will not assert intellectual property infringement claims against us. These developments could prevent us from offering or supplying competitive products or ingredients in the marketplace. They could also result in litigation or threatened litigation against us related to alleged or actual infringement of third-party rights. If an infringement claim is asserted or litigation is pursued, we may be required to obtain a license of rights, pay royalties on a retrospective or prospective basis or terminate our manufacturing and marketing of our products that are alleged to have infringed. Litigation with respect to such matters could result in substantial costs and diversion of management and other resources and could have a material adverse effect on our business, financial condition and results of operations. We have numerous United States and foreign trademarks and service marks. There can be no assurance that the protection afforded by these trademarks and service marks will provide us with a competitive advantage or that we will be able to assert our intellectual property rights in infringement actions.
We may be affected adversely by future increases to utility and fuel costs.
Future increases in fuel costs may affect our results of operations adversely in that consumer traffic to health and natural food stores may be reduced and the costs of our sales may increase as we incur higher fuel costs in connection with our manufacturing operations and the transportation of goods from our warehouse and distribution facilities to health and natural food stores. Also, increases in oil costs can affect the cost of our raw materials and components and the competitive environment in which we operate may limit our ability to recover higher costs resulting from future increases in fuel prices.
Business Strategy and Operational Risks
If we are unable to retain key personnel, our ability to manage our business effectively and continue our growth could be negatively impacted.
Key management employees of the company and its subsidiaries include Daniel DiPofi as the Chief Executive Officer, Kyle Casey as the Chief Financial Officer, and Vincent Tricario as the Vice President of Contract Manufacturing. These key management employees are primarily responsible for our day-to-day operations, and we believe our success depends in part on our ability to retain them and to continue to attract additional qualified individuals to our management team. The loss or limitation of the services of any of our key management employees or the inability to attract additional qualified management personnel could have a material adverse effect on our business, financial condition and results of operations.
As a part of our business strategy, we have made and may make acquisitions in the future that could disrupt our operations and harm our operating results.
An element of our strategy includes expanding our product offerings, gaining shelf-space and gaining access to new skills and other resources through strategic acquisitions when attractive opportunities arise. Acquiring additional businesses and the implementation of other elements of our business strategy are subject to various risks and uncertainties. Some of these factors are within our control and some are outside our control. These risks and uncertainties include, but are not limited to, the following:
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any acquisition may result in significant expenditures of cash, stock and/or management resources,
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acquired businesses may not perform in accordance with expectations,
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we may encounter difficulties, delays and costs with the integration of the acquired businesses,
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we may be unable to achieve the anticipated operating and cost synergies or long-term strategic benefits we expect,
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management's attention may be diverted from other aspects of our business,
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we may face unexpected problems entering geographic and product markets in which we have limited or no direct prior experience,
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we may lose key employees of acquired or existing businesses,
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we may incur liabilities and claims arising out of acquired businesses,
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we may be unable to obtain financing,
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we may incur indebtedness or issue additional capital stock which could be dilutive to holders of our common stock, and
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we may acquire a substantial amount of goodwill and other intangible assets as a result of acquisitions and as a result we may experience in the future impairments of goodwill or other intangible assets.
There can be no assurance that attractive acquisition opportunities will be available to us, that we will be able to obtain financing (on acceptable terms or at all) for or otherwise consummate any future acquisitions, including those described above, or that any acquisitions which are consummated will prove to be successful. There can be no assurance that we can successfully execute all aspects of our business strategy.
Because we depend on outside suppliers with whom we may not have long-term agreements for raw materials, we may be unable to obtain adequate supplies of raw materials for our products at favorable prices or at all, which could result in product shortages and back orders for our products, with a resulting loss of net sales and profitability.
We acquire all our raw materials for the manufacture of our products from third-party suppliers. Currently, we rely on third-party co-packers for our products; our reliance on them has increased as the result of winding down our Utah manufacturing facility in 2018. We have selective agreements for the continued supply of materials and products. Several of our products contain one or more ingredients that may only be available from a single source or supplier. Any of our suppliers could discontinue selling to us at any time. In certain situations, we may be required to alter our products or substitute different materials from different alternative sources. Our suppliers or government regulators may interpret new regulations (including cGMP regulations) in such a way as to cause a disruption in our supply chain as these parties undertake increased scrutiny of raw materials and components of raw materials and products, causing certain suppliers or us to discontinue, change or suspend the sale of certain ingredients or components. Although we believe that we could establish alternate sources for most of these materials, any delay in locating and establishing relationships with other sources could result in product shortages and back orders for the products, with a resulting loss of net sales and profitability. We are also subject to delays associated with raw materials. These can be caused by conditions not within our control, including:
● burdensome tariffs,
● weather,
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crop conditions,
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transportation interruptions,
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strikes by supplier employees, and
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natural disasters, pandemics or other catastrophic events.
These factors could result in a delay in or disruption of the supply of certain raw materials. Any significant delay in or disruption of the supply of raw materials could have a material adverse effect upon us.
We rely on our information systems to conduct our business, and any failure to protect these systems against security breaches or failure of these systems themselves could adversely affect our business, results of operations and liquidity and could result in litigation and penalties. If these systems fail or become unavailable for any significant period of time, our business could be harmed. Additionally, the inappropriate use of social media vehicles could harm our reputation and adversely impact our business.
The efficient operation of our business is dependent on computer hardware and software systems. Among other things, these systems collect and store certain personal information from customers, vendors and employees and process customer payment information. Our information systems and those maintained by our third-party vendors and the sensitive data they are designed to protect are vulnerable to security breaches by computer hackers, cyber terrorists and other cyber attackers. We rely on industry accepted security measures and technology to securely maintain confidential and proprietary information maintained on our information systems, and we rely on our third-party vendors to take appropriate measures to protect the confidentiality of the information on those information systems. However, these measures and technology may not adequately prevent security breaches. Our information systems may become unavailable or fail to perform as anticipated for any reason, including viruses, loss of power or human error. Any significant interruption or failure of our information systems or those maintained by our third-party vendors or any significant breach of security could adversely affect our reputation with our customers, vendors and employees and could adversely affect our business, results of operations and liquidity and could result in litigation against us or the imposition of penalties. A significant interruption, failure or breach of the security of our information systems or those of our third-party vendors could also require us to expend significant resources to upgrade the security measures and technology that guard sensitive data against computer hackers, cyber terrorists and other cyber attackers.
Additionally, we rely on search engine marketing and social media platforms to attract and retain customers as part of our marketing efforts. A variety of risks are associated with the use of social media, including the improper disclosure of proprietary information, negative comments about our company and our products, exposure of personally identifiable information, fraud, or outdated information. The inappropriate use of social media vehicles by our customers or employees could increase our costs, lead to litigation or result in negative publicity that could damage our reputation.
To the extent that we currently rely on third-party manufactures, now and in the future, we are dependent upon the uninterrupted and efficient operation of those third-party facilities, which may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural disasters, pandemic outbreaks or other disasters and the need to comply with the requirements or directives of government agencies, including the FDA.
We are dependent upon the uninterrupted and efficient operation of our third-party manufacturing partners. Those operations may experience power failures, the breakdown, failure or substandard performance of equipment, the improper installation or operation of equipment, natural disasters, pandemic outbreaks or other disasters and the need to comply with the requirements or directives of government agencies, including the FDA. There can be no assurance that the occurrence of these or any other operational problems at our facility would not have a material adverse effect on our business, financial condition and results of operations.
We may become a party to lawsuits that arise in the ordinary course of business in the future.
We may become a party to lawsuits that arise in the ordinary course of business in the future. The possibility of such litigation, and its timing, is in large part outside our control. It is possible that future litigation could arise that could have material adverse effects on us.
If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.
Under generally accepted accounting principles, we review our amortizable intangible assets for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. Factors that may indicate that the carrying value of our goodwill or intangible assets may not be recoverable include a decline in stock price and market capitalization, reduced future cash flow estimates and slower growth rates in our industry. During the fourth quarter of fiscal 2019, we completed our annual impairment test of goodwill and intangible assets and recognized impairment charges, see Note 5 in the Notes to Consolidated Financial Statements included in this report.
We may need additional capital in the future to finance our operations and to execute our business strategy, which we may not be able to raise, or it may only be available on terms unfavorable to us and or our stockholders. This may result in our inability to fund our working capital requirements and harm our operational results.
Our current cash on hand is insufficient to fund our operations beyond the next twelve months. We believe that cash flows from operations and other committed sources of additional liquidity will be sufficient to fund our operations in the ordinary course of business through May 2021. However, if we experience extraordinary expenses or other events beyond our control, we will need to raise additional funds to continue our operations.
Additional financing might not be available on terms favorable to us, or at all. The economic impact of COVID-19 could make it more difficult or challenging to obtain additional financing or adversely affect the favorability of the terms of any available financing. If adequate funds were not available or were not available on acceptable terms, our ability to fund our operations, take advantage of unanticipated opportunities, develop or enhance our business or otherwise respond to competitive pressures would be significantly limited.
Changes in accounting standards, especially those that relate to management estimates and assumptions, are unpredictable and may materially impact how we report and record our financial condition.
Our accounting policies and methods are fundamental to how we record and report our financial condition and results of operations. Some of these policies require use of estimates and assumptions that may affect the value of our assets or liabilities and financial results and are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain. From time to time the Financial Accounting Standards Board ("FASB") and the Securities and Exchange Commission (the "SEC") change the financial accounting and reporting standards that govern the preparation of our financial statements. In addition, accounting standard setters and those who interpret the accounting standards (such as the FASB, the SEC, banking regulators and our outside auditors) may change or even reverse their previous interpretations or positions on how these standards should be applied. These changes can be hard to predict and can materially impact how we record and report our financial condition and results of operations. In some cases, we could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements.
We were an "emerging growth company" under the JOBS Act of 2012 through December 31, 2019 and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies made our common stock less attractive to investors.
We were an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012 ("JOBS Act") through December 31, 2019, and we took advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We had elected to adopt these reduced disclosure requirements. We cannot predict if investors found our common stock less attractive because we relied on these exemptions. If some investors found our common stock less attractive as a result, there may have been a less active trading market for our common stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We chose to take advantage of the extended transition period for complying with new or revised accounting standards. As a result, our financial statements for the year ending December 31, 2019 may not be comparable to those of companies that comply with public company effective dates.
We ceased being an emerging growth company on December 31, 2019 but we qualify as a smaller reporting company that can also take advantage of certain exemptions or scaled down disclosure compared to large public companies. We cannot predict if investors will find our common stock to be less attractive because we are a smaller reporting company and we rely on these applicable exemptions and scaled-down disclosure.
Our status as an emerging growth company ceased as of January 1, 2020.
Because of our history of accumulated deficits, recurring losses and negative cash flows from operating activities, we must improve profitability and may be required to obtain additional funding if we are to continue as a "going concern."
We incurred negative cash flows from operating activities and recurring net operating losses in fiscal year 2019. We had negative working capital at the end of fiscal year 2019 and 2018. As of December 31, 2019, and 2018, our accumulated deficit was $318,873 and $274,372, respectively. These factors raise substantial doubt about our ability to continue as a going concern. The financial statements included with this report do not include any adjustments that might result from the outcome of this uncertainty. In order for us to remove substantial doubt about our ability to continue as a going concern, we must achieve profitability, generate positive cash flows from operating activities and obtain necessary debt or equity funding.
Our 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. Our independent registered public accounting firm has issued its report dated May 29, 2020, which includes an explanatory paragraph stating that our recurring losses, among other things, raise substantial doubt about our ability to continue as a going concern. It has been necessary to rely upon debt and the sale of our equity securities to sustain operations. Our management anticipates that we may require additional capital over the next 12 months to fund ongoing operations. There can be no guarantee that we will be able to obtain such funds, or obtain them on satisfactory terms, and that such funds would be sufficient.
Regulatory, Product Liability and Insurance Risks
Our products are subject to government regulation, both in the United States and abroad, which could increase our costs significantly and limit or prevent the sale of our products.
The manufacture, packaging, labeling, advertising, promotion, distribution and sale of our products are subject to regulation by numerous national and local governmental agencies in the United States and other countries. The primary regulatory bodies in the United States are the FDA and FTC, and we are also subject to similar regulatory bodies in all the countries in which we do business. Failure to comply with regulatory requirements may result in various types of penalties or fines. These include injunctions, product withdrawals, recalls, product seizures, fines and criminal prosecutions. Individual U.S. states also regulate nutritional supplements. A state may seek to interpret claims or products presumptively valid under federal law as illegal under that state's regulations. For example, in February 2015, the New York Attorney General issued cease and desist letters to several national retailers regarding certain herbal supplements and since that time both the New York Attorney General and other states Attorneys General have engaged in inquiries regarding the manufacture and sale of various supplements, and pursuant to such inquiries could seek to take actions against industry participants or amend applicable regulations in their State. In markets outside the United States, we are usually required to obtain approvals, licenses, or certifications from a country's ministry of health or comparable agency, as well as labeling and packaging regulations, all of which vary from country to country. Approvals or licensing may be conditioned on reformulation of products or may be unavailable with respect to certain products or product ingredients. Any of these government agencies, as well as legislative bodies, can change existing regulations, or impose new ones, or could take aggressive measures, causing or contributing to a variety of negative consequences, including:
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requirements for the reformulation of certain or all products to meet new standards,
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the recall or discontinuance of certain or all products,
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additional record keeping,
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expanded documentation of the properties of certain or all products,
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expanded or different labeling,
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adverse event tracking and reporting, and
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additional scientific substantiation.
Any or all of these requirements could have a material adverse effect on us. There can be no assurance that the regulatory environment in which we operate will not change or that such regulatory environment, or any specific action taken against us, will not result in a material adverse effect on us.
If we experience regulatory investigations or product recalls, we may incur significant and unexpected costs, and our business reputation could be adversely affected.
We may be exposed to regulatory investigations or product recalls and adverse public relations if our products are alleged to cause injury or illness, or if we are alleged to have violated governmental regulations. A regulatory investigation or product recall could result in substantial and unexpected expenditures, which would reduce operating profit and cash flow. In addition, a regulatory investigation or product recall may require significant management attention. Regulatory investigations and product recalls may hurt the value of our brands and lead to decreased demand for our products. Regulatory investigations or product recalls also may lead to increased scrutiny by federal, state or international regulatory agencies of our operations and increased litigation and could have a material adverse effect on our business, results of operations, financial condition and cash flows. Regulatory investigations or product recalls could also result in our incurring substantial costs, losing revenues and implementing a change in the design, manufacturing process or the indications for which our products may be used, each of which could harm our business.
We may experience product liability claims and litigation to prosecute such claims, and although we maintain product liability insurance, which we believe to be adequate for our needs, there can be no assurance that our insurance coverage will be adequate or that we will be able to obtain adequate insurance coverage in the future. In addition, we may be subject to consumer fraud claims, including consumer class action claims regarding product labeling and advertising, and litigation to prosecute such claims; these claims are generally not covered by insurance.
As a distributor of products for human consumption, we experience from time to time product liability claims and litigation to prosecute such claims. Additionally, the sale and distribution of these products involves the risk of injury to consumers as a result of tampering by unauthorized third parties or product contamination. We carry insurance coverage in the types and amounts that we consider reasonably adequate to cover the risks we face from product liability claims. If insurance coverage is inadequate or unavailable or premium costs continue to rise, we may face additional claims not covered by insurance, and claims that exceed coverage limits or that are not covered could have a material adverse effect on us. Moreover, liability claims arising from a serious adverse event may in addition to increasing our costs through higher insurance premiums and deductibles, may make it more difficult to secure adequate insurance coverage in the future. In addition, consumer fraud claims, including consumer class action claims regarding product labeling and advertising, are increasingly common as to food and dietary supplement products. Because insurance is generally hard to obtain for such claims, these could have a material adverse effect on us. A product liability claim, regardless of its merit or ultimate outcome, could result in:
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injury to our reputation,
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decreased demand for our products,
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diversion of management’s attention,
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a change in the design, manufacturing process or the indications for which our marketed products may be used,
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loss of revenue, and
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an inability to commercialize product candidates.
We may be required to indemnify our contract manufacturing and/or retailer customers, the payment of which could have a material adverse effect on our business, financial condition and operating results.
We provide certain rights of indemnification to our contract manufacturing customers. In the past we have had a claim tendered to us to defend approximately forty putative class actions alleging primarily that two products failed to contain sufficient active ingredients to meet label claims. We accepted such tender subject to a reservation of various rights and vigorously defend these cases. The matter culminated in a confidential settlement with the plaintiffs, which did not have a material adverse effect on our financial condition/results of operations or cash flows or liquidity at that time; however, any litigation involves risk and is inherently unpredictable. If any plaintiff is successful in certifying a class and thereafter prevailing on the merits of their complaint, such an adverse result could have a material adverse effect on us. In addition, due to the nature and scope of the indemnity and defense we will likely need to provide, the legal fees associated with such indemnification could be significant enough to have a material adverse effect on our cash flows until such matters are fully and finally resolved.
We may experience Lanham Act claims by competitors, and litigation to prosecute such claims.
The Lanham Act empowers competitors to file suit regarding any promotional statements that the competitor believes to be false or misleading. If a competitor prevails, it could obtain monetary damages (including potentially treble damages and attorneys' fees). A court can also order corrective advertising, or even a product recall if the offending claims are found on the product's packaging and labeling. If we experience a Lanham Act claim filed against us, this could have a material adverse effect on us and on our products' reputation.
Risks Relating to Our Common Stock
Our common stock currently has very limited trading volume and holders of our securities may not be able to sell quickly any significant number of shares.
Our common stock is quoted on the OTCPK. There has been very limited trading volume of our common stock. Because of this, holders of our securities may not be able to sell quickly any significant number of such shares, and any attempted sale of a large number of our shares will likely have a material adverse impact on the price of our common stock. The price per share of our common stock is subject to volatility and may be subject to rapid price swings in the future.
Because the trading price of our common stock is below $5.00 per share it is deemed a low-priced "Penny" stock and an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Since the trading price of the common stock is below $5.00 per share, trading in the common stock will be subject to the penny stock rules of the Exchange. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
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Approve the customer for the specific penny stock transaction and receive from the customer a written agreement to the transaction,
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Deliver to the customer, and obtain a written receipt for, a disclosure document describing risks of investing in penny stocks,
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Disclose certain recent price information about the stock,
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Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer,
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Send monthly statements to customers with market and price information about the penny stock, and
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In some circumstances, approve the purchaser's account under certain standards and deliver written statements to the customer with information specified in the rules.
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
We have the ability to issue additional shares of our common stock and shares of preferred stock without asking for stockholder approval, which could cause your investment to be diluted.
Our Articles of Incorporation authorize the Board of Directors to issue up to 5,000,000,000 shares of common stock and 500,000,000 shares of preferred stock. The power of the Board of Directors to issue shares of common stock, preferred stock or warrants or options to purchase shares of common stock or preferred stock is generally not subject to stockholder approval. Shares of preferred stock could be given voting rights, dividend rights, liquidation rights or other similar rights superior to those of our shares of common stock. Additionally, any additional issuance of our common stock, or preferred stock that may be convertible into common stock, may have the effect of diluting your investment.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.
Our controls and procedures may not timely institute proper controls, or compensating controls when necessary or our controls may fail, which may result in a material adverse effect on our business, financial condition and results of operations.
During the fourth quarter of 2019, management identified material weaknesses in the selection and testing of our third-party logistics and fulfillment provider ("3PL"), whom the Company engaged to replace the prior 3PL. The Company has determined that the 3PL does not issue reports pursuant to the Statement on Standards for Attestation Engagement No. 18 attestation standards ("SSAE18"). The Company should have designed and implemented the necessary internal controls to address the potential risks of using a 3PL who does not issue SSAE18 reports. The Company should have taken steps to design and implement controls around the receipt of inventory at the 3PL to ensure the quantities and description of inventory movements related to the 3PL. Additionally, the Company should take steps to obtain and review the appropriate SSAE 18 reports issued by the software company which the 3PL uses as its inventory management software. Management also identified a material weakness related to a lack of appropriate staffing in our accounting and information technology departments to address the Company's ability to continue to close the books both timely and accurately and to execute the Sarbanes Oxley documentation requirements. Prior normal staffing turnover along with technical accounting issues and the Company's change to a 3PL impacted the Company's ability to react to technical accounting matters encountered.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f) and 15d-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the financial statements.
Concurrent with year-end reporting, under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of the effectiveness of the overall design of our system of internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission 2013 (COSO). Under standards established by the Public Company Accounting Oversight Board of the United States, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
Management and our audit committee will continue to monitor the effectiveness of our internal controls and procedures. The Company will look to hire a firm to review, implement and audit its internal controls during 2020. Other than as described above, there were no changes in our internal controls over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
An excess of a majority of our outstanding voting securities are beneficially owned by two individuals, and these two individuals can elect all directors (except for one director that may be appointed by a lender pursuant to a loan agreement) who in turn elect all officers, without the votes of any other stockholders.
The Chairman of our Board of Directors and one other stockholder beneficially own over 80% of our outstanding voting securities and, accordingly, have effective control of us and may have effective control of us for the near- and long-term future. Votes of other stockholders can have little effect when we are managed by our Board of Directors and operated through our officers, all of whom can be elected by two individuals.
We do not expect to pay dividends in the near future.
We do not expect to declare or pay any dividends on our common stock in the foreseeable future. The declaration and payment in the future of any cash or stock dividends on the common stock will be at the discretion of our Board of Directors and will depend upon a variety of factors, including our ability to service our outstanding indebtedness, if any, and to pay dividends on securities ranking senior to the common stock, our future earnings, if any, capital requirements, financial condition and such other factors as our Board of Directors may consider to be relevant from time to time. Our earnings, if any, are expected to be retained for use in expanding our business.
Item 1B.
Item 1B. Unresolved Staff Comments.
Not Applicable.
Item 2.
Item 2. Properties
We have possession of the 5th and 6th floor of an office building which is approximately 30,600 rentable square feet of office space in St. Petersburg, Florida under a lease that expires April 30, 2027. On December 1, 2016, we entered into a sublease for approximately 15,300 square feet on the 5th floor and on December 1, 2019, we entered into a sublease for approximately 15,300 square feet on the 6th floor. We occupy approximately 13,000 rentable square feet in Boca Raton, Florida under a lease that expires February 2026. We occupy certain space at NutraScience's offices in Farmingdale, New York under a lease agreement that expires May 2021. At December 31, 2019 we also owned a water capture and bottling facility that has been discontinued in Peru, Indiana that is approximately 47,000 square feet. This property was sold subsequent to the 2019 year-end. We believe that our facilities are sufficient to meet our current needs and that suitable additional space will be available as and when needed.
TCH Properties
Item 3.
Item 3. Legal Proceedings
The Company from time to time is a party to legal proceedings that arise in the ordinary course of its business. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty and an unfavorable resolution of one or more of these matters could have a material adverse effect on the Company’s business, results of operations, financial condition and/or cash flows.
Item 4.
Item 4. Mine Safety Disclosures.
Not Applicable.
PART II
Item 5.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock is traded in the OTC Markets PK (OTCPK), under the symbol "TLCC". We have been eligible to participate in the OTCPK since June 25, 2014 and from that time until the date of this Report our common stock has had only minimal trading. Over-the-counter market quotations of our common stock reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Holders of Common Stock
As of May 1, 2020, there were approximately 369 stockholders of record of our common stock. This number does not include shares held by brokerage clearing houses, depositories or others in unregistered form.
Dividends
We have not declared or paid any cash dividends on our common stock during our two most recent fiscal years. Any decisions regarding dividends will be made by our Board of Directors. We currently intend to retain and use any future earnings for the development and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. Our Board of Directors has complete discretion on whether to pay dividends. Even if our Board of Directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the Board of Directors may deem relevant.
Item 6.
Item 6.
Selected Financial Data.
We are a smaller reporting company as defined by Regulation S-K and, as such, we are not required to provide the information contained in this item pursuant to Regulation S-K.
Item 7.
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations. (Amounts in thousands, except per share amounts and per square feet.)
Overview
This Annual Report on Form 10-K contains forward-looking statements. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements within the meaning of Section 21E of the Exchange Act. Any statements contained herein that are not statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial position made in this report are forward-looking. We often use words such as anticipates, believes, estimates, expects, intends, predicts, hopes, should, plans, will and similar expressions to identify forward-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 COVID-19 pandemic, consumer preferences, spending and debt levels; the general economic and credit environment; interest rates; variations in consumer purchasing activities; competitive pressures on sales; pricing and gross sales margins; the associated fees or estimated cost savings from contract renegotiations; and our ability to establish and maintain acceptable commercial terms with contract manufacturers. We undertake no obligation to publicly update or revise any forward-looking statements except as required by law.
Our Operations
We are an integrated formulator, 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 retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Our products include vitamins, minerals, specialty supplements and sports nutrition products primarily under the Twinlab® (including the REAAL, and Twinlab Fuel brand of sports nutrition products), Reserveage and ResVitale ® brands. We also formulate, market and sell diet and energy products under the Metabolife® and Re-Body® brands and a full line of herbal teas under the Alvita® brand. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays, powders and whole herbs. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.
We also perform contract manufacturing services for private label products. Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished products under the customer’s own brand name. We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers.
We distribute one of the broadest branded product lines in the industry with approximately 260 stock keeping units, or SKUs. We believe that as a result of our emphasis on innovation, quality, loyalty, education and customer service, our brands are widely recognized in health and natural food stores and among their customers.
Going Concern Uncertainty
The accompanying 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 December 31, 2019, we had an accumulated deficit of $318,873. 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, interest and refinancing charges associated with our debt 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 our history of operating losses, increase in debt over time, and the recording of derivative liabilities, the latter of which has been significantly reduced in 2019, we have a working capital deficiency of $101,847 at December 31, 2019. We also have $91,127 of debt, net of discount, which could be due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.
Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing 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.
The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Critical Accounting Policies and Estimates
This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles. The preparation of our financial statements required us to make estimates and assumptions that affected the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. Significant estimates include values and useful 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 and service sales and the related cost of sales are recognized when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods or as the services are performed over time. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and collectability is reasonably assured. Discounts, returns and allowances related to sales, including an estimated reserve for the returns and allowances, are recorded as reduction of revenue.
Shipping and handling activities fees are not recorded in sales.
Accounts Receivable and Allowances
We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims, related to promotional items; customer discounts; shipping shortages and damages; and doubtful accounts based upon historical bad debt and claims experience.
Inventories
Inventories are stated at the lower of cost or net realizable value and are reduced by an estimated reserve for obsolete inventory.
Intangible Assets
Intangible assets consist primarily of trademarks and customer relationships, which are amortized on a straight-line basis over their estimated useful lives ranging from 3 to 30 years. The valuation and classification of these assets and the assignment of amortizable lives involve significant judgment and the use of estimates.
We believe that our long-term growth strategy supports our fair value conclusions. For intangible assets, the recoverability of these amounts is dependent upon achievement of our projections and the execution of key initiatives related to revenue growth and improved profitability.
Goodwill
Goodwill is not subject to amortization, but is reviewed for impairment annually, or more frequently whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. An impairment charge is recorded to the extent the carrying value of goodwill exceeds its estimated fair value. The testing of goodwill under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.
Impairment of Long-Lived Assets
Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment when changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the carrying amount of the asset exceeds the expected undiscounted cash flows of the asset, an impairment charge is recognized equal to the amount by which the carrying amount exceeds fair value. The testing of these intangibles under established guidelines for impairment requires significant use of judgment and assumptions. Changes in forecasted operations and other assumptions could materially affect the estimated fair values. Changes in business conditions could potentially require adjustments to these asset valuations.
Indefinite-Lived Intangible Assets
Indefinite-lived intangible assets relating to the asset acquisition of Organic Holdings are determined to have an indefinite useful economic life and as such are not amortized. Indefinite-lived intangible assets are tested for impairment annually which consists of a comparison of the fair value of the asset with its carrying value.
Value of Warrants Issued with Debt
We estimate the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex, 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, due to the variable terms of the warrant agreements. The value of the derivative liabilities is generally estimated using Monte Carlo option lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.
Share-Based Compensation
We record share-based compensation, including grants of restricted stock units, based on their grant date fair values and record compensation expense over the vesting period of the restricted stock awards.
Income Taxes
We account for income taxes using an asset and liability approach. Deferred income taxes are determined by applying currently enacted tax laws and rates to the cumulative temporary differences between the carrying values of assets and liabilities for financial statement and income tax purposes. Valuation allowances against deferred income tax assets are recorded when we are unable to conclude that it is more likely than not that such deferred income tax assets will be realized.
Results of Operations
Net Sales
Our net sales increased $169 or 0.2%, to $73,460 for the year ended December 31, 2019 from $73,291 for the year ended December 31, 2018. The slight increase in our net sales is primarily related to improved inventory availability during 2019.
Gross Profit
Our gross profit decreased $1,902, or 15%, to $11,185 for the year ended December 31, 2019 from $13,087 for the year ended December 31, 2018. The decrease in our gross profit is derived from aged inventory write-offs and shifts in the margin mix of sales.
Selling, General and Administrative Expenses
Our selling expenses decreased $3,290 or 71% to $1,326 for the year ended December 31, 2019 compared to $4,616 for the year ended December 31, 2018. The decrease in our selling expenses is primarily due to an overall reduction in force to right-size the number of employees which reduction began in 2017 and 2018 with the closing of the Utah facility and continued into 2019 with further staff and expense reductions.
Our general and administrative expenses increased $1,758, or 8%, to $24,219 for the year ended December 31, 2019 from $22,461 for the year ended December 31, 2018. The increase in our general and administrative expenses is primarily due to increased bad debt expense in 2019.
Impairment of Goodwill and Intangible Assets
During the fourth quarter of fiscal 2019, we completed our annual impairment test of goodwill and intangible assets and recognized impairment of $24,407. We recognized impairment charges of $8,979 for goodwill related to Organic Holdings and an aggregate impairment loss of intangible assets of $15,428. During the fourth quarter of fiscal 2019, management updated the fiscal 2019 budget and financial projections beyond fiscal 2019. Due to a decline in sales, we determined that the carrying value of our Twinlab and Metabolife trademarks exceeded their fair values and we recognized an impairment of the remaining carrying value of those trademarks. We also determined that a corresponding decline in sales also created an impairment in both Reserveage and Rebody tradenames as well as the remaining amount of Organic Holdings goodwill. We recognized no impairment of goodwill and intangible assets during the year ended December 31, 2018.
Interest Expense, Net
Our interest expense increased $172, or 1.8%, to $9,876 for the year ended December 31, 2019 from $9,704 for the year ended December 31, 2018.
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 operations. During the year ended December 31, 2019, we reported a gain on change in derivative liabilities of $3,696. During the year ended December 31, 2018, we reported a gain on change in derivative liabilities of $2,432.
Liquidity and Capital Resources
On December 31, 2019, we had an accumulated deficit of $318,873, primarily because of significant losses from operations, impairment of goodwill and intangible assets, and interest expense. We have a working capital deficiency of $101,847 at December 31, 2019. Losses have been funded primarily through issuances of common stock, borrowings from our stockholders and third-party or related party debt and proceeds from the exercise of warrants. As of December 31, 2019, we had cash of $270. On an ongoing basis, we also seek to improve operating cash through trade receivables and payables management as well as reduced inventory stocking levels. We used net cash in operating activities of $8,411 for the year ended December 31, 2019. During the year ended December 31, 2019, we remitted debt repayments of $952, and had a net increase in borrowings on our senior credit facility of $3,426.
Our total liabilities increased by $3,020 to $118,147 at December 31, 2019 from $115,127 at December 31, 2018. This increase in our total liabilities was primarily due to a net increase of $5,607 in accrued interest, offset by a decrease in our non-cash derivative liabilities of $4,324.
Cash Flows from Operating, Investing and Financing Activities
Net cash used in operating activities was $8,411 for the year ended December 31, 2019 as a result of our net loss of $44,501, and a non-cash gain on change in derivative liabilities of $3,696, which were offset by non-cash impairment of goodwill and intangible assets of $24,407, non-cash expenses and items totaling $5,948 and a decrease in net operating assets and liabilities of $9,431. By comparison, for the year ended December 31, 2018 net cash used in operating activities was $6,564 as a result of our net loss of $20,409, and a non-cash gain on change in derivative liabilities of $2,432, which were offset by non-cash expenses and items totaling $6,319 and a decrease in net operating assets and liabilities of $9,958. See Consolidated Statements of Cash Flows included in this report for additional information.
Net cash used in investing activities was $20 for the year ended December 31, 2019, compared to net cash provided by investing activities for the year ended December 31, 2018 which was $1,240 consisting of the sale of property and equipment.
Net cash provided by financing activities was $2,474 for the year ended December 31, 2019, primarily consisting of borrowings of $3,426 under our revolving credit facilities and repayment of debt of $952. Net cash provided by financing activities was $10,201 for the year ended December 31, 2018, primarily consisting of proceeds from the issuance of debt of $24,000, partially offset by the net repayment of $12,088 under our revolving credit facilities and repayment of debt of $1,711.
Ongoing Funding Requirements
As set forth above, we have obtained additional debt financing during 2018, and again in 2019, to support operations. We need additional funding to enable us to fund our operating expenses and capital expenditure requirements.
In response to COVID-19 and to protect our liquidity and cash position, we have taken a number of steps. In March of 2020, we obtained deferment letters from each of Great Harbor, Little Harbor and Golisano Holdings 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. On May 7, 2020, TCC, the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association 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 “Note”), has a two-year term and bears interest at a rate of 1.0% per annum, with the monthly principal and interest payments due beginning December 1, 2020. TCC may prepay 20% or less of the principal balance of the Note at any time without notice. TCC will use the proceeds of the PPP Loan for payroll, office rent, and utilities. While we intend to pursue the forgiveness of the PPP loans received in accordance with the requirements and limitations under the CARES Act, no assurance can be provided that forgiveness of any portion of the PPP Loan will be obtained.
Until such time, if ever, as we can generate substantial product revenues and income from operations, we intend to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances 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, and the impact of COVID-19 may make it more difficult for us to obtain additional funding sources 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 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 financings 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 Pronouncements
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 consolidated financial statements or related disclosures.
In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. Our status as an emerging growth company (which status ceased January 1, 2020) allowed us to defer the adoption until the year (and interim periods therein) beginning January 1, 2020. Our Company is currently evaluating the impact that the adoption of this ASU will have on its consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which superseded all existing revenue recognition guidance under GAAP. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this ASU on January 1, 2019 and used the modified retrospective transition method of adoption. The adoption of this ASU did not have a material impact on the Company’s financial statements as the impact of this ASU was limited to reclassifying sales return reserves and additional disclosures in the notes to consolidated financial statements. Sales return reserves were reclassified as a current liability instead of as a reduction of accounts receivable of $383 and $56 as of January 1, 2019 and December 31, 2019, respectively. For additional information, refer to Note 1.
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 believe any of these accounting pronouncements has had or will have a material impact on our consolidated financial position or results of operations.
Material Contractual Obligations
As of December 31, 2019, we have total debt of $91,127, of which $84,404 is considered to be related-party debt. For discussion of our debt financings, see Notes 6 and 7 in the Notes to Consolidated Financial Statements included in this report.
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 in February 2026 and has a monthly base rent of $17 in year 1 to $21 in year 8. The commencement date was August 2017.
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 was scheduled to expire in February 2028 and had a monthly base rent of $60, provided that commencing on the five-year anniversary date thereafter, the base rent was to be increased by 10% over the base rent for the preceding five-year period. On October 4, 2019, the Company was released from its lease liability and any obligations or liabilities thereunder for this property when the landlord completed the sale of the property.
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.
On November 30, 2016, we entered into a sublease agreement to sublease half of the 31,000 square feet of office space. The sublease term commenced on February 1, 2017 and expires on June 30, 2022.
On July 12, 2019, we entered into a sublease agreement to sublease the other half of the 31,000 square feet of office space. The sublease term commenced on December 1, 2019 and expires on April 30, 2027.
On January 17, 2018, the Company entered into a sublicense agreement with 463IP Partners, LLC (“463IP”) in which 463IP granted an exclusive, worldwide, perpetual sublicense to the licensed patents, licensed processes and licensed technology with the right to use, make, sell, offer, import, export, practice and develop the licensed patents, licensed processes, licensed products and licensed technology in all of the countries and territories of the world and with respect to the direct marketing, sale, use and consumption efforts directed towards athletes. In return for this sublicense, the Company agreed to purchase certain minimum amounts of licensed product solely from 463IP or from a manufacturer approved by 463IP. The minimum requirements are 10,000 kilograms of blended licensed product during the first year of the sublicense agreement and 20,000 kilograms of blended licensed product during the second year of the sublicense agreement.
If purchased from 463IP, the price will be equivalent to the fully loaded cost to 463IP. Additionally, the Company will pay a royalty equal to $2.50 per kilogram of blended licensed product purchased regardless of whether it is purchased from 463IP or a manufacturer approved by 463IP. The per kilogram fee shall be reduced by 50% under certain circumstances set forth in the sublicense agreement.
On April 24, 2019, the Company entered into a manufacturing and distribution licensing agreement with Amherst Industries, Inc. (“Amherst”) to manufacture and distribute the Alvita Tea brand of products worldwide. Amherst will adhere to the Company’s quality standards in manufacturing the products and will pay the Company a royalty. The Company and Amherst will work together to market and create further innovation for this brand.
Off-Balance Sheet Arrangements
None.
Item 7a.
Item 7a.
Quantitative and Qualitative Disclosures About Market Risk.
This item is not applicable as we are currently considered a smaller reporting company.
Item 8.
Item 8.
Financial Statements and Supplementary Data.
The report of the independent registered public accounting firm and consolidated financial statements listed in the accompanying index is filed as part of this Report. See "Report of Independent Registered Public Accounting Firm" on page 57.
Item 9.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A.
Controls and Procedures.
Internal Control Over Financial Reporting
Background
We previously reported a material weakness in internal control over financial reporting for the year ended December 31, 2018 related to the following:
•
Selection and testing of our third-party logistics and fulfillment provider
•
Lack of appropriate staffing in our accounting and information technology departments to address the Company’s ability to continue to close the books both timely and accurately and to meet internal control documents.
As disclosed herein, for the year ended December 31, 2019, management has concluded that we still have these identified material weaknesses.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2019 pursuant to Rule 13a-15(e) and 15d-15(e) under the Exchange Act. 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 SEC’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. On the basis of this review, our management, including our chief executive officer and our chief financial officer, has concluded that as of the end of the period covered by this report, our disclosure controls and procedures were not effective to 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 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 chief executive officer and our chief financial officer, in a manner that allows timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined by Rule 13a-15(f) and 15d-15(f) under the Exchange Act). In assessing the effectiveness of our internal control over financial reporting as of December 31, 2019, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).
During the fourth quarter of 2018, management identified material weaknesses in the selection and testing of our third-party logistics and fulfillment provider, whom the Company engaged to replace the Company's Utah manufacturing facility. The Company has determined that the 3PL does not issue reports pursuant to the Statement on Standards for Attestation Engagement No. 18 attestation standards. The Company should have designed and implemented the necessary internal controls to address the potential risks of using a 3PL who does not issue SSAE18 reports. The Company should have taken steps to design and implement controls around the receipt of inventory at the 3PL to ensure the quantities and description of inventory movements related to the 3PL. Additionally, the Company should take steps to obtain and review the appropriate SSAE 18 reports issued by the software company which the 3PL uses as its inventory management software. Management also identified a material weakness related to a lack of appropriate staffing in our accounting and information technology departments to address the Company's ability to continue to close the books both timely and accurately and to meet internal control documentation requirements. Prior normal staffing turnover along with technical accounting issues and the Company's change to a 3PL impacted the Company's ability to react to technical accounting matters encountered.
Although we have implemented certain measures that we believe will remediate these material weaknesses, we can provide no assurance that our remediation efforts will be effective or that additional material weaknesses in our internal control over financial reporting will not be identified in the future. 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.
Inherent Limitation on the Effectiveness of Internal Control
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 evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk 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 monitor and upgrade our internal controls as necessary or appropriate for our business, but we cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.
Changes in Internal Control over Financial Reporting
To remediate the material weaknesses described above, management implemented several initiatives, including but not limited to the following:
•
To address the material weakness related to Inventory Controls, the Company is designing and implementing controls around the receipt of inventory at the 3PL to ensure the quantities and descriptions of inventory movements are input accurately. The Company is looking to conduct monthly sampling of outgoing shipping documents and validate that the shipment date per the 3PL matches to the shipment date per the 3rd party freight carrier’s documents to corroborate the 3PL’s shipping records and avoid placing inadvertent reliance on the 3PL’s shipping records. Additionally, the Company will reconcile inventory per the general ledger to the 3PL records on a regular basis to ensure inventory is recorded completely and accurately. Management plans to observe the annual physical inventory count performed by the 3PL to ensure the existence of inventory and that the inventory value is not misstated. Also, the Company will consider observing random cycle counts performed throughout the year. The Company is also working to obtain and review the SSAE 18 SOC 1 report issued by the software company which the 3PL uses as its inventory management software. These controls and documentation will also be considered as part of the ongoing improvement plan of the of the Company’s enterprise resource system.
To address the material weakness related to appropriate staffing, the Company is looking to hire, train and retain the appropriate staffing in the accounting and information technology departments including technical accountants to support and alleviate the workload on the current team. The additional staffing should proactively identify and account for transactions of a complex or non-routine nature. Furthermore, the additional staffing should be responsible for managing the day-to-day responsibilities of Sarbanes Oxley compliance. The additional staffing should also reduce inefficiencies and address documenting evidence of operating effectiveness for business process controls and information technology general controls.
Other than as described above, there were no changes in our internal controls over financial reporting during the quarter ended December 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10.
Directors, Executive Officers and Corporate Governance.
(a)
Identification of Directors
The current members of the Board of Directors are as follows:
The principal occupations and business experience, for at least the past five years, of each Director are as follows:
SETH D. ELLIS Age 63
Mr. Ellis was appointed to the Board on February 23, 2015. Mr. Ellis founded Penta Mezzanine Fund in 2012 and has been Managing Principal since inception. Prior to founding Penta Mezzanine Fund, he was a Principal and Co-Founder of the Florida Mezzanine Fund, a mezzanine fund based in Orlando, Florida. He is the former CEO of Digital Infrared Imaging, Inc. Mr. Ellis co-founded Florida Regional Emergency Services, a hospital-based ambulance management company. Mr. Ellis began his career as an auditor with Ernst & Young and KPMG. He is a CPA and received a Bachelor of Science in Accounting from the University of Florida. Mr. Ellis has extensive experience as a CPA and as the head of an investment fund. The Board believes this experience accounting and finance qualifies him to serve as a director.
B. THOMAS GOLISANO Age 78
Mr. Golisano was appointed to the Board on April 15, 2016. Mr. Golisano founded the B. Thomas Golisano Foundation in 1985. He also founded Paychex Inc. in 1971 and served as its President and Chief Executive Officer from 1971 to October 2004. He has been the Chairman of Paychex, Inc. since October 1, 2004 and also a Director since 1979. Mr. Golisano serves as the Chairman of Bluetie, Inc. He served as Chairman of Store To Door LLC. He served as the Chairman of Mykonos Software, Inc. Mr. Golisano served as the Chairman of Greater Rochester Fights Back, a coalition to combat illegal drugs and alcohol abuse. Mr. Golisano served as the Chairman of Safesite Records Management Corporation until its acquisition by Iron Mountain Incorporated in June 1997. He served as a Director of Ultra-Scan Corporation. He served as an Independent Director of Iron Mountain Incorporated from June 1997 to May 24, 2006. He served as a Director of SmartCare Clinics Inc. He serves as a Trustee of the Rochester Institute of Technology and the Rochester Chamber of Commerce. The Board believes this executive and public company experience qualifies him to serve as a director.
DAVID A. STILL Age 68
Mr. Still has been a Director of Twinlab Consolidated Holdings, Inc. since April 15, 2016. Mr. Still has served as a Director of Bak USA LLC since 2015, as a Trustee for WXXI Public Broadcasting Corporation since 2013 and as a Trustee and the Current Chairman of the Rochester Area Community Foundation since 2011. Mr. Still began his career in banking with Barclays Bank and has also served as Senior Managing Director of Fishers Asset Management from 1998 to 2017, as Chief Executive Officer of Networx Corporation Inc. from 2014 to 2016 and held various positions with Chase Manhattan Bank and Dunfries Corporation, a subsidiary of Chase Manhattan Bank, from 1991 to 1998, including most recently as Vice President and Portfolio Manager of Real Estate Lending. Mr. Still holds a Bachelor of Arts in Philosophy and a Master of Business Administration, both from the University of Pittsburgh. The Board believes this executive and banking experience qualifies him to serve as a director.
DAVID L. VAN ANDEL Age 59
Mr. Van Andel was appointed to the Board on February 23, 2015 and elected Chairman on February 26, 2016. He is Chairman and CEO of the Van Andel Institute for Education and Medical Research. He currently serves on the Board of Directors of Amway Corporation and serves on its Executive, Governance and Audit Committees and prior to leading the Van Andel Institute held various positions at Amway since 1977. He was a shareholder and member of the Board of Directors of Twinlab Holdings, Inc. ("THI") from January 1, 2013 through August 7, 2014 when THI was acquired by and became a subsidiary of Twinlab Consolidated Corporation ("TCC"). He co-founded IdeaSphere Inc., a predecessor of THI. He holds a Bachelor of Art in Business Administration from Hope College. Mr. Van Andel has an extensive history as a director and stockholder of certain of the Company’s predecessors. In addition, he has extensive experience as a corporate executive and investor in numerous industries. The Board believes this public company and legacy experience qualifies him to serve as a director.
ANTHONY ZOLEZZI Age 66
Mr. Zolezzi was appointed to the Board on May 8, 2018. He served as the Company's Chief Executive Officer and President from July 2018 to August 2019 Prior to joining the Company as Chief Executive Officer and President, Mr. Zolezzi spent the last 5 years serving as an Operating Partner at Pegasus Capital Advisors, a private alternative asset management firm, where he is also Co-Chair of its Wellness Committee. In the past, Mr. Zolezzi has been the Chief Executive Officer of several successful, health and wellness companies including Wild Oats Marketplace, Code Blue Innovations, Natural Pet Nutrition, The New Organics Company and Pacific Basin Foods. Mr. Zolezzi has also served as an advisor for New Chapter Whole Foods Supplements, Wild Oats Private Label Supplements, Waste Management, Nestle and Whole Foods on several health, wellness and sustainability programs and projects. Mr. Zolezzi has his Bachelor of Science degree in Biology from Loyola Marymount University, Los Angeles, California. The Board believes this health and wellness experience qualifies him to serve as a director.
We believe that all of our current Board members possess the professional and personal qualifications necessary for Board service and have highlighted particularly noteworthy attributes for each Board member in the individual biographies above.
(b) Identification of Executive Officers
The following table identifies our current executive officers:
Daniel DiPofi - Mr. DiPofi joined the Company as Chief Executive Officer on January 13, 2020. Mr. DiPofi has served as a private equity manager for Fishers Asset Management since July 1, 2019. He previously served as executive vice president of the Buffalo Sabres of the National Hockey League from 1994 to 1998, when he left to become chief financial officer of Hoffend & Sons Inc., a custom engineering and design firm. In 2003, Mr. DiPofi returned to the Buffalo Sabres and served as chief operating officer until 2012. Mr. DiPofi was retired from 2012 until 2019. He has over 20 years’ experience serving in senior executive positions within the sports and entertainment industry. Mr. DiPofi holds a degree in accounting from Niagara University.
Kyle Casey - Mr. Casey joined the Company in April 2019 and served as the Company’s Controller prior to his appointment as interim Chief Financial Officer of the Company, effective October 8, 2019. He was then appointed Chief Financial Officer as of January 13, 2020. Before joining the Company, Mr. Casey was with Gulfstream Park Racetrack and Casino from December 2015 through November 2018, most recently serving as the Vice President of Finance. Prior to his employment with Gulfstream Park Racetrack and Casino, Mr. Casey served as Chief Auditing Officer for the Florida Department of Business and Professional Regulation from March 2014 through December 2015. Mr. Casey holds a Bachelor of Science in Accounting and Finance, as well as a Master of Science in Taxation, from Florida State University. Mr. Casey is a licensed Certified Public Accountant.
(c) Identification of Certain Significant Employees
Not applicable.
(d) Family Relationships
There are no family relationships among our executive officers and directors.
(e) Business Experience
The business experience of each of our current directors and executive officers is set forth in Part III, Item 10(a), “Identification of Directors” and Part III, Item 10(b), “Identification of Executive Officers,” respectively.
The directorships currently held, and held during the past five years, by each of our directors in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, or subject to Section 15 of such Act or any company registered as an investment company under the Investment Company Act of 1940, as amended, are set forth in Part III, Item 10(a), “Identification of Directors.”
(f) Involvement in Certain Legal Proceedings
To the best of our knowledge, none of our directors or executive officers that served during the year ended December 31, 2019 ("Fiscal 2019") or currently has been involved during the past ten years in any legal proceedings required to be disclosed pursuant to Item 401(f) of Regulation S-K.
(g) Promoters and Control Persons
Not applicable.
(h) and (i) Audit Committee and Audit Committee Financial Expert
The members of the standing Audit Committee are David A. Still and Seth Ellis, both of whom are independent directors as determined by the Nasdaq Rules. The responsibilities and duties of the Audit Committee consist of, but are not limited to:
● appointing, compensating, retaining and overseeing our independent registered public accounting firm;
● at least annually obtaining and reviewing our independent registered public accounting firms' report on independence and quality control;
● reviewing with our independent registered public accounting firm the scope and results of their audit, any audit problems or difficulties and management's response to any problems or difficulties;
● pre-approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm;
● overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the interim and annual financial statements that we file with the SEC;
● reviewing the facts and circumstances of each related party transaction under the Company's Related Party Transaction Policy and Procedures and either approve or disapprove of each related party transaction;
● reviewing and monitoring compliance with laws, rules, regulations and the Company's Code of Ethics and Business Conduct; and
● establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls or auditing matters, and for the confidential and anonymous submission by Company employees of concerns regarding questionable accounting or auditing matters.
Our Board has determined that Seth Ellis qualifies as an “Audit Committee financial expert” within the meaning of applicable regulations of the Securities and Exchange Commission, promulgated pursuant to the Sarbanes-Oxley Act of 2002. Our board of directors has adopted a written charter for the Audit Committee which the Audit Committee reviews and reassesses for adequacy on an annual basis. A copy of the Audit Committee’s charter is located on our website at www.tchhome.com.
(j) Procedures for Stockholder Nominations to the Board of Directors
No material changes to the procedures for nominating directors by our stockholders were made during Fiscal 2019.
Code of Conduct and Ethics
The Company has adopted a Code of Ethics and Business Conduct that applies to all of its directors, officers (including its Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Controller and any person performing similar functions) and employees. The Company has made this Code of Ethics and Business Conduct available on its website at www.tchhome.com/code-of- ethics. The Company intends to satisfy the disclosure requirements under applicable SEC rules relating to amendments to the Code of Ethics or waivers from any provisions thereof applicable to the Company's principal executive officer, principal financial officer and principal accounting officer by posting such information on the Company's website pursuant to SEC rules.
Item 11.
Item 11.
Executive Compensation
This section discusses the material components of the executive compensation program for our executive officers who are named in the "2019 Summary Compensation Table" below. In 2019, our "named executive officers" consisted of the following:
Kyle Casey, Chief Financial Officer
Anthony Zolezzi, Former Chief Executive Officer
Carla Goffstein, Former Chief Financial Officer and Interim Chief Executive Officer
Gregory Grochoski, Former Executive Vice President and Chief Science Officer
2019 Summary Compensation Table
The following table sets forth information concerning the compensation of our named executive officers for the years ended December 31, 2019 and December 31, 2018.
1 Mr. Casey was appointed as Interim Chief Financial Officer of the Company effective October 8, 2019 and Chief Financial Officer of the Company effective January 13, 2020.
2 Mr. Zolezzi resigned from his position as Chief Executive Officer of the Company effective August 12, 2019.
3 Ms. Goffstein resigned from her position as Chief Financial Officer and Interim Chief Executive Officer effective as of October 3, 2019.
4 Mr. Grochoski’s position of Executive Vice President and Chief Science Officer was eliminated by the Company effective as of August 6, 2019.
Narrative Disclosure to Summary Compensation Table
Employment Agreement with Anthony Zolezzi
Employment Term and Position
On July 17, 2018, the Company and Mr. Zolezzi entered into an employment agreement (the “Employment Agreement”) that had a two (2) year term with automatic renewals for additional one-year periods unless the Employment Agreement was terminated by Mr. Zolezzi or the Company, in each case by 30 days’ written notice. In addition, the Company could terminate Mr. Zolezzi’s employment at any time, with or without cause, and Mr. Zolezzi could terminate his employment with the Company on 30 days’ written notice. Pursuant to the Employment Agreement, Mr. Zolezzi served as the Chief Executive Officer and President of the Company.
On August 12, 2019, Mr. Zolezzi resigned as the Company's Chief Executive Officer and President.
Base Salary, Annual Bonus, Benefits
Pursuant to the Employment Agreement, Mr. Zolezzi received a base salary of $564,000 per year. In addition, Mr. Zolezzi was eligible to participate in the Company’s standard employee benefits programs available to senior executives.
Mr. Zolezzi was also granted an initial equity award of restricted stock. The initial equity award was for 8,000,000 shares of common stock ("Initial Equity Award") in exchange for an exercise price equal to the fair market value of the Company's common stock and was pursuant to the Company's 2013 Stock Incentive Plan. If Mr. Zolezzi's employment terminates for any reason, the Initial Equity Award will terminate in its entirety and be forfeited to the Company. The Initial Equity Award was scheduled to vest upon the closing of a qualifying sale (as defined in the Employment Agreement) of the Company during Mr. Zolezzi's employment period. The vesting schedule provided that (i) 2,000,000 shares of the Initial Equity Award will vest if the net proceeds (as defined in the Employment Agreement) received by Company securityholders in a qualifying sale was equal to or greater than $100 million but less than $200 million; (ii) an additional 2,000,000 shares of the Initial Equity Award would vest if the net proceeds received by Company securityholders in a qualifying sale is equal to or greater than $200 million but less than $300 million; and (iii) an additional 4,000,000 shares of the Initial Equity Award will vest if the net proceeds received by Company securityholders in a qualifying sale was equal to or greater than $300 million.
Pursuant to the Employment Agreement, if the Company completes a qualifying sale during the employment period or within six months after Mr. Zolezzi's employment was terminated for good reason or if the Company terminated Mr. Zolezzi other than due to death, cause or disability, the Company would pay Mr. Zolezzi a qualifying sale payment upon the closing of the qualifying sale. The amount of the qualifying sale payment was the aggregate of (i) 4% of the consideration to be paid to the Company's shareholders in such a qualifying sale if the net proceeds to be received by the Company's securityholders in a qualifying sale is equal to or greater than $100 million but less than $200 million; (ii) 6% of the consideration to be paid to the Company's shareholders in such a qualifying sale if the net proceeds to be received by the Company's securityholders in a qualifying sale was equal to or greater than $200 million but less than $300 million; and (iii) 8.5% of the consideration to be paid to the Company's shareholders in such a qualifying sale if the net proceeds to be received by the Company's securityholders in a qualifying sale was equal to or greater than $300 million. Mr. Zolezzi's receipt of the qualifying sale payment was subject to Mr. Zolezzi signing and not revoking a release of claims against the Company.
Under the Employment Agreement, in the event Mr. Zolezzi’s employment was terminated by the Company pursuant to its termination right (as defined in the Employment Agreement) or by Mr. Zolezzi for good reason, Mr. Zolezzi would be entitled to receive a severance amount equal to $282,000. Mr. Zolezzi’s receipt of the severance amount discussed above is contingent on Mr. Zolezzi signing and not revoking a release of claims against the Company.
Restrictive Covenants
Pursuant to the Employment Agreement, Mr. Zolezzi was subject to post-termination non-solicitation and non-competition covenants.
Separation Agreement
Effective August 12, 2019, Mr. Zolezzi resigned from his position as Chief Executive Officer of the Company but retained his position as a member of the Company’s Board of Directors.
On March 9, 2020, the Company and Mr. Zolezzi entered into a Separation and Release Agreement (the “Zolezzi Separation Agreement”). Pursuant to the Zolezzi Separation Agreement, Mr. Zolezzi received a separation payment of $260. Mr. Zolezzi forfeited the Initial Equity Award in the Zolezzi Separation Agreement as he was not employed for the three-year requisite period. As there was no sale of the Company within six months of the termination date, there was no qualifying sale payment.
The Zolezzi Separation Agreement includes mutual release, non-disparagement, and similar provisions typical for this type of separation agreement.
The Zolezzi Separation Agreement provided Mr. Zolezzi with a seven (7) day revocation period from the date of execution (the “Revocation Period”), and the Zolezzi Separation Agreement was not effective until the Revocation Period expired.
Employment Agreement with Carla Goffstein
Employment Term and Position
On April 22, 2019, the Company and Ms. Goffstein entered into an Employment, Non-Competition and Proprietary Rights Agreement (the “Goffstein Employment Agreement”) that had a two-year term with automatic renewals for additional one-year periods unless the Goffstein Employment Agreement was terminated by Ms. Goffstein or the Company, in each case by 30 days’ written notice. In addition, the Company could terminate Ms. Goffstein’s employment at any time, with or without cause. Pursuant to the Goffstein Employment Agreement, Ms. Goffstein served as the Chief Financial Officer of the Company.
On October 3, 2019, Ms. Goffstein resigned as the Company's Chief Financial Officer and Interim Chief Executive Officer.
Base Salary, Annual Bonus, Benefits
Pursuant to the Goffstein Employment Agreement, Ms. Goffstein received a base salary of $275,000 per year and an annual bonus of up to 50% of her base salary based on the achievement of performance metrics. In addition, Ms. Goffstein was eligible to participate in the Company’s standard employee benefits programs available to senior executives.
Under the Goffstein Employment Agreement, in the event of a termination without cause by the Company or a termination with good reason by Ms. Goffstein, she was entitled to receive severance benefits equal to twelve months of her base salary and any accrued and unpaid bonus payable on account of any calendar year ending prior to the year in which the termination occurs. Under the Goffstein Employment Agreement, in the event of a change in control wherein Ms. Goffstein’s employment was terminated in the first year thereafter, Ms. Goffstein would be entitled to receive severance benefits equal to six months of her base salary; if her employment was terminated in the second year thereafter, Ms. Goffstein was entitled to receive severance benefits equal to four months of her base salary.
Ms. Goffstein’s receipt of the severance benefits discussed above was contingent on Ms. Goffstein signing and not revoking a release of claims against the Company.
Restrictive Covenants
Pursuant to the Goffstein Employment Agreement, Ms. Goffstein was subject to (i) non-disclosure of confidential information restrictions while employed and for a period of two (2) years following the termination of employment, (ii) non-solicitation restrictions while employed and for a period of two (2) years following the termination of employment, and (iii) non-competition restrictions while employed and for a period of six (6) months following the termination of employment.
Employment Agreement with Gregory Grochoski
Employment Term and Position
On January 30, 2015, Twinlab Consolidation Corporation and Mr. Grochoski entered into an employment agreement (the “Grochoski Employment Agreement”) that could be terminated by Mr. Grochoski or the Company effective immediately. In addition, the Company had the right to terminate Mr. Grochoski’s employment at any time, with or without cause, and Mr. Grochoski had the right to terminate his employment with the Company at any time for any reason, including but not limited to for good reason on 30 days’ written notice for good reason by complying with the Good Reason Process, as defined in the Grochoski Employment Agreement. Pursuant to the Grochoski Employment Agreement, Mr. Grochoski served as the EVP, Chief Science Officer of the Company.
Mr. Grochoski’s position of Executive Vice President and Chief Science Officer was eliminated by the Company effective as of August 6, 2019.
Base Salary, Annual Bonus, Benefits
Pursuant to the Grochoski Employment Agreement, Mr. Grochoski was eligible to receive a base salary of $262,500.16 per year. Additionally, Mr. Grochoski was eligible to participate in a performance-based bonus program with a target annual bonus of fifty percent (50%) of his base salary. The actual amount of the annual bonus for a given year was determined by the Company pursuant to applicable performance metrics and may be between 0% and 100% of his base salary for the given year. Mr. Grochoski was eligible to participate in the Company's equity incentive plan and was eligible to receive from time-to-time long-term equity incentive grants, including stock options, restricted stock or other stock-based awards as determined in the discretion of the Compensation Committee or the Board. In addition, Mr. Grochoski was eligible to participate in the Company’s standard employee benefits programs available to employees generally.
Under the Grochoski Employment Agreement, in the event Mr. Grochoski’s employment was terminated by the Company without cause or by Mr. Grochoski complying with the Good Reason Process, Mr. Grochoski was entitled to receive severance benefits equal to (i)(a) twenty-six (26) weeks of his base salary if the effective date of his termination was not within the six (6) month period immediately after a change in control, or (b) fifty-two (52) weeks of his base salary if the effective date of his termination was within the six (6) month period immediately after a change in control and (ii) an amount related to the continuation of Mr. Grochoski's COBRA health continuation coverage. Mr. Grochoski’s receipt of the severance benefits was contingent on Mr. Grochoski signing and not revoking a release of claims against the Company. The Grochoski Employment Agreement also contains post-termination non-solicitation and non-competition covenants.
Separation Agreement
A separation agreement for Mr. Grochoski is currently being negotiated.
Equity-Based Compensation Awards
The only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees who will aid in our success. During 2018 and 2017, we granted Restricted Stock Units ("RSUs"), to certain employees 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. We estimated the grant date fair market value per share of the Restricted Stock Units and are amortizing the total estimated grant date value over the vesting periods. During the year ended December 31, 2018, a total of 1,202,095 shares of common stock were issued to employees pursuant to the vesting of Restricted Stock Units. As of December 31, 2019, a total of 7,194,412 shares remain available for use in the TCC Plan.
Other Elements of Compensation
Retirement Plans
Until June 2016, the Company maintained a defined contribution retirement plan (the “Plan”) which qualified under Section 401(k) of the Internal Revenue Code of 1986, as amended. All employees over the age of 18 were eligible for participation in the Plan, on the 1st day of the 1st month following 30 days of employment with the Company. The Plan was a safe harbor plan, requiring the Company to match 100% of the first 1% of eligible salary contributed per pay period by participating employees, and to match 50% on the next 5% of eligible salary contributed per pay period by participating employees (with matching capped at 6% per pay period). Currently, we no longer offer matching but do allow our employees to contribute to a 401(k) portfolio. The Company recognized no expenses related to the Plan in 2019 and 2018.
Outstanding Equity Awards at Fiscal Year-End
The outstanding equity awards at fiscal year-end table has been omitted as there is no required information to be disclosed for the fiscal year ended December 31, 2019.
DIRECTOR COMPENSATION
The director compensation table has been omitted as no compensation was received by the directors during the year ended December 31, 2019. We do not currently have an established compensation package for Board members.
Compensation Committee
The members of our Compensation Committee are B. Thomas Golisano, Chairman, and Seth Ellis, both of whom are independent directors as determined by the NASDAQ rules. The Compensation Committee is responsible for, among other matters:
● reviewing and approving the compensation of our Chief Executive Officer (either alone or, if directed by the Board of Directors, in conjunction with a majority of independent directors) and reviewing and setting or making recommendations to the Board of Directors on the compensation of our other executive officers;
● reviewing and making recommendations to the Board of Directors on the compensation of our directors, if applicable;
● appointing and overseeing any compensation consultants, legal counsel or other advisers;
● reviewing and approving or making recommendations to the Board of Directors regarding incentive compensation and equity-based plans and arrangements; and
● reviewing and discussing with management the Company's "Compensation Discussion & Analysis" to the extent required to be included in filings with the SEC.
We believe our compensation policies present no risks that are reasonably likely to have a material adverse effect on our Company. The Compensation Committee has not retained a compensation consultant to review our policies and procedures with respect to executive compensation. A copy of the Compensation Committee's charter is located on our website at www.tchhome.com.
Item 12.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table presents information about the beneficial ownership of the Company's Common Stock as of May 15, 2020 by those persons known to beneficially own more than 5% of our capital stock and by our directors, named executive officers, and current executive officers and directors as a group. The percentage of beneficial ownership for the following table is based on 257,251,113 shares of Common Stock outstanding.
Beneficial ownership is determined in accordance with the rules of the SEC and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of Common Stock over which the stockholder has sole or shared voting or investment power. It also includes shares of Common Stock that the stockholder has a right to acquire within 60 days after May 15, 2020, pursuant to options, warrants, restricted stock units or other rights. The percentage of ownership of the outstanding Common Stock, however, is based on the assumption, expressly required by the rules of the SEC, that only the person or entity whose ownership is being reported has vested restricted stock units or converted options or warrants into shares of our Common Stock.
*
Less than 1% of the applicable class or combined voting power.
Except as otherwise provided, each party's address is care of the Company at 4800 T-Rex Avenue, Suite 305, Boca Raton, Florida 33431.
By Schedule 13D/A, filed with the SEC on January 24, 2019, Little Harbor LLC reported that as of July 27, 2018, it has sole voting power and sole dispositive power over 33,168,948 shares. Little Harbor LLC is a Nevada limited liability company of which David L. Van Andel is the sole manager and a holder as sole trustee of the David L. Van Andel Trust u/a dated November 30, 1993 of 80.5% of the membership interests. This number does not include a warrant issued into escrow in favor of Little Harbor LLC on July 21, 2016 and exercisable for up to 2,168,178 shares of the Company's common stock but which only become exercisable if removed from escrow upon the failure of the Company to make payment in full of the promissory note at maturity, as the same may be accelerated in accordance with the terms of the note. The business address of Little Harbor LLC is 3133 Orchard Vista Drive SE, Grand Rapids, Michigan 49546.
By Schedule 13D/A, filed with the SEC on January 24, 2019, Great Harbor Capital, LLC reported that as of July 27, 2018, it has sole voting power and sole dispositive power over 52,832,266 shares. Great Harbor Capital, LLC is a Delaware limited liability company of which David L. Van Andel is the sole manager and a holder as sole trustee of the David L. Van Andel Trust of 100% of the membership interests. This number includes 4,500,000 shares that are issuable upon the exercise of warrants that have vested or will vest within 60 days after May 15, 2020. This number does not include warrants issued into escrow in favor of Great Harbor Capital, LLC on January 28, 2016, March 21, 2016, December 31, 2016, August 30, 2017 and February 6, 2018 and exercisable for up to 1,136,363, 3,181,816, 1,136,363, 1,363,636 and 1,818,182 shares of the Company's common stock, respectively, but which only become exercisable if removed from escrow upon the failure of the Company to make payment in full of the promissory note in connection with which each warrant was issued at maturity, as the same may be accelerated in accordance with the terms of each respective note. The business address of Great Harbor Capital, LLC is 3133 Orchard Vista Drive SE, Grand Rapids, Michigan 49546.
By Schedule 13D/A, filed with the SEC on January 24, 2019, the David L. Van Andel Trust u/a dated November 30, 1993 reported that as of July 27, 2018, it has sole voting power and sole dispositive power over 34,791,814 shares. The sole trustee and the principal beneficiary of the David L. Van Andel Trust u/a dated November 30, 1993 is David L. Van Andel. The business address of the David L. Van Andel Trust u/a dated November 30, 1993 is 3133 Orchard Vista Drive SE, Grand Rapids, Michigan 49546.
By Schedule 13D/A, filed with the SEC on March 20, 2017, Golisano Holdings LLC reported that as of March 8, 2017, it has sole voting power and sole dispositive power over 90,090,000 shares. The 90,090,000 shares reported included shares issuable pursuant to the exercise of a warrant for up to 869,818 shares acquired in March of 2017 in connection with its acquisition of a promissory note from Penta Mezzanine SBIC Fund I, L.P. ("Penta"). That warrant expired November 13, 2019. This number includes shares that may be issuable pursuant to the exercise of a warrant for up to 807,018 shares that Golisano Holdings LLC also acquired in March of 2017 in connection with its acquisition of a promissory note from Penta. This number does not include shares that may be issuable pursuant to the exercise of warrants for up to 4,960,740 shares that Golisano Holdings LLC acquired in March of 2017 in connection with its acquisition of promissory notes from Penta as this warrant is only exercisable after the occurrence of certain put events set forth in the warrant. This number does not include shared voting power held by Golisano Holdings LLC over 251,241,650 shares of the Company's common stock with respect solely to the right to have certain shareholders vote in favor of electing two nominees of Golisano Holdings LLC to the Company's Board of Directors pursuant to a voting agreement. This number does not include a contingent warrant issued to Golisano LLC on October 5, 2015 and exercisable as of December 31, 2016 (reflecting certain exercises and cancellations in part) for up to 4,756,505 shares of the Company's common stock, but which is only exercisable if and when other warrants that existed as of the issue date are exercised by the holders thereof. This number does not include warrants issued into escrow in favor of Golisano LLC on January 28, 2016, March 21, 2016, July 21, 2016, December 30, 2016, March 14, 2017 and February 6, 2018 and exercisable for up to 1,136,363, 3,181,816, 2,168,178, 1,136,363, 1,484,847 and 1,818,182 shares of the Company's common stock, respectively, but which only become exercisable if removed from escrow upon the failure of the Company to make payment in full of the promissory note in connection with which each warrant was issued at maturity, as the same may be accelerated in accordance with the terms of each respective note. Golisano Holdings LLC shares beneficial ownership of the reported shares with Mr. Golisano, the controlling member of Golisano Holdings LLC. The business address of Golisano Holdings is: 1 Fishers Road, Pittsford, New York 14534
Mr. Zolezzi has a business address at 16921 Via de Santa Fe #168, Rancho Santa Fe, California, 92067.
Ms. Goffstein left the Company effective as of October 3, 2019. We have no information regarding her ownership of Company securities as of May 15, 2020. Accordingly, information regarding the number of shares of common stock owned is based on her Section 16 filings and Company records.
Mr. Grochoski left the Company effective as of August 6, 2019. We have no information regarding his ownership of Company securities as of May 15, 2020. Accordingly, information regarding the number of shares of common stock owned is based on Company records. Mr. Grochoski has a business address at 3133 Orchard Vista Drive SE, Grand Rapids, Michigan 49546.
Mr. Ellis has a business address at c/o Penta Mezzanine, 20 N. Orange Avenue, Orlando, Florida 32801.
By Schedule 13D/A, filed with the SEC on January 24, 2019, David L. Van Andel reported that as of July 27, 2018, he has sole voting power and sole dispositive power over 120,793,028 shares. This includes 34,791,814 shares owned by the Van Andel Trust, of which Mr. Van Andel is the sole trustee and the principal beneficiary, 33,168,948 shares owned by Little Harbor of which he is the sole manager and a holder as sole trustee of the Van Andel Trust of 80.5% of the membership interests, 52,832,266 shares owned by Great Harbor Capital, LLC, a Delaware limited liability company, of which he is the sole manager and a holder as sole trustee of the Van Andel Trust of 100% of the membership interests and 4,500,000 shares that are issuable to Great Harbor Capital, LLC upon the exercise of warrants that have vested or will vest within 60 days after May 15, 2020. Mr. Van Andel disclaims beneficial ownership of any shares held by the limited liability companies named above except to the extent of his pecuniary interest therein. This number does not include shared voting power held by Great Harbor Capital, LLC, and beneficially by Mr. Van Andel as the controlling member of Great Harbor Capital, LLC, over 212,559,664 shares of the Company's common stock with respect solely to the right to have certain shareholders vote in favor of electing two nominees of Great Harbor Capital, LLC to the Company's Board of Directors pursuant to a voting agreement. The business address of Mr. Van Andel is 3133 Orchard Vista Drive SE, Grand Rapids, Michigan 49546.
Includes 75,000 shares that are issuable upon the exercise of stock options that have vested or will vest within 60 days after May 15, 2020.
Equity Compensation Plan Information
The following table summarizes the Twinlab Consolidation Corporation 2013 Stock Incentive Plan equity compensation plans under which our securities may be issued as of December 31, 2019.
Item 13.
Item 13.
Certain Relationships and Related Transactions, And Director Independence.
See Notes 6, 7 and 12 of the consolidated financial statements included in this filing for details of related-party transactions.
Director Independence
The Board has determined that the following directors are independent pursuant to the rules of the Nasdaq Stock Market ("NASDAQ"): Messrs. Ellis, Golisano, Still and Van Andel. Since the OTCPK does not have rules regarding director independence, the Board makes its determination as to director independence based on the definition of “independence” as defined under the NASDAQ rules. In evaluating and determining the independence of the directors, the Board considered the relationships disclosed above under "Certain Relationships and Related Person Transactions" and determined that those relationships do not impair the directors' independence from us and our management under the NASDAQ rules. The members of the Audit Committee are David A. Still and Seth Ellis, all of whom are independent directors as determined by the NASDAQ rules. The members of our Compensation Committee are B. Thomas Golisano, Chairman, and Seth Ellis, all of whom are independent directors as determined by the NASDAQ rules. The members of our Nominating and Corporate Governance Committee are David L. Van Andel, Chairman, and B. Thomas Golisano, all of whom are independent directors as determined by the NASDAQ rules.
Item 14.
Item 14.
Principal Accountant Fees and Services
The following table summarizes the fees of Tanner LLC, our independent registered public accounting firm, billed to us for each of the last two fiscal years for audit services and billed to us in each of the last two fiscal years for other services:
AUDIT FEES
Tanner LLC (“Tanner”) billed the Company $263,938 and $238,850, respectively, in the aggregate for services rendered for the audits of the Company's 2019 and 2018 fiscal years and the review of the Company's interim financial statements included in the Company's Quarterly Reports on Form 10-Q for the Company's 2019 and 2018 fiscal years.
AUDIT-RELATED FEES
Tanner billed the Company $18,969 and $18,000, respectively, in the aggregate for audit-related services as defined by the SEC for the 401(k) audit for the Company’s 2019 and 2018 fiscal years.
TAX FEES
Tanner billed the Company $45,963 and $43,500 in the aggregate for tax fees for the preparation of federal and state income tax returns for the Company’s 2019 and 2018 fiscal years.
ALL OTHER FEES
Tanner billed the Company $0 in the aggregate for other fees for the Company's 2019 fiscal year and $0 in the aggregate for other fees for the Company's 2018 fiscal year.
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Board of Directors of the Company has appointed an Audit Committee, which operates pursuant to a written charter. The charter provides for the pre-approval of all audit services and all permitted non-audit services to be performed for the Company by the independent registered public accounting firm, subject to the requirements of applicable law. The procedures for pre-approving all audit and non-audit services provided by the independent registered public accounting firm will include the Audit Committee reviewing audit-related services, tax services and other services. The Audit Committee will periodically monitor the services rendered by and actual fees paid to the independent registered public accounting firm to ensure that such services are within the parameters approved by the Audit Committee.
All of the audit, audit-related and tax services provided by Tanner LLC to us in 2019 and 2018 were approved by the Audit Committee pursuant to these procedures. All non-audit services provided in 2019 and 2018 were reviewed with the Audit Committee, which concluded that the provision of such services by Tanner LLC was compatible with the maintenance of that firm's independence in the conduct of its auditing function.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
(a)(1)
The following consolidated financial statements are filed as a part of this 2019 10-K Report:
(i)
Report of Independent Registered Public Accounting Firm
(ii)
Consolidated Balance Sheets
(iii)
Consolidated Statements of Operations
(iv)
Consolidated Statements of Stockholders’ Deficit
(v)
Consolidated Statements of Cash Flows
(vi)
Notes to Consolidated Financial Statements
(a)(2)
Consolidated financial statement schedules have been omitted either because the required information is set forth in the consolidated financial statements or notes thereto, or the information called for is not required.
(b) Exhibits. The following exhibits are filed as part of the report on Form 10-K:
Exhibit
			Number
Exhibit Description
2.1
Agreement and Plan of Merger, dated September 4, 2014. (1)
2.1.1
First Amendment to Agreement and Plan of Merger dated September 16, 2014. (2)
2.2
Asset Purchase Agreement, dated as of February 4, 2015, by and among Nutricap Labs, LLC, Vitacap Labs, LLC, Canyon Marketing V, LLC, Canyon Marketing II, Inc., Canyon Marketing III, LLC and TCC CM Subco I, Inc. (13)
3.1
Articles of Incorporation. (3)
3.1.1
Amendment to Articles of Incorporation. (4)
3.1.(c)
Certificate of Change, dated August 28, 2014. (5)
3.2
Bylaws. (3)
4.1
Subscription and Surrender Agreement, dated as of September 3, 2014 between Twinlab Consolidation Corporation and Thomas Tolworthy. (6)
4.2 Description of Registrant's Securities**
10.1
Twinlab Consolidation Corporation 2013 Stock Incentive Plan. (6) *
10.2
Debt Repayment Agreement dated as of July 31, 2014 between Little Harbor LLC and Twinlab Holdings, Inc. (f/k/a Idea Sphere Inc.) (6)
10.3
Commercial Lease Agreement dated August 22, 2014 between Essex Capital Corporation and Twinlab Corporation. (6)
10.4
Restricted Stock Purchase Agreement dated as of November 4, 2013 between Twinlab Consolidation Corporation and Thomas Tolworthy. (6)
10.5
Series A Warrant, dated as of September 30, 2014, issued by Twinlab Consolidated Holdings, Inc. to Capstone Financial Group, Inc. (7)
10.6
Series B Warrant, dated as of September 30, 2014, issued by Twinlab Consolidated Holdings, Inc. to Capstone Financial Group, Inc. (7)
10.7
Common Stock Put Agreement, dated as of September 30, 2014, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (7)
10.8
Registration Rights Agreement, dated as of September 30, 2014, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (7)
10.9
Note and Warrant Purchase Agreement, dated as of November 13, 2014, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation and Penta Mezzanine SBIC Fund I, L.P. (8)
10.10
Initial Note, dated as of November 13, 2014, made by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc. and Twinlab Corporation payable to Penta Mezzanine SBIC Fund I, L.P. (8)
10.11
Warrant, dated November 13, 2014, issued by Twinlab Consolidated Holdings, Inc. to Penta Mezzanine SBIC Fund I, L.P. (8)
10.12
Security Agreement, dated as of November 13, 2014, made by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., and Twinlab Corporation in favor of Penta Mezzanine SBIC Fund I, L.P. (8)
10.13
Form of Deferred Draw Note made by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc. and Twinlab Corporation payable to Penta Mezzanine SBIC Fund I, L.P. (8)
10.14
Form of Warrant issued by Twinlab Consolidated Holdings, Inc. to Penta Mezzanine SBIC Fund I, L.P. (8)
10.15
Employment Agreement, dated as of December 1, 2014, between Twinlab Consolidation Corporation and Glenn Wolfson. (9) *
10.16
Amendment No. 1 to Common Stock Put Agreement, dated as of December 15, 2014, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (10)
10.17
Credit and Security Agreement, dated as of January 22, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., Twinlab Corporation, ISI Brands Inc., TCC CM Subco I, Inc. and TCC CM Subco II, Inc. and MidCap Financial Trust. (11)
10.18
Revolving Loan Note, dated January 22, 2015, by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc. and TCC CM Subco II, Inc. to the order of MidCap Financial Trust. (11)
10.19
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidated Holdings, Inc. and MidCap Financial Trust. (11)
10.20
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidation Corporation and MidCap Financial Trust. (11)
10.21
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Holdings, Inc. and MidCap Financial Trust. (11)
10.22
Warrant, dated January 22, 2015, issued by Twinlab Consolidated Holdings, Inc. to MidCap Funding X Trust. (11)
10.23
Registration Rights Agreement, dated as of January 22, 2015, by and between Twinlab Consolidated Holdings, Inc. and MidCap Funding X Trust. (11)
10.24
Note and Warrant Purchase Agreement, dated as of January 22, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc., TCC CM Subco II, Inc. and JL-BBNC Mezz Utah, LLC. (11)
10.25
Note, dated as of January 22, 2015, made by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc. and TCC CM Subco II, Inc. payable to JL-BBNC Mezz Utah, LLC. (11)
10.26
Warrant, dated January 22, 2015, issued by Twinlab Consolidated Holdings, Inc. to JL-BBNC Mezz Utah, LLC. (11)
10.27
Security Agreement, dated as of January 22, 2015, made by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc. and TCC CM Subco II, Inc. in favor of JL-BBNC Mezz Utah, LLC. (11)
10.28
Trust Deed, dated January 22, 2015, among Twinlab Corporation, as Trustor, Ryan B. Hancey, as Trustee, and JL-BBNC Mezz Utah, LLC. (11)
10.29
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidated Holdings, Inc. and JL-BBNC Mezz Utah, LLC. (11)
10.30
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidation Corporation and JL-BBNC Mezz Utah, LLC. (11)
10.31
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Holdings, Inc. and JL-BBNC Mezz Utah, LLC. (11)
10.32
Letter, dated January 16, 2015, from Fifth Third Bank to Twinlab Corporation, Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, ISI Brands Inc., Twinlab Holdings, Inc., David L. Van Andel, William W. Nicholson and MidCap Financial Trust. (11)
10.33
First Amendment to Note and Warrant Purchase Agreement, Consent and Joinder, dated as of January 22, 2015 by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc., TCC CM Subco II, Inc. and Penta Mezzanine SBIC Fund I, L.P. (11)
10.34
Amended and Restated Note, dated as of January 22, 2015, by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc., TCC CM Subco II, Inc. in favor of Penta Mezzanine SBIC Fund I, L.P. (11)
10.35
Warrant, dated January 22, 2015, issued by Twinlab Consolidated Holdings, Inc. to Penta Mezzanine SBIC Fund I, L.P. (11)
10.36
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidated Holdings, Inc. and Penta Mezzanine SBIC Fund I, L.P. (11)
10.37
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Consolidation Corporation and Penta Mezzanine SBIC Fund I, L.P. (11)
10.38
Pledge Agreement, dated as of January 22, 2015, by and between Twinlab Holdings, Inc. and Penta Mezzanine SBIC Fund I, L.P. (11)
10.39
Employment Agreement, dated as of January 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Mark Jaggi. (12) *
10.40
Employment Agreement, dated as of January 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Richard Neuwirth. (12) *
10.41
Employment Agreement, dated as of January 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Kathleen C. Pastor. (12) *
10.42
Amendment No. 1 to Credit and Security Agreement and Limited Consent, dated as of February 4, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc. and TCC CM Subco II, Inc. and MidCap Funding X Trust. (13)
10.43
First Amendment to Note and Warrant Purchase Agreement and Consent, dated as of February 4, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc., TCC CM Subco II, Inc. and JL-BBNC Mezz Utah, LLC. (13)
10.44
Warrant, dated February 4, 2015, issued by Twinlab Consolidated Holdings, Inc. to JL-BBNC Mezz Utah, LLC. (13)
10.45
Second Amendment to Note and Warrant Purchase Agreement and Consent, dated as of February 4, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, TCC CM Subco I, Inc., TCC CM Subco II, Inc. and Penta Mezzanine SBIC Fund I, L.P. (13)
10.46
Unsecured Promissory Note, dated February 6, 2015, in the amount of $2,500,000 made by TCC CM Subco I, Inc. payable to Nutricap Labs, LLC. (13)
10.47
Unsecured Promissory Note, dated February 6, 2015, in the amount of $1,478,000 made by TCC CM Subco I, Inc. payable to Nutricap Labs, LLC. (13)
10.48
Transition Services Agreement, dated February 6, 2015, by and between TCC CM Subco I, Inc., Nutricap Labs, LLC and Vitacap Labs, LLC. (13)
10.49
Registration Rights Agreement, dated as of February 6, 2015, by and between Twinlab Consolidated Holdings, Inc. and 2014 Huntington Holdings, LLC. (13)
10.50
Office Lease Agreement, dated April 7, 2015, by and between First Central Tower, Limited Partnership and Twinlab Consolidated Holdings, Inc. and Twinlab Consolidation Corporation, as Joint Tenants. (14)
10.51
Reimbursement Agreement, dated as of April 30, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation and JL Properties, Inc. (15)
10.52
Warrant, dated April 30, 2015, issued by Twinlab Consolidated Holdings, Inc. to JL Properties, Inc. (15)
10.53
Warrant, dated April 30, 2015, issued by Twinlab Consolidated Holdings, Inc. to JL Properties, Inc. (15)
10.54
Amendment No. 3 to Credit and Security Agreement and Limited Consent, dated as of April 30, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc. and NutraScience Labs IP Corporation and MidCap Funding X Trust. (15)
10.55
Third Amendment to Note and Warrant Purchase Agreement and Consent, dated as of April 30, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and Penta Mezzanine SBIC Fund I, L.P. (15)
10.56
Second Amendment to Note and Warrant Purchase Agreement and Consent, dated as of April 30, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and JL-BBNC Mezz Utah, LLC. (15)
10.57
Compromise Agreement, dated May 28, 2015, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (16)
10.58
Amendment No. 1 to Series B Warrant, dated as of May 28, 2015, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (16)
10.59
Stock Purchase Agreement, dated as of June 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust, under Trust Agreement dated November 30, 1993. (17)
10.60
Warrant, dated June 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust, under Trust Agreement dated November 30, 1993. (17)
10.61
Warrant, dated June 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust, under Trust Agreement dated November 30, 1993. (17)
10.62
Stock Purchase Agreement, dated as of June 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor, LLC. (17)
10.63
Warrant, dated June 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor, LLC. (17)
10.64
Amendment No. 4 to Credit and Security Agreement and Limited Waiver, dated as of June 30, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and MidCap Funding X Trust. (18)Z
10.65
Amendment No. 5 to Credit and Security Agreement and Limited Waiver, dated as of June 30, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and MidCap Funding X Trust. (18)
10.66
Stock Purchase Agreement, dated as of June 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Penta Mezzanine SBIC Fund I, L.P. (18)
10.67
Warrant, dated June 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Penta Mezzanine SBIC Fund I, L.P. (18)
10.68
Fourth Amendment to Note and Warrant Purchase Agreement, Limited Consent and Limited Waiver, dated as of June 30, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and Penta Mezzanine SBIC Fund I, L.P. (18)
10.69
Stock Purchase Agreement, dated as of June 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and JL-BBNC Mezz Utah, LLC. (18)
10.70
Warrant, dated June 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and JL-BBNC Mezz Utah, LLC. (18)
10.71
Third Amendment to Note and Warrant Purchase Agreement, Limited Consent and Limited Waiver, dated as of June 30, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and JL-BBNC Mezz Utah LLC. (18)
10.72
Amended and Restated Unsecured Promissory Note, dated June 30, 2015, payable by NutraScience Labs, Inc. to Nutricap Labs, LLC. (18)
10.73
Payment Guaranty, made as of June 30, 2015, by Twinlab Consolidation Corporation to and for the benefit of Nutricap Labs, LLC. (18)
10.74
Bill of Sale, dated June 30, 2015, by Twinlab Corporation to Essex Capital Corporation. (18)
10.75
Commercial Lease Agreement, dated June 30, 2015, by and between Essex Capital Corporation and Twinlab Corporation. (18)
10.76
Commercial Lease Agreement, dated June 30, 2015, by and between Essex Capital Corporation and Twinlab Corporation. (18)
10.77
Warrant, dated June 30, 2015, by and between Twinlab Consolidated Holdings, Inc. and Essex Capital Corporation. (18)
10.78
Warrant, dated August 14, 2015, by and between Twinlab Consolidated Holdings, Inc. and Penta Mezzanine SBIC Fund I, LP. (19)
10.79
Amendment No. 1 to Twinlab Consolidated Holdings, Inc. Warrant, dated as of August 14, 2015, by and among Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust, Under Trust Agreement Dated November 30, 1993. (19)
10.80
Amendment No. 1 to Twinlab Consolidated Holdings, Inc. Warrant, dated as of August 14, 2015, by and among Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust, Under Trust Agreement Dated November 30, 1993. (19)
10.81
Amendment No. 1 to Twinlab Consolidated Holdings, Inc. Warrant, dated as of August 14, 2015, by and among Twinlab Consolidated Holdings, Inc. and Little Harbor, LLC. (19)
10.82
Amendment No. 1 to Twinlab Consolidated Holdings, Inc. Warrant, dated as of August 14, 2015, by and among Twinlab Consolidated Holdings, Inc. and JL-BBNC Mezz Utah, LLC. (19)
10.83
Put Agreement Related to Exercise of Warrant 2015-17, dated as of September 9, 2015, by and among Twinlab Consolidated Holdings, Inc. and the David L. Van Andel Trust under trust agreement dated November 30, 1999. (20)
10.84
Amendment No. 6 to Credit and Security Agreement, Limited Consent and Limited Waiver, dated as of September 9, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and MidCap Funding X Trust. (20)
10.85
Fifth Amendment to Note and Warrant Purchase Agreement and Limited Consent, dated as of September 9, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and Penta Mezzanine SBIC Fund I, L.P. (20)z
10.86
Fourth Amendment to Note and Warrant Purchase Agreement and Limited Consent, dated as of September 9, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and JL-Mezz Utah LLC. (20)
10.87
Stock Purchase Agreement, dated as of October 1, 2015, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (21)
10.88
Securities Purchase Agreement, dated as of October 2, 2015, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (22)
10.89
Common Stock Purchase Warrant, dated October 5, 2015, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (22)
10.90
Registration Rights Agreement, dated as of October 5, 2015, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (22)
10.91
Voting Agreement, dated as of October 5, 2015, among Twinlab Consolidated Holdings, Inc., Golisano Holdings LLC, and Thomas A. Tolworthy, Little Harbor, LLC, Great Harbor Capital, LLC and the David L. Van Andel Trust U/A dated November 30, 1993. (22)
10.92
Voting Agreement, dated as of October 2, 2015, among Twinlab Consolidated Holdings, Inc., Great Harbor Capital, LLC and Golisano Holdings LLC, Thomas A. Tolworthy, Little Harbor, LLC, and the David L. Van Andel Trust U/A dated November 30, 1993. (22)
10.93
Surrender Agreement, dated as of October 5, 2015, between Twinlab Consolidated Holdings, Inc. and Thomas A. Tolworthy. (22)
10.94
Amendment No. 7 and Joinder Agreement to Credit and Security Agreement, dated as of October 5, 2015, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings, LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust. (22)
10.95
First Amended and Restated Revolving Loan Note, dated October 5, 2015, by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings, LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC. (22)
10.96
Sixth Amendment to Note and Warrant Purchase Agreement, dated as of October 5, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and Penta Mezzanine SBIC Fund I, L.P. (22)
10.97
Limited Waiver to Note Warrant and Purchase Agreement, dated as of October 2, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and Penta Mezzanine SBIC Fund I, L.P. (22)
10.98
Fifth Amendment to Note and Warrant Purchase Agreement, dated as of October 5, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (22)
10.99
Limited Waiver to Note Warrant and Purchase Agreement, dated as of October 2, 2015, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation and JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (22)
10.100
Amendment No. 1 to Agreement for Limited Waiver of Non-Circumvention Provision and to Compromise Agreement and Release, dated as of October 1, 2015, by and between Twinlab Consolidated Holdings, Inc. and Capstone Financial Group, Inc. (22)
10.101
Unit Purchase Agreement, dated as of September 2, 2014, by and among Naomi L. Balcombe, Robert Whittel and Twinlab Consolidation Corporation. (22)
10.102
Amendment No. 1 to Unit Purchase Agreement, dated as of July 17, 2015, by and among Naomi L. Balcombe, Robert Whittel and Twinlab Consolidation Corporation. (22)
10.103
Employment Agreement, dated as of October 2, 2015, between Twinlab Consolidation Corporation and Naomi L. Balcombe. (22) *
10.104
Stock Purchase Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and Jonathan B. Rubini. (23)
10.105
Stock Purchase Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and Clare Bertucio. (23)
10.106
Stock Purchase Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and Michael Corrigan. (23)
10.107
Stock Purchase Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and the Jonathan B. Rubini 2009 Family Exempt Trust, created under the Jonathan B. Rubini Family Trust, under trust agreement dated October 9, 2009. (23)
10.108
Stock Purchase Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and Mark Kroloff. (23)
10.109
Surrender Agreement, dated as of October 21, 2015, by and between Twinlab Consolidated Holdings, Inc. and Thomas A. Tolworthy. (23)
10.110
Unsecured Promissory Note, dated January 28, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of Golisano Holdings LLC. (24)
10.111
Warrant, dated January 28, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (24)
10.112
Unsecured Promissory Note, dated January 28, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of GREAT HARBOR CAPITAL, LLC. (24)
10.113
Warrant, dated January 28, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (24)
10.114
Amendment No. 8 to Credit and Security Agreement, dated as of January 28, 2016, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings, LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust.(24)
10.115
Seventh Amendment to Note and Warrant Purchase Agreement, dated as of January 28, 2016, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, and Joie Essance, LLC and Penta Mezzanine SBIC Fund I, L.P. (24)
10.116
SixthAmendmenttoNoteandWarrantPurchaseAreementdatedasofJanuar282016bandbetweenTwinlabConsolidatedHoldinsInc. Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, and Joie Essance, LLC and JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (24)
10.117
Unsecured Promissory Note, dated March 21, 2016, issued by Twinlab Consolidated Holdings in favor of Golisano Holdings LLC. (25)
10.118
Warrant, dated March 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (25)
10.119
Unsecured Promissory Note, dated March 21, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of GREAT HARBOR CAPITAL, LLC. (25)
10.120
Warrant, dated March 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (25)
10.121
Amendment No. 1 to Unsecured Promissory Note, dated as of March 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (25)
10.122
Amendment No. 1 to Unsecured Promissory Note, dated as of March 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (25)
10.123
Separation and Release Agreement, dated as of March 23, 2016, by and between Twinlab Consolidated Holdings, Inc. and Thomas A. Tolworthy. (26) *
10.124
Unsecured Promissory Note, dated April 5, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of JL-Utah Sub, LLC. (27)
10.125
Warrant, dated April 5, 2016, by and between Twinlab Consolidated Holdings, Inc. and JL-Utah Sub, LLC. (27)
10.126
Amendment No. 9 to Credit and Security Agreement, dated as of April 5, 2016, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust.(27)
10.127
Eighth Amendment to Note and Warrant Purchase Agreement, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, and Joie Essance, LLC and Penta Mezzanine SBIC Fund I, L.P. (27)
10.128
Seventh Amendment to Note and Warrant Purchase Agreement, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, and Joie Essance, LLC and JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (27)
10.129
Amendment No. 2 to Unsecured Promissory Note, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (27)
10.130
Amendment No. 1 to Unsecured Promissory Note, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (27)
10.131
Amendment No. 2 to Unsecured Promissory Note, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (27)
10.132
Amendment No. 1 to Unsecured Promissory Note, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (27)
10.133
Unsecured Delayed Draw Promissory Note, dated July 21, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of Golisano Holdings LLC. (29)
10.134
Warrant, dated July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (29)
10.135
Unsecured Delayed Draw Promissory Note, dated July 21, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of Little Harbor, LLC. (29)
10.136
Warrant, dated July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor, LLC. (29)
10.137
Amendment No. 3 to Unsecured Promissory Note, dated as of July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (29)
10.138
Amendment No. 2 to Unsecured Promissory Note, dated as of July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (29)
10.139
Amendment No. 3 to Unsecured Promissory Note, dated as of July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (29)
10.140
Amendment No. 2 to Unsecured Promissory Note, dated as of July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (29)
10.141
Amendment No. 1 to Unsecured Promissory Note, dated as of July 21, 2016, by and between Twinlab Consolidated Holdings, Inc. and JL-Utah Sub, LLC. (29)
10.142
Amendment No. 10 to Credit and Security Agreement, dated as of April 5, 2016, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust. (30)
10.143
Ninth Amendment to Note and Warrant Purchase Agreement, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, and Joie Essance, LLC and Penta Mezzanine SBIC Fund I, L.P. (30)
10.144
Eighth Amendment to Note and Warrant Purchase Agreement, dated as of April 5, 2016, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, and Joie Essance, LLC and JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (30)
10.145
Amendment No. 11 to Credit and Security Agreement, dated as of September 2, 2016, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust. (31)
10.146
Employment Agreement by and between the Company and Naomi L. Whittel dated September 21, 2016 and made effective as of March 16, 2016 (32) *
10.147
First Amendment to Lease Agreement, made as of November 18, 2016, by and between First Central Tower, Limited Partnership and Twinlab Consolidation Corporation and Twinlab Consolidated Holdings, Inc. (33)
10.148
Agreement of Sublease, dated as of December 1, 2016, by and among Twinlab Consolidated Holdings, Inc. and Twinlab Consolidation Corporation and Powerchord, Inc. (34)
10.149
Lease Agreement, dated as of December 15, 2016, by and between Boca T-Rex Borrower, LLC and Twinlab Consolidation Corporation. (35)
10.150
Basic Lease Information Rider, dated December 15, 2016, between Boca T-Rex Borrower, LLC and Twinlab Consolidation Corporation. (36)
10.151
Unsecured Promissory Note, dated December 30, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of Golisano Holdings LLC. (37)
10.152
Warrant, dated December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (38)
10.153
Unsecured Promissory Note, dated December 30, 2016, issued by Twinlab Consolidated Holdings, Inc. in favor of Great Harbor, LLC. (39)
10.154
Warrant, dated December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor, LLC. (40)
10.155
Amendment No. 4 to Unsecured Promissory Note, dated as of December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (41)
10.156
Amendment No. 3 to Unsecured Promissory Note, dated as of December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (42)
10.157
Amendment No. 1 to Unsecured Delayed Draw Promissory Note, dated as of December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (43)
10.158
Amendment No. 3 to Unsecured Promissory Note, dated as December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (44)
10.159
Amendment No. 4 to Unsecured Promissory Note, dated as December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and GREAT HARBOR CAPITAL, LLC. (45)
10.160
Amendment No. 1 to Unsecured Delayed Draw Promissory Note, dated as of December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and LITTLE HARBOR CAPITAL, LLC. (46)
10.161
Amendment No. 2 to Unsecured Promissory Note, dated as of December 30, 2016, by and between Twinlab Consolidated Holdings, Inc. and JL-Utah Sub, LLC. (47)
10.162
Unsecured Promissory Note, dated as of March 14, 2017, issued by Twinlab Consolidated Holdings, Inc. in favor of Golisano Holdings LLC. (48)
10.163
Warrant, dated March 14, 2017, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. (49)
10.164
Employment Agreement between Twinlab Consolidated Holdings, Inc. and Alan S. Gever, dated March 21, 2017 (50) *
10.165
Settlement Agreement, dated June 2, 2017, by and among Twinlab Consolidated Corporation, Twinlab Consolidated Holdings, Inc., Nutrascience Labs, Inc., 2014 Huntington Holdings, LLC, Carolyn Holdings, LLC, NCL Holing Company, LLC and Vitacap Labs, LLC (51)
10.166
Unsecured Promissory Note, dated June 2, 2017, issued by Twinlab Consolidated Holdings, Inc. in favor of 2014 Huntington Holdings, LLC. (51)
10.167
Subordination Agreement, dated June 2, 2017, by and among 2014 Huntington Holdings, LLC, Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, Joie Essance, LLC, and Midcap Funding X Trust. (51)
10.168
Agreement of Lease, dated June 2, 2017, between Carolyn Holdings, LLC and Twinlab Consolidated Holdings, Inc. (51)
10.169
Rider to the Lease, dated June 2, 2017, by and between Carolyn Holdings, LLC and Twinlab Consolidated Holdings, Inc. (51)
10.170
Landlord’s Agreement, dated June 2, 2017, by and among Carolyn Holdings LLC, Twinlab Consolidated Holdings, Inc. and Midcap Funding X Trust. (51)
10.171
Secured Promissory Note, dated August 30, 2017, issued by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC, and Joie Essance, LLC in favor of Great Harbor Capital, LLC (52)
10.172
Warrant, dated August 30, 2017, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor Capital, LLC (52)
10.173
Amendment No. 13 to Credit and Security Agreement and Limited Consent, dated as of August 30, 2017, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, Joie Essance, LLC and MidCap Funding X Trust. (52)
10.174
Amendment No. 14 to Credit and Security Agreement and Limited Waiver, dated as of March 22, 2018 by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, Joie Essance, LLC and MidCap Funding X Trust. (53)
10.175 Agreement for Equity in Exchange for Services, dated as of December 27, 2017, by and between Platinum Advisory Services LLC and Twinlab Consolidated Holdings, Inc. (Portions of this exhibit have been omitted and filed separately with the Securities and Exchange Commission pursuant to a request for confidential treatment). (54)
10.176 Separation and Release Agreement, dated as of April 25, 2018, by and between Twinlab Consolidated Holdings, Inc. and Ms. Naomi Whittel * (55)
10.177 Employment Agreement, dated July 17, 2018, by and between Twinlab Consolidated Holdings, Inc. and Mr. Anthony Zolezzi *(56)
10.178
Secured Promissory Note, dated July 27, 2018, issued by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC, and Joie Essance, LLC in favor of Great Harbor Capital, LLC (57)
10.179 Warrant, dated July 27, 2018, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor Capital, LLC (58)
10.180 Twelfth Amendment to Note and Warrant Purchase Agreement, dated as of July 27, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC).*(59)
10.181 Thirteenth Amendment to Note and Warrant Purchase Agreement, dated as of July 27, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. (60)
10.182 Secured Promissory Note, dated November 5, 2018, issued by Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC, and Joie Essance, LLC in favor of Great Harbor Capital, LLC (portions of the exhibit have been omitted) (61)
10.183 Warrant, dated November 5, 2018, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor Capital, LLC (62)
10.184
Thirteenth Amendment to Note and Warrant Purchase Agreement, dated as of November 5, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (portions of the exhibit have been omitted) (63)
10.185 Fourteenth Amendment to Note and Warrant Purchase Agreement, dated as of November 5, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P (portions of the exhibit have been omitted) (64)
10.186 Term Loan Note and Agreement, dated December 4, 2018, by and between Twinlab Consolidated Holdings, Inc. and Macatawa Bank (65)
10.187 Limited Guaranty, dated as of December 4, 2018, by and between 463IP Partners, LLC and Macatawa Bank (66)
10.188 Fourteenth Amendment to Note and Warrant Purchase Agreement, dated as of November 5, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to JL-Mezz Utah LLC (f/k/a JL-BBNC Mezz Utah, LLC). (67)
10.189 Fifteenth Amendment to Note and Warrant Purchase Agreement, dated as of December 4, 2018, by and between Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Speciality Distribution, LLC, Joie Essance, LLC and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. (68)
10.190 Amendment No. 15 to Credit and Security Agreement dated as of December 4, 2018 by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC, Joie Essance, LLC and MidCap Funding X Trust. (69)
10.191 Amendment No. 1 to Amended and Restated Unsecured Delayed Draw Promissory Note, dated January 23, 2019, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor LLC (70)
10.192 Third Amended and Restated Revolving Loan Note, dated January 22, 2019, by Twinlab Consolidated Holdings, Inc. (71)
10.193 Amendment No. 6 to Unsecured Promissory Note, dated January 23, 2019, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor Capital, LLC. ($7MM) (72)
10.194 Amendment No. 7 to Unsecured Promissory Note, dated January 23, 2019, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor Capital, LLC. ($2.5MM) (73)
10.195
Amendment No. 16 to Credit and Security Agreement, dated as of January 22, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding X Trust. (74)
10.196
Amendment No. 1 to Amended and Restated Unsecured Delayed Draw Promissory Note, dated January 28, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. ($4.7MM) (75)
10.197
Amendment No. 1 to Amended and Restated Unsecured Promissory Note, dated January 28, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. ($2.5MM) (76)
10.198
Amendment No. 1 to Amended and Restated Unsecured Promissory Note, dated January 28, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC. ($7MM) (77)
10.199
Amendment No. 17 to Credit and Security Agreement, dated as of April 22, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, NutraScience Labs, Inc., NutraScience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-Body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, L.L.C., Innovita Specialty Distribution, LLC and Joie Essance, LLC and MidCap Funding IV Trust. (78)
10.200
Warrant dated April 22, 2019, by and between Twinlab Consolidated Holdings, Inc. and MidCap Funding IV Trust. (79)
10.201
Employment Agreement between Twinlab Consolidated Holdings, Inc. and Carla Goffstein, dated April 22, 2019. (80)
10.202
First Amendment to the Unsecured Promissory Note held by 2014 Huntington Holding LLC dated June 2, 2019. (81)
10.203
Amendment No. 1 to Amended and Restated Secured Promissory Note dated as of July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Great Harbor Capital, LLC to amend that certain Amended and Restated Secured Note #1, dated August 30, 2017 ($3MM). (82)
10.204
Amendment No. 1 to Secured Promissory Note dated as of July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Great Harbor Capital, LLC to amend that certain Secured Note #1, dated February 6, 2018 ($2MM). (83)
10.205
Amendment No. 1 to Secured Promissory Note dated as of July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Great Harbor Capital, LLC to amend that certain Secured Note #2, dated July 27, 2018 ($5MM) (84)
10.206
Amendment No. 1 to Secured Promissory Note dated as of July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Great Harbor Capital, LLC to amend that certain Secured Note #3, dated November 5, 2018 ($4MM). (85)
10.207
Amendment No. 8 to Unsecured Promissory Note dated as of July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor to amend that certain Unsecured Promissory Note #1, dated January 28, 2016 ($2.5MM). (86)
10.208
Amendment No. 7 to Unsecured Promissory Note dated as of July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor to amend that certain Unsecured Promissory Note #2, dated March 21, 2016 ($7MM). (87)
10.209
Amendment No. 1 to the Unsecured Amended and Restated Promissory Note dated as of July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Great Harbor to amend that certain Unsecured Amended and Restated Promissory Note, dated August 30, 2016 ($2.5MM). (88)
10.210
Amendment No. 2 to Amended and Restated Unsecured Delayed Draw Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor LLC to amend that certain Amended and Restated Unsecured Delayed Draw Promissory Note, dated August 30, 2017 ($4.8MM). (89)
10.211
Amendment No. 1 to Unsecured Promissory Note - Replacing Debt Repayment Promissory Note, dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Little Harbor LLC to amend that certain Unsecured Promissory Note, dated February 6, 2018 ($3.3MM). (90)
10.212
Amendment No. 1 to Secured Promissory Note dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Great Harbor Capital, LLC to amend that certain Secured Promissory Note, dated February 6, 2018 ($2MM). (91)
10.213
Amendment No. 2 to Amended and Restated Unsecured Delayed Draw Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC to amend that certain Amended and Restated Unsecured Delayed Draw Promissory Note, dated August 30, 2017 ($4.8MM). (92)
10.214
Amendment No. 2 to Amended and Restated Unsecured Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC to amend that certain Amended and Restated Unsecured Promissory Note, dated August 30, 2017 [Unsecured Note #1] ($2.5MM). (93)
10.215
Amendment No. 2 to Amended and Restated Unsecured Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC to amend that certain Amended and Restated Unsecured Promissory Note, dated August 30, 2017 [Unsecured Note #2] ($7MM). (94)
10.216
Amendment No. 1 to Amended and Restated Unsecured Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC to amend that certain Amended and Restated Unsecured Promissory Note, dated August 30, 2017 [Unsecured Note #3] ($2.5MM). (95)
10.217
Amendment No. 1 to Amended and Restated Unsecured Promissory Note dated July 8, 2019, by and between Twinlab Consolidated Holdings, Inc. and Golisano Holdings LLC to amend that certain Amended and Restated Unsecured Promissory Note, dated August 30, 2017 [Unsecured Note #4] ($3.3MM). (96)
10.218
First Amendment to Amended and Restated Note dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Golisano Holdings LLC, as successor by assignment to JL-Mezz Utah, LLC f/k/a JL-BBNC Mezz Utah, LLC to amend that certain Amended and Restated Note, dated August 30, 2017 ($5MM). (97)
10.219
First Amendment to Second Amended and Restated Note dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. to amend that certain Second Amended and Restated Note, dated August 30, 2017 ($8MM). (98)
10.220
First Amendment to Amended and Restated Deferred Draw Note dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. to amend that certain Amended and Restated Deferred Draw Note, dated August 30, 2017 ($2MM). (99)
10.221
Fifteenth Amendment to the Note and Warrant Purchase Agreement, dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Golisano Holdings LLC, as successor by assignment to JL-Mezz Utah, LLC f/k/a JL-BBNC Mezz Utah, LLC. (100)
10.222
Sixteenth Amendment to Note and Warrant Purchase Agreement, dated July 8, 2019, by and among Twinlab Consolidated Holdings, Inc., Twinlab Consolidation Corporation, Twinlab Holdings, Inc., ISI Brands Inc., Twinlab Corporation, Nutrascience Labs, Inc., Nutrascience Labs IP Corporation, Organic Holdings LLC, Reserve Life Organics, LLC, Resvitale, LLC, Re-body, LLC, Innovitamin Organics, LLC, Organics Management LLC, Cocoawell, LLC, Fembody, LLC, Reserve Life Nutrition, LLC, Innovita Specialty Distribution LLC and Joie Essance, LLC, and Golisano Holdings LLC, as successor by assignment to Penta Mezzanine SBIC Fund I, L.P. (101)
* Management contract or compensatory plan, contract or agreement as defined in Item 402(a)(3) of Regulation S-K
** Filed herewith.
(1)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 4, 2014.
(2)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 17, 2014.
(3)
Incorporated by reference from the Company’s Registration Statement on Form S-1 (Reg. No. 333-193101) filed on December 27, 2013.
(4)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 8, 2014.
(5)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 29, 2014.
(6)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 22, 2014.
(7)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 6, 2014.
(8)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on November 18, 2014.
(9)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 5, 2014.
(10)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on December 16, 2014.
(11)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on January 28, 2015
(12)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 5, 2015.
(13)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 9, 2015.
(14)
Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2015 and filed on May 14, 2015.
(15)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on May 6, 2015.
(16)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 3, 2015.
(17)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on June 8, 2015.
(18)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on July 7, 2015.
(19)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on August 20, 2015.
(20)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 15, 2015.
(21)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 7, 2015.
(22)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 8, 2015.
(23)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on October 27, 2015.
(24)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on February 3, 2016.
(25)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 25, 2016.
(26)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on March 29, 2016.
(27)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on April 11, 2016.
(28)
Incorporated by reference from the Company’s Current Report on Form 8-K filed on September 12, 2014.
(29)
Incorporated by reference from the Company's Current Report on Form 8-K filed on July 27, 2016.
(30)
Incorporated by reference from the Company's Current Report on Form 8-K filed on August 16, 2016.
(31)
Incorporated by reference from the Company's Current Report on Form 8-K filed on September 7, 2016.
(32)
Incorporated by reference from the Company's Current Report on Form 8-K filed on September 26, 2016.
(33)
Incorporated by reference from the Company's Current Report on Form 8-K filed on December 6, 2016 (filed as Exhibit 10.1 therein).
(34)
Incorporated by reference from the Company's Current Report on Form 8-K filed on December 6, 2016 (filed as Exhibit 10.2 therein).
(35)
Incorporated by reference from the Company's Current Report on Form 8-K filed on December 16, 2016 (filed as Exhibit 10.1 therein).
(36)
Incorporated by reference from the Company's Current Report on Form 8-K filed on December 16, 2016 (filed as Exhibit 10.2 therein).
(37)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.144 therein).
(38)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.145 therein).
(39)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.146 therein).
(40)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.147 therein).
(41)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.148 therein).
(42)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.149 therein).
(43)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.150 therein).
(44)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.151 therein).
(45)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.152 therein).
(46)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.153 therein).
(47)
Incorporated by reference from the Company's Current Report on Form 8-K filed on January 6, 2017 (filed as Exhibit 10.154 therein).
(48)
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 17, 2017 (filed as Exhibit 10.146 therein).
(49)
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 17, 2017 (filed as Exhibit 10.147 therein).
(50)
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 27, 2017 (filed as Exhibit 10.1 therein).
(51)
Incorporated by reference from the Company's Current Report on Form 8-K filed on June 8, 2017.
(52)
Incorporated by reference from the Company's Current Report on Form 8-K filed on September 6, 2017.
(53)
Incorporated by reference from the Company's Current Report on Form 8-K filed on March 29, 2018. (filed as Exhibit 10.174 therein)
(54)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 3, 2018. (filed as Exhibit 10.175 therein)
(55)
Incorporated by reference from the Company's Current Report on Form 8-K filed on April 30, 2018. (filed as Exhibit 10.176 therein)
(56)
Incorporated by reference from the Company's Current Report on Form 8-K filed on July 19, 2018. (filed as Exhibit 10.177 therein)
(57)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on November 19, 2018. (filed as Exhibit 10.178 therein)
(58)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on November 19, 2018. (filed as Exhibit 10.179 therein)
(59)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on November 19, 2018. (filed as Exhibit 10.180 therein)
(60)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on November 19, 2018. (filed as Exhibit 10.181 therein)
(61)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (portions of the exhibit have been omitted) (filed as Exhibit 10.182 therein)
(62)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.183 therein)
(63)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.184 therein)
(64)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.185 therein)
(65)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.186 therein)
(66)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.187 therein)
(67)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.188 therein)
(68)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.189 therein)
(69)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.190 therein)
(70)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.191 therein)
(71)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.192 therein)
(72)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.193 therein)
(73)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.194 therein)
(74)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.195 therein)
(75)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.196 therein)
(76)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.197 therein)
(77)
Incorporated by reference from the Company's Annual Report on Form 10-K filed on April 16, 2019. (filed as Exhibit 10.198 therein)
(78)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on May 15, 2019. (filed as Exhibit 10.199 therein)
(79)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on May 15, 2019. (filed as Exhibit 10.200 therein)
(80)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on May 15, 2019. (filed as Exhibit 10.201 therein)
(81)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.202 therein)
(82)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.203 therein)
(83)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.204 therein)
(84)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.205 therein)
(85)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.206 therein)
(86)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.207 therein)
(87)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.208 therein)
(88)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.209 therein)
(89)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.210 therein)
(90)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.211 therein)
(91)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.212 therein)
(92)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.213 therein)
(93)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.214 therein)
(94)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.215 therein)
(95)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.216 therein)
(96)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.217 therein)
(97)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.218 therein)
(98)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.219 therein)
(99)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.220 therein)
(100)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.221 therein)
(101)
Incorporated by reference from the Company's Quarterly Report on Form 10-Q filed on August 14, 2019. (filed as Exhibit 10.222 therein)
* Management contract or compensatory plan, contract or agreement as defined in Item 402(a)(3) of Regulation S-K
**Filed herewith.
Item 16. Form 10-K Summary.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURES
TITLE
DATE
/s/ Daniel DiPofi
Chief Executive Officer
May 29, 2020
Daniel DiPofi
/s/ Kyle Casey
Chief Financial Officer
May 29, 2020
Kyle Casey
(Principal Financial Officer)
/s/ Seth Ellis
Seth Ellis
Director
May 29, 2020
/s/ B. Thomas Golisano
B. Thomas Golisano
Director
May 29, 2020
/s/ David Still
David Still
Director
May 29, 2020
/s/ David L. Van Andel
David L. Van Andel
Director
May 29, 2020
/s/ Anthony Zolezzi
Anthony Zolezzi
Director
May 29, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Twinlab Consolidated Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Twinlab Consolidated Holdings, Inc. and subsidiaries (collectively, the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2019 and the related notes and schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2019 and 2018, and the consolidated results of their operations and their cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with U.S. generally accepted accounting principles.
Other Matter
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2, the Company has negative working capital, has incurred operating losses and negative cash flows from operating activities, and has an accumulated deficit. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Company’s auditors since 2014.
/s/ Tanner LLC
Salt Lake City, Utah
May 29, 2020
TWINLAB CONSOLIDATED HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The accompanying notes are an integral part of the consolidated financial statements.
TWINLAB CONSOLIDATED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
The accompanying notes are an integral part of the consolidated financial statements.
TWINLAB CONSOLIDATED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018
The accompanying notes are an integral part of the consolidated financial statements.
TWINLAB CONSOLIDATED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
The accompanying notes are an integral part of the consolidated financial statements.
TWINLAB CONSOLIDATED HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS) - Continued
The accompanying notes are an integral part of the consolidated financial statements.
TWINLAB CONSOLIDATED HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
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 marketer, distributor and retailer of branded nutritional supplements and other natural products sold to and through domestic health and natural food stores, mass market retailers, specialty stores retailers, on-line retailers and websites. Internationally, we market and distribute branded nutritional supplements and other natural products to and through health and natural product distributors and retailers.
Our products include vitamins, minerals, specialty supplements and sports nutrition products sold under the Twinlab brand name (including the Twinlab® Fuel brand and REAAL sports nutrition products); a market leader in the healthy aging and beauty from within categories sold under the Reserveage Nutrition and ResVitale® brand names; diet and energy products sold under the Metabolife brand name; the Re-Body brand name; and a full line of herbal teas sold under the Alvita brand name. To accommodate consumer preferences, our products come in various formulations and delivery forms, including capsules, tablets, softgels, chewables, liquids, sprays and powders. These products are sold primarily through health and natural food stores and on-line retailers, supermarkets, and mass-market retailers.
We also perform contract manufacturing services for private label products. Our contract manufacturing services business involves the manufacture of custom products to the specifications of a customer who requires finished product under the customer’s own brand name. We do not market these private label products as our business is to sell the products to the customer, who then markets and sells the products to retailers or end consumers.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from those estimates. Significant management estimates include those with respect to returns and allowances, allowance for doubtful accounts, reserves for inventory obsolescence, the recoverability of long-lived assets, intangibles and goodwill and the estimated value of warrants and derivative liabilities.
Revenue Recognition
Revenue from product and service sales and the related cost of sales are recognized when the performance obligations are satisfied. The performance obligations are typically satisfied upon shipment of physical goods or as the services are performed over time. In addition to the satisfaction of the performance obligations, the following conditions are required for revenue recognition: an arrangement exists, there is a fixed price, and collectability is reasonably assured. Discounts, returns and allowances related to sales, including an estimated reserve for the returns and allowances, are recorded as reduction of revenue.
Shipping and handling activities fees are not recorded in sales.
Contract Liabilities
Our contract liabilities consist of customer deposits and contractual guaranteed returns.
Net contract liabilities are recorded in accrued expenses and other current liabilities and consisted of the following:
Disaggregation of Revenue
Revenue is disaggregated 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 affected by economic factors. See details in the tables below.
Fair Value of Financial Instruments
We apply the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 - inputs are quoted prices in active markets for identical assets that the reporting entity has the ability to access at the measurement date.
Level 2 - inputs are other than quoted prices included within Level 1 that are observable for the asset, either directly or indirectly.
Level 3 - inputs are unobservable inputs for the asset that are supported by little or no market activity and that are significant to the fair value of the underlying asset or liability.
The following table summarizes our financial instruments that are measured at fair value on a recurring basis as of December 31, 2019 and 2018:
Accounts Receivable and Allowances
We grant credit to customers and generally do not require collateral or other security. We perform credit evaluations of our customers and provide for expected claims related to promotional items; customer discounts; shipping shortages; damages; and doubtful accounts based upon historical bad debt and claims experience. As of December 31, 2019, total allowances amounted to $5,884, of which $5,107 was related to doubtful accounts receivable. As of December 31, 2018, total allowances amounted to $2,651, of which $1,954 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 December 31, 2019 and 2018 was $1,400 and $4,346, respectively. An impairment of $2,946 and $0 was recorded in the years ended December 31, 2019 and 2018, respectively (see Note 5).
Shipping and Handling Costs
Shipping and handling fees when billed to customers are included as a component of net sales. The total costs associated with shipping and handling are included as a component of cost of sales and totaled $3,259 and $3,244 in 2019 and 2018, respectively.
Advertising and Promotion Costs
We advertise our branded products through national and regional media and through cooperative advertising programs with customers. Costs for cooperative advertising programs are expensed as earned by customers and recorded in selling, general and administrative expenses. Our advertising expenses were $839 and $4,983 in 2019 and 2018, respectively. Customers are also offered in-store promotional allowances and certain products are also promoted with direct to consumer rebate programs. Costs for these promotional programs are recorded as incurred as a reduction to net sales.
Research and Development Costs
Research and development costs are expensed as incurred and totaled $35 and $436 in 2019 and 2018, respectively.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases and operating loss and income tax credit carry-forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in the period that includes the enactment date.
Value of Warrants Issued with Debt
We estimate the grant date value of certain warrants issued with debt using a valuation method, such as the Black-Scholes option pricing model, or, if the terms are more complex, 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. The property was sold in October 2019 and the remaining deferred gain of $1,144 was recorded in other income. Accordingly, we recorded amortization of deferred gain as a reduction of rental expense of $180 for 2019 and $241 for 2018. As of December 31, 2019 and 2018, unamortized deferred gain on sale of assets was $0 and $1,324, respectively.
Net Loss per Common Share
Basic net income or loss per common share (Basic EPS) is computed by dividing net income or loss by the weighted average number of common shares outstanding. Diluted net income or loss per common share (Diluted EPS) is computed by dividing net income or loss by the sum of the weighted average number of common shares outstanding and the dilutive potential common shares then outstanding. Potential dilutive common share equivalents consist of total shares issuable upon the exercise of outstanding stock options and warrants to acquire common stock using the treasury stock method and the average market price per share during the period.
The common shares used in the computation of our basic and diluted net loss per share are reconciled as follows:
Significant Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which, at times, exceed federally insured limits. At December 31, 2019, the Company’s cash did not exceed federally insured limits. To date, the Company has not experienced a loss or lack of access to its invested cash; however, no assurance can be provided that access to the Company's invested cash will not be impacted by adverse conditions in the financial markets.
Sales to our top three customers aggregated to approximately 32% and 26% of total consolidated sales in 2019 and 2018, respectively. Sales to one of those customers were approximately 11% and 12% of total sales in 2019 and 2018. Accounts receivable from these customers were approximately 33% and 22% of total accounts receivable as of December 31, 2019 and 2018, respectively. An additional single customer represented 38% and 14% of total accounts receivable as of December 31, 2019 and 2018, respectively. Our two major vendors accounted for 28% and 42% of purchases for the year ended December 31, 2019 and 2018, respectively. A third vendor represents an additional 10%.
Recent Accounting Pronouncements
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 consolidated financial statements or related disclosures.
In February 2016, FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which requires companies to recognize all leases as assets and liabilities on the consolidated balance sheet. This ASU retains a distinction between finance leases and operating leases, and the classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the current accounting literature. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in a consolidated statement of comprehensive income and a consolidated statement of cash flows is largely unchanged from previous GAAP. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Earlier application is permitted. Our status as an emerging growth company allowed us to defer the adoption until the year (and interim periods therein) beginning January 1, 2020. The Company is currently evaluating the impact that the adoption of this ASU will have on its Consolidated Financial Statements.
In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” which superseded all existing revenue recognition guidance under GAAP. This ASU’s core principle is that a company will recognize revenue when it transfers promised goods or services to a customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU also calls for additional disclosures around the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this ASU on January 1, 2019 and used the modified retrospective transition method of adoption. The adoption of this ASU did not have a material impact on the Company’s financial statements as the impact of this ASU was limited to reclassifying sales return reserves and additional disclosures in the notes to consolidated financial statements. Sales return reserves were reclassified as a current liability instead of as a reduction of accounts receivable of $383 and $56 as of January 1, 2019 and December 31, 2019,respectively.
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 believe any of these accounting pronouncements has had or will have a material impact on our consolidated financial position or results of operations.
NOTE 2 - GOING CONCERN
The accompanying 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 December 31, 2019, we had an accumulated deficit of $318,873. 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, and impairment of our goodwill and intangible assets. Losses have been funded primarily through issuance of common stock and third-party or related party debt.
Because of our history of operating losses, increase in debt, and the recording of significant derivative liabilities, we have a working capital deficiency of $101,847 at December 31, 2019. We also have $91,127 of debt, net of discount, which could be due within the next 12 months. These continuing conditions, among others, raise substantial doubt about our ability to continue as a going concern.
Management has addressed operating issues through the following actions: focusing on growing the core business and brands; continuing emphasis on major customers and key products; reducing manufacturing and operating costs and continuing to negotiate lower prices from major suppliers. We believe that we will need additional capital to execute our business plan. If additional funding is required, there can be no assurance that sources of funding will be available when needed on acceptable terms or at all.
NOTE 3 - INVENTORIES
Inventories consisted of the following at:
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at:
Depreciation and amortization expense totaled $196 and $820 in 2019 and 2018, respectively.
NOTE 5 - INTANGIBLE ASSETS AND GOODWILL
Intangible assets consisted of the following at:
Trademarks are amortized over periods ranging from 3 to 30 years, customer relationships are amortized over periods ranging from 15 to 16 years, and other intangible assets are amortized over 3 years. Amortization expense was $1,517 and $1,755 for 2019 and 2018, respectively.
During the fourth quarter of fiscal 2019, we completed our annual impairment test of goodwill and intangible assets and recognized impairment of $24,407. We recognized impairment charges of $8,979 for goodwill related to Organic Holdings and an aggregate impairment loss of intangible assets of $15,428. During the fourth quarter of fiscal 2019, management updated the fiscal 2019 budget and financial projections beyond fiscal 2019. Due to a decline in sales, we determined that the carrying value of our Twinlab and Metabolife trademarks exceeded their fair values and we recognized an impairment of the remaining carrying value those trademarks. We also determined that a corresponding decline in sales also created an impairment in both Reserveage and Rebody tradenames, as well as the remaining amount of Organic Holdings goodwill. We recognized no impairment of goodwill and intangible assets during the year ended December 31, 2018.
The fair value of these assets was determined using level 3 inputs in an income approach using the estimated discounted cash flow valuation methodology. In the second step of the impairment test, we performed a hypothetical acquisition and purchase price allocation and measured the implied fair value of each asset to its carrying value. The impairment was calculated by deducting the present value of the expected cash flows from the carrying value. The second step of the goodwill impairment test resulted in a 2019 impairment charge of $8,979 for goodwill related to Organic Holdings and in an aggregate impairment loss of intangible assets of $15,428 in 2019. The impairment charges were recorded in operating expenses in the consolidated statement of operations.
Estimated aggregate amortization expense for the intangible assets for each of the five years subsequent to 2019 is as follows:
NOTE 6 - DEBT
Debt consisted of the following at:
Future aggregate maturities of debt that have maturities beyond 2020 have been classified as current on the consolidated balance sheet as the Company has determined that it is probable that the Company will not be able to meet the 2019 debt obligations as they become due, thus causing a technical default of the debt obligations.
Related-Party Debt
Little Harbor Capital 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, we were obligated to pay such party $4,900 per year in structured monthly payments for 3 years provided that such payment obligations would terminate at such earlier time as 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 matured on July 25, 2017 with an outstanding balance of $3,267. On February 6, 2018, we entered into an agreement with Little Harbor to convert the obligations into an unsecured promissory note (“Little Harbor Debt Repayment Note”). The note bears interest at an annual rate of 8.5%, with the principal payable at maturity. The Little Harbor Debt Repayment Note was to mature on July 25, 2020; however, Little Harbor and the Company entered into Amendment No. 1 to the Little Harbor Debt Repayment Note, which has an effective date of June 30, 2019 and extended the maturity of this note from July 25, 2020 to October 22, 2021.
July 2016 Note Payable to Little Harbor, LLC
On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Note in favor of Little Harbor (“Little Harbor Delayed Draw Note”), pursuant to which Little Harbor may, in its sole discretion and pursuant to draw requests made by the Company, loan us up to the maximum principal amount of $4,770. This note 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 Company’s 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, full draw amounts totaling $4,770. We issued a warrant into escrow in connection with this loan (see Little Harbor Escrow Warrant in Note 7). This note is unsecured and was to mature on January 28, 2019; however, on January 23, 2019, the Company and Little Harbor entered into Amendment No. 1 to the Little Harbor Delayed Draw Note, as amended and restated, which extended the maturity of this note to June 30, 2019; then on July 8, 2019, the Company and Little Harbor entered into Amendment No. 2 to the Little Harbor Delayed Draw Note, as amended and restated, which has an effective date of June 30, 2019 and extended the maturity of this note from June 30, 2019 to October 22, 2021.
Little Harbor has 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.
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 Note (“January 2016 GH Note”) with Great Harbor Capital, LLC (“GH”), an affiliate of a member of our Board of Directors, GH lent us $2,500. The January 2016 GH Note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $104 which payment was to commence on February 28, 2017 but was deferred to August 31, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The original maturity date of the January 2016 GH Note was January 28, 2019; however, on January 23, 2019, the Company and GH entered into Amendment No. 7 to the January 2016 GH Note, as amended and restated, which extended the maturity to June 30, 2019, then on July 8, 2019, the Company and GH entered into Amendment No. 8 to the January 2016 GH Note, as amended and restated, which has an effective date of June 30, 2019 and extended the maturity of this note to October 22, 2021.
March 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a March 21, 2016 Unsecured Promissory Note (“March 2016 GH Note”), GH lent us $7,000. This March 2016 GH Note bears interest at an annual rate of 8.5%, with the principal payable in 24 monthly installments of $292 which payment was to commence on April 21, 2017 but was deferred to August 30, 2019. We issued a warrant into escrow in connection with this loan (see GH Escrow Warrants in Note 7). The note was to mature on March 21, 2019; however, on January 23, 2019, the Company and GH entered into Amendment No. 6 to the March 2016 GH Note, which extended the maturity of this note to June 30, 2019, then on July 8, 2019, the Company and GH entered into Amendment No. 7 to the March 2016 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from June 30, 2019 to October 22, 2021.
December 2016 Note Payable to Great Harbor Capital, LLC
Pursuant to a December 31, 2016 Unsecured Promissory Note (“December 2016 GH Note”), GH lent us $2,500. The December 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). The note was to mature on December 30, 2019; however, on July 8, 2019, the Company and GH entered into the Amendment No. 1 to the December 2016 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from December 30, 2019 to October 22, 2021.
August 2017 Note Payable to Great Harbor Capital, LLC
Pursuant to an August 30, 2017 Secured Promissory Note, GH lent us $3,000 (“August 2017 GH Note”). The August 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). The note was to mature on August 29, 2020; however, on July 8, 2019, the Company and GH entered into the Amendment No. 1 to the August 2017 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from August 29, 2020 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 (“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 matures on February 6, 2021; however, on July 8, 2019, the Company and GH entered into the Amendment No. 1 to the February 2018 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from February 6, 2021 to October 22, 2021.
As previously reported, on February 6, 2018, the Company issued an Amended and Restated Secured Promissory Note to GH (“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 has been extended to October 22, 2021 pursuant to Amendment No. 1 to the A&R August 2017 GH Note.
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 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 ("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 is 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). The note matures on January 27, 2020; however, on July 8, 2019, the Company and GH entered into the Amendment No. 1 to the July 2018 GH Note, which has an effective date of June 30, 2019 and extended the maturity date of this note from January 27, 2020 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 Holdings 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 ("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 is 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). The November 2018 GH Note matures on November 5, 2020; however, on July 8, 2019, the Company and GH entered into Amendment No. 1 to the November 2018 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from November 5, 2020 to October 22, 2021.
GH has delivered a deferment letter pursuant to which GH agreed to defer all payments due under the aforementioned notes held by GH, through October 22, 2021 and agreed to refrain from declaring a default and/or exercising any remedies under the notes.
Golisano Holdings LLC.
Mr. B. Thomas Golisano, a member of the Company’s Board of Directors is a principal of Golisano Holdings 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, less certain fees and expenses, from the issuance of a secured note to Penta Mezzanine SBIC Fund I, L.P. (“Penta”). The Managing Director of Penta, an institutional investor, is also a 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 (the “First Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on October 22, 2021. 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 4,960,740 shares of the Company’s common stock in connection with this loan (see Golisano LLC Warrants formerly Penta Warrants in Note 7). On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. On July 8, 2019, the Company and GH entered into Amendment No. 1 to the November 2014 GH Note, which has an effective date of June 30, 2019 and extended the maturity of this note from November 5, 2020 to October 22, 2021.
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, 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 JL-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-US. Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly (the “Golisano JL-US Note”). The note matures on October 22, 2021. On August 30, 2017, we entered into an amendment with Golisano LLC which extended payment of principal to maturity. We issued a warrant to JL-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).
February 2015 Note Payable to Golisano Holdings LLC (formerly payable to Penta Mezzanine SBIC Fund I, L.P.)
On February 6, 2015, we raised proceeds of $2,000, less certain fees and expenses, from the issuance of a secured note payable to Penta. The proceeds were restricted to pay a portion of the acquisition of the customer relationships of Nutricap. On March 8, 2017, Golisano LLC acquired this note payable from Penta (the “Second Golisano Penta Note”). Interest on the outstanding principal accrued at a rate of 12% per year from the date of issuance to March 8, 2017, and decreased to 8% per year thereafter, payable monthly. The note matures on October 22, 2021. 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 Golisano LLC Warrants formerly Penta Warrants in Note 7).
January 2016 Note Payable to Golisano Holdings LLC
Pursuant to a January 28, 2016 Unsecured Promissory Note with Golisano LLC (“Golisano LLC January 2016 Note”), an affiliate of a member of our Board of Directors, Golisano LLC lent us $2,500. The note was to mature on January 28, 2019; however, on January 28, 2019, the Company and Golisano LLC entered into Amendment No. 1 to Amended and Restated Unsecured Promissory Note, which extended the maturity date of the note to June 30, 2019, then on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 2 to Amended and Restated Unsecured Promissory Note, with an effective date of June 30, 2019, which extended the maturity date of the note from June 30, 2019 to October 22, 2021. This note bears interest at an annual rate of 8.5%. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).
March 2016 Note Payable to Golisano Holdings LLC
Pursuant to a March 21, 2016 Unsecured Promissory Note, Golisano LLC lent us $7,000 (“Golisano LLC March 2016 Note”). The note was to mature on March 21, 2019; however, on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 1 to Amended and Restated Unsecured Promissory Note, which extended the maturity date of the note to June 30, 2019, then on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 2 to Amended and Restated Unsecured Promissory Note, with an effective date of June 30, 2019, which extended the maturity date of the note from June 30, 2019 to October 22, 2021.This note bears interest at an annual rate of 8.5%. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7).
July 2016 Note Payable to Golisano Holdings LLC
On July 21, 2016, we issued an Unsecured Delayed Draw Promissory Note in favor of Golisano LLC pursuant to which Golisano LLC may, in its sole discretion and pursuant to draw requests made by the Company, loan the Company up to the maximum principal amount of $4,770 (the “Golisano LLC July 2016 Note”). The Golisano LLC July 2016 Note was to mature on January 28, 2019; however, on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 2 to the Golisano LLC July 2016 Note, with an effective date of June 30, 2019, which extended the maturity date of the note from June 30, 2019 to October 22, 2021. Interest on the outstanding principal accrues at a rate of 8.5% per year. The principal of the Golisano LLC July 2016 Note is payable at maturity. We issued a warrant into escrow in connection with this loan (see Golisano Escrow Warrants in Note 7). During the year ended December 31, 2016, we requested and Golisano LLC approved, draws totaling $4,770.
December 2016 Note Payable to Golisano Holdings LLC
Pursuant to a December 31, 2016 Unsecured Promissory Note, as amended and restated, Golisano LLC lent us $2,500 (“Golisano LLC December 2016 Note”). The 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 Golisano Escrow Warrants in Note 7). The note was to mature on December 30, 2019; however, on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 1 to the Amended and Restated Golisano LLC December 2016 Note, as amended and restated, with an effective date of June 30, 2019, which extended the maturity date of the note from December 30, 2019 to October 22, 2021.
March 2017 Note Payable to Golisano Holdings LLC
Pursuant to a March 14, 2017 Unsecured Promissory Note, as amended and restated, Golisano LLC lent us $3,267 (“Golisano LLC March 2017 Note”). The 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 Golisano Escrow Warrants in Note 7). The note was to mature on December 30, 2019; however, on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 1 to the Golisano LLC March 2017 Note, as amended and restated, with an effective date of June 30, 2019, which extended the maturity date of the note from December 30, 2019 to October 22, 2021.
February 2018 Note Payable to Golisano Holdings LLC
Pursuant to a February 6, 2018 Secured Promissory Note, Golisano LLC lent us $2,000 (“Golisano LLC 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 to mature on February 6, 2021; however, on July 8, 2019, the Company and Golisano LLC entered into Amendment No. 1 to Secured Promissory Note (“Amendment No. 1 to the Secured Promissory Note”), with an effective date of June 30, 2019, which extended the maturity date of the note from February 6, 2021 to October 22, 2021.
Golisano LLC has 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.
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 note. Two other members of the Company’s Board of Directors, Mr. B. Thomas Golisano and 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 matures on November 30, 2020. The Term Loan accrues interest at the interest rate equivalent to the one-month LIBOR Rate plus 1.00% (the interest rate will not be less than 2.50%; the rate was 2.76% as of December 31, 2019). 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.
Senior Credit Facility
On January 22, 2015, we entered into a three-year $15,000 revolving credit facility (the “Senior Credit Facility”) pursuant to a credit and security agreement, based on our accounts receivable and inventory, which could be increased to up to $20,000 upon satisfaction of certain conditions, with MidCap. MidCap subsequently assigned the agreement to an affiliate, Midcap Funding X Trust.
On September 2, 2016, we entered into an amendment with Midcap to increase the Senior Credit Facility to $17,000 and extend our facility an additional 12 months. We granted MidCap a first priority security interest in certain of our assets and pledged the shares of our subsidiaries as security for amounts owed under the credit facility. We are required to pay Midcap an unused line fee of 0.50% per annum, a collateral management fee of 1.20% per month and interest of LIBOR plus 5% per annum, which was 7% per annum as of December 31, 2019. We issued a warrant to Midcap to purchase 500,000 shares of the Company’s common stock (see Midcap Warrant in Note 7).
On January 22, 2019, we entered into Amendment Sixteen to the Credit and Security Agreement (the "MidCap Sixteenth Amendment"). The MidCap Sixteenth Amendment reduced the revolving credit facility amount from a total of $17,000 to a total of $5,000 and extended the expiration date from January 22, 2019 to April 22, 2019.
On February 13, 2019, MidCap informed the Company that MidCap had re-assigned all of 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 X Funding to MidCap IV Funding.
On April 22, 2019, we entered into Amendment Seventeen to the Credit and Security Agreement (the "MidCap Seventeenth Amendment"), which effectively increased the revolving credit facility amount to $12,000 and renewed the Senior Credit Facility for an additional two years expiring on April 22, 2021.
We have incurred loan fees totaling $540 relating to the Senior Credit Facility and the subsequent amendments, which is also being amortized into interest expense over the term of the Senior Credit Facility. The balance owing on the Senior Credit Facility was $4,413 as of December 31, 2019.
Other Debt
2014 Huntington Holdings, LLC
On August 6, 2016, the 18-month anniversary of the closing of a share purchase agreement, we were required to pay the purchaser of the common stock the difference between $2.29 per share and either a defined market price or a price per share determined by a valuation firm acceptable to both parties. Based on an outside professional valuation performed on the Company’s common stock, the Company estimated the stock price guarantee payment to be $3,210. Accordingly, the Company recorded a loss on the stock purchase price guarantee of $3,210 and a corresponding liability for the same amount in 2016, which was included in accrued expenses and other current liabilities in the consolidated balance sheet as of December 31, 2016. On June 2, 2017, the Company issued an unsecured promissory note (the “Huntington Note”) in favor of 2014 Huntington Holdings LLC (“Huntington”). The Huntington Note matured 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 regard 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 exercise the repurchase right. The 778,385 shares were returned from escrow to Huntington.
On June 7, 2019, the Company and Huntington entered into the Amendment No. 1 to the Huntington Note, with an effective date of June 2, 2019, relating to an original principal amount of $3,210 to amend that Huntington Note, dated June 2, 2017. Amendment No. 1 to the Huntington Note extended the maturity date of the note from June 2, 2019 to September 3, 2019. The Company was in default on this note as of December 31, 2019, but subsequent to yearend the Company satisfied the note and cured the default. The balance owing on the unsecured Huntington Note was $2,310 as of December 31, 2019. (See also Subsequent Events Note 13).
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-US, effective July 29, 2016, to, among other things, reset the financial covenants of each debt agreement. As of December 31, 2019, 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 $4,413 as of December 31, 2019.
NOTE 7 - WARRANTS AND REGISTRATION RIGHTS AGREEMENTS
The following table presents a summary of the status of our issued warrants as of December 31, 2019, and changes during the two years then ended:
Warrants Issued
Midcap Warrant
In connection with the line of credit agreement with MidCap described in Note 6, we issued MidCap a warrant, exercisable through January 22, 2018, for an aggregate of 500,000 shares of the Company’s common stock at an exercise price of $0.76 per share (the “MidCap Warrant 1”). 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 1. The MidCap Warrant 1 was not exercised and expired on January 22, 2018.
The line of credit agreement has been amended from time to time and when it was necessary under the terms of the agreement to obtain MidCap's consent to the transactions contemplated by the above mentioned GH notes and Golisano LLC notes; on February 6, 2018, MidCap agreed to consent to the transactions contemplated in exchange for a warrant to MidCap exercisable for up to 500,000 shares of the Company’s common stock at an exercise price of $0.76 per share (“MidCap Warrant 2”). The Company has reserved 500,000 shares of the Company’s common stock for issuance under MidCap Warrant 2. The MidCap Warrant 2 expired, unexercised on February 6, 2019.
On April 22, 2019 subsequent to entering into the MidCap Seventeenth Amendment as noted in Note 6, the Company issued a warrant to MidCap exercisable for up to 500,000 shares of Company common stock at an exercise price of $0.76 per share (the "MidCap Warrant 3”). The Company has reserved 500,000 shares of Company common stock for issuance under the MidCap Warrant 3. The MidCap Warrant 3, if exercisable, expires on April 22, 2021.
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 (as defined below) to purchase an aggregate 403,509 shares of the 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.
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 adjusted EBITDA (as defined in the warrant agreement) for the fiscal year ended December 31, 2019 did not equal or exceed $19,250. JL Properties subsequently assigned the warrant to two individuals.
On December 31, 2019, our adjusted EBIDTA yielded a negative calculation; therefore, the warrant will not increase in number of shares of common stock.
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. JL Properties has transferred these rights to two individuals. (See also Subsequent Events in Note 13).
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 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 times (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 times (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. The Golisano LLC Warrants (formerly Penta Warrants) were not exercised and expired on November 13, 2019.
Golisano LLC Warrants (formerly JL Warrants)
In connection with the January 22, 2015 note payable to JL-US, we issued JL-US 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-US 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-US certain registration rights, commencing October 1, 2015, for the shares of common stock issuable upon exercise of the warrants. These warrants were subsequently assigned to two individuals. During the year ended December 31, 2016, these individuals exercised warrants for a total of 1,187,995 shares of the Company’s common stock for total proceeds to the Company of less than $1.00. In connection with Golisano LLC’s acquisition of the note payable from JL-US on March 8, 2017 (see Note 6 above for additional information), these warrants were assigned to Golisano LLC. (See also Subsequent Events in Note 13).
Golisano LLC Warrants
Pursuant to an October 2015 Securities Purchase Agreement with Golisano LLC, we issued Golisano LLC a warrant (the “Golisano Warrant”),which Golisano Warrant is intended to maintain, following each future issuance of shares of common stock pursuant to the conversion, exercise or exchange of certain currently outstanding warrants to purchase shares of common stock held by third-parties (the “Outstanding Warrants”), Golisano LLC’s proportional ownership of our issued and outstanding common stock so that it is the same thereafter as on October 5, 2015. We have reserved 12,697,977 shares of common stock for issuance under the Golisano Warrant. The purchase price for any shares of common stock issuable upon exercise of the Golisano Warrant is $.001 per share. The Golisano Warrant is exercisable immediately and up to and including the date which is sixty days after the later to occur of the termination, expiration, conversion, exercise or exchange of all of the Outstanding Warrants and our delivery of notice thereof to Golisano LLC. The Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. In addition, if any payments are made to a holder of an Outstanding Warrant in consideration for the termination of or agreement not to exercise such Outstanding Warrant, Golisano LLC will be entitled to equal treatment. We have entered into a registration rights agreement with Golisano LLC, dated as of October 5, 2015, granting Golisano LLC certain registration rights for the shares of common stock issuable on exercise of the Golisano Warrant. On February 6, 2016, Golisano LLC exercised the Golisano Warrant in part for 509,141 shares of the Company’s common stock for an aggregate purchase price of $1.00. 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 December 31, 2019, we have reserved 2,043,495 shares of our common stock for issuance under the Golisano Warrant.
GH Warrants
In connection with the July 2018 GH Note, we issued GH a warrant to purchase an aggregate of 2,500,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the "July 2018 GH Warrant"). The July 2018 GH Warrant is exercisable on any business day prior to the expiration date. The Company has reserved 2,500,000 shares of the Company’s common stock for issuance under the July 2018 GH Warrant. The July 2018 GH Warrant expires on July 27, 2024. The July 2018 GH Warrant is also subject to customary adjustments upon any recapitalization, reorganization, stock split, combination of shares, merger or consolidation. The Company estimated the value of the warrant using the Black-Scholes option pricing model and recorded a debt discount of $1,479, which will be amortized over the term of the July 2018 GH Note. $583 of the debt discount was amortized during the year ended December 31, 2019.
In connection with the November 2018 GH Note, we issued GH a warrant to purchase an aggregate of 2,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share (the "November 2018 GH Warrant"). The November 2018 GH Warrant is exercisable on any business day prior to the expiration date. The Company has reserved 2,000,000 shares of the Company’s common stock for issuance under the November 2018 GH Warrant. The November 2018 GH Warrant expires on November 4, 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 will be amortized over the term of the November 2018 GH Note. $480 of the debt discount was amortized during the year ended December 31, 2019.
Warrants Issued into Escrow
Golisano Escrow Warrants
In connection with the Golisano LLC January 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 per share (the “January 2016 Golisano Warrant”). The January 2016 Golisano Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of January 28, 2019 (which has been extended to October 22, 2021 - See Note 6) 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, expires on February 28, 2022. The January 2016 Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the Golisano LLC March 2016 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 Golisano Warrant”). The March 2016 Golisano Warrant will not be released from escrow or be exercisable unless and until we fail to pay Golisano LLC the entire unamortized principal amount of the related promissory note and any accrued and unpaid interest thereon as of March 21, 2019 (which has been extended to October 22, 2021 - See Note 6) 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, expires on March 21, 2022. The March 2016 Golisano Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the 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 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 July 21, 2019 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the Golisano LLC July 2016 Note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Golisano July 2016 Warrant. The Golisano July 2016 Warrant, if exercisable, expires on July 21, 2022. The Golisano July 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the 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 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, 2019, (which has been extended to October 22, 2021 - See Note 6) 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 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 the 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 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, 2019 (which has been extended to October 22, 2021 - See Note 6) 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, expires on March 14, 2023. The Golisano March 2017 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the Golisano LLC February 2018 Note, we issued into escrow in the name of Golisano LLC a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "Golisano 2018 Warrant"). The Golisano 2018 Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay Golisano LLC the entire unamortized principal amount of the Golisano LLC February 2018 Note and any accrued and unpaid interest thereon as of February 6, 2021, (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the Golisano 2018 Warrant. The Golisano February 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 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 per share (the “January 2016 GH Warrant”). The January 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the January 2016 GH Note and any accrued and unpaid interest thereon as of January 28, 2019 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the January 2016 GH Note). We have reserved 1,136,363 shares of the Company’s common stock for issuance under the January 2016 GH Warrant. The January 2016 GH Warrant, if exercisable, expires on February 28, 2022. The January 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with a March 2016 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 3,181,816 shares of the Company’s common stock at an exercise price of $0.01 per share (the “March 2016 GH Warrant”). The March 2016 GH Warrant will not be released from escrow or be exercisable unless and until we fail to pay GH the entire unamortized principal amount of the March 2016 GH Note and any accrued and unpaid interest thereon as of March 21, 2019 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the March 2016 GH Note). We have reserved 3,181,816 shares of the Company’s common stock for issuance under the March 2016 GH Warrant. The March 2016 GH Warrant, if exercisable, expires on March 21, 2022. The March 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the 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 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 Note and any accrued and unpaid interest thereon as of December 30, 2019 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the December 2016 GH 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 on December 30, 2022. The December 2016 GH Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets.
In connection with the 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 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 Note and any accrued and unpaid interest thereon as of August 29, 2020 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an Acceleration Notice (as defined in the August 2017 GH 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.
In connection with the February 2018 GH Note, we issued into escrow in the name of GH a warrant to purchase an aggregate of 1,818,182 shares of the Company’s common stock at an exercise price of $0.01 per share (the "February 2018 GH Warrant"). The February 2018 GH Warrant will not be released from escrow or be exercisable unless and until the Company fails to pay GH the entire unamortized principal amount of the note and any accrued and unpaid interest thereon as of February 6, 2021, (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an acceleration notice. The Company has reserved 1,818,182 shares of the Company’s common stock for issuance under the February 2018 GH Warrant. The February 2018 GH Warrant expires on February 6, 2024.
JL-US Escrow Warrant
In connection with an April 5, 2016 Unsecured Promissory Note, we issued into escrow in the name of JL-US a warrant to purchase an aggregate of 227,273 shares of the Company’s common stock at an exercise price of $0.01 per share (the “JL-US Warrant”). The JL-US Warrant will not be released from escrow or be exercisable unless and until we fail to pay JL-US the entire unamortized principal amount of the JL-US Note and any accrued and unpaid interest thereon as of March 21, 2019 or such earlier date as is required pursuant to an Acceleration Notice (as defined in the JL-US Note). We have reserved 227,273 shares of the Company’s common stock for issuance under the JL-US Warrant. The JL-US Warrant, if exercisable, expires on March 21, 2022. The JL-US Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. This warrant expired as a result of payment of the April 5, 2016 Unsecured Promissory Note in full on March 21, 2019.
Little Harbor Escrow Warrant
The Little Harbor Delayed Draw Note provides that we issue into escrow in the name of Little Harbor a warrant to purchase an aggregate of 2,168,178 shares of common stock at an exercise price of $0.01 per share (the “Little Harbor July 2016 Warrant”). The Little Harbor July 2016 Warrant will not be released from escrow or be exercisable unless and until we fail to pay Little Harbor the entire unamortized principal amount of the Little Harbor Delayed Draw Note and any accrued and unpaid interest thereon as of January 28, 2019 (which has been extended to October 22, 2021 - See Note 6) or such earlier date as is required pursuant to an acceleration notice (as defined in the Little Harbor Delayed Draw Note). We have reserved 2,168,178 shares of the Company’s common stock for issuance under the Little Harbor July 16 Warrant. The Little Harbor July 2016 Warrant, if exercisable, expires on July 21, 2022. The Little Harbor July 2016 Warrant is also subject to customary adjustments upon any recapitalization, capital reorganization or reclassification, consolidation, merger or transfer of all or substantially all of our assets. The Little Harbor July 2016 Warrant grants Little Harbor certain registration rights for the shares of the Company’s common stock issuable upon exercise of the Little Harbor July 2016 Warrant.
NOTE 8 - DERIVATIVE LIABILITIES
We have recorded the estimated fair value of the warrants as of the date of issuance. Due to the variable terms of the warrant agreements, the warrants are recorded as derivative liabilities with a corresponding charge to our consolidated statements of operations for changes in the estimated fair value of the warrants from the date of issuance to each balance sheet reporting date. As of December 31, 2019, we have estimated the total fair value of the derivative liabilities to be $35 as compared to $4,359 as of December 31, 2018. We had the following activity in our derivative liabilities account since December 31, 2017:
The value of the derivative liabilities is generally estimated using an options lattice model with multiple inputs and assumptions, including the market price of the Company’s common stock, stock price volatility and other assumptions to project EBITDA and other reset events. These inputs and assumptions are subject to management’s judgment and can vary materially from period to period.
NOTE 9 - STOCKHOLDERS’ DEFICIT
Preferred Stock
The Company has authorized 500,000,000 shares of preferred stock with a par value of $0.001 per share. No shares of the preferred stock have been issued.
Twinlab Consolidation Corporation 2013 Stock Incentive Plan
The only equity compensation plan currently in effect is the Twinlab Consolidation Corporation 2013 Stock Incentive Plan (the “TCC Plan”), which was assumed by the Company on September 16, 2014. The TCC Plan originally established a pool of 20,000,000 shares of common stock for issuance as incentive awards to employees for the purposes of attracting and retaining qualified employees who will aid in the success of the Company. From January through December 2015, the Company granted restricted stock units to certain employees of the Company pursuant to the TCC Plan. Each restricted stock unit relates to one share of the Company’s common stock. The restricted stock unit awards vest 25% each annually on various dates through 2019. The Company estimated the grant date fair market value per share of the restricted stock units and is amortizing the total estimated grant date value over the vesting periods. During 2018, there were 1,202,095 shares of common stock issued to employees pursuant to the vesting of restricted stock units. As of December 31, 2019, 7,194,412 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
At December 31, 2019, the stock subscription receivable dated August 1, 2014 for the purchase of 1,528,384 shares of the Company’s common stock had a principal balance of $30 and bears interest at an annual rate of 5%.
NOTE 10 - INCOME TAXES
Income tax (provision) benefit consisted of the following for the years ended December 31, 2019 and 2018 as follows:
The income tax benefit (provision) differs from the amount computed at federal statutory rates for the years ended December 31, 2019 and 2018 as follows:
Deferred tax assets (liabilities) are comprised of the following at December 31, 2019 and 2018:
As a result of recurring operating losses, we have recorded a full valuation allowance against our net deferred income tax assets as of December 31, 2019 and 2018, as management was unable to conclude that it is more likely than not that the deferred income tax assets will be realized. During the years ended December 31, 2019 and 2018, the valuation allowance on deferred income tax assets increased by $13,359 and increased by $5,905, respectively.
We had federal net operating loss carryforwards of approximately $237,000 and state net operating loss carryforwards of approximately $170,000 at December 31, 2019, which are available to reduce future federal and state taxable income. The federal and state net operating loss carryforwards expire from 2022 through 2038. If substantial changes in our ownership should occur, there would be an annual limitation of the amount of the net operating loss carryforwards which could be utilized.
We perform a review of our material tax positions in accordance with recognition and measurement standards established by authoritative accounting literature, which requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements. Based upon our review and evaluation, during the years ended December 31, 2019 and 2018, we concluded that we had no unrecognized tax benefit that would affect our effective tax rate if recognized.
The Company is subject to audit by the IRS and various states for tax years dating back to 2014. No federal or state tax returns are currently under audit.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Litigation
From time to time the Company and its subsidiaries are parties to litigation arising in the ordinary course of business operations. Such litigation primarily involves claims for personal injury, property damage, breach of contract and claims involving employee relations and certain administrative proceedings. Based on current information, we believe that the ultimate conclusion of the various pending litigation, in the aggregate, will not have a material adverse effect on our consolidated financial position, results of operations and cash flows and liquidity.
Leases
We have operating leases for certain factory, warehouse, office space, and machinery and equipment. Certain leases provide for payment of real estate taxes, common area maintenance, insurance and certain other expenses. Lease terms may have escalating rent provisions and rent holidays that are expensed on a straight-line basis over the term of the lease and expire at various dates through 2028. Certain rent expenditures are made on a month-to-month basis as the underlying operating lease has expired. Total rental expense for operating leases was $1,299 and $1,778 for the years ended December 31, 2019 and 2018, respectively.
The future minimum lease payments in the aggregate are as follows:
St. Petersburg Office Lease Agreement
On April 7, 2015, we entered into an Office Lease Agreement (the "Lease") for premises in St. Petersburg, Florida (the "Building"). The term of the Lease is for twelve years, commencing on May 1, 2015 and ending on April 30, 2027.
We initially leased the fifth floor of the Building (“Initial Premises”) and were required to expand the Initial Premises to include the sixth floor of the Building (“Expansion Premises”) between February 1, 2016 and October 31, 2016, upon notice to the landlord and provided that the landlord is not obligated to deliver the Expansion Premises unless we then have a traded market capitalization of $50,000 or more for the immediately preceding thirty days prior to the date of notice (“Market Cap Test”).
On November 30, 2016, both parties agreed to delay the planned improvements for the 6th floor of the Building to allow us the opportunity to obtain potential subtenants. Additionally, both parties agreed that the Initial Premises rent commencement date occurred on May 1, 2016, the Expansion Premises commencement date occurred on October 1, 2016 and our obligation to pay rent commenced on October 1, 2016. The aggregate amount of rent to be paid over the term of the Lease is $4,466 for the Initial Premises. In the event that we lease the Expansion Premises, rent for the Expansion Premises will be paid at the same rental rate payable for the Initial Premises and, if leased by us at the earliest date available under the Lease, will result in additional payments of up to approximately $4,552 over the term of the Lease.
The Lease required us to deposit a $1,000 security deposit with the landlord, payable July 1, 2015. If on May 1, 2018 (or on any subsequent May 1st during the term of the Lease), we satisfy the Market Cap Test, the landlord is required to return the entire security deposit to the Company. On April 30, 2015, the Company and a current institutional investor and lender entered into a Reimbursement Agreement pursuant to which the investor agreed to arrange for and provide an unconditional, irrevocable, transferable, and negotiable commercial letter of credit to serve as the security deposit. (See also Subsequent Events in Note 13).
On November 30, 2016, we entered into a sublease agreement for the 5th floor of the Building with Powerchord, Inc. (“Subtenant”). The term commenced on February 1, 2017 and expires on June 30, 2022. We granted an option to renew the Subleased Space for the period July 1, 2022 through April 29, 2027. Subtenant will pay us an aggregate of $2,005 over the term of the agreement and an aggregate of $2,133 in the event of lease renewal. The subtenant has delivered an irrevocable Letter of Credit in the amount of $100 to secure its performance under the Sublease Agreement. In the event Subtenant exercises its option for renewal, Subtenant must secure its performance under the renewed Sublease Agreement by delivering an amended Letter of Credit or a new letter of credit.
On July 12, 2019, we entered into a sublease agreement for the 6th floor of the Building with Landmark Realty of St Petersburg LLC (“Subtenant”). The term commenced on December 1, 2019 and expires on May 30, 2027. Subtenant will pay us an aggregate of $3,030 over the term of the agreement.
Employee Agreements
We have entered into employment agreements with certain members of management. The terms of each agreement are different. However, one or all of these agreements include stipulated base salary, bonus potential, vacation benefits, severance and non-competition agreements.
Platinum Advisory Services LLC Agreement
On December 27, 2017, we entered into the Agreement for Equity in Exchange for Services with Platinum Advisory Services LLC (“Platinum”). Pursuant to the Agreement, we will issue from time to time shares of the Company’s common stock with an aggregate purchase price of $3,000 in exchange for payment in-kind consisting of the provision of media support and services performed by Platinum or its affiliates.
On June 6, 2018, the Company issued 4,166,667 shares of common stock to Platinum Advisory Services, LLC in accordance with the terms of the Equity in Exchange for Services Agreement that the parties entered into on December 27, 2017, wherein the Company received, or will receive advertising services in exchange for the shares.
NOTE 12 - RELATED PARTY TRANSACTIONS
See Note 6 for discussion of a note payable to Little Harbor, GH, and Golisano LLC, related parties. In addition, Little Harbor, GH, and Golisano LLC were also issued warrants to purchase shares of the Company’s common stock, as discussed in Note 7.
We had sales of $8,900 and $5,161 in 2019 and 2018, respectively, to an entity whose board of directors includes an individual who is also a member of the Company's board of directors.
NOTE 13 - SUBSEQUENT EVENTS
COVID-19
The Company is closely monitoring the impact of the COVID-19 pandemic on all aspects of its business and geographies, including how it will impact its customers and business partners. While the Company did not incur significant disruptions during the year ended December 31, 2019 from the COVID-19 pandemic, it is unable to predict the impact that the COVID-19 pandemic will have on its financial condition, results of operations and cash flows due to numerous uncertainties.
Sale of Property
On March 6, 2020, the Company sold the natural aquifer and bottling facility in Peru Indiana.
Debt Agreements
February 2020 Note Payable to Great Harbor Capital, LLC
Pursuant to a February 2020 Unsecured Promissory Note (“February 2020 GH Note”), an affiliate of a 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.
February 2020 Note Payable to Golisano Holdings LLC
Pursuant to a February 2020 Unsecured Promissory Note (“Golisano LLC February 2020 Note”), an affiliate of a 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 of October 22, 2021.
May 2020 Note Payable to Fifth Third Bank N.A.
On May 7, 2020, TCC, the operating subsidiary of the Company, received the proceeds of a loan from Fifth Third Bank, National Association 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 “Note”), has a two-year term and bears interest at a rate of 1.0% per annum, with the monthly principal and interest payments due beginning December 1, 2020. TCC may prepay 20% or less of the principal balance of the Note at any time without notice. TCC will use the proceeds of the PPP Loan for payroll, office rent, and utilities.
2014 Huntington Holdings, LLC
On March 18, 2020 the Company paid Huntington $2,350 as payment in full of the Huntington Note.
JL Properties, Inc. Warrants
On April 30, 2020 the Company extended the related letter of credit to April 30, 2021 for consideration of $25 to JL Properties.
The first 465,880 warrants (Warrant 2016-9 and Warrant 2016-10) and the second 86,962 warrants (Warrant 2015-14) which were issued in conjunction with the reimbursement agreement with JL Properties related to the commercial line of credit were extended to April 30, 2021 as part of the agreement to extend the line of credit to April 30, 2021.
Golisano LLC Warrants (formerly JL Warrants)
The remaining 1,141,405 warrants related to the January 22, 2015 agreement (Warrant 2015-5, Warrant 2015-6, Warrant 2015-7 and Warrant 2015-8) were exercised on February 13, 2020.
The 434,809 warrants related to the February 4, 2015 agreement (Warrant 2015-10, Warrant 2015-11, Warrant 2015-20, Warrant 2015-21 and Warrant 2015-23) expired unexercised on February 13, 2020.
Change of Officers
Appointment of Chief Executive Officer
On January 13, 2020, the Company appointed Daniel DiPofi as Chief Executive Officer of the Company.
Mr. DiPofi, age 58, has served as a private equity manager for Fishers Asset Management since July 1, 2019. He previously served as executive vice president of the Buffalo Sabres of the National Hockey League from 1994 to 1998, when he left to become chief financial officer of Hoffend & Sons Inc., a custom engineering and design firm. In 2003, Mr. DiPofi returned to the Buffalo Sabres and served as chief operating officer until 2012. Mr. DiPofi was retired from 2012 until 2019. He has over 20 years’ experience serving in senior executive positions within the sports and entertainment industry. Mr. DiPofi holds a degree in accounting from Niagara University.
The Company has not entered into an employment agreement with Mr. DiPofi in his capacity as Chief Executive Officer. Mr. DiPofi will receive an annual salary of $150,000 and will be eligible to participate in the Company’s benefits package.
There are no arrangements or understandings between Mr. DiPofi and any other persons in connection with his appointment. There are no family relationships between Mr. DiPofi and any director or executive officer of the Company, and Mr. DiPofi is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Securities Act of 1933, as amended.
Appointment of Chief Financial Officer
On January 13, 2020, the Board of Directors the Company appointed Kyle Casey, the Company’s current interim Chief Financial Officer, as Chief Financial Officer of the Company.
Mr. Casey, age 36, joined the Company in April 2019 and served as the Company’s Controller prior to his appointment as interim Chief Financial Officer of the Company, effective October 8, 2019. Before joining the Company, Mr. Casey was with Gulfstream Park Racetrack and Casino from December 2015 through November 2018, most recently serving as the Vice President of Finance. Prior to his employment with Gulfstream Park Racetrack and Casino, Mr. Casey served as Chief Auditing Officer for the Florida Department of Business and Professional Regulation from March 2014 through December 2015. Mr. Casey holds a Bachelor of Science in Accounting and Finance, as well as a Master of Science in Taxation, from Florida State University. Mr. Casey is a licensed Certified Public Accountant.
The Company has not entered into an employment agreement with Mr. Casey in his capacity as Chief Financial Officer but his compensation has been modified so that he will receive an annual base salary of $225,000, is eligible to receive a $25,000 annual bonus based on annual performance, and may participate in the Company’s benefits package.
There are no arrangements or understandings between Mr. Casey and any other persons in connection with his appointment. There are no family relationships between Mr. Casey and any director or executive officer of the Company, and Mr. Casey is not a party to any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K under the Securities Act of 1933, as amended.